Select Committee on European Union Minutes of Evidence


Examination of Witnesses (Questions 20 - 39)

TUESDAY 14 DECEMBER 1999

MR KEITH VAZ MP, MR MARK LYALL GRANT AND MR COLIN ROBERTS

Lord Howell of Guildford

  20. Minister, at the heart of this there seems to be the problem that financial markets are global and savings can, in fact, flow anywhere in that globe. Yet the proposition is that somehow the area that is within the European Union should be the area that is controlled. Commonsense seems to suggest that immediately that would create a vast new range of tax havens outside the European Union, and there is no power to stop them. You are very good, Minister, at putting things in common sense and clear terms. How do you explain that to the ordinary person? It seems absolutely obvious that this kind of proposal is going to damage the whole of Europe and create new tax havens outside.
  (Mr Vaz) That is not what the Council hopes to do. What the Council hopes to do is state clearly that the tax on income of this kind has to be paid. We are against tax evasion and fraud and we must do our best, as European nations, to ensure that those who are engaged in evasion and fraud are caught and prosecuted, and that we must seek to ensure that every method is used to prevent that from happening. Our beef—if I can put it like that—to the rest of our European colleagues on tax is this: our Chancellor has done what other chancellors have done in the past (and we have a distinguished representative here of the last Government) and that is defended Britain's interests. The whole issue of the withholding tax, in our view, was badly conceived. We put our suggestions to our colleagues, which we felt were the right suggestions to deal with the unique situation as far as the City of London is concerned. We needed to protect the Eurobond market, and I believe that the package that was produced at Helsinki—which, as the Committee knows, will refer such matters to the High Level Working Group and come back and deal with the matter in six months' time—is the right approach. We were right to be strong on this issue. I believe that if Lord Lamont was in exactly the same position as Gordon Brown he would have done exactly the same thing. You have to fight for Britain's interests if a key and core issue of national concern is there. That is exactly what we did. We also believe that we are part of the solution to try and deal with those who wish to evade the payment of tax, and we believe there ought to be as much transparency as possible, but it has got to be in the interests of Britain.

  21. It has to be a global approach, though.
  (Mr Vaz) Absolutely. It has also got to go beyond the European Union. Your Lordship is right, because those who are able to find loopholes can do so in other countries, in other parts of the world. The best tax lawyers in the world may also work for some of those kinds of people as well as working for Her Majesty's Treasury.

Lord Williams of Elvel

  22. Would the High Level Working Group also be studying life insurance policies and personal pension plans, which are also savings and from which income can be derived?
  (Mr Vaz) I have no idea. I will seek advice from Mr Lyall Grant, because this is not an issue which has been raised before.
  (Mr Lyall Grant) This special High Level Working Group, my Lord, will look specifically at the three elements of the tax package, as it is called. There are other groups in the European Union that are already looking at the question of pensions and financial services in general.

Lord Tomlinson

  23. Minister, while I agree with what you were saying about the robust position that needed to be taken by the Government in relation to the tax package, can I go back to paragraph 35, because it says that the High Level Working Group has, as the starting point in these considerations, the paper of 7 December put forward by the Presidency which offers a way forward. However, it clearly was not a good enough way forward, otherwise it would have been agreed. What are the problems with the Presidency letter of 7 December?
  (Mr Vaz) Lord Tomlinson, you know the language that is used in these meetings and, of course, we welcome the work that the Presidency has done and the Finns tried to do in order to resolve these matters. The problem is that as a result of what was being proposed our protection of the Eurobond market—a three trillion dollar market—would have been put at risk. We are not doing this because we like having all this money in Britain and like looking at our trillion dollars' worth of Eurobonds, we are doing it for Europe. If we did not do it it would go elsewhere, as the Lord Howell has said. The world is a very small place, there is new technology and it is quite possible to move that outside the European Union very easily indeed. That is why the 7 December letter was unacceptable. I know they tried hard but that is the nature of these things—the Presidency do try hard—and we were right to defend our position because it was good for Britain and, indeed, good for Europe. We will continue to do so if it is in the best interests of our people.

