HC Deb 20 October 1981 vol 10 cc176-81

4.4 pm

Mr. George Foulkes (South Ayrshire)

I beg to move, That leave be given to bring in a Bill to prohibit the transfer of funds from companies registered in the United Kindgom to subsidiaries of those companies or to companies of which they are subsidiaries registered in the Channel Islands or the Isle of Man otherwise than in settlement of bargains at arm's length. You and I, Mr. Speaker, are paying more tax than might otherwise be necessary because of tax dodgers. Even more important, my constituents are paying more tax. Even worse, they are suffering public services of a much poorer standard because of tax dodgers. The Cabinet might have been saved this morning's discussion if, instead of examining the further cuts, it pursued the tax dodgers.

The hon. Member for Aberdeen, South (Mr. Sproat) has often made it his business to highlight the so-called social security scroungers. I make it clear that we do not condone illegality in claiming social security or other benefits, but public attention and Government resources concentrated on that abuse far outweigh its size and importance compared with the scandal of tax evasion and tax avoidance.

Illegal tax evasion needs to be tackled more vigorously by the Government, but there is also a need for much greater effort to tighten up on currently legal tax avoidance. This Bill is intended to deal with one small aspect of that. The Bill deals with tax avoidance through the Channel Islands and the Isle of Man. That does not mean that I am not equally concerned with money lost to the United Kingdom Revenue through other tax havens such as the Cayman Islands. There is an equal need for urgent action on all tax avoidance.

Indeed, taking up the challenge of the island Governments earlier this month, I visited Jersey and Guernsey to see the position for myself. Nothing that I saw convinced me that I was wrong about my intentions. Indeed, the reverse was true. I was preceded on my visit by two Tory Members who attacked me for introducing my Bill. The hon. Member for Thanet, East (Mr. Aitken), however, cannot be said to be a disinterested observer, since he has just bought a Guernsey bank. The hon. Member for Aberdeenshire, East (Mr. McQuarrie) seemed to think that it was all right for Tory Members to pursue private interests in Gibraltar but not for Labour Members to pursue the public interest in the Channel Islands.

I remain convinced that the use of the Channel Islands and the Isle of Man as tax havens is doubly disturbing because they depend so much on the United Kingdom and its services, yet they provide an easily accessible, English-speaking, comfortable bolthole for every type of avoidance of United Kingdom tax which could and should help to pay for those services. The islands rely upon the United Kingdom for defence. Islanders travel abroad on British passports, yet only the Isle of Man pays a token contribution towards the services. For any education, health, prison and other services beyond the basics, residents of the islands have to come to the United Kingdom.

A visitor to the islands can see that almost every aspect of life relies on the relationship with the mainland. However, the Governments on the islands actively encourage their use for tax avoidance. The level of tax is kept down to 20 per cent. to attract evaders, despite deteriorating public services on the islands which are already causing disquiet among native islanders, as I discovered when I visited them. The profits on which tax is levied are negotiable with the island authorities.

So-called stability is provided on the islands by feudal electoral systems that stifle potential opposition. Many of the islands' Government members are made directors of the banks and companies that are increasingly flocking to the islands.

For some time now, the islands have been tax havens for individuals—some of the less respectable novelists, sportsmen and entertainers who built their fortunes through the British public but who do not want to contribute towards our services.

Increasingly, the setting up of trusts to avoid United Kingdom tax has been developed. Sir Charles Clore's attempt to avoid capital transfer tax on the sale of his Hertfordshire estate is the subject of detailed legal action.

However, my principal concern today is the way in which companies are being set up to avoid United Kingdom tax by various means. If I describe the methods adopted, hon. Members might be made aware of the need for urgent action.

New companies are being set up on Jersey at the rate of about 50 a week. That is not bad for an island of about 70,000 people. However, the islands do not allow individuals to become resident to conduct business on the islands, so nominees from among the island lawyers and bankers are appointed to run the companies. It is inconceivable that United Kingdom or multinational companies would allow major decisions to be taken by the nominees. The sham company, therefore, receives so-called recommendations from the real owners, which of course, "acting on their own discretion", they nearly always approve.

Such island lawyers can receive as much as £500 or £1,000 for each company for which they become nominees. Some firms can take on hundreds and sometimes thousands of companies, thus earning hundreds of thousands of pounds each year for acting as fronts for tax avoidance.

The situation is farcical in the case of Sark, which has a population of only 600. Many companies register there. Boatloads of directors arrive for meetings to satisfy the requirement that a company is deemed to be managed and controlled where the directors meet.

