5.19 pm

John Pugh (Southport) (LD): I congratulate the right hon. Member for Oldham West and Royton (Mr Meacher) on stimulating this debate. I also welcome the Exchequer Secretary, who survived the ministerial cull. We all welcome his dry wit and expertise. Indeed, I debated this very subject with him in Westminster Hall about a year ago.

As other Members have said, we live in a society where the rights, benefits and privileges that people extract from society are often disconnected from the obligations that they feel towards it. That brings the spectacle of people benefiting from society and thriving because of it, but avoiding contributing to the tax base through either evasion or, more commonly, avoidance. Tax avoidance is a deliberate attempt to frustrate tax law and the intentions of tax legislators. It differs radically from tax evasion, whereby one deliberately ignores or flouts the letter of the law.

There are various remedies for tax avoidance. One, as has been suggested, is to simplify the law to make avoidance more evident and stark. That is what the Mirrlees review was, in part, about. Another remedy, which has been very attractive to people in this place, is to outlaw individual tax avoidance schemes piecemeal. That has been tried in Finance Act after Finance Act, only for further countermeasures to be needed for other schemes. That exercise is a bit like a cat chasing its tail—it is endless. That is why I favour a general anti-avoidance rule and have argued for it consistently in this Parliament and the previous one. That is also why the Government are considering it and why it is in the coalition agreement.

I do not want to comment on Mr Aaronson’s specific proposals, but a GAAR essentially bans schemes that have no commercial benefit other than to frustrate the

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intent of the law. The right hon. Member for Oldham West and Royton has argued that the progress does not look as though it will be enough. Other people have argued that it goes too far. There are those who believe that we should go only by the absolute letter of the tax law and therefore oppose a GAAR. There are Government Members who believe that. I call such people tax fundamentalists, because they argue that a GAAR would create an element of tax uncertainty and that what is not expressly prohibited should be allowed. They add to that the argument that if we had a GAAR, there would be other disbenefits, such as an increase in litigation and a reluctance to make investment decisions.

More fundamentally, some people argue that it cannot be wrong to do what is not formally and expressly forbidden. That argument is astonishingly weak. It reminds me of the arguments that cropped up during the expenses scandal, when people argued that it was acceptable to buy duck houses or to flip homes because it did not breach a particular rule, even though it frustrated the intentions of the scheme. It is worth noting that there is under-specification in other areas of law, not just in tax law. Disturbing the peace encompasses a number of scenarios, as does defamation in civil law.

None the less, there are ways in which the operation of a GAAR in tax law can be made more certain to address those concerns. The first is through the pre-vetting of tax schemes and disclosure. The previous Government went some way down the road to ensuring that that could and should happen. The second is, during the passage of the legislation, to make clear the intent of the law and what it is contrived to do. The objection about uncertainty is slightly exaggerated. When Tesco set up a holding company in Liechtenstein for its properties, it received no commercial benefit, unless it was in avoiding the property taxes that the Government expected it to pay.

In a recent speech, the Exchequer Secretary spoke about things that would be covered:

“Buying a house for personal use through a corporate entity to avoid”

stamp duty

“is avoidance. Channelling money backwards and forwards through complex networks for no commercial reason…is avoidance. Paying loans in lieu of salaries through shell companies is avoidance. And using artificial ‘losses’ deliberately accrued to claim back tax is avoidance.”

Those examples give a clear indication of the kind of things that should be caught by a GAAR. As my hon. Friend the Member for Bristol West (Stephen Williams) said, we can contrast that with other things that would not be caught, such as charitable tax relief. In that case the Government encourage people to organise their tax affairs in a way that causes a loss to the Exchequer.

We can speculate for as long as we want on the effects of a GAAR, but in some ways we do not need to, because we have a certain amount of evidence to go on. A lot of countries have GAARs in place, and not all of them produce uncertainty and litigation, although some do.

Stephen Williams: I believe that the UK is actually unique in not having a GAAR or a rule that is called something else but is effectively a GAAR.

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John Pugh: Yes, and that indicates clearly that legal uncertainty and endless litigation are not central and natural features of a GAAR. They do not happen in other countries.

We cannot excuse a poorly drafted GAAR, so we have to get it right. We cannot console ourselves with the thought that the only victims of a poor GAAR are corporate bodies, high net worth individuals and so on. However, a GAAR is a very important tool, and there remains no convincing general argument against it.

Mr Deputy Speaker (Mr Nigel Evans): Order. Before I call the Front Benchers, I remind them that it would be appropriate to give Mr Meacher a couple of minutes at the end to wind up the debate.

5.25 pm

Catherine McKinnell (Newcastle upon Tyne North) (Lab): I commend my right hon. Friend the Member for Oldham West and Royton (Mr Meacher) for securing this debate on a matter that we all agree has rightly risen to a high place on the political agenda. There is much that we can agree on today, and I think we all agree that Parliament is at its best when we agree on matters and stand together to improve them.

We have heard well considered and valuable contributions from many respected voices in the Chamber, but I want to pay particular tribute to my right hon. Friend the Member for Barking (Margaret Hodge), whose work with the Public Accounts Committee has helped to shed a lot of light on these issues. She made a powerful and sensible speech.

The financial crisis of 2008 led to a radical domestic and international shift in the approach to tax evasion and avoidance. The lack of transparency in the international financial system was rightly identified as a significant threat to global financial stability, and calls for change rightly came from all sides. The crisis has also led to the significant challenge of public expenditure reduction that we now face, which adds to the urgency of ensuring that every individual pays their fair share of tax and contributes to that effort.

