Clause 216 - Agreement between UK and Switzerland

Finance Bill – in a Public Bill Committee am 4:45 pm ar 26 Mehefin 2012.

Danfonwch hysbysiad imi am ddadleuon fel hyn

Photo of David Gauke David Gauke The Exchequer Secretary 4:45, 26 Mehefin 2012

I beg to move amendment 201, in clause 216, page 124, line 8, after ‘2012’, insert

‘and by a mutual agreement signed by them on 18 April 2012 implementing article XVIII of that protocol’.

Photo of Peter Bone Peter Bone Ceidwadwyr, Wellingborough

With this it will be convenient to discuss the following:

Clause stand part.

Government amendment 202.

That schedule 35 be the Thirty-fifth schedule to the Bill.

Photo of David Gauke David Gauke The Exchequer Secretary

Clause 216 gives effect to the tax agreement between the UK and Switzerland signed on 6 October 2011 and to the protocol to that agreement signed on 20 March 2012. Swiss banking secrecy has been a thorn in the side of tax administrations for generations. Billions of pounds have been deposited in Switzerland, and until now that money has remained stubbornly beyond the reach of even our finest tax investigators. The tax agreement puts an end to that exploitation for good, and in doing so it will raise billions of pounds for the Exchequer. It will resolve existing tax liabilities and put in place arrangements to ensure the effective future taxation of Swiss investments.

Some have objected to the agreement on the grounds that we should have pushed for full and open access to Swiss bank records, but we fear that there was, and is, no chance of that happening in the near future. Banking secrecy is enforced by law in Switzerland. Although this Government are a strong supporter of the automatic exchange of information, we also recognise that it will take some time to achieve it. Doing nothing to address the problem of tax evasion in the meantime is not a credible option. We recognise that, as do Germany and Austria—which is why they have struck similar agreements with Switzerland—and several other European countries. I would not be surprised if other such agreements are made in the future.

The agreement addresses tax evasion through Swiss bank accounts via three tough measures. First, a one-off levy on existing accounts held by UK residents will settle past tax liabilities. Liability to income tax, capital gains tax, inheritance tax and, if applicable, VAT in respect of the account will be cleared, as long as a payment worth between 18% and 34% of the assets is made. That, in the experience of Her Majesty’s Revenue and Customs, is comparable with the amounts recovered in offshore investigations. If the account holder wishes to avoid the payment, they may authorise disclosure of the account to HMRC, or they must close their Swiss accounts and move their money elsewhere.

The second measure is a new withholding tax, which will ensure the effective future taxation of investment returns. All income and gains arising on investment held through Swiss banks will be subject to a tax set by reference to the UK top rates. In certain circumstances, inheritances will be subject to a tax worth 40% of the assets in the account. Again, these significant taxes can only be avoided if the account holder authorises disclosure to HMRC.

The third measure introduces a powerful new provision that allows HMRC to discover Swiss bank accounts. The power, which operates alongside and in addition to our existing powers to request information, allows HMRC to discover whether any named individual has a Swiss account, without having to provide any evidence suggesting that any such account is open. This provision and that  on inheritances will, over time, act as strong drivers towards tax transparency, because they significantly raise the consequences for those who continue to hide money in Switzerland.

What of those who try to dodge the agreement by moving their illicit funds to another secretive jurisdiction? They will gain no tax clearance and will still be liable for all unpaid taxes, but that is not all. They will also be liable for significant penalties, worth up to 200% of the tax evaded, and they could face criminal investigation and prosecution.

We are not powerless to find out about offshore investments. The information-sharing provisions in the UK-Switzerland double taxation agreement meet international standards and can be used in connection with any account that existed after 1 January 2011. The Swiss will give HMRC a list of the 10 most popular destinations for funds withdrawn from Switzerland before the agreement comes into force. That will help HMRC target its investigations into funds that are moved elsewhere.

The changes made by clause 216 will give effect to the UK-Swiss agreement by disapplying section 23 of the Constitutional Reform and Governance Act 2010, which requires international agreements to be approved by a Committee of the House.

The agreement marks an historic moment in the fight against offshore tax evasion. It will contribute significant amounts to the UK Exchequer, now and in the future. The Government consider that the agreement is best debated in the full light of the Finance Bill process, rather than by a merits committee.

The clause also introduces schedule 35, which gives effect to the changes to UK tax law required to implement the agreement. The schedule is critical for the collection of UK tax on investments held in Switzerland. It is divided into five parts. Part 1 deals with definitions, and part 5 with miscellaneous provisions. Part 2 implements part 2 of the UK-Swiss agreement, on the clearance of past tax liabilities. Significant assets that have not been correctly taxed here are held by UK taxpayers through Swiss banks. Part of the agreement offers a simple choice to UK residents with Swiss assets: “Speak up or pay up.” Part 2 of the schedule makes the necessary changes to UK law to allow for tax clearance to be given, and to deny it where one of the exclusions applies. Furthermore, paragraph 10 of the schedule ensures that no person will be able to claim a refund of past, correctly paid taxes on the basis that clearance has been given.

It is not sufficient simply to regularise existing assets in Switzerland. The aim of the UK-Swiss agreement is to put an end to evasion through Swiss accounts for good. Part 3 of schedule 35 implements part 3 of the agreement: the new withholding tax on income and gains arising in Switzerland. All investment returns will be subject to a tax at close to the top UK rates, unless the account holder agrees that details of that income and gains can be passed to HMRC. In return, income tax and capital gains tax clearance is given. The tax rate is slightly below the top UK rates—for example, the rate on interest income is 48%, which will of course become 43% for the 2013-14 tax year. That is to account for the fact that the tax is collected at source and paid to HMRC sooner than it would be under self-assessment. The schedule gives effect to that clearance in UK law. It also sets out a mechanism for electing to disapply  clearances and to treat the amounts paid in Switzerland as creditable amounts. In such a case, the income and gains will be brought into account for the year in the normal way.

Photo of Robert Syms Robert Syms Chair, Regulatory Reform Committee, Chair, Regulatory Reform Committee 5:00, 26 Mehefin 2012

Does the treaty purely include UK citizens who were resident in the UK, or does it include UK citizens who may be resident anywhere?

Photo of David Gauke David Gauke The Exchequer Secretary

The provisions relate to UK residents. That is the test applied, whether British citizens or not.

On part 4, the protocol also introduced a new provision to ensure that any inheritance of property held in Swiss portfolios is subject to UK tax. From January 2013, when a UK resident account holder passes away the Swiss paying agent will freeze 40% of the value of assets in the account at date of death. A sum equal to that value will be paid to the UK one year later, unless the personal representatives of the deceased authorise disclosure of the account to HMRC. Again, the payment will confer UK inheritance tax clearance on the assets.

Amendments 201 and 202 ensure the effective implementation of the tax agreement with Switzerland. The one-off payment to settle past tax liabilities is determined by a formula specified in the agreement. The amount payable was, under the terms of the original agreement, to range between 19% and 34% of the value of the account. Germany, which concluded a similar deal with Switzerland, agreed the same rates for the one-off payment. In March of this year, the UK and Switzerland signed a protocol amending the agreement, which introduced a powerful new provision to safeguard inheritance tax and clarified the relationship between our agreement and the EU-Swiss agreement on the taxation of savings. When we signed the amending protocol, we knew that Germany was still negotiating its own changes, so we obtained legal assurances from the Swiss that, should Germany secure any increases to the rate of the one-off payment, the UK may demand equivalent changes. In concluding a further mutual agreement with Switzerland, in April, we did just that.

