This is an important debate, as hon. Members from all parts of the House have said. Before I try to respond to a number of the specific points made—the House

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will understand that the time constraints we face mean that I will not be able to respond to everything, and I apologise for that in advance—let me say something about the context of these reforms.

It is right to say that the previous round of legal aid reforms, culminating in the Legal Aid, Sentencing and Punishment of Offenders Act 2012, will have already removed about £320 million from the legal aid budget by 2014-15, but those proposals were primarily focused on civil legal aid scope and eligibility. Alongside those changes, we have made sweeping reforms to the central administration of the legal aid system. We have strengthened accountability and introduced a more rigorous approach to financial management by creating the Legal Aid Agency. But the successful delivery of that programme has not eliminated the need for reform. In order to meet the ongoing financial challenges facing the justice system, which many who have spoken have recognised, the Government have had to look again at the cost of civil legal aid, as well as turning their attention to arguably the most difficult part of the legal aid reform agenda: the reform of criminal legal aid.

Mr Lammy: The saving the Government would make by looking at civil legal aid is £6 million in relation to judicial review. Does that really make it necessary to run a coach and horses through judicial review?

Jeremy Wright: The position is, as I have just said, that the bulk of the work done under the 2012 Act dealt with civil legal aid and the bulk of the work being done under these proposals will deal with criminal legal aid. The total value of the savings that these reforms would make if fully implemented as currently proposed would be £220 million by 2018-19. That is a significant figure, given our financial circumstances.

Many hon. Members have questioned the need for further reform, while others have said we should go much further. My hon. Friend the Member for Huntingdon (Mr Djanogly) made an interesting speech about more radical options we could pursue. The answer is simple: criminal legal aid accounts for £1 billion of the overall legal aid budget, and in the current financial climate, the Government, being committed to eradicating the deficit and the national debt, cannot overlook such a sizeable portion of Government spending. We have had to make extremely tough choices in other areas, and it would not be right to exclude this one.

Many hon. Members have said that we should look for savings in other areas of the criminal justice system. My hon. Friend the Member for Meon Valley (George Hollingbery) made that point, as did my hon. Friend the Member for Dewsbury (Simon Reevell), my right hon. Friend the Member for Haltemprice and Howden (Mr Davis), my hon. Friend the Member for Waveney (Peter Aldous) and the hon. Members for Hackney South and Shoreditch (Meg Hillier) and for Leeds North West (Greg Mulholland). All of them were right about the importance of looking at other areas. I think we heard some good suggestions today, and of course the Government will look in all those areas for savings, too, but that does not get us away from the need to keep the legal aid budget under proper scrutiny.

The package of proposals on which we have consulted is intended to ensure that our legal aid system commands the confidence of the public—that is important—and

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remains financially viable both now and in the years ahead. We are looking carefully at the 16,000 responses to the consultation, and, with reference to what my hon. Friend the Member for Brent Central said, I can reassure the House that I and my ministerial colleagues will treat everything said in this debate as important contributions to that process. We will listen carefully to what has been said today as well as to what was said in the consultation.

We are duty bound to ensure, however, that taxpayers’ money is spent only where it is justified and only on those who genuinely need the state’s assistance. The taxpayers, who fund the legal aid scheme, have every right to demand that their money be well spent and to ask important questions. They have a right to ask why the taxpayer should be paying the legal costs of the very wealthiest Crown court defendants up front; why the taxpayer should be paying for criminal legal aid for claims made by prisoners that can be better resolved by other means—I will return in a moment to prisoner law— and why the taxpayer should pay the legal costs of those with no strong connection to the UK.

As others have said, our legal aid budget is disproportionately high. My hon. Friend the Member for Bromley and Chislehurst (Robert Neill) made that point very effectively. We have an extremely good legal system—it is greatly admired and, as others have said, it contributes significantly to our society—but that does not mean that it should be immune to the realities that the Government face. Efficiencies have to be made, and reform is the mechanism for achieving them.

Mr Lammy: No one is suggesting that there should not be reform. Has the Minister considered the fact that 45% of criminal legal aid goes on high-cost cases, many involving bank fraud? Why does he not ask the banking industry to come up with an insurance scheme and take that out, rather than dismantling the whole system?

Jeremy Wright: The right hon. Gentleman is right that very high-cost criminal cases are an important area for us to focus on, and we propose to take about 30% of the cost of those cases out of the system, but he would be wrong to assume that those cases, on their own, could achieve the savings we need to make. We need to look more broadly.

I want to turn to the particular proposals and concerns that hon. Members have concentrated on. Many Members have focused on the effect of the proposals on smaller firms and on the issue of price competitive tendering. In 2011, we said that competitive tendering would likely be the best way to ensure long-term sustainability and value for money in the legal aid market. Some Members were concerned that this was a new idea suddenly springing into the political landscape, but of course that is not the case. Indeed, the right hon. Member for Tooting (Sadiq Khan)was gracious enough to point out that the idea was first considered under his Government. In March 2010, the last Government produced a Green Paper entitled, “Restructuring the Delivery of Criminal Defence Services”. Among other things, it said:

“Currently the criminal defence service is highly fragmented, with a large number of small suppliers and relatively few large suppliers….We believe that these market trends are not sustainable. Therefore we believe a future tendering process would ensure a more consolidated market, with a smaller number of more efficient suppliers, required to undertake the full range of the services we need.”

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That is what the Labour party thought in 2010, and lest we should run away with the thought that it has changed its view since then, let me quote from what I am sure is a very well-read blog written in October 2011 by the right hon. Member for Tooting. He said—as, to be fair, he also said today—that:

“I recognise that cuts need to be made…I would have carried through a new scheme for contracting of solicitors for criminal legal aid and lowered criminal defence advocate fees in the Crown Court…This more efficient contracting of legal services from solicitors has bizarrely not been implemented by the coalition government”.

So he criticises us for not doing it, then he comes here and criticises us for proposing to do it.

Another point that has been made repeatedly today is the effect that the proposals could have on smaller firms. I need to make it clear that the proposed competition model would see the number of contracts, not the number of firms, reduced from 1,600 to 400. Our proposals do not prescribe how many lawyers should be available or how those that have the contracts should divide up the work allocated to them.

The matter of client choice has also been raised by many hon. Members today. We have listened carefully to the concerns that have been raised not only in the debate but by those who responded to the consultation. Let me reassure the House that quality-assured duty solicitors and lawyers will still be available, just as they are now. The Legal Aid Agency will need to ensure, as part of the tendering process, that all providers are capable of delivering the full range of criminal legal aid services across their procurement areas. That is also true in relation to the points raised about rural sparsity and about the Welsh language.

We have a number of things to consider, and we will consider them carefully. We will come back with our conclusions in the autumn. I am grateful that the debate has taken place today and for all the contributions that have been made. We will consider them properly and respond accordingly in the autumn.

