During a short debate on tax havens, Lord Sharkey (Liberal Democrat) was told by Lord Young of Cookham, a government whip, that the Government does not have an estimate of the loss to the Exchequer of profit shifting by UK-based companies.
Young highlighted that the Government has introduced a diverted profit tax, so if people seek to divert their profits to another country, a higher rate of tax can then be paid. Sharkey had highlighted an Oxfam report published last week which claimed that, last year, “five UK banks made £9 billion in profit in tax havens, which was 67% of their global profits. Half a billion pounds of this profit was made in UK-linked tax havens, where the banks paid just 7% in tax.”
Lord Howarth of Newport (Labour) said the Government’s ‘failure’ use its leverage to require the British Overseas Territories and Crown dependencies to maintain publicly available registers of beneficial ownership ‘has not only had bad reputational consequences for our country but impeded law enforcement here and in other countries, and it has allowed the huge inflation of house prices in London’. Lord Young replied that the Government are not prepared to use the powers that he referred to, ‘which we believe should be used in exceptional circumstances such as the abolition of capital punishment and rules relating to homosexuality’.
Lord McConnell of Glenscorrodale (Labour) said the Government should, in the ‘brave new world of new trade agreements’, legislate to ensure that all British companies operating around the world report on a country-by-country basis to ensure that countries across the world can tax those companies where they make their profits. Lord Young explained that: “We already have country-by-country reporting in this country, and multinationals based in this country have to report to HMRC how much profit they make and how much tax they pay in each country. We are encouraging other countries to do this”. He added that more than 90 countries have agreed to automatically exchange taxpayer information under the common reporting standard, and the UK was also taking initiatives on beneficial ownership.
Lord Forsyth of Drumlean (Conservative) wondered whether, in light of the use of Luxembourg by large companies and multinationals to reduce their tax, the UK’s exit from the European Union might ‘provide an opportunity to broaden our tax base’. Lord Young said that the initiatives the Government is taking on tax evasion are independent of our membership of the EU, although we are pursuing some EU directives. He drew attention to an article in The Times that day which highlighted “a world first: the people behind anonymous companies that own billions of pounds-worth of property must reveal their identities under new anti-corruption rules.”
Baroness Kramer (Lib Dem) observed that the Government had said that they expect the overseas territories to make registers of beneficial ownership public when that becomes the international standard. “Will the Minister tell me the timeframe within which he expects public registers to become the international standard - and will it be within my lifetime?” she wondered. The minister replied that he did not know the timescale but, ‘if there is another amendment along those lines on 25 April, [he will make sure the House has] the most up-to-date information’.
Lord Foulkes of Cumnock (Labour) asked if it was ‘a breach of our privileges for any Member of this House to avoid paying United Kingdom tax by the use of tax havens?’ Lord Young replied that it was his understanding that, ‘in order to be a Member of your Lordships’ House you have to be registered as a UK taxpayer’, adding: ‘My own view is that everybody should pay the tax which is due to them’.
Finally Labour Treasury spokesman Lord Tunnicliffe noted the Chancellor’s comments that “We could be forced to change our economic model, and we will have to change our model to regain competitiveness. And you can be sure we will do whatever we have to do”. He asked the minister: “Is his boss threatening to turn Britain into a Cayman Islands-like tax haven?” Lord Young replied that the UK wanted to remain competitive in a world economy. “Although we have reduced corporation tax since 2010, onshore corporation tax receipts have gone up by 50 per cent since that date, despite the reduction in the rate. Reducing corporation tax encourages business investment and growth, and one estimate has shown that the cuts announced since 2010 amount to an estimated increase in GDP of 1.3 per cent.”
Read the debate in full here.