John McDonnell (Hayes and Harlington) (Lab): On a point of order, Madam Deputy Speaker. As a result of the programme motion and the flow of debate, we have failed to reach the final batch of amendments, which deal with the education work force. About 13,000 workers will have their employee organisations abolished as a result of this legislation and will be insecure in their future employment. Tens of thousands of others will also be affected by the Bill. This batch of amendments was designed to deal with those issues and give those education workers some form of security for the future.
Now that we have failed to reach those amendments, may I through you, Madam Deputy Speaker, ask Mr Speaker to bring together the party leaders to discuss again the preparation of programme motions so that we do not again fail to reach important amendments—I accept that we did under previous Governments—that affect so many of our constituents and members of our
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communities. It is also critical that the rights of Back Benchers who do not serve on Public Bill Committees are protected, because this is the only opportunity we have to move and debate amendments.
Madam Deputy Speaker (Dawn Primarolo): I understand why the hon. Gentleman is frustrated by his inability to participate in debate on the amendments that were not reached, but the timetable motion was agreed by the House, and is completely outside any responsibility of the Chair. However, the hon. Gentleman has put his points on the record, and he may wish to catch my eye briefly during the Third Reading debate—if we reach it.
Kevin Brennan: Further to that point of order, Madam Deputy Speaker. My hon. Friend the Member for Hayes and Harlington (John McDonnell) is right in saying that we did not reach the last group of amendments, which would have enabled us to discuss the Government’s proposal to allow teachers who are not qualified to teach in taxpayer-funded schools. That was part of a sequence of events over the last few days which did not allow the Opposition sufficient time to table amendments, or even to discuss some of those that had been tabled. The timetable was changed at the last minute on Thursday. Is there anything we can do to ensure that the Opposition are given more notice of the time at which the Government intend to bring a Bill to the House, not least when it changes at the last minute?
Madam Deputy Speaker: I think I understand the gist of the hon. Gentleman’s point of order. As he well knows, and as I made clear in response to the point of order raised by his hon. Friend the hon. Member for Hayes and Harlington (John McDonnell), the House voted on the timetable. As for discussions between the parties, that too is not a matter for the Chair. I feel that we are continuing the debate via points of order rather than embarking on the Third Reading debate, but I am sure that Members will find other ways in which to make their points during that debate.
Let me begin by thanking all Members on both sides of the House who served on the Bill Committee. As with all the best Bill Committees, it was always good-humoured and good-natured, and it included thorough scrutiny of each of the Bill’s 79 clauses and 17 or 18 schedules. In barely a month we had 22 sittings, even more than the Committee considering the mammoth Bill that became the last Government’s Apprenticeships, Skills, Children and Learning Act 2009, which, with 270 clauses, was well over three times the size. We also reached the final clause with time left over to debate new clauses as well, which is rare for any Bill Committee. It is therefore only right and proper for me to pay tribute to the Minister for Further Education, Skills and Lifelong Learning, as well to officials in the two Departments and officials of the House.
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the hon. Members for Hartlepool (Mr Wright) and for Cardiff West (Kevin Brennan) for the professional way in which they fulfilled their responsibilities.
The Education Bill has four principal aims: to help schools improve behaviour in the classroom, to remove bureaucratic burdens from schools and, in particular, from teachers by restoring trust in professionals, to ensure that schools are properly accountable to parents and local communities for what they do, and to ensure that the resources that we have are distributed fairly and targeted towards those pupils that need them the most.
There is no bigger barrier to the recruitment and retention of good teachers than poor pupil behaviour. Figures published last month showed that in nearly one in five secondary schools, behaviour is judged as being no better than satisfactory. In the latest year for which we have figures there were over 363,000 fixed-period exclusions, of which 80,000 were issued for threatening behaviour or verbal abuse against an adult. Recent polls by the Association of Teachers and Lecturers found that two in five teachers had dealt with physical aggression during that year, and that a quarter had been subjected to a false allegation by a pupil. That underlines the fact that too many teachers have been hindered in doing their jobs because of poor behaviour. I fully understand why teachers have felt that the system, and the Government, have not always been on their side. The Education Bill will ensure that the pendulum swings back in their favour by strengthening teachers’ powers. They will be able to issue same-day detentions, and to search for, and confiscate, items such as mobile phones and video cameras. We considered these measures in detail in Committee. I hope they are used only very rarely, but I would rather teachers were able to decide for themselves whether to use them and I am confident that they will help protect the rights of all children to learn in an environment free from disruption and bullying.
Just as importantly, the Bill will also extend better protection to teachers from false and malicious allegations. Teachers will now have pre-charge anonymity when faced with an allegation of an offence by a pupil, to prevent false accusations being used to undermine teachers’ authority. Teachers have campaigned for that for years, and it has been delivered by this Government in our first year. Of course, we will continue to listen to those who seek to extend these provisions to other staff in schools and colleges, but we also need to tread carefully in relation to cherished rights of free speech in a free society.
Discipline is just one area in which teachers have not been afforded the trust and respect they deserve. Over the past decade, for every step forward, there have been three steps backwards as yet more targets and diktats were issued to schools from the centre. Understandably, much of the debate in Committee was about whether to retain the legislation that piled up under the previous Government. I do not doubt that much of that was well-intentioned, but it has clearly failed to address the performance gap this country faces, especially for those from disadvantaged backgrounds.
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We are determined to raise the professional status of teachers by giving them the space and flexibility they need. Since the Academies Act 2010 the number of academies has more than trebled, from 203 to 658. All those schools are able to decide what is best to raise standards for their pupils, free from red tape and political interference. That is why it has attracted not only Toby Young, but Peter Hyman, Tony Blair’s former director of strategy and author of the autobiographical book, “1 out of 10: from Downing street vision to classroom reality”. Peter Hyman is setting up a free school in Newham. Newham School 21 will teach children between the ages of four and 18 and aims to be open in September 2012. The Bill provides for two new types of academies: alternative provision academies, and 16-to-19 academies, which will extend the benefits of the programme even further.
The Opposition have complained that the Bill centralises power, yet at the same time they complain when we strip back the layers of instruction and guidance telling schools and colleges how to co-operate, which they put in place. Similarly, they protest when we end the requirement on every local authority to set up forums, irrespective of their actual needs or unique circumstances. The Bill will help us bring an end to the perpetual revolution that has been inflicted upon schools, by allowing professionals—not the Qualifications and Curriculum Development Agency or the General Teaching Council—to do what is best for them.
Just as we are liberating professionals from bureaucracy, so we are ensuring that there is stronger accountability to parents. The Bill will sharpen school accountability by reducing the number of areas in which Ofsted inspects to just four—pupil achievement, quality of teaching, leadership and management, and behaviour and safety—with outstanding schools and colleges also being freed from routine inspection, so that more focus can be diverted towards those that need it most.
The independent regulator, Ofqual, will ensure that our qualifications stand comparison with the best in the world by measuring our relative performance. Because we are prepared to take action where schools and local authorities fail to give children their one chance of a good education, the Bill strengthens the Government’s power to intervene in poorly performing schools, which often have higher proportions of disadvantaged pupils. The Minister for children, my hon. Friend the Member for Brent Central (Sarah Teather), is introducing an entitlement to free early-years provision for 130,000 disadvantaged two-year-olds across the country. The scrutiny in Committee has allowed us to set out clearly that we will maintain the free entitlement for all three and four-year-olds at 15 hours, and that we will ask Ofsted to review the impact of the two-year entitlement.
We are also ensuring that more resources are targeted at the education of the poorest through the pupil premium, which will be worth £2.5 billion every year by 2014-15, and the Bill will ensure that funding for apprenticeship training takes priority when young people have a place, so that we deliver on our ambitions to expand the programme and make it the primary work-based learning route for raising the participation age. Thanks to the vigilance and scrutiny of the Chairman of the Education Committee, we have now removed a reserve power to suspend this offer, which underlines our commitment further. In addition, the scrutiny provided and arguments
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put forward by my hon. Friends the Members for North Cornwall (Dan Rogerson) and for Wells (Tessa Munt) on the issue of school governors and the proposals in clause 37 have allowed us to improve our policy in this area. We have retained the principle of governor appointments based primarily on skills, while also meeting their desire to reflect stakeholder groups with an interest in schools, in particular staff and local authorities.
The schools White Paper, “The Importance of Teaching”, set out a pathway to close the attainment gap between those from the poorest and wealthiest backgrounds, and to reverse this country’s decline in international performance tables, so that all who are educated in our state schools have the opportunity to compete with the school leavers and graduates of countries with the best-performing education systems. This Education Bill will allow us to take important steps on that journey, and I commend it to the House.
The Secretary of State’s first Bill was rammed through with unseemly haste, under procedures normally reserved for counter-terrorism measures, when the odour in the rose garden was still pleasant and Labour leadership candidates were still on the hustings, so we can at least say that this Bill has had a more thorough airing. I therefore thank the members of the Public Bill Committee for their work on it, and I thank the Officials, Officers and other staff of the House who have enabled the Committee’s work to take place. I also pay tribute to my hon. Friends the Members for Cardiff West (Kevin Brennan) and for Hartlepool (Mr Wright), who have done an excellent job.
The Schools Minister has been assiduous in his replies, and I thank him for that, but his courtesy has not extended to the production of the essential documents, such as the draft admissions code, that are needed to give this Bill the fullest possible scrutiny. That is highly regrettable—it is insulting, even, to Members of this House—and I trust that the same discourtesies will not be repeated towards Members of another place. Talking of discourtesies, it is a shame that the Secretary of State could not dignify us with his presence this evening. He made a cameo appearance earlier, but he obviously has something more important to do than be here to see his own Bill through. I do not know whether he has a good reason—perhaps he does—but we should have been able to expect him to be here.
Like the Health and Social Care Bill, the Education Bill threatens a free-for-all in our public services. It is a reckless gamble with standards and with the life chances of our children, with no evidence to support it. That is why we will vote against it tonight. Our principal objection to it is based on the fact that it takes power away from parents and pupils and hands it back to providers and to the centre, in the form of the Secretary of State. That is the flaw at the heart of the Government’s vision for public service reform. If they give more freedom and
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autonomy to providers, be they general practitioners or hospitals in the health sector or head teachers and schools in the education sector, they have to balance that with a corresponding empowerment of the public—parent and patient guarantees—and more ability for service users to hold providers to account. That is what is completely absent from the Government’s vision: this is a provider-led reform with an accountability deficit.
The health reforms have been paused, partly because of fears that the system being created lacks moderating checks and balances. Many people working in education, who will be watching these proceedings, have exactly the same fears about these schools reforms, but sadly the House, in its votes this evening, has failed to respond to them. This is a right-wing reform of our education system, a ripping up of the fabric and frameworks that have stood our services and our children in good stead for years.
“We’ve got a lot—my welfare reforms, the education reforms…all of these are big, big Conservative-driven themes.”
The right hon. Member—I am struggling to remember his constituency now—[Hon. Members: “Richmond.”] That is it; I was going to say for North Yorkshire. The right hon. Member for Richmond (Yorks) (Mr Hague) said:
“A Conservative government with a very small majority or in a minority would have been massively constrained in what we could take through parliament.”
