City of London seen as tax haven at centre of worldwide system, says McDonnell
The City of London is seen as a "tax haven" at the centre of a worldwide system designed to help the super rich avoid paying tax, John McDonnell has warned as he called for an independent inquiry into the Panama Papers.
Leaked documents linked to Panamanian law firm Mossack Fonseca have caused shockwaves around the world and have led to David Cameron, George Osborne and Jeremy Corbyn publishing details of their own tax returns.
The Government has allocated £10 million for a new cross-agency taskforce to look at the papers but the shadow chancellor is urging ministers to go further.
Leading a debate on tax avoidance and evasion, Mr McDonnell told MPs that the world of offshore tax havens has been "constructed piece by piece by multinational corporations and the super rich" and is "aided by shady offshore operations like Mossack Fonseca".
But it is also helped by "supposedly reputable accountancy firms here in London playing their part".
"PWC have, according to the Public Accounts Committee, aided tax avoidance, and I quote, 'on an industrial scale'," he said.
"Deloitte have advised big businesses on avoiding tax in African countries. Ernst and Young act as tax advisers to Facebook, Apple and Google.
"Just last month KPMG had one of its tax avoidance schemes declared illegal by the High Court.
"Altogether the big four accountancy firms in this country earn at least £2 billion annually from their tax operations but it isn't just them."
Mr McDonnell said banks headquartered in London have been "particularly proficient in directing their funds to Mossack Fonseca shell companies", naming HSBC and RBS subsidiary Coutts.
"Supposedly reputable companies are aiding and abetting the systematic abuse of our tax system," he said.
"We should be clear about this: the City of London is now being viewed by many as a tax haven in the middle of a dense network of havens created for the super rich to avoid the taxes the rest of us must pay."
Labour is calling on the Government to implement the party's Tax Transparency Enforcement Programme which includes plans for an independent public inquiry into the Panama Papers.
The party also wants HM Revenue and Customs to be "properly resourced" so it can investigate tax avoidance and evasion.
The leaking of the Panama Papers prompted a row over the Prime Minister's investment in an offshore trust.
Treasury Minister David Gauke said the taskforce investigating the Panama Papers would have the use of sophisticated technology and experts and will have powers to prosecute criminals.
In addition British firms have been asked to declare their links to Mossack Fonseca by the City regulator.
Mr Gauke said: "The taskforce will include analysts, compliance specialists, and investigators from across HMRC, the National Crime Agency, the Serious Fraud Office and the Financial Conduct Authority.
"Between them these agencies will have some very sophisticated technology, experts and resources to tackle money laundering and tax evasion anywhere in the world.
"This taskforce will report to the Chancellor and the Home Secretary on their strategy by taking action and we will update Parliament later this year.
"I stress the point that the taskforce will have total operational independence if they find people to prosecute, they will prosecute them, if they find information of illegality they can act on it and in addition, the independent Financial Conduct Authority has writen to financial firms asking them to declare their links to Mossack Fonseca."
Mr Gauke also defended the Government's record: "This is a Government that year in year out closes loopholes, this is a Government that has led to the OECD work on base erosion and profit shifting, this is a Government that has given more powers to HMRC, this is a Government that has seen a significant fall in the tax gap, particularly in the context of the avoidance, this a Government that has a proud record on dealing with tax avoidance and tax evasion and dealing with all of these abuses in the tax system."
But he was criticised by SNP economy spokesman Stewart Hosie for allegedly equating success with money.
Mr Guake had claimed Labour was "hostile to wealth", saying: "Too often in the past week, Labour has appeared to be motivated by something else, and that something else is hostility to the wealthy.
"Not for dodging taxes but just for being wealthy - for being successful, for earning money and for wanting to pass it on to their children, for doing things that millions of people aspire to do."
But Mr Hosie said: "Success is not merely measured in monetary terms.
"There are many, many successful people who will forgo stashing cash in the attic or the bank or indeed the offshore tax haven."
Mr Hosie said he was "delighted" the subject was now under real scrutiny.
He said: "The cat's out of the bag on this one. It's not just Mossack Fonseca, this is the tip of the iceberg. The public will not allow this matter to be quietly swept under the carpet again."
Tory Kevin Foster (Torbay) said: "All of us recognise there's more work to be done to try and capture those revenues that escape all taxation in all jurisdictions, and the role we can play as the UK in building up the capability of developing nations to crack down on tax avoidance that costs them even more than it does ourselves."
Labour's Catherine McKinnell (Newcastle upon Tyne North), chairman of the all-party parliamentary group on anti-corruption, said a great number of her constituents had been in contact to share their concerns.
