My Lords, last month, I accompanied my university contemporary, Greg Clark, the Universities Minister, on a delegation to India. I spoke at an Indian higher education conference. Sitting next to me, sharing the platform, was the first ever permanent secretary-equivalent of a department newly created in India by Prime Minister Narendra Modi: the department for skills and entrepreneurship.

I declare my various interests to do with this debate and the Bill. Last Monday, I spoke at the opening of Global Entrepreneurship Week alongside Vince Cable, where it was revealed that London is one of the top two cities for entrepreneurship in Europe. Last week, I became a founding member of the Guild of Entrepreneurs, which will soon become a livery company in the City of London. We are currently on the 687th Lord Mayor of London, so it has taken us a long time to establish a Guild of Entrepreneurs.

Yesterday, I was at my old university, Cambridge, speaking at the 10th anniversary of the Centre for Entrepreneurial Learning at the Judge Business School. I have been proud to have been appointed one of the first two visiting entrepreneurs at Cambridge, and have been involved with the CfEL since its inception, spreading the spirit of entrepreneurship throughout the university—not just the business school but the whole Cambridge University community. More than 300 students from around the university attend projects such as Enterprise Tuesday. Look at the culture shift that has taken place. When I was at Cambridge in the 1980s, there was no business school. Today, there is not only a flourishing business school but a centre for entrepreneurial learning.

However, there is not one mention of the word “entrepreneurship” in the entire text of the Bill. Can the Minister explain that omission? I am of course delighted, as the Federation of Small Businesses noted, that the Bill even exists in the first place. There is a lot that is music to my ears. There is so much of what the Minister said that is fantastic, such as helping businesses start from home, and childcare help for businesses. She herself noted that small businesses make a huge contribution to the UK economy. Between them, SMEs comprise 96% of all UK businesses, accounting for about half of UK jobs and one-third of private sector turnover—the engine of our economy.

Speaking as someone who started a business with just two people that has grown over the years, I have seen first-hand entrepreneurial businesses. My business has dealt a lot with the curry restaurant industry. More than 10,000 of them are represented by the Bangladesh Caterers Association: pioneering entrepreneurs who have made curry the favourite cuisine of this country. I know the sacrifices that those individuals have made; I know how difficult it is to start, to grow and to survive in business. One of the first cases I ever sold of my product was to a local corner shop. Of course, those corner shops have survived and grown thanks to the Asian community. So I have been a micro-business, an “s”, an “m” and now I have a joint venture with a global giant.

There is a problem with the terminology used in the Bill. Grant Thornton—I declare an interest as I have dealt with the firm for many years as a client—has noticed that there is an unnecessarily restrictive definition of SMEs in the Bill. The current definition of SMEs used by the Government largely excludes mid-sized businesses from many of the provisions of the legislation, such as on access to finance, late payment and credit information. However, these same businesses will still have to abide by a number of additional burdens, such as the duty to publish a report on payment practices.

Grant Thornton estimates that approximately 34,000 mid-sized businesses will be left behind by the Bill, as they lack the resources of the large corporates that are needed to cope with additional regulatory reporting but are not granted the same exemptions granted to SMES within the Bill. Will the Minister acknowledge and, I hope, deal with this omission by widening the positive provisions to a larger section of the business population and altering the definition of an SME used in the Bill, which is based on the Companies Act and restricts an SME to a turnover of just £25 million.

On access to finance, the United Kingdom lags way behind our major competitors. Just look at Germany, where SMEs can draw upon close personal and financial links with a multitude of local lenders, many of which are state owned or operated as mutual firms. Germany’s small and medium-sized businesses, the Mittelstand, are exemplary and have been the centre of the economic success of that economy. The United States has always been brilliant in the way that it has helped to fund its small businesses, but I believe that we could go even further. In fact, the Institute of Chartered Accountants in England and Wales, of which I am proud to be a fellow, recommends that in order to help businesses with the wider issue of finance and cash flow the Government should foster new business growth by introducing critical growth loans, where a percentage of the loan is guaranteed for SMEs trading for between two and five years.