As many Members have said, among the majority of hard-working people who pay all their taxes there is understandably growing hostility towards those who manage to avoid paying their fair share. Given that the Government are facing an increase in their borrowing—it is up by a quarter on last year’s forecast, partly as a result of falling tax-takes—I have no doubt that the issue has also risen high on the Government’s agenda.

The Government have measured the tax gap—the difference between tax owed and collected—at about £35 billion. There has been some debate about that figure today, and there are other estimates. The TUC’s estimate is much larger, as is that of the Tax Justice Network, which puts the figure in the region of £120 billion. We all appreciate that it is not an exact science, but whatever the figure, we accept that a significant proportion of the tax revenue that is due is going uncollected. If we closed the tax gap by half or even a quarter, we would avert real pain and suffering among the most vulnerable in our society, who rely on the services provided through public expenditure.

Members have rightly drawn a clear distinction between evasion and avoidance, and we need to remember that a small minority of people are involved. However, it is

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clearly not acceptable for those people to think that they can get away with avoiding their obligations if they buy the right advice or pay for sophisticated tax avoidance products.

Like benefit fraud, tax evasion—and avoidance in some cases—undermines the confidence of ordinary taxpayers in the legitimacy of the system. I think we all agree that the world has changed and that there should be no hiding place for tax cheats. The previous Labour Government had a record to be proud of in tackling avoidance, both domestically and internationally. Many of the comments today have paid tribute to that. In 2004, we introduced a requirement to disclose tax avoidance products in advance, to, I remind Members, a storm of protest. In 2009, we strengthened the regime and that has transformed the fight against avoidance—I am sure that the Minister and Members on both sides of the House would agree with that. More than 2,000 schemes had been identified up to March this year, protecting more than £12 billion of revenue.

In 2009, we also set up the high net worth unit and have received the good news this week that an extra £500 million in tax has been identified and recovered. When in government, we also introduced a code of conduct on tax for banks, as well as legislating on debt buy-back and credit loopholes that some companies were exploiting. I know that the Minister recognises the value of the steps we took in government to make progress on this issue and over a 10-year period we recovered more than £16.4 billion in particular targeted tax avoidance measures.

Internationally, as president of the G20 we led a global clampdown on tax havens and offshore evasion. As many hon. Members have said, that is an important aspect of what we must do if we are to close the tax gap. Similarly, I would be interested to hear comments from the Minister today about the measures he is considering to enter into international agreements along the lines of the agreement we negotiated with Liechtenstein and between the UK authorities and Belize. How much revenue does he consider has been saved through those agreements and what plans do the Government have in place to continue that work and to try to shut down some of the avoidance measures and tactics that are being exploited?

In government, Labour also persuaded the OECD to develop best practice guidelines on country-by-country reporting, an excellent initiative that was put on the agenda by international development organisations, particularly Christian Aid, ActionAid and Oxfam. Tax evasion costs developing countries billions of pounds every year in lost revenues and is a barrier to social and economic development, but in the Finance Act 2012 we saw changes to the controlled foreign company rules and many charities have expressed concerns that they will make it easier for UK companies to avoid paying tax in developing countries in which they own subsidiaries. ActionAid estimates the potential loss to developing countries as up to £4 billion a year, whereas the Government estimate is £1 billion. Either way, that change raises huge concerns; steps must be taken to improve transparency and the Treasury must work with the Department for International Development to ensure its commitment to combining tax and development policy. What plans does the Minister have in place to ensure that the new rules will not damage developing countries’ tax revenues?

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Has he had discussions with the new Secretary of State for International Development or with her Ministers on a joint strategy on this point? If it becomes clear that the changes are enabling and facilitating tax avoidance, what action will he take? At what stage will he check, as this is a matter of some urgency for those who are concerned?

Unfortunately, on a domestic level, the Government’s general anti-abuse rule is unlikely to take forward the battle against tax avoidance. It is disappointingly narrow, designed by its own admission to tackle only the most egregiously abusive tax avoidance schemes, whatever that means. I would be grateful if the Minister clarified that point. The union representing top officials at HMRC, the Association of Revenue and Customs—ARC—has even suggested that it could encourage tax avoidance by implying that anything outside its scope is legitimate tax planning and immune from scrutiny. Will the Minister clarify what constitutes—I quote from the Government’s consultation document—a “wholly unacceptable” tax avoidance scheme, and tell us how “abusive” will be defined? I have read the consultation document and the definitions proposed within it shed little light.

In its draft legislation, the Treasury defines non-abusive schemes as anything that is “reasonably regarded as reasonable”—I am paraphrasing for brevity. That provides neither clarity on the matter, nor armour for HMRC, which is more concerning. We know that one person’s tax planning is another person’s tax avoidance, and even when it is entirely legal, it is considered by many—including the Prime Minister and the Chancellor—as wrong or “morally repugnant”. Will the Government’s proposed legislation help to draw a clearer line? All the moral indignation in the world will not bring in more tax receipts, and clarity is essential.

Will the Minister confirm what proposals there are to levy penalties on those found in contravention of the new anti-abuse rule? There is widespread concern that the proposed legislation is nothing but a toothless tiger, or worse,

“a Trojan horse, which suggests tough action while actually facilitating avoidance.”

They are not my words but those of Graham Black, president of the Association of Revenue and Customs, which represents senior HMRC officials.