Chairman

  24. Apropos the paper of 7 December, could we possible have a copy?
  (Mr Vaz) Certainly.

  25. The Government has not been good enough to send one.
  (Mr Vaz) I apologise, my Lord Chairman.

  26. That is not to say we have not got a copy, but we would like an official one.
  (Mr Vaz) I am reassured by the Foreign Office that this is actually a Treasury matter, but in the interests of joined up Government I will make sure one is sent.

Lord Lamont of Lerwick

  27. Minister, can I say that I wholly support the Government's position on this and I am very pleased it took such a robust stance at Helsinki. The remark was attributed to the Chancellor of the Exchequer that Britain would not have a withholding tax unless Switzerland and the United States also had one, which effectively means that we will not have a withholding tax. Is not the reality that this High Level Working Group will not actually achieve anything and there will not be agreement, and that will actually be the conclusion?
  (Mr Vaz) Good grief, I would not say that about any High Level Working Group set up by the Council. Of course, we have every confidence in, first of all, the quality of the people who will represent the various countries. We know that this is a serious issue and we will do our best to help but we will want our points to be met. I do not want to start in a belligerent way because the Committee has not even met, but we will examine every course of action to see what we can do in order to reach an agreement. In the end our objectives have got to be met.

Viscount Bledisloe

  28. I want to go back to your answer to Lord Howell. You talked about tax evasion and fraud, which are, of course, deplorable, but tax avoidance is perfectly permissible. Are you really saying that the aim is to abolish all tax havens all over the world? Is that an achievable aim?
  (Mr Vaz) No, I am not seeking to do so, and of course it is not achievable, because if you have got a good lawyer and a good accountant one is able to get the advice one needs in order to protect one's investments. However, that is acceptable. What is not acceptable is if people go out of their way to behave in a way that is criminal and become perpetrators of fraud or deliberately evade the payment of tax. That is not permissible. We cannot seek to rule the world from either London or Brussels—there is no question of world domination here—but what we do seek to do is to make sure that in our own area we get as much transparency as possible to enable those who are engaged in fraud and evasion to be prosecuted.

Lord Brooke of Alverthorpe

  29. Do you see a possible solution, Minister, coming as part of a package on the code of conduct of the Directive on interest and royalties? Can you, perhaps, give us an indication of what might be on offer, or a possibility, within the scope of that?
  (Mr Vaz) I think what we need to do is examine all the information that we have had so far. Our position on all three elements of the tax package was perfectly clear before Helsinki. As far as, for example, the code of conduct is concerned, we also work to make sure that the distortions that exist that put a high cost on business are removed, so that it is equitable and fair in all the European Union countries. We do not wish to be unhelpful on tax; tax remains a very crucial issue, and one can only proceed on tax, as your Lordships know, on the basis of unanimity. That is why one has to be extremely cautious in the way in which one proceeds on these matters. We will take a full part in the way in which the High Level Working Group operates and we will discuss all the various elements, and we hope a conclusion will be reached by the end of the Portuguese Presidency.

Lord Williams of Elvel

  30. Is Lord Lamont not right in the sense that we, in this country, do not like bearer shares or bearer bonds because, traditionally, since the 1997 exchange control acts, we have wished to keep control? On the continent of Europe bearer shares and bearer bonds are normal and the Eurobond market has followed that. If we start producing nominal Eurobonds in London then are we falling into exactly the same trap as the continental Europeans have fallen into?
  (Mr Vaz) We need to make sure that we retain primacy as far as the bond market is concerned. We have, I think the figure is—and I am sure Lord Lamont will correct me if I am wrong because he knows this better than I do—almost 75 per cent of the bond market. He is not nodding in a negative way so I must be right. Therefore, we must do everything that we possibly can in order to protect that situation. We are doing it not just for this country but for the whole of Europe. If we did not do it, off it would go outside the European Union, to the United States of America or to Switzerland, and that would be the end of it. That would mean jobs being lost in the United Kingdom, which is part of the European Union, so that will be bad for the European Union.

Lord Wallace of Saltaire

  31. There is a power within the OECD process on tax competition, and it seems sensible to run these two together. The last OECD paper I saw recognised off-shore tax havens, of which a third had British sovereignty. Does that also feed back into Britain's approach to this?
  (Mr Vaz) All papers identify very useful information of that kind and are going to be very helpful to the deliberations of the Committee. Whether or not we are more prone to this kind of activity I will leave to others' judgment.