4.11 pm

Sarah Teather: This has been an excellent and well-informed debate. If there is one thing I hope the Minister will take away and consider, it is that of the more than 30 contributions we have heard today, only one—in addition to his own—was unequivocally in favour of the proposals. I hope that he will reflect on that. Liberal democracies cannot afford to get themselves into a position in which they wield power over a citizen without giving them a right to challenge. It would undermine the rule of law if we afford citizens rights without giving them the means to secure them. I hope that the Government will consider these points carefully and come back with some very different proposals, which they will put to a vote in the House.

Question put and agreed to.


That this House has considered legal aid reform.

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Multinational Companies and UK Corporation Tax

[Relevant documents: Ninth Report from the Committee of Public Accounts, Tax Avoidance–Google, HC 112; Forty-fourth Report from the Committee of Public Accounts, Session 2012-13, Tax avoidance: the role of large accountancy firms, HC 870; Twenty-ninth Report from the Committee of Public Accounts, Session 2012-13, Tax avoidance: tackling marketed avoidance schemes, HC 788, and the Treasury Minute, Cm 8613; Nineteenth Report from the Committee of Public Accounts, Session 2012-13, HM Revenue & Customs: Annual Report and Accounts 2011-12, HC 716, and the Treasury Minute, Cm 8556.]

4.12 pm

Chris White (Warwick and Leamington) (Con): I beg to move,

That this House has considered the matter of multinational companies and UK corporation tax.

I am grateful to the Backbench Business Committee for giving the House the opportunity to debate the important issue of corporation tax and the avoidance of tax by multinational corporations. I was keen to see this debate take place, not only because of the gravity of the issue but because of the efforts that two local retailers, Frances and Keith Smith of Warwick and Kenilworth Books, have taken to raise the profile of the matter. They have launched a petition, which has gathered 170,000 signatures, calling on Amazon UK to pay UK corporation tax, and I would like to pay tribute to their public spiritedness and determination in pursuit of this cause. Individuals can make a difference in politics, as I am sure hon. Members would agree, and we should encourage more citizens to take similar action.

The issue that I would like to put at the heart of the debate is tax avoidance, rather than tax evasion, which is illegal. I think all Members would strongly condemn any kind of tax evasion. However, tax avoidance, sometimes euphemistically called “tax planning”, is also a matter of serious concern. The case that Frances and Keith have raised illustrates the problem. Amazon made £4.3 billion in sales in the UK last year, but its subsidiary Amazon UK paid only £2.4 million in corporate taxes. It does this by classifying itself as a service provider to its Luxembourg business Amazon EU Sarl in order to reduce its tax bill, yet its UK business employs over 4,200 people, compared with the 380 based in Luxembourg. Given the size of the UK market, it is laughable to believe that Amazon UK is somehow serving the Luxembourg portion of the business, but this is perfectly legal and Amazon UK is not an isolated case.

However, this avoidance is not without its victims. It is businesses such as Warwick Books in my constituency and ordinary people who pick up the bill. Through this creative tax planning, the burden of taxation is shifted on to individuals and businesses that do not have the resources to spend on reducing their tax bill and on hiring expensive accountants to find loopholes in tax law.

I understand that there are some who believe that businesses have a moral duty to pay only the absolute minimum of tax that they are legally obliged to pay, but I cannot believe that that is the case. Businesses, even multinational companies, are still members of society. They benefit from a strong education system, a functioning

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health care system, decent roads, a transport infrastructure, the police and our armed forces. The reason we raise taxes is in order to produce public goods. We can argue whether the Government spend that money wisely, or whether the Government should provide this or that service, but that is the basic principle behind taxation.

Businesses have a moral responsibility to play a full part in our society, and structuring their businesses in order to avoid taxation and to make it harder for tax authorities to monitor their business is not fulfilling that responsibility. Voluntarily paying tax is not a long-term solution to this issue. What is needed is for multinational companies to take responsibility for their actions and respect the fact that they need to structure their businesses to reflect the way they are operated, rather than merely to avoid that taxation.

If a company is legitimately servicing another company in another country, or needs to pay royalties as part of a franchise or needs to borrow money from its parent abroad, I believe we can all understand that this should be respected in the tax system. We do not wish to crush enterprise, nor do we wish to penalise international businesses that invest in our country, but multinational companies still need to play their part. The endless game of cat and mouse, with tax authorities having to plug gaps and investigate subsidiaries, and multinational companies developing ever more complicated legal structures to avoid paying tax, is simply unsustainable and destructive.

Many of these companies depend on individuals and businesses buying their services, but as they avoid taxation, the Government have to find this revenue from other sources, reducing the profits and incomes of others and leaving them with less to spend on other goods and services. The regulatory arms race between multinational companies and states seeking to raise revenue is also distracting. It is distracting the corporations from focusing on productivity and creativity, and one wonders what marvels or products might have been created if multi- nationals had put the effort they put into avoiding tax into developing new ideas, services and products.

Tax avoidance does not benefit our economy in the long term; that can only come through making our economy more productive and more efficient. We need to encourage businesses to focus on the real economy rather than on trying to enhance their profitability by avoiding taxation.

The sheer mechanics of the situation make it clear that action purely from the Government is unlikely to be the solution to the problem. There are hundreds of thousands of multinational companies, and only a handful of tax regimes capable of monitoring their information. It is always a game of catch-up, and while reforming tax codes and greater enforcement may help, they will not reach the nub of the problem. That is why I believe that we need to focus on the culture in international business, on the structure of these businesses and the codes of conduct they abide by. Fundamentally, businesses are staffed by people, and if we put in place the right frameworks, I believe that we can appeal to the better angels of their nature. This is the only long-term solution.

I am realistic, however, and I appreciate that there will always be corporations that are unwilling to contribute to the public good and wish to shirk their responsibilities. That is why I am pleased that Her Majesty’s Revenue and Customs has been given additional resources in

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order to clamp down on tax evasion, but HMRC also needs to be more robust in the way it holds these companies to account.

Katy Clark (North Ayrshire and Arran) (Lab): Will the hon. Gentleman give way?

Chris White: I would like to, but if the hon. Lady does not mind, we are very short of time.

These companies need to be held to account and we need to feel free to investigate fully the accounts of any company that we suspect might be seeking to avoid paying taxation. This highlights another issue, one that is close to my heart and to that of many colleagues— the future of our independent retailers. Warwick and Leamington is full of many excellent independent businesses, which give our community its distinctive character, and not only provide incomes for the owners, but hire local residents and often give young people the chance to get their first experience of work.

Times change, and I do not think any of us would support or even want a situation where multinational companies were prevented from entering the workplace, but I think we all recognise the need for a mixed economy. We need independent, smaller businesses and large multinational companies working together. We need to recognise that in the 21st century, the idea of the capitalist as some profit-making machine, uncaring or unthinking about the effects of its business on wider society is completely outdated. For the most part, I believe that businesses recognise that.

