INTERNATIONAL TAX AVOIDANCE

HC Deb 12 July 1982 vol 27 cc728-42

Within 12 months of the passing of this Act the Chancellor of the Exchequer shall publish his conclusions on the comments on the draft legislation on International Tax Avoidance and his proposals to deal with this matter.".—[Mr. Straw.]

Brought up, and read the First time.

9.15 pm

Mr. Straw

I beg to move, That the clause he read a Second time. During the past few years a major new tax haven has come into existence. This tax haven has introduced such bountiful tax and exchange control legislation that it has left all of the others far behind. As one would expect, it provides the usual tax advantages for non-residents who wish to use it as a brass plate address. In addition, however, it has a series of beneficial tax laws—some of which can be found nowhere else in the world—that enable tax levels for its own residents to be kept below those in traditional havens such as Jersey and Monte Carlo. This tax haven has no exchange control regulations so that money can move in and out of the country without awkward questions being asked. Unlike most tax havens, which are completely outside the network of double taxation agreements … this tax haven has the most extensive network of such agreements in the world. In addition to fiscal advantages, it offers a range of banking, legal, insurance and other financial services unparalleled anywhere else, and, even harder to believe, it combines all of these advantages with a reputation for financial respectability and integrity matched by no other country. In case it is not already obvious, the fiscal paradise in question is none other than the United Kingdom. All that comes not from a Labour Party publication but from the Economist intelligence unit special report No. 95, "The United Kingdom as a tax haven", which was published just a year ago. In its introduction, the report said: The professional, financial and communications facilities available in London are so good that they make most tax havens look rather redundant. The respectability offered by being a UK company with a registered address and name-plate in London is also hard to beat. This is an advantage not enjoyed by, say, the Cayman Islands or Liechtenstein whose names tend, more than is usually considered desirable, to smack of tax avoidance—perish the thought". The Government know only too well that the United Kingdom is an international tax haven. They also know that the abolition of exchange control has removed a constraint on international tax avoidance. Those words were exactly the words used by the Inland Revenue in its consultative document "Tax Havens and the Corporate Sector," published in January 1981. That document presented a well-argued case for immediate reform of the tax law relating to tax havens and the corporate sector. It said: The use of tax havens for tax avoidance companies has shown a marked growth in recent years, and the Government is particularly concerned to counter avoidance of United Kingdom tax by the accumulation of profits and investment income of United Kingdom groups in tax haven subsidiaries. A number of countries including the main trading competitors of the United Kingdom have introduced legislation which has regard to tax avoidance by way of income accumulations in tax haven subsidiaries. These countries include the United States, Germany, Japan, Canada and France". At the same time as that document on tax havens in the corporate sector was issued a companion consultative document was issued entitled "Company Residence". It discussed the fact that the rules providing a definition of company residence, which had been developed in the first two decades of this century, were inappropriate for today. It said: The established criteria have not only become artificial with the passage of time and technical innovation. They also have enabled companies to arrange a residence for tax purposes which may bear little relation to the seat of the company's operations. Those two documents presented a powerful case for changing the law. There followed consultations with all those who were likely to be affected by the changes. It will come as no surprise to anyone in the House to learn that on the whole the consultations suggested that the response to the changes would be hostile. That was not surprising because almost all those who responded to the consultative document had a direct vested interest in the present lax tax regime or they were here because the United Kingdom is the best tax haven in the world. In many ways the response was as predictable as if the Government had asked casino operators to agree to tax changes that reduced their share of the take.

None the less, the Inland Revenue took those detailed representations into account, which is plain from its publication of the draft clauses. In January this year, a full 12 months after the original consultative document was published, it published the draft clauses and stated that in a number of important respects it would modify some of its proposals. However, it made it clear that the Government were convinced that reform of this area of tax law was urgently needed.

In the light of the consultative documents, which were published with the authority of the Government and set out the Government's policy, and in the light of the draft clauses that repeated the Government's concern to act in this way, there was a clear expectation that the Chancellor of the Exchequer in his Budget would announce that the draft clauses or variations of them would go into the Finance Bill 1982 and take effect on 6 April 1983, as the Government had undertaken. None of the arguments that were used by the opponents of the proposals countered the principal arguments of the Revenue. For all the synthetic cries of the multinationals and their financial advisers in the City, they know only too well that the United Kingdom is a tax haven and that tax regulations in our major competitor countries—the United States, Germany, Japan, Canada and other countries—is tougher than in this country. Moreover, all the companies that are operating world-wide know that the tougher tax regimes in the countries of our major competitors have had no discernible adverse effect on the economies of those nations.

Indeed, if there were a direct connection between the laxity of a country's tax regime and economic growth, or between the extent to which a country was a tax haven and economic growth, the United Kingdom would be the strongest, fastest-growing country in the Western world. But the reverse is true. As my hon. Friend the Member for Grimsby (Mr. Mitchell) reminds me, we are at the head of the league table of countries that have the worst economic growth in the Western world and the worst unemployment. Despite the protestations of Ministers, we are nowhere near the top of the league table of countries that are managing to reduce inflation. On any indicator, despite the extraordinarily lax regime, in the past three years Britain's performance has become the worst of the world's major economies.

