STATUTE LAW (REPEALS) BILL [LORDS]

House of Commons, 7 January 2013.

John Bercow (Speaker, Buckingham)

The question is that the Bill be now read a Second time—

Robert Syms (Conservative, Poole)

rose—

John Bercow (Speaker, Buckingham)

I am not sure why the hon. Gentleman was hovering, although I am sure his hover was well intentioned. We shall move to the vote.

Motion made, and Question put forthwith (Standing Order No. 58), That the Bill be now read a Second time.

Question agreed to.

Bill accordingly read a Second time.

Motion made, and Question put forthwith, That the Bill be not committed.—(Mr Syms.)

Question agreed to.

John Bercow (Speaker, Buckingham)

I thank the hon. Member for Poole (Mr Syms) for rising to move the motion; the choreography is everything in these matters.

Motion made, and Question put forthwith, That the Bill be now read the Third time.

Question agreed to.

Bill accordingly read the Third time and passed, without amendment.

Commission Work Programme 2013

John Bercow (Speaker, Buckingham)

We come now to the motion on the Commission work programme for 2013—

Robert Syms (Conservative, Poole)

Aye.

John Bercow (Speaker, Buckingham)

We are obliged to the Whip for his enthusiasm, but it would be useful to hear the reasons for considering the question. I call the Minister to move the motion.

David Lidington (Conservative, Aylesbury)

I beg to move,

That this House takes note of European Union Document No. 15691/12 and Addendum, a Commission Communication on the Commission Work Programme 2013, and welcomes the Work Programme as a useful summary that enables the Government and Parliament to plan their engagement.

I welcome the fact that the European Scrutiny Committee has referred this subject for debate. Today’s debate on the 2013 work programme of the European Commission provides us with a timely opportunity for both Government and Parliament to look ahead and plan our consideration of forthcoming European Union business.

As is always the case, the work programme sets out the European Commission’s priorities, in this instance for 2013 and early 2014; and it may be the last substantial work programme under the current Commission, whose term ends in October 2014. The substance of the Commission’s plans is contained in the annex, which previews 58 initiatives, making it shorter than previous work programmes. However, we know that the list of initiatives is unlikely to be exhaustive; previous experience suggests that reactive work will arise. As the House is aware, various European measures from previous Commission work programmes are already in the system, and work on those will be ongoing over the next 12 months or so.

Gisela Stuart (Labour, Birmingham, Edgbaston)

The Minister mentioned reactive legislation. Is any reflective work done? Eleven years ago, 2012 was supposed to be the year when Europe was the most competitive economy in the world. What went wrong?

David Lidington (Conservative, Aylesbury)

We could spend a fair time debating exactly what went wrong and the extent to which fault should be laid at the door of European institutions or of various national Governments who failed to implement the right economic measures to inculcate greater dynamism. I make no bones about the fact that the European Union as a whole would benefit from focusing—perhaps not to the exclusion of everything else, but ahead of all other priorities—on the urgent need for Europe as a whole to rediscover economic dynamism and economic growth through trade and open markets, because in the face of a dramatically changing global economy, that is the only way Governments of European nations can ensure that future generations enjoy both the material standards of living and the degree of social protection that we have come to take for granted in our day.

John Redwood (Conservative, Wokingham)

I should be grateful if the Minister could tell us whether there is provision in the Commission work programme to deal with the new relationship for the United Kingdom that I believe the Prime Minister will be sketching in his forthcoming speech.

David Lidington (Conservative, Aylesbury)

I appreciate that my right hon. Friend finds it hard to contain his excitement at the prospect of the Prime Minister’s speech. He will, however, understand if I decline to be drawn into speculating about the contents of that speech today. I am very confident indeed that when my right hon. Friend the Prime Minister makes his promised speech on European policy, it will address the important issues facing both the United Kingdom and Europe as a whole, and will chart a way forward that is in the interests of the people of this country in particular and the peoples of Europe more broadly.

Wayne David (Labour, Caerphilly)

As the Minister is waxing eloquent about the Prime Minister’s forthcoming speech, could he tell me whether the Prime Minister intends to consult the Deputy Prime Minister and his own Back Benchers?

David Lidington (Conservative, Aylesbury)

I do not know whether that was a bid from the hon. Gentleman to be involved in the No. 10 drafting team. The Prime Minister will prepare his speech in the way he normally prepares such speeches within Government. The hon. Gentleman will not have to wait long to see the speech and I am sure that he will be first in the queue to express enthusiasm and a warm welcome for what my right hon. Friend has to say.

Ronnie Campbell (Labour, Blyth Valley)

Will a referendum be called for in that speech?

David Lidington (Conservative, Aylesbury)

Again, I have to say that the hon. Gentleman must wait to see what my right hon. Friend the Prime Minister has to say in his forthcoming speech, but I am sure that the answers to the questions that he and other Members have about the speech will be answered in full when my right hon. Friend makes it.

Andrea Leadsom (Conservative, South Northamptonshire)

Will my right hon. Friend give way?

David Lidington (Conservative, Aylesbury)

I will, but I hope that the House will understand that I then wish to make progress in this time-limited debate.

Andrea Leadsom (Conservative, South Northamptonshire)

Further to the questions from Opposition Members, can my right hon. Friend assure me that the Prime Minister will look at the Fresh Start project manifesto that he and other colleagues on the Government Benches received in draft form over the Christmas recess? It proposes significant reforms to Britain’s relationship with the EU.

David Lidington (Conservative, Aylesbury)

My right hon. Friends the Prime Minister and the Foreign Secretary and I follow closely the work that my hon. Friend the Member for South Northamptonshire (Andrea Leadsom) and the Fresh Start group are doing. We think that their ideas represent an extremely creative and valuable contribution to the debate about this country’s future in Europe.

Keith Vaz (Labour, Leicester East)

rose —

David Lidington (Conservative, Aylesbury)

I ask the right hon. Gentleman to allow me to continue. Perhaps he could try to intervene later; I will seek to give way to him then.

Overall, we agree with the Commission that the No. 1 task facing the European Union is to tackle the economic crisis, return Europe to growth and enable its member states to compete in the global economy. Globalisation means that the EU faces increased competition from rapidly developing countries outside Europe, but it also brings us opportunities to build new markets for our products and services. To meet those challenges, the European Union should prioritise the promotion of trade, within the EU and outside it. It should seek to free private enterprise and enable businesses to compete, and it should support those priorities by ensuring that the limits of EU power are respected. I would therefore like to highlight three cross-cutting themes that are of the highest importance to the Government: growth, better regulation, and safeguarding the interests of the United Kingdom. I shall deal first with growth.

Kelvin Hopkins (Labour, Luton North)

The Minister is talking about the importance of European Union member states competing in the world, and indeed with each other. The only way that they can do that fairly is if they have an appropriate value for their currency. They cannot have that when they are fixed inside the euro.

David Lidington (Conservative, Aylesbury)

I think that this country’s decision to stay outside the euro was right. I am certainly not in the least tempted to see the United Kingdom abolish sterling and participate in the euro, but I say to the hon. Gentleman that we, as a democratically elected House, have to respect the sovereign decisions of other European democracies that have chosen, for reasons of their own that they have explained publicly, to commit themselves to the single currency project.

Keith Vaz (Labour, Leicester East)

Will the Minister explain to the House how the work programme will fit in with the principles of the presidencies that will take place this year? As he knows, Ireland has taken over the presidency, and has presidency priorities. In six months’ time, another country will take over. How will that fit in with what the Commission intends to do?

David Lidington (Conservative, Aylesbury)

The way this works, as the right hon. Gentleman will know from when he held my position, is that the Commission, under the treaties, has the right to initiate legislation, but even in the post-Lisbon world, the rotating six-monthly presidency chairs the various sectoral Council meetings and working groups, and has considerable influence in determining the relative priorities given to particular measures. A presidency may choose to try to fast-track a particular measure, and use its diplomatic resources to seek early agreement on it; it may place another measure, about which it cares less, on the back-burner. There is negotiation between the presidency and the Commission in that respect.

The Government have long argued for the Commission to come forward with measures to help boost growth, through agreements with important trading partners, and by strengthening and deepening the single market. I am sure that the House will welcome the news that, last

month, the European Union successfully concluded a free trade agreement with Singapore, which will create new opportunities for United Kingdom businesses, particularly in the export of services, green technologies, automotive, electronic, and pharmaceutical items, and medical devices. There are also opportunities to bid for public procurement contracts in Singapore.

We will continue to work on many more such agreements. I hope that it will be possible to conclude the proposed EU free trade agreement with Canada in the coming weeks, to open negotiations between the EU and the United States by the summer, and to take forward free trade negotiations with Japan. We will also continue to support efforts to achieve EU free trade agreements with India, Malaysia and other countries.

Mike Gapes (Labour, Ilford South)

On free trade agreements with the United States, does the Minister agree with me and with many commentators that the chances of the European Union getting effective agreement with the United States will be significantly less if the UK is not part of the negotiation, and that it is in the UK’s interests that the European Union is able to negotiate effectively with the United States and other countries, which would not be possible if we were outside?

David Lidington (Conservative, Aylesbury)

I have always taken the view that if the United Kingdom were to walk away from the table, the most ardent and most influential champion for free trade and open markets would be removing itself. I am quite clear in my mind, particularly with the pressures that we can observe globally for protection rather than free trade, that it is important that we continue to bring our influence to bear within the European Union and within other multilateral organisations to promote greater freedom of trade across the world.

Bill Cash (Conservative, Stone)

My right hon. Friend, in line with many other members of our party, is deeply committed to the idea of free trade, but given that the European Union has exclusive competence in relation to trade, and with the qualified majority vote and with our having only 8% now, and only 12% even when the Lisbon treaty proposals are introduced in a few months, how will we be able to exercise the degree of influence that he claims, and how will we maintain bilateral trading relations, which will be the answer to all these problems?

David Lidington (Conservative, Aylesbury)

I have more confidence than does my hon. Friend in our ability to form alliances with other countries to achieve the objectives that he and I share. Our right hon. Friend the Prime Minister has already discussed at length with Chancellor Merkel their shared objective of an ambitious free trade agreement between the European Union and the United States. The leaders of our country and of Germany recognise that the prize at stake is not only the phasing out of tariff barriers but the elimination of non-tariff barriers, thereby establishing, in effect, global regulatory standards agreed on a Euro-Atlantic basis, which would have to become the model for the rest of the world and which other parts of the world would find it difficult to challenge.

Graham Stringer (Labour, Blackley and Broughton)

Will the Minister give way?

David Lidington (Conservative, Aylesbury)

I will give way to the hon. Gentleman, but then I will try to make progress.

Graham Stringer (Labour, Blackley and Broughton)

It is often said that if this country were to leave the European Union, we would get all the disbenefits of all the European laws, without any of the benefits implied. Will he tell us, therefore, how many EU laws Singapore has adopted, or any EU laws that the United States will adopt if a free trade agreement is arrived at?

David Lidington (Conservative, Aylesbury)

The arrangements for dismantling barriers, for the mutual recognition of each other’s standards or for a common standard are negotiated and set down in writing in the terms of a free trade agreement. I am happy to send the hon. Gentleman a copy of the EU-Singapore free trade agreement if he wishes, so that he can inspect this in detail.

Graham Stringer (Labour, Blackley and Broughton)

indicated assent.

David Lidington (Conservative, Aylesbury)

It is to the advantage of business and, therefore, ultimately of workers and consumers in the United Kingdom that more such free trade agreements are achieved, particularly with the fast-growing economies of Asia and Latin America.

Rob Flello (Labour, Stoke-on-Trent South)

Will the Minister give way?

David Lidington (Conservative, Aylesbury)

Briefly.

Rob Flello (Labour, Stoke-on-Trent South)

I am grateful to the Minister, who is being extremely generous. I have great concerns about Colombia and the move towards EU free trade with the Colombian regime, as I refer to it. Under President Santos there are ongoing human rights abuses and there is a huge issue concerning the current peace discussions with the FARC. When considering the work programme, will the right hon. Gentleman bear in mind the huge problems with Colombia?

David Lidington (Conservative, Aylesbury)

As I am sure the hon. Gentleman knows, there are standard human rights clauses in all EU free trade agreements. I am aware that these human rights issues, particularly the rights of trade unionists in Colombia, have long concerned politicians and Ministers not just in the UK but in a number of other European countries. This is a live issue and it is one that we raise bilaterally with our friends in Colombia.

The European Council has called on the Commission to publish the proposals already identified in its communication on the Single Market Act II by the spring of this year, and it is encouraging that the work programme includes measures to improve the single market in both services and digital, such as those on access to regulated professions, reducing the cost of broadband deployment and e-invoicing.

We also welcome measures that aim to put the EU economy on a more sustainable long-term footing, including through innovation and the green economy, such as a new climate and energy framework up to 2030. We also support measures to improve transparency and customer protection and to tackle systemic risks in financial services. Better financial regulation is necessary to financial

stability, and common rules are essential to safeguard the single market and the competitiveness of the UK’s financial services sector.

However, the Commission also needs to ensure that its proposals on complex financial services dossiers are properly worked out through the legislative process and that new proposals do not simply add to the existing backlog. We believe that the Commission should prioritise only the most important issues to ensure that sufficient time and expertise can be devoted to them, and that proper consultation takes place with practitioners in that sector.

We are concerned about the potential impact of a relatively small number of measures that are labelled as growth promoting. Those include the review of the institutions for occupational retirement pensions directive, which could significantly increase the cost of occupational pensions and reduce investment.

Right across the range of single market and other measures, we are working closely with the Commission, other member states and the European Parliament to encourage them to follow smart regulation principles. This brings me to the second important theme for the Government in the work programme.

Tackling regulatory burdens on business is vital for boosting economic growth. While EU regulation is needed in some areas—for example, in eliminating barriers to the single market—we need to reduce unnecessary costs to business from EU regulation. Our chances of heading off or shaping new EU regulations are much higher if we influence the European Commission before it has published a formal legislative proposal, so the Government use the Commission work programme to identify forthcoming proposals, and challenge the Commission about these in the early stages. We share feedback from British businesses on the potential impacts of proposals and build alliances with other member states so that we speak with a louder voice in Brussels.

Alan Beith (Liberal Democrat, Berwick-upon-Tweed)

I am grateful to the Minister for recognising that it is extremely important that Select Committees of this House are made aware at an early stage of developing legislative proposals in Europe in time to influence them, and I hope that he will continue attempting to ensure that the invaluable help that comes from UK representatives to Select Committees is strengthened and that they are enabled to do this vital job.

David Lidington (Conservative, Aylesbury)

I am grateful to my right hon. Friend for what he says. It is true that the departmental Select Committees of this House can play an important role complementing the work of the European Scrutiny Committee by trying to look ahead of formal legislative proposals being tabled for scrutiny. The sort of work that the Select Committees can do in taking evidence from those business sectors that may be affected by a particular Commission initiative, producing evidence-based reports, can help better to inform the Government’s negotiating position and, on occasion, can have a direct impact on thinking within the European institutions themselves. I welcome what my right hon. Friend says and I hope that other Select Committee Chairs will look to the example that he and, in fairness, a number of others have set.

Bill Cash (Conservative, Stone)

My right hon. Friend will know that the European Scrutiny Committee is currently holding an inquiry into European Scrutiny Committee matters. Does he accept that timing is very important? What my right hon. Friend the Member for Berwick-upon-Tweed (Sir Alan Beith) has just said is, of course, extremely welcome, but does the Minister not accept that unless the Government are prepared to release the information they have early enough, it could turn out to be far less valuable? Therefore, could not the Government ensure that we all get the information as early as they do?

David Lidington (Conservative, Aylesbury)

I am always willing to explore how the Government can help to make information available to Parliament, particularly its Committees, in a way that enables a better informed debate and allows Parliament an input at the earliest stage in proceedings. As my hon. Friend will be the first to understand, there is always a balance to be struck between our wish on the one hand to do that and our concern on the other hand not to divulge ahead of negotiations all the details of our negotiating position, including on those areas that are the highest priority objectives and those on which we might be prepared to make concessions. However, I am always happy to look at concrete ideas for improving how we do business.

Andrea Leadsom (Conservative, South Northamptonshire)

In the interests of better scrutiny, does not my right hon. Friend also agree that it would be a good idea for this House to consider whether we ought to have European business questions periodically, rather than just on these unusual occasions? Without wishing unilaterally to promote him, should not it also be considered whether Secretary for Europe should in fact be a Cabinet post?

David Lidington (Conservative, Aylesbury)

It is always nice to be flattered, but to attempt an answer really would be well above my pay grade—

John Bercow (Speaker, Buckingham)

Order. I am sure that the Minister of State hopes that the point has been heard by the Whip on duty.

David Lidington (Conservative, Aylesbury)

Mr Speaker, the Whips on duty hear everything.

Overall, the Government have achieved some success in trying to shift the Commission away from a culture of regulation. Our reform agenda has widespread support and 12 other member states joined us in November in backing a 10-point plan for EU smart regulation. On 12 December the Commission published a new better regulation strategy, which includes a proposal that the Commission should use EU common commencement dates, which ought to help businesses plan for changes in regulation. It has also promised to introduce summary sheets for impact assessments to make it easier for businesses to assess the cost of new legislation.

John Redwood (Conservative, Wokingham)

Has not the EU been legislating all my lifetime? It has far more regulation than anyone could conceivably want. Why does it not have a year off? How can the Minister possibly say that it is going our way when all we see is more and more needless, time-consuming and costly regulation?

David Lidington (Conservative, Aylesbury)

To be fair, that is a charge my right hon. Friend has levied not only at the European Union but at successive Governments in this country. I certainly agree that too often the European Commission’s first instinct—to be fair, too often it is the first instinct of Departments of State in this country—is to measure its activity and political success by the number of new legislative measures it invents and takes through the legislative process. Often—I certainly believe this is true at European level—more could be achieved more effectively and significantly more cheaply through a sensible exchange of best practice, by looking at what works in one member state but perhaps does not work in another and seeing whether it is possible to encourage the dissemination of best practice rather than always looking at legislative measures as the first step.

I do not want to exaggerate the extent to which the Government have been able to shift a deeply ingrained culture that looks to legislation, but I think that it is important that the House appreciates that we have managed to secure some changes that none of our predecessors, of either party, managed to secure. Last year we got agreement to a measure under which businesses with fewer than 10 employees should be exempt altogether from any new EU legislative proposals unless there was a good reason for their inclusion. This is the first time in the EU’s history that the default position has been that there should be an exemption from regulations rather than the inclusion of all companies within them. Agreement was reached, too, that lighter regimes should be developed for those occasions when such businesses needed to be included. For example, in March last year agreement was reached that exempted up to 1.5 million UK small businesses from certain European Union accounting rules.

Gisela Stuart (Labour, Birmingham, Edgbaston)

The Minister says that there will be an exemption unless proved otherwise. What is the mechanism whereby we keep track and action is reported back to us, because we hear this year after year but nothing happens?

David Lidington (Conservative, Aylesbury)

The hon. Lady makes a perfectly fair comment. That is why at European Council after European Council my right hon. Friend the Prime Minister keeps coming back to the charge and saying, “We all agreed as Heads of State and Government two or three months ago that the Commission should come forward with a set of proposals on smarter regulation; now we want to see what it has actually been doing in the meantime.” One of the key objectives of the Prime Minister and of my right hon. Friend the Secretary of State for Business, Innovation and Skills is to ensure that we do not simply relax having achieved a paragraph in the conclusions of a European Council that commits everybody to a measure of deregulation but follow it through so that in all our conversations with the Commission, in our work with MEPs, and in the work that we do bilaterally with other member states we try to co-ordinate a more growth-friendly approach across the European Union. These high-level declarations need to be nailed down in terms of concrete action, and the Commission should be expected to report back. We are making progress on that. I am the first to say that there is still a great deal more to do, and we will encourage the Commission to consider further and more ambitious measures.

Bill Cash (Conservative, Stone)

I suggest that the Minister uses the word “ambitious” because annexe 2 of the programme refers to “simplification” and “administration burden reduction initiatives”. There are three of those, two of which are legislative and one non-legislative. If one turns to the rest of the work programme and goes through the entire list, one finds that 48 of the 58 are new legislation. I am afraid to have to say to my right hon. Friend that ambition is one thing and vanity is another.

David Lidington (Conservative, Aylesbury)

My hon. Friend displays his usual prescience in these matters, because I was about to refer to the list that he recited. The Government welcome the inclusion in the work programme of a list of simplification measures, but we need to be vigilant to ensure that they deliver genuine savings for business. The list of 14 withdrawn proposals that the Commission has published is disappointing, because those measures are obsolete already or are due to be replaced by further proposals. The Commission needs to do much better than that to remove unnecessary or excessive legislation from the statute book, and not only the Government of the United Kingdom but the Governments of a significant number of other like-minded member states are committed to achieving that.

Anne Main (Conservative, St Albans)

On the commitment to reducing the burden of these legislative measures, does the Minister have any idea of how many we would like to get rid of? Are we suggesting that anything is dropped instead of just waiting for the Commission to show us what it is proposing?

David Lidington (Conservative, Aylesbury)

Yes. My right hon. Friend the Secretary of State for Business, Innovation and Skills keeps returning to this point. The working time directive is one example that the Prime Minister mentioned again in his television interview on Sunday. The best thing I can do for my hon. Friend is to undertake that I or one of my colleagues in the Department for Business, Innovation and Skills will write to her with more detail on this point.

A third important theme for the Government is safeguarding the United Kingdom’s interests as a sovereign state. As set out in the coalition agreement, we will not participate in the establishment of a European public prosecutor and the UK will not exercise its opt-in for this measure, which is proposed in the Commission’s work programme. Several other measures in the area of justice and home affairs will also trigger opt-in decisions. These will be considered on a case-by-case basis, with a view to maximising our country’s security, protecting civil liberties, preserving the integrity of our criminal justice and common law systems, and controlling immigration.

We also have concerns about subsidiarity in relation to a small number of items in the work programme, such as those with regard to standardising VAT forms throughout the EU. Parliament, of course, has an important role to play in this regard, not least in deploying the additional powers that it has under the Lisbon treaty to issue a reasoned opinion when it considers that a proposal is not consistent with the principle of subsidiarity.

I hope that today’s debate will set the tone for close consultation between Parliament and Government on European Union issues in 2013 and beyond. We consider

Parliament’s role to be vital in strengthening democratic oversight of EU activity and, more broadly, in improving trust in the decision-making process between citizens, Parliament and Government, and fuelling a well-informed public debate on EU matters.

Of course, responsibility for most of the measures in the work programme lies with other Government Departments and not the Foreign and Commonwealth Office, but I will be happy to discuss further, both with the European Scrutiny Committee and departmental Select Committees, how best to engage in a deeper dialogue about EU issues during all stages of their development. The scrutiny of EU legislation by Parliament is vital to the robust functioning of democracy.

Alan Beith (Liberal Democrat, Berwick-upon-Tweed)

I say to the Minister that we and the Liaison Committee have had that dialogue and that it is now delivery time.

David Lidington (Conservative, Aylesbury)

It is right to say that it is delivery time, but that means that it is delivery time for Parliament as well as for Government. It has to be for each of the relevant Select Committees to decide the way in which they should give, perhaps, a higher priority to their EU responsibilities, which are, after all, included in their terms of reference under Standing Orders. The Government are taking their responsibilities seriously and I look forward to working with not just my right hon. Friend, but the other Committee Chairs in successfully providing the level of scrutiny and debate on European matters that I think we all wish to see. That is why I welcome the opportunity for debate today and I commend the motion to the House.

Emma Reynolds (Labour, Wolverhampton North East)

I welcome the opportunity to discuss the European Commission’s work programme for 2013. In opening, I apologise to you, Mr Speaker, and the House for missing the first couple of minutes of the Europe Minister’s speech, but I promise him that I listened attentively to the rest of it.

