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Lord Waddington: My Lords, I can assure the noble Lord that I have been listening to him for a very long time. I have been coming round to the view that the noble Lord was right long before I realised it.

Lord Stoddart of Swindon: My Lords, I thank the noble Lord for that admission. I am very pleased to have taken part in his tutoring as to the real meaning of the European Union. I and other noble Lords, for example my noble friend Lord Bruce of Donington and the noble Lord, Lord Pearson, have given warnings every time we have signed a new treaty, from the Treaty of Rome to the Single European Act. My noble friend Lord Bruce of Donington and I opposed that Act on behalf of the Labour Party. We warned that it would lead to huge increases in the power of Europe and the European Commission, but our warnings were ignored. We were also firmly opposed to the Treaty of Maastricht because we knew that that was the foundation of what we now have; namely, tax measures relating to economic and monetary union to build a country called Europe, which I and the noble Lord, Lord Waddington, do not want. I do not believe that the people of this country want it either.

I do not agree with that part of the Bill which calls for a referendum. I believe that that would undermine the position of Parliament; and that is precisely what I would not wish to do. The referendums would be expensive nightmares and would undermine the basic power which gives Parliament its sovereignty: that is, the power to raise taxes. We have to be careful that we do not undermine the power of the House of Commons to raise taxes and to withhold supply.

It is clear from Answers to my Written Questions on the subject of the withholding tax which was mentioned by the noble Lord, Lord Waddington, that Ministers now have a device whereby they, and not Parliament, decide on the taxes we pay. That is altogether reprehensible.

I must weary the House with my Questions which were answered on 27th May. I asked,


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    A failure to give effect to an obligation to transpose the provisions of an EC Directive would be a breach of our obligations under the EC Treaty, and would render the United Kingdom liable to infraction proceedings under Article 226 (ex-Article 169).


    The European Communities Act 1972 provides for effect to be given in our domestic law to obligations of the United Kingdom under the EC law, including, where necessary, for those obligations to override inconsistent provisions of our domestic law".--[Official Report, 27/5/99; col. WA 100.] That Answer indicates clearly, first, that without the consent of Parliament Ministers can agree to measures which then become binding on Parliament unless they repeal the European Communities Act 1972. That is the position we have.

Members of the House of Commons should be hopping mad about it. They should be having another civil war about it. The civil war was fought about whether the executive, the king, would be able to raise and levy taxes which had not been agreed by Parliament. The king was beheaded. But now we have the European Commission and the European Union.

What that means is that Ministers, despite the undertaking in 1990 not to vote in favour or abstain if EU proposals are still subject to parliamentary scrutiny arrangements, can, once scrutiny is completed, go ahead and agree to taxation proposals in the EU which Parliament could not undo at any time without being in breach of European law.

Thus, two basic tenets of our constitution are set aside at one fell swoop: first, that Parliament can withhold supply; and, secondly, that one Parliament cannot bind its successor unless it first repeals the European Communities Act 1972. I would love it to do that because it would set this country free to pursue its goals in the global environment, free from the depressive and depraved regulations which emanate from Europe and impose on this country a situation which does not suit its people, history, institutions or heritage.

If we are to remain in the European Community--and I do not believe that we should--and at the same time protect the power of Parliament, a constraint must be put on Ministers to ensure that they do not usurp the power of Parliament over granting supply and raising taxation.

My noble friend will no doubt protest that Ministers would not dream of trying to usurp Parliament's powers. Of course I would believe him. I respect him and I know that he would not want to mislead me at all. But, of course, some of us, perhaps including my noble friend, remember the sixth directive on indirect taxation which still hangs over British taxpayers like a financial sword of Damocles, agreed to by a Labour Government.

Then, of course, there was the agreement by the previous Conservative government, in addition to modification of the rules relating to VAT, to abolish duty free goods, which could not be saved by either the Prime Minister, despite his best efforts, or Parliament. The British Parliament could not repeal the directive; it could not tell British people that they could continue to have duty free goods. They will be phased out at the end of this month. So Parliament has lost its right to give a tax concession to its own taxpayers.