The minimum rate of the one-off payment has risen to 21% of the account balance, and there is a new provision to increase the top rate for accounts holding more than £1 million, up to a maximum of 41% for accounts holding more than £7 million. It should be noted, however, that the new maxima only apply where the person would previously have been liable to the maximum 34% rate. The amendments make changes to the enabling legislation for the Swiss agreement to acknowledge the new mutual agreement, which is necessary to recognise those higher rates. We do not expect the changes to have a significant impact on the revenue raised by the agreement, but they reinforce an important principle: that we will always secure the best possible outcome for the UK.

An earlier version of the clause formed part of the draft Finance Bill published in December last year. Some respondents highlighted important questions about the implementation and interpretation of the agreement. Both HMRC and the Swiss Government will be producing guidance that addresses those practical concerns.

Successive Governments have wrestled with the problem of Swiss banking secrecy. We have within our grasp a solution that will not only be hugely beneficial to the  Exchequer in the short term but will allow us to lay the problem to rest for good. I therefore urge the Committee to seize the opportunity and to approve the agreement.

Photo of Grahame Morris Grahame Morris Llafur, Easington

It really is a pleasure to serve under your chairmanship, Mr Bone. I mean that most sincerely; you have been an excellent Chairman. I have served on three Public Bill Committees and you have been a paragon of fairness and administered the whole process with great good humour. I appreciate the latitude you have been able to give.

The Minister suggested that the clause and the amendment are uncontroversial, but I think a number of questions are raised. However, I welcome the efforts made by the Minister and those concerned to close down tax havens, such as the Swiss tax havens. It was a principle and objective of the previous Prime Minister, my right hon. Friend the Member for Kirkcaldy and Cowdenbeath (Mr Brown), who is sadly much maligned by hon. Members from other parties.

Hon. Members:

Where is he? Bring him out.

Photo of Grahame Morris Grahame Morris Llafur, Easington

I am afraid that rather typifies the attitude of Conservative and Liberal Democrat Members. Credit is not given where it is due for the excellent work that my right hon. Friend did in that regard, not just in beginning negotiations across Europe with regard to the Swiss tax havens, but also with the United States. If we can get down to the bare bones—no pun intended, Mr Bone—the bilateral agreement signed on 6 October 2011 by the Exchequer Secretary and the Swiss Finance Minister is not yet in force. My understanding from the Minister’s remarks is that it needs to be passed and ratified by the legislatures in each country.

I would like to take the opportunity to highlight some of the potential pitfalls. The Government seem to have set an arbitrary date, no doubt as a consequence of negotiation, of May 2013 for the agreement to come into effect, regardless of how long—[Interruption.] Well, perhaps the Minister can correct me if I am wrong. An hon. Member is suggesting that that date is not correct.

That is an arbitrary date of May 2013 for the agreement to come into effect, regardless of how long the legislative process takes. My first concern is about timing. As a layman, it seems to me that waiting until May 2013 would give UK holders of Swiss bank accounts plenty of time to make alternative arrangements, for example, to move their money elsewhere. That has been a feature of a number of the mechanisms that the Government have employed to close tax loopholes. They have given a long lead-in time, so the army of accountants has opportunities to see the planned changes and take avoiding action to reduce their clients’ liability for tax.

I am also concerned that it allows Switzerland to remain a hub of financial secrecy, despite the Minister’s assurance that it was the end of an era. Effectively, by colluding in such a scheme, the Minister and the Government are giving implicit support for the continuation of tax havens. The wealthy may now consider that these tax havens are now somehow Government sanctioned.

Switzerland remains a country that embraces wealthy people willing to break the tax rules of their own states. In my view, that is quite wrong. We have heard lots of  talk recently about moral judgments, not least from the Prime Minister, but as I mentioned in an earlier debate, the arguments have clearly changed in the court of public opinion. The public are not happy that individuals and corporate entities can avoid legitimate levels of tax.

Photo of Ian Mearns Ian Mearns Llafur, Gateshead 5:15, 26 Mehefin 2012

My hon. Friend is making a powerful speech. I think his point is that every £1, £100 or £1,000 forgone to the sort of tax haven arrangements that are and will continue to be available in places such as Switzerland is £1, £100 or £1,000 that must be raised from ordinary taxpayers—the ordinary man or woman in the street working hard to look after their family. Every pound forgone has to come from them.

Photo of Grahame Morris Grahame Morris Llafur, Easington

That is an important point. Government Members have said that some of the measures in the Budget would result in relatively small sums—we had a debate earlier about inheritance tax—but they are of symbolic importance. I know that mentioning individuals is frowned upon, but people mentioned in the national press, such as Philip Green and Jimmy Carr, who are fabulously wealthy compared with most ordinary people, can employ accountants and get away with paying less than 1% tax.

On corporate entities, to recall the early days of this Committee, the hon. Member for Dover went on a tirade against Vodafone and Amazon, and we were cheering from the Opposition Benches. The public are appalled by the fact that those companies can get away with it.

Photo of Julie Hilling Julie Hilling Llafur, Bolton West

I do not want my hon. Friend to forget Gary Barlow.

Hon. Members:


Photo of Grahame Morris Grahame Morris Llafur, Easington

From Take That. There is a long list. I do not intend to detain the Committee by reading it out, but the point is well made. The public want to see action. The climate has certainly changed.

The Financial Times published an editorial at around the time of this year’s Budget in which the editor described his view of the deal, saying that

“the willingness of the UK…to sell out on the principle that taxpayers must declare their taxable earnings and assets is of far greater import than the prospect for immediate tax windfalls.”

That is an important point about the principle being established. If that is right, the Minister has engaged in a rather remarkable collusion—that is the only word I can think of—in the worst type of tax evasion, or is it tax avoidance? It is possible that some of the sums stashed away in secret accounts were accumulated illegally, in which case it would be evasion. The arrangement will allow continued secrecy and a cover-up by UK citizens to UK authorities.

I have a number of questions for the Minister. Why should tax evaders be exempt from the legal obligations placed on the rest of us? Why should they declare less information about their financial dealings and tax affairs than the rest of us who keep our money at home or pay tax through PAYE or other established mechanisms?  Under the agreement, fellow UK citizens who hold secret Swiss bank accounts—that is what they are; the details are completely secret—are to remain anonymous, as the Swiss authorities will collect and pass on the taxes to the UK.

The plan is for the Swiss Government to apply a one-off tax on accounts held by UK individual taxpayers, as determined by the Swiss banks. As the hon. Member for Poole said in a question to the Minister, the tax will apply only to UK citizens resident in the UK. That one-off sum is to be deducted in May 2013 at a rate that the Minister said in his earlier remarks would be between 19% and 34%.

Photo of John Pugh John Pugh Democratiaid Rhyddfrydol, Southport

A reputable magazine called “Accountancy Age” said that Britain will from January begin taxing the funds under the terms of a withholding deal agreed with the European Commission, so I am not quite sure that the hon. Gentleman is right.

Photo of Grahame Morris Grahame Morris Llafur, Easington

I accept that, and I stand corrected. I am simply going on the explanatory notes. Perhaps the Minister can correct the record if I am wrong.

Regarding the sums that are projected to be raised by the deal, perhaps the Government have been rather hasty in presuming that the measure will raise billions for the Exchequer and the economy. The estimates seem to vary between £4 billion and £7 billion. [Interruption.] I see that the hon. Member for Southport is checking the references, but that is the information I have.

Certainly, there are only two possible outcomes from the deal. First, people who have gone to the trouble of setting up a Swiss bank account would, I assume, have no trouble in moving their money elsewhere before the deadline, whether it is January or May, to avoid the tax. As the deal was announced more than 12 or 17 months before it comes into effect, that must be a concern. I would be interested in the Government’s views of that issue.