I congratulate my right hon. Friend the Member for Oldham West and Royton on his contribution to the debate and on laying his draft legislation before the House tomorrow. His Bill takes a much broader approach, and seeks to tackle not only abuse but more general avoidance, and it lays down the mantle at the Government’s door for them to clarify what they deem to be legally acceptable. It also seeks to give HMRC much wider powers than under the Government’s plan, and I would be interested to hear the Government’s response to the challenge posed by my right hon. Friend.

Finally, as many hon. Members have said, even with a proper anti-avoidance or anti-abuse scheme in place we will require a top-level agency to collect tax. HMRC has recently had a welcome public success in collecting revenue from top earners, but we know that it is struggling to maintain performance against huge job cuts. In May this year the Public Accounts Committee found that an extra £1.1 billion could have been collected if personnel had been left in place, and it called on the Government

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to consider the true value for money of further cuts. Have the Government done that? What consideration have they given to value for money in terms of personnel and the proposed cuts? If cutting staff means missing out on billions of pounds of tax revenue it is a false economy, and I would be interested to know what assessment the Government have made in the light of the report by the Public Accounts Committee.

Ministers say that they want to eliminate tax avoidance, but with an incredibly narrow GAAR, weak international agreements, and without giving proper resources to HMRC, the Government are not on track to succeed. The nation’s books will be balanced on the backs of the poorest in society, rather than on the rich who will continue avoiding their taxes.

5.38 pm

The Exchequer Secretary to the Treasury (Mr David Gauke): It is a great pleasure to respond to this debate, and I begin by congratulating the right hon. Member for Oldham West and Royton (Mr Meacher) on securing it. This has been a broad and wide-ranging debate, and over the past couple of hours we have discussed the taxation of large businesses and wealthy individuals, taxpayer confidentiality, HMRC staff numbers, a general anti-avoidance rule, and the right hon. Gentleman’s private Member’s Bill, which I am sure the House looks forward to debating tomorrow.

Tax simplification was raised by my hon. Friends the Members for Amber Valley (Nigel Mills) and for Wycombe (Steve Baker), and my hon. Friend the Member for Portsmouth North (Penny Mordaunt) discussed standards of service in HMRC. My hon. Friend the Member for Bristol West (Stephen Williams) raised the topical matter of cash in hand, and perhaps went even further than I did earlier this year in his remarks about negotiating a discount for cash. I suspect all those matters could have filled a two-hour debate in themselves, but let me attempt to address as many of them—and others raised in the debate—as I can.

My first point is that the Government have a strong track record in addressing the full range of avoidance and evasion that results in the tax gap—the difference between the tax that is collected and the tax that is due. We remain further committed to tackling the gap and to reducing that sum over the course of this Parliament. Our intention is that the compliance yield of £13 billion a year, which we inherited, will increase to £20 billion a year in this Parliament.

It is helpful to distinguish between tax evasion and tax avoidance. A number of hon. Members have done so in the debate, but let me underline the point. Put simply, tax avoidance is the reduction of tax liabilities by using tax law to get an advantage that Parliament never intended. As we have heard—not least from my hon. Friend the Member for Bristol West, who brings expertise to these matters—tax evasion is illegally understating tax liabilities. Evasion is fraud and means breaking the law. There is striking unanimity in the House on the need to address both avoidance and evasion, and that the Government should take them seriously. I shall discuss the different responses we have in place for each, and the new directions on tax avoidance that we are considering through consultation.

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I should first like to set out a few facts on compliance generally. Last year, HMRC collected £474 billion in tax. The tax gap for the last year for which authoritative numbers were produced—2009-10—was £35 billion. Of that figure, tax avoidance constitutes around 14%, which is down from 17.5% in 2007-08. The tax gap arising from tax evasion is also falling—from 17.5% in 2007-08 to 12% in 2009-10.

I would make two observations on that, the first of which was made by a number of right hon. and hon. Members, namely that the vast majority of UK taxpayers do not avoid or evade tax. The vast majority of taxpayers and our constituents expect us to ensure that as many people as possible pay the right amount in tax. Secondly, although by international standards our tax gap is low, the Government are determined to do everything we can to improve those numbers. That is why we are re-investing more than £900 million to transform the approach to compliance, to close the tax gap, and to enable HMRC to address the serious matters it faces.

The investment is funding a range of measures to widen HMRC’s overall compliance coverage and target the highest risks. It also includes funding for a highly skilled work force. We are increasing the number of staff working on compliance by around 2,500 full-time equivalent positions by 2014-15. Reference has been made to the Public Accounts Committee report that highlights concerns that cuts in the number of compliance staff resulted in revenue in the order of £1.1 billion not being collected in the previous Parliament. Hon. Members are correct that the number of HMRC staff will fall in this Parliament, but the number of those focusing on compliance activities will increase. There will, for example, be more criminal investigators and people working in intelligence to tackle tax evasion and avoidance.

Margaret Hodge: I accept that it is the intention of the Exchequer Secretary to increase compliance activity, but I would like him to address two issues that I raised: first, the fact that HMRC has raised the threshold for taking action on fraud, as a result of which less money will be collected; and secondly that, although he said we needed more highly trained individuals, such training is not taking place, because of the Department’s inability to establish training provision and ensure that people benefit from it and get on with it.

