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House of Lords

Monday, 15th February 1999.

The House met at half-past two of the clock: The LORD CHANCELLOR on the Woolsack.

Prayers--Read by the Lord Bishop of Blackburn.

EU Tax Harmonisation Proposals

Lord Barnett asked Her Majesty's Government:

    What European Union tax harmonisation proposals they have agreed or propose to agree.

Lord McIntosh of Haringey: My Lords, since the UK joined the Community indirect tax measures have been agreed at EU level in most years in line with relevant treaty provisions. We shall continue to judge every tax proposal according to the national interests. We shall not support any aciton at European level that threatens the competitive position of British business or harms investment and jobs in Britain. Europe's priority is the promotion of employment reforms and competitive markets to achieve higher employment and prosperity.

Lord Barnett: My Lords, I am delighted to hear my noble friend's reply. My noble friend has always been very helpful in these matters. As regards harmonisation to combat tax avoidance in Europe, which I assume everyone in your Lordships' House favours, with perhaps the odd one or two exceptions, did my noble friend read a recent Answer given by his noble friend Lord Williams of Mostyn in which the House was informed that £150 billion was invested in the Channel Islands? While some of that investment is helpful to the UK, much of it will be part of the tax avoidance industry. Can my noble friend assure the House that he will not allow the fact that the Channel Islands are Crown dependencies to prevent action being taken whether on a harmonised or any other basis?

Lord McIntosh of Haringey: My Lords, my noble friend may be aware that the Foreign and Commonwealth Office is preparing a report on the status of the overseas territories. That report will be available shortly. In the meantime, the Code of Conduct Group of the European Union is looking at dependent territories. I hasten to assure my noble friend, however, that that group is doing so within the framework of its constitutional arrangements.

Lord Higgins: My Lords, does the Minister recognise that the delay in killing the withholding tax proposal is damaging to British interests? If the Government are saying to their European partners the same as the Minister is saying to this House why is this matter dragging on? As to the list that is being considered by Ministers and to which the noble Lord has just referred, if the Government favour open

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government why are they not publishing that list so that British interests that are affected can make representations?

Lord McIntosh of Haringey: My Lords, there is no delay in killing the withholding tax. There is no firm proposal for either a withholding tax or the alternative of an exchange of information that we prefer. There is no question of any delay. As to the list, we have published the five tax measures in this country that are being considered by the code of conduct group. We have fulfilled our responsibilities as far as concerns open government and it is up to the other European nations to do the same if they wish; it is not up to us.

Lord Shore of Stepney: My Lords, it is reassuring to hear my noble friend's reply, but perhaps he can comment on two points. First, does my noble friend agree that Article 99 of the treaty commits us to the principle of harmonisation of indirect taxation? Although there is a veto attached to it, its use is not always an easy matter. It is known that we hate to be isolated and on our own against the general thrust of majority opinion. Secondly, what does my noble friend have to say about the immediate threat to the London art market where VAT is about to be doubled from 2.5 per cent. to 5 per cent. and a new tax that I have never heard of before--droite de (or whatever), which I understand to be a levy rather than a tax--will have a very adverse effect? Can my noble friend assure the House that he has both the will and the ability to stop those increased tax measures taking effect?

Lord McIntosh of Haringey: My Lords, my noble friend's first question is about indirect taxation. I have made it clear that indirect tax measures have been agreed in most years since we first joined the European Community. Indeed, since May 1997 two indirect tax measures have been agreed by this Government: one in March 1998 (the FISCALIS Programme) and another in October of that year (the special scheme for investment gold). Neither of these matters, although of substance, is of great political importance (if I may put it that way). However, since May 1997 the Government have not agreed any harmonisation measures as regards direct taxation.

I did not answer my noble friend's second question. We are concerned about VAT in the art market. We still seek to persuade our fellow member states that the existing derogation should be continued after 1st July; or that all other countries should come down to the same figure. That issue has not yet been resolved.

Lord Lawson of Blaby: My Lords, my noble friend rightly raised the matter of the common European withholding tax. Does the Minister realise that it is not enough simply to say that we would prefer an exchange of information? Of course we would; that is right. But he must also make clear that we would not concur in any way with a common European withholding tax, because unanimity prevails. Leaving the subject of tax avoidance aside--the noble Lord, Lord Barnett, is the greatest expert on that subject--will the noble Lord state clearly that having a lower rate of tax is in no sense unfair tax

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competition--the other concept put forward by the European Community?

Lord McIntosh of Haringey: My Lords, it is right that having a lower rate of tax is not in itself unfair tax competition. I can confirm the noble Lord's point that we have a veto. If the final draft directive from the European Commission were to be in the form of a withholding tax, and in particular a withholding tax which included eurobonds or any tax which affected our economic interest and our financial markets, we have the right to, and would, veto it.

Lord Newby: My Lords, given the misinformation and media hysteria about tax harmonisation, can the Minister assure the House that the British Government will press governments of other member states to adopt the same degree of openness about those measures of tax harmonisation which they are considering so that the debate in Britain and elsewhere can be on measures which are being considered?

Lord McIntosh of Haringey: My Lords, the noble Lord confuses two different issues. Where other states are not giving examples in public is not related to tax harmonisation but to special measures which might be considered by the code of conduct group. I do not think that it is up to us to advise other member states on how they make voluntary announcements about their policies.

Lord Tebbit: My Lords, does the Minister accept that many in this House and in the wider world have some sympathy with tax avoidance, even through the Channel Islands. Will the Government refrain from any vindictive measures in that regard against, for example, Mr. Geoffrey Robinson, a Member of another place? Will the Minister say whether the Government agree with what Herr Schroder said in the Hague on 19th January that,

    "the times of individual national efforts regarding employment policies, social and tax policies are definitely over"?

Lord McIntosh of Haringey: My Lords, I am grateful to the noble Lord for drawing my attention to Herr Schroder's remarks at the end of last week. It was helpful to have prior notice. Herr Schroder's remarks were widely drawn. However, our view is that tax measures to deal with tax evasion are of benefit to all members of the European Community.

The Prison System

2.46 p.m.

The Lord Bishop of Lincoln asked Her Majesty's Government:

    What plans they have to ensure that by the year 2000 the prison system is less stretched and better able to rehabilitate prisoners.

The Minister of State, Home Office (Lord Williams of Mostyn): My Lords, the latest projection suggests that pressures on the prison population by the

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year 2000 will be lower than previously forecast. The central projection for the average prison population in 2000 is 64,600, 7,600 fewer than previously.

As a result of the Comprehensive Spending Review settlement £226 million has been allocated to deliver our commitment on constructive regimes. This money will lead to an expansion of offending behaviour and drug treatment programmes, as well as education.

The Lord Bishop of Lincoln: My Lords, I thank the Minister for that reassurance. Will Her Majesty's Government consider marking the millennium with an amnesty for selected non-violent prisoners in order that the Prison Service can begin the new millennium with a more manageable prison population and build on the reassurance that he has given?

Lord Williams of Mostyn: My Lords, amnesty is not a traditional remedy in this country. I believe that there are serious objections to it as a matter of principle. However, as always I shall transmit the right reverend Prelate's suggestion to the Home Secretary.

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