As set out in the European Scrutiny Committee report, the work programme follows on from the Commission President’s annual speech last September and serves as a blueprint for the Commission’s activities over the next 12 months. I agree with the Committee’s assessment that the work programme is a useful tool for the departmental Select Committees. The Liaison Committee has underlined that examining Commission proposals is one of the core tasks of the departmental Select Committees, and as such the proposals in the work programme will, I hope, be a useful starting point for further scrutiny.

I echo the Europe Minister’s welcome for the 2013 work programme’s improved coherence and greater strategic focus compared with previous years. Last year there were 129 policy initiatives; this year there are 58. It is right that the Commission focuses on the areas in which it can be most effective. The initiatives are largely grouped into seven strategic areas and I will start by considering the first and most important of those areas, namely the establishment of a genuine economic and monetary union.

The eurozone crisis will rightly continue to dominate the EU’s thinking and activities in 2013. Last year ended with some positive steps towards banking union being taken at the December summit, and the measures set out in the work programme will build on those positive steps. Putting the single currency on a stable long-term footing is in the interests not only of eurozone countries, but of non-eurozone countries such as the UK. It is therefore right that that is a priority.

The eurozone crisis was triggered by a crisis in the global financial sector. Concerns remain about the solvency of some of the larger medium-sized European banks, so it is necessary to establish the means to separate the link between weak and undercapitalised banking systems and sovereign debt. Such an agreement will help to build confidence in the eurozone and bring about greater long-term stability. We therefore support the progress towards building a genuine economic and monetary union in the proposals contained in the work programme for 2013. Within that process, it is crucial that the interests and rights of non-eurozone member states such as the UK are respected, and that the integrity of the single market is protected. We welcome the Commission’s commitment in the same section to

“take action to fight tax fraud and evasion, including an initiative on tax havens”.

I turn to the Commission’s proposals on deepening the single market. The European Union’s single market is a great success story. In a world dominated by economic giants such as the US, China and India, countries around the world are co-operating more closely with their neighbours. Increased regionalisation has become a defining force. For example, south America has Mercosur and south-east Asia has the Association of Southeast Asian Nations. The European single market is often a model from which others take inspiration.

The European Commission is right that to remain competitive in the global economy, the single market must continue to adapt and develop. Without reform, the potential of the single market will not be realised. That is why we continue to support the completion of the single market, particularly with regard to the digital economy and the services sector. It is our view that the progress in those areas is often too slow.

Bill Cash (Conservative, Stone)

I imagine that the hon. Lady does not recall the White Paper published by the European Commission in June 1985—a huge great thing about an inch deep—on completing the internal market by 1992. Here we are in 2012, some 30 years later. Does she believe that there has been progress?

Emma Reynolds (Labour, Wolverhampton North East)

I was alive during that year, but I know that the hon. Gentleman was already reading documents and making speeches on these issues then. We must consider the complexities of the markets in question and the number of member states—as a country, we pushed for a European Union of 27 member states. No other regional co-operation in the world has produced a more successful single market. As I have said, many bodies around the world that want to co-operate more closely and to form similar internal markets are looking to the EU as a source of inspiration. I hope we can now get back to 2013.

John Redwood (Conservative, Wokingham)

The Leader of the Opposition recently made a very interesting speech, in which he said that Labour had probably been a little too lax on migrants coming into this country during its period in office and that there was going to be a new policy. What would the hon. Lady like to see in the Commission’s work programme to ensure that we can have proper controls on our borders?

Emma Reynolds (Labour, Wolverhampton North East)

That would be an innovative use of the Commission’s work programme, given that that is not an element of it. The Leader of the Opposition did say in a recent speech that we got it wrong in government and that we should not have had an open-door policy in 2004. I think that we should have been more in line with our European partners. We were one of the small handful of countries that had an open-door policy right from the start. Germany and other countries had transition periods, and we are certainly committed to them in the future.

Developing modern and efficient infrastructure, both digital and physical, is central to ensuring that the single market adapts to a rapidly changing world. It would be impossible for member states of the EU to meet the challenges of tomorrow using the tools of yesterday. We therefore welcome many of the proposals in the “Connect to Compete” section of the programme, particularly those to tackle obstacles to electronic payments across borders.

In the “Growth for jobs” section of the work programme, the Commission is right to express the concern that

“high unemployment, increased poverty and social exclusion risk becoming structural”

in Europe if no action is taken. It is an absolute tragedy that one in every two young people in Greece and Spain are out of work. Here in the UK, youth unemployment is too high and long-term unemployment is a real problem. Last year, including over Christmas, more people than ever before had to use food banks for their families’ basic needs. The Government seem to have few answers or solutions to those problems. The Opposition believe it is incredibly important that effective policies are formulated and implemented both here in the UK and across the EU to reduce unemployment drastically and to reduce poverty.

Kelvin Hopkins (Labour, Luton North)

My hon. Friend rightly refers to food banks and poverty, and we could talk about mass unemployment. Do not those problems derive directly from the heavy deflationist influence of the European Union?

Emma Reynolds (Labour, Wolverhampton North East)

In some other member states, such as Germany, there is a low rate of unemployment, and Germany has done better than we have in exporting to some of the key emerging markets around the world. Tackling unemployment very much depends on the policies of individual countries and individual Governments. The EU could certainly do more, but it is down to domestic Governments in member states.

In the “Europe as a global actor” section of the work programme, reference is made to ongoing negotiations on free trade agreements with various countries. I echo the Minister’s comments on that matter. Agreements have been reached with South Korea and Singapore and are being negotiated with Japan, the US, India, Canada

and Mercosur. Such trade deals would result in significant European job creation. According to the Commission’s own figures, the free trade agreements with the US and Japan would create almost 1 million new jobs.

Finally, I turn to the section of the programme entitled “Building a safe and secure Europe”. I hoped that the Minister would make a winding-up speech, because I wanted to take the opportunity to ask him at what point the Government would make a decision on the mass opt-in to or opt-out from the justice and home affairs measures contained in the Lisbon treaty. It is important that we have some clarity on that issue at some stage. I respect what the right hon. Gentleman said today about the individual proposals contained in the work programme: there is not enough meat on the bone or enough detail for the Government to have a developed position on them. We look forward to learning in due course their position on whether they will opt into or out of the proposals in that part of the programme.

As I said at the outset, we welcome the broad objectives of the Commission’s work programme and its more strategic focus. I hope that the proposals, once they are submitted, will be given additional scrutiny by departmental Select Committees. It is important to remember that Europe is not purely a foreign policy issue and that decisions taken by our Government, in Brussels, and voted on by our MEPs have a major impact on domestic policy. Departmental Select Committees should therefore be thoroughly involved.

John Bercow (Speaker, Buckingham)

Order. I remind the House that we have less than 45 minutes to go, and that at least seven colleagues are at least seeking to catch my eye, so there is a focus on brevity.

Bill Cash (Conservative, Stone)

Thank you very much, Mr Speaker, and a happy new year.

I can be brief, for the simple reason that we have before us a list of initiatives, and although there may be fewer than 129, there are still 58, while the number of proposals to reduce regulation of a legislative nature amount to no more than two. The second thing to say is that the Commission work programme is crucial, in that it gives us the route map for where the European Commission is going.

The European Union is dysfunctional: it is not working as it was claimed it would work. Indeed, as I pointed out, referring to the White Paper that the European Commission produced in 1985, here we are, 20 years on from 1992 and nearly 30 years on from 1986, with a provision that simply does not match up to either the aspirations or the promises made. If the single market had worked as I hoped it would when I voted for it in 1986, we would perhaps be better placed than we are now. Unfortunately, it simply has not worked in that way.

The suggestion is that the strategic focus of the work programme is to

“Help business thrive and become more competitive in the global market, by reducing the costs of EU law,”

but I am afraid that is simply not substantiated by the facts. Furthermore, there is also a proposal—the Government welcome all of them—to

“Prioritise action to boost growth through improving the single market in services and digital, and ambitious free trade agreements.”

It gives me great pleasure to recall that it was Monsieur Jacques Delors, no less, who only last week proposed in Handelsblatt that it was about time that the United Kingdom got its act together and decided what it was going to do. I hope the Prime Minister will do that when he makes his much anticipated big speech on Europe, by following Monsieur Delors’ advice and going for either the equivalent of an enhanced economic area or alternatively—as he himself put it in stark terms—a free trade area between the United Kingdom and the European Union.

I say that because we have another provision:

“Help develop the single market in financial services, as the basis for a strong and sustainable financial sector.”

Say that to the marines: ask the City of London whether it believes that is the direction in which things are going. The House should look at the problems of qualified majority voting. Despite the attempts to change the voting arrangements, the problems remain. The manner in which jurisdiction over the City’s regulatory system was transferred to Europe by the previous Government—endorsed and acquiesced in by those in the present Government—has been a catastrophe and will remain so.

The document also mentions—the Government welcome this, too—measures to

“Support an environment that encourages innovation, including helping drive the transition to a green economy.”

There are many aspects of the green economy that may or may not turn out to be sustainable, but I shall mention just one, in deference to my hon. Friends the Members for Daventry (Chris Heaton-Harris) and for South Northamptonshire (Andrea Leadsom). [ Interruption. ] Whichever constituency she represents, I know she does a great job for it. The question of wind farms is part and parcel of this, and they are growing exponentially.

The Government also applaud the work programme for helping member states

“to work together more effectively to strengthen the external border and protect citizens from terrorism and serious or organised border crime.”

Again, these are important aspirations; the question is whether that is actually happening. Indeed, I would say the same about increasing

“the EU’s influence on external policy issues”.

Over and over again, we get the aspirations and we are given the promises, but the question asked repeatedly in this dysfunctional European Union is: where is it going and to what extent is it delivering the kind of things that the people in this country vote for in general elections? They put their votes into the ballot box, then find that things are implemented through the Commission’s work programme, which goes to the Council of Ministers, and in almost every area, and driven by qualified majority vote or consensus, we end up with legislation that was not sought, called for, or promised in manifestos in our general elections.

Mark Hendrick (Labour, Preston)

The hon. Gentleman criticises the Commission for trying to do something about cross-border crime. He was against the introduction of the European arrest warrant, but it is working well and providing tangible results. Why is he critical of it?

Bill Cash (Conservative, Stone)

For the simple reason that we would have achieved the same results had we put in place our own operation through our own legislative system. Furthermore, there are many examples of the European arrest warrant being used to convict innocent people in absentia, including someone in Staffordshire who was recently convicted of a murder that they could not have committed because they were serving in a restaurant in Leek at the time. There might be some advantages to aspects of the co-operative arrangements, of which I am in favour, but that does not mean that the panoply of powers associated with the European arrest warrant is justified.

The Government have expressed reservations about certain proposals, but the key question is: what are they actually able to do about this? We can express reservations and argue against the proposals, but the qualified majority voting system operates in such a way as to prevent us from exercising our much-vaunted influence. I have to say to the Minister and the Government—and through them, I hope, to the Prime Minister in relation to the speech that he is about to make—that if that influence cannot be effective, it is worthless.

I have considered the evidence that has accumulated over the past 40 years since we came into the European Union. I wished you a happy new year earlier, Mr Speaker, but we must also remember that it is the 40th anniversary of our accession to the European Union, through the European Communities Act 1972. This is a time for serious reflection. It is a time not only for mere reform but for a fundamental change in the relationship. There is a disconnect between the legislation that is going through the House, in relation to the implementation of sections 2 and 3 of the Act, and what is being offered to the British people in manifestos.

Mike Gapes (Labour, Ilford South)

The hon. Gentleman talks about a new relationship and mentions a free trade arrangement. Does he accept that, if the United Kingdom were to leave the European Union and simply have a free trade relationship with what would be the remaining 27 states after Croatia had joined, we would be in a similar position to Norway, in that we would have integration without representation? We would have to pay in and comply with the EU rules without having any say on how they were being formulated.

Bill Cash (Conservative, Stone)

I have great respect for the hon. Gentleman, who has been vociferous on European matters for a long time, albeit on the other side of the agenda from me. He might be interested to know that the Norwegians are now getting restless and using their arrangements within the European economic area to challenge directives. I heard only a few hours ago that that was happening.

Mike Gapes (Labour, Ilford South)

That is just one instance.

Bill Cash (Conservative, Stone)

Yes, but that one instance demonstrates a principle. For 15 years, I have been advocating that we use the “notwithstanding” formula, and when my party was in opposition, we agreed that we would do so. If we were to use it just once now we are in government, it

would send out an appropriate signal. Unfortunately, however, that is not happening. We hear about aspirations and reservations, and that it would be a good idea to change the relationship and to repatriate powers, but I have very little confidence that we will achieve anything when it comes down to it. Even more dangerous is the raising of expectations only to have them dashed by reality. As Churchill said, offering something to the British people but not fulfilling that promise is the best way to ensure that they will no longer trust us.

There are many aspects to this work programme—including a proposal for a European public prosecutor’s office, which I was glad to hear the Minister say we will not accept—but I shall not go into other matters this afternoon because they are so numerous and because others wish to speak. Let me simply make the point that we are now at a threshold and that there is no turning back. Messrs Barroso and van Rompuy, unelected as they are, have thrown down the gauntlet to the British people. They have said, “We are going to have a federal system,” yet it is unthinkable that this country would get involved in federal arrangements, be they in the eurozone or indeed in the European Union as a whole. We must have a clear strategy; we must have a fundamental change in our relationship. What goes with that has to be a return to the British people of the right to determine the legislation that they voted for in general elections. That is the principle on which this House was founded, and that is the principle on which we have to stand.

Gisela Stuart (Labour, Birmingham, Edgbaston)

Just ahead of the debate, I checked one of the political blogs and saw the following phrase:

“Over a hundred million pounds over budget, four years late, and the subject of a National Audit Office investigation”

and I thought that must be about the European Union. No, it was about the BBC’s rebuild. That brought it home to me that this House collectively pays great attention to the BBC, gives it more scrutiny and is better informed about how it runs than it is of the entire Commission work programme. As this is probably the last European Commission work programme before the 2014 election, at which the Conservative party might find itself beaten into second place by the UK Independence party vote, and we are moving into a time when matters European are going to be important across all the parties, I want to discuss the way in which we talk about the Commission programme.

It has been interesting to note that over the past hour, we have talked just about process and there has been very little on the substance. The truth is that debating an entire Commission programme in an hour and a half is a bit like saying that the Chancellor’s Budget speech or the Queen’s Speech should be debated by the House of Commons in an hour and a half. That is the equivalent; let us face it. If, as the Minister says, he is throwing a gauntlet at Parliament, I would like gently to chuck it back to him and say that a number of things need to change if Parliament is seriously to engage with this issue.

I genuinely mean no disrespect, but if the European Union has this huge influence on our domestic legislative programme, which this work programme shows it does, what on earth is this matter doing in the Foreign Office?

This is not foreign; it is domestic. The number of legislative issues that need to be addressed must be addressed by departmental Cabinet Ministers on a regular basis. I know that suggestions have been made about upgrading the role of the Minister for Europe, but I say no: I want UKREP to have a political role. All the negotiations going on need to be answerable on an “in time” basis, not through bits of paper that are fed to us afterwards. That should be done by UKREP, but at the moment it has a diplomatic role. If a Cabinet Minister were answerable from this Dispatch Box for all the negotiations at UKREP level, that Minister would be the equivalent of the Deputy Prime Minister. It is a serious post.

Let me give one simple example. The work programme talks about a “safe and secure” EU. I always remember Matthew Parris once saying that a speech or statement should be assessed on the basis of whether anyone would dare to say it if the word “not” were put in front of it. As I read through the document I thought that that would not apply to a single statement in it. It was a case of cut and paste, add the year, and motherhood and apple pie.

The Commission refers to establishing a European public prosecutor’s office

“to fight against crimes affecting the EU budget and protect its financial interests”.

I remember that 10 years ago, during the negotiations that led to the Lisbon treaty, the UK had to fight tooth and nail to make sure that a public prosecutor would operate on a legislative basis that would require unanimity. Ten years ago, we expended considerable political capital on that, because whenever the veto is exercised or unanimity is insisted on something has to be given back at some stage or other. We are now 10 years on, the basis of unanimity remains but the Commission still wants the office, so this never goes away.

The UK Government have said that they are opposed to the proposal. This House has to have a way of understanding how we are going to be against it—what the political negotiating cost will be of our not being part of such a move. I am afraid that an hour and a half of debate on the Commission’s programme—or even chucking the issue to a Select Committee or the European Scrutiny Committee, however worthy they may be—will not give us an “in time” political debate in order that we may really understand the value of something or the price that we pay for it.

Alan Beith (Liberal Democrat, Berwick-upon-Tweed)

I do not understand why the hon. Lady thinks that Select Committees are incapable of focusing significantly on the issues, obtaining the evidence relating to problems such as those that worry her, and bringing them quickly to the attention of the House. We do it all the time.

Gisela Stuart (Labour, Birmingham, Edgbaston)

That would be true were it not for the fact that we scrutinise on a departmental basis, whereas UKREP’s political “give and take” negotiations in Brussels are cross-departmental. I have been present during such negotiations. Representatives say, for instance, “We will give the Germans a bit on cigarette advertising, and in exchange the Danes will be given a bit of an opt-out on fish and the Greeks will get a bit more money to enable

them to grow tobacco.” The House of Commons will never fully understand that kind of give and take, but, whatever our relationship with the European Union, it needs to start to understand it.

I say to the Minister: yes, continue with the Select Committees, but there should also be a much better “in time” flow of information. UKREP needs to play a political role in the Cabinet. It should have a ministerial function, and should be answerable to the House. Moreover, now that we have Westminster Hall, what is to stop us from asking Commissioners to go there in 2014 and answer questions from Members about the Commission’s programme? Why is this a “third party” relationship? We all stop and stare in admiration or astonishment when we see one of our Members of the European Parliament in the House of Commons. Most of us probably would not recognise half of them. That shows that there is a very sad relationship between the two legislative bodies.

In 2014, there will be a new Commission. On the assumption that our wonderful coalition will still be in place then, and that the Prime Minister will not go to the country until 2015, I think that the Government should think seriously about asking the incoming Commissioners to come here and explain their work programme in a way that would allow the House to question them directly and on a cross-departmental basis.

Alan Beith (Liberal Democrat, Berwick-upon-Tweed)

Although I disagree with some of what was said by the hon. Member for Birmingham, Edgbaston (Ms Stuart), I think that her analysis of the political processes with which we are dealing was fairly shrewd and helpful. I also agree with her that there is something unsatisfactory about the way in which we are currently going about this—not least the provision of a mere hour and a half for the debate, although it must also be said that it is taking place at a much earlier stage than the last one, after two months rather than six, and is taking place on the Floor of the House rather than in Committee. However, I do not think that it would be improved by being extended to six or eight hours; I think that what this tells us is that we need more systematic, subject-by-subject scrutiny, as well as some awareness of the give and take that happens not just in European politics but in British politics: a Department will give way on one thing, and will be given something else by another.

It is to the Minister’s credit that he has engaged in dialogue and sought to encourage Select Committees to play the role that I have described. I can say, not just in my Justice Committee capacity but as Chairman of the Liaison Committee, that our discussions with him have been very useful. However, I think that he has found it a bit difficult—and we have found it very difficult—to build sufficiently on qualities that are already there and available.

When Committees go to Brussels and meet UKREP staff, many of whom will have been seconded to UKREP from individual Departments, they find them uniformly helpful, very well informed, and able to give a fair amount of guidance not only on the content of proposals but on the amount of traction that they are likely to achieve. They can say whether the proposals are worth

spending time on, or are unlikely to get anywhere. We ought to deploy knowledge of that kind in a process that will engage Committees usefully and in a timely way, so that a British perspective on an issue—the perspective of British business, charities or trade unions, for example—can be brought to bear where it really matters.

We on the Liaison Committee are doing all that we can to encourage Committees to allocate time for such work properly in their programmes. Some of them do it all the time anyway. Most of the subjects for which the Environment, Food and Rural Affairs Committee, for example, is responsible are dealt with at a European level, so the Committee is greatly engaged with it, and other Committees regularly have issues as well.

Gisela Stuart (Labour, Birmingham, Edgbaston)

I am genuinely seeking guidance. Which of the Committees of the House could have looked at ash dieback disease, for instance? People now say that, even if we had identified it, the EU could not have stopped the trade in infected trees early enough. Which Committee in our system could have tackled that, traced it back and said, “We need to do something”?

Alan Beith (Liberal Democrat, Berwick-upon-Tweed)

In our system, it follows the departmental responsibility, unless it is the kind of cross-cutting thing the Environmental Audit Committee deals with. In the case that the hon. Lady mentions, however, it would probably have been the Environment, Food and Rural Affairs Committee.

There is absolutely nothing preventing Select Committees from seeking to get Commissioners in front of them or from going to Brussels to talk to them. The Justice Committee has questioned Commissioners on our areas of responsibility—for example, we have questioned them a great deal on EU data protection and information proposals. Select Committees have the opportunity to do that kind of work and to report in a timely way to the House. On data protection, for example, the Justice Committee has told Ministers that, in our view, they need to get the Commission to go back to the drawing board in respect of the excessively prescriptive nature of some proposals.

For the process to be engaged in effectively, however, there needs to be a change of attitude in some Departments in recognising what Select Committees can and should do. I think that the Minister is trying to achieve that. The reason I made the rather harsh comment earlier about it being delivery time was that we do not need any more dialogue; we know what needs to be done and what tools are available to help us to do it properly, so let us get on with it.

There is some sensitivity in this matter, as the Minister referred to when he said that Governments do not want to give away their negotiating position. Obviously, they do not, but these are not cold war negotiations or negotiations with North Korea over weapons; these are democratic states with open Governments trying to discuss with each other well-known concerns in each country. What final decisions Departments come to, when faced with having to give up one thing in order to get another, will probably remain late-stage decisions—as is the case every December at the Agriculture and Fisheries Council, for example—but none of that precludes sensible and timely discussion. Governments have talked about publishing lists that make it clear to the House

and the public what questions and issues they have to resolve on matters that the Commission are bringing forward. We ought to be doing that clearly and explicitly.

Those are issues on which the real knowledge is not necessarily inside the House, but out there among the wide variety of bodies from which we take evidence and which are affected. The Justice Committee has been taking evidence from chief police officers about data protection rules and from organisations involving individuals adversely affected by some of these proposals. We have the means at our disposal to do the work, but we need timely information, guidance on issues that the Government recognise are difficult to resolve and not too much sensitivity about, “Oh, we’d better not discuss it with the Committee yet, because Ministers have not decided what they think.” That kind of obstacle is out of date, given that we are trying to deal with an evolving European situation.

I think that there is common ground between those of us who believe that Britain’s place is inside the EU and those who want to achieve fundamental change in it: while we are in it—as I hope we will remain—we must ensure that the legislative process works for us, and in order to do that we should use the tools at our disposal in the House and the House should have the benefit of the knowledge that the Government have at their disposal.

Kelvin Hopkins (Labour, Luton North)

As a member of the European Scrutiny Committee, I am partly responsible—I suppose—for bringing this document to the House, so it is important that I say a few words.

The word “work” will have great appeal to the millions of European citizens currently without work, but that is the problem, because none of the many initiatives in the document address the immediate economic crisis in the EU or the eurozone and will not solve the problem in the longer term either. We have mass unemployment and we have economic contraction in a number of countries, and more austerity is being inflicted on Greece. Apparently, Greece’s economy is expected to contract by another 10%—God knows what is going to happen in Greece after that. Spain is in serious difficulty and Portugal is going to inflict on its people a fire sale of public assets; it will simply be selling off the family silver at the pawnbroker’s and that will solve nothing in the long term once the money is spent, as it will be. Other countries are in difficulties and there is worse to come.