Secondly, people may consider the deal to be a sweetheart deal between the UK and Swiss authorities, but that it still far outweighs any legal obligations that they have to pay the rate of tax here in the UK, so the money would stay put. Let us not forget that many will want to stay put in Switzerland because of secrecy; they obtain secrecy from that tax haven, and for some, that is more important than the rate of tax. That returns to the issue I raised on whether we are dealing with avoidance or evasion, and I want to come on to whether there are any moneys from the proceeds of crime. The Minister told us in his opening remarks that the rate of tax will be set close to the top rate of UK tax. Will he clarify precisely what that will be?

I want to return to the problem of people who would move their money from the Swiss tax haven before the implementation of the measure. It is clearly a concern to the Minister, because he said:

“Under the terms of the agreement the Swiss authorities will give HMRC details of the top 10 destinations of funds which do move from there.”—[Official Report, 19 October 2011; Vol. 533, c. 965W.]

The UK and Swiss authorities are obviously anticipating that, and the Swiss authorities have indicated that they will give details of the top 10 destinations—alternative  tax havens, some of which may well be British dependent territories. Incredibly, there is no requirement on the Swiss to give any more details than that. They will not have to say precisely how the money is being moved around or what sums are involved, but simply the destinations.

Is the deal a process or an event? If individuals take the opportunity to move to a different tax haven, what will the Minister do? Will he assure the Committee that he will continue to chase those tax avoiders and their profits? Will he seek to sign sweetheart deals with the top three destinations, or perhaps all 10?

What potential does the agreement have? There are many potential tripwires in it. Why will it affect only individuals and not other entities such as trust funds and foundations? Earlier we touched on tax exemptions. Will the Minister tell us why the agreement will not apply to wages, royalties, income on property, directors’ fees or loans?

On a positive note, I am delighted to hear that an amendment to the deal was secured that means that a full 40% inheritance tax may be levied on funds there; I know that it will not please the hon. Member for North East Somerset. Due to the continued secrecy involved in the deal, we have to rely on Swiss banks to identify that the individual has died. I am aware that individuals have gone to more trouble to delay such announcements to the Treasury over much smaller sums, but on the issue of secrecy, let me reiterate that account-holders will, under the terms of the agreement, remain anonymous. They will only need to provide details to HMRC should they decide to challenge the sum taken from them by the Swiss authorities and passed on to the UK.

Essentially, the Minister has, perhaps inadvertently, strengthened the sustainability of the Swiss tax haven system. We had a discussion earlier about the sort of individuals who would benefit from this, and there was a comment that it was a kind of “Swiss Tony” second-hand car dealer clause. Whether advertent or not, there is a possibility that it has provided spivs and speculators with a guaranteed sanctuary for grubby financial secrets. Most disturbingly, any criminal behaviour such as money laundering or corruption will remain undiscovered, because these accounts will remain secret. This is a dereliction of duty by the UK Government. What precedent does it set for other tax havens?

Photo of Ian Mearns Ian Mearns Llafur, Gateshead

Is my hon. Friend also aware that under the terms of this agreement with the Swiss authorities, HMRC is allowed to ask for the details of only 500 account holders a year, whereas the German authorities have agreed a deal allowing them almost twice as many? I think it is 999—or in German, nein, nein, nein.

Photo of Grahame Morris Grahame Morris Llafur, Easington

I am grateful for that intervention from my hon. Friend, who has always been able to inject some humour into these sometimes turgid clauses. He is absolutely right, and I was about to come to this issue. HMRC is restricted to asking the Swiss authorities for the details of just 500 account holders each year. Perhaps it was a blessing in disguise that our football team did not meet Germany in the semi-final—

Photo of Grahame Morris Grahame Morris Llafur, Easington

No, I meant England. We did not meet Germany, and it seems the Germans have outdone us again. They have negotiated a deal with the Swiss authorities, which on the face of it seems twice as good as the deal the Government secured. I would be interested in the Minister’s view.

In concluding, I will refer to what the Chancellor said last August—that Britain has an even greater obligation in the current economic climate to pursue those who try to avoid paying taxes. I wholeheartedly agree, as I am sure all members of the Committee do. However, he went on to say:

“The days when it was easy to stash the profits of tax evasion in Switzerland are over”.

I am not convinced of that. In stark contrast to the words of our Chancellor, the Swiss Finance Minister said the agreement would

“create legal certainty and reinforce the long term competitiveness and reputation of Switzerland as a financial centre”.

They clearly cannot both be right. Can there be any doubt that the Swiss have gained the upper hand on this occasion? It looks like a victory for the gnomes of Zurich. The Minister has been outdone by his Swiss counterpart. Tax evaders and, potentially, money-launderers and corrupt criminals, do not seem to need to worry because of the secrecy element.

Photo of Jacob Rees-Mogg Jacob Rees-Mogg Ceidwadwyr, North East Somerset 5:30, 26 Mehefin 2012

I agree with much of what the hon. Gentleman has said. The Government are right to stop evasion, which is criminal, wicked and not to be confused with avoidance. However, the Swiss want an honest financial centre and have passed the stage where they think their economy depends on being the bolthole of criminals and tax evaders. What the Swiss authorities and the Chancellor said are the same.

Photo of Grahame Morris Grahame Morris Llafur, Easington

I am grateful for that intervention because, as always, the hon. Gentleman speaks a great deal of sense, but my contention is that the two assessments of the agreement by our Chancellor and the Swiss Finance Minister are mutually exclusive. If the Swiss are serious about ending the perception of Zurich and Switzerland as being a bolthole and a centre of secrecy, surely the answer is complete openness and transparency.

Photo of Richard Harrington Richard Harrington Ceidwadwyr, Watford

I am very grateful to the hon. Gentleman for giving way, particularly because I was not asking him to do so at this juncture, but one should never lose an opportunity to make a point. Despite his criticisms of the Government, does he not find it strange that his own party’s Government did absolutely nothing about the problem for 13 years?

Photo of Grahame Morris Grahame Morris Llafur, Easington

Well, I do not think that is fair criticism. We are discussing financial matters and a deal to try to eradicate or minimise tax evasion in relation to the Swiss tax haven. I think that the last Government made a start and that significant progress was achieved. I do not have the figures to hand as to the sums involved, but the previous Prime Minister set the process in train. He sought to get agreement to close down tax havens in not only Europe, but further afield in the  Cayman Islands and the British colonies. He also had discussions about that with President Obama. I do not accept that as legitimate criticism.

Photo of Julie Hilling Julie Hilling Llafur, Bolton West

I thank my hon. Friend for giving way, and for being his normal generous self. Does he agree that one of problems in trying to close any tax loophole and stop tax leaking out of the country that should be paid here is that the rich continually find other methods of not paying their tax? No matter how much work the previous Government did and the current Government do, the rich will always circumvent it and find a new way to rip us all off.

Photo of Grahame Morris Grahame Morris Llafur, Easington

I do not think anyone can argue with that point. The goalposts are constantly moving.

My concern, which I sought to emphasise at the outset of my speech, is that by giving so much advanced notice of the proposed change, there is ample opportunity for individuals to make alternative arrangements. The fact that we do not have complete openness, and rely upon the Swiss authorities to identify and pay over moneys that they say are due to the UK Treasury, is a cause for serious concern. I am not convinced by the suggestion that the problem has been solved. The Swiss tax haven system seems to be safe and well, and now may even have been regularised and legitimised. My concern is that we might well be looking at HM Swiss tax haven.