Mr Gauke: I do not accept the right hon. Lady’s point about the increase in the fraud threshold. When I look at some of the work that HMRC is doing—for example, to address inheritance tax fraud—I see a substantial increase in activity. It is addressing far more cases than ever.

I know that the PAC takes a strong interest in training. It is important that staff are trained. People are being moved from other parts of HMRC—for example, from personal tax—into enforcement and compliance. It is important that they are properly trained, however, and that process is going on—progress is being made and the compliance yield is already increasing. Over the months and years ahead, we will increasingly see the benefits of a large and better-trained compliance team. It is absolutely right that the PAC scrutinises this specific

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point, but HMRC is making progress, and we all want to encourage it to make further and faster progress to ensure that we get the right staff in the right places.

Compliance revenue has more than doubled in six years, and HMRC is on track to bring in about £7 billion in additional tax each year by 2014-15. In addition, on avoidance, HMRC has closed down seven schemes in the past year alone and, since 2010, litigated about 30 direct avoidance cases, with a high success rate. On evasion, HMRC has secured 413 criminal convictions, resulting in more than £1 billion in additional revenue and revenue-loss prevention. Those are significant achievements,

Anyone reading the papers recently might well think that avoidance is rampant. I want to reassure right hon. and hon. Members that that is not the case, and the vast majority pay their taxes without trying to get around the system. Nevertheless, where we and HMRC see people trying to exploit the system, we will take swift action. Currently, there are a minority of cowboy tax advisers—small niche firms selling crude avoidance schemes unlikely to be successful under challenge from HMRC. Many of those who sell those schemes use tactics that border on mis-selling, and their clients can end up shocked when they are later pursued by HMRC over their involvement. The Government recognise the need to do more to target those who market such schemes to protect taxpayers and prevent them from entering into them.

Mr Meacher: Given what is widely accepted to be the unacceptable narrowness of GAAR, why are the Government not prepared to accept GANTIP? It would achieve what the Exchequer Secretary wants, which will not be achieved by GAAR.

Mr Gauke: If the right hon. Gentleman will forgive me, I will turn to that point later, although I am sure the House is looking forward to debating this matter at greater length tomorrow—I know that he is.

These aggressive tax avoidance schemes are the reason we recently launched our consultation entitled, “Lifting the Lid on Tax Avoidance Schemes”, setting out ways to improve the information on avoidance available to the public and making it easier for taxpayers to see whether their adviser has promoted failed avoidance schemes in the past. I have been encouraged by the response of the professional bodies, which share the aim of addressing the small fringe of cowboy advisers who promote such schemes. Some of the criticism of the tax profession as a whole has been unfair, but there is an issue with some aspects of it, which is why we are consulting on what we can do to address the problem and also to expand the regime covered by DOTAS—the disclosure of tax avoidance schemes—which the hon. Member for Newcastle upon Tyne North (Catherine McKinnell), speaking for the Opposition, touched on. She is right that between its introduction in 2004 and the end of March 2012, it resulted in a total of 2,289 avoidance schemes being disclosed to HMRC. That, in turn, has led to more than 60 changes in tax law to stop avoidance.

Steve Baker: My hon. Friend makes his case powerfully, but I am concerned that we are locked into a paradigm of complexity and trying to deal with the consequences

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of that complexity. Does he share my view that if only we could find a route to tax simplification, we could make some of the problems disappear at source?

Mr Gauke: My hon. Friend is right to say that tax simplification has an important role. I do not think that it is a magic bullet or that it cures every problem, because there will inevitably be some complexity in a modern economy. However, where we can remove some of those complexities and boundary issues, that is clearly helpful. My point is that DOTAS is a valuable part of our tax regime, but we want to improve on it. There is scope for improvement, and more information could and should be disclosed to HMRC to enable it to address tax avoidance.

Let me turn to the GAAR. We are improving how we counteract avoidance once it is detected, through the UK’s first general anti-abuse rule. I note the criticism made by Labour Members, but when they were in power—indeed, some of them were distinguished in the former Government—they refused to bring forward a general anti-abuse rule. The GAAR will specifically target the most aggressive and persistent forms of avoidance without undermining taxpayer certainty or adding undue compliance costs to the tax system. I am confident that, unlike other suggested approaches, the Government’s approach strikes the right balance between protection against avoidance and clarity for taxpayers.

I know that there is an alternative argument, based on the proposal from the right hon. Member for Oldham West and Royton, which was drafted by Richard Murphy, as he said. However, I would make this argument to him:

“I…think that many appropriate checks and balances are built in to the drafting. HMRC cannot use this”—

the GAAR—

“willy-nilly, and that’s right. This should be a tool of last resort and not a battering ram for widespread use.”

Those words are from Richard Murphy, who was commenting on Graham Aaronson’s proposals. I know that Mr Murphy will be following this debate closely, and I think it right that we quote his views thoroughly. He also said:

“Appropriate defences for action are built in. Safeguards to prevent HMRC over-using the provision are included. The result is that the rule will be used against egregious cases, and not be aimed at all tax planning. That’s right: where the law provides for choice, planning is inevitable and right and I for one have never denied that fact.”

Finally, Mr Murphy said this in response to the Aaronson proposals:

“Let’s have no doubt about it: this is a very big step forward for tax justice and I warmly welcome this report and hope it moves rapidly towards becoming law.”

I entirely agree with those comments. I do not, in all fairness, always agree with Mr Murphy, and he does not always agree with me, but on this occasion he is absolutely right to set out the fact that there are safeguards.

