Select Committee on Treasury Minutes of Evidence

Examination of witnesses (Questions 100-119)



  100. It is not just a bit convenient for you, Minister?
  (Dawn Primarolo) Mr Ruffley, if I could just perhaps answer one question at a time. Let us be absolutely clear. This is a Commission study. They will determine when it goes on the agenda. It is not influenced by anything else, except the Commission having completed the study. Originally the study was asked by Ecofin to have been available at an earlier stage. For some reason, I am sure due to pressure of work, the Commission have not been able to complete. When they have completed it will be available and then I will be able to answer the specific questions on anything which may be contained in that. It is not shared with us at this stage.

  101. That is a kind of "the dog ate my homework" explanation?
  (Dawn Primarolo) The dog never ate my homework.

  102. Maybe it should have done.
  (Dawn Primarolo) Did it eat yours?

  103. The report in the Financial Times, 30th April, where it was reported that ". . . Her Majesty's Government has tried to encourage the Belgian Prime Minster and the Belgian Finance Minister to tone down their interventionist ambitions particularly in relation to tax harmonisation", have you read that report?
  (Dawn Primarolo) I saw the report, yes, in the Financial Times, as I am sure we all did. There is often much speculation around with regard to European issues and particularly the sensitive issue of tax because of its importance as a Member State determined matter on unanimity. It is simply wrong to suggest that tax harmonisation is on the agenda or, as we have discussed many times before in this Committee, is a necessary part of a single currency. I can answer questions specifically on Government policy but speculation in the press, as you have already suggested to me, I should not engage in speculation.

  104. Is tax harmonisation popular in this country, do you think?
  (Dawn Primarolo) I think the people in this country concern themselves with the prospects that they have for security in their employment and security in the future and what they want to see is a dynamic economy here in the United Kingdom. As we all know it is a matter of some discussion in our communities of the best place for the UK economy to flourish, whether that is within a single currency or not.

  105. It is convenient, is it not, that tax harmonisation, which is not universally popular in this country, is not going to be raised prior to what most people expect to be a General Election in this country? I therefore ask you finally, Minister, in connection with that, can you give a categorical denial to this Committee that the United Kingdom Government in any manifesto, any official, any representative, any minister, has not sought to get the Belgian Presidency to downplay or otherwise marginalise tax harmonisation issues because of the proximity of a likely General Election in this country?
  (Dawn Primarolo) To date, the Belgian—

  106. What I want is a categorical denial so we are absolutely clear.
  (Dawn Primarolo) I know what you want. You want an answer and given that there are no proposals on the table to date made by Belgium then your assertion that something has gone on is simply incorrect.

  107. You will not tell us what is in this report?
  (Dawn Primarolo) We are awaiting the next Presidency, as all Presidencies do, laying out their intentions for the Presidency. The only thing that I am aware within my remit that the Belgians have made a clear statement in different places about is their commitment to take the tax package forward in the same way as this Presidency and the previous Presidency did.

  108. I will repeat the question so that you can have a second attempt at either confirming—
  (Dawn Primarolo) There is no need to be rude, Mr Ruffley, you can put the question—

  109. I will.
  (Dawn Primarolo) —but the answer is there are no proposals from the Belgian Presidency on the table and, therefore, we have not responded to any proposals because there are not any on the table.

  110. Has any representative of the United Kingdom Government made representations to the Belgian Presidency about tax harmonisation issues?
  (Dawn Primarolo) We have no proposals from the Presidency.

  111. Is that a no or a yes?
  (Dawn Primarolo) We do not approach on the basis of something that we do not know. Tax harmonisation is not on the agenda. Other Member States do not support the prospect of tax harmonisation. The way forward has been accepted as dealing with harmful tax practices and in dealing with the efficient operation of the single market and using exchange of information and enhancing transparency as a way of developing all our economic agendas. There has been no indication from the Belgian Presidency that they intend to run their Presidency any differently from those principles.

  112. That was not the answer to the question, so let the record show you do not deny it.
  (Dawn Primarolo) Too many Perry Masons here.

Mr Beard

  113. The Treasury submitted a paper to the informal European Council meeting in Stockholm entitled "European economic reform: Meeting the challenge" which called for national governments to undertake enterprise policies to promote research and development and venture capital. Could you say what progress has been made in that?
  (Miss Johnson) I am sorry, I thought you were originally directing your inquiry to the Paymaster-General. I think it may be more appropriate to me. I am very sorry, could you possibly start from the beginning again. My apologies.

  114. The Treasury submitted a paper to the informal European Council meeting in Stockholm in March this year entitled European economic reform: Meeting the challenge. The basic theme of that was to call for national governments to undertake ". . . enterprise policies to promote research and development and venture capital with greater effort in basic research and the arrangement of entrepreneurial spin-offs from universities". I wonder if you could say what progress has been made in that direction?
  (Miss Johnson) There was endorsement at Stockholm of the Chancellor's proposal that there should be a research and development and innovation study and that should be ready for the spring Council in 2002. That will share best practice for raising research and development and innovation performance. We think this is a very productive discussion and study and there was renewed support at Stockholm for reforms to the EU research and development budget aimed at creating a critical mass for the EU in the most promising research areas. There is also work going on on how to promote biotechnology, which is obviously a key technology for the future, consistent with common fundamental values and ethical principles which are obviously issues that arise in this context.