Chris Heaton-Harris (Conservative, Daventry)

Action 58 in the Commission’s work programme deals proposes a

“Comprehensive Approach to Crisis Management outside the EU”.

The document says:

“The European Union more than any other international actor, has a unique array of tools at its disposal to promote the resolution of complex external crises.”

It is said that experience can be learned from, and I guess that the European Commission does have a lot of experience and a lot to teach here.

Kelvin Hopkins (Labour, Luton North)

I thank the hon. Gentleman for intervening. The document talks about solving external crises, but what about solving the internal crises? The European Commission has not shown much ability to

do that. The problem is that it has inflicted supply-side measures—most of these are supply-side measures to try to deal with the economic problems—whereas the real difficulty is a serious lack of economic demand. That is the deficiency and macro-economic policy is the problem, as it is failing and is, in most cases, completely misguided. Item 1 in the document refers to an “Annual Growth Survey”—perhaps that ought to be re-titled the “Annual Contraction Survey”.

Item 6 makes the only reference in the whole list to the

“importance of a sound macroeconomic framework”.

I absolutely agree with the importance of that, but there is no sign of such a framework as yet. Indeed, we have the opposite: co-ordinated deflation driving the EU towards deeper recession. Thank goodness this country is somewhat to the side of that. We will of course lose if—[Interruption.] My hon. Friend the Member for Preston (Mark Hendrick) is intervening from a sedentary position, but I cannot quite hear what he is saying. The euro is the primary problem; Greece, Italy, Spain and a number of other countries ought to be able to recreate their own currencies, to depreciate and to reflate behind that.

Edward Leigh (Conservative, Gainsborough)

The hon. Gentleman is a notable voice of reason on the Labour Benches on these issues. Does he think he will be able to persuade his colleagues to join us in arguing for a referendum on our relationship with the European Union—on whether we should stay in or not?

Kelvin Hopkins (Labour, Luton North)

I certainly think we should have a referendum, and I am actively involved in an organisation promoting the idea of one. More than that, we want to get some sensible economic policies adopted, both in Britain and across Europe. We also want to return to some of the common sense that emerged from Bretton Woods in 1944 and led the post-war world to such success, with full employment, rising living standards, growing equality and so on.

Items 9 and 10 refer to state aid. Lecturing those countries in desperate crisis about not indulging in state aids would be completely unacceptable. If they have to use state aids to regenerate their economies, they should be able to do so. Indeed, state aids in the UK should be decided by this Parliament and not by the European Commission. Some may be against state aids in principle and others may think them a very good idea, but we should decide on that, not the European Commission.

Item 13 refers to:

“Reforming the internal market for industrial products”.

That does indeed need dealing with. One of the great problems—the great problem, in a sense—in the European Union is the massive trade imbalances within it. Germany has a gigantic trade surplus with the other members of the EU, including with this country. If we went back to the principles of Bretton Woods, we would expect, in normal circumstances, that Germany would let its currency appreciate—the Americans were rather against that idea of John Maynard Keynes, but it was a sensible one—and that those with trade deficits should be able to depreciate their currencies. That is one of the measures used to get an economy working again.

I come now to some detailed points. No reference to railways is made in the section dealing with transport, although they are a major force for the future in the transport sector. Surprisingly, after 200 years or so, they have turned out to be the mode of transport for the future rather than the past. I have a great interest in railways, but no reference is made to them in this document.

On cigarette smuggling, we lose billions in government revenues every year because nobody pays taxes on imported cigarettes. They are brought in by the billion, I guess, and if we had proper taxes and duties paid on every cigarette smoked, we would gain billions in revenues—enough to pay many times over for free long-term care for all. Cigarette smuggling is a major problem, which we ought to be addressing as a nation rather than simply through the European Union.

Most of the measures in the list could be undertaken by member state Governments on an individual basis, as they felt they were appropriate. If we wanted to indulge in international agreements, we could do that through bilateral and multinational negotiation. The democratic decisions should be taken in this House, by this Parliament, and by member state Governments in general. We have shown that we can co-operate bilaterally and multilaterally and we do not need a European Commission to determine all these things. I am strongly in favour of democracy, which means democracy at a member state level.

Jacob Rees-Mogg (Conservative, North East Somerset)

It is a great pleasure to follow the hon. Member for Luton North (Kelvin Hopkins), who is the voice of reason on these matters, but it was the speech of the hon. Member for Birmingham, Edgbaston (Ms Stuart) that made me think about the forms and substance of power in this nation. When Her Majesty’s Government introduce the Queen’s Speech—their legislative programme—there is a great sense of funfair and fête. The House has trumpeters; the imperial state crown comes in its own carriage. Rather splendidly, Black Rod comes and the door is slammed in his face to show the independence of the House of Commons from the Executive.

When the European Union sets out its legislative programme, what do we get? When real power is being exercised, what do we see? A dusty, dry and bureaucratically written text is sent up to a Committee Room for a few people to consider and, if they feel like it, they grant an hour and a half—90 minutes—of debate on the Floor of this Chamber. There is no ability for witty speeches to be made by old and young Back Benchers alike or for jokes to be made by the Leader of the Opposition and the Prime Minister. We do not have three or four days of debate to clear maiden speeches out of the way or delve into the thin gruel that now comes from the Queen’s speech—we know where power really lies.

Edward Leigh (Conservative, Gainsborough)

We get a speech from my hon. Friend, however, who is himself an ornament of the constitution.

Jacob Rees-Mogg (Conservative, North East Somerset)

I am very flattered by that promotion. Perhaps that is the one ornament I can provide to a debate on the European Union’s legislative programme, as it is more thoroughgoing and more powerful than the Queen’s Speech and becomes law more easily and with less scrutiny than anything contained in it.

Anne Main (Conservative, St Albans)

Of course, the other point is that we usually compare and contrast the Queen’s speech with the manifestos of the parties. As for what happens in Europe, we rarely get it in our manifestos.

Jacob Rees-Mogg (Conservative, North East Somerset)

My hon. Friend is absolutely right. There is no manifesto; nobody stands for the European Commission saying what they want to do and the programme they wish to propose. No, no—it comes down from on high. Is it not interesting that that which has the appearance of power has none whereas that which has the reality of power uses it as far as possible by stealth?

Annex I contains 58 recommendations, 38 of which are legislative—including some elements that are non-legislative in bits of them. One rather splendidly requires “soft law”, a term that I have not heard before. I wonder whether when up before a judge one could say, “I am not sure whether I broke the law, because it was only soft law—does it have to be hard law?” Another is a negotiating directive that is not law by first degree but becomes law a little later.

Annex II is on simplifications and 17 out of the 18 proposals are legislative. Is it not interesting that when the European Union simplifies, it has to pass more law? It does not just repeal things—not a bit of it—but passes more laws. It reminds me of that quip: “Big fleas have smaller fleas upon their backs to bite ‘em, and little fleas have lesser fleas and so ad infinitum.” We go on and on legislating, apparently making things simpler, but it seems to me that we are just being bitten by the fleas of the European Union.

I know that time is short, so I want to go to the absolute heart of the matter, which, as so often, is in the introduction, which refers to the state of the Union speech by Mr Barroso—that reference is wonderfully grandiloquent and makes it sound as if he is President of the United States and a democratically elected and important figure rather than a minor panjandrum—and states:

“The State of the Union speech launched ambitious ideas for the long term framing of the EU—a deep and genuine economic union, based on a political union. This vision must be translated into practice through concrete steps, if it is to address the lingering crisis that continues to engulf Europe, and the Euro Area in particular.”

These are concrete steps about creating an economic union based on a political union; they are not in the interests of the United Kingdom.

Wayne David (Labour, Caerphilly)

I begin with a general point about the European Commission. I am not a great defender or fan of the Commission, but it is important for us to remember that it is not a legislative body. It does not decide laws; it makes proposals and, usually through a process of co-determination or co-decision, other institutions, such as the Council of Ministers and the European Parliament, are then involved in determining the law. That is when democracy comes into play. It is important to keep that perspective.

Mark Reckless (Conservative, Rochester and Strood)

The hon. Gentleman says that the European Commission does not make law, but is it not the case that the European Commission has a monopoly on the proposal

of law, and is therefore an essential and necessary part of law-making? To that extent, in European structures it does make law.

Wayne David (Labour, Caerphilly)

The hon. Gentleman is right. The European Commission has the sole right to initiate legislation. Nevertheless, it does not have the sole right to agree legislation; the initiatives the Commission formulates are the result of discussions in the European Parliament, and increasingly in the Council of Ministers. When we talk about democracy inside the European Union, it is important to recognise that this Parliament has a pivotal role. If anything has clearly come out of the debate, it is the fact that this Parliament does not take European legislation and formulation as seriously as it ought to do.

Mark Hendrick (Labour, Preston)

Is it not the case that the European Commission is made up of Commissioners directly appointed by democratically elected Governments and they are interviewed by Members of the European Parliament before their appointment? Members of the European Parliament are directly elected as well.

Wayne David (Labour, Caerphilly)

My hon. Friend makes a very good point indeed, and reinforces what I was saying.

I welcome the debate because it occurs at a time when Europe as a whole is experiencing a deep economic malaise. Against the problematic economic climate that we all face, we must assess the relevance and appropriateness of the Commission’s work programme. The situation is most acute in the eurozone, as I am sure Members will agree, although of late, it has stabilised somewhat. The situation is still serious in Spain and Portugal, and in Greece it is extremely serious. However, there are signs of improvement; in Ireland, things are starting to get better. Nevertheless—

Kelvin Hopkins (Labour, Luton North)

rose —

Wayne David (Labour, Caerphilly)

Before my hon. Friend intervenes, I take the point that one of the great weaknesses across the European Union as a whole is the macro-economic policy being pursued by member states. There is too great an emphasis on austerity and nothing else. We need to put a firm emphasis on growth and measures to stimulate our economy so that we can work our way to prosperity once again.

Kelvin Hopkins (Labour, Luton North)

I want to be persuaded that there are signs of improvement in the European Union. Writing in The Guardian at the weekend, a Greek journalist suggested that the Greek economy will contract by a further 10%.

Wayne David (Labour, Caerphilly)

As I indicated, the situation in Greece is still very serious indeed. As we know, deep-seated structural problems afflict the Greek economy but there are signs of improvement elsewhere. Certainly the contagion that many people feared a few months ago does not appear to be materialising. There are signs of stabilisation, at least, across the eurozone. It is therefore important that the European Commission does as much as it can to make sure that we take that a stage further and have a coherent growth strategy. In that respect, the document

before us is somewhat lacking, but it does at least recognise the importance of job creation. I cite its opening statement:

“Today’s absolute imperative is to tackle the economic crisis and put the EU back on the road to sustainable growth.”

That is a good starting point. At least there is recognition of the need to put that four-square on the agenda. However, practical measures to realise that goal are somewhat lacking.

One of the positive things about the document is that it recognises the importance of taking forward the completion of the single market. It states:

“A fully integrated and interconnected European Single Market covering telecoms, energy and transport is a prerequisite for competitiveness, jobs and growth. Achieving this requires affordable, accessible, efficient and secure network infrastructure. Accelerating the roll out of the digital economy will bring benefits across all sectors, through enhanced productivity, efficiency and innovation.”

That is particularly true. It is something that the previous Labour Government and this Government have effectively been arguing for.

The importance of the single market, particularly to the United Kingdom, should not be underestimated. In support of that point, I refer Members to the important new-year message from John Cridland, the director general of the CBI, in which, on behalf of British business, he makes it absolutely clear how important the single market and the European Union are to British business. He points out that 50% of Britain’s exports go to other countries in the EU. He argues the case coherently for completing the single market, and says that the EU is vital when it comes to enhancing our international trading relationships. He goes a stage further: he argues that it is vital that we do not just pay lip service to the single market, and that Britain stands four-square behind the European Union and argues the British case consistently inside the decision-making chambers of the EU. He says:

“It’s essential that we stay at the table to bang the drum for businesses and defend our national interest, particularly protecting our world-class financial services industry to maintain our competiveness internationally.”

One and a half hours having elapsed since the commencement of proceedings on the motion, the Deputy Speaker put the Question (Standing Order No. 16(1)).

Question agreed to.

Resolved,

That this House takes note of European Union Document No. 15691/12 and Addendum, a Commission Communication on the Commission Work Programme 2013, and welcomes the Work Programme as a useful summary that enables the Government and Parliament to plan their engagement.

Gender Balance on Corporate Boards

Matthew Hancock (Conservative, West Suffolk)

I beg to move,

That this House considers that the draft Directive of the European Parliament and of the Council on improving the gender balance among non-executive directors of companies listed on stock exchanges and related measures (European Union Document No. 16433/12 and Addenda 1 to 3) does not comply with the principle of subsidiarity for the reasons set out in Chapter 1 of the Twenty-third Report of the European Scrutiny Committee (HC 86-xxiii); and, in accordance with Article 6 of Protocol No. 2 of the Treaty on the Functioning of the European Union on the application of the principles of subsidiarity and proportionality, instructs the Clerk of the House to forward this reasoned opinion to the Presidents of the European Institutions.

The motion is in the name of my right hon. Friend the Secretary of State for Business, Innovation and Skills. This debate gives the House a welcome opportunity to discuss gender balance among non-executive directors of listed companies, and to decide whether to send a reasoned opinion on the European Commission’s recently published proposal, improving the directive, to the Presidents of the EU institutions. In short, we are here to debate women on boards.

The aim of the draft directive is to increase substantially the number of women on corporate boards throughout Europe. The directive sets an objective of ensuring that, at a minimum, 40% of non-executives on the boards of listed companies are female by 2020. It aims to do that by ensuring that companies have transparent, gender-neutral appointment processes in place for their boards. Member states would be required to have a range of sanctions in place for companies that failed to do that. For companies that are listed, over which public authorities have a dominant influence, the proposed objective is to reach a minimum 40% representation by 2018.

Anne Main (Conservative, St Albans)

Does my hon. Friend share my concern that there is confusion here between equality of opportunity and equality of outcome? If we are not careful, we could have the same few women on different sorts of boards, rather than genuinely offering opportunities for many women to apply.

Matthew Hancock (Conservative, West Suffolk)

My hon. Friend makes a good point. A number of objections have been raised, and that adds to them.

Keith Vaz (Labour, Leicester East)

I am grateful to the Minister for giving way so early in his speech. Has he received any document from the European Union about the wider diversity of our industry and business—for example, ethnic diversity? I fully support the proposals for gender diversity, but it is important to understand that this country and Europe have changed. The ethnic minority communities are not represented on the boards of FTSE companies, but we would like them to be.

Matthew Hancock (Conservative, West Suffolk)

So would I. The right hon. Gentleman makes an important point that is not in today’s document. The importance of diversity on boards is not just about sex, race or background. It is that good boards bring a range of experience, a range of different people, together. Good boards tend to have members with different points of view and with all sorts of different characteristics. All the hard research shows that that is what promotes a good board both for economic and business purposes and for social reasons, as the right hon. Gentleman highlights.

Jonathan Djanogly (Conservative, Huntingdon)

I recognise this as an important issue and I recognise also that the number of women on boards has increased, which is welcome. Is not the question: why is the European Union dealing with this? Is this not a matter for the Financial Reporting Council, the UK Listing Authority and the Department? Why are we discussing it in the context of the European Union?

Matthew Hancock (Conservative, West Suffolk)

We are discussing it because the EU has put forward a proposal. Whether we think it is right that it should do so is exactly what we are debating. I have an awful lot of sympathy with what my hon. Friend says. In fact, I think I agree with all of it, although I am always cautious about saying that I agree with all of anything in case I missed something or misunderstood.

Edward Leigh (Conservative, Gainsborough)

Will my hon. Friend give way?

Matthew Hancock (Conservative, West Suffolk)

May I make a little progress? I shall come to some of these points in detail.

The Government are committed to increasing the number of women on boards. In the coalition agreement we pledged to promote gender equality on the boards of listed companies, and we did so for a good reason. Historically, the proportion of women on boards has been too low. In 1999 women made up just 6.2% of the boards of FTSE 100 companies. By 2004, that was 9.4% and in 2010 it was 12.5%. In 2010 there were only five female chief executive officers of FTSE 100 companies.

As the House will know, we published the review by Lord Davies of Abersoch in 2011 and have been working to implement the recommendations. The Davies review identified several barriers preventing women from reaching senior roles in business. The research shows that people have an unconscious bias to reward and promote people who are like themselves. Davies found that informal networks are highly influential in determining board selections and that a lack of transparency over selection criteria continues to be an obstacle to progress. Davies also suggests that differences in the way men and women are mentored could be giving men the edge over their female peers, for the clear reason that there are fewer women in senior roles to act as mentors and role models for female colleagues.

Meg Munn (Labour, Sheffield, Heeley)

I very much welcome what the Minister is saying and the issues he is describing. Will he say something about the differences between non-executive, as opposed to executive, women board members? We know that significant progress has been made in respect of non-executive roles, but

executive positions are enormously important because they are about the day-to-day running of businesses and what is happening within businesses.

Matthew Hancock (Conservative, West Suffolk)

It is true that progress has been slower in executive appointments, but it is also true that where legislation has been passed to increase the number of women on boards—for example, in Norway—the increase has come almost entirely in non-executive roles, which shows that legislation is not a panacea. The Davies review recommended a business-led strategy to bring about the necessary change, and we have been working with business to implement the strategy.

I pay tribute to the 30% Club and Helena Morrissey. They are both pragmatic and passionate about reaching their target of 30% representation on boards. Their approach is one of persuasion and moral suasion to change the culture of business from business, and so far it has been highly effective. The figures clearly show that we are moving in the right direction.

Since Lord Davies’s work was started, we have had a near 50% increase in the number of female non-executives in the FTSE 350. Now, 17.3% of FTSE 100 board directors are female and, importantly, 38% of newly appointed FTSE 100 directors and 36% of newly appointed FTSE 250 directors since March last year have been women. Research by Cranfield School of Management shows that should the current pace of change be maintained, we are on a trajectory to reach 37% of women on FTSE 100 boards by 2020, just shy of the 40% proposed by the commission. We think that that business-led voluntary approach is the right one for the UK and that it is making progress. Central to it is a change in culture at the heart of business, and that is the only way in which progress will be sustainable and long term.

Julian Smith (Conservative, Skipton and Ripon)

Has my hon. Friend come to any conclusion about why the Labour party failed so dismally to achieve better results on this issue in its 13 years in government?

Matthew Hancock (Conservative, West Suffolk)

I have not specifically done any research into that, but it is certainly true that since 2010 there has been a big increase in the numbers. However, I do not think that this is a particularly partisan issue because there is cross-government and cross-party work on trying to make it happen. Crucially, we are following a voluntary business-led approach, because the research shows that diverse boards are better boards.

That brings me to the broader point that was made by the right hon. Member for Leicester East (Keith Vaz). The best boards have a diversity of human behaviour and experience and there is no bigger determinant of an individual’s behaviour than their sex. On average, companies with the most balanced boards out-perform companies with no female board members by an average of 56%, and companies with three or more women on their boards have achieved a return on equity about 45% higher than the average company. Research suggests that just one female director on a board cuts a company’s risk of insolvency by around 20%.

Keith Vaz (Labour, Leicester East)

I hope the Minister will agree that the message needs to come from the Government themselves. I had many discussions with previous Prime Ministers about the diversity of their trade delegations to countries

such as India. I understand why the Minister wants to go down the voluntary approach route, but will he give the House an undertaking that the Government will also send out a very clear message in the appointments they make to non-government departments and in the delegations that he and other Ministers lead by ensuring that they are representative of our country: more ethnic minority people, more women?

Matthew Hancock (Conservative, West Suffolk)

Yes, I do agree, but these things have to be done on merit. As it happens, later this month I am leading a trade delegation to India, and the business side of that trade delegation will be led by a woman. I hope that I have satisfied the right hon. Gentleman.

Edward Leigh (Conservative, Gainsborough)

We all agree that this should be business led, but can the Government block this or will it go through on qualified majority voting?

Matthew Hancock (Conservative, West Suffolk)

I will come to the point that, under the principles of subsidiarity in the Lisbon treaty, should there be enough motions in national Parliaments across the Union, that is enough to ensure that the Commission cannot introduce the current draft proposals.

We want a business environment in which woman can and do take their seats at the boardroom table on merit and in which businesses can respond to the varying needs of their sector, size and type of business. We need to tackle those problems without unduly burdening business. That is the substance of the challenge of getting more women on boards. It is clear that the Government have taken a lead on that and things are moving in the right direction, and the current strategy is leading us towards the target that the EU has proposed.

I will now move on to the argument about whether this should be an EU competence at all. The Government’s position is clear: we believe that member states must retain the flexibility to respond to their own individual circumstances. Today’s debate is about allowing Parliament, as distinct from the Government, to express its view on whether this should be an EU competence. The Government are strongly of the view that the principle of subsidiarity should be respected and adhered to. The principle of subsidiarity rests on two tests that a Commission proposal must pass: the necessity test, which is that the objectives of the proposed action cannot be sufficiently achieved by member states acting alone; and the EU added value test, which is that the objectives can be better achieved by action at EU level. Under protocol 2 of the Lisbon treaty, national Parliaments may raise an objection, referred to as a “reasoned opinion”, if they do not believe that a draft proposal is compliant with the principle of subsidiarity.

The Government’s explanatory memorandum, which was sent to the European Scrutiny Committee by the Under-Secretary of State for Women and Equalities, sets out the Government’s assessment of whether the Commission’s proposals meet the principle of subsidiarity. We find that they do not. There is no reason why member states cannot achieve the objectives by acting alone and there is no evidence that value would be added through EU involvement. Indeed, the Commission’s own impact assessment found that the evidence base for

demonstrating the need for, and proportionality of, binding EU action was “very weak”, stating that members states had a

“proven ability to act in this area”

and that

“a number of Member States had taken measures which appeared to have achieved significant progress”.

I hope that list includes us.

Meg Munn (Labour, Sheffield, Heeley)

One way of making progress on this is through the voluntary approach, but Lord Davies has made it clear in speeches I have heard him make that he feels that there must be progress and that, if progress is not made, we should look at a non-voluntary approach. Is the Minister arguing that the Government would be willing to look at that as something the UK would do, rather than something the EU would do?

Matthew Hancock (Conservative, West Suffolk)

For the purposes of today’s debate, the Government are arguing that this does not pass the EU’s subsidiarity test. For those purposes, the Government’s position is clear: we think that the voluntary approach is best. Before becoming a Minister, I wrote a book in which I stated that that needs to happen and that we should hold open the possibility of having legislation, but the Government’s position is clear: we should approach this on a voluntary basis.

Jonathan Djanogly (Conservative, Huntingdon)

I thank the Minister for being so generous in giving way. I wholly support what he has said and the Government’s position. However, he might wish to look at the Financial Reporting Council’s most recent annual report, which basically says, “Over to you, Europe. We’ll see what you have to say and then we’ll deal with it.” I think that the FRC needs to be told that it must look at this, because it is an important issue and we want to deal with it.

Matthew Hancock (Conservative, West Suffolk)

It might be that this debate and the decision of Parliament that will follow will be brought to the FRC’s attention. I wonder who might do that.

Of course, we share the Commission’s view that fair opportunities for women in executive and non-executive posts should be promoted and we are happy for the EU to disseminate good practice across member states, but it is up to member states to find their own national approaches. Many member states are considering, or have implemented, various and differing national measures on a voluntary basis to facilitate raising the proportion of women on boards. Some have decided on domestic legislation and some, like us, think that we can get there without it. That multitude of approaches is likely to help us find which one works best and has the most benefits and the fewest unintended consequences. The reasoned opinion is intended to set out the views of Parliament separately from the views of the Government, so I am very much looking forward to contributions on that front from Members in all parts of the House.