We heard today a bid from the hon. Member for Altrincham and Sale West (Mr Brady), supported by 35 colleagues on his side of the House, to extend selection to our state education system. We know that the Secretary of State, although he could not be here this evening, attended a reception in Parliament—I think it was just before Christmas—where the hon. Gentleman asked him whether he would extend selection through his free school movement. The Secretary of State said:
“My foot is hovering over the pedal; I’ll have to see what my co-driver Nick Clegg has to say”.
Those of us who read Mrs Gove’s entertaining columns in the newspaper know what happens when the Secretary of State puts his foot on the pedal: utter chaos and disruption ensues for anybody in his vicinity. In this case, I think the co-pilot would be better off getting out of the car before the Secretary of State puts his foot down on the pedal—but as we know, the co-pilot is still unfortunately locked in the boot.
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this debate want to know that their child has a fair chance of getting into the school that they choose, that they will have good teachers, and will be able to get good careers advice to support them in their choices. Instead, they are getting a free-for-all with no guarantees, a weakening of the admissions system, unqualified teachers in state schools and a withering away of face-to-face careers advice.
I am sorry that we did not get the chance tonight to move an amendment, which my hon. Friend the Member for Cardiff West was going to take on, about the need to have qualified teachers in our state schools. I hope that Members of the other place will return to that issue to stop this risky gamble with standards in our schools.
The Bill exposes a curious contradiction in this Secretary of State’s approach to school reform. He has not decided yet whether he truly believes in freedom and really wants local people to get on and do the job that they want—as the Minister just said he did—or whether he wants to dictate to them what they must do and how they must do their jobs. We have an Education Secretary who preaches freedom, but then wants to dictate the books that children read in primary school. He says that teachers know best, but then demands that they use synthetic phonics to teach reading. He lauds professional autonomy, but makes it clear which subjects he approves of in his English baccalaureate and which are second best. That is not good enough: he needs to decide. If he wants teachers to get on with their job, he should let them do it. We should not have this contradiction at the heart of policy that is causing people across the country to lose patience with him.
I gather that the Secretary of State is downstairs at a function or party this evening. I find it hard to believe that he is not here to speak up for his own Bill, to defend it and to tell us why I am wrong and why he has the right vision for our schools. The fact that he is not here means that he cannot face this House to ask for the 50 powers that he is taking in the Bill. We might have thought—might we not?—that he would have the courtesy to come and ask the House for those powers. It is a sorry state of affairs, and shows something of the arrogance that increasingly characterises the Government.
I believe that the Secretary of State is failing to take the education profession with him. They need stability and he is providing chaos. He is losing the confidence of head teachers and teachers. The Education Bill will now move to the other place and I know that their lordships will seek to moderate it, protecting fairness and promoting high standards in every school for every child. I urge them to do so and to give the Bill the fullest possible scrutiny, because this House of Commons, as it has shown today, is in danger of sleepwalking towards an elitist two-tier education system that will be good for some children and some schools, but not all children and all schools.
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Stephen McPartland: I will be very brief, Mr Speaker—two minutes or less, I promise. I was a member of the Public Bill Committee, which was my first such Committee, and I was pleased by how robust its scrutiny of the Bill was, and by the good humour shown by Opposition and Government Front Benchers throughout its mammoth 22 sessions. There was certainly cross-party consensus that we wanted our children to have access to the best education system in the world. That is why I believe the Bill is important—because it promises to raise educational attainment for the poorest children in my constituency. The gap in educational attainment between poorer pupils and their peers simply is not acceptable. We know that by the age of seven the highest early achievers from deprived backgrounds are overtaken by lower-achieving children from advantaged backgrounds, and that that gap gets wider as they get older. That traps children in a cycle of poverty. We cannot measure poverty solely in monetary terms; there is real poverty of education in many parts of the country, which leads to a lack of opportunity and aspiration.
The Government’s commitment to expanding early years learning for disadvantaged children is a welcome step in reducing that poverty of education, and that commitment is firmly reinforced by the pupil premium, which means an investment of more than £815,000 this year in the most disadvantaged children in my constituency. That money can be used by schools to provide additional support such as one-to-one tuition, which I know from my wife’s experience as a primary school teacher makes a dramatic difference to young children. I support the Bill because I believe it will deliver a massive boost to the education of the most disadvantaged and vulnerable children in my constituency.
Julie Hilling: Given the time, I shall speak very briefly about the Bill, which is bad in so many ways. The Government talk about giving power to parents and teachers, but at every turn they remove powers from parents and communities and give them to the Secretary of State. The Bill does not build, but destroys. It encourages schools to be islands rather than resources in the community that can bring agencies together for the benefit of children and young people. The Bill also misses opportunities. It is good that it provides for the anonymity of teachers, but why does it not extend that anonymity to other school staff, who are often more vulnerable than teachers to accusations?
There are three other areas in which the Bill misses opportunities. First, by getting rid of the School Support Staff Negotiating Body it does a real disservice to 500,000 generally low-paid workers. That body has been working on job descriptions and job gradings for 100 strands of work within schools, from the work of classroom assistants to that of school bursars and caretakers. Its work was stopped last year when the Government pre-empted the Bill by saying that the body was going to be removed. I seriously hope that they will reconsider their decision and allow the body at least to complete its work, and support it in doing so.
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for young people. There have been some fantastic examples of youth work in schools, usually in partnership with youth services and other agencies, but cuts in youth services and central funding streams have made that work difficult. I hope that the Government will consider how they can support youth work, either through the Bill or elsewhere.
Finally, the Government have missed a real opportunity to save lives. It is not often that any Government get the opportunity to do something simply, easily, cheaply and immediately that would save lives, but this Government have that opportunity. If they introduced emergency life skills into the national curriculum they could make a real difference. ELS is a set of actions that save lives, including cardiopulmonary resuscitation and dealing with choking and bleeding. Every year 150,000 people die in situations in which first aid could have made a difference. Each year in the UK 30,000 people have a cardiac arrest outside the hospital environment, of whom fewer than 10% survive. Children are often present at accidents and emergencies, and by learning emergency life skills they can be as effective as any adult in saving lives. If someone has a cardiac arrest in Seattle they have a great chance of surviving, because children there are taught ELS as part of their national curriculum. Indeed, people cannot graduate from school or pass their driving test unless they learn ELS. If any Member is going to have a cardiac arrest they should have it in Seattle, because they would rarely be more than 12 feet away from someone who could save their life. Why can we not have that situation in the UK? If we did, we could save lives. I hope that the Government will reconsider that and put ELS into the national curriculum.
Stephen Phillips: I shall keep my contribution extremely brief. I speak as a former chair of governors at a special school for the deaf—one of the only remaining sign bilingual schools in the country. The issue that I particularly want to address is school discipline. That is so central to the learning environment and to outcomes that it is a great shame that it has not been dealt with by previous Administrations. It is for that reason, if for no other, that the Bill will receive my full support.
As anyone who chaired a governing body under the previous law knows, the difficulty with the regime that existed was that when a head teacher excluded a pupil the exclusion was often overturned by the governing body, because it knew that if it did not overturn it, the exclusion would subsequently be overturned by the extensive appeal mechanisms that are amended by the Bill. It is for that reason that I welcome the amendments that the Government are introducing in that respect.
John McDonnell: The Bill abolishes a number of bodies—the General Teaching Council for England, the Training and Development Agency for Schools, the Qualifications and Curriculum Development Agency and the Young People’s Learning Agency.
In the past the Transfer of Undertakings (Protection of Employment) Regulations were applied when bodies were abolished and staff were transferred from the public sector to the private sector. They would be protected,
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together with their conditions of work, the recognition of their trade union and their basic employment rights. Because that does not apply to transfers of staff within the public sector, the Cabinet Office introduced the Cabinet Office statement of practice—COSOP—which in the past has been included in legislation so that TUPE principles applied to staff as if they were being transferred out of the public sector. The previous Government stated on the face of the Bill that that was the situation when the Learning and Skills Council was abolished. The present Government have done the same thing in the Localism Bill, but not in the Education Bill. As a result, the staff are feeling insecure about their future. That affects morale and recruitment and retention—
Mr Robert Buckland (South Swindon) (Con): In supporting the Bill on Third Reading, I want to put particular emphasis on clause 13 and the restrictions that will be imposed on the reporting of the identity of teachers between arrest and charge. I welcome those provisions and I read with interest the debate in the Public Bill Committee, where the Government rightly pointed out the lack of evidence to support an extension to other classes of person who work within the school environment.
However, I urge the Government to keep that position under review. I remember a debate that we had in the House some months ago on a private Member’s Bill about the wider application of reporting restrictions for people arrested but not charged, with particular reference to teaching assistants and other people who come into the school environment. It is important that we bear that mind.
Finally, I ask the Government to bear in mind the problem that arises when a pupil who has left the school, perhaps only very recently, makes a complaint against a teacher. I urge my colleagues on the Front Bench to work with other Ministers, particularly the Under-Secretary of State for Justice, the hon. Member for Reigate (Mr Blunt), in reviewing the application of the law of contempt of court to sensitive issues relating to press freedom and the interests of professionals and all those who work in school and college environments.
Meg Munn: This is a disappointing Bill. It will not do what an Education Bill should do—put children and their education first. That means every child. The mantra, “We must trust the professionals,” is not balanced by respect for children and parents. The powers of search are at best misguided and at worst dangerous. No-notice detention is a potential nightmare for hundreds of young carers throughout the country, and it is unnecessary.
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The approach to exclusions is unbalanced, putting at risk the education of many children with special educational needs. No attention has been given to child protection issues in the Ofsted framework that is out for consultation. While Ministers are publishing the welcome Munro review on child protection and looking to strengthen that, the Bill makes matters worse.
The House divided:
Ayes 305, Noes 204.
Alexander, rh Danny
Amess, Mr David
Arbuthnot, rh Mr James
Bacon, Mr Richard
Bagshawe, Ms Louise
Baron, Mr John
Beith, rh Sir Alan
Bellingham, Mr Henry
Beresford, Sir Paul
Binley, Mr Brian
Bone, Mr Peter
Brady, Mr Graham
Brazier, Mr Julian
Brine, Mr Steve
Browne, Mr Jeremy
Bruce, rh Malcolm
Buckland, Mr Robert
Burley, Mr Aidan
Burns, rh Mr Simon
Burrowes, Mr David
Campbell, rh Sir Menzies
Carmichael, rh Mr Alistair
Carswell, Mr Douglas
Cash, Mr William
Chope, Mr Christopher
Clappison, Mr James
Clark, rh Greg
Clarke, rh Mr Kenneth
Coffey, Dr Thérèse
Cox, Mr Geoffrey
Davey, Mr Edward
Davies, David T. C.
Davis, rh Mr David
de Bois, Nick
Djanogly, Mr Jonathan
Dodds, rh Mr Nigel
Donaldson, rh Mr Jeffrey M.