International progress is essential, and the Prime Minister should be applauded for his efforts at the G8 last week and the agreement that he secured. Britain cannot take unilateral action without significantly damaging our economic position, and while changes such as the general anti-abuse rule are welcome, real progress will only come from companies themselves.

A model that we need to look at more closely is that of social enterprises, but a successful 21st century global economy needs to be one that combines equity with entrepreneurship; principles with profit; responsibility with reward. We are taking the first steps forwards by talking about this issue, but I hope that we can move towards action in the years to come.

Several hon. Members rose—

Mr Deputy Speaker (Mr Lindsay Hoyle): I remind Members that there is a four-minute limit on speeches.

4.23 pm

Margaret Hodge (Barking) (Lab): I congratulate the hon. Member for Warwick and Leamington (Chris White) on securing the debate and on his contribution, with which I totally agree, and I congratulate my hon. Friend the Member for Newcastle-under-Lyme (Paul Farrelly) on supporting him.

The vexed question of multinational companies and their failure to pay a fair share of corporation tax on the profits they secure from the activities they undertake in this country has struck an incredibly powerful chord with the British public. If we take the Amazon example, we find that in 2012 it had sales of £4 billion in the UK, yet it paid only £2.4 million in corporation tax, and then took £2.5 million in grants from the UK Government. That is simply unacceptable.

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In this climate, people are finding it tough to manage their daily income, there are public expenditure cuts and small businesses feel hounded by HMRC, so I can well understand why there is huge anger at the behaviour of multinational companies that seek so aggressively to avoid paying their tax. I am particularly cross about the argument, which so many of them put forward, that because they pay other taxes they can decide voluntarily whether to pay corporation tax. We all pay our council tax, VAT and income tax; they pay business rates and employer contributions, and should also pay their corporation tax.

I know the Minister is concerned that if we tread too heavily on companies they may seek to relocate elsewhere, but I draw to his attention the remarks of Eric Schmidt, the chief executive of Google, who said that whatever we decide to do, his company would remain here, because this is too important a market for it not to do so. I also draw the Minister’s attention to the fact that feelings are so strong on this issue that we should not, in an attempt to keep multinational corporations here, allow them to blackmail us. Such corporations will stay because of the market: they come here because we are outside the euro and have a strong financial services sector, not because our corporation tax regime treats them gently.

We must toughen up HMRC. It is unacceptable that there has not been one case challenging an internet company on whether it pays a fair share of corporation tax here. I am not convinced that such companies are acting within the law, and until we challenge them we will not know whether I and the members of my Committee, who I think feel the same as I do on the evidence we have received, are right or wrong. Greater transparency is needed. Gone is the age when one could hide behind taxpayer confidentiality; proper information should be given to the public, whether it is a matter of opening up the books of the FTSE top 100 companies, or more naming and shaming of people for tax avoidance.

We should be tougher on public procurement. I welcomed the initiative, but its practical effect is much weaker than the original intent. We must simplify our tax code—six people working on that is not enough. In a climate in which multinationals value their reputation, they see themselves in our market over the longer term, and they, too—

Mr Deputy Speaker (Mr Lindsay Hoyle): Order.

4.27 pm

Charlie Elphicke (Dover) (Con): It is a pleasure to speak in the debate, and I congratulate my hon. Friend the Member for Warwick and Leamington (Chris White) on securing it.

Hard-working families want a better life for themselves and their children. They go out each day, work hard, strive, and pay their taxes. They face increasing costs in some areas of their lives, particularly in rising household bills for gas, electricity and water. The average family have seen their annual household bills rise by £384 since 2010.

I am concerned about whether utility companies are paying the appropriate amount of tax. I have done a study of nine water companies, which, collectively, have

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a turnover of £28 billion and operating profits of £10 billion a year, yet they paid just £541 million in tax, an effective tax rate of 5%, which goes down to about 3% if we take into account those who have been declaring tax losses.

I have looked at two electricity companies, EDF and RWE npower, which have a collective total turnover of £25.6 billion and operating profits of £1.7 billion, yet they paid no tax whatever. It cannot all be explained by capital allowances. Foreign-owned utilities, particularly in the water industry, have been engaging in schemes using debt interest to avoid tax, which, on my calculations, have resulted in a loss to the Exchequer of about £1 billion over the last three years.

Let us take the example of Southern Water, which covers the area I represent. Over the three most recent years for which figures are available, it generated more than £2 billion in turnover, operating profits of £767 million and paid a net tax charge of £45.9 million. That is an effective tax rate of 6%. Yorkshire Water, over the last three years, generated £2.6 billion in turnover, operating profits of £990 million, and yet received a net tax credit of £46.2 million. Anglian Water, over the last three available years, generated £3.3 billion in turnover, operating profits of £1.4 billion and paid a net tax charge of just £124.7 million. That is an effective tax rate of 8.9%.

What concerns me particularly is that those companies have been abusing the interest deduction system. Over the last three years, Southern Water made some £481.6 million of net interest and interest-related payments to the multinational owners of group companies overseas. According to my calculations, the tax forgone is a potential £125 million for the Exchequer. Yorkshire Water, which is especially egregious in this respect, made £548.5 of net interest and interest-related payments to group companies. According to my calculations, the tax forgone is £142 million. Anglian Water made £365 million of net interest and interest-related payments to group companies over the three most recent years for which figures are available. According to my calculations, the tax forgone is some £95 million.

Over the three most recent years for which figures are available, EDF, which is owned by the French Government, made £268.4 million of interest payments to group companies. According to my calculations, the tax forgone is potentially £70 million, if we assume a corporation tax rate of about the average, 26%. Npower made £58 million of interest payments to group companies. According to my calculations, the tax forgone is £93 million.

I am calling on the regulators to examine the position and to say that if the water companies, in particular, are receiving too high a return in total, they should either be subject to a windfall tax or reduce customers’ bills. Tax-avoiding water companies, and other utility companies, should be made to give a rebate to hard-pressed customers who have faced increased bills in recent years. I hope that Ministers will consider the options available to them. In any event, tax law should be changed so that interest is no longer favoured over equity. Specifically, interest payments from one group company to another should not be tax-deductible.

4.31 pm

Paul Farrelly (Newcastle-under-Lyme) (Lab): I saw this somewhat curtailed debate as an important opportunity for other Back Benchers to add more power to the

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elbow of the Public Accounts Committee, chaired so forcefully by my right hon. Friend the Member for Barking (Margaret Hodge). The Committee has shone a powerful spotlight not only on multinational tax dodgers but, importantly, on the timidity of HMRC. I shall return to the subject of HMRC’s mindset a little later.

