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Commonwealth Office discussing the social chapter yesterday. "It is terrible", he said, "we shall have to have a conference." Of course, it might last only 30 seconds.

I am becoming worried about the Con-Lab pact ; my hon. Friends are sounding more and more like Ministers. That is extremely worrying for Back Benchers. I ask my hon. Friend the Member for Oxford, East to go for a vote on the amendment this time. The whole of Europe will not collapse. Mr. Kohl will not be on the doorstep of No. 10 tomorrow morning berating the Prime Minister about it. They will call an intergovernmental conference, it will last 30 seconds and they will sort it out. It is not really important, so why suggest that it will wreck the treaty?

Let us suppose that the matter is important. I do not believe that it is, but the Paymaster General has a large brief and he believes that it is important. He has spent a great deal of time going back and fro to Brussels to discuss these wretched VAT directives. He has to believe it to be important. How on earth could he do his job if he did not?

Sir John Cope : I assure the right hon. Gentleman that I would not have taken the job if I did not believe it to be important, and I do. It was necessary to create the single market and now it is necessary to ensure that it functions effectively. Article 99 is all about it functioning effectively and we need to retain it to ensure that it continues to do so, especially with regard to the matters that we are discussing.

The right hon. Gentleman did not correctly understand some of the remarks made earlier by his hon. Friend the Member for Oxford, East (Mr. Smith) and by some Conservative Members, including myself. If the amendment were carried, it would not remove article 99 from the treaty. Its only effect would be to insert EcoSoc into our deliberations, which a few minutes ago the right hon. Gentleman said he would be happy to accept.

Mr. Davies : I understand that and I pay tribute to the right hon. Gentleman. I do not want to sound patronising, but he is an excellent Minister. He understands VAT. He is an excellent accountant. His law is a bit weak, but he is a good accountant. I am sure that he works hard. Customs and Excise has done well in trying to put into operation some of the complicated rules that have arisen.

Mr. Michael Spicer : My right hon. Friend the Paymaster General has said that the amendment will not remove article 99, but the amendment says that it will.

Mr. Davies : The Paymaster General did not mean that.

Mr. Spicer : That is why I am asking. I am sure that the right hon. Member for Llanelli (Mr. Davies) can give a good interpretation of what my right hon. Friend meant. But he said twice that the amendment will not remove article 99 when it says that it will. I do not understand the point that he is getting at.

Mr. Davies : The Paymaster General meant that if we remove the present article 99 we shall still have the old article 99, but EcoSoc will not be in it ; it will be either article 8a or article 7a--I am not sure.

We have also discussed the binding obligation of the directive whereby we are now apparently not allowed to reduce VAT below 15 per cent. That may be the only time that a British Government have agreed to a binding directive- -it may be only until 1996, although that is not

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clear either--denying the House the opportunity to reduce a major tax below a certain level. That is a substantial derogation from the sovereignty of the House.

In theory, we could reduce the tax below 15 per cent. in a Finance Bill, but any importer, exporter or business man in Britain who suffered damage as a result of that would be able to take the British Government to court and eventually the case would wind its way up to the European Court and the British Government would lose. An action was recently brought against the Italian Government for not carrying out a directive on redundancy payments and the Italian Government lost. Therefore, we have lost our sovereignty, certainly until 1996.

Mrs. Gorman : Is the right hon. Gentleman aware that there is an attempt to eliminate VAT between countries--to have a zero rate? However, the complications are such that the directive comprises 650 pages of closely typed instructions which business men on both sides of the transaction are supposed to read and understand. Does the right hon. Gentleman think that that will help or hinder matters?

Mr. Davies : That makes it more complicated. That is part of the Government's problem. That is why Lord Cockfield or the Commission later suggested that the tax should be charged at the point of production.

That binding directive is a major derogation from the sovereignty of the House. During the passage of the European Communities Act 1972, we were told that all taxation directives would have to be passed in the House through a Finance Bill, but even if we do that through a Finance Bill, it still does not mean that we have any real power. If a Finance Bill contradicts a directive, we can be taken to court. I do not think that a Finance Bill is even necessary. The detail of the directives is lifted in detail into the Finance Bill. Anyone practising in the VAT sector now has to look at the directive itself because the courts construe the directive.