Dorrell, rh Mr Stephen
Duncan Smith, rh Mr Iain
Dunne, Mr Philip
Ellwood, Mr Tobias
Field, Mr Mark
Foster, rh Mr Don
Francois, rh Mr Mark
Gale, Mr Roger
Gibb, Mr Nick
Gillan, rh Mrs Cheryl
Goodwill, Mr Robert
Gove, rh Michael
Grant, Mrs Helen
Gray, Mr James
Grayling, rh Chris
Grieve, rh Mr Dominic
Gyimah, Mr Sam
Hague, rh Mr William
Hammond, rh Mr Philip
Hancock, Mr Mike
Harper, Mr Mark
Haselhurst, rh Sir Alan
Hayes, Mr John
Heath, Mr David
Herbert, rh Nick
Hoban, Mr Mark
Hollobone, Mr Philip
Howarth, Mr Gerald
Hughes, rh Simon
Huhne, rh Chris
Hunt, rh Mr Jeremy
Huppert, Dr Julian
Hurd, Mr Nick
Jackson, Mr Stewart
Jones, Mr David
Jones, Mr Marcus
Knight, rh Mr Greg
Laing, Mrs Eleanor
Lansley, rh Mr Andrew
Leech, Mr John
Leigh, Mr Edward
Letwin, rh Mr Oliver
Lewis, Dr Julian
Liddell-Grainger, Mr Ian
Lilley, rh Mr Peter
Main, Mrs Anne
Maude, rh Mr Francis
McIntosh, Miss Anne
McLoughlin, rh Mr Patrick
Moore, rh Michael
Morris, Anne Marie
Mundell, rh David
Murrison, Dr Andrew
Newmark, Mr Brooks
Nuttall, Mr David
Paice, rh Mr James
Pickles, rh Mr Eric
Poulter, Dr Daniel
Raab, Mr Dominic
Randall, rh Mr John
Redwood, rh Mr John
Reid, Mr Alan
Rifkind, rh Sir Malcolm
Robathan, rh Mr Andrew
Robertson, Mr Laurence
Ruffley, Mr David
Sanders, Mr Adrian
Scott, Mr Lee
Shapps, rh Grant
Shepherd, Mr Richard
Simpson, Mr Keith
Smith, Miss Chloe
Smith, Sir Robert
Spencer, Mr Mark
Stanley, rh Sir John
Streeter, Mr Gary
Stuart, Mr Graham
Swayne, Mr Desmond
Swire, rh Mr Hugo
Syms, Mr Robert
Tapsell, Sir Peter
Timpson, Mr Edward
Turner, Mr Andrew
Tyrie, Mr Andrew
Vaizey, Mr Edward
Villiers, rh Mrs Theresa
Walker, Mr Robin
Wallace, Mr Ben
Walter, Mr Robert
Williams, Mr Mark
Wilson, Mr Rob
Wollaston, Dr Sarah
Young, rh Sir George
Tellers for the Ayes:
Mr Shailesh Vara and
Allen, Mr Graham
Bailey, Mr Adrian
Bain, Mr William
Balls, rh Ed
Barron, rh Mr Kevin
Beckett, rh Margaret
Begg, Dame Anne
Benn, rh Hilary
Blunkett, rh Mr David
Bradshaw, rh Mr Ben
Brown, rh Mr Nicholas
Brown, Mr Russell
Burnham, rh Andy
Campbell, Mr Alan
Campbell, Mr Ronnie
Chapman, Mrs Jenny
Clarke, rh Mr Tom
Clwyd, rh Ann
Cooper, rh Yvette
Cunningham, Mr Jim
Darling, rh Mr Alistair
David, Mr Wayne
De Piero, Gloria
Denham, rh Mr John
Dobson, rh Frank
Donohoe, Mr Brian H.
Eagle, Ms Angela
Ellman, Mrs Louise
Francis, Dr Hywel
Glindon, Mrs Mary
Godsiff, Mr Roger
Hain, rh Mr Peter
Hanson, rh Mr David
Havard, Mr Dai
Healey, rh John
Hepburn, Mr Stephen
Hood, Mr Jim
James, Mrs Siân C.
Johnson, rh Alan
Jones, Mr Kevan
Jones, Susan Elan
Kaufman, rh Sir Gerald
Khan, rh Sadiq
Lewis, Mr Ivan
Llwyd, rh Mr Elfyn
MacShane, rh Mr Denis
Marsden, Mr Gordon
McCann, Mr Michael
McFadden, rh Mr Pat
McGuire, rh Mrs Anne
Meacher, rh Mr Michael
Meale, Mr Alan
Michael, rh Alun
Moon, Mrs Madeleine
Morris, Grahame M.
Mudie, Mr George
Murphy, rh Paul
Raynsford, rh Mr Nick
Reed, Mr Jamie
Riordan, Mrs Linda
Roy, Mr Frank
Sharma, Mr Virendra
Sheerman, Mr Barry
Skinner, Mr Dennis
Slaughter, Mr Andy
Smith, rh Mr Andrew
Spellar, rh Mr John
Stuart, Ms Gisela
Sutcliffe, Mr Gerry
Thomas, Mr Gareth
Timms, rh Stephen
Umunna, Mr Chuka
Vaz, rh Keith
Watts, Mr Dave
Whitehead, Dr Alan
Wicks, rh Malcolm
Winnick, Mr David
Winterton, rh Ms Rosie
Wright, Mr Iain
Tellers for the Noes:
Mr David Hamilton and
Question accordingly agreed to.
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Kevin Brennan: On a point of order, Mr Speaker. You will have noted that the Secretary of State was not present for the Third Reading of the Education Bill. I wonder whether you can give any advice as to whether, when a Secretary of State does not turn up for the Third Reading of their own Bill, which I think is quite unusual, any information should be given to the House, or possibly as a courtesy to the shadow Secretary of State or Opposition Front Benchers, as to why they are not here. We understand that the Secretary of State, who is apparently now standing somewhere nearby at the Bar of the House, was available to come here. Are there any procedures by which it would be normal for the Secretary of State to give notice that he is not going to participate on Third Reading?
Mr Speaker: The short answer to the hon. Gentleman is no. Any Minister can provide a rationale or an explanation for presence or absence if he or she so chooses, but there is no formal procedure for so doing. The question of who appears on behalf of those on the Treasury Bench is purely a matter for them, not a matter for the Chair. The hon. Gentleman has nevertheless registered his point.
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Common Consolidated Corporate Tax Base
That this House considers that the Draft Directive to introduce a Common Consolidated Corporate Tax Base (European Union Document No. 7263/11) does not comply with the principle of subsidiarity, for the reasons set out in chapter 2 of the Twenty-seventh Report of the European Scrutiny Committee (HC 428-xxv); and, in accordance with Article 6 of the Protocol on the application of the principles of subsidiarity and proportionality, instructs the Clerk of the House to forward this reasoned opinion to the presidents of the European institutions.
I am pleased to have the opportunity to discuss this European Commission proposal, which, as the House is aware, is potentially significant. I will highlight a few general points before turning to the specific legal and treaty issues which the European Scrutiny Committee has raised in its report and which are the subject of the motion.
I want to start by reiterating the Government’s commitment to ensuring that there is no further transfer of sovereignty or powers to the EU over the course of the Parliament. I also stress that the Government have made it clear that we will not agree to a proposal that might threaten or limit the UK’s ability to shape its own tax policy. I know that the motion focuses on whether the proposal complies with subsidiarity and proportionality, which are both important questions that I will address in turn.
Mr John Redwood (Wokingham) (Con): This is extremely good news from the Minister. Will she confirm that the UK will not consent to the so-called six-pack measures on economic governance, of which at least three clearly apply to non-euro members and represent a transfer of powers?
Justine Greening: As my right hon. Friend will be aware, important discussions on economic governance are under way and are being resolved. I assure him that we have no intention, as I have said, of seeing any further powers transferred to Brussels. We keep a watching brief on not only the topic that we are discussing, but across the board. I am sure he is aware of a number of areas in which we are expressing concerns to the Commission, because we are concerned that further powers may be taken by Brussels.
Mr Peter Bone (Wellingborough) (Con): Has my hon. Friend noticed that Her Majesty’s official Opposition do not seem to care much about this matter? I cannot see anybody other than the shadow Minister on the Labour Benches.
Justine Greening: Perhaps the actions of Labour Members demonstrate how ashamed they are that their Government gave away much of the rebate that the Conservative party, which is now part of the coalition Government, had achieved for our country.
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Mr James Clappison (Hertsmere) (Con): I am tempted to remind my hon. Friend that the rebate that the Labour party gave away cost more than £9 billion. I think that this question follows from what she has said: do the Government take the view that the draft directive would amount to a substantial transfer of power and sovereignty to the EU, if it were implemented?
Justine Greening: At the moment, the directive is in such a rough draft that it is not exactly clear in what shape it will end up. Important questions are already being asked not only by the UK but by countries such as the Netherlands and Sweden, and by some smaller and newer member states such as Lithuania. They are asking whether there is a problem that needs to be solved in the first place and whether the European Commission’s hypothesis about why a common consolidated corporate tax base is required is correct. The second debate that is starting to happen in earnest across Europe is about whether this solution is the best solution to solve that problem. The Government’s position is that we do not believe that the problem exists in the form that the European Commission articulates, and that this solution would not be the right solution to that problem, even if it did exist.
Justine Greening: Perhaps if I make a little more progress, it will help hon. Members to understand the Government’s position in a little more detail and where we are in the proposal’s development, which it is important to understand. It is also important to understand Parliament’s role in the process, which is the whole point of this debate.
A number of issues need to be addressed in the policy substance of this proposal. Those issues will have to be discussed among all 27 member states. That is why we have committed to engage in the ongoing EU discussions on this proposal. It is important that the UK participates fully in the negotiations, so that we can seek solutions that meet the interests of the UK and the EU as a whole. Although the issues of subsidiarity and proportionality are fundamental, we need to be ready to engage fully in the negotiations that are starting in Brussels. We need to engage not only in Brussels, but with our fellow member states to ensure that we influence them.
For example, member states will need to consider the implications of the proposal for companies operating across the UK, particularly if it were taken forward through enhanced co-operation. We should also seek to ensure that a common consolidated corporate tax base does not undermine UK competitiveness or create opportunities for tax avoidance.
Such considerations will involve examining some of the specific issues raised in the European Scrutiny Committee’s helpful report, such as the potential implications for the tax treaties and the risk of creating additional administrative burdens on business. Of course, one of the European Commission’s arguments is that the proposal will reduce burdens and provide simplification, but, like the Committee, the Government simply do not accept that argument.
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functioning of the European Union provides for EU legislation that directly affects the single market. In strict legal terms, it is possible to make a case that that article is an acceptable legal base for a proposal such as that which we are discussing, but the Government have broader reservations. We do not believe that a common consolidated corporate tax base is necessary for the internal market to function effectively, and we do not accept the assumptions that appear to underpin the Commission’s proposal. At present, we are therefore not convinced that the proposal is consistent with either subsidiarity or proportionality. In this instance, we think it difficult to separate the two, because both centre on whether such an EU mechanism is necessary to achieve the objectives set out by the Commission.
Jacob Rees-Mogg: Establishing the legal base is absolutely crucial before the Government engage in negotiations about the form of the directive. May I draw the Economic Secretary’s attention to conclusion 2.12 of the European Scrutiny Committee’s report? It clearly states that the ability for the single market to have taxes refers to turnover taxes and VAT, and not to the type of tax included in the directive. If there is no legal base for the tax, is there any point in having further discussion?
Justine Greening: Our assessment is that it is possible to make the case that because article 115 of the TFEU relates to the effective functioning of the single market, it is relevant to consider whether the proposal would affect the single market. There is also the question whether there is any problem that needs to be addressed. We do not accept that there is, but if there were, we would have to ask whether the proposal was the right solution. That is what I mean when I talk about proportionality. We must also consider subsidiarity, and we do not believe that the two can simply be separated, because they go hand in hand.