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Therefore, we can see that the Government cannot be trusted on this subject--I trust my noble friend, but I do not trust governments--because they have already taken action either by design or shear stupidity to undermine the position of Parliament. What I find very worrying, and I hate to say it, is that Mr Blair appears to believe that Labour MPs should act as ambassadors for the Government rather than as representatives of the people checking the excesses of the Government and holding them to account, especially in regard to expenditure and the raising of taxes.

MPs are servants of their constituents; they are not ambassadors for governments, whether they be Tory, Labour or any other kind. The very freedoms of this country depend on Members of Parliament being prepared to defy governments--their own government if necessary--to ensure that the rights and duties and sovereignty of Parliament are upheld. I hope that will be remembered and that my right honourable friend the Prime Minister will reconsider his strictures on Labour MPs that they should be ambassadors for his Government.

For the reasons I have mentioned, I cannot support the Bill in its entirety. However, I believe that it should be given a fair wind today; it should be given a Second Reading and, if necessary, amendments can be made at later stages.

2.39 p.m.

The Earl of Dartmouth: My Lords, I thank very much the noble Lord, Lord Waddington, for bringing forward this very important and interesting Bill. I have just been presenting myself to the electorate on a platform of "In Europe, Not Run by Europe", a phrase which some noble Lords may have heard a few times before. The reason why that phrase was successful is because to a very large extent we find ourselves in the present situation of being in Europe and run by Europe. There is perhaps no better example than the continuing pressure from the European Union for what it terms tax harmonisation. The Council of European Finance Ministers, chaired by our very own Gordon Brown, has already called for an end to what they call harmful tax competition.

There is a very good example not very far from these doors of what happens when we acquiesce in that. About six months ago 2.5 per cent VAT on art imports and exports was levied on the London art market. The effect of that has been the near termination of the London art market as an international entrepot and trading centre. Far from the business going to France or to Germany, which is probably what they would have liked, the business has been driven, and is being driven, outside the European Union entirely to Geneva, Monte Carlo and New York.

The imposition of the tax, which is droit de suite, will kill off what is left of the international element of the London art market almost entirely. Unfortunately, that is what happens when we allow taxes to be imposed on us from Europe.

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The noble Lord, Lord Waddington, has drawn attention to the European Union code of conduct group chaired by a British Treasury Minister, Dawn Primarolo. The group has been called into being to review some 200 tax breaks, all of which are designed to lower taxes. The code of conduct group is there to stop what is called harmful tax competition. It is apparent from a Parliamentary Question and a reply dated 14th June--therefore it is fairly hot off the press--that eight of the tax breaks being examined are specifically British.

My noble friend enumerated them himself, so I will spare noble Lords the full list. But I make the very important point that four of those tax reliefs were introduced by the Government. They are--I stand to be corrected--100 per cent capital allowances for films; for scientific research; 100 per cent capital allowances for small and medium enterprises in Northern Ireland; and 40 per cent capital allowances for small and medium enterprises in the rest of the United Kingdom.

The decisions of the code of conduct group are not binding. However, the Government have said that they will abide by the conclusions of the group. In effect, therefore, the decisions of that group are binding. In terms of our national sovereignty that is an example of our present situation, which is being in Europe and run by Europe.

We have the bizarre paradox that a group chaired by a Treasury Minister will very likely have to negate tax concessions made just a few months earlier by the Government of which he is a member. I look forward to the Minister responding to that point.

Another example of action over which we have had no influence at all is the abolition of duty free. That was touched on with customary eloquence by the noble Lord, Lord Stoddart. Britain needs to have tax competition. That means low taxes and, in consequence, low unemployment. What brings international investment to our country is principally, among other factors, low taxes. It is not the Government's ability to get the German Chancellor over to a campaign meeting, nor is it the Government's commitment in principle to abolish the pound. It is low taxes and costs which bring investment here.

I turn now to the matter of indirect taxes, which is an area where we do have control. Indirect taxes, taken as a whole, are much higher here than in continental Europe. There is a strong argument for tax harmonisation, but it is to harmonise the levels of indirect taxes here and in continental Europe. In fact, the Government are busy deharmonising indirect taxes with the level of indirect taxes in the euro-zone. Specifically, they have increased taxes on cigarettes and petrol and they have failed to reduce taxes on whisky.

