On 21st January 2021, the Bishop of St Albans chaired a debate on a reports by Church Action for Tax Justice:
The Lord Bishop of St Albans: To ask Her Majesty’s Government what assessment they have made of the reports by Church Action for Tax Justice (1) Tax for the Common Good, published in February 2019, and (2) Fair Tax Now, published on 4 January 2021.
My Lords, I thank all those speaking in this evening’s debate. I am no expert on tax, but it does not take an expert to see that there are some deeply entrenched tax inequalities. This 2019 report by Church Action for Tax Justice, and its 2021 report, Fair Tax Now, are more relevant than ever, not least with the financial impacts of the Covid-19 pandemic being felt in all parts of society, and with Her Majesty’s Government’s commitment to “levelling up”.
The proposals laid out by Church Action for Tax Justice seek not to harm wealth generation, but to level the playing field and facilitate a fairer tax system that ensures that those with the deepest pockets do their duty to the societies that provided the context in which they were able to amass their wealth. This is a vast topic, so I will make a couple of preliminary comments and then suggest four of the most important areas that must be addressed.
Democracies rely on the population accepting that taxes are broadly equitable, yet there is now a consensus that, for example, many international online companies are not paying their fair share of taxes in this country. At the same time, there is a delicate balance between encouraging the generation of wealth and ensuring that the burden of social costs is shared as equitably as possible.
Of the four most important areas to be addressed, the first is tax havens. For the United Kingdom, tax avoidance remains a major problem, with the annual tax gap estimated at £31 billion per annum. However, even more damaging is the infrastructure enabled by the UK that allows tax avoidance on a global scale. The presence of tax havens, whether they be British Overseas Territories or Crown dependencies, combined with their close connection to the financial might of the City of London, facilitates an international network that syphons money out of nations and into these jurisdictions, with their low tax, weak legislation and easily exploitable loopholes. Noble Lords may recall that the British Virgin Islands was the most popular tax haven mentioned in the Panama papers.
While I am pleased that the British Overseas Territories and Crown dependencies have all committed to publish public registers of beneficial ownership by 2023, these territories will remain lucrative places to those seeking to avoid paying tax. According to the 2019 corporate tax haven index, four of the top 10 havens globally were UK associated territories: the British Virgin Islands, Bermuda, the Cayman Islands and Jersey. The 2023 changes may go some way towards reducing their use, but the reality is that the City of London and the UK’s associated territories will continue to be at the centre of a network for international tax avoidance. Furthermore, should the Government choose to move ahead with free ports, and essentially create onshore tax havens within the UK, a corporate tax rate race to the bottom may be unleashed.
Secondly, I have some comments about income tax and national insurance. Domestically, we face structural problems in our tax system. It simply cannot be right that, when all tax is taken into account, the bottom 10% of people pay 42% of their income while the top 10% pay just 34.3%. Without doubt, part of the problem is that we have a progressive tax in income tax, along with a regressive tax in national insurance. Rolling up both of those into a single standardised progressive income tax would reduce bureaucracy and contribute towards rebalancing the percentage of income paid in tax. That would only partially solve the issue; it is the lower rates of capital gains tax, most beneficial to those with assets, that reduce the overall tax rate of the wealthiest. Whether by the incorporation of capital gains tax into a single progressive tax or by making capital gains more progressive and in line with general income tax, the current system requires reform to equalise the tax across wealth brackets.
Thirdly, there is council tax, which also fails accurately to account for the financial conditions of those who pay it. I think that a tax based on property valuations from 1991 is parochial and antiquated. The highest tax band, for properties worth £320,000 or more in 1991, fails to take into account changes to regional house prices since then and creates no differentiation between any properties worth more than £320,000: a property now worth £3 million pays equal council tax to a property worth £350,000. Furthermore, it is again designed as a regressive tax that results in the poorest paying a higher proportion of their income on council tax than those who are wealthier. Those on the highest incomes pay just 1% of their income on council tax; the lowest decile, conversely, pays 9%. According to Citizens Advice, it is the most common debt problem faced by families in the UK. At a minimum, it needs updating to reflect modern house prices, alongside the addition of a new higher bracket. Ideally, though, it should go further to better account for income disparities and to equalise contributions.
Lastly, I will say a word about corporation tax and VAT. Over the past 30 years the taxes that impact the poorest have steadily increased, such as VAT or council tax, while those that impact the wealthiest have gone down—for example, corporation tax and capital gains tax. Between 1975 and 2020 the relationship between VAT and corporation tax has virtually inversely correlated, with VAT going up and corporation tax going down. Although the EU set a base standard rate of 15% VAT, the UK has had 20% VAT since 2011, while continually reducing corporation tax during the same period. Now that we are no longer subject to the EU’s VAT requirements, perhaps the Government might consider slightly rebalancing corporation tax and VAT to deliver a fairer settlement to citizens and business alike.
I hope I have laid out quite clearly that, far from being some radically redistributionist document, the proposals from Church Action for Tax Justice seek only to induce fairness in the tax system and prevent the heaviest burden falling on the poorest. Much is said about the future now that we have left the EU. Some of us fear that it may give licence to people to change in ways that further divide our country in terms of people’s wealth. My hope is that we will take a lead in our world to think how we can use this opportunity creatively, so that everyone in our society has fair responsibilities and fair rewards for all that they do.
Extracts from the speeches that followed:
Lord Hendy (Lab) [V]: I congratulate the right reverend Prelate the Bishop of St Albans on securing this debate. I wholeheartedly endorse the reports Tax for the Common Good and Fair Tax Now. If we are to rebuild a sustainable and just economy and end the blight of inequality, the evil of tax-dodging by powerful corporations, facilitated by accountants and lawyers, must be ended. For the reasons set out in those reports and by other noble Members in this debate, we need to make taxes of all kinds less regressive and to tax wealth, property and inherited income properly. We need to work internationally to prevent national competition on low taxation and end the blight of tax havens.