For the Government to be reassured that the proposal complies with the fundamental principles of proportionality and subsidiarity, we would require far stronger justification from the Commission. We would need evidence that the existence of 27 different tax systems is a significant barrier to the functioning of the single market—we do not believe it is, or that the evidence is there to support such a conclusion—and directly results in all the specific tax obstacles that the proposal claims to address. We would also need evidence that the proposal is the only, or the best, way to address those tax obstacles. We will continue to raise those points with the Commission during our discussions, and we will continue to engage proactively and constructively with other member states on the important issues of policy substance, including those highlighted in the European Scrutiny Committee’s report.
Mr Redwood: Is it not rather easier than that? We have always been assured by previous Ministers of the Crown that we have an absolute veto on tax matters, so do we not just have to say to the EU, “We have a veto, and the answer is no”?
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Justine Greening: My right hon. Friend is absolutely right to say that we can say no for ourselves, but the problem, as he is aware, is that under the treaty, a smaller group of nine or more member states—
Justine Greening: My right hon. Friend says that that is fine, but there is a danger for our country that even that would have an impact on the tax planning that we could undertake with corporations as member states choose whether to opt in or out. We want to ensure that we are in those discussions at this earlier stage, before we get to that part of any future process. We do not know whether we will get to that stage—many member states might share our concerns—but we absolutely need to be in there now, making our case, because we do not want to end up with a smaller group of member states going down that route, which could, depending on their decisions on tax loopholes and avoidance, which are complex, lead to negative unforeseen consequences for the UK tax system’s competitiveness, which might happen even if the UK were outside any possible future proposals.
Chris Leslie (Nottingham East) (Lab/Co-op): That was a lucid explanation—irony, of course, sometimes does not work in Hansard. The right hon. Member for Wokingham (Mr Redwood) has hit the nail on the head. Why does the motion not say no to the consolidated corporate tax base proposal?
Justine Greening: At the moment, there is no proposal on the table. A proposal is being worked up, but things are at an early stage. Member states have had, I believe, two working group meetings with the Commission to talk about how any proposal might operate. Fundamental questions are still being developed on, for example, how the formula will work, and a host of other issues. As I have said, part of the challenge is how any avoidance loopholes might work in practice, and whether they would be substantial. We are at a very early point in the process. Today’s debate allows Members of our Parliament to have their say, which we can then add to the Commission’s process.
The Minister seems to be referring to enhanced co-operation, which the agreement says is the basis on which the Government will be engaged in discussions to help to shape a corporate tax base that does not undermine the competitiveness of the EU or the UK. She has made it clear that enhanced co-operation would have that effect, so clearly, we will not under any circumstances accept it. Therefore, the answer can only be no. Why do we not say so?
As I have said, we need to manage risks, and it is unclear at this point where the process will end up. However, there might be risks posed by enhanced co-operation. We need to be part of the discussions to ensure that our arguments carry weight. Our arguments will not carry weight if we are not part of those discussions from the beginning, because we say that we never want to be involved. That is not a sensible
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approach. In addition, I do not agree that it is as simple as saying, “We don’t want to be in it,” because the proposal might go ahead in a different form involving a limited group of nations, which could still affect us, even if indirectly. I want to make it absolutely clear tonight what the Government are fundamentally seeking to achieve. We will not agree to any proposal that will threaten or limit our ability to shape our tax policy.
Mr Clappison: I support the course that my hon. Friend the Minister is taking this evening with the motion, as far as it goes, and the Opposition have revealed via an intervention that they do not understand the treaty to which they signed up. However, following what my hon. Friend the Member for Stone (Mr Cash) and my right hon. Friend the Member for Wokingham (Mr Redwood) have said, is not the fear of what others may do by way of enhanced co-operation robbing us of our right to a veto and the requirement for unanimity? Is that not a new doctrine? If we do not agree with the proposal, let us say no rather than robbing ourselves of the veto by worrying about what others may or may not do.
Justine Greening: As has been pointed out already this evening, we ultimately have the ability to say no, but rather than having to do so, we want to ensure that we carry the majority of member states in the first place. That is precisely what we are doing now, and we want to ensure that we are in a position to do it as effectively as possible.
I assure the House that we are putting our points across. Tonight’s debate is a key part of that, because it is an important opportunity for the House to put on record its concerns and views as these proposals develop. The proposals are at an early stage, but they are shaping up to be important and fundamental.
Nigel Mills (Amber Valley) (Con): We are inviting the Minister to say whether she agrees that, as I believe, no form of consolidated tax base will ever be acceptable. It is vital to our competitiveness that we can attract business here with a more competitive way of calculating the tax base, so any proposals under which we would not have that competitive edge must be bad for our nation. It is all right saying that this is a draft, but I cannot think of any form of this proposal that could ever be in our interest.
Justine Greening: My hon. Friend might well be right, but I want to make clear the rules and the processes going forward. No member state can unilaterally block the use of enhanced co-operation. Of course we can decide whether we want to be part of that—I have clearly set out the Government’s concerns about the proposal—but I am saying to the House that we need to participate in the debate and ensure that we influence the underlying proposal. We do not want to end up being unable to stop enhanced co-operation simply because it was a proposal that we fundamentally did not want in the first place. We need to make our case, with other member states, in order to influence the proposal as it develops, and that is precisely what we want to do.
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the Commission does not get unanimity—it will go ahead with enhanced co-operation. If we know that to be the case, why do we not just say no and be done with it?
Justine Greening: The Commission might, as my hon. Friend has said, take a view, but we need to understand what other member states think about the proposal. This evening is a chance for us, as a member state, to allow our Parliament to voice its concerns. The European Scrutiny Committee, which he chairs, has produced a helpful report that will no doubt form a basis of this debate.
Chris Leslie: The Minister has essentially enunciated a continuation of the policy advocated by the previous Administration. In fact, this common consolidated corporation tax base proposal has been around for a decade or so. In that time there has not been a massive change in policy, which is interesting, because I had anticipated that, in her quasi-Thatcherite mode, the Minister would say, “No, no, no!” to this proposal—but she did not.
As I said, it is interesting that the motion is quite carefully worded. It specifically mentions “reasoned opinion”, “subsidiarity and proportionality” and so forth, but if passed it would not actually instruct the House of Commons to reject the directive as drafted. I suspect—on this point I was considering intervening on the hon. Lady, but I thought I would let her finish—that it might be more to do with the Liberal Democrat position on this issue. [Interruption.] The Minister rolls her eyes, but there are no Lib Dems here so it is difficult to put them on the spot.
Hon. Members will be interested to hear the Lib Dems' official policy on a common consolidated corporate tax base. In their 2009 document, they stated that they would “address the variability issue” on cross-border corporation tax
“by developing a medium and long-term statement of business tax policy, covering a minimum two parliament timeframe. This statement would…identify areas for greater international co-operation on tax policy. A clear area for co-operation is in the movement towards a harmonised tax base in the EU, often referred to as a Common Consolidated Corporate Tax Base”.
So, there is a loud voice—muscular and visible, as we now know—in the coalition arguing vociferously in favour of a common consolidated corporate tax base. I say that for the benefit of the House, because it is important that hon. Members know the facts. Given that the motion was published only this morning on the Order Paper—hon. Members did not really have notice of exactly the Government’s proposition, which is quite ridiculous—and that all 298 pages of the supporting papers were published only yesterday, I am not surprised that many hon. Members have not yet woken up to the opinion being taken of the Government on this matter.
Mr Cash: In this new guise of the Pym or Hampden of the British Parliament, am I to imagine, beyond the wildest speculation, that the Labour party is about to announce that it will vote against these proposals on the grounds that it does not veto the Commission’s proposals?
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Chris Leslie: I am very tempted by the hon. Gentleman’s invitation to do so. As I said, we have not changed our policy from when we were in office, and the Government have decided to pick that up. We do not wish to see the harmonisation of corporation tax rates; nor do we believe that this CCCTB proposal is justified, although there are legitimate cross-border issues that we need to discuss. For example, the CBI has raised the important issue of how businesses operate and the compliance costs that companies working on a cross-border basis can sometimes incur. It is legitimate to listen to those points, although there may be other, non-EU ways of addressing them. For example, we could make bilateral, country-to-country arrangements—through some of the double taxation treaties, and so on—to deal with those issues. Indeed, I would like the Minister to address the issue of bilateral discussions, which I understand the Treasury says in the reasoned opinion it might wish to pursue. It would be very helpful indeed if she could tell the House what negotiations the Government have already entered into along those lines.
Mr Redwood: Does the shadow Minister, like me, find it democratically distasteful that a 102-page draft law governing the whole of our corporation tax regime, along with supporting papers amounting to 298 pages, should get only one and a half hours of debate, and that this is all the scrutiny that we are allowed?
Chris Leslie: Yes, I agree with the right hon. Gentleman on that. We need to begin to readdress entirely the accountability deficit. I know that this Parliament already tries valiantly to address it—in Scrutiny Committees and elsewhere—but this is a debate about serious proposals. The Treasury is often an intermediary these days when it comes to new regulations and policy changes. It is important that we should think about the design of our Government and our Parliament in tackling proposals as they come along.
As I said, I am interested in the Government’s line. We will not take issue with them on this proposal this evening, but we want to watch where they go with it. All I am asking of the Minister is whether coalition policy is taking into account the Liberal Democrat official line.
Chris Leslie: That is very helpful, and it means that the Liberal Democrats must have undergone a de facto change of opinion. I suppose that we can ask the Liberal Democrats. [ Interruption. ] The hon. Lady says, “Ask them,” but we cannot. Anyway, I do not want to intrude on private grief, one Government or not—although probably not—and neither do I want to take up too much more of the House’s time.
The hon. Lady has said that she is anxious that, if we are not careful, a smaller group of states might just go ahead with the enhanced co-operation procedure in any case. What assessment has been made of the potential impact on UK businesses, tax revenues and so forth? Which other member states does she think are most likely to go ahead? What role could we play in ensuring that we are not sidelined or excluded from those discussions, but instead have an impact on them?
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Those are the key points that we need to address right now. I am generally worried about the Government’s disengagement from those European issues that really matter to this country. As we know, the Minister has a habit of signing Treasury memorandums about European matters that are perhaps not always agreed to by others in her party. I am referring to the European stability mechanism documentation that she signed, when she agreed that cross-party consensus was gained between the previous Government and her Administration. We will obviously be debating that on another occasion, but, for the time being, we will be keeping a watching brief on where the Government stand on this matter.
Mr William Cash (Stone) (Con): This is of course about direct taxation, and I welcome the Government’s limited stand against the draft directive, for the reasons given in the motion endorsing the European Scrutiny Committee’s report on the points that the Minister has just summarised. I remain concerned, however, about one matter still hanging over the debate. The Minister might be able to guess what I am about to say. It goes back to a motion that was before a European Standing Committee which asserted, in the name of the Government, probably for the first time since 1640—I mentioned Pym and Hampden just now—that the British Government, as a sovereign Government, were only primarily responsible for direct taxation, whereas in fact our Parliament is exclusively responsible for it. That motion was put to a deferred Division in the House and passed, which is pretty alarming. I invite the Minister to be rather clearer than she was the last time I put this point to her, because it must be made absolutely clear that this House is exclusively responsibility for direct taxation.