Let me turn to a couple of the specific questions from the European Scrutiny Committee. The Committee asked for the Government’s view of the Commission’s projection that only 17% of UK listed companies would have 40% women directors by 2020. It is safe to say that the Commission’s projections are rather out of date, because we already have 17% women directors in the FTSE 100.

The Commission’s analysis is based on extrapolating the increase in the number of women on boards in the period 2003 to 2011 and using a linear progression, but, as we have already discussed, the rate of change increased markedly at the back end of the last decade, and we will be within a whisker of reaching the target that the Commission has set by 2020.

The Committee asked whether the Government consider that the measures proposed by the EU would be counter-productive. It is true that legislation can have unintended consequences, and if an objective can be reached without legislation it is usually better to do so.

Finally, the Committee asked about the outcome of the Government’s consultations on the proposed directive and the progress on negotiations. We are discussing the proposals broadly, but negotiations in Brussels have yet to start.

Fiona Mactaggart (Labour, Slough)

The Minister said—I have some sympathy with this view—that if we can succeed without legislation, that is preferable because there are downsides to legislation. Will he undertake that we will have an annual report on progress and some suggestions about action that could be taken if the rate of success that he predicts is less than he hopes for?

Matthew Hancock (Conservative, West Suffolk)

We have had a report on this. There are constant reports—for instance, I commend to the hon. Lady the 30% Club website, which has a quarterly update of the numbers—and there are many opportunities to debate this in the House. The most important thing is that we should try to get there without legislation, and certainly there does not need to be EU-level legislation, as it is something that this House can perfectly well do on its own. Having more women on boards is right, and it is good business, but it should be the responsibility of this House.

I am grateful for the European Scrutiny Committee’s work. We would argue that legislation is not necessary now. Yes, there is more work to do to promote women on boards, and we and British business are doing it. I commend the motion to the House.

Chuka Umunna (Labour, Streatham)

Before I discuss the substance of the motion, it is important to make three brief observations for the record.

First, today we debate the need for greater gender balance among those in positions of leadership in business, but in so doing this House and the Government should acknowledge their own failings in this area. Just 22% of the current Members of this House and just four—18%— of the Cabinet are women. That is a disgraceful state of affairs in 2013. Labour Members are proud that 33% of the parliamentary Labour party and almost 40% of the shadow Cabinet are women, but we all need to do better. By all means we should debate the matter, but we in this House are certainly in no position to lecture.

Secondly, the subject of the motion is gender balance, but, as my right hon. Friend the Member for Leicester East (Keith Vaz) said, it is important to note that there is woeful under-representation on company boards in other respects that must be addressed too. For example, according to the latest research from Cranfield university, just 5.7% of FTSE 100 directors are drawn from an

ethnic minority while the new census figures indicate that 14% of the population is now from a non-white background. How can we inspire young black and Asian Britons to reach for the top when they see so few people who look like them in our boardrooms, never mind here in Parliament?

Thirdly, diversity in executive directorships also matters, as does the diversity of the boards of directors of non-listed private companies. I think that Sir Richard Branson has made that point, too.

We cannot stand idly by on other issues of representation in the leadership positions that people hold in modern Britain. Today, however, we are bound to focus on the issue of gender balance among non-executive directors of listed companies, because that is the subject of the draft directive and the motion.

Two central questions flow from the motion. The first is whether we should take action, and if so what sort, in relation to the gender balance on the boards of listed companies. The second is whether that action should be taken at the level of the European Union. As the noble Labour Lord and former Business Minister in the Labour Government, Lord Davies, made clear in his excellent February 2011 report, “Women on boards”, despite some progress under the previous Government, the representation of women on boards in this country is woefully low, as the Minister has set out today.

In 2003 we set up the Higgs review into corporate governance, which called for greater diversity on our corporate boards. In percentage terms, female-held directorships in the FTSE 100 doubled under the previous Labour Government, but I am clear that we must concede, with regret, that despite that, progress was lacking, with—I think the Minister cited the figure—women holding just 12.5% of FTSE 100 directorships when we left office in 2010. As Lord Davies pointed out, if that rate of change continued, it would have taken about 70 years to achieve some level of parity.

As Lord Davies made clear, there is as much a moral imperative to change this state of affairs as there is a strong business case to do so. The Minister has echoed those sentiments. I do not believe that this is a matter of party political discord.

Keith Vaz (Labour, Leicester East)

I welcome my hon. Friend’s mea culpa in respect of the previous Labour Government. Does he know why we failed to make more of an impact? Was it because of a lack of a message from the then Government to the constituent parts that could have acted upon it, or was it the case, as the Minister has said, that the culture in the business community took so long to change? Is my hon. Friend able to offer an explanation of why we did not do better?

Chuka Umunna (Labour, Streatham)

I think that some of the things that my right hon. Friend has just mentioned may have contributed to the state of affairs when we left office. As the Davies report makes clear, this is an historically complex issue. The easy conclusion to draw would be that our business community has a high level of overt and outrageous discrimination. I know through my own practice as an employment lawyer that, unfortunately, that still exists in some small pockets of the business community. However, I think that there are cultural factors at play and that the issues that women in the workplace face with regard to child care and flexible working all contribute to the

lack of progression in the pipeline of appointments in different companies. To tackle that, individuals need to take a lead and have the will to bring about cultural change in individual organisations.

To be frank, one thing for which I do not apologise is our reluctance to move straight towards prescriptive legislative solutions to these problems. I believe that we should regulate or legislate as the last resort, but what has become clear is that, as Lord Davies concluded, there needs to be far more will in the business community, never mind the political community. Another important point that Lord Davies made is that we should be clear about not ruling out taking further action in this House if we do not see enough progress culturally in the business community.

As the report made clear, many of the more than 2,500 responses to the Davies review said that women with the relevant experience were frequently overlooked for development opportunities and that there were differences in how men and women were mentored and sponsored, giving men an edge over their female peers in gaining appointment to boards. We cannot tolerate that in a society that seeks equal opportunities for all, regardless of background. To do an effective job, boards must be made up of competent, high-calibre individuals who offer a mix of skills, experience and backgrounds. I fail to see how our boards can optimise their performance unless they are representative of the population as a whole. After all, in many cases, their customers are the population as a whole. There is a wealth of evidence to back that up, and it is all in the Davies report.

If we accept that the status quo is wrong and believe that it compromises the performance of our companies and our economy, as Opposition Members do, action has to be taken. That is why we endorsed all the recommendations of the Davies report. Those who argue against action often accuse those who argue for it of engaging in tokenism and of promoting diversity over merit. Of course board appointments must always be based on merit, with the best qualified person getting the job, but to suggest that no action should be taken is to presume either that there are not enough women who merit appointment or that there are not enough women who want to be appointed. That flies in the face of the evidence in 2013. There are plenty of women who merit appointment. Diversity and appointment on merit are not mutually exclusive. The problem is that there are barriers and obstacles that must be broken down to ensure that the appointment of women is as usual as the appointment of men.

The Davies report advanced a set of 10 voluntary measures, as the Minister has said, with a view to there being a minimum of 25% female representation on boards by 2015. The Minister went through the most recent update so I will not go through all the details, but there has been not insubstantial progress towards achieving the 25% goal. However, more action is clearly needed if we are to achieve the goals set out in the Davies report. Even if the goal is met, I believe that 25% is a modest aspiration. We should all want companies to make more progress than that. The Government should keep the matter under review and should reserve the right to introduce more prescriptive measures to force faster and greater change if necessary.

Jonathan Djanogly (Conservative, Huntingdon)

The hon. Gentleman mentions the 25% figure, but that is an absolute figure. He should also point out that 27% of all board appointments in FTSE 100 companies are now being taken up by women.

Chuka Umunna (Labour, Streatham)

I do not disagree. As I said, I do not think that the progress in this country towards achieving the goals since the report came out in February 2011 has been insubstantial. Whether we are on course to reach the aspirations set out in the Davies report will be clearer next year, when the recommendations have had three years to bed in. At that point, we will form a view on whether further measures are needed. Let me be clear: if we are to continue with a business-led approach, we expect to see much greater progress towards parity.

That is the case for action, but what of the EU? The draft directive produced by the Commission seeks to introduce a new procedural requirement for the recruitment of non-executive directors that would apply to all boards of public listed companies in the EU. The objective is to raise the proportion of non-executive positions held by the under-represented sex to 40% by January 2020 by introducing a new preference rule in the selection of non- executive directors. Under that rule, priority would be given to a candidate of the under-represented sex who was equally qualified in terms of suitability, competence and professional performance as a candidate of the other sex—a man in this case—unless an objective assessment, taking account of all the criteria, would tilt the balance in favour of the candidate of the other sex. That system would not amount to the introduction of a quota per se, as has wrongly been reported in some places, but it would introduce a degree of positive discrimination in favour of female candidates, in the scenario that I have outlined, for non-executive director positions on boards. The Commission decided not to take action in respect of executive directors because it says that it would constitute

“excessive interference in the day-to-day management of a company.”

The Commission argues that action at EU level is justified on a number of grounds, including that if there is not action at supranational level, insufficient progress will be made at national level towards more gender-balanced representation on company boards by 2020. The European Scrutiny Committee rejects that and objects to the draft directive on the grounds that it does not comply with the principle of subsidiarity. The reasons the Committee cites for its view include that it does not feel it is fair to say that member states acting individually will not achieve sufficient progress, given that

“many national measures have been introduced within the last year or two”.

The Committee’s objections to the directive are set out in the draft reasoned opinion that it proposes be sent to the presidents of the European institutions. The Business Secretary, who is once again absent from the House for the debate on this important issue, asks us in the motion to endorse the draft reasoned opinion, with which the Government agree.

The principal problem we have with the motion is that although there may well be strong arguments against the action envisaged under the draft directive, for the reasons that the Committee cites in the draft reasoned opinion, we have heard very little from the Government about how they might work constructively in other ways to advance the cause of equality in company boardrooms along with our European partners.

The Under-Secretary of State for Women and Equalities, who is also a Business Minister—[Interruption.] Yes, why is she not here? In her response to the report of the House of Lords European Union Committee on the issue, she said that the Government

“agrees that the EU has an important role to play in improving the representation of women on boards.”

If that is the case, surely the Government are obliged to say how that should happen, and to give more of a lead on what that role should be, if we want to lead the way in Europe on the issue.

Given that other European countries are also keen to see more women on boards, and given the extent to which many of our major companies operate across Europe, why have the Government not put forward proposals on what constructive moves European countries could make to work more positively together to promote having more women on boards? That would be good for tackling discrimination and promoting equality, and it would be good for business.

The situation is most unsatisfactory, because the Government have had a golden opportunity to make it clear that the UK wishes to be at the forefront of the debate on achieving greater equality across society both here and in the EU. Instead, without the Government having set out proposals on how member states could work together to improve matters, I fear that the motion will leave people with the impression that yet again, the Government are dragging their feet on issues of equality, diversity and representation. That is the problem. Although we do not propose to divide the House on this technical motion on a directive that is still at an early stage of development and negotiation, we urge the Government to reconsider their overall approach.

Nigel Evans (Conservative, Ribble Valley)

Order. This is a time-limited debate, and the Question will be put no later than 6.43 pm, so if Members could bear that in mind when considering the duration of their speeches, I am sure others would be grateful.

Alok Sharma (Conservative, Reading West)

As you say, Mr Deputy Speaker, this is a time-limited debate, so I will keep my remarks fairly brief.

I welcome the Government’s work to increase gender balance on boards. As we have heard, the Davies review was a seminal piece of work that helped to identify how not just the Government but particularly the corporate sector can respond to the challenge of having more women on boards and of increasing the diversity of boards. As the Minister said—the shadow Minister made this point too—diverse boards make for better companies, better decisions and ultimately better outcomes for shareholders. That is something for which every company should be striving.

The Government have absolutely the right approach in getting companies to co-operate rather than coercing them into coming up with artificial quotas or targets—and certainly by not forcing legislation on them. The approach is clearly working. A number of colleagues have pointed out that the number of women on boards, both executive and non-executive, has been increasing over the past

few years. I suspect that this work will continue. I also commend the Government on the work to increase mentoring, which is an incredibly important part of the jigsaw puzzle in informing not just women but people from ethnic minorities about how they can aspire to get on boards and into senior management positions in our companies.

Keith Vaz (Labour, Leicester East)

I congratulate the hon. Gentleman on his appointment as vice-chairman of the Conservative party with responsibility for ethnic minorities, but I am not clear what he is saying, because so far we have failed on ethnic minority representation. Is he in favour of continuing with voluntary arrangements and hoping that things will get better, or does he think that Government and business should send a much stronger message about boards needing to be made more diverse?

Alok Sharma (Conservative, Reading West)

I thank the right hon. Gentleman for his comments; let me come to that point shortly.

I am also pleased that last year the Government introduced a set of draft regulations that will require listed companies to set out the gender breakdown of their work force at board level, in senior management and in the work force as a whole. Normally, those of us on the Conservative Benches are not particularly keen on huge amounts of business regulation, but this is a good regulation, which would not be burdensome but helpful in shining a light on companies and getting them to focus on increasing diversity and, in particular, improving the gender balance on corporate boards. Indeed, the regulations, which are due to be introduced, have already been implemented in a number of other jurisdictions across Europe, so this is nothing new. At the end of last year, the Secretary of State—who is now in his place—urged head-hunting firms to break down the number of individuals they place in senior positions by gender. Again, that is extremely good news.

The right hon. Member for Leicester East (Keith Vaz) made the point about work force diversity. Gender balance is one measure of work force diversity, but ethnicity is another. Championing diversity should undoubtedly be about improving both. The hon. Member for Streatham (Mr Umunna) pointed out that just as there is under-representation of women at senior levels on boards, there is also under-representation of those from non-European ethnic backgrounds. He gave the figure of 5.7%. To break that down even further, research by Cranfield university showed that only 4.4% of board members in FTSE 100 companies are ethnic minority male, while only 1.3% are female. Indeed, of the 48 male directors from minority backgrounds, only eight are British. As has been pointed out, the census showed that the proportion of people from non-white or ethnic minority backgrounds is currently around 14%.

The all-party group on race and community has just published a report—it came out at the end of last year—on ethnic minority female unemployment. Let me set out what it uncovered by quoting briefly from the executive summary:

“Discrimination was found to be present at every stage of the recruitment process—when assessing applications, during interviews, at recruitment agencies and also in the workplace itself. Strikingly, it was estimated…that 25% of the ethnic minority unemployment rate for both men and women could be explained by prejudice

and racial discrimination. Discrimination based on name and accent was also uncovered both in data received and from personal testimony.

In addition, it was found that discrimination based on both gender and ethnicity is taking place in job interviews.”

I think all hon. Members today would agree that that is incredibly worrying.

I appreciate the fact that today’s motion is about women on boards, but may I ask the Minister to consider extending the draft regulations for listed companies to disclose their gender balance—which are due to be introduced this year—to include the ethnic balance at senior level, on boards and in the work force as a whole? As for further disclosure that could be considered—this could be part of a voluntary code—perhaps we could ask listed companies also to break down the total number of job applicants, interviewees and new employees they take on every year by gender and ethnicity. That would help to highlight which companies and sectors ethnic minority candidates and women are just not applying to in numbers, as well as which are not giving them any interviews.

I share the view that people should be appointed to jobs on merit and experience. That is absolutely right. The whole idea of artificial quotas is not particularly helpful. However, what I am suggesting for the proposed new regulations is about taking companies one step forwards, towards focusing on what they need to do to increase diversity as a whole in the workplace, whether in the gender or ethnic make-up of boards or in the workplace as a whole.

I will end, as many others want to speak. As we have heard, at the end of the day, diverse boards are much more effective, and they absolutely outperform their rivals—there are reports out there by McKinsey and many others. If a company’s work force and senior management are representative of its customers, it is much more likely to make decisions that respond to their needs and, ultimately, benefit the business. That is a virtuous circle that every company should be looking to square.

Seema Malhotra (Labour, Feltham and Heston)

I welcome this debate and thank you, Mr Deputy Speaker, for the opportunity to speak. We know that this is a vital debate, on which we need to make faster progress, not just for women but for our economy.

This debate is about non-executive directors on listed companies, which in one way is convenient, as progress has been made in that area. We know that the gender balance in executive roles has remained at approximately 5%, which is woefully low. This is also an important debate for our economy. A McKinsey study in 2010 on listed firms in six European countries and the BRIC countries found a correlation between the proportion of women on a company’s board and its performance. Indeed, across all sectors, companies with the most women on their boards of directors significantly outperform those with no female representation—by 41% in return on equity and by 56% in operating results. Diversity does indeed unlock growth. More recently, that important study has helped to fuel a growing body of work and a consensus that the current pace of change is not nearly

fast enough. However, there is a risk that even recent progress might not necessarily be a predictor of the future. A reduction in more recent months of the number of women FTSE 100 chief executive officers, down to two, is one indicator of that, and it should be a cause for concern about the pipeline of talent among women going into senior positions.

For years, including before becoming a Member of this House, I have worked in a number of ways to support the progress of women and other under-represented groups—ethnic minorities and people with disabilities—in reaching senior levels in our public life, whether on public boards or the boards of business. This is a passion and an interest that I have taken forward not only in my professional work on leadership and increasing diversity on public bodies, but in a voluntary capacity, through the leadership and mentoring programme run by the Fabian women’s network. As several Members have discussed and mentioned, better diversity in decision making aids better outcomes. To quote Peninah Thomson, the author of “A Woman’s Place is in the Boardroom”, the customer is queen. Women influence the majority of purchases for themselves and their families. A much better understanding of consumer and customer needs through a better reflection of women’s lives at the top of business can only be good for our British companies.

Over the past 20 years, Labour has taken decisive action to ensure that women are better represented in Parliament and in politics, and we know that outcomes can take a generation to deliver. As a result of that drive, we have more women MPs than all the other parties combined, but we still have a long way to go before women are equally represented in politics and before a culture of gender balance pervades political debate and discussion in seminars and in the media. I hope that we will also see an end to all-male panels, to ensure a gender balance at all levels of debate.

It is unfortunate that such progress has not been made at the same pace in all the parties. The World Economic Forum’s annual global gender gap report published in October 2012 showed that the UK had slipped down the international gender gap index from 16th to 18th place. The report states that that was mainly the result of a decrease in the percentage of women in ministerial positions from 23% to 17%.

This debate must not be positioned simplistically in terms of representation versus merit. It is about the outcomes that we want to see, and we must take a stand on the progress that we want to make while taking responsibility for the outcomes. I am not the only one who wants Britain to lead the way in this area, rather than just catching up. It is important that we reserve the right to take more prescriptive measures, beyond the voluntary ones, to enforce faster and greater change at a later stage if necessary. If we are to continue with a business-led, voluntary approach, we expect to see greater progress towards parity, and we must not favour ideology over evidence when it comes to policy. We must consider encouraging greater positive action.

With regard to the reasoned opinion that is the subject of the motion, there might be arguments against the action envisaged in the draft directive, for the reasonable reasons that the Committee cites, but I remain concerned that the reasoned opinion says nothing about how the Government will take a lead in the debate, if not through the directive as currently constructed but in other ways,

to advance these matters with our European partners. Business does not stop at geographical boundaries, and with Europe as one of our main trading blocs, we should have a voice in ensuring greater representation of women at the top of businesses across Europe.

It is also a matter of concern that the report of the European Scrutiny Committee and the draft reasoned opinion were published only on Christmas eve. Members have had no opportunity to table amendments to ensure that the UK is at the forefront of moves to achieve greater equality in society here and across the EU. Instead, there is a danger that the motion will leave the impression that the Government are dragging their feet on issues of equality, diversity and representation. The message must be that Britain wants to be at the forefront of positive change for all groups that are under-represented on grounds of gender, ethnicity or disability.

Dominic Raab (Conservative, Esher and Walton)

The draft directive is unprincipled and counterproductive. It needs to be understood in the context of the progress that has been made towards a more equal society in this country. We are sometimes churlish in acknowledging the strides that we have made, notwithstanding our desire to go further and faster. For example, the UK median full-time gender pay gap has almost halved since 1998. Women in their 20s now earn 3% more than men; women in their 30s earn almost the same. One of the key residual issues—in regard to the pay gap and, arguably, more broadly—appears to arise at the age of 40, when women with young families strive to strike the critical balance between child care and breadwinning.

Even at the top level, however, progress is being made. Figures from Cranfield university, some of which have already been cited, show that the number of female FTSE 100 directors more than doubled between 2000 and 2012. That demonstrates a high rate of change, albeit starting from a low base. Since March 2012, 44% of new FTSE 250 non-executive directors have been women. That is evidence in favour of the argument that the problem is to a large extent an historic hangover that will be corrected over time, although we can argue about how quickly that is likely to happen.

If we look across the piste at this issue , rather than just at what is happening in the boardrooms, we see that, for most modern couples, the juggling act between work and family is not just about women. It is about teamwork and about freeing couples to make their own choices. Let us also recognise that fathers are increasingly doing their bit, with a tenfold rise in stay-at-home dads in 10 years, supporting more and more women to pursue their professional ambitions. A 2011 study by Aviva found that 39% of cohabitating couples now share child care responsibilities equally, or have the father as the main child-carer. It is these grass-roots, bottom-up changes in social attitudes, and not regulatory diktat, that will deliver real change in this country.

In the light of that progress, it is anti-meritocratic in the extreme to suggest that women need quotas to succeed in modern Britain. I have lost count of the number of women who have told me how deeply insulting they find the idea. No one has mentioned this in the debate today. Boardroom appointments, like any other competitive recruitment, should be based on individual

talent and hard work, not on positive discrimination. The entrepreneur and “dragon” from “Dragons’ Den”, Julie Meyer, powerfully argues that if someone is on a board because of a quota,

“your voice will be neutered and your advice won’t be heard”.

That is what this directive would achieve; that is what it is about. It would force top FTSE companies faced with equally qualified applicants to positively discriminate in favour of women, with fines and court-ordered annulment of appointments as the sanctions for non-compliance. Let us not kid ourselves, as those on the Opposition Front Bench are trying to do. This is a quota, not a target.

Chuka Umunna (Labour, Streatham)

I have read the hon. Gentleman’s contributions on this topic, and I see that the headline to his recent piece in The Sunday Times was, “Sorry, girls, a seat on the board must be earned”. I am sure that many women would find that quite insulting, although I am sure that he did not write it himself. I hear what he is saying about child care—I have said it myself—but does he not accept that there are certain cultural issues at play here? Lord Davies’s report indentified the fact that people seek to select people who are like them to positions on their boards, and that that operates as a barrier towards women getting on to those boards.

Dominic Raab (Conservative, Esher and Walton)

I note that the hon. Gentleman did not take issue with the substance of my article—[ Interruption. ] No, listen to my point. He talked about the headline, but, as a media-savvy politician, he well knows that I had no hand in writing it. He also mentioned group-think, and I think that there is a substantive point there, although it might not be the one that he wanted to make. If he will bear with me, I will come to that shortly.

I was about to make the point that the Commission’s notion of equally qualified candidates is an utter fallacy. As anyone in the real business world knows, a rigorous recruitment process will always identify the best, the brightest, the top person for the job, on merit. My wife works for Google, and she was interviewed 10 times, even after they had got rid of all the other candidates. That is a good example of a cutting-edge, high-tech firm testing and testing until it finds the very best candidate.

The directive is not just anti-meritocratic; it would also damage business competitiveness. No one has yet mentioned that. The Government estimate that it would cost listed companies £9 million between now and 2020, with additional ongoing monitoring costs. There is a far greater cost involved, too, but people are just too politically correct to mention it.