There is a free market to some extent, which has resulted in widespread smuggling and much lower revenue for the Exchequer. If there is a desire to harmonise taxes it is concentrated on indirect taxes, not on direct taxes. Furthermore, the heavy impost of indirect taxes on diesel fuel has placed heavy burdens on the road haulage industry. That has placed British road hauliers at a specific cost disadvantage to their competitors in continental Europe. Many hauliers will

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be driven out of business as a direct consequence of the Government's commitment to deharmonise indirect taxes; that is, to raise taxes here in relation to the level in continental Europe.

The British Parliament's ability to set its taxes at its own rate is a fundamental tenet of sovereignty. Indeed, that is what the English Civil War was fought over. I have some slight embarrassment in making this point, as my direct ancestor, the first Baron Dartmouth, was military governor of Oxford, the Royalist capital in the Civil War. So I am arguably estopped from making this point, but that does not make it any the less valid.

In conclusion, I make the point that tax harmonisation removes our competitive advantage in world markets. Should we adopt euro-zone levels of taxes, it would result in this country having euro-zone levels of unemployment. We must retain at all costs our low tax, low cost, low regulation, high employment, high growth economy. That means not succumbing to tax harmonisation, and, to coin a phrase which your Lordships may have heard before, being in Europe and not being run by Europe.

2.47 p.m.

Lord Nunburnholme: My Lords, once more I offer my congratulations to the noble Earl, Lord Dartmouth, on making good, hard points which he rammed home, and that is what must be done.

Once again, I must ask your Lordships to concentrate, as I did some six months ago, on the 20 per cent withholding tax. We should not forget also that the late departed Lord Denning warned strongly against the perils of the European Union. There is no doubt that Lord Denning will go down in history at the same level as F.E. Smith, the first Earl of Birkenhead and Marshall-Hall. He was in that category.

That tax harmonisation is seemingly to placate Germany which wishes to put a stop to money flooding across its border into tax havens such as Switzerland and Luxemburg. It will be an entirely fruitless exercise as the avoiders will simply send their money to Jamaica, the Caribbean or any other untouchable tax haven.

But no. That is not what it is about. That is not the purpose. The purpose is to weaken the City of London, the financial centre of Europe, and its eminence as a global financial centre. Germany wants that to be in Frankfurt. The USA would not be exactly displeased either. It knows that no sensibly minded investment adviser will tie his monetary assets into the euro, with its ever-changing bureaucracy and social chapter after social chapter, apart from its instability.

Have we any reason to believe that this Government, or any other future Europhile government, will not give way on tax harmonisation? They have surrendered on everything else, for example the fishing industry and the heavy art market, which has gone to New York, setaside, totally contrary to the interests of this nation--we are net food importers. Why set aside 15 or 17 per cent? What is the point? The list goes on and on. What will come next? North Sea oil?

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The directly apparent earnings of the international bond market are £2.1 billion sterling per annum. That will be heading across the big pond and with it a further estimated £4 to £6 billion ancillary earnings; it may even be higher. That alone will double our cost of being in the EU. It is but one facet of the harmonisation and with it the 100,000 jobs which will go.

The incumbent of 11 Downing Street is known as the Chancellor of the Exchequer. He will always retain the title "Chancellor" but he will have to drop "of the Exchequer"; there will not be one. I could ask how long is this charade going on, but I do not have to. Clause 4 of the Communist Party manifesto and Clause 4 of the Labour Party manifesto are, as the Portuguese say, igual; that is, they are equal.

It is the intention of our dearly beloved president to tie his country into a seemingly socialist authoritarian state using the word "inevitable" as a propaganda tool. We can come out tomorrow and, with Europe's credit trade balance with us, there is nothing they can do about it. Apart from that, at present we pay the piper. The pro-Euros are being discourteous, to say the least, to the sovereignty of this nation. I could use a stronger word. This is farcical fiscal ineptitude.

2.53 p.m.