Chairman

  32. Can we move on to the question of the IGC. Perhaps I should say at this stage, Minister, that it is the intention of the Select Committee to do an investigation into the IGC starting early in the new year, so we may be inviting you and others to come back and talk to us about that before much longer. The group of "three wise men" proposed that a draft Treaty would be a better way of handling this process. Have you any thoughts on that, and was it discussed in Europe? Secondly, their suggestions for simplifying the Treaty, I suppose, are in two parts. Was that discussed?
  (Mr Vaz) It is always useful to have wise men or women giving advice to the European Council. As I said the last time I came before the Committee, the report was very welcome in that it provided us not necessarily with Gold, Frankincense and Myrrh but with ideas which we could feed into the whole process. We welcome the report. Of course, in the end it is for the European Council to decide and they did decide. What they did decide, my Lord Chairman, is for a short and focused IGC, and that is what we need. We do not need to go mad about it because, frankly, there is not the time. It has got to be seen as part of a wider agenda. I believe that the people of the United Kingdom will not learn to love the European Union until the European Union learns to love reform. That is why this Government puts reform at the very top of our agenda as far as the Union is concerned. It means creating a Commission that is efficient, effective, transparent and accountable; it means ensuring that people understand the decisions that are being taken and it means making it relevant to the lives of ordinary people. Before I went to Helsinki I went on a 5,000 mile trip round the United Kingdom, and the reaction I got from ordinary people in the United Kingdom was very positive indeed. They like Europe. They do not love it yet but they like it and believe it has benefited Britain, but they believe it should be reformed. That is what we hope will be done. The IGC will deal with the institutional reforms that are necessary, and the other reforms which Commissioner Kinnock and the Commission President Prodi have begun are also important. There is a lot you can do without having to keep amending Treaties. Of course, you have to amend Treaties as far as major decisions of the IGC are concerned, but I do not believe that the way to do it is to constantly mess about with Treaties as if they are something that you should return to every five minutes. You can do a lot on the reform agenda without Treaty change. Codes of conduct for commissioners; the way in which the Directors-General are appointed; even the nationalities of Chefs de Cabinet—all those steps that they have taken in the Commission have been extremely valuable. We have, also, the Trumpf/Piris report, which has been welcomed, and the recommendations which are going to be implemented. I think that whole reform agenda is going to be crucial to the way in which we proceed. However, you do not need to discuss that at the IGC; the IGC is going to be about three issues, primarily, although there may be others tacked on, and they are the size and composition of the Commission (which we have to look at when we have so many new members); the weighting of votes on the Council and the possible extension of qualified majority voting. We have to look at QMV. I can see Lord Lamont raising his eyebrows, but I would point out that the previous Government extended qualified majority voting no less than 42 times as a result of the two major pieces of legislation that they passed concerning Europe. If you look at the QMV figures for last year, it was used in Council meetings 213 times and we were only outvoted twice. So this view of Britain as isolated in Europe is not borne out by the figures. So we must look at it on a case by case basis, but not give up on the issues that I have already mentioned, and the Prime Minister has mentioned, as being central to our core interests.

  33. Having said all that, can I come back to my question, which was: would a draft Treaty be a good idea as a means of progressing—
  (Mr Vaz) No.

  34. I will not ask why not. The only problem I have is the question I asked the Leader of the House yesterday when the statement was being made, which is that it is all right saying this is going to be a nice, tight little ship you are launching on the IGC water, but then you find weasel words which say that the incoming Presidency may propose additional issues to be taken on the agenda of the conference. If I know anything about incoming Presidencies, they start to litter the agenda with all sorts of bright ideas. It certainly happened last time. What protection have we got against that this time?
  (Mr Vaz) The protection of good friends, and, luckily, the United Kingdom has a number of good friends on the European Council, all of whom had lunch with the Portuguese Foreign Minister and the Portuguese Euro Minister, who made it absolutely clear that we want this agenda completed by December 2000, we want it to be short and focused and people may have the brightest ideas in the world, but that is what Europe wants.