One thing that Covid-19 has shown those of us who, unlike the right reverend Prelate the Bishop of Portsmouth, are not economists is that Governments are not dependent on tax income to balance public expenditure in a notional account book. It is now clear that they have other sources of spending for the public good, especially in times of low inflation. But tax has functions beyond simply raising revenue for the Government. Most particularly, it is a means to reduce inequality—the most appalling blight on our society, as the reports make clear. The consequences of economic inequality on every aspect of life were drawn to our attention a decade ago in the work of Wilkinson and Pickett, and are strikingly reiterated in the latest of the reviews by Sir Michael Marmot and his team, Build Back Fairer: The COVID-19 Marmot Review. The adverse impact of inequality on the economies of the world has been pointed out time and again by the OECD and the International Labour Organization.
Baroness Ritchie of Downpatrick (Non-Alf) [V]: My Lords, I congratulate the right reverend Prelate the Bishop of St Albans on securing this important debate.
There is absolutely no doubt that there are major tax and welfare inequalities. If the Government are serious about their levelling-up agenda, to minimise and eliminate those inequalities they need urgently to look at tax reform, to ensure that it is less regressive and more progressive, and at welfare reform, to ensure that the current inequalities are eliminated, with a particular focus on universal credit.
I also commend the campaign organisation Church Action for Tax Justice, which published two reports containing proposals on creating a fairer tax system, many of which I find myself in total agreement with.
This debate is very apposite at the moment, in that the whole Covid pandemic has compounded the situation, with rising levels of poverty, the growing use of food banks and many people out of work, and the uncertainty of whether that work will exist several months down the road, whenever we are on the other side of the vaccination implementation programme and, we hope, the pandemic withers away. However, there is absolutely no doubt that those inequalities have to be addressed through reform of the taxation system and of welfare. Both go hand in hand.
Lord Sikka (Lab) [V]: My Lords, I refer to my interests in the register. I congratulate the right reverend Prelate the Bishop of St Albans for initiating this debate. I support the reports by Church Action for Tax Justice.
Curbing tax avoidance and evasion is vital for building a just society. The Government talk about it, but have delivered far too little. HMRC has stated that, during the last decade, it failed to collect around £350 billion in taxes because of avoidance, evasion and errors. Other models of the tax gap estimate the amount to be between £58.6 billion and £122 billion a year—that is around £1 trillion over a decade.
One explanation is that the Government are too soft on the tax avoidance industry. On numerous occasions, courts have adjudged tax avoidance schemes, manufactured by big accounting firms, to be unlawful. For example, the Supreme Court, in the case of HMRC v Pendragon plc, considered a KPMG mass-marketed avoidance scheme as “an abuse of law”. Despite strong judgments, no big accounting firm has been investigated, fined or prosecuted, although they are awarded plenty of taxpayer-funded contracts. Can the Minister tell us why these firms continue to be indulged? Can she name even one instance where the Government have fined or prosecuted any big accounting firm for peddling unlawful tax avoidance schemes?
Baroness Sherlock (Lab) [V]: My Lords, I thank the right reverend Prelate the Bishop of St Albans for opening this debate so well and noble Lords for some cracking short speeches. I thank Church Action for Tax Justice for both reports. As an Anglican priest, the first report got me at the introduction by referring to the hard time that tax collectors get in the Bible. To be fair, in New Testament times tax collectors were more like a cross between gangsters and wartime collaborators.
It is now time to rehabilitate those who collect tax, and to make the case for taxation as a mark and means of our shared common life and our willingness to be responsible, one for another. Rehabilitation depends on taxation being fair and being seen to be fair. I cannot do domestic taxation in three minutes, so I will say two quick things. Levelling up has to address income and wealth, and you cannot look at personal tax without also looking at social security.
Baroness Penn (Con): My Lords, I congratulate the right reverend Prelate the Bishop of St Albans on securing this important debate and thank noble Lords who have spoken for their thoughtful contributions. From listening to those contributions it is clear that many noble Lords agree that resilient, fair and responsive taxation is an essential public good. I am glad to have this opportunity to update the Committee on the Government’s work to ensure that our tax system continues fully to serve society.
However, I will start by saying a few words on the impact of Covid-19. The pandemic has affected tax revenues, but it has also highlighted the agility of our tax system to cope with unprecedented circumstances. Businesses in sectors worst affected by the crisis have benefited from VAT cuts and a business rates holiday, while our time to pay system has given financially distressed individuals the opportunity to postpone tax deadlines. The Chancellor will, in due course, take a decision on any role tax may play in returning the public finances to a sustainable footing at the Budget on 3 March. I hope, therefore, that noble Lords will understand that I cannot speak any further on that today.
(…)
I hope that I have communicated some of this Government’s work to create a fairer and more sustainable tax system. It was a wide-ranging debate, covering work at home and internationally. We are committed to a tax system that helps people and families with the cost of living, funds first-class public services, and creates an environment for businesses to thrive. I am sure noble Lords will agree that these are laudable goals, and we are making strong progress towards them.
I finish by reassuring the right reverend Prelate on his fears on our path having left the EU. I think those fears are unfounded, and instead I endorse some of the hopes that he expressed for our path in coming years. Having left the EU, this Government’s core agenda is about levelling up across the UK. A well-functioning, fair tax system will be a key part of that.
The Church of England in Parliament 
You must be logged in to post a comment.