Seema Malhotra (Labour, Feltham and Heston)

Will the hon. Gentleman clarify what he meant when he said that the measure to increase diversity on boards would damage business competitiveness?

Dominic Raab (Conservative, Esher and Walton)

If the hon. Lady will just have an iota of patience, I will come to the empirical evidence for that in a moment.

I want to cite some empirical research from Kenneth Ahern and Amy Dittmar of the business school of the university of Michigan, which examined the introduction of mandatory quotas in Norway from 2003. Looking assiduously at the impact on the boards, they found

that the quotas damaged equity, asset and shareholder values in the companies affected. The report also found

“significant decreases in operating performance and higher costs as a result of the imposition of the quota.”

I would be happy to debate this afterwards with the hon. Member for Feltham and Heston (Seema Malhotra) if she wants to quibble with the empirical evidence of this study, but let me cite its findings correctly:

“These results are consistent with boards of directors that lack sufficient experience to act as capable advisors.”

The point is that if we have tokenism of this kind, we get inexperienced people on the boards and it damages shareholder value. Equality and diversity policy must be about widening the talent pool. On that we all agree, and it is through that that we strengthen business competitiveness. Tokenism is utterly counter-productive.

Equally, high-flying women would see minimal benefits from this directive because it focuses only on non-executive directorships. In that sense, I agree with some of the comments of Opposition Members. That, of course, encourages tokenism. If we look again at the Norwegian example—it is the one place in Europe where mandatory quotas were introduced—research in 2011 by Dr Hakim of the London School of Economics showed that Norway, the pioneer of gender quotas, had no female executive directors at all. That is why this measure—to me and, I think, to many outside the cloistered politically correct Westminster village—feels like a political elite debating an issue that is relevant pretty much solely to a business elite. It is largely irrelevant to the challenges of the millions of working women who live in the real world.

Of course, to come back to the point made by the hon. Member for Streatham (Mr Umunna), there are still outdated attitudes in the City. There is a problem of “group think” among those from similar backgrounds. I worked in the City before I went into the Foreign Office, and I saw that all the time. It is true in many professions, including—and it would be useful to see more acknowledgement of the fact—some of the politically correct institutions such as the Government Equalities Office and the Equality and Human Rights Commission, which have an appalling imbalance in the gender composition of their staff. If anyone bothered to look at it, they would find it deeply hypocritical that these bodies are constantly lecturing others on the subject.

In terms of the City, which is what the directive is about, raw competitive forces are ensuring that companies look far more carefully at their boardroom composition to maximise their breadth of experience. It is taken far more seriously as a strategic business issue. McKinsey and various other firms have been cited with that in mind. I am confident, given the rates that we are seeing, that a rising flow of talented women into more senior positions will continue to break through the glass ceiling, which I do not deny we residually have.

We need to be careful, however, not to give succour to the very stereotypes of which we want to rid ourselves. The deputy leader of the Labour party notoriously suggested that we might not have suffered the financial crisis if we had had “Lehman Sisters” rather than Lehman Brothers. That sort of progressive prejudice, for want of a better term, is scarcely more subtle or savoury than the conventional kind. It is also—this is

the interesting point for those who care to look at the evidence—positively refuted by the available empirical material. Research for the Bundesbank—hardly an institution regarded as lacking in rigour—that reviewed German boards between 1994 and 2010 found female board members tended to increase, not decrease, risk taking. The report attributes that to a public policy drive for more female directors, which resulted in the recruitment of less experienced women, as we discussed before. The issue was really about experience, not about gender. A similar review of Swedish boards found exactly the same. This kind of evidence punctures the prejudice promoted by people such as the right hon. and learned Member for Camberwell and Peckham (Ms Harman) that men are somehow innately more reckless than women. Of course it depends on the individual and their personal character, not on crude gender stereotypes, which too often inform this debate and have too often informed this sort of proposal.

I welcome the Government’s reasoned opinion arguing that that the directive does not comply with the principle of subsidiarity, but let us be careful not to give the impression that we are making process points here. This directive is corrosive of a meritocratic vision of our society where we are gender blind and what matters is who people are and of what they are capable. If we really care about maximising opportunities for working women, we should be talking about such things as transferable parental leave and other family-friendly policies, which this coalition are adopting. We should be addressing the exorbitant costs of child care—

Seema Malhotra (Labour, Feltham and Heston)

rose —

Dominic Raab (Conservative, Esher and Walton)

I will not give way, as I am conscious that others wish to speak and I have already given way to the hon. Lady.

The last Labour Government did nothing to address the soaring costs of child care, which is arguably the single biggest practical problem for working women today, so I am delighted that the Government are shortly to announce proposals to address it. These are the policies that will make a real difference in the real world.

Finally, let me touch on a point raised by the right hon. Member for Leicester East (Keith Vaz), the Chairman of the Home Affairs Select Committee. It is about the tendency of those on the left to label and treat any form of ostensibly low representation in one area or one sector or another as inequality, then bluntly equating it with discrimination. This fails to recognise, in the words of the great British liberal thinker Isaiah Berlin, that from

“the crooked timber of humanity no straight thing was ever made.”

That tendency is destined to stoke up social tensions, not to ease them. If we bow to this and go down the path that quotas and positive discrimination tempt us to go down, we will open the floodgates to special interest politics, with every conceivable social group turning every gripe and grievance into an equality issue. We invite lobbying under the Equality Act 2010 based on gender, sexuality, ethnicity, faith, age, parenthood and even non-religious beliefs, but for those who bother to look at the Equality Act and at the list and number of protected characteristics, it becomes mind boggling.

Instead of reducing these dividing lines as factors that determine people’s fate in life, we make them decisive. That is a major social mistake and I would argue against it at all costs.

I would like to see us build a meritocratic society where people are not judged according to tick-box criteria—one that recognises that, in a free country, perfect parity of representation is not only utopian, but positively dangerous, and one that in the words of the great Martin Luther King judges people

“based on the content of their character”,

not on race, gender or any other arbitrary social dividing line. This directive is a social engineer’s dream and every meritocrat’s nightmare. I hope we send it back to Brussels and never see it again.

Meg Munn (Labour, Sheffield, Heeley)

Before I move on to my substantive point, which will be brief, I have to correct the statement of the hon. Member for Esher and Walton (Mr Raab) that the last Government did nothing on child care. I have to tell the hon. Gentleman that when we took office there was no child care in many parts of the country and there were no options for parents who wanted to work. I know that from my work in the social services sector. I welcome, however, the Minister’s words about the importance of this issue and the fact that companies are hampering themselves by not having diversity, as this means not doing all they can in the achievement of economic output.

My main point is that the issue is not about imposing quotas. I do not want to see the European Union imposing quotas, but neither do I want to see this country or this Government being complacent about how to move forward towards gender equality—not just in the one area of women on boards, but across our whole culture as well as across our businesses as a whole. We know that substantive and sustained progress has been made more recently in the appointment of non-executive directors, and we should all welcome it. We saw it previously, but there has been an increase in the number. We also know—here we can learn from the experience of Norway—that it is easier to achieve appointments in the area of non-executive directors. Focusing just on that, however, will not help the vast majority of companies, and it will not help us see greater gender equality.

This weekend, The Observertold us about its research on the 100 top private companies, of which only 64 currently publish their board composition. Of those, 73% have all-male executive directors, and we know, too, that 51% have all-male non-executive directors. If we look at the FTSE 250, we find that 71% of companies have all-male executive directors. This relates not just to who is sitting around the board table, but to what is happening within companies. We need a culture that, right from the time a woman first enters a company, promotes those who have talents and supports them whatever their circumstances.

The hon. Member for Esher and Walton made some important points about both parents being able to work, but we know that all too often it is women who take on the majority of the responsibility for child care. We know from all the statistics on the gender pay gap about the disadvantage that comes from spending time away from work, whether it be working part-time or

taking a career break, which impacts for ever on the woman’s earning capacity. We must look much more broadly at the general culture of work. The hon. Gentleman was right to say that the Government had given the issue a profile, but the discussion in Europe has done so as well, and has enabled people to understand the need for progress. The Government have a much bigger job to do in the world of work overall.

As I said in an earlier intervention, the Government should think seriously about what they, and Parliament as a whole, would want to happen if the progress that is currently being made in relation to non-executive directors did not continue. It is all very well to say that we believe in voluntary arrangements, but if more progress is not made in the future, will the Government opt for more prescriptive measures? If so, what will those measures be?

Dawn Primarolo (Labour, Bristol South)

Order. I regret to say that we are a little short of time, so, in order to ensure that every Member who wishes to speak can do so, I am imposing a limit of five minutes for the remaining speakers. The debate will end at 6.43 pm or a little earlier, so I should be grateful if Members would bear that limit in mind.

Mary Macleod (Conservative, Brentford and Isleworth)

As others have said, this is an important debate. I spent 20 years working in business in the City, and I often found that for days on end I was the only woman sitting at the table during meetings. I spoke out about that to the many organisations with which I was connected.

As the Minister said, the coalition set out to change the position—that is in the coalition agreement—and it has done so. Many Members have pointed out today how important that change is to the economy. It is good for business, and, of course, it is good for women. We should focus on the incredible amount of talent that exists among women in the workplace throughout Britain, and on using their skills and experience for the benefit of the economy as well as enabling them to fulfil their own potential. Other Members, including my hon. Friend the Member for Reading West (Alok Sharma) and the hon. Member for Feltham and Heston (Seema Malhotra), have already referred to the advantages for business, and I shall not repeat their arguments. Suffice it to say that we need to use those talents, which can benefit individuals, companies and the country as a whole.

I do not believe in quotas; I believe we need business-led change based on absolute merit. My hon. Friend the Member for Esher and Walton (Mr Raab) explained very articulately why that is so important. However, I also believe that businesses should work hand in hand with the Government, who can highlight the issue—as we have today—in order to promote further progress. A great deal of good work has been done, and I congratulate the Minister and the Government on what has been achieved by Lord Davies’s report and the measures that have been introduced to help business.

We have already heard about the improvements in the FTSE 100 and 250. In the last year alone, 49% of FTSE 100 and 44% of FTSE 250 non-executive directors

have been women. That is real progress. According to the FTSE board report published by Cranfield school of management in 2012, if we maintain the current momentum, female representation on boards could be a record 26.7% by 2015 and 36.9% by 2020. The report identified some great performers. Four women are members of Diageo’s board—44% of the overall membership—while three out of eight members of the Burberry board are women, including the chief executive and chief financial officer, and 33% of Pearson’s board members are women. Some organisations are leading the field, and are already doing a great job.

The role of women in Parliament, and in politics generally, was mentioned earlier. I chair the all-party parliamentary group for women in Parliament, which is determined to change the current position. In 2010, the number of female Conservative MPs increased from 17 to 49. Of course there is more work to be done, but we have made significant inroads. In the recent reshuffle, 50% of the 2010 intake who were appointed to Government roles were women.

The solution to the remaining problems lies partly in what the Government can do to encourage female representation and partly in what can be done by those in business, such as head-hunters, nomination committees and investors. Businesses can nurture talent by encouraging and mentoring women, and by changing the organisational culture of which Members have spoken today. Chief executives should lead from the top. If they really believe in a change in the culture, and if they can drive that change through their organisations, they will make a difference. I recently organised a women on boards leadership forum in the House, and was heartened to hear Antony Jenkins, the group chief executive of Barclays, speak so passionately about what the bank has done and will do in order to make a difference. We need more people like him.

I agree with Members who have said that non-executive director roles are still an issue. As was pointed out by the hon. Member for Sheffield, Heeley (Meg Munn), we must continue to increase the number of women in both executive and non-executive positions.

As for the directive, it is important for subsidiarity to be respected, and for women to be appointed on merit. This is not something on which we should receive directions from Europe; it is something that we can do ourselves, and we have made progress already.

Ann McKechin (Labour, Glasgow North)

I welcome the opportunity to speak in the debate. As the Minister will know, I am a member of the Business, Innovation and Skills Committee. The Committee is currently undertaking an inquiry into women in the workplace, which will include a review of the recommendations of the Davies report. I do not want to pre-empt our final report and recommendations to the Government, but I will say that we wanted to institute a cross-party inquiry for the very reasons that the Minister gave earlier.

Diversity on boards is good for companies, and therefore good for the British economy. Given the present state of the economy, we should explore every avenue that may lead to increased innovation, diversity and productivity.

In response to what was said by the hon. Member for Esher and Walton (Mr Raab), let me point out that diversity means introducing different experiences to a board, rather than a single set of pre-judged experiences. The hon. Gentleman advanced the classic Catch-22 argument that those who do not have enough experience cannot join a board, but those who are not members of the board do not have enough experience in the first place. However, we all have to start somewhere.

Evidence given to our Committee has made clear that there are strong views on both sides about the imposition of quotas, but it has also shown that some companies have taken strategic steps to increase diversity through, for instance, regular reporting on how they are achieving a gender balance. I was interested in what was said by the hon. Member for Reading West (Alok Sharma) about the use of reporting to drive progress. Pay transparency is another key component, as are solid targets and consistent ways of ensuring that progress is made. As with politics, progress can go back as well as forward. Unfortunately, when it comes to membership of the Cabinet, it is going back. It is important to have a clear and consistent policy in this regard.

We should take account of companies that are keeping their heads well down and not joining in the argument because they think that if they do not participate in it they can ignore it. I do not rule out the use of quotas if we find that a persistent sector of the economy does not consider diversity to be integral to the progress of the economy overall, and I think that the Government have a role to play in that respect. I agree that quotas are not the only way of achieving diversity, but I think it important for the Government to think about procurement and about how they spend money on training and higher education.

One other aspect we should be considering is regulation of the London stock exchange. Requiring companies that are members of the stock exchange to look at how they achieve diversity on their boards and throughout senior management is a way of avoiding primary legislation while driving progress. In response to the hon. Member for Esher and Walton, I should add that one of the companies that gave evidence to us, Clydesdale bank, has set a target of increasing the number of women in the three top senior management roles over the next few years. That is one way women can gain experience in executive director roles, as well as non-executive director roles, which have been referred to.

This is a work in progress, but the Government need to be at the heart of it.

David Mowat (Conservative, Warrington South)

The hon. Lady said that companies that are more diverse grow more quickly and that there is evidence of that. Is this not, then, a self-correcting problem, because all companies need to grow, and those that are struggling to grow and are not diverse enough should surely being doing what is required to correct that? Surely this is self-correcting, so the measures she is describing are unnecessary.

Ann McKechin (Labour, Glasgow North)

A persistent group of people will always resist change if they can. Despite the good track record, there are contrary voices, as we heard during the Business, Innovation and Skills Committee inquiry, stating that men are inherently better at doing these things anyway and that things will be fine. That view should

not be accepted in the 21st century. The public, this Parliament and the Government should take an active role in engaging with this. Issues of pay transparency, part-time work, child care and business culture should interest us all, whether we are in business or not.

I concur with my hon. Friend the shadow Business Secretary about it being important that we respond positively to the EU over how this country and this Government can make a difference to the economy, which will, I hope, improve if we ensure that diversity is key to our corporate structures.

Bill Cash (Conservative, Stone)

The first question for consideration in this reasoned opinion debate is, in a nutshell, whether the Commission will have to reconsider its proposal, and that issue turns on whether there will be sufficient opinions representing one third of all the votes in national Parliaments—on the basis that each Parliament has two votes. The real question is whether we will really get that. Of course, if we do not, the question that follows is: what will happen? Some believe that the principle of subsidiarity ought to be applied, but there is also the question of whether we should refuse to accept it—but that is for another day.

Secondly, there is a question about whether the directive will achieve its target of 40% representation of female non-executive directors and—this has not been mentioned yet—30% of all directors on the boards of publicly listed companies by 2020, or 2018 in the case of listed public undertakings. Furthermore, there is the question of the exemption for small and medium-sized enterprises—I have not heard that mentioned either—and for companies whose work forces have fewer than 10% female employees.

Thirdly, where national measures have already been introduced in some countries with a view to increasing the representation of women on corporate boards, companies need not apply the new recruitment and selection requirements, but will be required to do so from 2018-20 if they have not reached the 40% target. I put that on the record because, as far as I am aware, none of those three points has been made in the debate so far.

In the interest of brevity, I will simply say that the questions concerning breaches of the principle of subsidiarity are set out in the draft reasoned opinion and I do not need to repeat them. I would like to put several questions to the Minister, but, in order to ensure that we get through what we have to get through in the time allotted, I shall write to him with the questions that the European Scrutiny Committee would like answered, and he can reply to us. I do not therefore have to go through them all now—I would not have time anyway.

I shall make only one more point. Will the Minister tell us whether—and, if so, to what extent—the Government plan to make use of the reasoned opinion in the Council negotiations on the proposal? With that I shall conclude, but I shall be writing to the Minister and look forward to his considered response.

Julian Smith (Conservative, Skipton and Ripon)

I refer Members to my declaration in the register of Members’ interests.

This really is a dodgy dossier of an EU proposal. The reason given for the proposal on page 3 is that it will ease the functioning of the single market, but on page 9 it states that it will address the fundamental objective of gender equality. The polling support by the reliable Eurobarometer is also shaky. In fact, it shows more support for self-regulation than for legislation. The impact assessment states that there is only a weak case for the EU intervening in this area, and there is no rigorous detail of the important work already being done by member states. Only France is held up as a holy grail, with its 40% statutory level—France, with its Strauss-Kahn-style commitment to sexual equality.

More worryingly, the directive proposes stringent mandatory quotas on EU-listed companies, but glosses over the many and complex reasons for the poor numbers of female executives and non-executives. Where is the self-analysis of the EU’s long list of employment rules and regulations, which might have made matters worse for female business leaders over the past few years? Where is the hard-headed debate and evidence of whether current maternity and paternity rules risk keeping women out of the workplace for too long? Where are the apologies for forcing employers into the most soul-destroying transactional relationship with female employees going on maternity leave, rather than encouraging ongoing contact and involvement? EU policies have driven a wedge between employers and female employees.

We should be proud of the work that the Government have done in this area, which I am delighted the shadow Secretary of State recognised. Lord Davies adopted a sensible and pragmatic target of 25% and the focus on transparency has been working. Furthermore, the Financial Reporting Council has now introduced its requirements and there will be a focus on the top 350 companies setting out their aims for the number of women on boards by 2013-15. Furthermore, the Cranfield school of management has recognised that the Government are on track for 37% take-up by 2020.

Mary Macleod (Conservative, Brentford and Isleworth)

Does my hon. Friend agree that the Women’s Business Council, set up by the Government, and the extra funding for female mentors for female business women will also help?

Julian Smith (Conservative, Skipton and Ripon)

I think it will help, and I pay tribute to my hon. Friend’s work on this issue since entering the House.

Transparency is putting pressure on companies to change. The Association of British Insurers and the National Association of Pension Funds are now reporting the number of women on boards and incorporating the figures into the voting information service for investors. Some asset management companies, including that run by the co-operative movement, which Labour Members are close to, have started to request data about board compositions from companies in which they invest. The Government have nudged the private sector to do more, and they are doing more, going with the grain of business and encouraging investor-led decisions to get more women on boards.

The UK is right with its approach of focusing on pipeline. Because companies are being forced to report on the number of women on their boards and the number of female employers, industry groups, mentoring

groups and board clubs, which have been mentioned, are springing up, and head-hunters have now signed up to a code of conduct.

The UK is also right to look at overall numbers. My hon. Friend the Member for Esher and Walton (Mr Raab) mentioned the drop-off rate when women have children. This is where the EU proposals are so hypocritical. Its equality policies have focused too much on length of leave and rights, and not enough on how to keep women and employers engaged. Here again, the Government have taken the right decision by pushing ahead with right to request, maternity legislation and in relation to child care. As has been mentioned, the main reason the change is happening is the rapid change in social attitudes; we have much more enlightened employers. I know that the City got a hard time earlier in the debate, but in fact the American banks I was working with as a head-hunter were the most forward-thinking on this issue. We also have more enlightened men now. My wife is expecting a baby in a couple of weeks—[Interruption.] Thank you. Only three months ago, I was making the case that she should stay off work for a year to look after our child, but I have since seen the error of my ways and realised that her career is more important. I will be looking to the Minister for nappy changing advice—I hear that he is an expert—in order that I can fill the gap.

Attitudes at home and attitudes in the workplace driven by national Governments nudging business to look at the business logic of maximising women in the workplace are what is going to get us there much better and much smarter than this EU diktat.

Matthew Hancock (Conservative, West Suffolk)

With the leave of the House, Madam Deputy Speaker, I will respond briefly to all the points raised. First, I shall deal with the last one by congratulating my hon. Friend the Member for Skipton and Ripon (Julian Smith). I do so not least because this morning my wife and I attended the three-month scan of our new baby—we did so together, of course. I can

understand why the Whips are looking worried about need for paternity leave coming down the track.

I will make three quick points. I think that the whole House has recognised the first of these, but I wish to put it in stark terms. The UK has had the fastest rise in the number of women on boards in the EU, bar three countries. Our rise has been faster than that of Germany, the Netherlands and Spain; we have been faster than all but three of the 27 member states.

On the point about whether it is good business to have women on boards, the evidence is very clear. The Bundesbank evidence was cited and I have read it in detail. It was analysis of the impact on risk, but it omitted the banks that had been rescued because they had been too risky—that is a bit like looking into the risk of the British banking system but omitting RBS. So it is a partial report, but the evidence is uncontroversial.

Finally, I come to the point raised by the Chairman of the European Scrutiny Committee. The rules are clear: if a third of member Parliaments cite a reasoned amendment and reject the proposal, the Commission must consider again. As far as we know, eight member Governments and Parliaments are against, which is just under a third, as there are 27 members, and about a third of member states are yet to be clear in their position. If this motion goes through tonight, that eight will rise to nine. So I have some confidence that he will be happy with the outcome of the process and that we can ask the Commission to look again at this proposal. I commend the motion to the House.

Question put and agreed to.

Resolved,

That this House considers that the draft Directive of the European Parliament and of the Council on improving the gender balance among non-executive directors of companies listed on stock exchanges and related measures (European Union Document No. 16433/12 and Addenda 1 to 3) does not comply with the principle of subsidiarity for the reasons set out in Chapter 1 of the Twenty-third Report of the European Scrutiny Committee (HC 86-xxiii); and, in accordance with Article 6 of Protocol No. 2 of the Treaty on the Functioning of the European Union on the application of the principles of subsidiarity and proportionality, instructs the Clerk of the House to forward this reasoned opinion to the Presidents of the European Institutions.

Backbench Business — Corporate Tax Avoidance

Dawn Primarolo (Labour, Bristol South)

Before I call Mr Ian Swales to move the motion, may I inform Members that 17 Back Benchers are hoping to participate in the debate, so if each one aims to speak for less than 10 minutes, there will not be a need for a time limit? If that does not happen, a time limit will be imposed and it will probably be less than 10 minutes.

Ian Swales (Liberal Democrat, Redcar)

I beg to move,

That this House has considered the matter of corporate tax avoidance.

First, I thank the hon. Members from all parts of the House who supported my bid for a debate, and the Backbench Business Committee for scheduling it so quickly.

In October, the Government borrowed more than predicted, and the main reason given was lower than expected corporation tax receipts. In November, former City Minister Lord Myners said:

“Corporation tax for an MNC”—

a multinational company—

“operating in the UK is close to being a voluntary payment.”