Lord Hope of Craighead

  35. Can I ask you about one of the institutions in the Union which very rarely gets a mention, and, indeed, is not mentioned at all, as far as I can see, in paragraphs 14 and following in the Conclusions, and that is the Court of Justice and the Court of First Instance. The point I want to raise with you is this: there has been a paper recently published, earlier this year, drawing attention to the present difficulties which the Court faces in meeting the volume of business which it has to deal with to keep the judicial architecture of the Union in place. There are proposals for various reforms which are going to increase the volume of business even without enlargement, and, of course, enlargement will create further difficulties. One particular point which is troubling the Courts is the inability of the Courts to amend their rules due to a provision in the Treaty which requires unanimity for every rule change that might be envisaged. While I appreciate the problems of qualified majority voting, this may be one area where it may be desirable, in order to release the Courts from the stress they face, for that kind of Treaty amendment to be made. This has been a long introduction to the question, but the question is: is there any prospect that you can see for that issue being put on the agenda next time at the IGC?
  (Mr Vaz) Definitely. It is certainly an issue that we intend to raise and only today I was meeting with one of our judges to discuss the report. I think it is vitally important that we act on the points raised by the Court itself. With the workload and the number of cases that are coming forward, it itself has suggested that there ought to be changes in the procedures of rules and I think that QMV is an ideal vehicle to deal with issues such as appointments to the Court, and the issue of rules of procedure. What is so good about this is that this has come from the institution itself; here is a willingness for the institution to reform. I think that the rest of the European Union institutions should take heart from the fact that this has happened and I see this as an excellent example and frankly, because there is so much support for this, I say to your Lordship, I do not think it will extend the scope of the IGC terrifically if we tag on a bit about the European Court and these issues.

  36. I think it is the question of support that is more troublesome because, speaking for myself, I had not doubted the goodwill of our Government to pursue this issue, but it is finding sufficient support from others to get it on to the agenda and to get the issue sorted out, but I gather, from what you have said, that you think that support is going to be forthcoming.
  (Mr Vaz) I think the support is good, certainly in the discussions we have had, and I think there is a willingness to try and get things sorted out as quickly as possible.
  (Mr Lyall Grant) Could I perhaps just add, my Lord Chairman, that the issue of the rules of procedure that Lord Hope mentioned is already on the IGC agenda as part of the discussion of extension of QMV because that is a simple question of moving from unanimity to QMV, so, to that extent, reform of the Court is already on the agenda. We would be quite happy to see the wider proposals that the Court themselves have made be added to the IGC agenda, possibly not the formal negotiating agenda, but perhaps in a similar way to defence, it could be done in a sort of parallel process with a special legal group of experts looking at reform of the Court, as suggested by the Court itself, and if, at the end of the day, they suggest some Treaty amendment, that could be folded in at the end of the IGC process.

Lord Goodhart

  37. As I understand it, what the Court is asking for is rather going beyond the switch from unanimity to QMV in the Council and taking the changes to the rules of procedure away from the Council altogether and allowing the Court to change its own rules of procedure. Is that something that is a possibility for the IGC?
  (Mr Vaz) Well, I do not think it prevents a discussion of those issues because I think it is important that we accept that the Court is under enormous pressure. The number of cases has grown terrifically and, despite all attempts to try and make the way in which the system works as streamlined and as efficient as possible, as you will know yourself, Lord Goodhart, these things do take time. One of the most impressive things I have seen since being the Euro Minister is, following from Tampere, although you have different jurisdictions and different types of jurisdictions, there is a willingness to try and make sure that there are as many common soundings taken across those jurisdictions as possible in order to make it easier to deliver justice, so I am not saying that we will definitely accept everything that the Court says because that would be quite wrong, but I do not see it being a great bar to our discussing issues of that kind.