We fully expected—because the Government had clearly pledged it—that major changes would be announced in the Budget, but instead the Government listened, as they have too often, to their friends and backers in the City—the one group to have made money out of the Government's economic policies of the past three years. In place of the determination of the Government to act upon what is plainly a scandal, we had in the Budget Statement mealy-mouthed words saying that the Government had considered the ideas very carefully. I hope they did, because they were the Government's own ideas. The Chancellor of the Exchequer whent on to say: But they raised difficult questions of principle, and we are not persuaded that they offer the best solutions to the problems they are designed to solve."—[Official Report, 9 March 1982; Vol. 19, c. 752.] So he kicked them into touch.

The purpose of the new clause is to require a statement from the Government—of much greater clarity than we were given in the Budget Statement—as to their intentions. Its purpose is to give the Government an opportunity to make it clear that they intend to deal with the scandal—for that is what it is—of Britain being the tax haven and tax avoidance capital of the world. It is a reputation which no self-respecting industrialised nation should either need or want. It is a reputation that the Government should act swiftly to remove, and it is in that context that I ask the House to support the new clause.

Sir William Clark

I trust that the Minister will resist the blandishments of the hon. Member for Blackburn (Mr. Straw). For him to stand at the Dispatch Box and say that Britain is the best tax haven in the world shows that he does not understand how our finances and institutions work. The hon. Gentleman should look at the history of the so-called consultations on these matters. A Green Paper was issued early last year and representations were requested from the City and other interested parties. Those representations were made. The yellow document to which the hon. Gentleman referred was dated November but was issued on, I think, 9 December. After a short preamble there were three clauses, dealing with tax havens, residence and upstream loans. Reading those clauses carefully, together with the Green Paper, it can be seen that the Inland Revenue paid very little attention to the representations made by the City and institutions throughout Britain.

I remind the hon. Gentleman that in the construction industry and the civil engineering industry there are many contracts signed which bring in the fiscal systems of overseas countries, and it would have been foolish to jeopardise those contracts. To have done so would have meant a loss of business for Britain. The Government published a Green Paper early last year and asked for representations about it from industry and commerce. Then, towards the end of the year and with no notice taken by the Government of those representations, another, yellow paper was produced and—this is the crucial point—further representations were asked for by the Government on the three draft clauses. The second representations were asked for by 25 February of this year. That gave industry and commerce about two months to reply to three complicated clauses.

9.30 pm

I shall not go into the technicalities of the three clauses. Suffice it to say that company residence has been subjected to much tax case law in Britain and this new clause would have put all of that case law into jeopardy. The question of company residence would again have been put into the melting pot. That cannot possibly benefit any British company that is operating overseas.

The time limit for the further representations to be made after publication of the yellow paper, that took no notice of the previous Green Paper, was 28 February. My right hon. and learned Friend introduced his Budget on 9 March. Even if one ignores the Budget, the Government and the Inland Revenue had only one month in which to deal with the many representations that would have come in before the publication of the Finance Bill at the end of March. My right hon. and learned Friend was right to defer his decision because nothing could be further from the truth than the accusation of the hon. Member for Blackburn that Britain is the best tax haven in the world. That is utter rubbish and it does a disservice to companies that operate overseas.

Mr. Straw

It was not my description. The Economist intelligence unit, a respected forecasting unit, described the United Kingdom as a tax haven and gave chapter and verse for its reasons.

Sir William Clark

I do not pay especial attention to the Economist intelligence unit. From whatever source an article is written, the opinion is that of the person writing it. That does not mean that his opinion is necessarily correct. I deny that Britain is a tax haven. My argument even extends to the previous debate on exchange controls. I say that Britain is dependent on our overseas interests. Whether the issue is overseas investments and the abolition of exchange controls or our invisible export earnings derived from our City institutions, those interests are of real benefit to this country. I urge my hon. Friend to resist this new clause.

Mr. George Foulkes (South Ayrshire)

I am pleased to speak on this subject because during the past year or two years I have been active in pursuing—or trying to pursue, because it is not an easy job—the elusive tax dodgers who skip off to the Channel Islands, the Isle of Man, the Cayman Islands and elsewhere.

The story is amazing when one examines it in detail. I have here only a few of the files that I amassed during that time about the scandals—I choose the word carefully—that take place when United Kingdom citizens use tax havens such as the Channel Islands and the Isle of Man to dodge United Kingdom taxation.

Many people have asked me why I am interested in the matter because I do not represent those areas. One anomaly is that the Channel Islands and the Isle of Man have no representation in the House of Commons. Yet the Home Secretary has responsibility for many things that happen there and can overrule—

Sir Anthony Royle (Richmond, Surrey)

The hon. Member for Blackburn (Mr. Straw) said that the United Kingdom is a tax haven. If so, why do people wish to go to the Channel Islands or anywhere else?

Mr. Foulkes

That is a very good question. There are two answers. The first is that my hon. Friend the Member for Blackburn (Mr. Straw) said that the United Kingdom is a tax haven for other people, but the Channel Islands and the Isle of Man are tax havens for United Kingdom residents. The second answer is that I do not always agree with what my hon. Friend says. The hon. Member for Richmond, Surrey (Sir A. Royle) may choose whichever answer he prefers.