Photo of Robert Syms Robert Syms Chair, Regulatory Reform Committee, Chair, Regulatory Reform Committee

In the long term, the solution is to get our tax rates down, so that people want to stay in the UK and pay UK taxes. The earlier debate about a tax rate of 50p or 45p and all the stuff that we have done in the Bill to close loopholes feeds places such as Switzerland and the Channel Islands, and if people have the ability, or the required advice, they will try to use those places. However, Switzerland has come a long way in the past 15 years. It was embarrassed by the revelations regarding various Jewish accounts, and was criticised by the World Jewish Congress for perhaps not paying money that it should have paid. It is now opening up a lot more. We have taken advantage of that with our tax treaties, as have the Germans.

The fact of the matter is that in two or three years, we will be able to measure whether the agreement lives up to what the Government are saying. If it does, good; if it does not, we will have to put more pressure on such places to be fairer in what they do. They have come a long way, and the British Government are very sensible. We live in a world where tax revenue is not what it should be and many things need to be paid for. Coming to a sensible agreement so that we get extra money is the right thing to do.

Photo of Sheila Gilmore Sheila Gilmore Llafur, Edinburgh East

I wonder whether the hon. Gentleman has any view on how low tax rates have to go for there to be no avoidance. Are there not serious issues over, for example, providing social care in our community, which tax has to pay for?

Photo of Robert Syms Robert Syms Chair, Regulatory Reform Committee, Chair, Regulatory Reform Committee

At some point, we will have to take a judgment—certainly when economic times are better—about what to do with the top rate of tax. I would like to see it back down to 40p, and perhaps below that. We  must increase the threshold, as the Government have been doing, so that people on lower incomes do not get pulled into the tax net. Providing we can do that, I see no reason why we cannot build incentives back into our system in the medium term.

We live in a competitive world where money swishes around. We have to be tax-efficient; if we are, we will generate revenue and income. The Government and the Minister must be congratulated for reaching that agreement. We will see whether it lives up to its billing, but if it generates money to pay for schools, the national health service, foreign aid and all the other things that the Government want to do, that is a good thing. I commend what the Government have done.

Photo of Ian Lavery Ian Lavery Llafur, Wansbeck

It is a pleasure to serve under your chairmanship, Mr Bone. I am not sure whether I would go as far as my hon. Friend the Member for Easington, but for the record, I think you are an all-right bloke.

When I was asked to serve on the Bill Committee, I was not sure what it would involve, but I have been pleasantly surprised. That is probably the correct thing to say, a because a lot of issues have come up through amendments and clauses that the vast majority of the public are unaware of. I have learned many things from Members on both sides of the Committee, and although I will not say that I have enjoyed it, it has been okay.

Clause 216 refers to the UK-Swiss Confederation taxation co-operation agreement. Put more simply, the agreement is between the UK and Switzerland to tackle tax evasion and avoidance by UK nationals who, for many years, had used the Swiss banking system for secrecy and tax avoidance. The agreement is an attempt to stop UK citizens taking advantage of the system that has prevailed in Switzerland for generations, traditionally allowing people to hide money. They have no intention of paying their dues or declaring their taxes or investments, and they deliberately do not pay the correct tax.

We pay our taxes through the pay-as-you-earn system. For generations, people have been getting away with not paying their taxes by hiding money abroad and siphoning it into Swiss bank accounts. I am from a mining community and I thought such things only happened in James Bond films, in thrillers. There are not many people in and around our community who would believe that that sort of thing goes on. That is why I was determined, as I looked through all the documents, to mention it and have a go at the situation.

It is estimated that between £4 billion and £7 billion in tax revenues would enter the UK from UK taxpayers, which is money that would previously have been hidden. It is shocking. I understand why Members across the Committee have been asking what the Labour Government did, and I would probably agree with them because tax evasion, tax avoidance, refusing to pay your way in society is not good enough whatsoever, regardless of who is in government. The Treasury has claimed that it will earn up to £5 billion a year from the agreement, but it would be useful if the Minister gave, as I am sure he will, details of how it came up with that figure.

Although I fully support all measures against tax avoidance and tax evasion, clause 216 raises a raft of issues. The first issue that intrigues me is that it covers  only individuals; it does not cover discretionary funds, foundation trusts, family trusts or other similar types of structures. I would have thought that not many Opposition Members have discretionary trusts, foundation trusts or other similar structures—not many at all—but I would have thought that, in Parliament, there will be quite a few MPs who have their finances in those types of financial arrangements. I have to ask why it is only for individuals. How many trusts, how many foundations, how many—

Photo of Mark Garnier Mark Garnier Ceidwadwyr, Wyre Forest

Does the hon. Gentleman actually mean “foundation trusts”? A foundation trust is a type of structure for a school or a hospital, not for a tax avoidance scheme.

Photo of Ian Lavery Ian Lavery Llafur, Wansbeck

Shall I answer that the way it should be answered? You are just actually trying to be quite clever and rude. I never mentioned foundation trusts; I mentioned trusts and foundations. If I wanted to mention NHS foundation trusts or school trusts, that is what I would have said. Does the hon. Gentleman want to come back in?

Photo of Mark Garnier Mark Garnier Ceidwadwyr, Wyre Forest

It is only a point of pedantry but, for the purpose of the record, a foundation trust is a different thing. The hon. Gentleman mentioned it three times. It was not meant to be a smart comment; it was meant to be a helpful comment, to ensure that the Hansard record is right, and that he has not said something that he did not mean to say.

Photo of Ian Lavery Ian Lavery Llafur, Wansbeck

I will take it as a smart comment, if that is okay with the hon. Gentleman. Reference to foundation trusts is made in the notes that we have. I am not in any way suggesting that those are foundation trusts in relation to the NHS or such organisations; they are trusts that individuals can be part of, with their families and others, and which are hidden abroad—that is the real point—and obviously, as I have mentioned, there are other similar structures.

Any individuals who want to move their money into one of those structures will, indeed, be protected. How and why can that be the case? How and why do the arrangements allow people, if they are caught out, to put their money within the given period into one of these—I will miss out “foundation”, for the sake of clarity—family or discretionary trusts or structures and that is then okay? The arrangements will not come into force until May 2013.

Photo of Jacob Rees-Mogg Jacob Rees-Mogg Ceidwadwyr, North East Somerset

Although it may not be covered by the treaty, what the hon. Gentleman is suggesting would be straightforward tax evasion. If someone, to get out of a tax liability, tried to put their money into a discretionary trust without disclosing it to the Revenue, I have absolutely no doubt that that would be illegal. Whoever did it would be taking the risk that the Revenue found out, because the penalties would be quite severe.

Photo of Ian Lavery Ian Lavery Llafur, Wansbeck

I accept what the hon. Gentleman says, but the whole point about such funds in Switzerland is that they are totally secret and anonymous. The big problem with that amenity is that people can do what they want and there is no paper trail with names or details, because that is not how the Swiss do business.

Photo of Jacob Rees-Mogg Jacob Rees-Mogg Ceidwadwyr, North East Somerset

Ought not the Government to get some credit for doing the best they possibly can, given that they cannot possibly change the law in Switzerland? Switzerland has a tradition of secrecy, which the Government are getting around to a considerable degree for individuals. The solution may not be perfect—there may be illegal ways around it—but the Government have done something admirable and remarkable to cut down on tax evasion and, therefore, they deserve the Committee’s support.

Photo of Ian Lavery Ian Lavery Llafur, Wansbeck

I would not say that the measure was admirable and remarkable but, as I have said, it is a step in the right direction.

