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I ask the members of the public who are departing the gallery after First Minister’s question time to please do so quickly and quietly, as we hope to start our next item of business shortly.
The next item of business is a members’ business debate on motion S6M-05082, in the name of Rhoda Grant, on fair tax week. The debate will be concluded without any question being put.
Motion debated,
That the Parliament notes that Fair Tax Week took place from 11 to 19 June 2022 and that the week celebrates companies and organisations that hold the Fair Tax Mark, which certifies that the company or organisation pays the correct level of tax in the correct jurisdiction at the correct time; understands that many companies and organisations in the Highlands and Islands, including the Co-op Party, the Co-operative Group, Scotmid Co-op, SSE and Scottish Water, have already received the Fair Tax Mark; acknowledges the results of recent polling, which reportedly found that 66% of people believe that governments and local authorities should at least consider a company’s ethics and how it pays its tax; notes the calls on local authorities in Scotland to consider signing the Councils for Fair Tax Declaration, and further notes the calls on the UK Government, Scottish Government and local government to look at ways of incorporating the Fair Tax Mark into public procurement processes in order to ensure that public funds go to companies that pay their way
12:47
I thank the members who signed my motion to allow this debate to take place. I also refer members to my entry in the register of members’ interests, which states that I am a member of the Co-operative Party, which is a party that holds the fair tax mark and actively campaigns for the promotion of not only the fair tax mark itself but the ethos that lies behind it.
The motion was lodged to mark fair tax week in June, but the debate is as pertinent today as it would have been then—possibly more so, because we are facing a cost of living crisis. Many people are concerned about how they will afford the very basics for survival this winter.
Tax is our investment in the society in which we wish to live. The money that we pay should be invested in creating a better and more caring society and providing security to our citizens. Therefore, taxation should be viewed as a positive contribution to society. The fair tax mark seeks to highlight that. It seeks to recognise the companies that have paid the correct rate of tax, at the correct time and in the correct jurisdiction; companies that take pride in the fact that they contribute to our collective wellbeing.
Sadly, not every company wants to make that investment. It is estimated that shifting tax liability has led to a loss to the Exchequer that is equal to 28 per cent of the tax collected. That is income that could have been invested in the national health service and other essential services. Instead, it was offshored to boost fat cats and shareholder dividends. That is not illegal, but it should be.
The United Nations Principles for Responsible Investment states:
“Earnings that are reliant on tax planning rather than genuine economic activity are vulnerable to changes in tax regulation and enforcement ... Even if specific tax regulations are not changed, more proactive enforcement by regulators suggests the earnings risk resulting from these strategies is increasing. As countries and their tax authorities become increasingly concerned with the exploitation of loopholes in international tax frameworks and are under fiscal pressure to fund additional government programmes, the incidence of tax disputes and litigation will increase.”
Therefore, staking a company’s future success on a strategy that is based on tax avoidance is not only morally wrong—it is risky.
Tax avoidance is of concern not only to Governments but to citizens. The annual survey by the Institute of Business Ethics showed that 47 per cent of respondents were concerned about corporation tax avoidance, and it has topped the list of public concerns for nine years in a row. Those findings are in line with the Fair Tax Foundation’s polling, which found that 74 per cent of people would rather shop with a business that is paying its fair share of tax.
We, in the United Kingdom, can take steps to stop tax avoidance and offshoring, but we must also try to build global consensus to ensure that corporations pay their taxes where their profits are earned. That requires agreement between Governments, and I urge the UK Government to initiate those discussions and broker a global response.
There are also things that we can do in Scotland to promote the payment of fair taxation. The Scottish Government and the whole of the Scottish public sector procure services from the private sector. We need to use stringent procurement methods to ensure that companies pay their taxes. That must be an essential requirement in all public contracts.
We could also use that approach for licensing. Did the ScotWind bidders have to show that they had paid their taxes where their profits were earned, and were they required to continue to pay their fair taxes on profits made from our renewable energy?
The fair tax mark allows companies that pay their tax at the correct rate, in the right jurisdiction and on time to be easily identified. That accreditation can be trusted by procuring authorities, allowing them simply to ask contractors and suppliers whether they have achieved the fair tax mark. Councils across Scotland have been calling for ethical action in procurement by signing up to the councils for fair tax declaration. South Lanarkshire, Edinburgh, Midlothian and Dundee have already signed, but we need more councils to sign up as well.