I have benefited personally from the Government’s small firms loan guarantee scheme, which is brilliant at enabling businesses that do not have the collateral to get the Government to back the security with the bank that lends to the business. We could and should increase that lending far more than we are. Does the Minister agree that we should be doing this? Business is going global. The Bill talks about export finance and there is so much good work going on. UK Trade & Investment has sponsored a programme called Sirius, where we attract the brightest young graduates from around the world to come and open their businesses here in the UK. This is the sort of initiative that we should be encouraging and growing.

With regard to the moral aspects of the Bill, the fact that we are addressing the minimum wage is excellent. If the Bill is clamping down on those rogue businesses which exploit their workforce, that is great news. I cannot think of any ethical business that would pay less than the minimum wage, let alone the living wage. However, the Guardian reported last week that despite the Business Secretary’s rhetoric last year that the coalition Government would crack down on firms that underpay their employees, there have been no successful prosecutions of such illegality since February 2013. Can the Minister confirm that? The annual survey of hours and earnings for the Office for National Statistics recently reported that around 287,000 workers were paid at less than the minimum wage in 2012. Are the Government aware of that and why are they not doing more about it? I hope that the Bill will be able to address this. Can the Government assure us about it?

With regard to the pub industry, I said that I declared my interest and I cannot spend the whole of my time declaring my interest in this area. The sad thing is that more than 10,000 pubs have closed down in the United Kingdom in just the last decade. We need to do everything we can to save the British pub, which is at the heart of British communities. The beer tie itself is somewhat of a double-edged sword. Of course, it allows big brewing or pub groups to invest in the pubs. To actually start a pub, you have to put down perhaps £250,000. However, if you are with a big pubco you do not have to do that and can actually run a pub. That is the advantage of being part of a big pub group.

However, if by doing that you also have to pay 70% to 80% above the market price for your beer, and pay higher rents, that does not feel fair at all. Given the recent defeat on this issue in the other place, I am delighted to hear the Minister say that the Government have listened and are going to try to achieve what I hope will be a middle way, where we can have the benefits that the big pub groups bring while enabling our pubs to be competitive and flexible, and to flourish, thrive and grow.

With regard to insolvency, Britain’s insolvency environment ranks pretty highly. In fact, we rank seventh in the world. The Bill talks about reforming insolvency in this country. I do not believe it is doing it in bold enough terms. For example, we are not going as far as having the famous American Chapter 11 or the Canadian Division 1 principles—and, surprise, surprise, countries number 1 and 2 in the insolvency environment are Canada and the United States of America. Those two measures, Chapter 11 in particular, provide a company trying to restructure with protection from creditors to give it time to do so. I have gone through this. I tried to institute a company voluntary arrangement. We got 90% of our creditors to agree, but we could not go through because there was no protection and one of the creditors scuppered the whole arrangement.

The Bill talks about pre-pack administrations. This is meant to be the least worst alternative. I have had to go through this procedure. It is awfully painful, but it is there to save brands and businesses if companies go through the procedure above board, as we did. I am proud to say that today we have a brand and a company that are flourishing. The worst thing about it is that when I went through that procedure I realised how badly misused it is in this country. It is misused to the extent that shareholders, creditors and, worst of all, employees suffer. That is not on. I do not think that the measures in the Bill go anywhere near far enough to improve the pre-pack administration regime. Bringing in Chapter 11 would be the best way of taking things forward. Do the Government agree?

Most importantly, this Bill is not just about businesses remaining as they are. As the Minister said, around one-fifth of small businesses say that they want to grow significantly and are determined to do so. The overall thrust of this legislation is aimed at making it easier for SMEs to operate and grow within the economy, which is something we should celebrate. Why are the Government not going further? One of the things that SMEs need is education. I attended the business growth programme at Cranfield. Cambridge has the diploma in entrepreneurship. These are fantastic courses, but they cost up to £10,000 a year. The Government should have a competition for 100 businesses a year to attend these courses to improve their competitiveness and help them to grow. Will the Government accept this suggestion?