Photo of Ian Mearns Ian Mearns Llafur, Gateshead 5:45, 26 Mehefin 2012

My hon. Friend makes a powerful contribution. Given the topicality of the discussions in the public domain about avoidance, the average man or woman in the street would be surprised to learn that the measures will not apply to annual salaries, royalties, income on property, directors’ fees or loans. I suggest to the hon. Member for North East Somerset that given the amount of money involved in avoidance and evasion, I am sure that a number of individuals will gamble on the fact that in any given year they will be the 501st individual, rather than the 500th or the 499th about whom the HMRC would inquire with the Swiss authorities.

Photo of Ian Lavery Ian Lavery Llafur, Wansbeck

I am not sure whether that was a question or a speech, but I agree with my hon. Friend. I understand that the notice period has been challenged; I believe that the hon. Member for Southport said that has been changed to January. If that is the case, I stand to be corrected; he obviously used the same notes as my hon. Friend the Member for Easington.

The arrangements for the agreement were made 17 months ago, which gives account holders advance warning and allows them to move their money anonymously from individual funds to some form of financial structure, without any paper trail. The Government have basically said, “We are coming after you. What are you going to do about it?” If the Government give people 17 months’ notice, it is obvious what they will do. If someone tells me that they will do something to me in 17 months’ time, I will do something about it. If I can avoid tax by moving my money from an individual account to a foundation or a discretionary trust, that is what I will do. It is obvious that that will happen.

Photo of Charlie Elphicke Charlie Elphicke Ceidwadwyr, Dover

I hesitate to remind the hon. Gentleman that the previous Labour Government had 13 years to do something about the matter, and they did nothing. I further hesitate to remind him that the leader of the Labour party is advised by Andrew Rosenfeld, who seems to have availed himself at various times of the facilities that Switzerland offers. If we are going to start throwing rocks, we should say that this Government have taken the right action—

Photo of Peter Bone Peter Bone Ceidwadwyr, Wellingborough

Order. Interventions are getting longer. Keep the interventions short. Every Member can speak, and they can speak again if they want to later on. Keep the interventions short, and the speeches whatever length you like.

Photo of Ian Lavery Ian Lavery Llafur, Wansbeck

I thank the hon. Gentleman for his intervention, and I have already made my position clear.

The problem of tax avoidance and tax evasion—dodging taxes—is not new. It will not change in the future, as has been mentioned by a number of my hon. Friends. This is simply about a number of people—I am not sure how many, but perhaps a Minister could tell us—who are well-advised, wealthy tax dodgers. It is very polite to call them evaders, or avoiders. They are tax dodgers. When it is people on benefits, they get called scroungers, and when it is rich people, they should be called dodgers.

Hon. Members:

Tax scroungers.

Photo of Richard Harrington Richard Harrington Ceidwadwyr, Watford

There is too much in this terminology. It seems to me that the kind of people we are talking about who have these arrangements in Switzerland are clearly taking part in criminal acts, whatever you call it.

On the other hand we have people like the advisor to the Leader of the Labour party, Rosenfeld, and Mr McKenna, who is the chairman or chief executive of Ingenious Media, one of the biggest tax avoidance companies in the whole country, and who is a confidante and advisor of the Labour leader. They are involved in avoidance, which, whether we like it or not, and I agree with you about dodging and scrounging—sorry, I do not agree with you, Mr Bone, although I am sure you will agree with me—

Photo of Peter Bone Peter Bone Ceidwadwyr, Wellingborough

Order. First, that intervention was far too long. Perhaps if I asked for long interventions, hon. Members would keep them short. Secondly, I have absolutely no views, on anything.

Photo of Ian Lavery Ian Lavery Llafur, Wansbeck

I have to disagree with the hon. Gentleman, because I have never once said, and I am not suggesting for one minute—I am not sure, he might have a lot more detailed information on this situation than I have—that these people investing money in Switzerland are all criminals and crooks. I would have thought it is across the board. It is people who have got money and wealth, and who see an opportunity of not paying taxes, and doing so legally, in the Swiss banks.

Photo of Richard Harrington Richard Harrington Ceidwadwyr, Watford

For clarification, if UK residents put money in Switzerland because doing so is anonymous, but they are due to pay that tax in the United Kingdom, surely that is a criminal offence. They should be dealt with accordingly, and I hope that HMRC do so.

Photo of Ian Lavery Ian Lavery Llafur, Wansbeck

There is an argument to be had with that, but I will not get into it at the moment. We are talking about avoidance and evasion, and that is a huge argument that we really should have. However, the regulations make it very easy for people to move money around in Switzerland anonymously.

Photo of Charlie Elphicke Charlie Elphicke Ceidwadwyr, Dover

Is the hon. Gentleman saying that anyone who uses a trust in somewhere like Switzerland or Jersey—who uses one, sets one up or benefits from one—is, basically, dodgy?

Photo of Ian Lavery Ian Lavery Llafur, Wansbeck

I think it is down to terminology. I am not saying that everyone is dodgy; it would be incorrect to do so. But what I feel, as a man of morality, is that some of the people who seek, whether through evasion or avoidance, to put their finances elsewhere and take revenue from this country, are dodgy and immoral. I am sorry, but that is the way I feel: it is wholly immoral. It might not be illegal, but if it is immoral, that is very important. We should all have morals. Again, that opens up a whole new argument.

Photo of Grahame Morris Grahame Morris Llafur, Easington

My hon. Friend is prosecuting some powerful arguments, but is not the nub of the problem that, because of the cloak of secrecy that surrounds the Swiss banking system, we frankly do not know whether the money is a consequence of avoidance or evasion? Until there is some transparency, we will not know.

Photo of Ian Lavery Ian Lavery Llafur, Wansbeck

Again, that is one of the reasons why Opposition Members are highlighting a number of potential problems with clause 216.

As a number of Members have mentioned, the Swiss authorities will give HMRC details of the top 10 destinations to which funds are moved—no names, no pack drill. People can move money from an individual bank account into a trust, and the Swiss authorities will give no details of who those individuals are or, indeed, where the money is being sent. They will only say, “These are the top 10 destinations.” Frankly, that is bizarre. The situation is hardly transparent and is less than helpful. There is no requirement on the Swiss to give any additional details on such moves.

In simple terms, people have been deliberately dodging taxes for many years and many generations. They have been saving and saving, putting the money into Swiss bank accounts. Then, they hear that they have 17 months’ notice of liability to pay tax. So to avoid paying the tax, they move their money without trace—completely anonymously, with no paper trail—into a new bank account, and a new bank is a new challenge. The losers are the UK Revenue, and the winners are the tax dodgers. In fact, some Swiss banks do not hold a single account in an individual’s name, which is bizarre in 2012.

If an individual account holder falls foul of the arrangement, they will remain anonymous. After 2013, if an individual account holder is found out or comes forward to challenge the required payment to HMRC, they will still remain anonymous. Under the clause, we are agreeing that someone who has deliberately evaded, avoided or dodged taxes in Switzerland will remain anonymous if they receive a bill after being found out. I disagree with that provision.

Will the Minister tell the Committee why HMRC is allowed to ask for the details of only 500 account holders a year? As my hon. Friend the Member for Gateshead has pointed out, a deal struck with the German Government a year or so ago was for 999 tax dodgers. It might just be me, but I am confused: why can we not say to the Swiss Government, “Give us the details of every one, not just 500”? How many are there? Five hundred? One thousand? Ten thousand? One hundred thousand? We can ask these people in Switzerland—because of their dodgy deals and the  dodgy deals of the dodgy people putting money into funds that avoid or evade paying taxes—for only 500 sets of details.