The Minister has been at pains to describe the context of this measure in the light of the questions of subsidiarity, but some Members might recall that it was on 27 April that I raised this matter with the Prime Minister, together with the proposed increase in the European budget and the Portuguese bail-out, not to mention prospective Greek bail-outs and whatever else. I said that we expected the answer to be no to each of those proposals. His reply referred only to the increase in the EU budget, and I hope—for reasons that have been expressed in interventions, including my own—that we are unequivocal in reserving to ourselves the absolute determination, and not merely the right, to say no to these proposals, because they infringe a number of important principles. I shall come to those in a moment.
“no further transfer of sovereignty or powers”
“might threaten or limit our ability to shape our own tax policy.”—[Official Report, House of Lords, 16 February 2011; Vol. 725, c. WA172.]
I have the greatest respect for the Minister, as she well knows, but she left out the next bit, which was the word “but”. That word “but” is represented by Banquo’s ghost, who is not sitting on the Liberal Democrat Front Bench tonight—[
] Ah! My hon. Friend
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the Member for Harwich and North Essex (Mr Jenkin) is there, acting as a surrogate, which is extremely unlikely in the circumstances, although I am delighted to see him and I hope that he will contribute to the debate at some point.
“engage in discussions to help shape a CCCTB that does not undermine the competitiveness of the EU or the UK”.
Now that is a monumental exception, because it is obvious, for reasons that I shall explain, that the proposal will undermine the competitiveness of the EU and the UK ab initio—and the Government know it. It follows from that, as light follows day, that there is no reason for us not to put our foot down now and say no. We know that the Tax Commissioner is saying that this is going ahead under enhanced co-operation, and this it not something magicked out of the air, as he knows perfectly well that that is what Germany, France and other countries are intending to do. When I provide the figures on the number of member states engaged in the process, as I shall in a moment, perhaps matters will fall into place.
The proposals before the European Scrutiny Committee are, for reasons set out in our conclusions, all profoundly objectionable, but the draft directive falls down particularly on four main issues: one, the sovereignty of this House; two, the insufficient legal base; three, an inadequate and unconvincing impact assessment; four, grounds of proportionality, making the doubling of tax regimes in the EU, the cost of establishing 27 new regimes and the apportionment formula excessively disadvantageous for certain member states.
“it is unlikely that the introduction of the CCCTB would bring significant benefits to the EU in aggregate in terms of employment, GDP or efficiency, although some individual countries could benefit significantly.”
I make that point because, under the formula of Roland Vaubel of Mannheim university, it is well known that there is such a thing as regulatory collusion and that, by the clever use of certain majority voting systems, through negotiations in the case of unanimity as in this instance or by enhanced co-operation, it is possible to arrive at a point where some countries benefit to the disadvantage of others. The Oxford university think-tank has its finger on that issue.
It is quite clear that the objective of this tax base—this is the important part that needs to be borne in mind on the big landscape—is to raise money to pay for the profligate, incompetent and failing European project. Countries such as Greece, Ireland and Portugal are either on the verge of or in danger of bankruptcy or are actually going bankrupt because of the systemic failure of economic policies. The stability and growth pact does not work: as I have said before, there is no stability, no growth and no pact.
The creation of a two-tier Europe will merely exacerbate these problems, as was noted when we debated the European Union Bill, and will lead to ever-greater German domination over the European economy. The economic predominance of Germany in east and central Europe might be a good thing from its point of view,
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but we now have a transfer Union and a massive redistribution of resources. What we are also witnessing as a result of the failure of this project are riots and protests as Germany repatriates its profits at the expense of cheap labour unit costs from the countries in which it has put investment in the centre of Europe, as Portugal, Greece and even Ireland have found to their cost. The pumping of money supports not so much the member states as the French and German banks, which have lent money indiscriminately to suit themselves—and we are expected to engage in the bail-out procedure, the covert mechanism for which is the stability mechanism, coming into effect in 2013.
As the European Scrutiny Committee insists, this whole proposal is in breach of the principle of subsidiarity. I remind the House that this principle is intended to ensure that decisions are taken as closely as possible to the citizen. Direct taxation is such a policy. The national Parliaments are able to use the procedure under the treaties to challenge breaches of subsidiarity. At present, there are only six countries whose parliamentary Chambers propose to, or have, issued a reasoned opinion. We have, but, interestingly enough, the House of Lords has not. I think that we should note that.
In passing the motion, the House will challenge the breach of subsidiarity. I suspect that the Minister has figures that are even more up to date than mine, but as far as I know, of the 27 member states, the five that are on our side are Ireland, Malta, Netherlands, Poland and Sweden. I am told that Cyprus, Greece, Hungary and Slovenia have no plans even to scrutinise the proposal, that those yet to decide include Austria, Bulgaria, the Czech Republic—the lower chamber and the senate—Denmark, Estonia, France, Lithuania, and Luxembourg; that Romania, Portugal, Italy and Spain believe that the draft directive complies with the principle of subsidiarity; and that the German Bundesrat is considering it only on the basis of content.
The picture is very uncertain. There is no guarantee that the accumulated number of reasoned opinions will be sufficient to meet the threshold requiring the European Commission to review the proposal, and because that will be known somewhat in advance, the tax commissioner will say that he has already received a demand to proceed with enhanced co-operation.
We have a serious problem on our hands; however, we have another card up our sleeve. Unbeknown to some, although I am more than happy to share the information with the House, under article 8 of protocol 2 the United Kingdom Parliament can go to the European Court of Justice, which has jurisdiction to determine our claim as the House of Commons—which is regarded as a separate Chamber—that the principle of subsidiarity has been breached. That gives us the basis for a challenge.
I believe that if the Government are not prepared to say no—which, for the reasons that I have already given, I think that they should have done already—the House of Commons should take the matter to the European Court of Justice; but would it not save an enormous amount of time and trouble if we simply recognised that the House is sovereign, that it has the right to take the action that it has taken, that the European Scrutiny Committee has done its job at this stage in the proceedings, and that the Minister is profoundly
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on our side of the equation? I know her sentiments, and I also know her Parliamentary Private Secretary. He was a member of the European Scrutiny Committee with me for years. He would be jumping about all over the place about this if he were still a member of the Committee, and agreeing with every word that I am saying.
Leaving aside the attack on Thatcherism, of all things, by the Deputy Prime Minister immediately after the disastrous showing of the Liberal Democrats in the polls, which is probably why no Liberal Democrat Members are present today—and, for that matter, the let-out that they have been given in the coalition agreement, which I think I have now shot to pieces—I would say that there is every reason for the Liberal Democrats to back down and not veto our Conservative party veto simply because of the coalition arrangement, and for the Prime Minister to do what I asked him to do at Prime Minister’s Question Time only a few weeks ago and say “No, no, no.” That would save a great deal of time and argument.
The UK corporate tax director of a major European bank has said that this proposal would increase our corporation tax and drive investment away, reduce our GDP by £73 billion over 10 years, increase the administrative burden, and lose the UK an estimated total of £58 billion, again over 10 years. We know that Mr Sarkozy and Ms Merkel are in favour of the competitiveness pact, which affects us although it is presented as a eurozone matter. I believe profoundly that, whether the proposal involves enhanced co-operation, the creation of a two-tier system, or whatever other means or machinations may be produced by the Faustian pact that is being devised in Europe, we should put our foot down, lead from the front, and say no. I am prepared to admit that the opportunity to do that exists, but I want to hear it from the Prime Minister’s own lips. He will then be able to enjoy as much success in this context as he, and we, enjoyed in the context of the alternative vote the other day, when the Liberal Democrats got their come-uppance.
Nigel Mills (Amber Valley) (Con): It is a privilege to follow my hon. Friend the Member for Stone (Mr Cash), although I shall not follow his lead by addressing European law in forensic detail. In these debates, we run the risk of getting lost in the detail of legal technicalities and forgetting to look at why the whole idea before us is bad for Britain and bad for Europe. Although I understand why the Government have put forward this proposal, I want at the very least to try to improve it and to make the final agreed measure the least bad it can possibly be. More than that, however, I think we must explain why the whole idea is so bad for all European Union member states and try to persuade them to kill it off and not run with a slightly improved version.
My hon. Friend set out some of the reasons why this is bad for Britain. There is great concern that it would lead to tax revenue disappearing from Britain and going to other member states. We should consider the three proposed allocation keys: the number of employees and the wage bill; the value of tangible assets, but not intangible assets except in some limited circumstances; and the level of sales. Those keys will greatly favour economies that have high employee-intensive and asset-intensive industries, and I am not at all sure that that is how we would describe our economy, or whether it
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would accord with our vision for our economy in the future. The amount of profit, and therefore tax revenue, could be skewed, with the extra sums going to the nations with high numbers of employees and high-value tangible assets. As a result of this measure, multinational groups would be able to allocate certain activities and thereby place their corporate tax bills in territories that would result in their getting a lower rate than we might want. We must thereore be very careful.
From my experience as a tax adviser for 13 years, I can say that what we want is choices. It would be a great start if we could choose whether or not to be in the regime, or if we could choose to be in, and then try to have a completely different allocation key if we can find one that gets us a lower bill. The draft directive allows that. The aim must be to get every possible chance to choose. If I can choose where to base and allocate certain activities, I can come up with some clever ideas on how to reduce my tax base. In these days of internet sales, where we recognise a sale to have been made is an interesting exercise. Is it where the server is based, for instance? It could be set anywhere we like, I think.
For some, there is an attraction in such Europe-wide measures. If I were an American finance director I might think, “I have 27 EU subsidiaries, and sorting out all the tax returns and compliance issues is horribly complicated, but now I can just do one nice and simple tax return. Great!” In the US system however, there is a federal corporate tax, but also a load of different state systems. I do not think anyone would say its system is at all simple, or would choose to adopt that model.
We should be looking to take away some of the tax barriers across Europe. Frankly, the EU has led to the creation of some unnecessary tax obstacles. The idea that the EU involves a tax simplifying arrangement is somewhat laughable. About seven years ago, we had to extend transfer pricing rules to apply between UK resident companies of the same group because we were concerned that the European Court would otherwise throw out the transfer pricing rules that only applied on cross-border transactions. That increased the compliance burden on almost every corporate tax group in the UK. Ideally, we would allow our large groups to have a consolidated tax filing in the UK of all their UK entities, and thus take away the need to keep separate records and make separate transactions. We cannot do that because we fear European law would strike it out for no particularly good reason, yet we can try to have this complex arrangement for the whole EU.
We would think that the EU would be taking away withholding taxes, yet its directives allow withholding taxes on certain transactions between member states. If we are going to spend a lot of time and money looking to simplify tax across the EU, let us look to take away the barriers that are already there, and not create whole new levels of complexity we do not need. This whole agenda is a complete blind; this has to be seen as a drive towards a single European Union, a single federal state and a single tax system. If we want to be competitive, we are making exactly the right moves in reducing our tax rate, but there is more to a competitive tax system that attracts overseas investment than just the rate; there is the tax base, and the stability and simplicity of the system. If there is one message for the Government coming out of this, it is that we need to simplify our tax
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regime to make these ideas, which are superficially simple but which would not turn out to be so, seem less attractive.
I took the time to look through the draft directive on a common consolidated corporate tax base and I could see a few things in it that will attract some multinational directors. Its level of tax depreciation or capital allowances allowed for fixed assets is somewhat higher than we are reducing ours to. As I recall it, the EU is allowing 25% on a reducing balance basis, rather than the 18% that our level is now down to. Various other things in the directive may also be found attractive. We should focus our energies on trying to simplify our tax system to keep our competitive advantage, which arises from some of the reliefs we offer. We should also try to take away the tax barriers around Europe and not create a whole new complex system. We should not waste loads of time and money and miss the big picture.