I do not want to look a gift horse in the mouth. The fact that the Bill exists in the first place is wonderful, but I despair that it does not emphasise entrepreneurship. I worry that Britain today is number 2 in the world in inward investment. That is something we should be proud of because we are an open economy. However, I hear stories of Indian businesses having huge problems opening bank accounts and setting up companies over here. We are trying to address money laundering, but we are hampering our competitiveness and inward investment capabilities. We are one of the top 10 economies in the world. We have to encourage entrepreneurship, growth and employment.

The noble Lord, Lord MacGregor started with the complexity of the UK tax regime. He spoke about multinationals and the infamous example of Starbucks which, from 2006 to 2011, had UK revenues of $18 billion yet paid UK corporation tax of only $16 million. As the noble Lord said, there is a serious issue of avoidance. The Select Committee on Economic Affairs—I am proud to have been a member of the Finance Bill sub-committee every year—has produced a thorough report, Tackling Corporate Tax Avoidance in a Global Economy: Is a New Approach Needed? The report says right up front that the present system is not working and urgently needs reform. It says that it is confident that the Treasury will bear this in mind as it conducts its proposed review. However, we have heard that the Government have not really listened to the report, and will not be taking much of it into account.

The report highlights that UK corporation tax, having come down to 20%, is the lowest in the G20. The German rate is 29%, France’s is 33% and the United States’s is 40%. This is wonderful news. On the other hand, the report also highlights something which is not understood by the public: a significant feature of the UK’s corporation tax regime is the low rate of allowances for capital spending. Our regime does not encourage investment. In fact, within the OECD and the G20 countries, only one country, Chile, has a less generous allowance than the UK. We must look at this as a whole.

The other major point which has not yet been highlighted in today’s debate is how much corporation tax yields as a percentage of GDP. Again, the report lays this out clearly in a table comparing us with other countries such as France, Germany and the United States. Our UK share of corporation tax receipts has held up pretty well in spite of falling headline rates. As a percentage of GDP, in 2005 corporation tax was 3.2%; today it is 2.7% in spite of rates having fallen. The nub of it all is that, of the contribution by tax to total HMRC receipts, corporation tax stands out in that it is only 8.7%. It is dwarfed by income tax at 32.2%. National insurance contributions constitute 21.8% and VAT constitutes 21.4%. This clearly shows that, yes, everyone is getting upset about corporation tax not being paid by certain companies, but are people talking about all the other taxes that these companies are generating, predominantly through creating employment. Employment generates a far greater proportion of taxes than corporation tax. We are not quite getting the context of and perspective on this. I will come back to that point at the end of my speech.

In fact, 81% of UK corporation tax is paid by the top 1% of companies. Here we are getting upset about 1% of companies; 99%—SMEs have been mentioned—are paying the full rate of corporation tax in many cases. We are losing a sense of perspective. The report says:

“In total, PwC say that Hundred Group members contributed around £8 billion in corporation tax in 2012 and a further £16.8 billion in other taxes borne”.

A multinational company is not taxed as a single entity but as a number of legally distinct, individual companies all over the world. The present tax system around the world encourages multinationals to move their profits around the world. That is the reality. We are trying to stop that. The report recommends ways of stopping it. When I was on the sub-committee for the previous Finance Bill, we focused on the GAAR. As the noble Lord,Lord Hollick, said, when he came up in the business world he was taught the distinction between evasion and avoidance. To a chartered accountant it is very simple: evasion is illegal; avoidance is allowed. Now we are going one step further and saying “abuse” as well. However, it is clear that the GAAR will not catch everything. It is narrowly focused. It will not, for example, catch the Starbucks situation at all. That needs to be communicated. I am glad that the Government have listened and that the GAAR will be communicated to the public.

I am proud to be a fellow of the Institute of Chartered Accountants in England and Wales. The report says:

“The ICAEW offers advice to its members that appears to go well beyond the Code of Conduct. It states, for example, that

‘Although tax avoidance may be legal, whether something is within the law isn’t the only thing that matters. You are under a duty to take into consideration the public interest and at all times to comply with ICAEW’sCode of Ethics … The boundary between legal tax avoidance and illegal tax evasion is not always clear and there’s a danger that what starts out as legal tax avoidance may slip into illegal tax evasion’”.