If the general public understood all this, they would shake their heads in disbelief. Why have we not simply asked—the Minister might be prepared to answer this question—for the details of every single person or the details of all individual account holders, whether they are just numbers or whatever? The entire agreement can be avoided if the account holder shifts their home branch. I will doubtless be corrected if I am wrong, but I think I am right in saying that if someone’s home branch is in Switzerland—it is strange to say that that is the “home branch”—and they move their finances within the period of the 17 month get-out clause to a different branch in Singapore, Hong Kong or another such area, they do not have to pay under the regulations.

The stark reality is that the agreement is totally unbelievable. I could not get my head around it when I was reading the briefing notes. Individuals who wish to carry on evading tax will quite easily carry on doing so, as I have explained, and they can end up paying less than they should have in the first place. HMRC will never know whether they should have paid more, because it has not got a clue who they are.

If the Government are confident that the agreement will work, why does the clause facilitate chasing people who are expected to move their money? Perhaps the Minister will answer that question. Why are wages or inheritance tax not subject to tax under the agreement? As I have asked before, how many individual accounts are there and how many have been disclosed to HMRC? How much revenue has been raised through the agreement and how much is likely to be raised in the foreseeable future?

As I have said on numerous occasions, the agreement is a step in the right direction. It is an attack on the dodgers using legal loopholes to deny the UK its much-needed taxes in times of austerity, but there are options available to the wealthy to avoid, evade or dodge tax payments. The arrangements must be more of a deterrent. Avoidance should be outlawed and such people should be brought to task. I pay my taxes; they should pay theirs.

Photo of John Pugh John Pugh Democratiaid Rhyddfrydol, Southport 6:00, 26 Mehefin 2012

I shall be brief. The best is always the enemy of the good, and the clause is good progress, in so far as it is progress. In fact, it is progress beyond the original announcement, because it is now compatible, I think, with the EU withholding agreement. That was one of the objections when the provision was first mooted, and I think the date has been advanced; I hope the Minister will confirm that. It will certainly lead to some migration of funds to places such as Liechtenstein and Jersey, so the obvious question occurs: is it good enough?

There is a sense of injustice when we get any kind of tax amnesty on the horizon. Clearly, people do not go to Swiss banks because of better customer service or because of the coffee served while sorting out the account. They go there, essentially, for the secrecy, so there is a strong prima facie presumption that that may have something to do with tax evasion. I think the hon.  Member for Poole was probably wrong in suggesting that the solution was lower tax rates, because people who go in for evasion want to pay no tax. They are not making a comparison between low tax and high tax; they simply resent paying any tax whatever.

There are weaknesses in the agreement—I think the Minister would probably accept that—but we cannot force the Swiss to write out a script that we want, because they are free agents and do not have to agree to anything. We should be looking at how good our agreement is compared with others, such as those the Swiss have with the USA and Germany. Most of them have the same characteristic weakness: that the Swiss preserve the right to secrecy of bank accounts, and so insist on doing the assessment themselves. Generally, the Swiss offer to do something about individual bank accounts, rather than those held in the name of trusts and the like.

The one area where we can make helpful progress is in looking at specific examples of the individuals that HMRC will refer to the Swiss, and how they are treated. There is a limit of 500, but that may be a trickier business than people think. We simply do not know—perhaps the Minister does—how many accounts are held in the name of UK, American or German citizens. Until we have that clarity, we cannot know whether 500 is a reasonable figure or not.

It might be helpful for the Committee to look at what the Americans have done. Between 2006 and 2010, they had the opportunity under some 80 tax treaties to make requests of the Swiss. During that four-year period they made 894 requests. Recent statistics show that 19,000 US citizens have accounts with only one Swiss bank. I read from that, not that the Americans are idle in chasing tax—they are not—but that the issue is a lot more complex than we think.

None the less, it will help convince people that we are on the right track if, as the hon. Member for Poole suggested, we have a proper report on the outcome—of the number of individuals reported, of the amount of tax regained and of the success achieved with the Swiss authorities. We are taking a step forward and we genuinely should not begrudge that.

Photo of John Mann John Mann Llafur, Bassetlaw

I shall make a few non-contentious remarks in order to be constructive and assist the Government. I have heard all the back-slapping on the Government Benches about how well they have done. I am concerned about the back-scratching that has gone on in reaching the agreement. There is a backdrop.

Colleagues might wonder why the Tory Government are suddenly pursuing tax dodgers in Switzerland when those are the people who fund them. There has to be a reason. Is it that they have suddenly seen the light? Or is it that there is an EU savings tax directive, which the Government are blocking, that would do the same thing? In other words, they are negotiating to get off the hook. What are they offering in exchange? No transparency of any kind. Where does that lack of transparency benefit their backers? There is already no transparency in Switzerland, the country with whom the agreement is made. However, if the EU directive comes in, it will apply to Crown dependencies, to Jersey, the Isle of Man, Guernsey, the Cayman Islands. Those are the  very places that their backers do not wish anyone to find out, be it personal or corporate, where the money is hidden.

The question was once posed, “Who owns Leeds United football club?” Another question arose in that context: “Where has the money gone?” I have been over to Geneva making investigations. I found a chap there called Peter Boatman, who owns 7% of the company that allegedly owns Leeds United. He owns 7%; it is the owning Leeds United that is “allegedly”. We are told publicly that it is worth nothing. As I am a big fan and a former business man, I would take the 7% off him and help develop the club and I offered to take it off his hands. I then find inquiries being made in the Leeds United boardroom about me, asking, “Who is this chap, trying to get hold of the 7% share that is allegedly worthless?” Then we look at the money that has disappeared—vast amounts have disappeared, doubtless legally—and I reckon that some of that has found its way to Switzerland.

We then look at the structure, which is the point in the context of what the agreement does not do. The other party is a chap called Patrick Murrin, who is based in the Cayman Islands. The deals have complex interrelationships between them, so the Swiss do not know what is in the Cayman Islands, the Cayman Islands do not know what is in Switzerland, and we do not have a clue what is in anywhere; all we know is that the money is gone. That is how people siphon money off personal or corporate accounts into tax havens. They do not do it in just one place—they even ensure that the places do not know. It passes on and on.

Taking the example of Vodafone, which had that outrageous deal with HMRC, it employs a single bookkeeper in Switzerland who spends 5% of his time bookkeeping for Vodafone. We can see the kind of arrangements there. The reason they have done it is to avoid the possibility of the European Union imposing something that would require transparency on the Crown dependencies. It is not just from Switzerland, but the rest of them, that we want to know where the money is hidden away. It is money that should be used to fund the police, the national health service and the Army, and to stop all the unnecessary cuts. That is what we are talking about in the clause.

There is another problem with the clause, even with what has been negotiated. Listening to the Tory Front Bench, backed by the Liberals as usual, what we hear is that we have the best deal—this wonderful deal. Unfortunately, this Thursday we are not going to play against Germany, but Germany has already beaten us when it comes to deals with Switzerland. The German deal is better than ours. German taxpayers are getting more back from Switzerland. We have been outmanoeuvred by Germany, and I would like to know whether Ministers have the guile to negotiate up, so that we get at least as high a take as Germany—it ought to be more—out of Switzerland. We are getting less at the moment. We have been outmanoeuvred by the Germans on taxation and on getting more back, because of this Government’s incompetence and the back-covering for the likes of Lord Ashcroft and their funders, who can hide away their money in Crown dependencies with no transparency. That is why the agreement is weak.