Controversy over profit-shifting is hardly new—it has rumbled on for years—but, with the G8 only just over, it is easy to forget that it is only a little over 12 months since the issue finally gained enough traction to be given a place on the national agenda. I think that the reasons for that are clear: it has happened because since the banking crash and the recession Treasury coffers are bare, because of the sheer cumulative scale of the avoidance, because of the sheer size of the deposits held by United States multinationals offshore—at the last count, $83 billion was held offshore by Apple, the biggest of them all—and because the companies themselves are so brazen. Eric Schmidt of Google said that he was proud of what the company had done. He said:

“It’s called capitalism. We are proudly capitalistic.”

This year, Apple put its money where its mouth was silent. In May, in the world’s biggest corporate bond issue, it raised $17 billion in the United States. Given the comfort of its offshore cash pile, it will pay even less tax, because the interest is tax-deductible.

It is cheaper to borrow than to pay tax in those companies’ universe. They are perhaps not so much “immoral”, as they were memorably described by my right hon. Friend the Member for Barking (Margaret Hodge), as entirely amoral. However, HMRC is so meek that legislators would not have the necessary ammunition without investigative journalists and campaigners prying into the shadows. It was a close friend and former colleague of mine, Ian Griffiths, who combed Amazon’s accounts in Luxembourg and the United States last year. “A great deal for Amazon: £7 billion sales, no UK corporation tax” was the headline on the front page of The Guardian. In February last year, Simon Duke wrote an in-depth piece in The Sunday Times about Facebook entitled “The Anti-Social Network”. He tracked the way in which the social website had deliberately organised the avoidance of millions in tax, routeing revenues through Dublin à la Google. A series of exposés followed on different companies—“the untaxables”, as the newspaper called them—and kept up the pressure.

The third journalistic push came from Reuters, an organisation for which I once worked as a journalist. Following his investigation of Starbucks, Tom Bergin revealed that rather than reducing sales booked in the United Kingdom, like Google and Amazon, it loaded its United Kingdom operation with so many costs that little or no UK profit was apparently made. Two campaigners have also been at the forefront of these investigations: Richard Brooks, a former tax inspector, and Richard Murphy, an accountant and founder of the Tax Justice Network. I urge the people at HMRC to read their recent books closely, as I entirely agree with the PAC report of last year that criticised the mindset of HMRC in not being more assertive in pursuing multinational tax avoidance.

We have heard about how absurd it is for HMRC to accept the way that Amazon does business; that flies in the face of common sense. Despite the scale of its operations here, its overseas Luxembourg subsidiary is

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not classed as having a permanent establishment. It is important that the OECD changes the rules as they are outdated, but we should not let our attention simply be deflected internationally as there are plenty of things we can do here. There is plenty that HMRC can do. To see that only takes an examination of its rule book, and the double tax treaty with Luxembourg, and the test it applies. With the tools at its disposal, it can push harder here and now, to pursue this issue and raise billions of pounds for the hard-pressed coffers of the Treasury.

4.35 pm

Ian Swales (Redcar) (LD): I welcome the moves the Government have been making, but there is still a lot more to do. For example, Vodafone declares a profit of £2.5 billion in Luxembourg, where it has no business. It is incredibly easy for companies to export UK profits to their country of choice. Luxembourg is often the country of choice. It is used by Vodafone, Tesco, Pearson, the Daily Express group and many others.

In fact, it is becoming almost compulsory to do this. Low-risk, profitable businesses, such as utilities, have to do it, otherwise they will be taken over, as most of them have been. That applies to trade takeovers too, such as those involving Boots and Cadbury. Under the system here in the UK, it is almost impossible to be a long-term profitable company without doing this kind of activity.

UK profits are exported. That is a key item in the business case for takeovers, and now we have also got the internet making all this even simpler. As many companies have shown, companies can build up a huge business in a country, apparently without being there. A little quoted part of HMRC’s own rules—I have not got time to read it out now—says it should be going after these companies. It does not apply its own rules, so I urge it to start getting tough and the OECD to start driving home the simple principle that if a company sells in a country, it must account for that there and owe taxes there. Until then everyone will be climbing on the bandwagon—or should I say the Trainline, which now apparently routes its ticket sales through Luxembourg?

I firmly believe the key reason for flat UK growth is that so much of our UK economic activity is no longer counted here. Has productivity really fallen so much that 1 million extra people are producing no extra output, or is that because, for example, Amazon, one of our fastest-growing businesses, is not actually here, and is therefore saving vast amounts of tax?

It is time for Brussels to deal with the cuckoos in the EU nest. Ireland, Luxembourg and the Netherlands have arrangements that routinely enable tax avoidance. I am sure the free movement of capital was never meant to mean the free removal of taxes. International work is vital. For example, are the Government dealing with scams used by banks? They can create instruments that are traded between countries with different tax regimes, and with a bit of fancy footwork create a net tax reduction manufactured out of thin air.

I welcome the moves to greater transparency, but there is a long way to go. I recommend the recent Private Eye article, “Where there’s muck, there’s brass plates”, which has highlighted that over 11,000 UK limited liability partnerships have been set up since that was enabled by the last Government and they are now one of the corporate vehicles of choice for the world’s

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money launderers and tax avoiders. They provide a magic mix of UK respectability and absolutely no transparency or scrutiny. Action is needed.

The Government obviously work regularly with advisers on tax matters, but who are they? They are top finance directors, who will almost certainly be engaged in tax avoidance, and big four tax partners who make a very juicy living from advising on how to avoid tax. I recommend that the Government add people who are involved in tax campaigning, as well as campaigning journalists, global poverty campaigners and other experts who do not have a vested interest in tax avoidance and who can see how toxic the current system is.

In a speech in January I went into more detail about the solutions. Today, I will just make one recommendation. It is time to cap the allowable offshore royalty and interest payments, possibly by only allowing a double taxation relief—in other words people only get tax relief on interest if they have paid tax on it somewhere else. Secondly, we should set up new systems to police our national borders—

Mr Deputy Speaker (Mr Lindsay Hoyle): Order. Time is up. I call Nick Smith.

4.39 pm

Nick Smith (Blaenau Gwent) (Lab): In the past 15 years, the world of e-commerce has become a fundamental part of our lives. It has shaped the way companies do business, how money is handled and many of our shopping habits, but it has also changed the nature of business on a global scale and therefore our ability to levy a fair level of taxation has fallen behind.

In my work with the Public Accounts Committee, I have seen the massive rewards for e-commerce leaders. As has been pointed out, Amazon alone made £4.3 billion of sales last year in the UK, yet by running its sales through Luxembourg it paid a meagre £2.4 million tax bill in 2012. That is less than one tenth of 1% of sales and that is just not good enough.

