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Lord Shore of Stepney: My Lords, I hope that I may interrupt my noble friend on that very point. After what he has heard during the debate today, does he still affirm in unqualified terms that we have a veto over all tax measures as it were emanating from Brussels? Has he not recognised that in certain ways he has misled us?--I do not say deliberately; quite the contrary. But from the beginning of this year onwards on about eight occasions the House was given absolute assurances that the veto would apply on all matters dealing with taxation. Now we know that a great part of it is classified as state aids and has therefore no veto attached. What has my noble friend to say about that?
Lord McIntosh of Haringey: My Lords, my noble friend described his speech today as an ambush. It is a funny kind of ambush when he made exactly the same speech on 23rd July and I replied to it in terms at that time. I shall reply to his points when I come to deal with his intervention. I have not forgotten what he said.
During the debate in the House in June this year I reminded the House of the conclusions of the Council of Ministers which confirmed again this basic truth I have mentioned. I hope that I shall not have to mention it again. The noble Lord, Lord Inglewood, challenged me on a Commission communication on the strategy for the single market. This is a consultative communication by the Commission. It has not been agreed to by the Council. The Commission's views are well known and are not new. Commissioner Bolkestein said roughly the same thing in his evidence to the European Parliament. We do not agree that harmonisation of corporate tax is necessary and there are no proposals of this kind on the table.
It does not help to have this continuous repetition of quotations from former German Ministers, like Herr Lafontaine and Herr Waigel. I would remind the House about the recent joint statement issued by Mr Blair and Mr Schro der--which I suggest has much more validity--which underlines this sentiment running through Europe. They stated:
The Government are pragmatically pursuing all avenues available to promote UK interests in Europe. As the report suggests, we will not dismiss any opportunities for promoting UK interests on dogmatic grounds. Of course we will not agree to measures which threaten British interests. The Government have made it clear that they will not accept any measures which will jeopardise British business. If all other alternatives available to the United Kingdom fail, the Government will not hesitate to use their veto.
The Government firmly believe--as do many other member states; we are not alone in this--that tax policy is ultimately a matter for member states to decide. The Government have no intention of abandoning the veto on tax matters. The Prime Minister confirmed this in the House of Commons in November last year when he said that we shall not agree to any lifting of the veto in areas such as tax, defence or our border controls.
Lord McIntosh of Haringey: My Lords, I will reply to my noble friend at an appropriate time in my speech. I am developing my argument. I shall respond to my noble friend and to all the other noble Lords who have taken part in the debate.
I turn now to the committee's comments on the code of conduct. The Code of Conduct Group was established to examine potentially harmful tax measures in European Union member states. While welcoming the aims of the group, the committee worries that the code may have implications for national sovereignty and the principle of unanimity in tax matters. The noble Lord, Lord Saatchi, knew that I would confirm that these fears are completely unfounded.
The code is not a legislative process; it is not legally binding; it is a political agreement between member states to investigate and consider harmful tax competition and the damage that does to the competitiveness of the European economy. It is about jobs and growth. All the code does is to provide a forum in which member states can discuss these issues. At the end of the process there will be no compulsion; there are no votes in the process of the committee, either on individual issues or on collective issues.
All this will become clear very soon indeed. The group has been asked to report before the Helsinki European Council, which takes place on 10th and 11th November of this year. That means that the final report is likely to be considered by ECOFIN on 29th November--this month. Surely we can contain our patience for a little bit longer in order that we may debate the issue on a basis of knowledge rather than on a basis of speculation.
I do not underestimate the sincerity of noble Lords who say that there should be transparency and accountability to Parliament. That is a respectable view and I understand it. However, ECOFIN decided, when it established the group, that publicising the group's ongoing work would be prejudicial to the proper consideration of these sensitive issues. It would make it much more difficult to achieve a successful outcome. The key was to foster frank discussion within the group with all parties. That said, we will consider pressing in the Council for the final report of the Code of Conduct Group to be published in full.
The noble Lord, Lord Saatchi, asked whether the group will be disbanded. The answer to that question is that I do not know. That is not only because I do not know, but because nobody knows. No decision has been taken on that. However, publication of the group's findings certainly is a matter for ECOFIN to decide. Furthermore, it is for ECOFIN to decide how to respond to this report in all its aspects. We are confident that none of the UK measures which were reported to the group as potentially harmful will be adjudged to be harmful when finally the group produces its report.
The noble Lord, Lord Kingsland, adduced legal arguments about the role and scope of the decisions and procedures of the group. He suggested that the consensus process is in effect legally binding. I must disagree with that comment. The fact that the Code of Conduct Group may have come to a view on any tax
I shall turn to savings. We were disappointed to note that the committee could not reach an agreement on the way forward on the savings directive. Indeed, I had hoped that there would be a magic solution provided by the committee for the Government that we could have adopted with gratitude. However, it has not done that, perhaps because debates on this proposal too often generate more heat than light. The UK has now produced its paper on the effects of the directive on the international bond market. I am sorry that it was not available when the committee was sitting, but copies are now available and have been referred to. The paper reiterates the Government's support of the general aims of the directive, but it also emphasises the UK view that the approach of the directive will not effectively tackle tax evasion. Exchange of information on a global basis is in principle the best approach. I believe that a number of noble Lords have agreed with that point of view.