Photo of Jacob Rees-Mogg Jacob Rees-Mogg Ceidwadwyr, North East Somerset

On a point of order, Mr Bone. I think it is unusual for this House to criticise directly Members of another place.

Photo of Peter Bone Peter Bone Ceidwadwyr, Wellingborough

The hon. Gentleman is correct. I did not hear a direct criticism, but it was getting awfully like a direct criticism. I am sure that the hon. Member for Bassetlaw did not want to make a direct criticism.

Photo of John Mann John Mann Llafur, Bassetlaw

I would not want to criticise the leading Tory funder, who spent £250,000 trying to remove me, because all he did was increase my majority by sending 29 direct mailings to my constituents with a picture of David Cameron on a glossy leaflet. I was able to go to my voters and say, “There you are. That is how they spend their money. Here is all I can afford, but who would you trust?” I praise that kind of investment. Please throw more money my way in the future.

The principle of those who refuse to pay British tax has been outlined. We now call them Jimmy Carr and “morally repugnant” individuals. Those people have let down their country and do not pay their full tax. Jimmy Carr is prepared to change his arrangements. What about the friends, family, staff and backers of the Prime Minister, the Chancellor and their party? A whole wodge of them are not paying their taxes. We have no idea where their money is hidden away, because it is totally opaque to the lot of us. What we do know is that there are these kinds of arrangement.

I say to the Minister: less back-slapping on this agreement and more humility to say that this is tiny, but that we will catch up with the Germans. I would like a commitment that what is good enough for the Christian Democrats in Germany, in terms of what they are getting back from Switzerland, can at least be matched by this European-loving coalition Government. We could then congratulate them for beating the Germans in the next few months.

Photo of Catherine McKinnell Catherine McKinnell Shadow Minister (Education) 6:15, 26 Mehefin 2012

We have had a passionate debate on this subject and well-considered contributions from both sides of the Committee. This is an important matter, which is key to ensuring that people pay their fair share of tax. This is part of the solution to reducing the current deficit. I will summarise the points raised and reiterate to the Minister some of the particular concerns that we have. We support the agreement signed by the UK and Swiss Governments to secure billions in unpaid tax, according to the Treasury, on money held by British nationals in secretive Swiss banks. The measures were supposed to eliminate the tax advantages of hiding money in Switzerland and encourage account holders to emerge from secrecy and declare all their details and tax affairs to HMRC.

The Treasury claims it will secure £5 billion a year from the deal and of course, we strongly support any measures to recover tax from those who are trying to avoid paying it—the dodgers that my hon. Friend the Member for Wansbeck so passionately described. So the principles behind this deal are welcome, but the concern is that the plan is riddled with loopholes and exemptions that will severely undermine its potential to make anything like the sums the Treasury claims. My  hon. Friend the Member for Bassetlaw put that case strongly and with his usual vigour. Crucially, it allows people hiding their money to maintain total anonymity. This has been touched upon, but is a key concern. Instead of striking a deal to bring people out into the open, the Government seem to have bowed to the Swiss refusal to compromise on secrecy. The one concession, which has been discussed, was to give the UK permission to request and be granted the details of 500 individual accounts per year. That is welcome, but we know that it is only half the amount that Germany secured in an agreement, where they can request 999.

Photo of John Pugh John Pugh Democratiaid Rhyddfrydol, Southport

I wondered whether the hon. Lady knew of any deal with any country anywhere in the world involving the Swiss that has sacrificed the principle of banking secrecy?

Photo of Catherine McKinnell Catherine McKinnell Shadow Minister (Education)

The point we are making is—no, I cannot. The intervention was sprung on me. Obviously, I am talking about the number of requests that have been granted and the concern that it is half the amount that Germany has agreed with Switzerland. That is an interesting point, and one which I hope the Minister will respond to. I hope that the Minister will explain why the Government settled for half the transparency that Switzerland was prepared to give to Germany, and outline the discussions that resulted in that agreement. Apart from those 500, it would be the Swiss banks themselves that identify accounts that they believe should be subject to UK tax. As far as I understand it, no one from HMRC will be involved in the process even in an advisory capacity. That prompts the question: how will HMRC even know if there are others who have been inadvertently or, worse still, deliberately missed?

It will be the banks themselves that apply the levy and subsequent withholding tax, so HMRC will have no details about whether the right amount has been paid. That also makes it impossible to chase the funds that may have been moved. As my hon. Friend the Member for Wansbeck passionately explained, because nothing will happen until January 2013, account holders have been given significant notice of when the deal will come into effect. Who knows how much revenue may be lost in the interim? In theory, the value of the account in December 2010 will be subject to the one-off charge, but given that the banks will collect the levy, there is no way to enforce that charge if the money is moved before January 2013. Obviously, there is ample time for individual account holders to move their money to avoid the charge completely, so I would be interested to know whether that has been factored into the Government’s calculations of the amount of money that they believe they will be able to get from the measure.

The Government have tacitly accepted that a mass exodus is on the cards by writing into the agreement that, under its terms, the Swiss authorities will give HMRC details of the top 10 destinations of funds that move. No further details are required—no names, no facts, no figures. HMRC will be left trailing in the wake of account holders who saw it coming and chose not to stick around. It is clear that it is obvious to HMRC that this is a natural response to the forthcoming measure, so some reassurance that that effect has been factored into the accounting would be useful.

Can the Minister tell us what steps the Government took to press for more details of departing clients? We look forward to the Minister’s response about the total surrender of secrecy, but if more information could be obtained, that would provide a more useful source for HMRC which may need to track particular individuals concerning not only their Swiss bank accounts but other offshore accounts.

As my hon. Friend the Member for Wansbeck highlighted, it is incredible that the measure will only apply to accounts held in individuals’ names and does not cover foundations, discretionary trusts or any other non-individual structure, and any money already in such a structure will be exempt as funds will be moved out before January 2013. Not all types of income will count—wages, royalties, income on property, directors’ fees and loans will not be taxed. When the measure was drawn up, inheritance was not included, but a welcome amendment has now been made, and inheritance tax at 40% will be charged on the death of an account holder who should be liable. We hope that works in practice, as it is a welcome measure. Again, we do not know who these account holders are, and we have to rely entirely on the Swiss banks to determine who should be liable for inheritance tax, and to collect it.

The deeper we go into the agreement, the more concerns emerge. Lots of income is exempt; many types of account are exempt; account holders have been given time to move their money, and are expected to do so; and ultimately, HMRC’s role in enforcing tax justice has been outsourced to the Swiss banks. If the deal were really to raise £5 billion, that would be welcome, but there are massive problems with the agreement, which undermine the Government’s claim. Will the Minister publish full costing reports to explain the figure further, and will he clarify whether he has considered the probability of most the money being removed before the agreement comes into force?

Photo of David Gauke David Gauke The Exchequer Secretary

We have had a thorough debate on the clause, and I thank hon. Members for their contributions. I welcome the support offered by the hon. Member for Newcastle upon Tyne North for the agreement’s objectives. I will try to address some of the points raised by hon. Members and to provide some clarification where that is necessary.

Members have asked when the agreement enters into force. There has been some confusion about January, May and so on, so let me try to clarify that. The agreement enters into force next January, and we will get 500 million Swiss francs up front in February, which is the equivalent of some £350 million. That will be set against future payments once 1.3 billion Swiss francs are collected on our behalf.

Why does the agreement not come into force before January 2013? The agreement needs to be ratified by both the UK and Swiss Parliaments. Processes also need to be put in place in Switzerland to identify those covered by the agreement and to collect payments due. The May date, to which the hon. Member for Easington referred, is the point by which clients of Swiss banks who are UK-resident will have to inform the banks of whether they are to pay the sum or to disclose all details.