Mr John Redwood (Wokingham) (Con): Tonight’s debate should be a vital one because, after all, it is about sovereignty; it is about power. The might of this House of Commons in its great years was based on one very simple proposition: that only a vote of the House of Commons could impose or remove a tax on the British people. It was that power which our predecessors fought for and achieved, and it was that power which was crucial to grant the supply to the Government, who could then choose how to spend it, on the advice and with the votes of the House of Commons.
We have been assured and reassured by countless Ministers of the Crown since we joined the European Economic Community in the 1970s that taxation was always a matter for unanimity; that we would always have a veto over any tax matter; and that there was no question of the European Union interfering and choosing taxes for us or running our tax system. Under the previous Labour Government, tax was said to be a defensible red line, which they always told us they had always protected. Under previous Conservative Governments, Ministers could rightly then say that it was always a matter entirely for the jurisdiction and decision of this House of Commons.
Yet tonight, in this small and short debate, we are presented with a 102-page draft law which is a comprehensive new corporation tax system for the European Union, including the United Kingdom. Worse still, we have been warned in a friendly way by the Minister that if this country disagrees with it, a group of countries may go ahead under some other procedure and create it anyway, and they will then exert extraterritorial jurisdiction over the UK because they will try to tempt our companies away from our system to their system. As my hon. Friend the Member for Amber Valley (Nigel Mills) has just said, tax advisers and accountants will be able to play all sorts of games under this complicated system so that companies that have some activities in Britain could be tempted into the European Union opt-in system. That would mean that the British Treasury and British Ministers would no longer have jurisdiction over them; we would get back only what the sharing formula allowed, which the European Union would be in charge of.
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My advice to the Government is that this should be the issue we fight over. This proposal is so outrageous, it is such a comprehensive violation of subsidiarity, as they call it, and it is such a U-turn from the proposition that a member state has control over its own tax affairs that surely we should veto it. If we vetoed it and other countries still wanted to go ahead as a lesser group than the European Union, we should follow things through and say that it therefore does not apply to the United Kingdom and we will not operate it in respect of companies that are properly domiciled here and should be taxed here under our rules. We should set the rules for organisations and companies undertaking activity in Britain, making money in Britain and employing people in Britain. If we cannot do that, what is the point of this House of Commons? I think the Minister is in a stronger position than perhaps her officials and advisers have suggested.
We have heard, I think rightly, from my hon. Friend the Member for Stone (Mr Cash) that the legal base is not correct. In order to justify all the statements that this is a matter for unanimity, it must come under that measure in the treaty that states that other proposals can be produced but that they require the unanimous consent of all member states. It must come under a unanimous base. Once it is a matter to be decided under a unanimous base, we can then save the European Union a lot of time, trouble and money because we can simply say that we do not wish to have a collective corporation tax system and that Britain is going to use her veto. For once, surely, the United Kingdom could have some influence over the agenda of the European Union and we could show that we mean it when we say that taxation is for national decision—that it is a matter for subsidiarity, in the EU’s language, or a matter of sovereignty, in my language.
I would like to ask my ministerial friend what the point was of this House solemnly legislating to maintain, uphold or reaffirm the sovereignty of the British Parliament if we cannot even choose our own corporation tax regime. What is the point of our going along with the negotiations to try to ameliorate, improve or abate the severity of this draft law if we are doing so in the spirit that we will end up with a law of sorts anyway? We will then hear from the Minister that instead of it being something that we have vetoed, it is something we have taken the worst out to make it a bit more tolerable so that we can go along with it. It will not be necessary for the other member states who want the measure to use a special procedure to get it, and there will be no need for us to say to them that we refuse to go along with it or comply with it.
Mr Cash: Does my right hon. Friend recall the words of Chancellor Kohl, who, only 10 or 15 years ago, made it clear that, on the question of the speed of the convey, which is what this is all about, he would want the front of the convey to go ahead, led by Germany, and for the other Member states to be left in such a parlous condition that they would eventually, in his words, have to catch up?
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system such as this, it would not want a weak link. The EU would see a weak link as a state that dared to set a more realistic and lower rate in order to attract business.
Steve Baker (Wycombe) (Con): As ever, my right hon. Friend makes his points with incredible force. Does he agree if the European Union follows the policies of bail-outs and political interference with business all the time, we will keep seeing measures like this one again and again until we head towards a single centralised economic system of government?
Mr Redwood: My hon. Friend is right. The EU believes that imposing more complex and higher taxes is the answer to the deficit problem, whereas the answer to the deficit problem is growth, more business, more activity and more jobs. Everything the EU does by way of higher tax rates, more regulation, more interference and more layers of government prevents that from happening. That is the Greek tragedy that we are witnessing as we debate today.
The latest figures on the Greek Government website imply that the Greek deficit got a lot bigger in the first part of this year because tax revenues plummeted, because the economy is in worse recession, and because spending has gone up, both because they are not controlling it and because spending goes up in a recession. That is the tragedy of the European model—of the bail-out model and of “extend and pretend”, whereby we extend the credit and pretend it will be all right. It is not going to be all right and that approach is causing disaster, unemployment and tragedy.
Thomas Docherty (Dunfermline and West Fife) (Lab): The right hon. Gentleman has mentioned several tragedies and I note with some interest that the Treasury team includes this Minister, the Economic Secretary, whose views on Europe are well known, the Chancellor, whose views are very well known, and the hon. Member for Chelsea and Fulham (Greg Hands), whose views are also very well known. Perhaps the real tragedy is that the Liberal Democrats in the Treasury team, who are not even here tonight, have forced this policy on the Government.
Mr Redwood: I am not sure I believe that. We have heard from the Minister that they are a happy and united team and that she is proud of the work she has brought to us. I am saying that I would like her to improve the work and to go back and make that happy team one that can perhaps make us happier. The simple answer is veto. She should say, “No, this cannot work. It is a dreadful constitutional intrusion on a country that desperately needs its own economic recovery to accelerate, that needs lower tax rates and greater tax simplification and that needs to promote economic growth.” My right hon. Friend the Chancellor is beginning to do that, but I think more measures are needed to secure the deal and make sure it works.
I am quite sure that this huge deal—the 102-page draft law—is not the way forward. My hon. Friend the Minister says that there is no proposal, but I regard a 102-page draft law as a very serious proposal. Experience has taught me never to underestimate the power and persuasion of the European Union when it wants to do something. I think that it is now on a great push to establish all the central powers it needs for the economic governance of a single-economy, single-country model,
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and that this is part of it along with the economic six-pack. My strong advice to my hon. Friend is that Britain can do better, Britain needs to say no and Britain needs to exempt herself from all this, as we are entitled to do, so that we keep a sovereign Parliament and a growing economy.
It is very interesting that, as my right hon. Friend the Member for Wokingham (Mr Redwood) was saying, between 1688 and 1972, taxation could not be levied without the permission of the House. Since 1972, tax rates have been changed at the whim of the European Union. What is more, it happens to use duties levied on imports in exactly the way that James II would have been familiar with—it takes the same anti-parliamentary approach. James II called them tonnage and poundage; the European Union calls them anti-dumping measures but it changes them with arrogance as it sees fit.
I want to talk about the legal aspects of this issue, because they are the absolute crux of it. I raise this point with my hon. Friend the Minister because there is no point in negotiating for months if there is no legal basis in the first place. The Government should be very clear and rigorous about this and should take it, if necessary, all the way through to the European Court of Justice. That might be a Court in which many of us do not have a great deal of confidence and it might be a Court that is in principle a federalist Court, but none the less it is there and its procedures should be used.
“The draft Directive is concerned with direct taxation. The legal base cited for it is Article 115 TFEU. This article allows EU legislation to approximate national legislation which directly affects the operation of the single market, but”—
“this provision is expressly ‘without prejudice to Article 114’. Article 114(2) TFEU provides that Article 114(1) TFEU ‘shall not apply to fiscal provisions’. Article 113 TFEU, the only provision referring to the harmonisation of taxation, is limited in its scope to ‘turnover taxes, excise duties and other forms of indirect taxation’. There is therefore no express provision in the Treaty for the harmonisation of direct taxation.”
My hon. Friend leads me away from the essential point, which is that the EU does not have any authority over direct taxation, whether it is approximating it or not, so the approximation is irrelevant in relation to direct taxation because the treaties do not provide for that. If the treaties do not provide for it, then the EU cannot provide for enhanced co-operation
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without a specific treaty amendment, which would of course be a separate veto-able activity under the treaties as they exist.
We often complain about European law, and I do not like the fact that laws made by this Parliament can be overturned by the European Court, but as that is the world in which we live, when European law is on our side we ought to use it. So I reiterate my plea to the Minister in the European Councils to say that we are uncertain of the legal base and that we would like a clear legal judgment from the European Court of Justice before we proceed with further negotiations.
Now there is also a fall-back position, as my hon. Friend the Member for Stone (Mr Cash) said. If the European Court of Justice were, as a federalising court, to invent a legal base, we could then come back to the point of subsidiarity, where this debate is so relevant and important. We are putting the argument to Europe and saying, “You have put these fine protections into the treaties. You have used these grand-sounding words—not as clear as the 10th amendment to the United States constitution, but none the less words that are supposed to protect the rights of sovereign member states. Let’s now see if you mean it. Let’s now see if you, the Commission, will accept the argument for subsidiarity, and if you won’t, whether the court will back it up and whether the proposals will fall on that basis.”
If all this fails, then I accept the Minister’s position. I must confess that it is a reassurance to those of us on the Eurosceptic wing of the party that it is the Minister who will be conducting the negotiations, because at least we know that it is not, as some on the Opposition Benches would have said, a woolly Liberal negotiating. It is somebody who wields a handbag in as fine a way as the great lady—[Interruption]—the blessed lady, so we have confidence that the Government’s negotiations will be tough.
Jacob Rees-Mogg: I heard that joke when it was made from a sedentary position. I thought it was funny five minutes ago, and it has got better by being shared with the whole House. It is a shame that all the sketch writers have gone home, or the hon. Gentleman would have had a lead in the papers tomorrow.
Let me conclude on this point: tax competition is healthy. It is good for nations and benefits Europe, companies and, ultimately, Government tax revenues. So we have a Minister battling for us who has three things that she can say. First, the draft directive is illegal under the treaties as they stand; secondly, the House of Commons believes that it does not meet the requirements of subsidiarity; and thirdly, it is a dreadful idea anyway and it ought to be binned.
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with such great clarity the grounds for my opposition to the measure. We have heard tonight a number of reasons why the proposal for a common Euro corporation tax, as I would like to call it, is wrong. This is yet another stage towards what the eurocrats are determined to proceed with—ever closer union.
We are here on a regular weekly or fortnightly basis, looking at the latest directive that comes before the House. Sometimes the directives could be described as dealing with relatively minor matters. This one most certainly cannot. The harmonisation and the Europeanisation or European Unionisation of the corporation tax base is a step too far. We have heard that its legal basis is unsound. It would, in my opinion, fall foul of the principle of subsidiarity. I believe that it is economically wrong.