The Channel Islands and the Isle of Man are in a twilight world. They have some of the advantages of being part of the United Kingdom with none of the disadvantages. Yet they have the advantage of being separate from the United Kingdom, especially in fiscal matters.

On Thursday last week we talked about a Committee of Privy Councillors. I know that Conservative Members have a fondness for such Committees. In 1926, a report from the Privy Council under the chairmanship of his grace the Duke of Atholl—many hon. Members will remember him with reverence; he was a former Conservative Member of Parliament—stated: There are in Jersey a few individuals of considerable means whose migration there we can only regard as a deliberate attempt to evade their responsibilities to the community. We feel strongly that His Majesty's Government should take effective steps to compel these persons to take their proper share in bearing the burdens of the United Kingdom. If the Duke of Atholl believed that in 1926, surely we should have done something about it. However, when three draft clauses are put forward by the Inland Revenue to do something about it, the Government are not prepared to take up those suggestions.

That answers the question why I, the Member for South Ayrshire, am worried about tax dodging in the Channel Islands and the Isle of Man. If rich people evade their responsibility to the community by dodging tax, it means that my constituents must pay more tax to cover total public expenditure. I introduced a Ten-Minute Bill to my to do something about the matter, but it did not get very far. However, as a result, I received much coverage in the newspapers of the Channel Islands and the Isle of Man—although, regrettably, very little in Scotland.

It is interesting that many natives of the islands, rather than those who have moved there to avoid paying tax, supported me in correspondence. I shall read briefly from two letters. Someone from Guernsey wrote: I have been following your campaign with interest. As a Guernseyman, it distresses me to see what is happening here. Due to our fiscal position we have attracted hundreds of spivs and tax evaders, not at all the sort of settlers we want and very different from 20 years ago. Many of our locals have not been able to resist the lure of easy money and are encouraging doubtful practice. The result is that now 40 per cent. of us are employed in the finance industry and these are the only people making a good living. It is a fool's paradise for them because it probably does not have a long term future. If the law is changed we are going to be left in a depleted condition because nothing is being done here to encourage and develop genuine enterprise more suited to a rural people. The very presence of the easy money discourages serious consideration of the future. We are constantly being told that outside companies and unit trusts with United Kingdom connections do not really benefit from being registered here. Well, what do they come for? Many holders of unit trusts are United Kingdom residents and they are not declaring this income in the United Kingdom. There appears to be no way to stop this as you will get no help from this end. I have already found that. The Channel Islands Government—the States of Jersey and Guernsey—are only too eager to encourage this practice. I visited the Channel Islands after receiving a letter saying that I did not know what I was talking about. I spoke to the Members of the States and asked them many questions. I am willing to accompany the hon. Member for Croydon, South (Sir W. Clark) to analyse the situation there. I found a society in which there was a large degree—I must choose my words carefully—of correlation between the Members of the States, members of the financial establishment and members of the legal establishment. One Senator was a senior member of the legal profession with a major legal firm and a director of a large number of companies set up in the Channel Islands. That happens again and again. There is a closer interrelationship between the three arms of the Establishment in the Channel Islands than exists in the United Kingdom.

The law fails to protect the interests of the ordinary person. The bankruptcy procedure in Jersey and Guernsey is strange. It does not protect the interest of creditors. I find unbelievable what was stated in the Jersey Evening Post of 11 February last year about a fraud that would have been a fraud in the United Kingdom. It stated: But this type of fraud is not regarded as a criminal offence in Jersey". That is an amazing statement. It shows the laxity of the laws in the Channel Islands. The situation is similar in Guernsey.

The second letter to which I wish to refer comes from the Isle of Man. Again, it is a letter of support. It states: The best of luck with your campaign to make United Kingdom tax evaders in the Isle of Man meet their just obligations. That is all I am asking It is offensive that while the United Kingdom taxpayer is being squeezed hon. Members know that only too well— and while public expenditure in the United Kingdom is being cut back"— Conservative Members know how much their Government are cutting back public expenditure— these well-heeled evaders are 'living' in the Isle of Man and being subsidised by the United Kingdom taxpayers. They may say that they equally could go to Spain or some other low tax area but they would not then be sheltering under the defence umbrella of the United Kingdom or be subsidised by United Kingdom taxpayers. They want these benefits without paying for them. This is why they come to the Isle of Man. Are you aware that the defence contribution of the Isle of Man Government to the United Kingdom Government is about £500,000 per annum when on a per capita basis with the United Kingdom population, it should be nearer £10 million. Are you aware that war service pensions to Isle of Man citizens which are said to cost £1 million per annum are paid by the United Kingdom Government. The Isle of Man Government contribution is £17,000 per annum. Are you aware that the Isle of Man Government makes no contribution to the cost of the coastguard service? The letter goes on to say that the Isle of Man Government makes little if any contribution to the cost of consular facilities … There is no contribution to the cost of the Royal Family"— we were talking about that earlier— though the Isle of Man Government claims the Queen as its titular head. 9.45 pm

I am sure that my hon. Friend the Member for Fife, Central (Mr. Hamilton) would like some contribution to the Royal Family from the Isle of Man and the Channel Islands. The letter continues: The full cost of educating students at the U.K. Universities has not been met by the I.O.M. Government, nor has the cost of specialised hospital medical treatment … It is surprising that through this generosity of the U.K. taxpayer the I.O.M. Government can boast a Budget surplus. We are helping them towards that budget surplus. The I.O.M. Government is also careful to ensure that all retirement pensions and sickness or unemployment benefits paid to tax evaders and any others who have taken residence in the Isle of Man are reclaimed from the U.K. Government. Not only do they go over there to avoid our tax, but if they are due any pensions or benefits, we still have to pay them.

