My Lords, we have taken the strategy of objecting to the clause because as a matter of principle we want to discuss with the Minister what is going on. Of course, it is not that we are objecting to the application of GAAR to this policy; we want to address some issues with regard to tax avoidance. I must say that I will make a note for any succeeding Labour Ministers whose path happens to cross mine in the future that when we produce concepts that will be abbreviated down to four letters, they might like to produce a somewhat more attractive word than GAAR. Life is difficult enough. We do not often speak the language of Shakespeare in the House, but to constantly use initials that grate on the mind the moment they are introduced is a misfortunate. However, it is GAAR that we will be talking about and that is the word I shall use throughout my contribution. I like to think that I am giving the Minister due notice that I shall think of something more felicitous for the Government 15 months from now—but that is probably wishful thinking on my ability rather than a prediction about whether we will have a different Government in 15 months’ time.
GAAR is not an answer to all tax avoidance, as is freely recognised. In fact, when looking at the returns thus far, we are all too well aware of how little they measure up to the massive challenges presented by those who seek to avoid tax with dextrous moves and huge resources. We know the ability of multinational organisations to indicate, in any administration that has an effective tax scheme, that very little of their operation is ever tax-worthy and tax-liable. Of course, a great deal of their activity is carried out in administrations that have precious little in the way of ability to abstract tax from them. That is to say nothing of the transfer of tax out of a significant country in which they operate: for example, the UK, which is a very significant market. The loss of tax revenue to any country is to be deplored when the activities of these companies are so significant in this country.
GAAR, as it stands, is so narrowly defined that the number of occasions on which it can be usefully deployed is obviously limited. The scale of the concept that the Government are working on at present is ludicrous in relation to closing the tax gap that we have all exemplified and identified. It will not go anywhere near closing the tax gap of any one multinational whose figures have come to light in recent years, let alone the totality of the position. We want to prevent that kind of abuse being extended. There is no doubt that the public reaction to those who avoid tax in an extensive and often blatant way is to regard it as utterly unacceptable.
The GAAR is in danger of becoming a bit of a fig leaf for the Government in that, when a difficult issue about tax abuse and avoidance is raised, reference can be made to the GAAR and everything will be resolved. However, the figures utterly and totally belie that fact. That is why I am asking the Minister to reassure the Committee that he will keep in mind the effectiveness of the GAAR. A government scheme for closing down tax avoidance should do more to close a tax gap than they suggest this policy will.
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Members of the Commons asked about penalties in an attempt to stiffen the Government’s implementation of the GAAR. The Minister there said that attaching penalties was a very complex matter and that there needed to be a period during which the GAAR could be bedded in and taxpayers and advisers could get to grips with it, but that future action might be possible. That is another way of getting to the next general election without answering a significant question about a feature of legislation. We thought that the response in the other place was wholly unsatisfactory. I know that the Minister will make strenuous efforts to give me greater reassurance than my honourable friends obtained in the other place when this issue was discussed there.
The Chartered Institute of Taxation also highlighted the fact that it is not always clear what is considered abusive in this context. It gives the example of salary sacrifice, which, of course, is much in use at present. We need greater clarification for employees. It is important that tax avoidance is tackled effectively. The amount of uncollected tax rose last year. The much-vaunted agreement with Switzerland produced an absolutely minute amount in comparison with what the Chancellor had indicated. I say a “minute amount” because, if the Chancellor gives a figure for expected returns and then gets about a quarter of that, it is a pretty severe misjudgment.
I do not wish the clause, which introduces the GAAR into the Bill, to be agreed as legislation is meant to be effective and the GAAR’s record is far from effective in this context. How does the Minister intend to ensure that it is effective in this instance?