The public agree: 66 per cent of people believe that the UK and Scottish Governments and local councils should at least consider a company’s ethics and how it pays its tax as part of the procurement process. During the pandemic, 80 per cent of people believed that businesses benefiting from Government bailouts should have received that bailout only if they had agreed to the conditions that prohibit tax avoidance. Frankly, I believe that they should not have received a bailout if they had not paid their fair share of tax in the past, given that it was those very taxes that paid for the bailout.
Many companies and organisations have received the fair tax mark accreditation, and I want to pay tribute to them. They include ones that we would expect, such as the Co-operative Party and co-operative societies such as Scotmid and the Co-operative Group—organisations that have fair practice at their very core. Government-owned companies such as Scottish Water have also achieved accreditation, as have large plcs, such as SSE, and smaller firms, such as Glasgow-based accountancy firm Brett Nicholls Associates and North Berwick-based Jerba Campervans. It is a long list, but not long enough. We need to make sure that all companies that work with government at any level should attain this accreditation.
I believe that we must change the culture around taxation. It should be acknowledged and valued when companies pay their fair tax in the country where they make their profit. That is fair to their workers and it is fair to customers. That payment is their investment in our society. It enables Governments to provide the services and security that we all require.
12:54
I welcome the opportunity to speak in the fair tax week debate, and I congratulate Rhoda Grant on securing it. Ms Grant has outlined the issues really well.
Fair tax week is an opportunity to celebrate the companies and organisations that are proud to?promote responsible tax conduct. Paying a fair share of tax is one of the principal ways in which businesses contribute to society, helping to fund the public services that we all rely on. Championing a level playing field for businesses, fair tax week provides an opportunity to highlight the importance of fair tax principles in protecting and advancing public services in Scotland, as well as across the UK.
The growth of tax havens and unethical corporate tax conduct has become the subject of much debate in Scotland, across the UK and around the globe. Aggressive tax avoidance negatively distorts national economies and undermines the ability of business to compete fairly, both domestically and internationally.
For example, eight large tech companies made an estimated £9.6 billion in profit from sales to customers in Scotland and the UK in 2019, but, by moving money out of the UK, those companies ended up declaring a fraction of the profits in the accounts of their UK subsidiaries, thereby radically reducing their tax liabilities. Amazon, eBay, Adobe, Google, Cisco, Facebook, Microsoft and Apple faced UK corporation tax liabilities of £297 million in 2019, putting the total amount of tax that those companies avoided in the UK at an estimated £1.5 billion in 2020, the latest year for which figures exist.
Did Emma Harper agree with or find interesting the points that Rhoda Grant made about the ScotWind contracts and ensuring that we get transparency on the companies that have been awarded options to lease? Does she agree that we need to look at companies such as Amazon that the Scottish Government contracts with? We should surely expect higher standards from them or not award contracts to them if they do not meet standards.
I am interested in how any company can be transparent on its taxation. Many taxation powers are not part of the devolved settlement, so I look to the UK Government to support any opportunity for the likes of Amazon to declare their tax in a fairer and more appropriate way.
I was talking about the amount of money—£1.5 billion in 2020—that those eight companies avoided paying in tax. That money could have been invested in our country’s infrastructure, culture or civic society or, topically, in helping the people who are most in need with the cost of living crisis. Rhoda Grant mentioned that, too.
However, instead of aggressively working to tackle the issue and make companies pay their fair share, the UK Government has spent three and a half times more on chasing fraud and error in the benefit system than it has on pursuing tax-dodging millionaires. The Department for Work and Pensions is spending the vast sum of £510 million to prevent fraud and error in the benefit system and to collect more debt from people on universal credit. The DWP estimates that it can claw back £3.15 billion from benefit claimants, while Her Majesty’s Revenue and Customs estimates that £3 billion could be raised from putting additional resource into chasing tax dodgers. In 2020, the pandemic tax gap of unpaid revenues was £70 billion. It is simply astonishing that that is receiving less additional resource than social security fraud and error.
I ask the minister for a commitment that, when we receive full taxation powers, which are currently reserved, the Scottish Government will focus its efforts on working with businesses to ensure that they pay their fair share in tax, and that we will not spend billions of pounds to penalise the most vulnerable people in society.
Fair taxation—specifically, corporate tax—is so important for investing in public services, which are the thread that binds our communities together. I thank the Fair Tax Foundation for all the hard work that it does to support companies to pay their fair share.
12:59
I congratulate Rhoda Grant on securing today’s debate on fair tax week.