In correspondence with the Treasury I raised the question of VAT and Customs and Excise.

Mr. Dudley Smith (Warwick and Leamington)

In response to my hon. Friend the Member for Richmond, Surrey (Sir A. Royle), the hon. Gentleman said that he was shifting his ground from the United Kingdom to the Channel Islands. He has now gone to the Isle of Man. Will he tell us how many of these alleged tax evaders there are?

Mr. Foulkes

I do not have the figure. However, when I was in the Channel Islands, I looked at each of the newspapers, one of which was the Jersey Evening Post. During the week that I was there, 150 sham companies, set up for the specific purpose of tax avoidance, were registered. That is amazing for an island that has a smaller population than my constituency. I hope that gives the hon. Gentleman an idea of the extent of the fraud.

Mr. Dudley Smith

I asked the hon. Gentleman a fair question. He has been going on about the Channel Islands and the Isle of Man. We may think in terms of thousands of people, but perhaps the hon. Gentleman can give us some figures.

Mr. Foulkes

I am in the process of amassing figures of individuals. That is what my files are about. As soon as I have a comprehensive figure—I should not want to give the hon. Gentleman an incomplete figure—I shall get in touch with him.

I am sure that the Treasury will be able to help. Last year, at every sitting of the Finance Bill, the then Minister of State, Treasury, the hon. and learned Member for Dover and Deal (Mr. Rees), reiterated his theme "We need the money." This is a way of getting money that is due to the United Kingdom Inland Revenue without increasing the taxes of ordinary people.

I wrote to the Treasury about VAT and Customs and Excise and the strange letter that goes out from the Isle of Man tax authorities to try to inflate the amount due to them from Customs and Excise. They give a questionnaire to tourists for this purpose. I am grateful to the Economic Secretary, who replied to me, for saying that he would take some action on this matter.

The worrying thing is that many of these companies are set up with stooge directors. The directors in the Channel Islands take no real decisions. The real decisions are taken by the real companies in the United Kingdom which have set up subsidiaries or holding companies in the islands.

Mr. Richard Page (Hertfordshire, West)

Of the 150 companies that the hon. Gentleman is pillorying, how many, based in countries other than the United Kingdom, use the Channel Islands as their administrative base? They bring a valuable income from abroad—from the EEC and certain countries in West Africa. I have personal experience and knowledge of that.

Mr. Foulkes

I realise that the hon. Member for Hertfordshire, South-West (Mr. Page) has much greater personal experience of these matters than I. The Jersey Evening Post showed that many of the companies—about 50 per cent.—were registered in the United Kingdom. However, I should need to check that figure to be absolutely sure. When I was in the Channel Islands, people did not deny that a substantial number of companies were basically United Kingdom companies.

Mr. Campbell-Savours

Perhaps my hon. Friend will put it to Conservative Members who persist in intervening that if they want the answers to these questions—we, too, want them—they should call upon their Front Bench to give the answers in parliamentary replies.

Mr. Foulkes

That is a good suggestion. I hope that if the hon. Member for Hertfordshire, South-West puts down these questions, he will get fuller and more helpful answers than I get on this matter from the Treasury.

I shall not read the whole of this letter, because it is very long. Hon. Gentlemen may find my remarks going home more than they had expected.

Mr. Campbell-Savours

Near the bone.

Mr. Foulkes

My hon. Friend is right. The letter says: Many of Mrs. Thatcher's most devoted supporters who evidently do not put their money where their mouths are have taken up residence here as tax evaders notably Lord Brookes, formerly of GKN, and Sir Charles Farmer, formerly of British Leyland. It is believed that Lord Brookes still attends the House of Lords". I find it appalling that someone, who apparently deliberately goes to the Isle of Man to avoid tax, should attend these Houses of Parliament and play a part in United Kingdom legislation.

Mr. Dudley Smith

On a point of order, Mr. Speaker. I have no wish to intervene in the hon. Gentleman's speech, which is wide ranging, but he is attacking someone who is allegedly a Member of the House of Lords. I believe that it is out of order to do that in this House.

Mr. Speaker

The hon. Member for Warwick and Leamington (Mr. Smith) is right. It is wrong to criticise a Member of the other place, in the same way as we do not like them to criticise us. However, I was waiting. The hon. Member for South Ayrshire (Mr. Foulkes) did not go very far.

Mr. Foulkes

I am grateful to you, Mr. Speaker. I try not to go too far in these matters, and I appreciate your advice. I was quoting from the letter and, as far as I can gather, this correspondent's facts are right. My hon. Friend the Member for Blackburn quoted one of his constituents who was noted for this kind of tax avoidance, but when it involves someone who is in a position to participate in our legislative process, it rankles a little.