Mr. Nicholas Winterton : Is not the right hon. Gentleman highlighting the totally unsatisfactory nature of the European Community processes inasmuch as the Council of Ministers will agree something which merely has to be ratified by the House. He referred to the minimum rate of VAT. The House never debated that with the opportunity to reverse it. The Government of the day, with its supporters here in a majority, would have said that we were letting them down if we went back on what they had agreed in a nice cosy little Council of Ministers. This place is becoming irrelevant. The British people no longer have a Parliament of their own.

12.15 am

Mr. Davies : We shall be told that this is a wrecking exercise. Perhaps the Paymaster General can advise the Committee whether this legally binding directive, which will prevent Britain from reducing VAT below 15 per cent. and from taking other action, will appear in this year's Finance Bill. I know that the right hon. Gentleman is in purdah, but perhaps he can say whether it is likely that the directive will be incorporated in a Finance Bill.

Sir John Cope : No.

Mr. Davies : Will the House be able to debate and amend a directive which will be legally binding?--[ Hon. Members :-- "No."] So the hon. Member for Macclesfield

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(Mr. Winterton) is right. We cannot amend much of the Bill either, because when we attempt to do so Members on both Front Benches say that we are trying to wreck the Bill. The Committee can debate but not amend a rule which will continue to exist until at least 1996, that VAT shall not be reduced below 15 per cent. That is a further derogation from the power of Parliament to make changes.

I have totted up those derogations. Under monetary union, we shall have no control over interest rates. Neither shall we have any control over public expenditure--and now taxation. Those are all matters over which Parliament and the Government will have little control. That may have one good effect- -we shall not need as many Treasury Ministers. Once we reach 1996, we shall not need four or five Treasury Ministers, though we shall need a Paymaster General to write the cheques.

Mr. Richard Shepherd : The right hon. Gentleman is right. We must see this in the context of the Government and their allies--members of the Labour Front Bench--being intent on building a European state with all the attributes, taxation and absolute rights which will enable it to determine such matters. That is all that the Bill is about. It is a major step on the way to acquiescence by the British people, through their leadership, in accepting new institutions and national arrangements--the Eurofed.

Mr Davies : It is a Eurofed which will not even have the virtues of a federal system. I do not want to be out of order and to prolong the debate on that ground, but we are transferring powers to non-democratic bodies having no Executive recognised by the people.

Mrs. Gorman : Will the right hon. Gentleman give the Committee the benefit of his extremely intelligent analysis? He will recall that the Government of the day used VAT for their own convenience, whacking on 2.5 per cent. to mitigate the effects of the community charge. That is a very cynical use of a tax which we were given to understand was meant to be imposed on services and goods, but which is apparently used sometimes for the benefit or convenience of contributing nations in dealing with their domestic difficulties.

Mr. Davies : That is something like hypothecation, is it not? The Paymaster General was not listening, but the Treasury does not like hypothecation--so in effect it hypothecated 2.5 per cent. for local taxes.

It is said that there must be unanimity. As many right hon. and hon. Members have argued, that may sound good in theory but in practice it is not so easy for a Minister or a Government to stand up against the 11 other member states. The Maastricht agreement had to be unanimous. The British Government had a veto, and if they had shown any courage and vetoed the treaty it would have collapsed completely. I do not believe that many other countries were too keen on it either, but the momentum carried it forward. That is a purely personal view--and no doubt an eccentric one. The agreement was not vetoed because the pressure was so great that one country could not really veto it. It will be the same with taxation. We cannot use the veto. It is like firing off a nuclear deterrent : once it has been used, the deterrent has failed. So I do not believe that the unanimity rule will be very helpful.

