As a Liberal Democrat, I want a tax system that is simple, competitive and fair. Whilst the vast majority of people and businesses in the UK pay their taxes, there are some people and companies who try to get away without paying tax. Not only is this morally wrong, it damages our economy, too.
For decades, whilst benefit fiddling has been rightly seen as a crime, evading tax has been seen by some misguided people as something akin to a sport. I have been speaking and writing about this topic for many years, most recently as the Lib Dem Treasury spokesperson from 2010 – 2013. We must draw a line and take steps to make tax evasion socially unacceptable.
By tightening the law and cracking down relentlessly on offenders, that is exactly what the Lib Dems in government have been doing. We have invested nearly £1 billion in HMRC to make sure that everyone pays the tax they owe. Our investment has enabled HMRC to recruit specialist staff and speed up its work on identifying and challenging the complex tax arrangements of multinational corporations. Its new Large Business Directorate, which opened last year, deals specifically with the tax affairs of the 2,100 largest firms in the UK. Part of the Directorate’s work will be enforcing the new Diverted Profits Tax, which will counter the use of aggressive tax planning methods used by some big firms to divert their profits to areas with very low rates of tax. We hope this tax will yield around £1.35 billion over the next five years.
HMRC has also been given the power to demand disputed tax upfront while tax disputes are being resolved. This removes the cashflow advantage that those who deliberately try to bend the rules have over the majority of taxpayers who have to pay their tax upfront. By next March, it is hoped that 43,000 notices will have been issued, requiring over £7 billion in unpaid tax.
All our combined efforts are having an impact. So far in this Parliament HMRC have prosecuted over 2,600 people for tax crime, including high-profile barristers and accountants, which have led to prison sentences totalling 2,700 years.
However, because individuals and companies can move money around the world at the click of a mouse, we are taking the lead internationally, too. The UK has used its presidency of the G8 to call on the OECD to develop a country-by-country reporting template for multinationals to report profit and tax information to tax authorities in order to help assess risk. Over 90 countries and jurisdictions, including all of the UK’s Crown Dependencies and Overseas Territories with a financial centre, are committed to automatically exchanging information. Swiss bank accounts have been much in the news recently and it is a matter of record that our recent agreement with the Swiss Authorities has already brought in more than £1 billion from accounts hidden in Switzerland.
Poorer countries are at particular risk of being exploited by tax cheats so at the 2013 G8 summit in Northern Ireland, leaders committed to sharing their own countries’ tax expertise with developing countries by setting up long-term partnership programmes. They also expressed their support for the OECD’s Tax Inspectors Without Borders project and to make practical steps to support the initiative. The Department for International Development is also providing extra funding to HMRC to establish a unit to deploy HMRC staff to developing countries to provide technical expertise on tax.
There is of course much more work to do but as a consequence of the enforcement action we’ve taken in government, the tax yield for this year will be around £26 billion – that’s £9 billion more than when we came into government!
We have proposals to do even more in the next parliament, including raising an extra £6 billion from tackling tax avoidance and evasion as we finish the job of cutting the deficit.
The new measures we recently proposed include:
• Introducing a new offence of a corporate failure to prevent economic crime, including aiding or facilitating tax evasion.
• Introducing a penalty for those that facilitate others to commit tax evasion, so they face the same financial penalty as that repaid in tax and fines by the evader themselves. Strengthening codes of practice that apply to professions which advise on tax affairs.
• For the first time ever, committing the government to see the so called ‘tax gap’ fall in each year of the next Parliament.
• The ‘tax gap’ is the difference between the total tax owed to the exchequer and the amount actually collected. In 2012/13, the amount of tax that HMRC believed was owed totalled around £500 billion. Of that, £466 billion was collected, leaving £34 billion – or 6.8% - unpaid, as the ‘tax gap’.
Full details will be included in our manifesto, but rest assured that we will not let up in the fight against those who seek to avoid or evade paying tax here in the UK and abroad.