There is another case that I want to mention, and it is one about which we should be particularly concerned. It involves another great hero of Conservative Members—Sir Freddie Laker. He registered his company in Jersey deliberately to avoid some of the rules and regulations involving tax and other matters, including United Kingdom employment legislation. We are always hearing about the great Sir Freddie. I saw some of his employees being interviewed. They said that their terms and conditions of service were not the same as those of airline companies in the United Kingdom, such as British Airways and British Caledonian. I could not understand why, until I realised that, by avoiding United Kingdom legislation on all these matters—wages councils and the Employment Acts—he was able to employ cheap labour to whom he did not have the obligations that he would have had if his company had been properly registered in the United Kingdom.

I could cite many more examples of corruption in the Channel Islands. I remind the House of the famous trust set up by Sir Charles Clore, in Jersey and the selling of a substantial estate in the United Kingdom by a company registered in the Channel Islands, both to avoid United Kingdom taxation.

I am pleased that some people in the Channel Islands and the Isle of Man have recently begun to realise that such tax avoidance is bad for the islands' reputation. A recent headline read: Publicity over alleged fraud 'not good for Jersey'". The natives and others in the Channel Islands now realise that tax avoidance causes bad publicity.

I have said enough to illustrate the tax evasions. I did not expect the Government to introduce the thorough reform necessary to catch the individuals who are sloping off to the Channel Islands and the Isle of Man to avoid United Kingdom taxations. I did not expect the Government to get at the companies setting up in the Channel Islands and the Isle of Man to avoid their responsibilities to the United Kingdom. Much of their money is made from trading with the United Kingdom. However, I expected three of the reforms suggested by the Inland Revenue—minor and marginal though they are—to be accepted. A press release from the Inland Revenue suggested that such minor reforms would be included in this year's Finance Bill.

The Bill's provisions will harm the unemployed, and many other United Kingdom citizens resident here, by imposing a greater tax burden. There is no willingness to deal with the people who are fitting to the Channel Islands and the Isle of Man to avoid their responsibility to the United Kingdom taxpayer.

I expected a little more to be done to deal with tax evaders. I am deeply disappointed. The Government are concerned more with the interests of millionaires and tax dodgers. We need a Government concerned with the interests of the unemployed, the widowed and the elderly. The only way that we shall achieve that is by a change of Government.

The Minister of State, Treasury (Mr. John Wakeham)

My hon. Friend the Member for Croydon, South (Sir W. Clark) made a sensible, experienced and practical contribution. I can understand why the hors. Member for South Ayrshire (Mr. Foulkes) does not receive much publicity in his constituency.

Mr. Foulkes

I do not wish the Minister to be misled. I said that I did not expect much publicity about the topic that we are discussing. On other issues, I do not do too badly.

10 pm

Mr. Wakeham

The hon. Gentleman is clearly regretting his speech already and I do not blame him for that.

I hope that the hon. Gentleman does not get much publicity in Blackburn either. He will not do his hon. Friend the Member for Blackburn (Mr. Straw) much good. He pretty well destroyed much of his case by pointing out that if all these lovely watering places both in Europe and in further-flung and sunnier climes were the real tax havens, perhaps the United Kingdom was not quite the tax haven that it has been made out to be.

United Kingdom citizens who invest in the United Kingdom pay a substantial amount of their profits in tax. That is not the problem that either of us are seriously addressing our minds to. Abuses that come to light are dealt with and new clauses have been brought in to deal with problems arising from leasing and so on.

The hon. Member for Blackburn waxed eloquent. I can understand why such a reasonable man feels it necessary from time to time to make an impassioned speech on this subject. However, he threw more heat than light on what is a difficult problem. I do not believe that quoting from The Economist Intelligence Unit in the way that he did throws a great deal of light on the subject.

It seems to me that the hon. Gentleman confused two issues. There is, first, the question of overseas investors, who use the facilities in the City of London to invest their capital. In many cases that investment goes overseas, but the City of London provides the necessary professional skills and integrity—the legal, banking, and, dare I say it, accounting skills—that are much prized and that produce a substantial degree of overseas earnings for Britain, which I hope to see continue and grow.

Overseas investors who invest their money in British trading concerns pay the same tax on their profits as any other investors in Britain, although, as overseas residents, they are entitled to exemption from capital gains tax on their investments in Britain.

The real issue to be discussed is investment by new companies overseas and the United Kingdom based companies that trade overseas. I freely admit that there is a legitimate concern that in some cases—it is difficult to be specific—companies are not paying the full amount of tax on their profits and, as a result, others are having to pay more tax than they otherwise would.

The position has changed as a result of the ending of exchange control. Section 482 of the Income and Corporation Taxes Act 1970, which forbids the emigration of companies and certain other transactions without Treasury consent, is clearly inappropriate in the new circumstances. That is why the discussion document was introduced, bringing in new criteria, more in keeping with the present-day commercial reality, to determine whether a company is resident here for tax purposes. The emphasis would be placed on where the company's business as a whole is managed rather than where the company's affairs are managed.

In his Budget speech my right hon. and learned Friend the Chancellor announced that there would be no legislation this year, to allow more time for consultation. He said that the Inland Revenue's proposals had caused widespread anxiety, that the problem of company residence needed to be looked at again and that, with regard to tax havens, it was necessary to find the middle of the road approach that would not prejudice legitimate business. The hon. Member for Blackburn would not disagree with that. We must find a middle road which will cut out abuse and avoidance but which will not prejudice legitimate business. Once examination of the points raised in the representations on the draft legislation of November 1981 is complete, it is intended to continue consultation on the basis of a revised version of the draft legislation.