Fairness is one of the core principles of governance. As Rhoda Grant’s motion touches on, the public show an overwhelming desire for taxation to be fair, for it to be applied in an even-handed way and for businesses, as well as individuals, to pay their share.
The fair tax mark, which is at the centre of the Fair Tax Foundation’s work, deals with the tax affairs of businesses and organisations. It is worth remembering that businesses operate in a competitive market. For that competition to work, there must be rules—rules that provide a level playing field for everyone and that do not distort competition or embed the position of those who are already successful. We must not ignore, either, the obvious interest that we have as a Parliament in gaining revenue that can be used to support public services and the spending that Government undertakes.
There has been increased interest in cracking down on tax evasion and the sort of aggressive avoidance activity that takes advantage of legal loopholes and involves constructing tax affairs in such a way as to reduce transparency. Governments across the UK have taken action. In 2013, the UK Parliament voted to support the general anti-abuse rule, which is sometimes referred to as the general anti-avoidance rule. In 2014, the Scottish Parliament followed by implementing a Scottish anti-avoidance rule through the Revenue Scotland and Tax Powers Act 2014. Both rules are part of a package of measures that have been taken to tighten up tax regulation, while seeking to reduce the burden on those businesses and organisations that are paying.
Of course, where tax liabilities arise is not precise and often depends on self-reporting. Tax arrangements can reasonably be construed in different ways, and it is often a clear intention of tax rules to allow for exemptions and deductions to provide support to organisations or to encourage positive practices.
Unfortunately, there remain many mechanisms for evasion and avoidance. HMRC’s central measure of liabilities versus payment is the tax gap. There has been a positive decline in the gap between what is estimated to be due and what actually ends up in the hands of the state, with stabilisation at a lower level in recent years, but that is not a definitive conclusion of the issue. Tax rules change regularly, and the approaches that are taken to evade or avoid them evolve, too.
Of course, the spirit of the law is not a value-neutral or necessarily objective judgement, particularly where complicated tax regimes are involved. Despite work under several Governments to promote simplification, the complexity of corporate tax remains. The ultimate decision on who is paying their fair share must be for independent bodies, working on the basis of what is due.
Uncertainty over such a standard lies within the Fair Tax Foundation itself. Last year, Richard Murphy, who has given evidence to the Parliament’s committees in the past and who claims to have created the fair tax mark, resigned from the foundation, partly because of concerns about the mark’s international standards.
As a broader point, I would caution against increasing the administrative burden of procurement policy. It is good, as a point of principle, for the public sector to make ethical procurement decisions but, too often, we have been perplexed by the fact that a small number of large suppliers to the public sector continue to secure public contracts at the expense of smaller and more local suppliers.
Procurement reform has attempted to address that gap, but, fundamentally, many businesses feel that they cannot compete, as a result of the administrative burden and requirements that are placed on them. Although small businesses may have more straightforward tax arrangements, they may also be less likely to be able to justify the investment in time and cost that is involved in being accredited by such standards.
It is certainly positive that we are discussing ensuring that tax is fair and that businesses, as well as individuals and other sorts of organisations, pay their way. However, although bodies such as the Fair Tax Foundation are making a positive and useful contribution to the discussion, I would be cautious before applying too great a reliance on such standards, given the potential costs that they could create.
13:03
I thank my colleague Rhoda Grant for bringing this important debate to the chamber. I refer members to my entry in the register of members’ interests: I am a member of the Co-operative Party.
In a week in which we have debated the impact of the cost of living crisis, it is only right that we support fair tax week, debate the importance of ensuring that every company is held firmly to account and note the positive steps that have been taken by co-operatives and other companies.
It has been known for years that powerful corporations and super-rich individuals are exploiting a rigged global system that allows them to avoid paying their fair share of tax. As always, it is the poorest people in our country—the low-paid workers—who pay the price. We have spent this week talking here about how people in our communities are struggling to afford necessities such as food and heat. It is appalling that we should have to celebrate companies that pay the appropriate level of tax in the correct jurisdiction and at the correct time. That should be the norm. Alas, the actions of the super-rich bring us here today.
Extreme economic inequality is being fuelled by an epidemic of tax evasion and avoidance that has reached an unprecedented scale. In that context, I thank the Fair Tax Foundation for its work in celebrating those companies that do pay fair taxes and for getting individuals, companies and parliamentarians to talk about responsible tax conduct.