It would be remiss to ignore the thousands of jobs that such companies have created, but when our grants to those companies outpace the returns in tax, questions must be asked. In Wales alone, the Welsh Government have thrown millions at Amazon to bring it to Swansea. An £8.8 million regional selective assistance grant was given to bring the company into the city, while a £3 million link road entitled “Amazon way” finished construction late last year. So, we have a regional Government supporting regeneration and jobs, but the money from the Treasury used to fund that growth is not being recovered.

The Public Accounts Committee, of which I am a member, concluded that Her Majesty’s Revenue and Customs needs real teeth to be able to challenge the artificial nature of how businesses set up to avoid tax, as well as to be able to push against antiquated international tax laws. It is time for the Government to get a grip on tax avoidance.

E-commerce will increase as our appetite for doing our business online grows exponentially. Perhaps when he sums up, the Minister will reflect on examples such as the double benefit gained by Amazon thanks to the incentives it has received to set up in Wales and other places while we still suffer the loss of corporation tax

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revenue. I know the companies pay local rates and national insurance and have employees who pay tax too, but that does not excuse the times when they trouser our support and avoid corporation tax. Will the Government review the company support criteria in such cases? If companies like Amazon are not going to deliver, perhaps it is time that we all had a refund.

4.42 pm

Katy Clark (North Ayrshire and Arran) (Lab): I strongly welcome the cross-party will among Back Benchers to bring this incredibly important issue to the House.

The estimates of how much is lost to the British economy through tax avoidance in its many forms go up to in the region of £120 billion. Lots of people have different figures, but there is no doubt that if we could get on top of the issue—not of tax evasion, when people illegally do not pay their taxes, but of tax avoidance—many of our other debates in this House about the deficit and so on would be skewered. We face a major challenge, as over decades we have reached a situation in which we do not collect the taxes we need to pay for the services we want to provide in the communities we represent. We need to reach some sort of solution so that we can collect those taxes.

It is interesting that in this Back-Bench debate we have heard people from different political parties speaking with one voice. One of the problems in the debate is that for a long time the leaderships of the parties have not had the political courage to take on the multinationals. If we reflect on the speeches we have heard today and read Hansard tomorrow, we will see that it is notable that these companies are household names. They are not the kinds of companies that would move out of Britain. To suggest that Starbucks, Amazon, Vodafone, npower, Google or HSBC will pack up their bags, move away and stop making profits out of our constituents is ludicrous. The reality is not that progress will be made only by the companies themselves. Yes, we need to change the culture in companies. Yes, we need to name and shame. But as politicians we have to change the rules of the debate. That means changes in law so that we are far tougher on those who avoid taxes but also tackle those who evade taxes.

Paul Farrelly: Does my hon. Friend agree that we should use our influence within the European Union to, as the hon. Member for Redcar (Ian Swales) said, sort out the cuckoos in the nest who provide effective tax havens? Will she join me in congratulating Senator Philippe Marini, president of the French Senate finance committee, who has been in the vanguard in Europe of pressing for concerted European action?

Katy Clark: I congratulate all those who are working to get international agreements to tackle this problem, including the British Government.

The reality is that we also have to look at what we are doing here and now. Since 2005, we have lost 37,000 jobs in HMRC. We expect to lose another 10,000 tax inspectors by 2015. No doubt the Government will come back and say that there are slight increases in the numbers of staff in specialist and criminal investigations, but they are only one part of the team that looks at all these issues. We have to highlight clearly the use of tax havens by FTSE companies—98 out of the top 100 use them. We have to say that roughly one in five of the world’s tax

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havens are the responsibility of the UK and that the use of those tax havens is estimated to cost the UK £18.5 billion a year. These issues need to be tackled internationally, but we have a lot to do at home.

We need to build a consensus in all political parties that we need tax laws which ensure that multinationals pay their due in this country. Unless we do that, a lot of the other debates in this place, whether on legal aid or how we fund hospitals or education, are nonsense. We need the money to go forward. Perhaps one of the things that comes out of this financial crisis will be a recognition that all parts of society must make their contribution. Some of the companies that we have been talking about today should be at the top of the list for ensuring that we all pay our way.

4.47 pm

Catherine McKinnell (Newcastle upon Tyne North) (Lab): Let me begin by commending the hon. Member for Warwick and Leamington (Chris White) for securing this Backbench Business Committee debate, ably supported by my hon. Friends the Members for Newcastle-under-Lyme (Paul Farrelly) and for Paisley and Renfrewshire North (Jim Sheridan).

Once again, we find ourselves discussing the challenge of corporate taxation—an issue which increasingly agitates not just businesses up and down the country but members of the public. The mood could not really be better exemplified than by the constituents of the hon. Member for Warwick and Leamington, who run the independent bookshop Warwick Books. As the hon. Gentleman outlined, Francis and Keith Smith achieved quite a remarkable feat by gathering 170,000 signatures for their petition calling on a certain online bookseller to pay its fair share of corporate tax. They highlighted the fact that last year the company made £3.3 billion of sales in the UK, yet it is not registered to pay corporation tax here.

The hon. Gentleman’s constituents and I have something in common in that we both studied at Northumbria university. I also understand that one of them once worked at Fenwick’s, which is a great Newcastle department store. So it is enough to convince me of their pedigree.

We have had a thoughtful and productive debate, with excellent contributions from both sides of the Chamber. All hon. Members have noted the cross-party agreement, certainly on the problem and the diagnosis, if not necessarily on the cure. I commend my right hon. Friend the Member for Barking (Margaret Hodge) for her contribution, for her powerful chairing of the Public Accounts Committee, and for the work it has done, and I commend all the members of the Committee who have raised this issue in the eyes of the public.

At the beginning of this year, my right hon. Friends the Leader of the Opposition and the shadow Chancellor laid down a challenge to the Government to end the era of tax secrecy and to use the G8 presidency to do that, both by showing international leadership and by taking action here at home. I think we all agree that sometimes there are good reasons why companies pay little, reduced or even no tax: some firms are investing large sums in research and development, assets and infrastructure, and where that is done for genuine commercial reasons and not simply to minimise their tax liability, it is to be welcomed and has to be acknowledged in the tax system. However, as I have said previously in this Chamber,

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something has gone very wrong in the system when a large multinational company can make £1.2 billion-worth of sales in this country and describe itself to investors as profitable, yet report no UK tax liability.

It is not only UK taxpayers who pay the price of such profits shifting, although the loss to the Exchequer is significant, and my hon. Friend the Member for North Ayrshire and Arran (Katy Clark) powerfully argued the case for why this is so important to the UK Exchequer. Such behaviour totally undermines the notion of a level commercial playing field by putting at a serious disadvantage responsible firms that pay their fair share of tax on profits generated in this country, as well as employ thousands of people here and pay all the associated taxes. There are those who believe that the problem is just too difficult, too complicated, too entrenched to tackle, and I suspect that that is what some people—especially those who are involved in that sort of activity—would like us to think, but we believe that there are measures that the Government could and should be instigating right now to end the era of tax secrecy and move us toward the greater transparency that is so desperately required if we are to rebuild confidence in our tax system.