There are many other examples that are too numerous to mention. They are besmirching the name of the offshore British Islands. One wonders why nothing has been done about it by successive British Governments, including Labour Governments. It has been argued that the tax havens benefit the United Kingdom by attracting foreign funds. However, of about £2,000 million held on deposit in Jersey banks, less than 10 per cent. is derived from outwith the United Kingdom or Channel Islands. Indeed, there is little advantage anyway for many foreign investors using the islands rather than the United Kingdom, and the only foreign funds likely to be attracted are of doubtful origin, such as the proceeds of crime, or of investors who wish to evade tax in their own country. As rumoured recently, the islands are used as a conduit for funds from South Africa.

I concede that the Revenue has partly recognised the problem. It has highlighted it in two consultative papers produced in January. However, we need action now. We need action to change the definition of "residence" or "domicile" of a company to stop the operation of sham companies. We need action to give power to the British Government to obtain information about companies registered on one of the islands with United Kingdom interests.

It is indicative of the island Governments' attitude that companies are not required to make annual accounts public, as they are in the United Kingdom. The required secrecy for tax dodgers is thereby guaranteed.

We need action to give the Inland Revenue powers to obtain information from the Channel Islands and the Isle of Man for United Kingdom tax collection purposes. Above all, we need action to limit the transfer of funds between United Kingdom companies and linked companies on the islands to prevent the avoidance of United Kingdom tax in preference to the favourable tax rates on the islands.

The proposed Bill is intended as a small contribution towards that. The real action must come from the Government. The Kilbrandon Commission recognised the abuses in 1973 and Lord Crowther-Hunt and Professor Peacock expressed concern that it did not look in detail at that matter. Since then, the growth of the islands as tax havens has mushroomed, with the Isle of Man now in open competition with the Channel Islands to attract tax dodgers that bleed off vital revenue from the United Kingdom.

All hon. Members should support the Bill. My colleagues on the Labour Benches will do so on grounds of equity and social justice. Equally, Conservative Members should bear in mind the now immortal words of the former Minister of State, Treasury, the hon. and learned Member for Dover and Deal (Mr. Rees), who is with us today. He said "We need the money." It is much better to get the money that his Government need from the tax-dodging millionaires than from the increase in taxes that the hon. Member for Aberdeenshire, East says he will revolt against, or from the forecast further attack on the standard of living of our pensioners.

4.13 pm
Mr. Albert McQuarrie (Aberdeenshire, East)

I declare that I have no financial or other interest in companies that are registered in the Channel Islands, the Isle of Man or Gibraltar. The hon. Member for South Ayrshire (Mr. Foulkes) took the liberty of mentioning Gibraltar and said that private interests could have companies there. It is obvious that he has not done his homework. He should know that Gibraltar has never been classified as a tax haven. It pays as much tax as the United Kingdom. [HON. MEMBERS: "He did not say that"].

I oppose the motion because it is an intrusion into the rights that have been vested in the Parliaments of the Channel Islands. The hon. Gentleman is well aware that it is within the power of those States to decide which ordinances should be legislated for, the registration of companies within their territories and the nature of tax collection.

The hon. Gentleman made great play of the fact that there was insufficient legislation in the United Kingdom. Section 482 of the Income and Corporation Taxes Act 1970 has been the main provision for counteracting international tax evasion in the corporate sector for many years. That section makes unlawful company registrations, transfers of trade abroad and certain transactions relating to overseas companies in a United Kingdom group without Treasury consent. The penalties for infringement include imprisonment and fines. In addition, the Board of Inland Revenue has powers under section 17 of the Finance Act 1975 to obtain information about overseas companies, including shareholdings, accounts and details of their underlying transactions. There appears to be adequate legislation in Britain to cater for any attempt made to transfer companies to those alleged tax havens.

Mr. Dennis Canavan (West Stirlingshire)

Who wrote the hon. Gentleman's speech?

Mr. McQuarrie

I wrote my speech. If the hon. Gentleman needs any help with speech writing at any time, I shall be glad to help him.

The hon. Member for South Ayrshire is ever ready to pounce on any issue at home or abroad that is abhorrent to his Socialist doctrines. He should adopt the measures that he recommended to hon. Members when he was quoted in the Jersey Evening Post on 23 September 1981.

He said: Those MPs who seem to spend more time on their own financial interests than the interests of the constituents they were elected to represent do a great disservice to our democratic system". That newspaper also quoted the hon. Gentleman as saying that the last Bill that he attempted to introduce to the House on the subject of space invaders was voted down by the Tory majority currently in the House of Commons because of their vested interest in supporting the "quick-buck' merchants at any price. He did not have the common decency to say that many Conservative Members supported his Bill that would have taxed space invader and other machines. If he is good enough to criticise, he should equally be good enough to compliment. Unfortunately, he does not do so. The hon. Gentleman would be well advised to take that advice, rather than endeavouring to interfere in the affairs of a friendly State that is perfectly capable of passing its own legislation without his intervention.