In December, Eric Schmidt, chief executive officer of Google, said that he was proud that his company had avoided $2 billion of corporate income taxes worldwide in the last year. We have a crisis—a growing crisis of our national tax system operating in an international business environment. Lurid stories of tax avoidance appear almost every week, and Private Eye magazine deserves special mention for its exposure work. Vodafone, the Ritz hotel, bookmakers, water companies, care homes, professional services companies such as Accenture and CSC, and of course American behemoths including Apple, Google, Amazon, Microsoft, Facebook and Starbucks, are just a few of the examples. ActionAid says that 98 of the FTSE 100 companies have a subsidiary in a tax haven. The Government have fuelled the frenzy by doing private finance initiative and outsourcing deals with tax avoiders. We must also consider whether we can trust our media to report all this fairly, given that most of our national newspapers and their owners are themselves engaged in some form of tax avoidance.

Of course tax avoidance is not illegal, but that is why the Government must act. We are a long way from having fiscal union in Europe. Our tax systems are a cornerstone of sovereignty; they are resolutely national and I think they will remain so for as long as any of us are MPs. So when Amazon sat in front of the Public Accounts Committee recently and fielded many questions with the response that it ran a pan-European business from Luxembourg, it was not excusing itself, but vividly illustrating the problem. The French Government are already looking to levy huge extra tax payments from the company. It is totally unacceptable for EU legislation to be used to support national tax avoidance. Arguably some of that already contravenes the abuse concept in EU law, which deals with situations where a consequence was not intended when a law was made.

I was finance director of a billion-dollar global business in the mid-‘90s. What has changed since then is the scale, complexity and aggression of the avoidance schemes. For example, we would never have set up legal entities in countries where we did not trade, solely to avoid tax.

Nick Smith (Labour, Blaenau Gwent)

Sir Martin Sorrell has claimed that the tax that some companies pay is a matter “of judgment”. Avoidance such as that by Amazon, which the hon. Gentleman and I heard about at the Public Accounts Committee, has disadvantaged domestic businesses, which cannot relocate to lower tax regimes and shift their profits abroad. Does he agree that British businesses deserve a level playing field?

Ian Swales (Liberal Democrat, Redcar)

I thank the hon. Gentleman for that intervention. I totally agree with him. The idea that large companies see their tax payments as voluntary, or as some kind of contribution they feel like making, is completely out of order. I will discuss the competition aspects later.

Caroline Lucas (Green, Brighton, Pavilion)

The hon. Gentleman is making a compelling argument about how tax avoidance has grown in recent years. By 2015, the number of staff employed by Her Majesty’s Revenue and Customs will have fallen by 40,000 since 2005. Does he agree that this apparent bid to save money is entirely counter-productive, given that if we had those members of staff at HMRC we would be much more likely to be able to crack down on avoidance?

Ian Swales (Liberal Democrat, Redcar)

The hon. Lady makes a powerful point. I will say more about that later, but I agree with her that we need more resource in the whole area of enforcement.

I was talking about my experience and how we would never have set up legal entities in countries just to avoid tax. Now, News International has more than 150 companies in tax havens. Transfer pricing, management fees, royalties, patent, copyright and interest payments are all ways to move money. The moving of whole businesses and headquarters to new jurisdictions is also becoming much more common.

Let us remember that companies that are prepared to go to elaborate lengths to avoid corporation tax may seek to avoid other taxes, too. If the BBC was making wide use of tax-avoiding personal service contracts for staff, we can be sure that some private sector companies are doing so, too. At a recent Public Accounts Committee hearing, Amazon told me that it raises UK VAT and pays it to the taxman, but it is a Luxembourg company; it also claimed that it did not even know the value of its sales to the UK. Someone wrote to me after the hearing confirming that they could not get a VAT invoice for their new iPad, bought for business purposes. Amazon said that

“we are unable to provide a VAT number as we are registered overseas”.

Bob Stewart (Conservative, Beckenham)

I thank the hon. Gentleman for giving way and appreciate the opportunity to speak on something about which I know little. If a company does not know the value of its sales in the country, I think that HMRC should estimate them, charge corporation tax on that amount, and let the

company argue against it to prove that HMRC was wrong. We would then get better corporate tax returns, would we not?

Ian Swales (Liberal Democrat, Redcar)

That is an interesting idea and I thank the hon. Gentleman for the suggestion. HMRC needs to look much more closely at companies that have that type of business model. I agree that we need to start making some presumptions.

Charlie Elphicke (Conservative, Dover)

Is it not the case that for physical goods, Amazon would have to account for VAT in the UK? The issue is that for electronic goods, it accounts for VAT in Luxembourg, so Luxembourg is eating our VAT lunch.

Ian Swales (Liberal Democrat, Redcar)

That could well be the case, and I shall speak about that later, too.

The person who wrote to me saying that they could not get a VAT number for the iPad they bought for business purposes was told that Amazon was unable to provide one. Had that been made clear to the buyer, they would have gone elsewhere to get a lower net price. Who knows, they might even have gone to Comet?

Amazon’s turnover in Europe is €7 billion. The gross VAT on that, even at Luxembourg’s lower rate of 15%, would be more than €1 billion. Where is it paid? That would be €2,000 a head for every man, woman and child in Luxembourg, but I would guess that is not paid at such a rate. I would also guess that Amazon’s UK order fulfilment subsidiary pays little or no VAT. I ask the Minister urgently to investigate how the business model operates.

Stephen Williams (Liberal Democrat, Bristol West)

I happen to be reading Deloitte’s tax guide to Luxembourg in 2012, which states that the standard rate of VAT in Luxembourg is 15%, but that for printed materials and e-books it is 3%.

Ian Swales (Liberal Democrat, Redcar)

My hon. Friend makes a good point. Amazon has already been found out for charging 20% when it should have been charging 3% on e-books.

Should we care about all that? Yes, we should. There is the obvious point about the loss of billions in Government revenue, leading to higher taxes on other parts of the economy or cuts in services, including the very infrastructure and services on which a tax-avoiding company and its employees might depend. Then there is the question of competition. My previous experience was in the global chemicals industry, but in the internet and franchising age, the unfair effects can hit anyone. Our high streets are now subject to global competition in burger restaurants, bookshops and coffee bars. Local bookmakers have largely disappeared rather than trying to compete with rivals operating from Gibraltar—on paper. Most retailers are competing not only with the unstoppable rise of the internet but with offshore-based giants such as Amazon and eBay. The list of national and local UK businesses that cannot compete will get longer and longer: Comet was the latest to go broke, just before Christmas, probably costing the UK taxpayer £50 million.

Companies that pile up untaxed revenue in tax havens also have enormous financial muscle to reinvest cheaply or take out any other business they want to. It was

recently estimated that the world’s tax havens hold $13 trillion of cash, which is the total GDP of the USA plus Japan, or enough to buy the entire London stock market four times over. That highlights the compounding effect of tax avoidance, as those companies benefit from not paying the tax to begin with and can then use that money to compete ever more aggressively.

The big accountancy firms have led the charge in devising schemes from which companies benefit. What world do they envisage? If more and more companies routinely avoid taxes, the Government will get revenue only from people stuck as employees on pay-as-you-earn, and from property taxes, business rates and ever-increasing VAT and duty from the companies that cannot find ways to avoid them. There will be a net move from tax on companies to tax on individuals, and if that trend continues, only companies with offshore tax havens will be able to compete. A nation of shopkeepers will be run out of business. There is also a threat to our political system, because we cannot expect all those who pay their taxes fully and fairly to keep on tolerating such abuses indefinitely. UK Uncut might be just the start of the protests.

I have been talking about the problem; now I want to explore ideas for action. First, having a national tax system operating in an international business world means that we need to police our financial borders just as rigorously as we police our physical borders for illegal movements of people, counterfeit goods, drugs or any other activity that we want to control. We must say that if a sale or business activity takes place in the UK it should be accounted for in the UK. The idea that an item can be manufactured in the UK, stored in the UK and shipped to a UK customer, but invoiced from Luxembourg, must be challenged.

We should then force transparency into the system. UK companies doing the right thing report their profits and taxes paid to Companies House in some detail, so the blanket taxpayer confidentiality regime in HMRC, which prevents the disclosure of tax affairs not only to Parliament and the Public Accounts Committee but to HMRC’s own non-executive directors, mainly helps the international tax avoiders. It is time for the publication of simple statistics that are mostly available anyway in Companies House, as that would force companies to justify their behaviour. Transparency and honesty with consumers are important. If companies have nothing to hide, they will have nothing to fear.

Nigel Mills (Conservative, Amber Valley)

Does the hon. Gentleman agree that one thing we could do is require large companies to file their corporation tax returns with their accounts at Companies House? Then, from their accounts, we could all see their taxable profits and how they got them.

Ian Swales (Liberal Democrat, Redcar)

I appreciate that intervention, because I know that the hon. Gentleman has great experience in this area. He goes further than I was proposing, but it is certainly a good idea.

Transparency and honesty are important. As we have seen recently with Starbucks, transparency can lead to consumer power influencing company behaviour. I hope that we will see more of that. Retail, business or government consumers who do not like the ethics or practices of a company do not have to deal with them, except perhaps in cases involving utilities.

HMRC must also be more transparent. Although it steadfastly claims that it does not do deals, Vodafone’s finance director told the City that its deal was worth £500 million a year. One lesson from that and other cases is that no high-level discussions with companies should take place without being minuted, and those minutes must be freely available to tax commissioners and the National Audit Office. The transparency must work both ways; we cannot go on operating through tinted windows.

Richard Bacon (Conservative, South Norfolk)

Does my hon. Friend not regard it as extraordinary that in the negotiations between HMRC and Goldman Sachs about some back payments that were due, no legal advisers were present and no minutes were taken?

Ian Swales (Liberal Democrat, Redcar)

I thank the hon. Gentleman for that invention. As fellow members of the Public Accounts Committee, he and I have looked in detail at that case. He is right that such arrangements should not be made.

The UK should take a look at its own role and its relationship with tax havens such as the Isle of Man, the Channel Islands, the Cayman Islands, Gibraltar and so on, which Secretary of State for Business, Innovation and Skills has described as sunny places for shady people. UK citizens deserve a full explanation from the Government of why they support those places as tax havens and what net benefit they bring to the UK.

It is also urgent that work takes place at EU level to ensure that companies cannot exploit sweetheart tax deals in countries such as the Netherlands and Luxembourg, aided by the free movement of goods, people and capital. It is time properly to enforce the 1997 EU code of conduct on business taxation. I am especially pleased to see you in the Chair, Madam Deputy Speaker, as that code was ratified under your chairmanship. It specifically highlights issues such as doing deals to give lower rates and tax incentives for activities that are isolated from the domestic economy of a given country. The OECD set up a forum on harmful tax practices at about the same time. Both initiatives highlighted the need for transparency. A race to the bottom helps nobody.

Next, the Government should consider disallowing some foreign interest payments for tax purposes. It is depressingly easy to move a chunk of capital to a low tax regime, then export all one’s profits via interest payments. Foreign interest should have to be specifically justified. When the loans were taken out, what was the purpose? Were they proportional to business need and are they now? Who is the lender? A related company deal needs particular scrutiny, especially as the capital may originally have been exported from the UK with no equivalent taxable interest coming back.

The Government should look at setting maximum royalty and management fees, and disallowing them as a deduction if they are disproportionate to profits. There should be an ability-to-pay test; such payments should not be allowed to wipe out UK profits, as we saw with Starbucks. The Government should work with international partners to disallow management fees and royalty, patent and copyright fees unless they go direct to the country where the relevant value was generated. Payments to tax havens could be automatically disallowed. When a company claims that rights have been sold to other countries, it needs to show that a full and fair

price was paid. Of course, that would crystallise a big tax liability in the selling country. The United States would be especially enthusiastic about such a move, as it is one of the big losers from payments going to tax havens.

Because our tax systems are national, all movements of value across borders, including business transfers, need a price attached to them for tax purposes. The Government must also find a way to ensure that VAT is charged on all qualifying sales in the UK, whatever the country of origin. To go back to the point made by the hon. Member for Brighton, Pavilion (Caroline Lucas), we need much more specialist resource in HMRC. A department that brings in 100 times what it costs should not be treated like a normal cost centre; there must be many more invest-to-collect business cases to be made. Maximising our tax revenue is as much about enforcing the rules as about the rules themselves. In particular, a special unit is needed to look at everyone running an internet-based business selling to UK customers, starting with the biggest. It should look at where they are based, their business model and whether they abide by UK VAT and corporation tax rules. We need our rules and enforcement to be up to date with technological changes.

The tax system is way too complex; a whole industry has grown up to find creative ways to avoid tax. When will we see significant output and action from the Office of Tax Simplification? Surely we need radical ideas for cutting through the jungle of our tax system, not just the deletion of obscure, rarely used reliefs. Simplification is badly needed, yet we see even more complexity.

I talked earlier about consumer power. The UK Government are by far the biggest purchaser and grant-awarding body in this country. Is it right that Amazon can get more than £10 million of Government money for a new warehouse in Dunfermline when it is a Luxembourg-based retailer paying little corporation tax in this country, and apparently does not pay VAT on all its sales either? Is it right that Accenture, Capgemini and others win Government contracts when they are named as aggressive tax avoiders? Should HMRC itself have sold its buildings for leaseback to Mapeley, a Bermuda-based company? Is it not time that we recognised in financial assessments that most of the profits from private finance initiative and outsourcing contracts are now disappearing offshore?

John Pugh (Liberal Democrat, Southport)

My hon. Friend is giving a list of remedies for tax avoidance schemes. Would not most of them have been caught by a general anti-avoidance rule?

Ian Swales (Liberal Democrat, Redcar)

I thank my hon. Friend for the intervention. I am not familiar enough with how such a rule would be structured, but the idea would certainly be helpful.

Caroline Lucas (Green, Brighton, Pavilion)

May I suggest that all Members look at the private Member’s Bill introduced by the right hon. Member for Oldham West and Royton (Mr Meacher)? The Bill refers to the importance of a general avoidance principle rather than rules. The problem with rules is that people can bend them and get round them. A general avoidance principle is much harder to get round and has much wider scope. That is the route the Government should be taking.

Ian Swales (Liberal Democrat, Redcar)

I certainly have something to learn. I hope that the right hon. Member for Oldham West and Royton (Mr Meacher) will speak about his Bill later.

We should play the tax avoiders at their own game. If their UK accounts show virtually no profit, are they robust enough to deal with for the long term, and do they have the right ethics to work in our public sector? There is a big drive in manufacturing at the moment—the desire for “Made in Britain.” Perhaps it is time for Government procurement to work on a “Paid in Britain” basis. Small and medium-sized UK companies who are doing the right thing have a clear disadvantage when bidding against the tax-avoiding giants. I am convinced that doing public sector business with tax avoiders does net damage to our economy. Government action could mean that companies quickly change their behaviour. When I suggested such a step to Google at the PAC hearing, the signal was quickly picked up, with an article in the trade press.

The Government have enormous power to require those seeking grants or contracts to reveal the tax structure of their UK entities. When making their choice, decision makers could then include the bidder’s tax arrangements. The National Outsourcing Association supports such a move, which is surely part of getting the best value for UK taxpayers when spending their money. To those who cry “EU bidding rules,” I say that it is right to look at both costs and potential tax income. Who can stop countries demonstrably making the best value choice in the national interest from an open process?

The issue is not party political. MPs on both sides of the House want action. The problem is urgent, huge and growing. The more companies and their advisers see what others are doing, the more the leakage becomes a flood. Only a select few will be able to keep their heads above water, and it will be the smaller, independent companies who are overwhelmed. We cannot rely on pleas for morality or altruism. Companies play by the rules set in this House and the enforcement we put in place to back them up. Just last week the Prime Minister said that the issue is a top priority. Tinkering will not do. Now is the time for radical action.

Frank Field (Labour, Birkenhead)

I have three points to make, but I begin by expressing my anger at companies who take us and the Government for fools. We have a fairly united view about welfare abuse. I should like the Government to enact measures that reflect the sense of urgency the country feels about people who similarly abuse their tax position.

The Government’s fiscal crisis is of long standing. In the vast majority of the 60 years since 1948, Government accounts have been in deficit. We have developed a habit whereby Governments are elected to implement programmes for which they have no intention of raising the necessary tax revenue. In only a handful of the years since ’48 have Government budgets been in surplus; for the rest of the time they have been in deficit, and under Tory periods the deficit was twice as large as during Labour years.

We habitually have real difficulties in raising revenue to support the level of expenditure taxpayers would like to see. We know that the position will get worse in the

future, and I shall give two examples of where it will harden. Let us look at long-term trends in revenue in relation to the tax on fuel. We know that thanks to more efficient fuel use, the revenue gained by the Exchequer from tax on fuel will fall dramatically. At the same time, there will be pressure on Government budgets from demands for the health service and pensions, and it is not impossible to envisage that by 2060 they could be taking half of the total.

We hold this debate at a time of crisis, but not the immediate crisis about the deficit with which the Government are trying to grapple. There is a longer term crisis, because as a nation we have grown accustomed to demand far more than we are prepared to pay in tax. I have three suggestions for the Government about what they could do to convince taxpayers, as well as the House, that they are as serious about clamping down on tax abuse as they are about clamping down on other forms of abuse in our public finances.

The first suggestion is that we issue kitemarks to companies that Her Majesty’s Revenue and Customs believes have paid their fair share of taxes. We would then develop a “white list” of companies with which we know it is safe to trade, and would have warnings about those with which it is not safe to trade, or would know that if we did trade with them, we were aiding and abetting the crimes that they were committing against the commonwealth of taxpayers in this country.

Secondly, I make this plea: why cannot the Revenue be more bold in exposing companies that it believes are abusing their position and fiddling their tax rates? Might not that threat, certainly if carried out, concentrate the mind of many companies and get them to start behaving better, to the good of taxpayers?

My third suggestion relates to a point on which I do not agree with the hon. Member for Redcar (Ian Swales), whom I congratulate on his contribution; I do not think that we have the time to wait for groups of countries to behave, let alone to get the European Union to agree on a common stance. Let us look at those who are outside the European Union. Norway, for example, has to pay to trade within the European Union. Why cannot we say to companies such as those that the hon. Gentleman listed, “If you wish to trade in this country, you have to pay a fee, which will be more than we would gain from you in taxes if you paid corporation tax honestly”?

We might start with companies—coffee houses and so on—that could well find that other companies could substitute for them. There would be no diminution of the public good if we could not go to Starbucks. The country would not come to a standstill. We would not have breakdowns if we could not buy Starbucks coffee—there are plenty of alternatives—and we might begin to turn the tide in favour of honest taxpayers and against those who are taking us to the cleaners. I would be greatly interested to hear how, if the Government wish to be taken seriously on the subject, they will respond to those proposals, and other proposals that I know right hon. and hon. Members wish to put to the Government in this debate.

Richard Bacon (Conservative, South Norfolk)

It is a great pleasure to take part in this debate, and I commend my fellow member of the Public Accounts Committee,

the hon. Member for Redcar (Ian Swales), on bringing forward this debate. I was interested in his exchange with the hon. Member for Brighton, Pavilion (Caroline Lucas) on having a set of general anti-avoidance rules. Her view was that it is best to have a set of principles, because principles are less easy to bend than rules. I am not quite sure that I agree; whenever I hear anyone talking about principles, I hear the voice of Oscar Wilde saying, “If you don’t like my principles, I have others.” I fear that if there were a general anti-avoidance principle, as long as it were justiciable, which it would be, it would just create more work for lawyers. I do not think that there is a simple way round this, other than simplicity. I shall come on to that in a minute.

I do not normally take too much notice of the handouts for these debates, but I thought I would take a look at today’s, just in case. I was struck by the words at the beginning, under “points to make”:

“Tax evasion is morally wrong as it means that law-abiding people face higher taxes to make up for the lost revenue.”

Right there, in the first sentence, is the confusion that is so widespread that the difference between tax evasion and tax avoidance has almost disappeared—so much so that I wonder whether I was dreaming when I used to think that there was a clear division between the two. Of course, tax evasion is not just morally wrong; it is illegal. That is the central point. Tax avoidance is not illegal.

I shall quote from the National Audit Office report, “Tax avoidance: tackling marketed avoidance schemes”, which provides a handy definition. You drove through a lot of the legislation on this in the previous Administration, Madam Deputy Speaker, though you have probably forgotten much about this. The report says:

“HMRC’s working definition of tax avoidance is ‘using the tax law to get a tax advantage that Parliament never intended’. Unlike tax evasion which involves fraud or deliberate concealment, tax avoidance is not illegal. However, it often involves contrived, artificial transactions that serve little or no purpose other than to produce a tax advantage.”

That gives rise to the question: how can it be that tax avoidance has grown so much, and how can it be that we have the distinct impression—the Treasury might try to deny it, but I believe that there is evidence for it—that there has been simultaneously a cosying-up to a large number of bigger corporate taxpayers, and tightening of terms applying to, and greater aggression from HMRC towards, small businesses in our constituencies?

The best example of cosying-up that I can think of is the deal with Goldman Sachs. Some years ago, a number of investment banks—around 22 of them—came up with a scheme for avoiding national insurance contributions by ensuring that many of their highly paid employees were technically employed by a company registered in the British Virgin Islands. It was a very contrived scheme, and HMRC challenged it. Indeed, 21 of the 22 investment banks involved caved in eventually and paid the money due. One did not, and that was Goldman Sachs, which continued to pursue its position for many years until, in October 2005, HMRC wrote it a letter, warning it that unless it played ball, it would eventually be liable for all the interest due on the back payments as well.

The case continued for many years, and in 2009 there was an important Court of Appeal judgment that was favourable to HMRC, which made it all the more surprising when HMRC did not pursue the matter more vigorously.

It came out in the PAC’s hearing on the subject that the permanent secretary for tax—the head of HMRC—was unaware of the warning that HMRC had issued in a letter to Goldman Sachs in October 2005 until I told him about it. That rather makes one worry about whether HMRC has the right skills in the right places. Indeed, that was the central burden of the National Audit Office report, “Core skills at HM Revenue & Customs”, published on 2 December as HC 1595.

The report makes pretty grim reading. It makes it clear that

“HMRC does not yet have a strategic and systematic approach to its investment in skills”,

and because HMRC is so decentralised, it cannot ensure that there is alignment, at a high level, of investment in skills with its business priorities. To quote the report:

“As well as having limited information on its investment in skills, HMRC does not, at the level of the organisation as a whole, know its current skills gaps or gain an early warning of future skills gaps.”

The report continues:

“there is no clear line of sight from HMRC’s Executive Committee to business areas that would enable the Executive Committee to evaluate whether business areas are delivering expected business benefits from their investment in skills”,

and

“Problems are slow to be resolved. Many of the points in this report were raised by HMRC’s own reviews in 2008 and 2009, but HMRC has not made the changes needed.”

The report goes on; I could quote much more, but I am trying to be brief. The issues that we face to do with corporate tax avoidance are fundamentally around complexity. The reason we have had an increase in tax avoidance is that we have had an increase in complexity. The only cure for that is much greater simplicity.

I mentioned earlier that I have seen evidence of a tightening of the attitude of HMRC towards small business customers. Recently, a bookkeeper came to see me in my surgery; he does the accounts and tax returns for a variety of small businesses, from corner shops to companies with a £10 million or £15 million turnover—everything from small manufacturers to fish and chip shops. He came to see me because he was concerned about the change in HMRC’s behaviour; it was becoming more and more aggressive. He had clients who had had to lay people off in order to pay tax bills, and with whom HMRC was not making the time-to-pay arrangements that are certainly made available to some larger companies. Vodafone’s is a classic case; although it had £10 billion on its balance sheet, it was given five years to pay the tax liability resulting from the dispute to which the hon. Member for Redcar referred.