Governments should take note that polling by the Fair Tax Foundation shows broad public support for the use of the fair tax mark and for a greater interest in tax behaviour: 66 per cent believe that Governments and local councils should at least consider a company’s ethics and how it pays its taxes when awarding public contracts; 80 per cent believe that all businesses benefiting from Government bailouts should have to agree to a set of conditions; 77 per cent believe that all companies, whatever their size, should have to publicly disclose the taxes that they do, or do not, pay in the UK; and 74 per cent of the public would rather shop from or work with businesses that can prove that they pay their fair share of tax.
Part of what we can do is engage with the public. By doing so, we can put increased pressure on companies to behave properly and on Governments globally to reform a broken system.
I congratulate the co-operative movement for its part in achieving the fair tax mark, both by highlighting tax avoidance practices and by supporting the Fair Tax Foundation’s call for reform of Scottish public procurement rules to allow contracting authorities explicitly to reward good tax conduct when awarding public contracts.
Businesses must make public commitments to shun tax avoidance, profit shifting or any artificial presence in tax havens. They should make the fullest possible disclosure of their finances and of their beneficial owners and persons having significant control. I hope that the minister will respond to those points.
Significantly, the Fair Tax Foundation also opposes any efforts by the UK Government to reverse the planned increase in the rate of UK corporation tax, which would further facilitate an international race to the bottom. Surely, no one wants to go there.
I thank my colleague Rhoda Grant for bringing the debate to the chamber and hope that it allows us all to raise the important issue of ensuring that companies in Scotland, the UK and across the world are properly held to account.
Michelle Thomson will be the last speaker before I ask the minister to respond.
13:08
It is a pleasure to take part in this debate. I thank Rhoda Grant for bringing it to the chamber and for her very good speech.
I have had an interest in taxation issues for a number of years, not only because I have to pay quite a bit of it. Back in 2016, when I was an MP, I was a sponsor of a double taxation treaties bill. The bill sought to right some injustices, such as the fact that if African countries were able to access the corporate taxes that they are due, the money would exceed the total amount of aid supplied by the rest of the world. The bill reached a second reading and, although it was not picked up in full by the UK Government, it brought about some changes.
As has already been highlighted, one problem with the UK tax system as a whole is its complexity and large number of loopholes. There is a huge industry to milk those loopholes, limited resource in Government agencies to plug them and a limited appetite from the UK Government to narrow the tax gap, which stood at £32 billion in 2020-21. I am reminded of the joke about an accountant’s children being told the story of Cinderella and interrupting to ask, “But, Mum, when the pumpkin changed into a golden coach, would that be classed as income or a capital gain?”
Although the Scottish Government has very limited powers over taxation, I applaud its efforts to create a fairer and more efficient taxation system in those areas within its control.
On re-reading Tom Arthur’s excellent Reform Scotland blog post from June of this year on the Government’s framework for tax, I noted that he explained the need for fairness, transparency, engagement and good guardianship. I suspect that those things hark back to the four principles of good taxation that Adam Smith set out in 1776.
One of those principles was fairness, by which Smith meant the ability to pay, and it appears be a guiding light for the framework for tax. Similarly, Smith argued for certainty, by which he meant that taxpayers should be clearly informed about how and why taxes are being levied. In other words, he argued for what we today term transparency. Again, I note that Tom Arthur has taken forward that concern. He knows that there is considerable scope for improvement in that regard, and he has pointed out that 61 per cent of people in Scotland know very little about the tax system. Transparency and fairness are fundamental to further progress. It is fair to say that we are on a journey but we have some way to go before we reach our destination.
A further thought is that it is difficult to conceive of any tax that does not have unintended consequences. That is inevitable, as the way in which individuals respond to tax changes may be very different from the intentions of Government. I am sure that we have all seen examples that we can relate to.
My concerns about the world that we live in include concerns about the growth of shell firms and, not least, the massive abuse enabled by the existence of Scottish limited partnerships—which, despite huge efforts over the years, the UK Government, which is responsible for the relevant legislation, has steadfastly refused to reform.
We are making progress, but we have a huge way to go.
13:11
I thank Rhoda Grant for bringing this very important debate to the chamber. I thank everybody who has participated, and I encourage members to continue the conversation, because it affects everybody in Scotland. I thank the local authorities that have signed up as fair tax councils, and I also thank the Fair Tax Foundation for the work that it is doing in that regard. Although councils are independent corporate bodies with their own powers and responsibilities, we strongly encourage them to endorse the principles of the fair tax declaration.