I want to let the right hon. Member for Oldham West and Royton respond, but let me quickly deal with evasion. We encourage compliance, while making it clear that if people do not take the opportunity, we will find them and they will be subject to stringent penalties, and possibly prosecution. The measures that HMRC is taking include: 1,000 extra prosecutions a year for tax evasion by 2014-15; an enhanced, state-of-the-art risk

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profiling tool, Connect, that helps to identify tax cheats by cross-matching data to uncover hidden relationships between people and organisations; campaigns and new policies—such as the contractual disclosure facility—to encourage voluntary disclosure of evasion; specialist staff to provide a single point of contact for the 2,000 largest businesses and to address the growing risk of cybercrime; and taskforces carrying out intensive reviews in high-risk trade sectors.

We are active in tackling offshore evasion activity. That concern was raised by a number of Members. We now have a number of agreements with other tax jurisdictions, including the Liechtenstein disclosure facility, which the hon. Member for Newcastle upon Tyne North mentioned. That will require financial intermediaries to identify those who may have a UK tax liability, and it is expected to raise £3 billion by 2016. More recently, the Government have finalised a ground-breaking agreement with Switzerland on tackling tax evasion. It will apply to UK-based Swiss account holders and is expected to raise £4 billion to £7 billion a year.

Collectively, the avoidance and evasion measures that I have set out today, along with our record on general compliance, show how seriously this Government take any threat to our tax base. We are not complacent, however, and our plans to take a tougher stance on disclosure rules and the promoters of avoidance, to introduce a general anti-abuse rule, and continuously to target those who illegally evade tax all help to demonstrate that fact. I hope that the House will appreciate the steps that we are taking.

5.56 pm

Mr Meacher: With the leave of the House, I thank the Minister for his response. As he said, this has been a valuable and thoughtful debate. I also agree that there is general consensus on this matter. No one in the House takes the view that tax avoidance is other than unacceptable. The only real question, which the Minister did not fully answer, is how the measures to tackle it should be undertaken. It is possible that the general anti-avoidance rules—GAAR—are an advance on the absence of any such rules. He quoted selectively from Richard Murphy, but he did not answer my question, which was why, if he was so concerned to reduce tax avoidance as much as possible, he did not think that GANTIP would be far more effective than GAAR. I hope that we shall return to that point tomorrow.

The hon. Member for Wycombe (Steve Baker) made a thoughtful speech, as always, and I welcomed his saying that people should pay their full rate of tax. He even suggested that they should do so voluntarily and altruistically. The trouble is that they will not do so. Warren Buffett is recommending that course of action in the United States, but I have not heard of a single millionaire or billionaire in the UK who supports that position.

My right hon. Friend the Member for Barking (Margaret Hodge) made an important speech, in which she said that the problem was that the rich simply did not see the payment of tax as a responsibility. I recall the words of Jon Moulton, a private equity partner, who complained that his colleagues were paying less tax than their cleaning ladies. That is the problem in this country.

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Several proposals were put forward in the debate, but the Minister did not respond to them. I shall return to them tomorrow if I get a chance. One was that there should be full transparency of settlements made by HMRC. We all know the aggravation that was caused by the settlement with Vodafone. That principle should apply to all FTSE 100 companies. It was also suggested that it was counter-productive to cut the number of tax inspectors. Their numbers were cut under the previous Government—wrongly, in my view—and they continue to be cut now. The Association of Revenue and Customs estimates that the amount recovered by tax inspectors can amount to between 30 and 180 times their salaries, so there is a strong reason for markedly increasing their numbers.

The right hon. Member for Bermondsey and Old Southwark (Simon Hughes) did not make a speech, but he made two targeted and relevant interventions. He said that any company that used tax havens should not be eligible to bid for a Government contract. He also suggested that everyone should pay at least a minimum rate of tax—some people have suggested 32%—in order to prevent the situation in which some people pay just 1% or 2% as a result of the diligence of their City lawyers and accountants.

This has been an extremely useful debate. I welcome it and hope the House will take these matters further.

Question put and agreed to.


That this House has considered the matter of tax avoidance and tax evasion.

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Colin Traynor

Motion made, and Question proposed, That this House do now adjourn.—(Karen Bradley.)

6 pm

Mr Michael Meacher (Oldham West and Royton) (Lab): Speaking in the House of Commons is rather like the apocryphal story of waiting for the 77 bus: you wait a very long time, and then two or three opportunities come along almost immediately.

I sought this debate in order to raise the case of one of my constituents, Colin Traynor, who was epileptic. He was assessed as fit for work, yet died less than four months later. I raise the issue knowing that, tragically, this is far from a unique case, but I believe that there are some particularly disturbing aspects of Colin’s treatment at the hands of Atos Healthcare and the Department for Work and Pensions that deserve official attention and reform.

Here are the facts of Colin’s brief life. He suffered from grand mal epilepsy from the age of 14 months. Although he was prescribed medication, his condition was never controlled. According to the detailed letter written by his parents a few months ago, which I have with me,

“he was unable to do normal things that some of us take for granted such as go out to work, drive a car and even socialising with friends.”

Colin’s mental awareness was affected, as he

“found it very difficult to communicate verbally with others; it could take him a while to process a question that was put to him”.

In 2008, Colin, then aged 25, was asked to attend an interview at Oldham jobcentre, which was designed to

“find out whether Colin would be willing to find employment.”