The revised draft legislation will be published later this year. Its timing, and the length of the further consultation period, will be such as to leave open the possibility of including legislation in the Finance Bill 1983. Therefore, in all probability, a decision on whether to legislate will be taken within the 12-month time limit that the clause seeks to impose. However, the issues are far too complex and important for the Government to have to operate to such a deadline. The Government are tackling the issues seriously and are determined to deal with abuses, but at the same time to ensure that legitimate business operations are not impeded by unnecessary and unreasonable legislation. We fully intend to come forward with proposals this year—

Mr. Straw

Does the hon. Gentleman accept that we are dealing with two categories of potential tax avoiders: those people who have been eloquently described as "spivs"—and all hon. Members will accept that they should come within new anti-avoidance laws—and legitimate businesses that are using loopholes in the tax laws to avoid paying substantial taxes? Does the hon. Gentleman accept that that second category should also be brought within the ambit of the new anti-avoidance provisions?

Mr. Wakeham

I certainly agree that there are companies that carry on a legitimate business, a perfectly good trading business, but take what advice they can get to minimise their tax. I do not complain about that. However, there are several cases that should be brought into the ambit of corporation tax. We intend to get the balance between legitimate operations and avoidance right. Therefore, the Government are dealing with the matter with all speed. However, it would be wrong for the House to accept a new clause that placed such a restriction on the Chancellor of the Exchequer, and I invite my hon. Friends to oppose it.

Mr. Straw

It seemed to be suggested that there was a contradiction between what I said and what my hon. Friend the Member for South Ayrshire (Mr. Foulkes) said. It happens to be a rule in the Labour Party that my hon. Friend never disagrees with me. Moreover, there is no need for any disagreement, because he is concerned about the use of tax havens outside the United Kingdom by United Kingdom residents. I was concerned about the use of the United Kingdom as a tax haven by residents outside the United Kingdom. Therefore, we are discussing two separate issues.

Of course, tax havens in Britain could not provide the benefit that they do without there being tax havens elsewhere, because the two are closely linked. Often a United Kingdom resident company uses a tax haven abroad to accumulate income earned abroad and then uses upstream loans to launder that income back to the United Kingdom without bearing any tax liability. Businesses that in every other respect operate legitimate and genuine trading activities use that device and the new clauses seek to deal with that. In addition, the definition of company residence in this country and the charge to tax of profits earned in this country by companies resident abroad is far laxer than that found in the United States of America.

Although the Minister said that the Government were proceeding with all speed, the truth is that they have been extraordinarily dilatory in dealing with major tax evasion, because they seek to tax their friends in the City properly, whereas when it comes to taxing the poor and imposing a tax on unemployed people, for whom £60 is a fortune and not merely the loose change in their pockets, there is no period of consultation and the decisions are announced arbitrarily.

When the Government decided to give away £150 million in capital gains tax concessions there was no consultation. Although the hon. Member for Croydon, South (Sir W. Clark) objected to indexation, he did not vote against the principle of giving away £150 million to those who were already wealthy, while the Government took £150 million from the unemployed by a trick that they perpetrated on us about 18 months ago.

The truth is that the issue of company residence, upstream loans and tax havens in the corporate sector, as my hon. Friend the Member for South Ayrshire said, were modest proposals for change contained in the consultative document and the draft clause. If the Government had wished, they could have legislated upon that in this Budget. For the Government to say that, although they are proceeding with all speed they need more than a year to deal with the matter is outrageous and intolerable. Therefore, we intend to press the new clause to a vote.

Question put, That the clause be read a Second time:—

The House divided: Ayes 209. Noes 281.