My noble friend Lord Desai thought that the committee was scaremongering about some of the potential effects on the international bond market. He called into evidence the fears of Ross Perot about NAFTA. I believe that the noble Lord, Lord Taverne, had a reasonable answer to that point. The Interest Equalisation Act--which I thought was introduced in 1973 rather than 1963, but I may be wrong--did certainly drive out that kind of financial activity from the United States. We do take the view that the more we can extend the exchange of information, the more likely we are to achieve a better result than by withholding tax, for the reasons that have been widely adduced tonight. It is the continued insistence on outdated arguments for banking secrecy in some member states--although the debate has made it clear that that does not now include Germany--and important third countries which is preventing a solution to evasion on these lines. We are grateful for the support here from the noble Lord, Lord St John of Bletso.
The draft directive, aimed at individuals, would also have the unintended side effect of seriously damaging European Union financial markets. We believe that there is evidence that the imposition of withholding tax on international bonds would have a profound impact on the international bond market currently based in the City of London, costing UK jobs and investment. Accordingly, the UK paper on international bonds puts forward two proposals including, but not restricted to, "grandfathering", which has been referred to in the debate. That was in fact proposed by the City of London. These are proposals for excluding international bonds from the scope of the directive in order to safeguard the competitiveness of financial markets. Both approaches secure an effective
I appreciate, as my noble friend Lord Grenfell reminded us, that there are doubts about the co-existence model. That is why I emphasise the importance of a wide basis for exchange of information. But it should be remembered that the danger presented to the international bond market is only one of the areas of the directive which requires review. Several other issues also need to be resolved before the UK will agree to the draft directive.
We have made clear time and again, both to our European partners and to Parliament, that the Government will not accept the draft directive in its present form. We have determined from discussions at Council working groups that our paper has been taken very seriously indeed by other member states. It is now clear that they fully understand the UK position.
Perhaps I may now refer to some specific points raised in the debate. I shall do so as rapidly as I can. The noble Lord, Lord Saatchi, talked as though an early veto of these proposals would have been a good negotiating stance. Our view is that one does not start a negotiation from vetoes when some of the objectives of the group are shared by this country. Incidentally, the noble Lord is wrong about a veto in 1988 by the then Conservative government. The directive to which he referred was still on the stocks when we came to office in May 1997.
In an excellent maiden speech my noble friend Lord Lea of Crondall referred to energy taxes which are outside the scope of the committee's report. However, he made valuable comments on those which have certainly been noted.
The noble Lord, Lord Saatchi, talked about evidence from the Financial Secretary to the Treasury in favour of higher minimum excise rates on alcohol, tobacco and fuel. Indeed, we want to see higher minimum excise rates in other countries. Does the noble Lord disagree with that? There has never been any secret about it being government policy and I have never heard the Opposition say that they disagreed. But, explicitly, the Financial Secretary said that we would not be supporting the harmonisation of corporate taxes or of the tax base.
The noble Lord, Lord Boardman, referred to issues outside Europe and the views of the OECD. Perhaps I may refer him to paragraph 10 of the report. The committee said that, although it agreed that these are important issues, that is not an excuse for doing nothing within the European Union. He also referred to UK dependencies. I remind him that everything that we say about the UK dependencies will be,
The noble Lord, Lord Shaw of Northstead, referred to MARD. I say it as an acronym because I cannot remember what it stands for. In Tampere last month the Prime Minister, although he repeated that we would require unanimity on all European Union tax measures, did not suggest that we would be blocking the MARD. We welcome the principle of it but we think that more work is required on the detail.
I turn now to my noble friend Lord Shore of Stepney and his ambush. When he raised exactly the same point in a speech on the Finance Bill on 23rd July I made exactly the same reply as I propose to give now. This was one and only one of the items which were reported to the code of conduct group which has been adjudged by the European Commission to be state aid. State aid is clearly complementary, but is not the same as tax measures in the ordinary sense. We took the Commission's view on state aid and made the necessary amendments to the Finance Bill to modify the conditions of aid for 100 per cent capital allowances for small and medium-sized enterprises in Northern Ireland.
It has been the case ever since Britain became a member of the European Community and the European Union that this country, above all countries, has been opposed to unjustified state aids by member states. Governments of both parties in this country have always been opposed to discriminatory state aids which distort competition. Is it suggested that we should be the ones to decide what a state aid is? To take an example, if Monaco were to be a member of the European Union, should it have the freedom to decide what is a state aid? Clearly not. It must be a decision for the Commission. Otherwise, there would be no effective intervention against state aid. I thought that the noble Lord, Lord Inglewood, recognised that point in his speech. I hope that he did.
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