Colin welcomed the interview because it gave him hope that he might actually find an employer who would be willing to take him on, which he very much wanted. However, according to his parents’ letter:

“After doing everything possible to try and find employment for Colin, Remploy informed him that his condition was so severe that he was deemed unemployable. After 9 years of trying to find employment in the hope of living a little bit of normality in his life, Colin eventually came to terms with the fact that he would never be able to work.”

Then, in August 2011, Colin received a letter asking him to attend for a medical assessment on 4 November 2011. In his parents’ words:

“Colin was confused as to why when 3 years before that he was deemed unemployable”.

Let me quote at some length from a second part of the parents’ letter, which sets out exactly what happened:

“The medical assessment works on a point scoring system. Colin was only given 6 points in total; he would need 18. On 19/12/11 Colin received a letter stating that because Colin had not scored enough points in the medical assessment, he would have his incapacity benefit cut by £70 a week. This caused Colin a lot of stress and anxiety. He was worried about losing his home, not being able to pay his bills and even worried about not being able to afford good food to eat. He was informed that the decision would have to go to an appeal and could take as long as 9 months. He was told there was nothing more they could do, and he would just wait for the outcome of the decision. From the period of December 2011 to April 2012 Colin’s health deteriorated, his seizures increased due to the stress and he also lost a lot of weight. On the 3rd of April 2012 the stress and anxiety that Colin

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was suffering from resulted in Colin having a massive seizure and it took his life. Colin died at home on his own and he was only 29 years of age.”

The next day, Colin’s mother informed the DWP that he had died owing to his condition—as she put it,

“the same condition that DWP were expecting him to work with”.

On or around 19 April, a fortnight later, Colin’s mother contacted the DWP again to ask for a decision on Colin’s appeal. She was told that Colin’s file was at the bottom of the pile. On being told that he was dead, the DWP official, very shocked, said that she would find the file and bring it to the adjudicating officer’s attention immediately. The following day, Colin’s mother received a telephone call from the DWP saying that it had overturned the decision in Colin’s favour, and that he should never have been assessed in the first place.

Many people, including me, would conclude on hearing that story that this young man died at least in part owing to the procedural rigidity and heartlessness of a Government Department and its agents. That is certainly the view of Colin’s parents, and I want finally to quote the end of their letter. It ends with just one sentence:

“We as a family”

—it is signed by the mother, the father and the sister—

“hold the Government, David Cameron, Iain Duncan Smith personally responsible for the death of our son… and brother.”

Nothing is going to bring Colin Traynor back to life, but I believe that the Government owe it to his memory, and that of hundreds of others who have lost their lives in similar circumstances, to make fundamental changes to the work capability assessment procedures which are taking such a terrible administrative toll in fear, intimidation, distress and death.

First, the mechanistic nature of computer points-based assessment should be ended. It is reaching obviously wrong conclusions in a vast number of cases. The Conservative hon. Member for Carmarthen West and South Pembrokeshire (Simon Hart), to whom I pay tribute, has established that 29,000 claimants who originally scored zero in the test were later granted the benefit on appeal. In his words:

“it seems that some people are not failing by a couple of points. They are failing completely—then going to a tribunal—then passing completely.”

I simply say that a system that reaches such widely wrong decisions in such a huge number of cases when it may be a matter of life or death does not deserve to survive, and should be scrapped.

Secondly, a revised and new system should be able to distinguish at the outset, by means of a much more personal and sensitive interview, those who, by any standard, cannot possibly be fit for work. It is highly significant that in Colin Traynor’s case the DWP finally admitted that he should never have been assessed as being able to work in the first place. The tragedy, which is unforgivable, is that that happened only after he had been dead for a fortnight. That alone ought to compel a fundamental rethink of the procedures, so that this never happens again.

Thirdly, the fact that so many Atos assessments are overturned at tribunal appeals shows that these procedures are deeply flawed. We know the statistics: 40% of people appeal against the decisions, and 38% of those appeals are successful. That means that more than one in seven

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of all the original decisions are reversed on further systematic examination at tribunals. Last year, some 1,100 claimants died under compulsory work-related activity for benefit, and a number of those found fit for work and left without income have committed, or attempted, suicide. I simply say that a record of failure of that magnitude clearly indicates that the system is so faulty that it needs wholesale replacement.

Fourthly, it is unacceptable that those who are deprived of benefit, thus putting their life and well-being at risk, should have to wait six months or more for their appeal to be heard. If Colin Traynor’s appeal had been heard promptly, he would almost certainly be alive today.

The least the Minister should confirm today is that the Atos medical testing contract should be suspended—as the National Audit Office demanded last month—until new and more sensitive and discerning procedures are put in place that end this dreadful catalogue of distress and death, which shames the Government. I hope the Minister will respond positively on each of these heartfelt points.

6.12 pm

The Minister of State, Department for Work and Pensions (Mr Mark Hoban): I thank the right hon. Member for Oldham West and Royton (Mr Meacher) for raising these important points on the handling of this case, and I assure him that we are committed to improving the work capability assessment, the incapacity benefit reassessment and the appeals processes.

I would like to start by restating our sincere condolences to Mr Traynor’s family. The right hon. Gentleman will be aware from his previous correspondence with the Secretary of State on this case of our plans to undertake a full internal review. This review has now been completed, and it confirms that we have correctly applied the procedures for incapacity benefit reassessment in this case. The work services director for Jobcentre Plus North West and representatives from the Oldham benefit centre have arranged to meet the right hon. Gentleman and members of Mr Traynor’s family to discuss the case on 28 September. Let me deal with a few points in respect of Mr Traynor’s case before dealing with the broader issues.