Who is competent to catch all of this? The noble Lord, Lord Lawson, raised the point of the structure of HMRC, this merged entity. Is it fit to deal with this? What about the relationship between the Treasury and HMRC? A lot of the policy is formed in the Treasury and HMRC is meant to execute it. Can the Treasury make this policy properly?

Then there is the question of reputation. In my business, our most valuable asset is our brand. The threat of naming and shaming companies is serious. We, as companies, are all very concerned about our brands. Much more can be done in this area by naming and shaming companies.

The Government actively promoting the implementation of the G8 proposals on the movement of funds between companies is very good. We need to continue to do this. Again, however, it will not solve everything. A unitary tax system, treating multinational companies as single entities in the global economy, is attractive in theory, as the report says, but is quite frankly utopian. In practice, we cannot even get the EU to agree on corporation tax rates. How on earth are we going to get the whole world to agree on something? We have to realistic and practical about this.

The setting up of a Joint Committee to supervise and oversee this matter is a great idea. The expertise of the House of Lords in this area is far greater than the expertise in the other place. This expertise is used in the Finance Bill sub-committee. If it could be used on a permanent basis, that would be great. Will the Ministerconsider forming such a committee to oversee the issue on a general basis? I think that the confidentiality argument is absolute nonsense, as was said by noble Lords earlier.

I now come to the points made by the noble Lord, Lord Lawson, which I thought were excellent. He hit the nail on the head. He said that corporation tax in the modern world is inequitable between multinationals and SMEs and that, in the way it is structured at the moment, it has had its day. He has summed it up. The noble Lord,Lord Browne, talked about a tax gap of £32 billion and said that the tax gap is going up. I want to refer to a friend of mine, Vindi Banga, who is a former head of Unilever in India and was then on the main board of Unilever here in the UK—companies do not get more multinational than Unilever. He wrote an excellent article earlier this year in the Telegraph, headed, “Tax compliance should be judged by rules and not morals”. This was when the Starbucks issue was at its height, when it was being bashed by politicians—the noble Lord, Lord Hollick, referred to this. The Prime Minister, David Cameron, at the World Economic Forum in Davos, said:

“Companies must wake up and smell the coffee”.

One cannot get more specific than that. Vindi Banga then talked about IP royalties; the way companies move profits around the world, perfectly legally. One

way, of course, is to charge royalties from where the IP is headquartered. Let us say that the IP is headquartered in a country outside the UK; royalties are charged and paid, reducing the tax here in the UK. However, what we overlook is that the UK is also a recipient of royalties and we encourage IP. We encourage the innovation of IP, the generating of IP and the holding of IP. In net receipt terms, the UK receives more royalty income than we pay out. So it will go against us if we stop that in trying to address tax evasion.

The other point that Vindi Banga made—this is my main point—is that our tax system has to be competitive because we, as companies, operate in a really competitive environment. In fact, while evasion is immoral, avoidance, if it is legal, is a duty: companies almost have a duty to try to pay as little tax as possible in order to be as competitive as possible and to survive and compete in the global environment. However, there is something that could and should be done. Could the Government bring in even more regulation for companies to disclose all the tax that they are paying in one simple table? Every company would disclose how much it generates as a result of its operations in terms of PAYE paid, employer national insurance paid, employee national insurance paid, VAT collected as a result of sales, and corporation tax. In my company’s case, there would also be the excise duty generated as a result of the company’s existence. That would put into perspective how much tax a company is generating.

The noble Lord, Lord Leigh of Hurley, made a very valid point about the legislation that exists because our tax code is so complex. In spite of all the efforts of the noble Lord, Lord Lawson, we still have such a complex tax system and legislation is constantly plugging holes. The noble Lord, Lord Leigh, said, very correctly, that it is not fit for purpose and that we must continue to try for a global solution. He spoke very clearly about SMEs, which are paying too much tax, in relative terms, unfairly. As a country, we do not have a competitive tax regime overall. Our corporation tax rate may be one of the lowest, but our capital allowances, on the other hand, are not good enough and our top rate of income tax, at 45%, is still very high. The overall tax burden on the consumer and on companies is actually very high. Do the Government have the guts to address the overall situation?