It would be interesting to know how many FTSE companies in this country would be in favour of this crazy proposal. It seems that the only people who would benefit if it ever came into force would be those companies and tax jurisdictions that were outside such an arrangement. I accept that in the early days they could arrange their affairs in such a way as to make it attractive in order to encourage companies to come into the euro corporation tax area, but I am absolutely certain that before long, because of the bureaucratic and regulatory burden, they would have to increase their corporation tax rates to such a level that any companies that were ensnared within such arrangements would quickly wish that they had never become involved.
Mr Cash: Does my hon. Friend also accept that the objective at the heart of this is to move towards a harmonised tax system for one reason: to complete the circle of political union that will enable this to be one country, driven by fiscal direction, and at the same time to fill the belly of the European Leviathan with the money that will enable it to continue to create circumstances that will inevitably lead to more turmoil, implosion and a greater disaster than we already have?
Mr Nuttall: My hon. Friend hits the nail on the head. I see this as the thin edge of the wedge. It is the opening of a whole new war, and a whole new phase of European harmonisation. In fact, it is almost the final frontier, because it is the step towards a euro-wide sales tax and, ultimately, a euro-wide income tax that we would all be subject to. It is extremely difficult indeed.
I heard the Minster’s opening remarks, and it is to be welcomed that we will at least go back to our European partners and state our reasoned opinion for not proceeding with this. I am slightly concerned, to say the least, that we are not saying no outright, which would be a far simpler way of dealing with it. It reminds me of the message of the drugs campaign run when I was at school: “Just say no”. The simplest solution to the problem facing the House tonight would be just to say no. I see no great danger if other countries want to get together and operate a common corporation tax system—that may be ultimately what they want to do—but this EU proposal for a common corporation tax throughout Europe could be described as nothing other than giving away sovereignty, which, to come back to our national
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politics, is specifically outlawed in the coalition agreement, which states that there is to be
“no further transfer of sovereignty or powers”
When the Minister responds to this short debate, will she give an estimated time scale for when she is likely to be able to come back and report on what success there has been in persuading other countries to adopt our position on this matter, and will she give an absolute confirmation that there will be no signing up to the proposal in any way, shape or form without the matter being brought back to the House for further consideration?
Mr Bernard Jenkin (Harwich and North Essex) (Con): I am most grateful for the indulgence of the House in allowing me to take part in this debate, despite the fact, which I regret and for which I apologise, that I missed the speeches by the Economic Secretary to the Treasury and the hon. Member for Nottingham East (Chris Leslie), who speaks for the Opposition. I heard my hon. Friend the Member for Stone (Mr Cash) and the subsequent speeches, and I get the tenor of the objections that have been raised to the draft directive and the concerns, which have been very well expressed.
I wish to speak not so much about the substance of the directive as about the matter that is so germane to this debate: the nature of subsidiarity—what it is, and what we mean by it. That is the issue on which the debate hangs: a plea for subsidiarity.
“Under the principle of subsidiarity…the Union shall act only if and in so far as the objectives of the proposed action cannot be sufficiently achieved by the Member States, either at central level or at regional and local level, but can rather, by reason of the scale or effects of the proposed action, be better achieved at Union level.”
The advisory part of article 5 relates to the objectives of the proposed action, and subsidiarity is a purely relative concept if it relates to the objectives of the proposed action, so what are the objectives in the case before us? They are set out at the start, and this speech is, I am afraid, about the futility of depending on subsidiarity. Subsidiarity is a futile defence of the national interest.
“Companies which seek to do business across frontiers within the Union encounter serious obstacles and market distortions owing to the existence of 27 diverse corporate tax systems. These obstacles and distortions impede the proper functioning of the internal market.”
“network of double taxation conventions between Member States does not offer an appropriate solution,”
“a single market for the purpose of corporate tax”.
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Mr Redwood: I am delighted if a case can be made under subsidiarity, but surely there is a much simpler case: taxation of companies and incomes was never part of the deal for the powers of the European Union. What it is trying to do is quite illegal, and all we need to do is to say so.
Mr Jenkin: But that was always the danger with article 5 and the subsidiarity clause. There are some very general objectives set out in the treaties, and subsidiarity is one of those catch-all arrangements that can justify stretching the meaning of other articles, as we have already seen.
How does the European Union justify the bail-out mechanism that the previous Chancellor of the Exchequer approved under article 122 of the Lisbon treaty, which was designed for natural disasters? How can a crisis in the euro possibly be classified as a natural disaster? The mechanism has, however, been allowed to go through by default.
“The objective of this Directive cannot be sufficiently achieved through individual action undertaken by the Member States because of the lack of coordination among national tax systems.”
“in accordance with the principle of subsidiarity”—
I appreciate the European Scrutiny Committee’s points about the direct legal base, but the European Union is going for an indirect legal base. That demonstrates that subsidiarity was always a deceit. It was always something that could be a centralising, as opposed to a decentralising, concept, and if we rest our case against the proposal purely on the principle of subsidiarity we will allow the EU, rather than what we want ourselves, to determine what is imposed upon this country. If we rest our case against this proposal purely on the principle of subsidiarity, we are allowing the European Union to decide what shall be imposed on this country rather than deciding what we want for ourselves.
Mr Cash: I know that my hon. Friend was able to come in only somewhat late in the debate, but the arguments that we have been presenting show that there are a whole series of weapons that we can employ. Subsidiarity happens to be a procedural device that is available to us by way of a reasoned opinion, which is what the motion is about. We are critical of the Government’s position in that they have not exercised their political will, for all the reasons that my hon. Friend and others have explained. This whole business is an infringement not merely of the word “sovereignty” but of the practical requirements of the people of this country to tax themselves by consent. That is what it is all about.
To echo my right hon. Friend the Member for Wokingham (Mr Redwood), the Budget moment in the calendar of this House is the most important political occasion of each year, when the Chancellor comes to this House to deliver his Budget judgment and it is for the House to determine what the levels of expenditure,
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taxation and borrowing should be. That is absolutely fundamental not only to the mechanics of our democracy but to the culture of our democracy and the culture of this House. This proposal is a very direct challenge to government by national democratic consent.
The only, rather lame and late, point that I might be adding to the debate is a very simple one, and I do so for the same reason as that which led my hon. Friend the Member for Stone (Mr Cash) to lambast the concept of subsidiarity when it was first proposed in the treaty on the European Union back in 1992—the Maastricht treaty. It is, very simply, that subsidiarity is not sovereignty. Subsidiarity is subservience; it is submitting to the jurisdiction of the European institutions instead of the sovereign judgment of the British people as expressed in this House. Subsidiarity is no substitute for Government saying no, particularly where the veto is in their hands. I urge my hon. Friend the Minister to exercise that veto, knowing that she will have the confidence of the British people behind her, because they do not want her to say yes in this case.
Justine Greening: With the leave of the House, I would like to sum up the debate. We have had a full and constructive discussion on this proposal, which is, as we have heard, an important one. I want to close by reiterating a few key points, but also by doing my best to respond to the comments that have been made by Members—I was about to say across the House, but that is obviously not the case, given that the Opposition spokesman turned up with very few other people from his party.
First, I should address a couple of the points that the hon. Member for Nottingham East (Chris Leslie) made about the work that we do as a country with other member states. I can assure him that the UK has, for example, double tax treaties in place with all EU member states that set out mechanisms for allocating taxing rights to prevent the double taxation of companies, and structures for reaching agreement on double taxation relief and the exchange of information. He will be aware that there is also a mutual agreement procedure framework for resolving cross-border disputes about tax, including transfer pricing. It is because such mechanisms and frameworks are in place that we believe that the proposed approach is necessary.
The hon. Gentleman asked about the views that we have heard from business. We have heard a range of views, and discussions between business and Government are ongoing. In general, it is fair to say that business has not been actively calling for this proposal. It is also fair to say that some businesses have welcomed it—in particular, the prospect of allowing for cross-border loss consolidation. However, some companies are stressing that their support depends on the optional nature of the proposal. An awful lot of others, as we heard from my hon. Friend the Member for Amber Valley (Nigel Mills), have expressed concerns about the potential compliance and administrative costs, which are likely to be large for many companies, and the lack of certainty about how many aspects of the system would work—a concern that is shared by the Government.
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that we will not agree to any proposal that might threaten our Government’s ability to shape the UK’s tax policy. We are prepared to use our veto.
As my hon. Friend the Member for Harwich and North Essex (Mr Jenkin) pointed out, subsidiarity is the basis of one of the arguments that we can make, but that is not the only argument we can make. We should challenge the substance of the proposal, as well as raising our objections to the fundamental principles underlying it. That is precisely what we are doing. I emphasise to the House that we should continue to challenge the substance of the proposals as they develop, even if we do not necessarily want to be part of them.
I disagree slightly with my hon. Friend the Member for Bury North (Mr Nuttall), because I think it is in our interests to understand what the proposals are in which a smaller group of nations may participate and whether they may have any direct or indirect impact on us as a member state. That is one reason why we want to be engaged in the discussions as they unfold. We also want to engage, because other member states are keen, as we are, to have their say on this matter. I do not accept that member states have reached a final position. The parliamentary debates and the development of those views are ongoing.
Mr Nuttall: I am conscious of time, so I will be brief. Will the Minister explain what line the Government will take in the negotiations? If the understanding is that we will not join at the end of the day, would it not be to our advantage to make the tax as difficult as possible, so that our companies have an advantage?
Justine Greening: We need to be careful to ensure that we understand the complexities of the proposals. For example, we need to understand how companies that also operate in the UK may use any avoidance loopholes, and whether that will impact on the way in which they operate in the UK and structure their corporations. We need to be smart about understanding the breadth of the proposals. Whether we want to be in them is one thing, but we must be conscious that they may have an impact on us even if we are not part of them.
Mr Cash: Will the Minister be kind enough—and be smart enough—to make it clear that we will not do anything that the Liberal Democrats had in their manifesto? I have a suspicion bordering on certainty that the wording in the coalition agreement is taken straight from their manifesto commitments.
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Madam Deputy Speaker (Dawn Primarolo): Order. I know that there is a terrible pull for the Minister to turn around and face the Benches behind her, but I remind her that she should be looking forwards, or towards me, so that we can hear clearly what she is saying.
Justine Greening: I will of course do that, Madam Deputy Speaker. Your observation demonstrates that there have been few questions from any part of the Chamber other than behind me. That shows which Members of this House are prepared to stand up for our national interest and scrutinise proposals that affect our national interest, and which Members would rather go home and watch TV than represent their communities as they should.
We are committed to pursuing our national interest. My hon. Friend the Member for Amber Valley was right to raise the issue of complexity in regulation and the need for simplification. The Government set up the Office of Tax Simplification because we understand why those issues are important in helping business domestically. We are taking those very same arguments to Europe.
When I look at the proposal that we have been debating tonight, I find it hard to see how it can be reconciled with, for example, the Europe 2020 document and strategy that have been launched, which are all about stimulating growth. The impact assessment of the current proposal gives rise to grave concerns that it will do the exact opposite of that. It could hinder growth, investment and employment. We will focus our arguments not just on whether the proposal complies with subsidiarity and proportionality but on the important issues of policy substance that have been highlighted. That is the best way to ensure that we get the right outcome for the UK and for our UK businesses operating across Europe. I can assure the House that the UK will continue to participate fully in the EU negotiations on the proposal, and I will, of course, as I have been asked, keep the European Scrutiny Committee updated on the progress of those negotiations.