Following a WCA, it was decided that Mr Traynor did not have limited capability for work, and he was found fit for work with effect from 4 January. Prior to this decision, Mr Traynor had been contacted by the decision maker to establish whether there was any further evidence that should be taken into account. No further information was provided at that stage, and we wrote to Mr Traynor confirming our decision. Mr Traynor submitted an appeal against the decision on 12 January and continued to receive benefit throughout this period—albeit at a basic rate—while his appeal was considered.

Following the consideration of new information, in the form of evidence from Mr Traynor’s GP and an epilepsy specialist nurse, the original decision was changed by a Department for Work and Pensions decision maker and Mr Traynor was placed in the work-related activity group. The right hon. Gentleman quoted from the letter from Mr Traynor’s parents and solicitor, which I have read, and he suggested Mr Traynor was facing increased stress. That was not communicated to DWP during that period.

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Mr Meacher: Irrespective of whether the distress, of which the parents were aware, was made known to the authorities, the crucial point in this case is: how can a 29-year-old who had been subject to grand mal seizures since he was 14 months old, and for whom Remploy had desperately tried for three years to get a job and could not do so, have been regarded as employable?

Mr Hoban: I do not want to get into the details of Mr Traynor’s case, because there is an opportunity for the right hon. Gentleman and Mr Traynor’s family to go through those with the regional director. I will come on to deal with the process in a bit more detail. Mr Traynor was asked questions during the course of his assessment by an Atos employee, which led to that conclusion. As I said a few moments ago, it was not until Mr Traynor submitted an appeal that he provided us with further evidence. The Department had asked for that evidence earlier and it had not been supplied.

I wish to make a broader point that comes out of this and other cases, which is that it is important that claimants provide information to support their claim at the earliest opportunity, so that we make the right decision first time around. I am sorry to say that we often find that evidence to support an application is provided only at the appeal stage. Not only is it the responsibility of all of us, as Members of Parliament, to help our constituents, but it is the responsibility of groups advising people with complex conditions, be they disability awareness groups or Citizens Advice, to ensure that when they work with people they encourage them to submit the evidence at the outset, so that we get these decisions right first time.

The right hon. Gentleman asked why Mr Traynor was referred for a work capability assessment. The reassessment of claimants entitled to the old-style incapacity benefit is a key part of our reform agenda to create and deliver a 21st-century welfare system by ensuring that those people who can work are given the correct help and support to do so. We do not believe that it is acceptable to write people off to a lifetime on benefits because they have a health condition or impairment. A claimant on incapacity benefit may not have had to speak to anyone in the Department about their health condition or work options for as long as five years. People are left on their own with no support or sense of how and when they may return to work.

The employment and support allowance regime recognises the importance of work and is designed to help claimants move towards employment with the right help and support. We therefore need to ensure that people currently receiving incapacity benefits are supported in preparing for a return to work where some form of employment is a possibility. The reassessment of 1.5 million existing incapacity benefits claimants started nationally in April 2011 and is expected to take three years to complete. Claimants are being reassessed using the work capability assessment process. Claimants who are assessed as having limited capability for work will be moved to ESA and will be placed in either the support group or the work-related activity group. The Department does not aim to reduce the levels of support for the most severely ill or disabled people, so claimants in the support group will be paid a higher rate of benefit. Claimants in the work-related activity group will be expected to undertake activity to support their return to the labour market.

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That process is based on the Government’s fundamental belief that many people with health conditions are able to sustain and progress in employment. Indeed, evidence points to the negative impacts of being without work and suggests that appropriate work is generally good for people, regardless of whether they are disabled or have a health condition. In the context of Mr Traynor’s condition, the respected book “Fitness for Work”, published by the Faculty of Occupational Medicine, clearly sets out that

“most people with epilepsy are capable of normal employment without need for supervision or major restriction”.

That is supported by Epilepsy Action, which states on its website that many people with epilepsy do go out to work, that their epilepsy does not disrupt their work in any way and that nearly all jobs are open to people with epilepsy. I pay tribute to the hard work of organisations such as Epilepsy Action, which work not only to support their members but, crucially, to inform employers and tackle misconceptions about epilepsy.

Of course, no two individuals are the same and it is essential that the work capability assessment is capable of looking at individual circumstances and dealing with the wide variety of health conditions that individuals may have. That is why the work capability assessment was developed in consultation with medical and other experts, alongside representative groups. The working group, and that of a subsequent internal review carried out by the Department, includes an expert in neurological disability and rehabilitation to ensure that it deals effectively with conditions such as epilepsy.

The right hon. Gentleman commented that Colin was confused as to why he had been called back for reassessment. I will set out why we are going through the reassessment process and say a little about the process that happens when someone is called for assessment. Guidance to staff refers to the fact that claimants are not already identified as vulnerable but might become so at any point during their IB reassessment process. Following the letter to the claimant advising them that incapacity benefit is changing and that we will be assessing their entitlement to ESA, we call them to ensure that they understand the process and provide them with the opportunity to ask about anything about the process that might concern them. The ESA50 and the accompanying letter encourage claimants to provide full details about their conditions and offer face-to-face help to complete the form if they feel they need it. Once returned by the claimant, the content of the ESA50 is scrutinised by Atos, which can refer to a claimant’s GP for more information or advise departmental staff about any vulnerability if it believes it is necessary to do so.