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I predict that in 1996 we shall be moving gradually towards a system of VAT being collected at the point of production and not at the point of consumption. The Paymaster General said very little about it but, as I understand it, the British Government were opposed to proposals that VAT should be imposed at the point of production instead of at the point of consumption or importation. The German Government were in favour, of course, for the simple reason that Germany is a country of producers and Britain is a country of consumers.

Mr. Timothy Wood (Lords Commissioner to the Treasury) rose in his place and claimed to move, That the Question be now put. Question put, That the Question be now put :--

The Committee divided : Ayes 202, Noes 65.

Division No. 131] [12.20 am

AYES

Adley, Robert

Ainsworth, Peter (East Surrey)

Alexander, Richard

Alison, Rt Hon Michael (Selby)

Amess, David

Ancram, Michael

Arbuthnot, James

Arnold, Jacques (Gravesham)

Arnold, Sir Thomas (Hazel Grv)

Ashby, David

Atkinson, David (Bour'mouth E)

Atkinson, Peter (Hexham)

Banks, Matthew (Southport)

Banks, Robert (Harrogate)

Bates, Michael

Bellingham, Henry

Beresford, Sir Paul

Blackburn, Dr John G.

Booth, Hartley

Boswell, Tim

Bottomley, Peter (Eltham)

Bottomley, Rt Hon Virginia

Bowden, Andrew

Bowis, John

Brandreth, Gyles

Brazier, Julian

Brooke, Rt Hon Peter

Brown, M. (Brigg & Cl'thorpes)

Browning, Mrs. Angela

Bruce, Ian (S Dorset)

Burns, Simon

Burt, Alistair

Butler, Peter

Carrington, Matthew

Channon, Rt Hon Paul

Chaplin, Mrs Judith

Chapman, Sydney

Churchill, Mr

Clappison, James

Clarke, Rt Hon Kenneth (Ruclif)

Clifton-Brown, Geoffrey

Congdon, David

Conway, Derek

Coombs, Simon (Swindon)

Cope, Rt Hon Sir John

Couchman, James

Currie, Mrs Edwina (S D'by'ire)

Curry, David (Skipton & Ripon)

Dalyell, Tam

Davies, Quentin (Stamford)

Davis, David (Boothferry)

Day, Stephen

Deva, Nirj Joseph

Devlin, Tim

Dorrell, Stephen

Douglas-Hamilton, Lord James

Dover, Den

Duncan, Alan

Elletson, Harold

Emery, Rt Hon Sir Peter

Evans, Jonathan (Brecon)

Evans, Nigel (Ribble Valley)

Evans, Roger (Monmouth)

Evennett, David

Faber, David

Fabricant, Michael

Fenner, Dame Peggy

Field, Barry (Isle of Wight)

Fishburn, Dudley

Forsyth, Michael (Stirling)

Freeman, Roger

French, Douglas

Garel-Jones, Rt Hon Tristan

Garnier, Edward

Gillan, Cheryl

Goodlad, Rt Hon Alastair

Goodson-Wickes, Dr Charles

Gorst, John

Greenway, John (Ryedale)

Hague, William

Hampson, Dr Keith

Hargreaves, Andrew

Harris, David

Hawkins, Nick

Hayes, Jerry

Heald, Oliver

Heathcoat-Amory, David

Hendry, Charles

Hill, James (Southampton Test)

Horam, John

Hordern, Rt Hon Sir Peter

Howard, Rt Hon Michael

Howarth, Alan (Strat'rd-on-A)

Howell, Rt Hon David (G'dford)

Hughes Robert G. (Harrow W)

Hunt, Rt Hon David (Wirral W)

Hunt, Sir John (Ravensbourne)

Hunter, Andrew

Hurd, Rt Hon Douglas

Jack, Michael

Jackson, Robert (Wantage)

Jones, Gwilym (Cardiff N)

Kennedy, Charles (Ross,C&S)

Key, Robert

Kilfedder, Sir James

Kirkhope, Timothy

Knight, Mrs Angela (Erewash)

Knight, Greg (Derby N)

Knox, David

Kynoch, George (Kincardine)

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