Lord Howell of Guildford

  38. I know that your hope is, as you say, for a short and focused IGC, but even in the last exchange with their Lordships, certainly the current worries about the whole structure of the Union and the huge democratic deficit, the huge problems of how to solve conditions and how to make the Internet work that is coming up seem to imply a gigantic agenda of reform and this is supposed to be a rules-based Union, a constitutionally-based Union, so the changes in the rules ought to be by Treaty and by the constitution. Does that not imply actually, even if we tie up this IGC on a few matters, that by the time it is in place, vast new issues and Treaty changes will already be on the table? I did not quite hear your answer to Lord Wallace earlier about 2002, but it seems to me that by 2002 we will be way into another huge agenda of Treaty changes and we are moving into an era of almost constant, eternal negotiations and bargaining in a new kind of fluid Union.
  (Mr Vaz) Well, it is going to be a different European Union. It was created for a group of six countries and you are going to have up to 28 countries who are pretty different in the way in which they approach things. We are not talking about a federalist state; we are talking about a collection of nation states working together in order to pursue a vision of supporting their individual citizens, protecting the rights of their citizens and advancing the causes of those nations within the European ideal. Of course it is going to be difficult, but I have confidence that the structures will change and will modernise and that is what I think we have got to do. I do think Lord Wallace must not be so pessimistic; it is not really going to be all bad. We are going to complete this IGC on time, we are going to be ready for enlargement, and I think the fact that we have an IGC directed towards preparing us for enlargement means that we must look not just to the next six, but actually the next 12 or the next 13, so we look to the maximum figure. No further applicants are on the agenda at the moment, so, to that extent, we are dealing with what is going to be the position with perhaps a possible 12 or possibly 13, although Turkey is a long way off and Turkey has a lot of work to do. I think that we need to resolve the decision-making process. The fact that Europe is about negotiation and bargaining is not something new to you, Lord Howell, as that has always been the case, but it is just that one may have to bargain in slightly more languages than initially predicted.

  Chairman: Can we move on to CFSP.

Lord Howell of Guildford

  39. It is really paragraphs 27 and 28 I want to refer to. It makes it quite clear in 27 that the proposals for Helsinki were not for a European army, and that is made quite clear, but, nevertheless, the implication is that new forces are going to be mobilised and brought together and there are going to be new political structures, military structures and so on within the framework of the Union and really two questions arise. First of all, who is going to do what spending to close the technology gap with America because at present virtually nothing can be conducted, even minor policing operations, without America's structural back-up, so was that mentioned at Helsinki? Second, it seems that there are Treaty change implications in all this as well, however modest the proposals, so where are they going to fit in? Are they something else to be tagged on to the IGC at the end, as some people have suggested, or is there a new Treaty ahead to deal with the autonomous defence capability?
  (Mr Vaz) I think one needs to get excited in one respect and not too excited in another. One needs to get excited because for the first time European Union nations are working together on defence and foreign policy, and I think that is a good thing, and again here is an example of the United Kingdom being in the lead and the Prime Minister in particular taking a personal interest in ensuring that we have been part of the way forward as far as defence and foreign policy are concerned. We strongly supported the appointment of Javier Solana as the High Representative. Frankly, I think he is worth his salary several times over because he has done such a good job in the very few months that he has been appointed and he has proved to be extremely effective at dealing with these very, very difficult and complicated issues. Therefore, let's get excited about the new era of defence, but let's not get excited about a European army because there is not going to be one and some, I know, distinguished Members of the Upper House have said that we are going to have a European army, but this is absolute nonsense; there is no question of a European army being created. Others have said that this somehow would be undermining NATO's role. This is also nonsense; NATO remains the cornerstone of the United Kingdom's defence policy and that will always be the case. Just to tell you what the United States think of what we are all doing, in a statement by Madeline Albright, the Secretary of State, to the North Atlantic Council on the 8th December, she said, "The United States welcomes a more capable European partner with modern, flexible military forces capable of putting out the fires in Europe's own back yard and working with us through the Alliance to defend our common interests", so when the Conservative Party's spokesman on defence rushes off to Capitol Hill and starts saying that we are trying to undermine NATO, this is not supported by either the Secretary of State for Foreign Affairs here or the Secretary of State there, and it is simply nonsense to suggest this. We are working with NATO. What we are seeking to do, Lord Howell, is to carry out the tasks that have been set to us, the Petersberg tasks, which are to deal with humanitarian peace-keeping issues, crisis management, with the ability by 2003 to be able to deploy within 60 days a force of some 50 to 60,000 persons. That means refocusing on the way in which we look at defence. It does not mean additional expenditure; it means looking at where we spend on defence and giving us and our neighbours and colleagues in Europe the capability to be able to deal with the Petersberg tasks. That is what we are suggesting now and it has never been suggested that we should undermine NATO or create a new army.


 
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