The right hon. Gentleman suggested that the points were awarded by a computer, but the medical assessment conducted by an Atos Healthcare professional is a confidential, face-to-face discussion about the claimant’s condition that affords both parties the opportunity to identify and respond to any vulnerability that might prevent the claimant participating effectively in the IB reassessment process. Prior to making a decision about a claimant’s entitlement to ESA, the decision maker calls the claimant to provide them with an opportunity to offer any additional evidence. We recognise the concerns that people called for reassessment might have, which is why we have tried to ensure that there are steps in the

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process to explain to them what is happening, reassure them and give them the opportunity to make their points and express their concerns about the process.

Although we believe that the need for, and the principles of, the work capability assessment are right, the system we inherited from the previous Government contained flaws that undermined its effectiveness. We have therefore moved swiftly to put things right and are committed to improving the work capability assessment continually to ensure that it is as fair, accurate and efficient as possible.

We recognise that many people with a health condition want to work and can do so with the right support. In June 2010 we appointed Professor Malcolm Harrington, a highly respected occupational physician, to undertake independent reviews of the assessment. He has completed two reviews and is currently undertaking the third. His reviews set out a series of recommendations for improving the assessment. We fully endorsed the recommendations and are committed to making the changes as quickly as possible. For example, we have: improved the standards and consistency of decision making through additional training and better use of evidence; improved the way we communicate with claimants by providing personalised statements, summarising key advice clearly and implementing the customer charter; and made changes to the claims process to better support the claimant at each step of the process and ensure that they understand what is required of them.

Professor Harrington has also worked with charities to propose alternatives for the majority of work capability assessment activities, although I understand that, in relation to epilepsy, nothing has been received in relation to consciousness. We are confident that the improvements we are making to the assessment following these reviews will ensure that we increase the number of decisions that are right first time and improve the service provided to claimants.

It is important to state that Atos does not make the decisions on benefit entitlement; decision makers in the Department make the decisions after considering the advice Atos provides and any other appropriate evidence, including information from GPs, consultants and so on. The Department makes millions of such social security benefit decisions each year, the majority of which are not appealed. In fact, between October 2008 and May 2011 the Department made more than 1 million decisions following receipt of a work capability assessment from Atos. Only 9% of those decisions were overturned.

Let me talk about what we are trying to do to improve the appeals process. We want to encourage claimants to provide all the evidence to support their claim at the earliest opportunity. The Department for Work and Pensions now interacts more with claimants at an early stage to ensure that decision makers get more decisions right first time. We are also introducing a mandatory reconsideration process for benefits, so that when a claimant queries a DWP decision, they will be given an explanation by telephone and helped to identify any additional evidence that could change it. Claimants will still be able to appeal after the reconsideration if they wish.

This debate was initiated as a result of the unfortunate case of Mr Traynor and we extend our sympathy to his family, but it also highlights why we are right to introduce

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the additional stage in the process where a decision maker contacts the claimant to seek additional evidence before they make a final decision. The introduction of mandatory reconsideration will build on that. We will continue our programme of reassessing existing incapacity benefit claimants over the coming years.

Mr Meacher rose—

Mr Hoban: I see that the right hon. Gentleman is itching to intervene.

Mr Meacher: I am grateful to the Minister for giving way. He has largely been talking about process. Clearly, the Government are trying to improve the process. However, the fact that there have been three reviews by Professor Harrington suggests that the process is pretty flawed.

May I return to my original question? Whatever improvement there has been in the process, how can someone subject to grand mal epilepsy seizures virtually from birth have been construed, at any stage in his 29 years of life, as able to work? He wanted to work; he probably came to the original work capability assessment eager to work. But how could he be accepted for working when Remploy and others considered that he was unemployable?

My last point is that Mr Traynor probably would not have died if he had not received the deduction of £70 a week in his incapacity benefit. How would that get someone into work? It simply produces extreme stress and anxiety.

Mr Hoban: Let me deal with those points. The right hon. Gentleman asked why Professor Harrington had done three reviews. The legislation, passed when his party was in government, actually required five independent reviews to be carried out. Professor Harrington is now conducting the third of those reviews. That is why it is happening. The reviews also demonstrate a commitment to learn, develop and listen to the experiences of claimants and the groups that represent them.

I will try not to go through the fine detail of Mr Traynor’s case; I am not sure that Parliament is the right place for that. However, having looked at the assessment form that was completed through a conversation with Mr Traynor, I should say that it was clear that the number of fits that he had during the day were relatively few across the course of the year. That was the information used to determine whether he was capable of working; it was then superseded by the letter from his GP and the epilepsy specialist nurse. Based on the original information supplied, the conclusion appeared to be right. Later information led to the reassessment of the conclusions made at that original assessment. I am sure that the north-west director will go through that in more detail with the right hon. Gentleman and Mr Traynor’s family.

We will continue to learn lessons from employment and support allowance, incapacity benefit reassessment and the work capability assessment. We are applying those lessons to the introduction of the personal independence payment, particularly around appeals and reconsiderations, to encourage claimants to provide all evidence to support their claim at the earliest opportunity. I reiterate that point. It would improve the whole process if we encouraged claimants to provide as much information

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as possible at the start of their application rather than leaving that to the appeal process. That is one of the learning points to come out of the debate this evening.

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Question put and agreed to.

6.29 pm

House adjourned.