I conclude by getting to the crux of all this, which is that we should not really be focusing on corporation tax, although we must address that. My dream is for us to have a simpler, fairer tax system that is competitive, attracts investment and promotes spending, saving and growth.

The tax gap has been estimated at around £32 billion. Within that tax gap, it is estimated that the annual cost of tax avoidance is around £5 billion and the annual cost of tax evasion about £4 billion. The official definition of tax avoidance is “bending the rules of the tax system to gain a tax advantage that Parliament never intended. … It involves operating within the letter but not the spirit of the law. Tax avoidance is not the same as legitimate tax planning”.

Tomorrow an event will be held by the All-Party Parliamentary Group for Social Science and Policy entitled, “What can policy makers do to reduce tax avoidance by large companies?”. The invitation letter to the event states:

“Tax avoidance by multinational companies such as Google, Starbucks and Amazon has sparked a public outcry. A recent poll commissioned by ActionAid found that 80% of people want the government to take tougher action. In 2012 Amazon paid just £2.4m of UK corporation tax on UK sales of £4.2bn—less than the £2.5m it received in government grants. Thames Water paid no corporation tax and pocketed a £5m credit from the Treasury. Every pound lost through tax avoidance could have been spent on protecting public services—yet last year HM Revenue & Customs wrote off £5bn in tax as uncollectable. It estimates the ‘tax gap’ at £32bn”— as I said—“while many tax experts believe the figure is twice that”.

I thank the noble Lord, Lord MacGregor, and the Economic Affairs Committee, of which I was proud to be a member, and all the officials—Bill Sinton and the team. It was a tremendously constructive and pro-active committee in which to take part.

In his opening speech, the Minister said that the objectives are to improve competitiveness, tackle tax avoidance and help hard-working families. The noble Lord, Lord MacGregor, made the very important point that, for the first time, we as a committee were able to meet in advance of the Finance Bill being published and look at a draft version. I congratulate the Government on allowing us to do this and thus take advantage of this House’s expertise.

There is no question that the intentions of the GAAR—the general anti-abuse rule—are good. However, does the Minister accept that it is too narrowly targeted and focused through the double reasonableness test, and therefore will not catch the Googles, the Amazons and the Starbucks? Do the Government accept, as the noble Lord, Lord MacGregor, said, that they need to communicate very clearly to the press and public that this will not happen, although the intentions are very good, given that people have the expectation that now that the GAAR is there, all this tax avoidance—tax abuse on a large scale—will disappear?

As the noble Lord, Lord MacGregor, said, the important point is that this needs to be tackled on internationally. Are the Government confident that they will be able to do that on an overall basis? Furthermore, I do not think that the public understand clearly where the tax that is generated comes from or the composition of the tax pie. Will the Government confirm that they will publish tax information to enable everyone to understand where the tax they are paying is going so that they understand clearly that corporation tax actually makes up a very small proportion of the tax that is generated in this country? The companies that are being attacked should pay more corporation tax but are they being sufficiently congratulated on the employment they are generating, the taxes generated through that employment, the innovation they are generating and the business they are bringing to this country? Are things being looked at in proportion? However, as the noble Baroness, Lady Kramer, said, there is no question that the GAAR should at the least be a deterrent and send out a signal that tax avoidance which becomes abuse is not acceptable.

The cap on income tax reliefs was not consulted on properly by the Government. It was ill thought through and I agree with the noble Baroness, Lady Wheatcroft, that it risks restricting reliefs for genuine trading and other losses. In fact, she described it as perverse. I request that the Government do a more detailed review to get a better understanding of the effect of the cap because it could hamper business investment. The Government did very well in consulting on the GAAR, but unfortunately I do not think that they consulted adequately on the caps and reliefs. The noble Lord, Lord MacGregor, spoke about simplification and the noble Baroness, Lady Wheatcroft, spoke about Tolley’s Tax Guide getting bigger and bigger. Surely the Minister would agree that the Government should be working towards simplifying tax. Could he confirm that?