That this House considers that the Draft Directive to introduce a Common Consolidated Corporate Tax Base (European Union Document No. 7263/11) does not comply with the principle of subsidiarity, for the reasons set out in chapter 2 of the Twenty-seventh Report of the European Scrutiny Committee (HC 428-xxv); and, in accordance with Article 6 of the Protocol on the application of the principles of subsidiarity and proportionality, instructs the Clerk of the House to forward this reasoned opinion to the presidents of the European institutions.
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Charter for Budget Responsibility
That the Charter for Budget Responsibility, a copy of which was laid before this House on 4 April, be approved.
I welcome the opportunity to bring forward the charter for budget responsibility for the approval of the House. The charter sets out the Government’s new fiscal framework following the passage of the Budget Responsibility and National Audit Act 2011. I will start by setting out the context for the reformed framework.
Following the general election last year, the coalition Government inherited the largest budget deficit in our peacetime history, which was forecast to be the largest in the G20. Our structural deficit was the largest in Europe. The fiscal situation that we inherited was unprecedented, so on coming into office, the challenge that we faced as a new Government of two parties working together to resolve the problems left by the Labour party was to bring order back to our nation’s finances. The new fiscal framework contained in the charter is at the heart of that task. We published a draft of the charter in November last year, which provided time for substantial scrutiny. Indeed, it was considered at all stages of the passage of the 2011 Act. Perhaps before I get into the details of it, it would be helpful if I set out the Government’s broader fiscal aims.
We believe that fiscal policy should restore sustainability to the public finances. That is essential so that we can reduce our vulnerability to shocks or a loss of market confidence, underpin private sector confidence, support growth and avoid an irresponsible accumulation of debt at the expense of the next generation. We have taken tough and decisive action since taking office, and of course last May, the immediate reduction of in-year spending brought us much-needed breathing space given the acute sovereign debt concerns across Europe.
The emergency Budget in June was the moment when credibility was restored to Britain’s public finances, and in the 2010 Budget my right hon. Friend the Chancellor set out the Government’s fiscal mandate, which is now, for the first time, included in a statutory document, which is the charter that we are debating tonight. That mandate requires the Government to balance the structural current deficit by the end of the rolling five-year forecast period, and it is supplemented by a target for the public sector debt ratio to be falling at a fixed date of 2015-16.
The measures that we set out in the emergency Budget, alongside the departmental allocations that we set out in the spending review, represent a comprehensive four-year plan to meet that fiscal mandate. The 2011 Budget reaffirmed the Government’s consolidation plans set out last year, and reinforced them by implementing a balanced set of tax and expenditure policies. In the assessment of the Office for Budget Responsibility, we are currently on track to meet the mandate and the supplementary debt target one year early, in 2014-15.
Mr John Redwood (Wokingham) (Con): Does the Minister recall that the decision was taken in the March Budget to increase both spending and borrowing by £34 billion over the following four years? Will she remind the House why we did that?
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Justine Greening: We are introducing a series of measure that will, over time, tackle our underlying structural deficit. My right hon. Friend makes the point that in the meantime we need to borrow to pay off the structural deficit, which the country will continue to have until we have been through the process of fiscal consolidation. Until our nation’s finances are in balance, we face a challenge, because debt interest payments will continue to increase. If we had not taken the action that we are taking, we would have the added problem that the rate of interest on that debt would also increase. It is important that we get a grip on the debt interest rate that we are paying, that we tackle the problem now and that we do not leave the problem of debt and the fiscal deficit to future generations. We need to get into a position in which the debt is affordable, because it is currently squeezing the availability of money to spend on the public services on which we all depend. It is critical that we continue with that plan.
Angel Gurría, the secretary-general of the OECD has urged our country to “stay the course”, which is precisely what we will do. Our plan has been praised by the international community and welcomed by the financial markets. As I have said, that will hopefully enable us to keep those interest rates lower for longer. Both the International Monetary Fund and the OECD went from issuing warnings and cautions to the UK regarding economic management under the previous Government to calling this Government’s measures essential and courageous. This Government’s decisive action has therefore taken Britain out of the financial danger zone, and the crucial first step in that process was restoring the credibility of our fiscal policy by replacing the fiscal framework. The charter sets out the new framework before Parliament and for the public.
Perhaps I should remind the House why the Government set up the Office for Budget Responsibility. The previous Government’s forecasts for economic growth over the past 10 years were, on average, out by £13 billion, and their forecasts of the budget deficit three years ahead were, on average, out by £40 billion. Those forecasting errors were almost always in the wrong direction. In fact, all the previous Government’s forecasts for borrowing for more than two years ahead since Budget 2000 underestimated the eventual figure. It is vital for credibility and confidence that the forecasts for the economy and public finances are produced independently, which is why we established the OBR.
In June 2010, the interim OBR produced an independent assessment of the economy and public finances ahead of the emergency Budget. Then, at the Budget, the OBR produced a revised forecast on the basis of the consolidation measures announced by the Government. In November, the OBR produced its economic and fiscal outlook under the leadership of Robert Chote, whose appointment last year was scrutinised and confirmed by the Treasury Committee.
We have moved the OBR on to a permanent status that is underpinned by primary legislation. The 2011 Act establishes in statute the provisions necessary to secure the OBR’s independence, and it received Royal Assent on 22 March. The permanent budget responsibility committee led on the production of the OBR’s March economic and fiscal outlook, which was published alongside the Budget 2011.
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to fiscal policy and the management of the national debt, just as with the previous code for fiscal stability. However, the 2011 Act enhances the requirements for the charter compared with the code, because it provides that the charter must formally set out the Government’s fiscal objectives and mandate. The charter must in addition specify the minimum contents of the Budget report. The 2011 Act states that the charter may include guidance to the OBR on how it should perform its duties. Finally, the 2011 Act requires the Government to lay the charter before Parliament. The charter fulfils all those requirements, consistent with the 2011 Act and the remit of the OBR.
The first part of the charter covers the Government’s fiscal framework. It sets out that the Government’s two fiscal objectives are first to ensure sustainable public finances that support confidence in the economy, promote intergenerational fairness and ensure the effectiveness of the wider Government policy, and secondly to support and improve the effectiveness of monetary policy in stabilising economic fluctuations.
As we have heard, the Government’s fiscal policy mandate is a forward-looking target to achieve cyclically adjusted current balance by the end of the rolling five-year forecast period. At this time of rapidly rising debt, that mandate is supplemented by a target for public sector net debt as a percentage of GDP to be falling by a fixed date of 2015-16. That will ensure that the public finances are restored to a sustainable path.
Crucially, the charter cannot simply be ripped up and rewritten whenever is convenient for a Government. Instead, if the Treasury wishes to alter the mandate, it must follow the formal process set out in primary legislation and return to the House for approval, which enhances the Government’s accountability to the House for their fiscal targets. The charter reiterates the Government’s intention also to adopt as the official forecast the OBR’s economic and fiscal forecast, and if the Treasury wishes to disagree with the OBR’s forecast, it will have to explain why to Parliament. Finally, the charter sets out the Government’s debt management objective and how they will set and report on their financing remit. The charter covers each element of the Government’s fiscal policy framework in a statutory document that the House has the ability to approve, enhancing the Government’s accountability for their fiscal policy.
I turn now to the second part of the charter. It is an important part of the charter that provides guidance to the OBR on its role and duties. The OBR’s main duty, as set out in the 2011 Act, is to examine and report on the sustainability of the public finances. The OBR has complete discretion over how it carries out its statutory duties, and the 2011 Act makes it clear that in all its work the OBR must be objective, transparent and impartial. As part of this independence, the OBR has the freedom to decide the methodology that it uses, the forecast judgments that it takes, the contents of its documents and its work programme for future research and analysis. This independence is delivered through the 2011 Act and therefore protected in primary legislation.
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OBR to produce forecasts that cover at least five financial years, that provide sufficient information to allow the Government to use them as a basis for policy decision and that include all the Government’s announced policy decisions. The OBR must also set out the key assumptions that underpin its forecasts. In fact, it has already published far more detail in its assumptions and judgments than previous Budget and pre-Budget reports. The 2011 Act ensures that this will continue in future publications, while the charter provides further detail on the set of economic variables and fiscal aggregates that the forecasts should include.
Of course, at this time of heightened uncertainty, the charter also sets out that the OBR must be clear about the risks that it has factored into its forecasts. The OBR forecasts result in an assessment whether the Government are on track to meet their fiscal mandate, and the charter also sets out that the OBR independently scrutinises and certifies all the policy costings that feed into its fiscal and economic forecasts. Importantly, the 2011 Act ensures that the OBR has a right of access to all Government information it requires to deliver its remit.
As well as medium-term forecasts, the OBR will look to the longer term. As we have heard, the OBR has a duty to report on the sustainability of the public finances. It will therefore produce an annual fiscal sustainability report that will include long-term projections of the public finances covering the next 50 years. The first report is due out on 13 July. The charter sets out that as well as those projections, the report will include an assessment of the public sector balance sheet. The OBR will also analyse its forecasting performance, drawing lessons for future forecasts from the inevitable differences between its forecasts and out-turn data.
Finally, the charter provides guidance on a number of administrative questions on the timing of interaction between the Treasury and the OBR. These are necessary to ensure that the complex Budget process runs smoothly while preserving the OBR’s freedom to act independently. There is also a memorandum of understanding agreed between Robert Chote, as chair of the Office for Budget Responsibility, and other Departments to support their working arrangements. The charter restates and reinforces the independence of the OBR, and none of the guidance undermines its impartiality or objectivity.
This charter lies at the heart of our reformed fiscal framework. It strengthens institutional arrangements, reinforces the independence of the OBR and restores credibility and confidence to the public finance forecasts.
Kerry McCarthy (Bristol East) (Lab): I will bypass the first eight minutes of the Minister’s speech, in which she reiterated the usual mantra about everything being Labour’s fault—she usually resorts to that when questioned about the Government’s policy, but today she started her speech with it—and instead focus on the charter.
The Budget Responsibility and National Audit Act 2011 was passed with consensus, at least on the principle of setting up the Office for Budget Responsibility and introducing the changes to the national audit process that the previous Government had already floated and that we would have implemented had we been re-elected in 2010. There was consensus on the principle, if not on all the details that we discussed in Committee. We
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welcome the fact that the House is debating the charter in Government time, as we received assurances in the Public Bill Committee that it would do so. Indeed, that formed a central part of our debates on the Bill and it is a central facet of the Office for Budget Responsibility’s functioning and relationship with the Government.
However, I note that the Government have on previous occasions attempted to get this motion through on the nod at the end of the day’s business. Only after efforts made by the Labour Opposition to secure a debate do we now have the opportunity to talk about the charter, which rather goes against the spirit of the reassurances that were given in Committee. Indeed, I questioned the Minister repeatedly in Committee about what was meant by the phrase “laid before Parliament” and whether such a promise would mean—not just on this occasion, but on future occasions—a proper debate on the Floor of the House or the measure being put through on the nod. However, at least we are here now, with the opportunity to discuss the issue.
Debates on the Bill in Committee were, as I pointed out at the time, slightly hampered by the fact that we could discuss only the draft charter. I repeat my observation that it would have been better for the Committee—and for the House on Report when we approved the Bill—to have a finalised form of the charter for consideration. I note, however, that the final version laid before Parliament has not changed substantially, which is somewhat unfortunate, as it has not been improved as much as we had either been led to believe in Committee or had hoped for.