To give him his due, the Prime Minister committed to putting tax avoidance at the top of the G8 agenda when world leaders met in Northern Ireland last week, and many people—including several million campaigners for tax transparency—had high hopes for what could be achieved through the UK presidency of the G8. Ahead of the summit, we called on the UK to push for an internationally agreed system of country-by-country reporting in which multinational corporations, regardless of sector, would be required to publish a simple statement of the amount of tax they pay. We believe that that information should incorporate multinational revenues, profits and taxes paid in every country in which they operate, and include the key pieces of information that enable people, whether they are experts or not, properly to assess the amount of tax they pay. That would also benefit British consumers by enabling them to make informed choices about the companies they buy from. The G8 leaders’ communiqué stated:

“We call on the OECD to develop a common template for country-by-country reporting to tax authorities by major multinational enterprises, taking account of concerns regarding non-cooperative jurisdictions.”

That is a serious step in the right direction, but we need to see far more detail and we need to see it soon.

Today, we have heard about various tricks used by multinationals to minimise or avoid their tax liability in this country—for example, shifting profits and using complex corporate tax structures. It is increasingly clear that we have failed to keep pace with the changes, and my hon. Friend the Member for North Ayrshire and Arran talked about the resources HMRC needs to tackle the problem. We need progress on transparency if we are to put a stop to multinational and global companies hiding behind an unacceptable veil of secrecy about their tax.

4.53 pm

The Exchequer Secretary to the Treasury (Mr David Gauke): We have had a short but useful debate. I congratulate my hon. Friend the Member for Warwick and Leamington (Chris White) on securing it and thank the Backbench Business Committee for granting it.

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Rightly, this issue has received much greater scrutiny in recent months. The public anger is understandable and not surprising, given that difficult decisions are being made on the public finances and the vast majority of people pay the taxes they owe, and the perception is that some companies are not contributing their fair share or complying with the law.

We should say at the outset, and the hon. Member for Newcastle upon Tyne North (Catherine McKinnell) was right to say, that there can be occasions where it is entirely legitimate for a company not to be paying corporation tax if it is making use of reliefs or capital allowances in the way that Parliament intended. It is also the case—there can be confusion about this—that corporation tax is a tax on profits, not a tax on sales. It is also worth remembering that we do collect significant sums of corporation tax from large businesses. But where the public’s concerns are justified, where there is avoidance, by which I mean contrived and artificial behaviour contrary to Parliament’s intention, that is a very serious matter and it is right that we take action.

There is an issue of administration. The point has been raised about HMRC’s effectiveness in dealing with tax avoidance by large businesses. I should explain that HMRC works, with regard to large businesses, by putting in place CRMs—customer relationship managers. Their role is essentially to man-mark the most complex and high-risk taxpayers. In recent years that approach has proved to be effective in getting money in. HMRC secured £8 billion of additional compliance yield from large businesses in 2012-13, and more than £23 billion in the past three years. It is an approach that has been endorsed by the OECD. One of the difficulties that HMRC has is that it is bound by taxpayer confidentiality. It cannot give a running commentary to this House on the action that it takes, but the numbers demonstrate that HMRC is effective in getting money in.

Margaret Hodge: Will the Minister give way?

Mr Gauke: I will, but I have about two minutes left to cover a lot of ground.

Margaret Hodge: Why has HMRC not taken one case against any internet company?

Mr Gauke: Neither the right hon. Lady nor I know what action HMRC has taken with regard to individual companies. What we do know is that it has got billions of pounds in additional yield as a consequence of the action that it takes with large businesses as a whole. With reference to HMRC’s performance across the board, additional yield is being achieved year after year, and this Government have provided resources to increase the yield on evasion and avoidance.

One other constraint on HMRC is that it can collect only the tax that is due under the law, and there is an

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issue here because very often the law that applies to large businesses encompasses international law, OECD arrangements and what is set out in double taxation agreements. The point was raised about the definition of “permanent establishment”. That is set out not just in domestic legislation, but in international law. We have led the way in encouraging the OECD to look at what needs to be done to improve the international situation, to make sure that the base erosion and profit-shifting work can ensure that the tax rules are all up to date for the internet world.

We have had a very short debate, and in this very short speech and the time available to me I cannot do justice to all the points that were raised. Let me say in conclusion that HMRC has robust methods in place to ensure that tax compliance by the biggest businesses occurs, and the numbers support that. We have used our international position to make sure that there is progress in bringing international tax law up to date to reflect the current position. We have a Government who are committed to ensuring that large corporates pay the tax that is due.

4.59 pm

Chris White: This has been a brief debate, but it was still an important one. I thank all Members who have taken part for the crucial points they made. More importantly, I hope that the debate was watched outside the Chamber by the companies that have been referred to and that they take the necessary responsibility to ensure that some of these things are put right. I applaud the Minister’s comments. The Government are moving in the right direction, but I think that this is still a work in progress.

Question put and agreed to.


That this House has considered the matter of multinational companies and UK corporation tax.


Anti-social behaviour on Cato Street (London)

4.59 pm

Mark Field (Cities of London and Westminster) (Con): It is a pleasure to present this petition on behalf of Mr Mark Gregory, managing director of PHA Media of Wardour street, and 156 other London residents.

The petition states:

The Petition of a resident of the UK,

Declares that the Petitioner believes that actions of individuals who are sleeping, sheltering, littering and defecating on Cato Street, London, are unacceptable and detrimental to the local businesses and residences. The Petitioner therefore requests that the House of Commons urges the Cities of London and Westminster local authority to resolve this issue and remove those individuals from Cato Street and surrounding areas.

And your Petitioner, as in duty bound, will ever pray.


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Reserve Service Personnel

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

5 pm

Nadine Dorries (Mid Bedfordshire) (Con): I think that everybody in the House, particularly MPs, and indeed everybody in the country, is very aware of the work undertaken and the sacrifices made by those who serve in our reserve forces. In many cases, the job of the reservists is no different from that of the regular forces. Their family life is disrupted in the same way and they suffer the same strains and stresses. They go out and fulfil the same role.

There are two military bases in my constituency: Chicksands, the Army intelligence base, and RAF Henlow. Many of the staff who serve on those bases, as well as the soldiers and RAF personnel, send their children to school in Bedfordshire and, because they are there for quite a while, I am in the fortunate position of having many of them stay in the constituency and become reservists. A number of cases involving those reservists have come to my attention over the past few months.