Lord Monson: My Lords, I am sorry that my name appeared on the wrong speakers' list. Nobody seems to know quite how that happened. In any event, there has been some chopping and changing today, but it all seems to have worked out all right in the end.

This Bill, so well introduced by the noble Lord, Lord Waddington, is surely sound and desirable in principle. Whatever may be the case in other countries, traditionally in the United Kingdom, as the noble Lord, Lord Stoddart of Swindon, reminded us, only the House of Commons can tax, notwithstanding that certain taxation powers may be delegated to regional parliaments or assemblies or, in the case of rates, to local authorities.

This principle applies both when a tax-raising proposal originates in a government which is formed from the current majority in the House of Commons and also when such a proposal comes from an outside source such as the European Commission via the Council of Ministers.

However, the idea that the electorate's endorsement of the tax harmonisation proposal be sought by means of a referendum is a rather different matter. I have never been opposed to referendums in theory, but in this taxation sphere the time, trouble and substantial costs involved would rarely be justified. In this small respect I differ from the noble Lord, Lord Stoddart; I believe that there might be rare instances where the implications of a tax harmonisation proposal were so grave--for example, if we were being pressed to raise the standard rate of income tax to the continental levels of 30 per cent or thereabouts--that it would indeed justify the expense of a referendum. Exactly how one could amend the Bill to provide for that hopefully unlikely contingency I am not sure, but I am sure it is not beyond the wit of man to do so.

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The necessity of obtaining parliamentary approval for more mundane run-of-the-mill taxation changes would concentrate governments' minds wonderfully--that is governments of all political persuasions. Above all, it would encourage them to use the veto more whenever our national interest is threatened, just like other countries do. In employing the veto there is no need for stridency or table thumping, the alleged prospect of which always alarms fastidious bien-pensants; a quiet but firm "No"; a single unrepeated "No" is all that is needed, and nobody can reasonably be offended by such a courteous response.

After all, nobody in government or establishment circles is publicly nor, I suspect, privately, raging against the one or two Benelux countries for insisting upon the abolition of duty-free--mentioned several times this afternoon--after 30th June, against the wishes of the other 13 or 14 countries. Almost nobody--this is both surprising and significant--castigated Spain for threatening to veto the accession of Finland, Austria and so forth unless the Spanish were awarded more structural funds, more extensive fishing rights and so on; in other words it was accepted as normal and proper for Spain to act out of pure self-interest. What is right for Spain must be right for all other EU countries, including our own.

On the more specific issue of tax harmonisation, one cannot see Greece ever agreeing to modify the extremely favourable tax treatment accorded to the Dodecanese Islands to compensate them for their relative remoteness from Athens--favourable treatment which sits ill with single market principles. Yet it is difficult to imagine the French, Germans and Belgians seriously criticising the Greeks for sticking to their guns on this matter.

Apart from being good for Britain, this Bill, shorn perhaps of all or most of its referendum provisions, would actually make the Government more popular with the electorate. In this week of all weeks, such a prospect must be enticing to them. For that, and for more disinterested reasons, one hopes that they will give it serious consideration.

2.57 p.m.

Lord Pearson of Rannoch: My Lords, I, too, believe this to be an excellent Bill. I hope it will be given a fair wind.

I also find myself somewhat in agreement with the noble Lord, Lord Monson, and somewhat doubtful of the strictures of the noble Lord, Lord Stoddart, against the referendum in this case. That is because--I am sure the Minister will want to confirm this when he replies--the House of Commons has already lost the power to tax. That is to say, if the executive agrees to a tax modification or a new tax in the Council of Ministers, then it is illegal under European law for the House of Commons to disagree with it.

Apart from that regrettable fact of European law under the Treaty of Rome, it must be unlikely that if the executive agreed to a tax change in the Council of Ministers in Brussels, the House of Commons would

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throw it out. If we look at how the House of Commons is composed at the moment, it would not be a line of defence for the people if the executive agreed, for instance, the withholding tax in Brussels. So, in those circumstances, I do think that a referendum would be justifiable, especially as we are not just looking at the withholding tax which is very much on the stocks at the moment; we are also looking at tax harmonisation over a very large area, and massive tax increases will be proposed before long by Brussels.


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