Division No. 264]	[10.12 pm
AYES
Abse, Leo	Dixon, Donald
Allaun, Frank	Dobson, Frank
Alton, David	Dormand, Jack
Archer, Rt Hon Peter	Dubs, Alfred
Ashley, Rt Hon Jack	Duffy, A. E. P.
Ashton, Joe	Dunnett, Jack
Atkinson, N.(H'gey,)	Dunwoody, Hon Mrs G.
Bagier, Gordon A.T.	Eadie, Alex
Barnett, Guy (Greenwich)	Eastham, Ken
Barnett, Rt Hon Joel (H'wd)	Edwards, R. (W'hampt'n S E)
Beith, A. J.	Ellis, R. (NE D'bysh're)
Benn, Rt Hon Tony	Ellis, Tom (Wrexham)
Bennett, Andrew(St'kp't N)	English, Michael
Bidwell, Sydney	Ennals, Rt Hon David
Boothroyd, Miss Betty	Evans, John (Newton)
Bray, Dr Jeremy	Ewing, Harry
Brown, Hugh D. (Provan)	Faulds, Andrew
Brown, Ron (E'burgh, Leith)	Fletcher, Ted (Darlington)
Buchan, Norman	Foot, Rt Hon Michael
Callaghan, Jim (Midd't'n & P)	Forrester, John
Campbell, Ian	Foulkes, George
Campbell-Savours, Dale	Fraser, J. (Lamb'th, N'w'd)
Canavan, Dennis	Freeson, Rt Hon Reginald
Carmichael, Neil	Garrett, John (Norwich S)
Carter-Jones, Lewis	Garrett, W. E. (Wallsend)
Cartwright, John	Ginsburg, David
Clark, Dr David (S Shields)	Golding, John
Clarke, Thomas C'b'dge,A'rie	Graham, Ted
Cocks, Rt Hon M. (B'stol S)	Hamilton, James (Bothwell)
Cohen, Stanley	Hamilton, W. W. (C'tral Fife)
Coleman, Donald	Hardy, Peter
Concannon, Rt Hon J. D.	Harrison, Rt Hon Walter
Cowans, Harry	Hart, Rt Hon Dame Judith
Cox, T. (W'dsw'th, Toot'g)	Hattersley, Rt Hon Roy
Craigen, J. M. (G'gow, M'hill)	Haynes, Frank
Crowther, Stan	Healey, Rt Hon Denis
Cryer, Bob	Heffer, Eric S.
Cunliffe, Lawrence	Hogg, N. (E Dunb't'nshire)
Cunningham, G. (Islington S)	Holland, S. (L'b'th, Vauxh'll)
Cunningham, Dr J. (W'h'n)	Home Robertson, John
Dalyell, Tam	Homewood, William
Davidson, Arthur	Hooley, Frank
Davis, Clinton (Hackney C)	Horam, John
Davis, Terry (B'ham, Stechf'd)	Howell, Rt Hon D.
Deakins, Eric	Hoyle, Douglas
Dean, Joseph (Leeds West)	Hughes, Mark (Durham)
Dewar, Donald	Hughes, Robert (Aberdeen N)

Hughes, Roy (Newport)	Roberts, Allan (Bootle)
Janner, Hon Greville	Roberts, Ernest (Hackney N)
Jay, Rt Hon Douglas	Roberts, Gwilym (Cannock)
John, Brynmor	Robertson, George
Johnson, James (Hull West)	Robinson, G. (Coventry NW)
Johnson, Walter (Derby S)	Rooker, J. W.
Jones, Rt Hon Alec (Rh'dda)	Roper, John
Jones, Barry (East Flint)	Ross, Ernest (Dundee West)
Kaufman, Rt Hon Gerald	Ross, Stephen (Isle of Wight)
Kerr, Russell	Rowlands, Ted
Kilroy-Silk, Robert	Sever, John
Lamond, James	Sheerman, Barry
Leadbitter, Ted	Sheldon, Rt Hon R.
Leighton, Ronald	Shore, Rt Hon Peter
Lestor, Miss Joan	Short, Mrs Renée
Lewis, Ron (Carlisle)	Silkin, Rt Hon J. (Deptford)
Litherland, Robert	Silkin, Rt Hon S. C. (Dulwich)
Lofthouse, Geoffrey	Silverman, Julius
Lyons, Edward (Bradf'd W)	Skinner, Dennis
Mabon, Rt Hon Dr J. Dickson	Soley, Clive
McCartney, Hugh	Spearing, Nigel
McDonald, Dr Oonagh	Spriggs, Leslie
McElhone, Frank	Stallard, A. W.
McGuire, Michael (Ince)	Steel, Rt Hon David
MacKenzie, Rt Hon Gregor	Stewart, Rt Hon D. (W Isles)
McNally, Thomas	Stoddart, David
McTaggart, Robert	Stott, Roger
McWilliam, John	Strang, Gavin
Magee, Bryan	Straw, Jack
Marks, Kenneth	Thomas, Dafydd (Merioneth)
Marshall, Dr Edmund (Goole)	Thorne, Stan (Preston South)
Marshall, Jim (Leicester S)	Tilley, John
Martin, M(G'gow S'burn)	Tinn, James
Mason, Rt Hon Roy	Torney, Tom
Maxton, John	Urwin, Rt Hon Tom
Maynard, Miss Joan	Varley, Rt Hon Eric G.
Mikardo, Ian	Wainwright, E.(Dearne V)
Millan, Rt Hon Bruce	Wainwright, R.(Colne V)
Miller, Dr M. S. (E Kilbride)	Weetch, Ken
Mitchell, Austin (Grimsby)	Welsh, Michael
Morris, Rt Hon A. (W'shawe)	White, Frank R.
Morris, Rt Hon C. (O'shaw)	White, J. (G'gow Pollok)
Morton, George	Whitehead, Phillip
Moyle, Rt Hon Roland	Whitlock, William
Newens, Stanley	Wigley, Dafydd
Oakes, Rt Hon Gordon	Willey, Rt Hon Frederick
O'Halloran, Michael	Williams, Rt Hon A.(S'sea W)
O'Neill, Martin	Wilson, Gordon (Dundee E)
Orme, Rt Hon Stanley	Wilson, Rt Hon Sir H.(H'ton)
Palmer, Arthur	Winnick, David
Park, George	Woodall, Alec
Parker, John	Woolmer, Kenneth
Parry, Robert	Wright, Sheila
Pavitt, Laurie	Young, David (Bolton E)
Penhaligon, David
Race, Reg	Tellers for the Ayes:
Radice, Giles	Mr. Allen McKay and
Rees, Rt Hon M (Leeds S)	Mr. Derek Foster.
Richardson, Jo
Roberts, Albert (Normanton)
NOES
Adley, Robert	Biffen, Rt Hon John
Aitken, Jonathan	Biggs-Davison, Sir John
Alexander, Richard	Blackburn, John
Alison, Rt Hon Michael	Blaker, Peter
Arnold, Tom	Body, Richard
Aspinwall, Jack	Bonsor, Sir Nicholas
Atkins, Rt Hon H.(S'thorne)	Boscawen, Hon Robert
Atkins, Robert(Preston N)	Bottomley, Peter (W'wich W)
Atkinson, David (B'm'th,E)	Bowden, Andrew
Baker, Nicholas (N Dorset)	Boyson, Dr Rhodes
Banks, Robert	Braine, Sir Bernard
Beaumont-Dark, Anthony	Bright, Graham
Bendall, Vivian	Brinton, Tim
Bennett, Sir Frederic (T'bay)	Brittan, Rt. Hon. Leon
Benyon, Thomas (A'don)	Brooke, Hon Peter
Benyon, W. (Buckingham)	Brotherton, Michael
Best, Keith	Browne, John (Winchester)
Bevan, David Gilroy	Bruce-Gardyne, John