I am often intrigued by the way we honour our armed forces and our soldiers, who do a fantastic job. The Royal Anglian Regiment is based as Chicksands. I will always remember a story I was told—I think the Minister was with me at the time—when the Royal Anglians came back from Iraq and presented to us on the work they had undertaken there. Some of the soldiers who were there that day are now living in Bedfordshire and serving as reservists. They were telling us about the respect the public show them when they come back from a tour of duty. They had just come back from Washington DC, where they had been making a similar presentation. They had stopped at an American diner to eat. When the soldier—the one who presented to us that day—went up to pay for the meal, the young girl at the checkout said, “You don’t need to pay, Sir. Your meal has already been paid for.” When he asked who had paid for it, she nodded to the window. Reversing out of a lorry bay was a lorry driver. She explained to our soldiers that the driver had just wanted to say thank you for the sacrifice they make on their behalf. I was incredibly touched by that story, particularly as I was told it by soldiers in our own regiment in Bedfordshire.

It is a huge honour the way UK citizens will wait for returning soldiers who have lost their lives in Afghanistan. They stand in the rain and the cold to honour those returning soldiers. It is therefore hugely dismaying for me to hear from reservists in my surgery who sit and give examples of employers who perhaps do not pay them the respect they deserve for the sacrifice they make.

I know that the military go a huge way towards providing for reservists all the assistance and benefits that regular soldiers in the Army receive. However, I have heard examples of things that have happened over the past year, the most recent of which made me call this debate. When reservists who served at the Olympics last year got back to their full-time employment, they discovered that they had lost their holiday entitlement and holiday pay. Some might say, “Well, they were only at the Olympics—it wasn’t a tour of Afghanistan”, but

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they were still protecting our safety and looking after us. If there had been a terrorist attack, they would have been in the front line and their lives would have been at risk. I found that attitude quite depressing.

We have legislation that enables employers to make allowances should they employ those who wish to risk their lives on our behalf, for our freedom and our safety, in order that they do not suffer as a result of doing so. I recently heard about the case of a soldier who had been on a tour of Afghanistan and on his return went straight back to work. Again, I heard the same story: he had lost his holiday pay and holiday entitlement. The legislation says that when reserve forces personnel return from a deployment they must be taken back

“on terms and conditions not less favourable to him than those which would have been applicable to him in that occupation had he not entered on such service.”

I know that the Minister is going to say that a White Paper is coming up shortly. That is indeed the reason I called this debate. I wanted to use it to highlight the position in which reservists who have been in the regular forces, and who have settled in Mid Bedfordshire and are now my constituents, find themselves. I do not believe that their situation is unique as it is probably occurring with employers not only in Mid Bedfordshire but nationwide. I would like the Minister to be aware of this problem, so I highlight it at time when he will be preparing the White Paper. The wording of the legislation needs to be tightened and secured to provide reservists with much greater protections than they have now. He will probably say that it is already quite tight, and I agree that one would think that there were no loopholes that employers could use, but I am afraid that they are doing that, and that is what we need to protect against.

There needs to be an effective means of challenging decisions made by employers should a reservist feel that he is being unfairly treated when he comes back from a tour of duty, whatever or wherever it may have been. At the moment, it is a situation that arises between the reservist and his employer. We need to widen that out and find a mechanism for an appeals process through which a reservist can challenge his employer without fear of losing his job.

At the moment, non-British companies operating in the UK are free from our law. The White Paper needs to explore how to find a way of ensuring that non-British companies comply with the legislation that we have to protect our reservists. It appears that non-British companies may be the worst offenders. We need to find a means by which we can name and shame companies that do not do their best for our forces or treat them in the way that we would like them to be treated. There is a huge gap between the respect shown towards our serving personnel by the lorry driver in the States and the way that some companies treat them in the UK.

A few people have said to me, “How do you expect a small business to be able to cope with taking on a reservist who may be going to disappear for a few months at a time?” There is provision to enable employers to do that without being inconvenienced in any great way. That provision enables the reservist to go and fight for his country. Surely the employer should be grateful that that person is fighting for the freedom of businesses to operate in the UK. It is therefore a double-edged sword. The employer should show the same respect that the lorry driver showed.

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The last Government left a huge, multi-billion-pound black hole in the finances of the Ministry of Defence. The Secretary of State and his Ministers, while fending off demands from the Treasury for ever more spending cuts, have done their bit to recognise the contribution of reserve forces and personnel. Indeed, they will be relying on them more, because one of the realities of the cutbacks is that the reserve forces will increasingly be called to the front line and into more dangerous situations. That is one of the main reasons why the legislation needs to be tightened. The difference between serving in the reserve forces and the regular forces is becoming narrower as we rely more on our reserves.

I know that the Minister has been a reservist. He has told me some fascinating stories about his time as a reservist, none of which I can repeat here today, unfortunately. I wish I could, but they would be struck from Hansard in a flash. This is not blackmail, I hasten to add. I am not saying that I have something over the Minister. However, I hope that he will hear the plea from my constituents and all reservists across the country; that he will consider in the White Paper how the employment rights of British nationals who are employed in the UK by foreign companies can be protected and secured; and that he will consider tightening the wording in the legislation so that our reservists are not disadvantaged once they have completed a tour of duty. That is fundamental.

The White Paper is coming, so the Minister has a fantastic opportunity to do his best for his colleagues who do the job that he once did. I know that he will take up this challenge enthusiastically and do his best.

5.12 pm

The Minister of State, Ministry of Defence (Mr Mark Francois): I congratulate my hon. Friend the Member for Mid Bedfordshire (Nadine Dorries) on securing this debate on the terms of employment for reserve service personnel. It is timely in two respects. First, it relates to the White Paper that we will publish shortly. Secondly, we are in the run-up to Armed Forces day 2013 this Saturday, when the country will rightly pay tribute to our personnel, regular and reserve, the families who support them and our veterans.

I am delighted to see my hon. Friend in her place. To draw a military analogy, she got slightly waylaid on a jungle training exercise, but I am pleased to say that she has successfully rejoined her unit. I would like to make some general points about our reserve forces before addressing at least some of the issues that she raised in relation to her constituent.

Before I go any further, I should declare an interest or, given the circumstances, confirm one. I served in the Territorial Army as an infantry officer in the 1980s. I was a Royal Anglian—a regiment that proudly recruits from Bedfordshire as well as from my county of Essex. It is therefore quite possible that some of her constituents serve in its ranks. I served in the cold war, when we planned, in essence, for world war three. Fortunately, that nightmare never came to pass, so I was never mobilised for operations, I was never shot at with live ammunition, other than in training, and I bear no medals. However, I still proudly carry the Queen’s commission, which hangs on my wall at home. I have worn the uniform and I understand the ethos.

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In truth, however, the role of the reserves has changed markedly since I served among them. Since 2003, there have been more than 25,000 reservist mobilisations for operations to fight alongside their regular counterparts, and 30 have paid the ultimate price for their country. I take this opportunity to acknowledge the tremendous contribution our reserves make to the defence and security of our nation, echoing the exact sentiments of my hon. Friend. Reserves have always played an essential role in our armed forces, and their dedication, professionalism and contribution have been vital to achieving success.