Fair tax week recognises businesses that pay the correct amount of corporation tax in the correct jurisdiction at the correct time. Across the chamber, we all agree that our tax system should be fair and that businesses have an ethical obligation to deal openly with their tax affairs and pay the correct amount of tax. After all, the money that we raise through our taxes is spent to benefit people across the country. However, this debate is not just about the levels of tax that individuals and companies are paying; it is also about the values of our tax system.
Since the devolution of powers over taxation, the Scottish Government has created a fairer and more progressive approach to the tax system, following our distinctive Scottish approach to taxation. That approach continues to be founded on Adam Smith’s four canons of taxation—namely certainty, proportionality, convenience and efficiency.
Another cornerstone of our approach is taking a tough approach to tackling tax avoidance. As Jamie Halcro Johnston mentioned, the Scottish Government has introduced its own general anti-avoidance rule, which was established by the Revenue Scotland and Tax Powers Act 2014. Our GAAR is wider than the corresponding UK GAAR, because that focuses on a narrow test of abuse rather than the wider test of artificiality that the Scottish GAAR covers.
During the pandemic, we implemented measures to ensure that grants and funds did not go to recipients with links to tax havens, and as a consequence of the Bute house agreement we are exploring what else we can do in that regard.
However, it is also important to recognise that corporate taxation and the issues that go with it are reserved to Westminster, and the Scottish Government is therefore constrained in what we can do in that regard. That point was well made by Emma Harper. With further devolution—or, indeed, if those powers were transferred as a consequence of Scotland becoming a normal independent country—we would be in a position to do much more in that regard than we are able to do at the moment.
The Scottish Government strongly condemns companies and individuals who artificially arrange their affairs in order to pay less tax—after all, every penny that is lost to tax avoidance is a penny less to be spent on helping the people and businesses of Scotland at this very difficult time. Of course, the relevant powers lie with the UK Government and HMRC, and we strongly urge them to do more to tackle tax avoidance and evasion, and, as has been highlighted by a number of members, to work internationally for co-operation across tax jurisdictions to establish processes that allow those global issues to be addressed in a global context.
Michelle Thomson’s points about the international aspects and the impact on certain countries in Africa were extremely well made, as was her point about the complexity of the UK tax system, which makes progress in many areas more complicated and difficult than it might otherwise be. I know that she has a significant interest not just in good tax practice but in wider aspects of corporate governance, and I thank her for the work that she takes forward on that.
I turn to the issue of procurement, which has been mentioned more than once. The Scottish Government and I, as the minister responsible for procurement, absolutely recognise the £14 billion public sector procurement spend in Scotland as a lever that we can and should use to its full extent in order to make progress on wider social, environmental and societal agendas.
It is important to recognise that we already use our procurement levers within the constraints that exist. We do not control employment law, but we have done significant work to move forward the real living wage and fair work agendas. We have done significant work to support and encourage the shift of as much spend as possible towards small and medium-sized enterprises in Scotland—we have had significant success in that regard compared with other parts of the UK—and, through the sustainable procurement duty, to further the community-building agenda. Members can rest assured that we are focused on doing everything that we can in that regard.
It is important to recognise the constraints within which we operate when it comes to procurement. The Public Contracts (Scotland) Regulations 2015 require that public bodies exclude bidders that have been found to have breached their legal obligations on the payment of tax or social security, and the regulations allow public bodies to exclude bidders when they can demonstrate such a breach of legal obligations by any other appropriate means. However, neither the Scottish Parliament nor the Scottish ministers have the power to exclude companies from public contracts on the basis of the offshore tax planning practices that Westminster allows. It is important to recognise that, because, as I said, those powers are reserved. I can continue to work with procurement officials and others who have an interest in the area to explore further opportunities for tightening up those practices. However, as I said, it is hugely important to recognise that, because those powers are not devolved, legal restrictions limit how far we can go. We are not able to go as far as we would like.
The debate has been helpful and useful, and it is good to raise such issues. My colleague Tom Arthur, who has responsibility for tax, will be watching very closely. It is important to recognise that, through a Scottish approach to taxation, we are committed to ensuring that individuals and businesses pay the right amount of tax at the right time and in the right place. As I have indicated, we are also committed, through the Bute house agreement, to exploring and taking forward any further measures that we can execute within our limited powers.
That concludes the debate. I suspend the meeting until 2.30 pm.
13:18 Meeting suspended.Previous
First Minister’s Question Time