I oppose the motion and hope that the House will see it as a mere publicity stunt that has no substance or merit. I hope that the House will reject it and leave the Channel Islands and the Isle of Man to conduct their own affairs.

Question put, pursuant to Standing Order No. 13 (Motions for leave to bring in Bills and nomination of Select Committees at commencement of public business):—

The House divided: Ayes 134, Noes 151.

Division No. 304] [4.16 pm
Allaun, Frank Coleman, Donald
Anderson, Donald Conlan, Bernard
Ashley, Rt Hon Jack Cook, Robin F.
Ashton, Joe Cowans, Harry
Atkinson, N.(H'gey,) Craigen, J. M. (G'gow, M'hill)
Bennett, Andrew(St'kp't N) Crowther, Stan
Booth, Rt Hon Albert Cryer, Bob
Bottomley, Rt Hon A.(M'b'ro) Cunliffe, Lawrence
Bray, Dr Jeremy Cunningham, Dr J. (W'h'n)
Brown, Hugh D. (Provan) Dalyell, Tam
Buchan, Norman Davis, Clinton (Hackney C)
Callaghan, Jim (Midd't'n & P) Davis, T. (B'ham, Stechf'd)
Campbell-Savours, Dale Dean, Joseph (Leeds West)
Canavan, Dennis Dewar, Donald
Carmichael, Neil Dixon, Donald
Clark, Dr David (S Shields) Dobson, Frank
Cocks, Rt Hon M. (B'stol S) Dormand, Jack
Douglas, Dick Mitchell, Austin (Grimsby)
Douglas-Mann, Bruce Mitchell, R. C. (Soton Itchen)
Dubs, Alfred Morris, Rt Hon A. (W'shawe)
Eadie, Alex Morris, Rt Hon C. (O'shaw)
Eastham, Ken Morton, George
English, Michael Mulley, Rt Hon Frederick
Evans, loan (Aberdare) O'Neill, Martin
Ewing, Harry Orme, Rt Hon Stanley
Fletcher, Ted (Darlington) Palmer, Arthur
Foster, Derek Parry, Robert
Foulkes, George Pavitt, Laurie
Garrett, John (Norwich S) Powell, Raymond (Ogmore)
Garrett, W. E. (Wallsend) Prescott, John
Graham, Ted Race, Reg
Grant, George (Morpeth) Radice, Giles
Hamilton, James (Bothwell) Richardson, Jo
Hamilton, W. W. (C'tral Fife) Roberts, Albert (Normanton)
Hardy, Peter Robinson, G. (Coventry NW)
Harrison, Rt Hon Walter Rooker, J. W.
Hattersley, Rt Hon Roy Ross, Ernest (Dundee West)
Haynes, Frank Sandelson, Neville
Healey, Rt Hon Denis Sever, John
Homewood, William Sheldon, Rt Hon R.
Howell, Rt Hon D. Silkin, Rt Hon J. (Deptford)
Hoyle, Douglas Silverman, Julius
Huckfield, Les Skinner, Dennis
Hughes, Robert (Aberdeen N) Smith, Rt Hon J. (N Lanark)
Hughes, Roy (Newport) Snape, Peter
Jay, Rt Hon Douglas Soley, Clive
John, Brynmor Spearing, Nigel
Johnson, Walter (Derby S) Spriggs, Leslie
Kaufman, Rt Hon Gerald Stewart, Rt Hon D. (W Isles)
Kinnock, Neil Stoddart, David
Lamond, James Strang, Gavin
Leighton, Ronald Straw, Jack
Lewis, Arthur (N'ham NW) Taylor, Mrs Ann (Bolton W)
Lewis, Ron (Carlisle) Thorne, Stan (Preston South)
Lyon, Alexander (York) Tilley, John
McCartney, Hugh Torney, Tom
McDonald, Dr Oonagh Urwin, Rt Hon Tom
McElhone, Frank Watkins, David
McGuire, Michael (Ince) Whitehead, Phillip
McKay, Allen (Penistone) Willey, Rt Hon Frederick
McMahon, Andrew Wilson, Gordon (Dundee E)
McNally, Thomas Winnick, David
McNamara, Kevin Woodall, Alec
McTaggart, Robert Woolmer, Kenneth
McWilliam, John Young, David (Bolton E)
Marshall, Jim (Leicester S)
Mason, Rt Hon Roy Tellers for the Ayes:
Maynard, Miss Joan Mr. John Maxton and
Millan, Rt Hon Bruce Mr. John Home Robertson.
Adley, Robert Chapman, Sydney
Alexander, Richard Clark, Sir W. (Croydon S)
Ancram, Michael Clegg, Sir Walter
Aspinwall, Jack Cockeram, Eric
Atkins, Robert(Preston N) Colvin, Michael
Baker, Nicholas (N Dorset) Cope, John
Beaumont-Dark, Anthony Corrie, John
Beith, A. J. Costain, Sir Albert
Bennett, Sir Frederic (T'bay) Cranborne, Viscount
Berry, Hon Anthony Dorrell, Stephen
Biggs-Davison, Sir John Dover, Denshore
Blackburn, John Dunn, Robert (Dartford)
Boscawen, Hon Robert Durant, Tony
Bottomley, Peter (W'wich W) Edwards, Rt Hon N. (P'broke)
Braine, Sir Bernard Eggar, Tim
Brinton, Tim Eyre, Reginald
Brooke, Hon Peter Fairgrieve, Sir Russell
Brotherton, Michael Fell, Anthony
Brown, Michael(Brigg & Sc'n) Finsberg, Geoffrey
Browne, John (Winchester) Fisher, Sir Nigel
Bruce-Gardyne, John Fletcher, A. (Ed'nb'gh N)
Bryan, Sir Paul Fletcher-Cooke, Sir Charles
Budgen, Nick Fookes, Miss Janet
Burden, Sir Frederick Fox, Marcus
Butcher, John Freud, Clement
Cadbury, Jocelyn Fry, Peter
Garel-Jones, Tristan Rees, Peter (Dover and Deal)
Goodlad, Alastair Rhodes James, Robert
Gorst, John Rhys Williams, Sir Brandon
Gower, Sir Raymond Roberts, M. (Cardiff NW)
Grieve, Percy Roberts, Wyn (Conway)
Grimond, Rt Hon J. Ross, Stephen (Isle of Wight)
Gummer, John Selwyn Rossi, Hugh
Hamilton, Michael (Salisbury) Rost, Peter
Hawkins, Paul Scott, Nicholas
Henderson, Barry Shaw, Giles (Pudsey)
Higgins, Rt Hon Terence L. Shaw, Michael (Scarborough)
Hill, James Shepherd, Richard
Holland, Philip (Carlton) Sims, Roger
Hordern, Peter Smith, Dudley
Howe, Rt Hon Sir Geoffrey Speller, Tony
Hunt, David (Wirral) Spence, John
Jessel, Toby Spicer, Jim (West Dorset)
Johnson Smith, Geoffrey Stainton, Keith
Jopling, Rt Hon Michael Stanbrook, Ivor
Kershaw, Sir Anthony Stanley, John
Kitson, Sir Timothy Steel, Rt Hon David
Knight, Mrs Jill Stevens, Martin
Knox, David Stewart, Ian (Hitchin)
Lawrence, Ivan Tebbit, Rt Hon Norman
Lloyd, Ian (Havant & W'loo) Temple-Morris, Peter
Lloyd, Peter (Fareham) Thomas, Rt Hon Peter
McCrindle, Robert Thompson, Donald
MacGregor, John Thornton, Malcolm
McQuarrie, Albert Townend, John (Bridlington)
Mates, Michael Townsend, Cyril D, (B'heath)
Mather, Carol Trotter, Neville
Maude, Rt Hon Sir Angus Vaughan, Dr Gerard
Mellor, David Viggers, Peter
Miller, Hal (B'grove) Waddington, David
Mills, lain (Meriden) Wainwright, R.(Colne V)
Moate, Roger Walker-Smith, Rt Hon Sir D.
Monro, Sir Hector Wall, Sir Patrick
Morrison, Hon P. (Chester) Waller, Gary
Mudd, David Walters, Dennis
Myles, David Warren, Kenneth
Neale, Gerrard Watson, John
Needham, Richard Whitney, Raymond
Nelson, Anthony Wickenden, Keith
Neubert, Michael Wiggin, Jerry
Newton, Tony Williams, D.(Montgomery)
Onslow, Cranley Winterton, Nicholas
Osborn, John Wolfson, Mark
Page, John (Harrow, West)
Prentice, Rt Hon Reg Tellers for the Noes:
Price, Sir David (Eastleigh) Mr. Bill Walker and
Proctor, K. Harvey Mr. Christopher Murphy.
Rathbone, Tim

Question accordingly negatived.