I do not think that the solution that we saw in the case of Starbucks, which gave evidence to the PAC, is the right one. Starbucks made the bizarre announcement that it would pay £10 million in corporation tax in each of the next two years, whether or not it made a profit. That is not the way forward. As for the idea that companies should pay corporation tax because the mob has turned on them, the spotlight is on them, there is public relations attention on them, and they think they have to make an announcement and do something, that is a bizarre way of arranging our tax affairs. The way to do it is for companies to obey the law.

Frank Field (Labour, Birkenhead)

If Governments are inactive on this front, what action does the hon. Gentleman propose taxpayers should take, other than that mob action?

Richard Bacon (Conservative, South Norfolk)

Governments should take notice when they see outside 100 Parliament street, the headquarters of HMRC, large crowds of riot police—there are photographs to that effect, which can easily be found on the web. When Governments see such a thing happening, they should sit up and take notice that the system is not working and that it is not fit for purpose. I understand the burden of the right hon. Gentleman’s question. I understand why people are so angry and feel that they need to do something. There are many people, including those who have given their lives and those who have fought overseas on behalf of this country, who probably would have had better equipment if more tax revenue had been collected—if more of the tax revenue that should have been paid was paid.

It is not always a case of the tax not being due. If HMRC does not have the resources in the right places to check whether the tax is due or not, it may indeed be that corporations are acting illegally, that what they are doing is evasion and that they are getting away with it. That is why it is so important that HMRC is able to have the right management information at the top level so that it can align its investments in skills and in people with its business priorities in a way that currently, as is clear from the NAO study, it is unable to do.

I believe that the solution to all this must be much greater simplicity, and I mean radically greater simplicity. The time for tinkering is over. It was Einstein, I think, who famously once said that the definition of insanity is to do the same thing over and over again and to expect different results. It is time that we got different results and we will get them only by taking different action.

Dawn Primarolo (Labour, Bristol South)

Order. It is necessary to have a time limit in the debate as more Members are standing to indicate that they wish to participate. The time limit will therefore be eight minutes per Back-Bench contribution, starting from the next speaker.

Michael Meacher (Labour, Oldham West and Royton)

I sincerely congratulate the hon. Member for Redcar (Ian Swales) on securing this debate, which has been much needed for a very long time. He raised a series of important issues and I strongly endorse the gist of his recommendations. I shall explore a little further the reasons why the tax system has been corrupted in the way that he suggested, and therefore what needs to be done.

A conventional view and a charitable view is that the Government do the best they can, but are outgunned and outmanoeuvred by all those smart tycoons and multinationals who employ an army of accountants and lawyers to run rings round the flat-footed regulators and tax inspectors who are always behind the curve. That is, in my view, a pastiche of the truth. The reality is that Government, as I will show, so far from cracking down on tax dodgers, not only turn a blind eye to all but

the most egregious examples of tax misfeasance, but actually promote some of the most brazen examples of tax avoidance. I will come on to that.

This is scarcely surprising when the whole apparatus of tax policy has been captured by the corporate interest. The so-called clamp-down which the Government are promising will be run by the former City corporate tax lawyer and former Tory special adviser, Edward Troup, who is now in charge of tax at HMRC. It will be overseen by the HMRC chairman, Ian Barlow, who ran the most aggressive tax avoidance schemes for KPMG. Even the HMRC’s ethics committee is chaired by Phil Hodkinson, who is a director of the Resolution insurance company based in a tax haven. All that tells a pretty clear story.

As we all know, corporation tax avoidance has become a hot political issue only as a result of the relentless highlighting of it by analysts such as Richard Murphy of Tax Justice Network and journalists such as Tom Bergin of Thomson Reuters and Richard Brooks of Private Eye, as well as campaigners such as UK Uncut. Why is it left to voluntary campaigners to nail the tax dodgers who are cheating honest taxpayers and the Revenue out of, according to the Government, £35 billion to £40 billion a year? That is equal to about a third of the total deficit and the sum is probably a considerable underestimate.

One answer might be that the banks, which are by far the biggest tax dodgers, pay half the Tory party funds every year. [Interruption.] The Minister should not just shake his head. These are facts which are highly relevant. The multinational companies, which are the second biggest tax dodgers, pay most of the rest. If, instead of all the rhetoric that we get from the Prime Minister and Chancellor about moral repugnance and abhorrence, the Government were seriously concerned about stopping industrial-scale tax avoidance, let them answer three questions. If the Minister wants to answer them in my time, he is very welcome to do so.

First, since we all know that the really big numbers are not the tiddly Jimmy Carrs of this world but the transfer pricing by multinationals, why do the Government not bring in country-by-country reporting, which at a stroke would put a stop to the artificial switching of tax liability to low tax jurisdictions for no other reason than simply to avoid tax? I do not know whether the Minister wants to answer. Perhaps he will.

Secondly, since many, if not a majority, of the world’s most used tax havens are UK-controlled overseas territories and Crown dependencies, why do the Government not close them down? Why are not all such countries and territories—the Cayman Islands, the British Virgin Islands, Bermuda, Jersey and so on—required automatically to hand over details of income, assets and finance structures such as trusts to the UK authorities? This is the point that the hon. Member for Redcar made. If territories fail to comply, why do the Government not refuse to recognise the validity of any financial transactions emanating from them, as well as through domestic tax law, making it far harder, which the Government could well do, to get money into the recalcitrant tax havens in the first place?

The simple answer is that the Government would do that perfectly well and very effectively, but they will not do so because they do not want to, because their corporate and financial backers would scream blue murder if they

ever tried to do so, and this is a very feeble Government, who are quite willing to bash the weak through benefit cuts but are not prepared to stand up to the strong.

Simon Hughes (Liberal Democrat, Bermondsey and Old Southwark)

I have great respect for the right hon. Gentleman, who has been consistent in pursuing the issue, but his last criticism is completely ill-founded. I do not speak as somebody who backed the previous Tory Governments or the previous Labour Governments when they failed to deal with the issue for years and years. Looking objectively, I have seen far more action from the Treasury under this Government than I saw under 13 years of the Labour Government whom he supported.

Michael Meacher (Labour, Oldham West and Royton)

The right hon. Gentleman, whom I respect, wishes to raise a partisan issue—[Laughter] —when we are discussing something of much greater importance. Perhaps I can satisfy him by saying that I entirely agree with him. New Labour was just as bad as the Tories and I fully recognise that, but let us turn to where we are and what we ought to do about it.

The third question is this: if the Government are serious about tackling tax avoidance, why are they cutting the number of tax inspectors, many of whom recover more than 100 times the cost of their salary? In 2010 there were 68,000 of them. There are now far fewer. The problem is that when the Chancellor gives his dog-whistle that Britain is open for business, part of that coded message is that Britain is open for tax avoidance, and there will be far fewer tax inspectors nosing about and prying into shady practices.

While the Government have ostentatiously avoided all the actions that will end the transfer of tax avoidance, the truth is even worse. They are now drawing up measures which, frankly, will rip the guts out of the laws that safeguard the nation’s corporate tax base. They have exempted from tax multinationals’ foreign profits, but allow tax relief for the costs of funding them. In effect, that turns the UK itself into a corporate tax haven, which incentivises multinationals to shelter income offshore and to place real business overseas, using the UK as a worldwide platform for tax avoidance.

The Government are now going even further with the CFC—controlled foreign companies—rules. From January 2014, multinationals that open a finance subsidiary in a tax haven will have their corporation tax, as staggering as it may seem, reduced from the current 23% to 5.5%. In future, therefore, multinational companies really need not bother with tax avoidance any more, because the Government are serving it up to them on a plate.

The latest wheeze that the Government have come up with is the patent box. If a company has a product with a small patented component, it will qualify for a 50% cut in its corporation tax—that is 10% from April 2017—not only on that product but on the whole of its profits.

A third example is the general anti-avoidance rule, which the Government portray as their flagship measure against tax avoidance. Actually, it is the reverse. By being narrowly drawn it will block the worst kinds of tax avoidance, but by the same token—

Dawn Primarolo (Labour, Bristol South)

Order.

Karl McCartney (Conservative, Lincoln)

I congratulate the hon. Member for Redcar (Ian Swales) on securing this Back-Bench debate on corporate tax avoidance. It is an important subject that has been dangerously blurred by some of our colleagues. I want to say at the outset that I find myself far more concerned about the way in which Government spend our money than about how they collect it. If spending were controlled, or had been—I give the example of the last Labour Government—the collection problem would be vastly reduced. I believe that my Government have taken such sentiments to heart and we are actively reducing spending to aid our country in difficult economic times.

I certainly think the approach of the Chairman of the Public Accounts Committee, the right hon. Member for Barking (Margaret Hodge), and others who have swallowed her line, misses two simple and quite fundamental points. First, the tax on shareholders is inseparable from company tax and is quite high. While companies are literally separate legal entities from their shareholders, they are in effect tax collection agencies for Governments to tax the profit stream which in effect belongs to their shareholders. That profit stream is not just taxed by the corporation tax payment on which all of this debate is focusing. In reality, the profit stream belongs to the shareholders and it is taxed not once by corporation tax, not twice by corporation tax and income tax, but three times, once as corporation tax, once as income tax on distribution, and finally with capital gains tax, or inheritance tax, on retentions as a proxy for the capital gain.

I have a sound mathematical example in my notes that might well lose some Opposition Members, so let me just outline that on £100 of pre-tax profit, with corporation tax and other taxes taken into account, the Government take £52.91 in tax paid. Some of this amount comes from income that can be deferred, but it is a tax that is ultimately not avoidable, other than perhaps by devices such as the trust of the right hon. Member for Barking for her shares in her family company, which one presumes is morally fine with the Opposition Members who have followed the debate so far and so must be okay. But that near £53 from £100 does not sound very low to me, especially given that the Government scrapped indexation relief on capital gains at a time when they are clearly targeting higher inflation. Perhaps more importantly though, what incentive is such a tax on profits to entrepreneurs? What encouragement do such figures give to those involved in setting up and driving forward young businesses, or those entrepreneurs thinking of taking that big first step into the world of small business and working for themselves?

Secondly, is it wrong for companies to avoid tax? Janan Ganesh in the Financial Times has written well on this particular issue, but I would draw hon. Members’ attention to one of his main and salient points for this debate with which I agree. The Starbucks precedent—and by association, one might say, any future pressure on Google, Amazon, and historically some of the mobile phone companies and indeed perhaps most notoriously the Guardian newspaper group—is a dangerous one. Tax should be a matter of law not moral persuasion. If any Government want Starbucks or any other corporation to pay more tax, pass an appropriate piece of legislation. Otherwise tax payment will become a matter of public

image and impact, and I imagine that very little tax will be paid by the maker of the polystyrene cups, which we may never have heard of. Do we really want to travel down “The X Factor” road of choosing something, indeed policy setting in this country, making important decisions based on fickle public opinion on the hoof?

Richard Bacon (Conservative, South Norfolk)

While my hon. Friend is right that it should be a matter for law, not for moral persuasion, PricewaterhouseCoopers’ request of the Government, in the consultation that took place last year, that they should do more to clarify what constitutes unacceptable tax avoidance versus what constitutes acceptable tax planning, places a burden on the Government to be clearer about their own intentions.

Karl McCartney (Conservative, Lincoln)

My hon. Friend will be pleased to know that I agree with him. I will mention PricewaterhouseCoopers shortly.

The objective of business, any business, is not ostensibly to do good or to pursue corporate social responsibility, it is to do business and make money for the owners and/or shareholders. Directors of all small, medium, large and multinational companies have a fiduciary responsibility to maximise gains for that company’s owners, including minimising the tax paid. Any diversion of company management from that objective is wrong as a matter of law and dangerous as we move forward in the 21st century.

John Christensen of the campaign group Tax Justice Network made a true claim when he said that the figures highlight that tax avoidance by large businesses has become a “much bigger issue” over the past 10 years because of the “enhanced relationship” policy put in place. That policy was put in place by the then Labour Prime Minister, Tony Blair, and his then Chancellor and ultimately successor as Labour Prime Minister, the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown).

The problem is perhaps exacerbated in that we have a very complicated tax system. The previous Labour Government did nothing to uncomplicate matters. In fact, they set up a whole new industry making it more complex. What we need as a country, and for us to remain an economic powerhouse on the world stage, is much greater tax simplicity and lower tax rates.

I am pleased that the Government are consulting on a general anti-abuse rule, the GAAR, targeted at artificial and abusive tax avoidance schemes, with a view to bringing forward legislation later this year. Echoing my earlier statement, Mary Monfries, head of tax policy and regulation at PricewaterhouseCoopers, has also been quoted in the media citing with regard to our tax system that “simplicity is key”. She described complexity as a

“key problem with the current tax model”,

adding that the GAAR should

“help to act as a disincentive”

against

“abusive, extreme tax avoidance arrangements”.

But I also believe that some of my colleagues are being disingenuous with the great British public in that the vast majority of multinationals mentioned are not breaking any laws and, as the Government make the

law, it is their own and our fault if companies use the rules in place to minimise their tax. Our tax legislation is huge and very complex, so any shortcomings are down to Government failure to create and implement the right tax framework.

The multinational aspects of tax collection and avoidance can be solved only by international bodies working together. That will not be easy for any of my ministerial colleagues to achieve I am sure, but as for any avoidance by UK companies, we do not perhaps need this debate now, as the GAAR legislation will, we trust, come into force during the next tax year. Surely that is the mechanism to stop so-called unacceptable tax avoidance that the hon. Member for Redcar seeks to debate this evening. Many private sector individuals in business may view this debate and other pronouncements by some hon. Members as politicians just diverting public opinion away from their own shortcomings by encouraging media interest in the tax avoidance issue. As politicians we organise the rules and therefore as long as what the companies do is legal, morality surely does not come into it much. Google, The Guardian, Amazon and others are perhaps insulated in that they have little direct competition in the services they provide, so no incentive to make voluntary tax payments as they have avoided such sizeable payments for a number of years. But Starbucks is now paying reportedly quite sizeable sums of voluntary tax, not for moral reasons but to protect its brand and customer loyalty—that is to protect its profits.

Bob Stewart (Conservative, Beckenham)

Surely if a company is making a voluntary contribution of £10 million a year, it must be making very much more than that, and be doing that only because it hopes to get off the hook, and that is something that we must legislate about.

Karl McCartney (Conservative, Lincoln)

My hon. Friend makes a good point. I agree that it is probably making a lot more in profit than £10 million for the next two years.

A potential solution is perhaps not to hound companies that legitimately use the tax laws as they are, but to make the tax system such that there is no benefit in tax avoidance, that is, reducing corporation tax rates and the complexity of the system, whilst at the same time cracking down hard on those who are abusing the tax system. This, for those in the Chamber who are technically minded, is known as the old carrot and stick approach.

We want multinationals to headquarter in the UK. Frankly, I cannot complain if they organise themselves to pay the lowest legitimate tax that they can. What I am more interested in is that they bring their jobs and spending power to our shores. It fills our restaurants, houses and shops. It provides secondary support service employment across a plethora of sectors in Great Britain.

Let us not be negative this evening, because that will put businesses off coming here, which is the exact opposite of what we want. We want the whole world to know that Great Britain is a superb place to start up, locate or relocate a business, and with the Conservatives in government we continue to be Great Britain. We can all help to send out the message that we welcome international businesses—even Starbucks, Amazon, PayPal and Google—to our shores and would like them to bring more of their business to the UK. We are a country that is determined to drive down tax rates, as

demonstrated by our recent corporation tax reductions, undoubtedly a feather in the jaunty cap of the Chancellor and the Treasury team. We are a great place to do business.

It is telling that employment tax brings in 5.4 times more revenue than corporate tax—£259 billion versus £48 billion—so let us focus on those things that create more sustainable jobs, the positives. One of the Government’s main roles is to make the UK the best country in the world to do business in. Everything else will be easier if we can achieve a massive influx of foreign companies moving their bases and thus employing more people here.

I believe that populist politics masquerading as morality is a Lib Dem trade mark that would inevitably lead us into a vicious spiral, one that is downward and certainly not a virtuous circle. We know that the Lib Dems are desperate to be popular. They often say anything on the doorstep, often expressing views that are diametrically opposed to those of their neighbours in order to garner votes, as anyone who has canvassed after them will know. That cheapness was amply demonstrated by their head of communications—presumably the paper clips organiser—who last month supposedly leaked instructions to Lib Dem Members of this House to monster the Conservatives, people like me and my fellow cuddly Conservative Back Benchers, in their vicious pre-Christmas briefing.

The Liberal Democrats might hanker after a yellow paradise of sand and yellow sun, but it is a very small yellow island they currently inhabit, surrounded by very deep and clear blue water. I think they know that it is likely to become a smaller island. They need to mature as members of the coalition Government. They need a dose of reality over the next two and half years. We are not some paradise or utopia—this is the real world.

I am conscious that my time is almost up and so will conclude. Of course all the Conservatives on the Government Benches want our country to have the most competitive corporate tax system of any major world economy. By doing so we will ensure that our country’s economic recovery will be private sector-led, but we expect those corporate taxes to be paid, regardless of where any larger international firms that do business here might be based or have business operations. A need for fairness and reasonableness from both sides seems to be most apt. In that respect, I am particularly pleased that the Chancellor recently announced extra investment in the part of the Inland Revenue that tackles tax avoidance by multinational companies.

Jim Sheridan (Labour, Paisley and Renfrewshire North)

I rise as a sponsor of early-day motion 867, which deals with the behaviour of Google and its tax avoidance statements. As the sad person I am, over the festive period I took the opportunity to catch up with the work of some of our Select Committees, particularly the excellent work of the Public Accounts Committee, chaired by my right hon. Friend the Member for Barking (Margaret Hodge). Having watching Committee members try to get reasonable answers out of some of the big corporations, I can understand their frustration. In my view, they treated the Committee with contempt, simply smirking when asked any serious question. Likewise, when Google representatives appeared before the Culture, Media and

Sport Committee, of which I am a member, the public affairs spokesperson, whom I am reliably informed is a former No. 10 adviser, when asked any serious question, replied, “That’s above my pay grade.”

It seems to me that those large corporations are treating Parliament, and indeed politicians, with utter contempt. We are well aware of the statement by Google, but there is also the statement from the chief executive of WPP, who said that corporation tax paid was largely “a question of judgment” and that it paid it more out of a sense of corporate social responsibility. Experience tells me that we should not hold our breath if we are waiting for corporate social responsibility.

There is a serious problem, and in order to solve a problem we must first look at its size. General corporation tax receipts from big businesses have dropped from £26 billion in 2000-01 to £21 billion in 2011-12, a 20% decline but a 65% increase in profits. In October 2012 companies paid £7.8 billion, down from £8.7 billion in October 2011. The Office for Budget Responsibility predicted that corporate tax receipts would grow by 4% this financial year, but they are actually down by 10%. HMRC estimates that the tax gap—the difference between what should be received and what is received—is £4.1 billion. That would pay the salaries of 153,000 nurses or 164,000 police officers, or for 430,000 nursery places. Indeed, if the Treasury closed the tax gap, it would cover almost a third of the expected deficit for 2012-13. As has already been alluded to, 98% of FTSE 100 firms have at least one subsidiary in a tax haven. The cost of tax havens is estimated at £160 billion annually. That is in excess of all the aid flowing now.

There is hope, hopefully. The Chancellor has pledged more resources for the Organisation for Economic Co-operation and Development to create a levy catching earnings of multinational firms. Indeed, he has announced an extra £77 million a year for two years to fund more HMRC staff to pursue companies that are not paying their taxes. However, his close friend the Chief Secretary to the Treasury, the right hon. Member for Inverness, Nairn, Badenoch and Strathspey (Danny Alexander), said that we should not name and shame firms that avoid tax as that would breach taxpayers’ confidentiality. To return to a point made earlier, I think that we should be looking at fair tax in the same way we looked at fair trade.

The well-respected organisation Christian Aid has put out a briefing highlighting the headlines of tax avoidance and some statistics to go with it. A recent study has shown that in excess of £13 trillion might be hidden in tax havens beyond the reach of tax authorities. The cost to developing countries is estimated to be £160 billion annually, which is far in excess of the global aid flowing at the moment. A recent UK survey showed that 56% of adults polled believed that tax avoidance was morally wrong and 74% felt that the Prime Minister should be demanding international action to tackle tax evasion and avoidance. We look forward to the G8 summit in Ireland, where the Prime Minister and the Chancellor have promised to take the whole question of tax extremely seriously.

Caroline Lucas (Green, Brighton, Pavilion)

I am grateful to the hon. Gentleman for giving way and for his words on fair taxation. Does he agree that transparency is an absolutely fundamental principle at the heart of fair taxation and, in that

respect, does he agree that the Government should be supporting country-by-country reporting, as set out in my private Member’s Bill, the Tax and Financial Transparency Bill, in the previous Session? Is that the kind of measure he would support?

Jim Sheridan (Labour, Paisley and Renfrewshire North)

We need transparency in the system, because if we do not have transparency we will not be able to find out where the problem is, so I would fully support such a private Member’s Bill.

I will move on to what is commonly known as the people’s game: football. The Independent on Sunday has conducted an investigation into “Football’s tax shame”. It states:

“Britain’s Premier League football clubs are awash with money. They pay star players £250,000 a week, and turn over £2.2bn a year. Yet records show they paid only £3m in corporation tax last year… according to analysis of their most recent accounts.”

That money comes from the spectators, the hard-working men and women who buy the products and go to the games. The article continues:

“This is an effective tax rate of 2 per cent. Equally startling is that a profit of £150m made by eight clubs is all that the Premier League has to show for a turnover of about £2.2bn a year. Five clubs, including Manchester United, Newcastle United and Tottenham Hotspur, paid no tax at all, despite a combined surplus of more than £70m. Blackpool, relegated from the Premier League last year, paid just over £100,000 on profits of £21m—a rate of 0.5 per cent. The club was able to pay minimal tax on its substantial profits because of the effects of a £6.7m loss the year before. The club also donated just over £5,000 to charities. Of the other profitable elite clubs, Arsenal had the biggest potential tax bill—£7m on group profits of £36.6m—but paid less than half a million pounds while deferring more than £6m. West Bromwich Albion topped the company tax table, paying £1.8m on £18.9m profits. The club accounts of those that made a profit cover the financial year 2010-11, with the exception of Manchester United and Arsenal, which have both recently published their 2011-12 accounts. None of the clubs has acted illegally and all of them pay big sums in PAYE and other taxes.”

We should not buy the argument about the complexities of the tax system being the reason people do not pay their taxes. There is nothing complicated about saying to big corporations, “If you make and sell your products in this country, you pay the appropriate tax.” That is not too complex, and that is the road we should be going down.

Mark Field (Conservative, Cities of London and Westminster)

I congratulate the hon. Member for Redcar (Ian Swales) on initiating this very important debate, although I must confess that I did not agree with everything he said. I am rather concerned by the strongly anti-business approach to this issue shown by certain Members.

I have a great deal of sympathy for the leaders of all the political parties in formulating what would be regarded as an adequate response to the hot potato of corporate tax avoidance. In today’s 24/7 media world, there is a constant demand on political figures to provide a running commentary on populist media campaigns following the high-profile cases to which the hon. Gentleman referred, including global businesses such as Google, Amazon and Starbucks.

I can fully understand the temptation to brand this as a moral issue, appealing to corporates’ consciences when the legislative framework has failed, but it is a temptation that we in politics should try to avoid. In sparking a debate on morality in relation to the payment of tax, I fear that elite politicians open up a dangerous flank, because it suggests that the Government are either impotent or are being disingenuous in their outrage. That applies to Governments of all colours. After all, Parliament must ultimately set the rules within which companies operate. As my hon. Friend the Member for South Norfolk (Mr Bacon) said, the precedent that has now been set, with Starbucks paying an amount of tax that it alone has determined sufficient publicly to salve its conscience, is a very odd one.