Bryan, Sir Paul	Griffiths, E.(B'y St. Edm'ds)
Buchanan-Smith, Rt. Hon. A.	Griffiths, Peter Portsm'th N)
Buck, Antony	Grist, Ian
Budgen, Nick	Grylls, Michael
Bulmer, Esmond	Gummer, John Selwyn
Burden, Sir Frederick	Hamilton, Hon A.
Butcher, John	Hamilton, Michael (Salisbury)
Cadbury, Jocelyn	Hampson, Dr Keith
Carlisle, John (Luton West)	Hannam, John
Carlisle, Kenneth (Lincoln)	Haselhurst, Alan
Carlisle, Rt Hon M. (R'c'n)	Hastings, Stephen
Chalker, Mrs. Lynda	Havers, Rt Hon Sir Michael
Channon, Rt. Hon. Paul	Hawksley, Warren
Chapman, Sydney	Hayhoe, Barney
Churchill, W. S.	Heddle, John
Clark, Hon A. (Plym'th, S'n)	Heseltine, Rt Hon Michael
Clark, Sir W. (Croydon S)	Hicks, Robert
Clarke, Kenneth (Rushcliffe)	Higgins, Rt Hon Terence L.
Cockeram, Eric	Hill, James
Colvin, Michael	Hogg, Hon Douglas (Gr'th'm)
Cope, John	Holland, Philip (Carlton)
Costain, Sir Albert	Hordern, Peter
Cranborne, Viscount	Howell, Rt Hon D. (G'ldf'd)
Critchley, Julian	Howell, Ralph (N Norfolk)
Crouch, David	Hunt, David (Wirral)
Dickens, Geoffrey	Hunt, John (Ravensbourne)
Dorrell, Stephen	Irvine, Bryant Godman
Douglas-Hamilton, Lord J.	Irving, Charles (Cheltenham)
Dover, Denshore	Jenkin, Rt Hon Patrick
du Cann, Rt Hon Edward	Jessel, Toby
Dunn, Robert (Dartford)	Johnson Smith, Sir Geoffrey
Durant, Tony	Jopling, Rt Hon Michael
Eden, Rt Hon Sir John	Joseph, Rt Hon Sir Keith
Edwards, Rt Hon N. (P'broke)	Kaberry, Sir Donald
Eggar, Tim	Kershaw, Sir Anthony
Elliott, Sir William	Kimball, Sir Marcus
Eyre, Reginald	Knight, Mrs Jill
Fairbairn, Nicholas	Knox, David
Fairgrieve, Sir Russell	Lamont, Norman
Faith, Mrs Sheila	Lang, Ian
Farr, John	Latham, Michael
Fell, Sir Anthony	Lawrence, Ivan
Fenner, Mrs Peggy	Lawson, Rt Hon Nigel
Finsberg, Geoffrey	Lee, John
Fisher, Sir Nigel	Lennox-Boyd, Hon Mark
Fletcher, A. (Ed'nb'gh N)	Lester, Jim (Beeston)
Fletcher-Cooke, Sir Charles	Lewis, Kenneth (Rutland)
Fookes, Miss Janet	Lloyd, Ian (Havant & W'loo)
Forman, Nigel	Lloyd, Peter (Fareham)
Fowler, Rt Hon Norman	Loveridge, John
Fox, Marcus	Luce, Richard
Fraser, Peter (South Angus)	Lyell, Nicholas
Fry, Peter	Macfarlane, Neil
Gardner, Edward (S Fylde)	MacGregor, John
Garel-Jones, Tristan	MacKay, John (Argyll)
Glyn, Dr Alan	Macmillan, Rt Hon M.
Goodhart, Sir Philip	McNair-Wilson, M. (N'bury)
Goodhew, Sir Victor	McNair-Wilson, P. (New F'st)
Goodlad, Alastair	Major, John
Gorst, John	Marland, Paul
Gow, Ian	Marten, Rt Hon Neil
Grant, Anthony (Harrow C)	Maude, Rt Hon Sir Angus
Gray, Hamish	Mawby, Ray
Greenway, Harry	Mawhinney, Dr Brian

Question accordingly negatived.