  115. Are you aware that the Select Committee on Science and Technology partly addressed this question in looking at why engineering and the physical science based industry were so poor at innovation and came to the conclusion that it was not for lack of money put into fundamental research but for lack of money put into the much more expensive development? The European Union in its various programmes that have supported research has been particular about putting money only into basic research and not getting too near the market and as a result we find that we end up with a large queue of good ideas coming forward out of basic research but we do not do anything very much with them in Europe because we do not put the money into the development. Would you use your good offices in promoting this to ensure that those points, highlighted very clearly with a mass of evidence in the Select Committee's report, are taken into account in assessing how this scheme will work?
  (Miss Johnson) I am very grateful to you for mentioning them because I personally was not aware of them but I expect that officials in the Treasury are well aware of them and that the Chancellor is well aware of them. We will certainly bear those points in mind. I think it is exactly the right timing for those sorts of things to be taken into the discussions that are going on in this area to make sure that we do get the best out of our R&D investment in an EU context.

  116. Could I just direct this question to the Paymaster General? It is about the Code of Conduct covering tax havens. Until last year the Government had delayed giving Royal Assent to the 1998 Finance Bill in Jersey because it contained a clause for allowing designer tax. In other words, a company determining the tax level it would pay in Jersey on the criteria of whether it allowed it to avoid tax in its home base. But now the United Kingdom has accepted the practice of designer taxation contained in the 1998 Finance Bill in Jersey. Could you say why?
  (Dawn Primarolo) No, we have not accepted the particular mechanism that you are talking about, the designer rates. The UK will continue to seek an end to what we consider to be predatory tax measures. Indeed, we introduced a defence against possible loss of revenue as a result of the introduction of that particular regime. I am sure you are aware that the regime in question was within the Finance Bill for Jersey which had a number of other issues to do with Jersey. As I have explained here, again on a number of occasions, our relationship is bound by the constitutional arrangements. What we did not want to do, and we tried very hard to persuade Jersey on that particular regime, was there was no way we wanted to be seen to condone such tax laws because we consider them to be totally unacceptable. For some time there was discussion with Jersey on this particular regime but in the end, on advice taken within the broader considerations of our relationship with Jersey and given that it had other items in it that were perfectly okay and have been in since 1998, we were required to give Royal Assent. I think this highlights something that Sir Teddy has concentrated on a great deal at different times, both in the Chamber and in this Committee, about the constitutional relationships between ourselves and Crown Dependencies and overseas territories, which is one of persuasion. We will continue to discuss with them this particular regime.

  117. Is this measure of designer taxation that is within the Jersey Finance Bill compatible with the EU's Code of Conduct? Are you saying "no, it is not but we have got to accept it because they have threatened us with legal action"?
  (Dawn Primarolo) I must admit I think I would need to look just in detail. My initial reaction is no it would not be compatible with the Code, which I know you understand is voluntary and non-binding. It is a political agreement. As part of that it is clearly stated that ". . . All Member States with dependent and overseas territories would use their best endeavours within the constitutional arrangements to see that niche regimes . . .". This is basically where companies can design their corporate tax rate in order not to have to pay tax in the country which would normally otherwise have expected to have received it. I am sure all of us would want to say that practice is totally unacceptable. I do not remember—and I would have to check the list—that this particular regime was within the listed regimes which were considered by the Code of Conduct as of its report to November Ecofin 1999 without unseemly ruffling through all my papers.


  118. Perhaps you can drop us a note on that?
  (Dawn Primarolo) Yes,[3] but I think the absolute thing is that we encourage our overseas and dependent territories to comply with OECD, to the highest level, of what we believe is behaviour of an international standard that is acceptable, and we have some persuasion still to do clearly.

Mr Beard

  119. Would it be fair to summarise this as the position, that we tried to get Jersey to conform with the Code of Conduct, they would not, and we could not do much about it for legal reasons, especially because they threatened us with the law?
  (Dawn Primarolo) Well, with respect, it is wider than the Code of Conduct. Her Majesty's Government found this particular proposal offensive and, regardless of whether there was a Code of Conduct or discussion at the OECD on harmful tax practices, this would be a straightforward issue in terms of tax practice which Her Majesty's Government would wish to discourage. Indeed, we had to announce introductions into our tax regime to try and defend ourselves against loss of action and that was announced in October 1999. Frankly, the issue about whether it is in the Code or not, it is an issue that it should not happen. We, vis à vis Jersey, regardless of anything else, took the view that it should not happen.

3   See p. 16. Back

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