She said: "The vast majority of people in this country play by the same rules and have very little choice about the contribution they make to the public purse. It's not about envy or anger at wealth, whether it be earned or inherited, but it's about the fact that those at the top end of the income scale seem to play by an entirely different set of rules and it understandably makes people angry and the Government must take genuine steps to level the playing field and to regain the public's trust."
It was unacceptable, she said, that prosecutors of economic crime, tax evasion, corruption and fraud were "effectively operating with one hand tied behind their back".
She said: "Ahead of next month's anti-corruption summit the Government could send out the clearest message to the rest of the world that the UK is serious about tackling economic crime in all of its forms, and its facilitation, and I therefore urge the Government to take the opportunity to take this important step to arm our law enforcement agencies and courts to properly hold companies to account."
Conservative Phillip Lee (Bracknell) said: "I listened to the shadow chancellor's contribution and found myself understanding his frustrations and the points that he was making.
"I guess the problem is that his solution appears to be some sort of socialist utopia and I personally don't think and see no example in history of that working.
"But it does force me to consider what could be a viable solution to this state of affairs because understandably ... the general public is angry, they are frustrated, there is a palpable sense of a breakdown in trust, not just with us in this chamber but also in systems of government - be it the tax system, be it the social work system."
Mr Lee said the public is understandably " deeply mistrustful" and "deeply cynical " given other tax cases, such as Google.
He added: "The response should not be hypocrisy, it certainly shouldn't be envy, it should be what can we practically do in this globalised economy that we all inhabit."
Mr Lee said another challenge is intergenerational inequity, noting: "The problem is we have significant wealth tied up in a particular generation that was born post-war, how are we going to facilitate the transfer of that wealth in a fair and equitable way?
"Answers on a postcard please because at the moment we don't really have one that is working. We need one that works."
On transparency, Mr Lee said: "I'm quite attracted to the Scandinavian - Norwegian, Swedish - model of publishing tax and wealth online.
"I personally would support that, I have absolutely - as I'm aware - nothing to hide. When I mentioned this to particularly Conservative colleagues they always worry about privacy and the like, but if that's the case and those arguments are strong then I don't think the Prime Minister should have published his tax returns and neither should anybody else.
"It's either all or nothing as far as I'm concerned."
Conservative MP Maria Caulfield suggested the fall-out since the Panama Papers data leak was the result of jealousy, insisting that those who earn more do pay more.
She told the Commons: "I do feel the events of the last few days and in particular the debate this afternoon is more about the politics of envy.
"Because of the measures this Government has taken we now see that the top 1% of earners are actually paying 28% of income tax and those figures are likely to grow in recent times.
"Those that earn more pay more. With the Prime Minister paying nearly £76,000 of income tax, which is double the amount of what I earned as a nurse just a few months ago and that does show that there is equality in this country that if you earn more you do indeed pay more."
She added that opposition parties "lead their politics of envy march " with an attack on inheritance tax.
She said: "I want to touch on inheritance tax which members opposite seem to lead with their politics of envy march and assume that inheritance tax is just there to tackle those who have a high income and have a lot of assets."
She said that many low income earners who are income poor but asset rich are forced from their local area in order to pay inheritance tax.
To groans from the Labour benches, she added: "I hope the members opposite will desist from this politics of envy and deal with the problem of tax avoidance."
Labour's David Anderson said the British people will no longer put up with double-standards.
"The real problem that this leak has exposed is the huge range of opportunities that are only open to the rich, the wealthy and powerful in this nation and this is what proves we're simply not in this together," he said.
"Those in the know have not just the opportunity or the good fortune to make money in the first place, it's also clear that when they get that money they've many more avenues open to them to keep their hands on that money."
He added: "It's not the politics of envy, it's the politics of fairness. And make no mistake we've seen the end this week of the farce that we're all in this together.
"This is yet again one law for the rich and one law for the poor and the people of this country will not stand for it."
Shadow chief secretary to the Treasury Seema Malhotra bemoaned the fact it is not the Government's intention to "push the issue" of having public registers in overseas territories which detail exactly who owns a company.
She said: "Instead the information that is now agreed on will only be available to UK law enforcement and tax authorities."
Ms Malhotra said that the Government is "very good at spin but their record does not stand up to scrutiny".
"This is not about begrudging successful entrepreneurs and those who succeed in business," she said.
"It is a basic question of fairness in our society."
But Harriett Baldwin, the Economic Secretary to the Treasury, attacked Labour for criticising the Government.
She said Mr McDonnell had "managed over the last week to confirm his party as anti-aspiration, anti-wealth creation and wanting to create an atmosphere of envy".
Meanwhile, she said Ms Caulfield had made an "excellent speech highlighting the Labour Party's politics of envy".
A Labour motion calling on the Government to set up an independent inquiry into the Panama Papers and to do more to tackle tax avoidance and evasion was defeated by 300 votes to 266, a majority of 44.