My hon. Friend will be familiar with the background to our new policy for reserves. The 2010 strategic defence and security review described the role of the reserve forces as part of our future, highly capable armed forces. As an integral part of this future force, we are growing the reserves to provide additional capacity, as well providing certain specialists—for example, medical personnel or cyber experts—whom it would not be practical or cost-effective to maintain as part of our regular capability. Seeing the very close relationship between my hon. Friend and her BlackBerry, she is indeed a cyber expert.

The changes we are making are substantial. They are about delivering defence differently from in the past. We are taking an approach that envisages military capability being delivered through a whole force comprising regulars, reservists, contractors and civil servants. This is already happening in Afghanistan today. For example, the Army is reorganising into an integrated force of 112,000 trained regulars and reservists that is able to meet the security challenges of the future. This construct, mirrored by the Royal Navy and the Royal Air Force, allows us better to harness the talent the country has to offer. This approach will deliver the Ministry of Defence’s contribution to national security in a cost-effective way that makes the best use of the resources available.

We need to develop the reserve component of the force. The 2011 independent commission on the reserve forces found at that time that the reserves were in decline, particularly in the Army, and needed to be brought up to date to meet the challenges of the new security environment. The key recommendations of the independent commission’s report were to stabilise the reserve numbers and increase the trained reserve strength; to provide the reserve forces with better and defined roles; to offer the right mix of interesting and challenging activities, with appropriate recognition and reward to attract and retain individuals in the reserve forces; to provide greater ease of mobilisation, better employee protection and greater recognition of employers; and to increase investment in the reserve forces.

In responding to the report last July, my right hon. Friend the Secretary of State for Defence announced a £1.8 billion investment programme in the reserves over the next 10 years. That is significant. There have been reviews of the reserves in the recent past that have led to comparatively little change. This review is different: it will deliver. It is supported by additional funding, by the requirement to deliver that is created by dependence of the Future Force on the reserves, and by the will, throughout Defence, to ensure that it succeeds. The commitment to deliver was reinforced by the publication in November last year of the Green Paper, “Future Reserves 2020: Delivering the Nation’s Security Together”.

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This set out our proposals to enable Defence to build and sustain over time the changes recommended in the independent commission’s report, and to ensure that we are able to deliver a reserve force that will meet the needs of the future whole force concept.

Following the publication of the Green Paper, we launched a consultation exercise, which has proved invaluable. We received more than 2,500 responses from reservists, employers, employer organisations, regulars and members of the public. In addition, some 50 consultation events were held with employers, reservists and their families. These responses were generally supportive of our proposals for the future of the reserves, and recognised that the future proposition requires the development of new relationships between Defence and reservists—and their families and employers—that will be crucial to achieving our goals. As someone who has commanded TA soldiers, albeit in the last century, may I just say that the relationship with families is also very important? There is an old saying in the Army, “Recruit the soldier, retain the family.” We need to ensure that families are supportive of our reservists, too. In order to retain the support of families, we need to get greater support from employers and, indeed, from society as a whole. They also serve who sit at home and wait.

Nadine Dorries: The Minister makes a fantastic point. It is the families who suffer when employers take away the holiday entitlement from reservists when they return. The children suffer as they do not get to spend time with their father or mother when they return from this very stressful situation. The stress factor is involved here, because when someone is returning from a tour of duty, they need that time off and that down time with their families to re-stabilise themselves—to step away from where they have been and back into the real world. So removing their holiday entitlement has another effect, as it prevents that process from taking place.

Mr Francois: My hon. Friend makes a very pertinent point. Holiday is important to the families as well as to the servicemen themselves. Of course, it is important to the children, where that is applicable. The ability to have leave, particularly when returning from operations, is very important. We understand that in the Ministry of Defence, and I hope, at least in general terms, to address that point as it relates to her constituent in a moment or two.

Given all the things I have been talking about, we have done considerable work with employers, and much of the consultation focused on them. We recognise that reserve service will affect different employers in different ways, according to their size and sector. We seek to develop relationships that are tailored to reflect that— relationships that are open, practicable and based on mutual benefit. I have had productive discussions with the British Chambers of Commerce, the Business Services Association, the CBI, the Federation of Small Businesses and the Institute of Directors to try to ensure that we achieve that. I hope that the fruits of some of those discussions will be reflected shortly in the White Paper.

Given all that, I was concerned to hear about the case of my hon. Friend’s constituent, and I shall explain the MOD’s policy as I believe it would apply in a case such as this. I understand that her constituent was mobilised

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into service as part of the deployment for Operation Olympics. I, too, pay tribute to all those service personnel, both regular and reserve, who, in many cases at very short notice, were mobilised to ensure the security of those wonderfully successful games. At the end of that service, a reservist would be entitled to a period of paid leave. For each month that they are mobilised they get about two or just over two days’ paid leave. In this particular case, her constituent might have been entitled to about eight days’ paid leave from the Ministry of Defence in view of having been mobilised for several months—it was both before and after the games. So the normal procedure would be for the leave to be taken at the end of the operation—in effect, it would be post-operation tour leave, to be paid for by the MOD.

In this case, without being familiar with all the detail, it sounds like my hon. Friend’s constituent took that post-operation tour leave of about eight days, and the employer then decided in effect to “net that off” and take it off her constituent’s leave from the company. It might be that the employer went slightly beyond that—we would need to know more details—but the reservist would still have had broadly the same amount of leave. One could take the view, however, that perhaps the employer should have been more generous, given the service that had been rendered, and should not have “netted off” the additional holiday. As I understand it, nothing in current legislation prevents the employer from doing that, but one could take the view that the employer should have been slightly more generous.

Notwithstanding that issue, we need to re-set the relationships between reservists, and employers and society as a whole, and we aim to do that via the White Paper. Greater reliance on reserves is more cost-effective for the nation, but requires a greater willingness by society to support and encourage reserve service. Our reservists make a contribution to society over and above most others. We recognise and value this and we must offer them attractive challenges, fair rewards and incentives, and we must undertake to provide them and their families with appropriate support, recognising the contribution they make. The White Paper, which we shall publish soon, will set out our plans in much greater detail and will set the agenda for a very significant change in the future of our reserve forces. This is tremendously exciting and I look forward to our reserves playing an even greater role in the defence and security of our nation.

When I served, there were 75,000 trained men and women in the Territorial Army. Our target now is to get to 30,000 by 2018. I have to believe that if we got to 75,000 then, with a smaller population, we can get to 30,000 within four and a bit years with a larger population. In order to succeed, however, we must have the support of employers and the right relationship between them and their reservist employees. We need mutual respect, and that is what we seek to engender via the White Paper. I congratulate my hon. Friend on raising the issue at this time—as I said, the debate was timely—and I believe that she has done her constituent a good service.

Question put and agreed to.

5.26 pm

House adjourned.