I am very concerned about the whole idea of mob rule. I am sorry that the right hon. Member for Birkenhead (Mr Field) is not in his place. He speaks eloquently about issues such as immigration, and he would be unwise to think that mob rule is a way of dealing with immigration problems, for example. We must recognise that we are a democracy and that this is the forum within which the rules should be made. We should not try to inspire mob rule, whether on the payment of tax or for any other purposes within our society.

I have lost count of the number of times that media commentators have remarked that they would be delighted to apply the same approach to their own tax affairs by paying what they feel like rather than what the Government demand of them. However, I have a much wider concern—that investors will begin to sense that UK policy on tax and regulation is becoming ever more arbitrary, governed more by sentiment and the news cycle than by the strict rules that should be enforced by HMRC and ultimately by the courts. The UK should be proud of its traditional place as a bastion of commercial certainty attracting investment from every corner of the globe, and, as my hon. Friend the Member for Lincoln (Karl McCartney) pointed out, that will be undermined by high-profile rows such as this.

That is not to say that all is well. As we saw in my own constituency with the protest outside St Paul’s cathedral only a year or so ago, there is deep-seated concern that the rules of capitalism are being skewed. None of us should take this issue lightly, not least—dare I say it?—Conservative Members, as middle-class Tory voters often feel most strongly about it. To focus on arbitrary media campaigns or to invoke mob rule, as several Members have, is entirely the wrong way forward.

Too often, as my hon. Friend the Member for South Norfolk said, coalition Ministers have conflated the concepts of avoidance and evasion in debating taxation policy. The ideal solution is for aggressive tax avoidance schemes to be stopped in their tracks before they are marketed. That requires constant dialogue and the re-establishment of trust between HMRC and tax intermediaries. As a matter of urgency, therefore, the Treasury needs to promote a much better and more extensive pre-clearance regime to allow companies, individuals and tax advisers to road-test their proposed schemes. HMRC must start investing more time in developing and managing relationships with accountants and tax lawyers.

Meanwhile, the Treasury is committed at the time of the next Finance Bill to introducing general tax anti-avoidance provisions. It is clear that any such general power of anti-avoidance will feature some retrospective

taxation. That is wrong in a free society, and it will risk further damaging our nation’s reputation as a free, open and transparent place to set up, develop and run businesses.

Ian Swales (Liberal Democrat, Redcar)

I hope that the hon. Gentleman did not interpret my remarks as being anti-business. Does he not worry about the competitive situation if certain companies get away with these practices and are then competing with other companies that do not have the ability to do so?

Mark Field (Conservative, Cities of London and Westminster)

I do. Andy Street, the managing director of John Lewis, has made that point, but it obviously applies to many of the smaller independent companies. I represent a central London seat where a lot of big businesses are based and operate. Nothing is more important than encouraging independents, whether they are restaurants, wine bars or book shops, rather than just relying on big multinationals. No one wants to see all our high streets entirely dominated by large international corporations, many of which may involve themselves in what is currently regarded as aggressive tax avoidance.

John Pugh (Liberal Democrat, Southport)

The hon. Gentleman said that retrospective taxation is a threat. Does not the previous Government’s pre-approval scheme, which puts proposals through the Treasury to find out whether they are sound, get round that and remove that fear?

Mark Field (Conservative, Cities of London and Westminster)

Not entirely, because it does not work as well as it should. There is no doubt that this is going to be a much more high-profile issue, and I will be interested to hear what the Minister has to say about my suggestion.

The underlying lesson is that the UK tax code and regime remains far too complicated. The godfather of tax avoidance is complexity and uncertainty in the system. When even tax experts find it impossible to understand the workings of the tax code, people begin to question whether everyone is really paying their fair share. This, in turn, creates a sense of greater acceptability in the avoiding and evading of tax. Furthermore, a complicated and opaque tax system will always be vulnerable to misrepresentation, particularly by the media, and that again weakens confidence and encourages further avoidance. People think, “If Amazon can get away with not paying its fair share, why should I bother to stump up?” I can understand why that is a general sentiment, but it frustrates many of the corporates that, as the hon. Member for Redcar said, have paid in an open and transparent manner and will ultimately undermine their whole business framework.

Government can make piecemeal efforts to address particular instances of avoidance—they can play catch-up to a certain extent—but responses tend to involve making the entire system far more complex, thereby reinforcing the very factors that have driven avoidance in the first place, displacing the activity and giving rise to a whole set of new avoidance techniques. Instead, the Government need to take an entirely different and fresh approach. They should look at how they can overhaul the entire system so that avoidance and evasion offer a similar, smaller reward and will therefore be seen as far less acceptable. Fundamentally, that can mean only lower taxes and a radically simplified tax code. For example, a single income tax applicable to income, however it is received, at the same single rate is the best way of

stripping out of the system any incentive to avoid income tax. A simpler tax code would also free up HMRC resources to concentrate on tackling the real problem of tax evasion while making transgressions easier to identify.

It has been a pleasure to make a brief contribution to this debate on an important issue to which we must all return. However, I am concerned that too much of the rhetoric coming from this place almost suggests a sense of powerlessness that gives rise to the view that there is an aggressive anti-business approach in this country. We do need to have a thriving business sector. Global businesses can, of course, choose where they locate their business. We should be proud in this country of having a track record of being open to business, but I also accept that we want to ensure that businesses pay their fair share, because we have a huge deficit and a huge debt that has to be paid off if we are not to burden future generations.

I hope that we will look at the whole issue with that in mind, but above all I hope that the Minister will take on board the idea that HMRC needs to have an approach that is much more open to the pre-clearance I referred to. We must also, as a matter of urgency, look at the complications in our tax code that are allowing some of the high-profile avoidance to take place.

Sheila Gilmore (Labour, Edinburgh East)

From the beginning of this debate until the point when the hon. Member for Lincoln (Karl McCartney), who is not in his place, spoke, I wondered, given that we were all so agreed, whether there was any point in our having a debate. That begs the question of why we, collectively, have not dealt with the issues sooner if we are in so much agreement. However, we have different views about tax and they underlie many of the issues.

One such view is whether there should be tax at all. There is a tendency in Britain and, I suspect, a lot of other countries, but not all, to see tax as inherently a bad thing. If that is the case, it then becomes legitimate, according to many people, to find ways to minimise either one’s individual personal tax burden or a business tax burden. I believe, however, that tax is inherently a good thing and that it is right that we as a society pay in what we can afford in order to provide the kind of social and other services that we want in a civilized society. It would help if we took the view that tax is not inherently bad, because once that stance is taken all kinds of things flow from it.

Another issue that we have come up against is tax simplification, as if that is the answer to a lot of the problems we face. I briefly studied tax law—it was not my favourite law subject, although I did win a class medal in it, somewhat to my surprise. As I understood it then—this did not happen yesterday; it is not something new—much of the reason for having a lot of complexity in tax law was precisely because people were constantly finding loopholes.

If the answer is simplification, can we be satisfied that complicated ways around it will not be quickly found? The law, perhaps, follows clever tax lawyers and accountants—not the idea that we have made our tax book and tax code so complicated—and that is why people get to the point of saying, “Well, we’ve got to

have complicated tax avoidance.” It is a question of where we think the starting point should be. There appears to be a view that the starting point should be that the law is too complex and that if we somehow made it simple, people would no longer seek to avoid tax.

There is a clear legal distinction between tax avoidance and tax evasion, but perhaps the time has come to think about where we place the line. I agree with those Members who have said that it is important that we and the law are clear and that people know where they stand. We cannot have a system that allows people to say, “I don’t particularly like this or that kind of scheme.” The other side of that coin seems to be to allow companies to decide how much they want to pay, rather than how much they should pay. We might need to think, at another time, about drawing a line with regard to what constitutes tax evasion and tax avoidance. Aggressive tax avoidance, which has been described, might actually be tax evasion and not just a very clever way of avoiding tax.

It is interesting that many of the companies that we talk about a great deal have bad practices in other respects. Only a few months ago, we heard not only that Starbucks was not paying a great deal of corporate tax, but that it was seeking to reduce the working conditions of its own employees here in the UK. Usually, we are told that that is necessary because companies are not making a profit. In this case, Starbucks appears to be making a profit, although it is not always accountable here, yet it wanted to reduce the conditions of its own employees. Bad practices, therefore, go beyond tax.

In a global economy we need to look at things internationally. The Government have said that they will use the next few months as an opportunity—in the G8, for example—to try to make some progress. I hope that that will be the case. If we need international clarity and transparency and proper accounting, we should do it. It cannot be right that it is possible for companies that are clearly profitable here—they are not unprofitable—to be able to siphon profits away through schemes such as brand purchasing and loans, which mean that they are paying interest rather than making a profit. If those are avoidance schemes and if we cannot deal with them in our country, we must do so internationally.

If we are all able to sign up to a certain level of consensus—it may not be universal in this place—we need to introduce the necessary legislation for the UK in this year’s Finance Bill. We should all sing up to that. It is not good enough to come back from international conversations and say, “We had some discussions and made some progress.” We need to set some clear targets to end some of the practices. If the UK does that today, other countries might take note and do so tomorrow.

That leads to another international dimension—the problems that many developing countries face with regard to tax. They, too, suffer deeply from the way in which income profits are manipulated and moved out of their country so that, despite the fact that production is taking place in the developing country, the profit appears to be made elsewhere, usually a tax haven with a much lower rate of taxation. Developing countries probably suffer from that more than we do. They are trying, as they have been asked and told to do, to raise themselves up, not rely on aid and get going with their

own businesses and industries, but if so much tax is not being paid in those countries, they will probably end up not making the progress that they need to make and we might end up having to give them further aid. Those developing countries also need us to act.

Nick Gibb (Conservative, Bognor Regis and Littlehampton)

I pay tribute to the work of the Public Accounts Committee, particularly its questioning of executives from Starbucks, Google and Amazon on 12 November. I will focus on just one of those companies: Amazon.

I preface my remarks by paying tribute to the brilliant service that Amazon provides. It has made buying books far simpler and cheaper for millions of consumers, myself included. The speed of delivery and its innovative logistics make it a company about which there is a huge amount to admire. The question, though, is: which company? The way in which Amazon is structured means that, when I buy a book from Amazon, I am in fact buying it from Amazon EU SARL, a Luxemburg company. The profit on the sale of a book belongs to this Luxemburg company, notwithstanding the fact that Amazon owns no warehouses in Luxemburg and that the book, if it is in English, will have been sent from one of Amazon’s eight warehouses in the UK. Amazon.co.uk Ltd, a UK company, is just the service company for the Luxembourg company, fulfilling a customer’s order on behalf of Amazon EU SARL. Therefore, although Amazon’s sales in the UK are in the billions of pounds, the sales income of the UK company is just £207 million.

The technical thing that the tax planners at Amazon are keen to avoid is creating what the tax authorities call a permanent establishment of the Luxembourg company in the UK. If the UK tax authorities perceive there to be such a permanent establishment, all the income of the Luxembourg company that relates to that permanent establishment would be taxable in the UK. When I drive up the M1 and see the huge Amazon buildings that package and dispatch millions of books a year, I cannot help thinking that they look pretty permanent, but technically they are not. There will have been great effort and attention to the detail of the documentation to ensure that the warehouses are the operation of the UK service company and that all Amazon’s property and activity in the UK relate to that service and not to the activities of the Luxembourg company.

Richard Bacon (Conservative, South Norfolk)

When my hon. Friend sees those buildings, do they move slightly each time? Are they on wheels?

Nick Gibb (Conservative, Bognor Regis and Littlehampton)

My hon. Friend makes a good point. Everyone knows that this structure is a legal fiction. All the real economic activity for the transaction of my book purchase takes place in the UK. Andrew Cecil, the director of public policy at Amazon, in his evidence to the Public Accounts Committee, said that Amazon.co.uk is the trading name of the Luxembourg company. Therefore, although it sounds as though I am buying my book from the UK company, in fact I am not. However, according to the e-mail that I received in December confirming a book order that I made, if I want further details on my statutory rights, I should contact Amazon.co.uk customer services at 2 to 4 Waverly Gate, Edinburgh. The trading name for the Luxembourg company therefore has premises in Edinburgh. Does that not sound like a permanent establishment of the Luxembourg company?

Paul Farrelly (Labour, Newcastle-under-Lyme)

I am glad that the hon. Gentleman has chosen to talk about Amazon, because it gives me the opportunity to pay tribute to my great friend and former journalistic colleague, Ian Griffiths, who wrote the seminal investigation on behalf of The Bookseller in The Guardian in April, which showed that Amazon had made £7.6 billion of sales in the UK but had paid zero corporation tax because of the Luxembourg structure, even though the warehouses are here. I am sure that the hon. Gentleman will come on to this, but does he think that it is right that the tax playing field should be levelled, because booksellers and record retailers are going out of business day by day in this country?

Nick Gibb (Conservative, Bognor Regis and Littlehampton)

That is why this issue is so important. It is not just about the corporate tax base, which is hugely important, but about the competitiveness of British-based businesses.

Another thing that I found odd about the Amazon structure was that the accounts filed at Companies House report that the company has 2,265 employees, which is vastly different from the 15,000 employees that Andrew Cecil told the Public Accounts Committee Amazon employs in the UK. The other strange thing about Amazon’s group structure is that even the Luxembourg operation, with its €9 billion turnover, appears to have made a post-tax profit of just €20 million.

As we have seen with Starbucks and Google, profits can be siphoned off from individual jurisdictions by payments for intellectual property rights through royalties or technical fees. Starbucks pays a royalty of 6% of its turnover to its company in the Netherlands. Google also pays for the use of its technology. Although that technology was developed in California, the rights to use it outside the USA are held in Bermuda.

Much of this area of law is governed by a network of double tax treaties, of which the UK has signed more than 100. They are based on a model double tax convention that was agreed at the OECD and have been highly effective in boosting worldwide trade and overseas investment over the decades. Britain benefits hugely from that network of treaties. We have £10.9 trillion of investments abroad, which generated £188 billion of income in 2011. The Government are therefore right to want to tackle the problem of corporate tax avoidance through international negotiation. As the Prime Minister wrote in his letter to G8 leaders on 2 January:

“in a globalised world, no one country can, on its own, effectively tackle tax evasion and aggressive avoidance. But as a group of eight major economies together we have an opportunity to galvanise collective international action.”

One such action is the OECD’s study into the transfer pricing aspects of intangibles. In its discussion draft, snappily entitled “Revision of the Special Considerations for Intangibles in Chapter VI of the OECD Transfer Pricing Guidelines and Related Provisions”, published in June last year, the OECD concluded:

“It should be emphasized that not all intangibles deserve separate compensation in all circumstances, and not all intangibles give rise to premium returns in all circumstances.”

In other words, the OECD is coming to the view that the huge royalty payments that some international groups make their overseas subsidiaries pay to their home country or to tax havens may no longer be allowable against tax in the overseas jurisdictions. However, the OECD,

by necessity, moves slowly. Speedier action could be taken by the UK tax authorities by speeding up transfer pricing inquiries. It is therefore welcome that the Chancellor has allocated additional funding to HMRC to do that. HMRC could also take powers to require companies to disclose in advance all international connected party payments and to supply the associated documentation. There could be tougher penalties when a company’s tax return is wrong because of over-aggressive transfer pricing.

I conclude by touching on a wider issue relating to corporate tax avoidance: the ethics of companies and their boardrooms. In our everyday lives, we are all governed by a sense of morality, not just by law and regulation. Corporations are artificially created legal personalities. The morality of a corporation is determined by its board—by both executive and non-executive directors. It is no good for individual companies or for free market capitalism, which I support passionately, if directors interpret their role too narrowly. Too often, people who sit on company boards fail to ask the simple and straightforward question that governs moral behaviour: is this the right thing for us to do? Too often, directors seem to take the view that their fiduciary duty as directors stops at the maximisation of shareholder value, but section 172 of the Companies Act 2006 makes it clear that the duty of a director to promote the success of the company must be subject to a number of wider considerations including

“the desirability of the company maintaining a reputation for high standards of business conduct”.

I question whether the directors, including the non-executive directors, of the three companies so ably questioned by the PAC were fulfilling that duty.

Action needs to be taken to ensure that the corporate tax contribution of a multinational to a nation’s Exchequer is broadly consistent with the level of economic activity in that jurisdiction. We need to ensure that that action does not hamper world trade: it must be multilateral, but it needs to be swift. There are measures that HMRC can take in the meantime to ensure that it has the intellectual resources to match those of the international accounting firms. There are also questions that the boards of corporations need to take seriously as business leaders and members of society.

Nigel Evans (Conservative, Ribble Valley)

The time limit is now seven minutes.

John McDonnell (Labour, Hayes and Harlington)

The hon. Member for Redcar (Ian Swales) set the scene exceptionally well and went through all the points that have been reiterated by others.

I want to take up one point. I chair the cross- party parliamentary group of the Public and Commercial Services Union, which represents 50,000 of the 54,000 members of staff in HMRC—in other words, tax inspectors. I echo the simple point made by my right hon. Friend the Member for Oldham West and Royton (Mr Meacher) and the hon. Member for South Norfolk (Mr Bacon): if we want to collect the taxes, we need the staff to do it. If HMRC is to do that efficiently, it also needs those staff to have the appropriate skills and resources. I have raised that matter consistently on

behalf of the PCS parliamentary group over the past decade, and particularly over the past seven years, as have other Members.

When HMRC was created by the merger of Customs and Excise and the Revenue, we had a debate in the House for which I think there were little more than half a dozen Members in the Chamber. However, there were staff cuts of 3,000 overnight, and a further 12,000 within six months. A process called the lean system was introduced, producing the first industrial action in the Inland Revenue’s existence, so there was an element of demoralisation.

In 2005 there were 97,000 staff in HMRC, and by 2015 there will be 55,000. The Government have recognised that further investment is needed, for which I am grateful. They have provided £900 million for reinvesting in tax collection and recently pledged another £77 million over the next two years on top of that, but that does not make up for the £3 billion of cuts in the October 2010 statement. That means that there will be another 10,000 jobs cut from HMRC by 2015, which is ludicrous and completely counter-productive.

My right hon. Friend the Member for Oldham West and Royton made the point about how much each tax inspector brings in in proportion to their salary. The cuts and tax office closures seem to be undermining the very system that we want to make effective in delivering the tax that we need and tackling the scandals that have occurred. There is also real anxiety about the use of private companies in the tax collection system, which the Government have developed. I urge the Government to rethink the whole process of investment in HMRC for the long-term future. It has lost staff and is losing skills, which is undermining its ability to undertake the work that we ask it to do.

The hon. Member for Redcar mentioned the awarding of contracts to companies that we then discover avoid their taxes. I raised that matter under the previous Government. I found it bizarre when the private finance initiative scheme was introduced and the Inland Revenue offices were sold off to Mapeley, and then leased back from that company, only for us to discover that it was using a tax haven and not paying tax itself.

The hon. Gentleman also mentioned Capgemini. Let us get on the record what has happened in that case. Capgemini and Accenture are the two IT companies with which HMRC has contracts, and both were recently identified as avoiding tax themselves. Capgemini, the lead contractor on the £8 billion Aspire contract, paid only £308,000 of corporation tax last year on £38 million of profits—less than 1%. That company is employed by HMRC but avoids the tax that HMRC seeks to use it to collect. It is extraordinary. Accenture, which has a £9.6 million contract with HMRC to supply technical support, managed to reduce its tax bill to 3.5%, paying only £2.8 million in tax on nearly £82 million of profits in Britain last year. It was employed by HMRC and awarded a massive contract, and then used those resources to avoid paying tax. You couldn’t make it up, but it is happening regularly. As the hon. Gentleman said, the Government should introduce some principle to ensure that when we award contracts to such companies, we are at least confident that they are not in the tax avoidance business.

We need to ensure that the staff of HMRC have the tools to collect tax effectively. As the hon. Member for Lincoln (Karl McCartney) said, we cannot criticise others if the House itself does not fulfil its own responsibility of ensuring that we have effective legislation that the staff can use to collect tax. That is why we should listen to the experts—the HMRC tax inspectors—when they advise that the Government’s proposed general anti-abuse rule will not be effective and instead advise support for the Bill tabled by my right hon. Friend the Member for Oldham West and Royton to introduce a general anti-avoidance principle. Their view is that we need to return at least partly to the Ramsay principle, which was a decision of the Lords in 1982, overturned in 2001, that at least led to some commitment to the anti-avoidance principle in law. It laid a duty upon directors to abide by that principle.

The hon. Member for Cities of London and Westminster (Mark Field) said that we should not drag this into being a moral issue, but it is a moral issue. When my constituents pay their taxes in the pay-as-you-earn system, they expect others to make their fair contribution as well, yet the Public Accounts Committee has effectively exposed scandal after scandal. I understand why UK Uncut is occupying premises and taking direct action. That is the only way to publicise what companies are doing.

We have been at this for a number of years in the House. I hosted what I think was the first meeting in the House with Richard Murphy and John Christensen of the Tax Justice Network, when the issue was not particularly popular. It became popular and had resonance when UK Uncut took direct action. We have a responsibility to our constituents to ensure that the balance is redressed, by providing resources for HMRC and putting in place appropriate legislation so that it becomes effective as a tax collector once again.

Nigel Mills (Conservative, Amber Valley)

It is a pleasure to speak in yet another tax debate—we seem to be having more and more of them as the months of this Parliament go by. This is an important issue, and the debate is about corporate tax avoidance, not just corporation tax avoidance. We can sometimes drift into focusing on tax on profits and miss out on the avoidance of VAT or payroll tax, which we could more readily do something about.

The publicity on the issue has had some positive impact, because it has probably discouraged a lot of businesses from entering into aggressive or artificial avoidance schemes. That has to be welcomed on one level, but we do not want to go so far that we start to do damage. The last thing that we want to do is deter international investment in this country. After all, the Government have set out to make ours the most attractive corporate tax regime in the G20. There has been great progress on that through rate reductions, and I believe that after the latest reduction we are about fifth in the G20. However, when we consider the effective rates that people actually pay, we are down to about 15th because of the complexities of our system. There is still a lot of work to do to make our system an attractive one that encourages investment both internationally and domestically.

We have to be careful that we do not drift towards having a tax regime that ceases to be based on a clearly advanced and published rule of law and is instead based on arbitrary decisions, with the Revenue having the power to ignore the law completely or rewrite it retrospectively, or if that fails, to bully people into paying a bit more tax until we think it is about right. After all, corporation tax is on profits for tax purposes, not on profits for accounts purposes, and certainly not on sales for accounts purposes. It is worrying that people seem deliberately to confuse the matter, talking about a company with a turnover of £1 billion paying only £500,000 of corporation tax and saying that that is a low percentage. That percentage could be completely irrelevant, because if it has made no profit, it will pay no corporation tax. We need to be accurate and focus on a different issue.

There are some aggressive avoidance schemes that are intended to exploit UK domestic law that we can tackle. The Government are tackling them, and I believe they have announced some more rules today to do so. We need to be as proactive as we can on those schemes, and that is where the general anti-abuse rule has a role to play. I am a sceptic about that. I am not sure I like the idea of giving any government bodies the power to implement something that is not law, but which they think ought to be. We are here to make laws; they are there to implement the laws we make. If we get the laws wrong, we should sort that out and improve our processes, not expect those bodies to find a way of fixing the problem retrospectively.

However, a lot of the avoidance we have been talking about involves transfer pricing. We are an international economy and we want to remain one. One of the things we are focused on is trying to encourage exports—we want people to invent and design things here, and then export and license them and get royalties and sales back. However, we will not win if we start an international war to see who can clobber royalties the most or put up the biggest barriers to trade. That would be a suicidally stupid thing to do.

The rest of the debate is in Hansard.