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Mr. William Cash (Stone) rose--
Mr. Cash: The Foreign Secretary said that decisions, especially with regard to matters such as taxation, should be dealt with on the principle of
subsidiarity, and decisions made as near to the people as possible. The Government continually say that there is no constitutional bar to economic and monetary union. Will the right hon. Gentleman explain how they can make such an assertion, given that taxation clearly lies at the heart of economic and monetary union? When all the statements made by Oskar Lafontaine and others indicate that that is on their minds, why do the Government deny that taxation is on the agenda?
Mr. Cook: Of course, fiscal policy--the degree of the Government deficit--is highly relevant to monetary union. It was the hon. Gentleman's Government who agreed at Maastricht to tight targets on fiscal policy. We see no reason why those commitments on fiscal policy, given by hon. Members on the hon. Gentleman's Front Bench, necessarily require any country in Europe to have the same rate of taxation as any other country in Europe.
The best way of helping the hon. Gentleman and others to overcome fears of bogy men is to remember that we are not alone. Not just Britain but many other member states will oppose the harmonisation of tax rates. Yesterday the Italian Finance Minister told the Financial Times that harmonisation of corporation tax would be
There is no majority for the harmonisation of tax rates in Europe, never mind the unanimity that would be required for action. Nor will the need for unanimity change. That would require all members of the European Union to agree on a change to qualified majority voting on tax, and most member states will not agree.
As so much has been made of this debate over the past week, let us look at the record on tax harmonisation in Europe. The greatest harmonisation of tax rates adopted by the European Union was under the previous Conservative Government--the harmonisation of value added tax agreed by the then Conservative Chancellor Lord Lamont. It provided that, throughout the European Union, there would need to be a minimum standard rate of 15 per cent.
If the right hon. and learned Member for Folkestone and Hythe (Mr. Howard) intends to attack tax harmonisation as wrong in principle, perhaps he would be good enough to share with the House what objections he raised in the Cabinet of which he was a member when it agreed to harmonise rates of VAT. There has been no change, and no proposals for change, in the harmonisation of VAT, since the election. Indeed, the only substantial change in VAT since the election is that the Government have cut the VAT on domestic gas and electricity bills which the last Government introduced. Those powers to vary the rates will of course continue. Only those who are out of touch with the EU would think otherwise.
So much for the past; as for the present, let me set out the Government's position. Britain will vigorously support the interests of British trade and investment throughout the single market by constructive engagement. There cannot be a Member of the House who has not been
lobbied by an industry in his or her constituency about unfair tax loopholes, state aids or special tax privileges in a country with which that industry is in competition. Many of those tax breaks are now under review in a working group chaired by a British Treasury Minister. That is a good example of British leadership where we believe European co-operation on tax would benefit British industry and jobs.
Mr. Jim Marshall (Leicester, South):
I am grateful to my right hon. Friend for giving way on the point about British leadership in that particular field. I refer to British leadership in another field, which he did not mention when he referred to the agenda for the Vienna Heads of Government meeting--the common foreign and security policy.
Continental Europe is alight with views about what the Government and my right hon. Friends the Prime Minister, the Foreign Secretary and the Secretary of State for Defence mean in respect of a new EU defence policy. I quote my right hon. Friend the Secretary of State for Defence:
Mr. Deputy Speaker (Sir Alan Haselhurst):
Order. Before the Foreign Secretary responds, may I say to hon. Members that we have had two very wordy interventions? The custom is that interventions should be brief, rather than mini-speeches.
Mr. Cook:
I am glad that I have given my hon. Friend the opportunity to make his point, although I am not sure that it naturally arose from the passage on which I was addressing the House. He asked what we are exploring with our French partners, and with other partners throughout the EU. We are exploring how we can make decisions within the common foreign and security policy more effective and more rapid, and how we can ensure that there is a better transmission between the security policy decided by the Foreign Ministers of the EU and the defence policy that we implement through the North Atlantic Treaty Organisation.
We have been clear about the fact that we do not see that as in any way weakening NATO. On the contrary, we would hope that the initiative that we are taking on European security would strengthen the effectiveness of security policy in the EU and the European identity within NATO.
Mr. Deputy Speaker:
I am sorry to interrupt the right hon. Gentleman again, but I should remind him that he should have been addressing the Chair, just as much as his hon. Friend.
Mr. Cook:
I am justly rebuked, Mr. Deputy Speaker, and shall make a point of addressing the Chair. If you would allow me to return to the trend of my observations--
Mr. Oliver Letwin (West Dorset)
rose--
Mr. Cook:
The hon. Gentleman will no doubt have an opportunity to intervene later.
I was outlining the fact that we would vigorously support the interests of British trade and investment, wherever they were served by co-operation on tax. Where there is that British interest, we will support it. Successive British Governments have tried to get a level playing field on excise duties so that British spirits have fairer competition in their export markets. I pay tribute to the previous Government, for once. They also pressed for more harmonisation of export duties, and they were right to do so.
Mr. Crispin Blunt (Reigate):
I am grateful to the right hon. Gentleman for giving way on the issue of harmonisation. Hans Tietmeyer has said:
Mr. Cook:
I have already made it perfectly clear that I do not accept that becoming a member of the single currency--if that were something that Britain were eventually to become--would logically involve a transfer of decision making on taxes, still less on wages policy. There would need to be harmonisation of fiscal policy and budget deficit, but that would not require us to have common tax rates. It has not required common tax rates throughout the United States, which also operates within a single currency.
Not only Britain, but many other member states, still insist that direct taxation is a matter for the nation state. There is neither any proposal, nor any prospect of a proposal, for harmonisation of income tax in the EU. Neither Britain nor many other member states believe that there is any case for a European rate of corporation tax. Even the President of the Commission, which alone can initiate any proposal, has said that
"untimely, questionable and above all hardly feasible"
and that it
"would be wrong in any event."
Yesterday the Prime Minister of Spain spoke out against what he called the "dumbing down" of tax harmonisation, and opposed a single rate of direct tax because
"it would be a recipe for inefficiency".
"We are not talking about a standing European army. We are not talking about removing defence from the control of national governments. And we must not do anything that would undermine NATO, which will remain the cornerstone of European defence and security".
I know what we are not talking about. Perhaps--not at this moment but at some point in his speech--my right hon. Friend will tell the House and continental Europe what we are talking about.
"A European currency will lead to member nations transferring their sovereignty over financial and wages policy as well as in monetary affairs. It is an illusion to think that states can hold onto their autonomy over taxation policies."
Does the right hon. Gentleman agree or disagree?
"income tax, corporation tax, social security . . . are sovereign, national matters and will remain so."
We need to have a debate about tax and Europe that treats British voters as adults. Where there are limited proposals for co-ordination on tax rules which are of benefit to Britain, we should support them. Where there are proposals that would damage Britain, we will oppose them, but for the rest of my lifetime, and that of the right hon. and learned Member for Folkestone and Hythe--whoever manages to outlive the other--the member states of the EU will continue to have tax systems which remain distinctive, even sometimes eccentric.
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