A concern has been raised about what happens to those who take their money out of Switzerland before January 2013. Anyone who does that escapes the agreement,  but that includes all aspects of the agreement, including, most importantly, the clearance they would otherwise receive. They will remain subject to tax, interest and penalties of up to 200% of the tax due. They will also face the risk of criminal investigation. Indeed, the risk of being caught will increase due to a number of HMRC initiatives, including the creation of the offshore co-ordination unit, dedicating an additional 100 inspectors to tackling offshore evasion.

Photo of Ian Lavery Ian Lavery Llafur, Wansbeck

How big a risk will that be if the deals are totally anonymous?

Photo of David Gauke David Gauke The Exchequer Secretary

Of course, there are ways in which HMRC can acquire information. HMRC acquires information from time to time, and at the moment those individuals are anonymous and have Swiss bank accounts. Were they to leave Switzerland, the agreement would have essentially chased them out of the Swiss jurisdiction.

The number of options available to those who are hiding the proceeds of tax evasion, or who are hiding sums, is diminishing all the time. The UK remains determined to close the net on those individuals. We are certainly in no worse position as a consequence of their fleeing Switzerland. Indeed, there are risks for those who are evading tax. As they move their accounts around, the opportunities increase for HMRC to acquire more information. Without the agreement, those individuals could continue to have their Swiss bank accounts, and nothing would particularly threaten their anonymity.

Photo of Grahame Morris Grahame Morris Llafur, Easington

Will the Minister give an estimate of the number of individuals involved? I know the Swiss authorities are going to give us the names of only 500. If we divide the lower estimate of how much revenue the measure will raise by 500, the figure is some £8 million per individual according to my maths. Is that correct?

Photo of David Gauke David Gauke The Exchequer Secretary 6:30, 26 Mehefin 2012

I will come to the 500 issue, on which I can provide some helpful clarity.

On the numbers involved, as all members of the Committee will be aware there is banking secrecy in Switzerland, which means it is difficult for us to have an accurate number of how many UK residents have Swiss bank accounts. It is not possible to give a robust estimate at this point. None the less, the steps that we are taking with this agreement, and the other steps that we are taking to address offshore tax evasion, substantially strengthen our position. As hon. Members have pointed out, HMRC will receive information at a global level on the top 10 destinations used to hide money, which will help us to focus future compliance efforts and to put pressure on jurisdictions that will be the recipients of such funds. I will talk briefly about the estimates for yield in a moment, but we have taken into account an estimate of the capital flight that will occur. We have no doubt that some people will leave Switzerland and go elsewhere, and we have taken that into account in our estimates.

Photo of Ian Mearns Ian Mearns Llafur, Gateshead

Given the anonymity in the Swiss banking system, which the Minister has highlighted, how will the Swiss authorities know that the money deposited in a Swiss bank account comes from a British-domiciled account holder if the money goes into the bank account from a third-party country?

Photo of David Gauke David Gauke The Exchequer Secretary

Swiss banks will have a responsibility to comply with the agreement. To correct the hon. Gentleman, the test is residence rather than where someone is domiciled, by and large. We expect Swiss banks to enforce the agreement properly and to ensure that any UK resident is faced with the choice of declaration or paying up. If a UK resident is not faced with that choice, they do not get the benefit of the clearance regime and they will still remain liable for the tax and the penalties that would otherwise normally apply.

The question was asked whether we are essentially subcontracting our tax law and administration to the Swiss, and specifically the Swiss banks. We retain complete control of tax law, tax rates and tax administration; we are ceding no such control to the Swiss. We are working with their banks and authorities to assist in recovering tax that HMRC would have little prospect of recovering without such co-operation. We still require income and gains to be declared to us, but tax will be collected at source. It is not about cutting deals with tax evaders; it is about bringing in money that should have been paid to the UK. That money has, until now, generally been beyond the reach of tax investigators, but the innovative approach taken in this agreement means that historical liabilities can be settled, effective future taxation can be secured and a long-running problem can be resolved. Those who are under investigation, those who have had an opportunity to come clean but failed to do so and serious criminals will not be able to benefit from the tax finality that the agreement offers.

A question was asked about the number of requests that we can make each year, and a comparison was made with Germany. It is worth pointing out to the Committee that the new information exchange provision is in addition to, rather than instead of, existing information exchange provisions. It has been agreed that 500 requests for information may be made each year under the new provision. If those requests are generally successful, more requests may be made in the following year. Regarding the comparison with Germany, it is generally accepted that far more accounts in Switzerland belong to German residents than to UK residents, so this is a much bigger issue for the Germans. I do not accept that the Germans have a better deal. In proportionate terms, I suspect that the UK has done much better .

Photo of John Mann John Mann Llafur, Bassetlaw

The Germans say that, proportionally, they have done a lot better. I believe that they are suggesting a 41% taxation rate. They specifically identify themselves as having done better than we have. How can the Minister be so certain of his facts?

Photo of David Gauke David Gauke The Exchequer Secretary

The hon. Gentleman has moved on to the issue of tax rates. I do not know whether he missed this part of my speech earlier, but as a consequence of negotiations that we have had, our arrangements now match the German arrangements, and indeed can go up to 41%. The agreement there is the same as the German position.

An issue was raised about the yield figures. Again, I think there might have been a little confusion there. The figures are based on the best information that we have, but there is a degree of uncertainty. The one-off levy is the element that relates to the past, and we expect it will raise between £4 billion and £7 billion. There will then be a smaller annual amount that relates to the future.  I think a couple of hon. Members have said that there would be £5 billion a year. That is not what we are saying. We anticipate £4 billion to £7 billion initially, and then a small amount subsequently. The actual numbers will depend on behaviour.

The question was also asked, why does the future tax not apply to employment, loans, and so on? That is because we are talking about a withholding tax on financial investments, administered by banks. It can apply only to returns on investments held in banks and similar institutions. It is not designed to apply to employment and so on.

A point was raised about how banks will determine beneficial ownership. That also relates to the issue of whether complex ownership structures such as trusts will apply. They will; banks will be required to look through complex structures to identify whether the beneficial owner is a UK-resident taxpayer. Assets owned by so-called domiciliary companies—that is, legal entities, including trusts, that are not commercial operations—will be in scope if they are controlled by a UK taxpayer. Banks are required to use all information at their disposal to determine whether assets are beneficially owned by a UK-resident taxpayer. It is not sufficient merely to establish the account in the name of a company or trust if, as is often the case, the ultimate beneficial ownership is known to the bank.

My hon. Friend the Member for Southport asked whether any other jurisdictions had obtained an automatic exchange of information. The answer is no. There is a question as to what exactly we could do. If the argument is that we must insist on an automatic exchange of information, it is necessary to reach an agreement with the Swiss. That is what we have done, and we believe we have done so on very good terms.

Finally, the hon. Member for Bassetlaw enlivened proceedings, as usual, with the conspiracy theory that the reason for the agreement was to allow the Government to block the EU savings directive, and that it was all some great cunning plan. I am afraid that conspiracy theory collapses when I point out that this Government support the amended EU savings directive. It is in fact Luxembourg and Austria that are blocking it, not the UK Government. We are keen for it to proceed.

I hope that those points are helpful to the Committee. I hope I have provided some clarification on the points that have been raised, and I hope that the Committee will seize the opportunity to proceed with clause 216, schedule 35, and the agreement with Switzerland.

Amendment 201 agreed to.

Clause 216, as amended, ordered to stand part of the Bill.