President Clinton spoke here in London a few years ago and I remember him clearly saying that, increasingly, we live in a world that is more interconnected and integrated. Now the time has come to work together to tackle this tax abuse on a global scale. Better transparency is the only way that we can deal with it. The noble Lord, Lord Wakeham, as a fellow chartered accountant, summed it up beautifully when he talked about being true and fair. That is what we were brought up to do. Audit reports had to reflect a true and fair view. We have to aim for that.

Once again, I thank the committee, the noble Lord, Lord MacGregor, and the officials. I also thank the Government for consulting and allowing us to meet in advance so that the House of Lords can play a role and use our expertise, even though we have no power whatever over financial matters. Here is an opportunity for us to give our views in advance, and to have them listened to and taken into account by the other place, so that, as the Minister said, we have a tax system that will tackle avoidance, is fair and, most importantly, is competitive, transparent and simple.

It struck me that few cities in the world—the report did not really touch on this—are a political capital, a government capital and a financial business capital. London is one of them: think about Washington, New York, Delhi and Mumbai. We have a huge advantage. But for London to develop I think that autonomy would help. Although Crossrail is going ahead and will make a huge difference to London and the country, we still have the problem of the third runway at Heathrow being delayed and delayed. Our airport infrastructure is creaking. We are losing our competitiveness.

Although tourism brings in well over £100 billion to the economy of Britain and London brings in a huge proportion of that, the most photographed building in the world is the Eiffel Tower. The second most photographed building in the world is our wonderful Houses of Parliament. Why is that? Is it because we do not belong to the Schengen scheme, which would advantage this country so much? Does the Minister agree that we should join the Schengen scheme? That would bring into this country even more tourism, business and investment which would benefit London.

The other aspect that the report did not really touch on was the whole relationship between the City of London and London. Of course, we all know the joke that the lord mayor of London makes the money and the Mayor of London spends the money. We have the richest and most important square mile in the world. Even after the financial crisis, the City of London is still the number one financial centre in the world and we are proud of it. But are the Government really clear about the relationship between the City of London and London? Is that a fair relationship? The report does not address that and I would be very interested in the Minister’s view.

As regards devolution, the future of London and its success is a prize for the whole country. However, in the latest results on productivity, when London was compared with other countries in Europe for example, its productivity was average at £58,000 per worker. Cities such as Paris, Frankfurt and Brussels were higher. Stockholm was number one on the list. Yet London’s productivity is 44% above the UK average. That is a serious issue. We really need to get the productivity of this country up in a big way and London’s productivity could be so much more.

The other point is that cities are the engines of growth for an economy. The noble Lord, Lord Patten, said that we are the most dominant city. In the United States, the Olympic Games did not take place in Washington or New York. Another city was chosen. Here, the Games took place in London and we are very proud of that.

We have not spoken about Europe and the European Union. In my role as the founding chairman of the UK India Business Council, I always see Indian businesses looking on the UK as a gateway into Europe, although in fact they are looking upon London as a gateway to Europe. Again, that would help London in its competitiveness. We must remember that outside London there are other great cities in Britain. Recently, I was in Liverpool where I spoke at the Accelerate Conference. Next year, the International Festival for Business will take place in Liverpool, showcasing the whole of Britain. It is important that in promoting London and giving autonomy—I will come to that later—there is also autonomy for other cities, which will unlock the UK’s economic potential.

The other thing that the report does not really emphasise enough is that we have the best of the best in the world in professional services in London when it comes to lawyers, accountants, insurance and banking. We need to enhance that competitiveness. However, the Financial Times states:

“The Greater London Authority has just one tax—the council tax—from which it receives a precept alongside the other local authorities within its boundaries, while Tokyo raises 16 separate taxes and New York has an array of levies, including property, sales and income taxes. Berlin wields a wage tax, among others, while Frankfurt receives a share of VAT. The drive by London’s authorities for greater leeway on tax is taking place amid a wider devolution movement in Britain”.

City deals are about to take place and incentives will be given to eight large urban centres in Britain. Can the Minister say why those incentives have been given to all those cities? Should they not also be given to London?

I chose London as the headquarters for my business because I think it is the best place in the world to have a global headquarters. I think what the London Finance Commission suggested would without doubt help London and our whole country. More flexibility and more autonomy would unleash London’s potential.