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Mr. Deputy Speaker (Mr. Michael Lord): Order. Before I call the next hon. Member to speak I must remind the House that a number of hon. Members still want to catch my eye and, unless speeches are considerably shorter than they have been, some of them will be disappointed.
8.3 pm
Mr. Alan Simpson (Nottingham, South): I am an unashamed admirer of my right hon. Friend the Foreign Secretary. When Labour came to power in May 1997, I thought that one of the greatest contributions that we could make as a Government would be the intellectual ability and clarity of mind that he would bring to the European dialogue. I continue to hold that belief, so I hope that he will not mind if tonight I expand the area of my admiration a little.
It is important to break away from some of the caricatures that have appeared in the press in the past week, which have verged on the xenophobic and which do not do justice to the contributions that two people, Oskar Lafontaine and Dominique Strauss-Kahn, are making,
which we should recognise. Their contributions to the document, "The New European Way", move us into the arena that many of my colleagues have sought to occupy, which is a thoughtful discussion of the future of Europe and the practicalities of that future. I have many and various disagreements with the document that they helped to produce, but its importance--I would recommend it to the whole House--is that it forces us all to think about the practicalities of a common European future. It is not riddled with slogans and soundbites; it attempts to tackle the serious preconditions that will have to be in place if we are to provide a stable European future.
In the document, the authors recognise that fiscal stability is not the same as social stability. Europe has had fiscal stability in a single currency before--at the end of the 19th century, under the gold standard. The only problem was that it left deep scars in the social landscape of Europe. Because there were no mechanisms for social cohesion, that standard left people in deep troughs of famine and starvation. They were pushed into large-scale migration and social upheavals, which in turn caused deep disruptions in society.
In revisiting the agenda for a Europe that is united within a single currency, the architects of that paper recognised that other mechanisms must be in place to underpin a single currency and make it sustainable. I confess that I am not a believer in a single currency and do not think that it can work in the circumstances in which we are trying to construct a common European future. There are many better ways to construct that common future.
However, the authors of the paper force us to recognise what measures must be in place. The reality is that, both in the world as it is now and in the history of single currency zones, there is no record of any system that has been stable and secure without two things being in place. The first is a consensus about how to raise taxes, and the second is a credible mechanism for redistributing them to provide social cohesion.
Those who say that the single currency will not require us to harmonise income taxes, pensions and benefits and who look to the United States because of the flexibilities that exist there--different income tax rates in different states, for example--must take a step back and recognise that the underpinning of that system has a set of consequences to which we may or may not want to subscribe.
I was fortunate to obtain from the Library some of the figures to show how the US single currency zone is different from our own. At the moment, the contribution of US taxes as a proportion of gross domestic product is as follows: 12.3 per cent. go directly in federal taxes; 5.6 per cent. go in state taxation; and 3.6 per cent. in local taxes. We do not have an equivalent to US state taxes. The current position in the United Kingdom is that 27.5 per cent. of our taxation, as a proportion of gross domestic product, is national and 1.4 per cent. is local. If we wanted a system with the same income tax flexibilities as the US system, we would have to recognise that it underpins its system through that shift in the collection of tax revenues to the federal level. If we were to apply that system in Europe, it would mean the direct transfer of taxation--of some 20 per cent. of our GDP--to a European federal level.
I remind the House that the United Kingdom's contribution to European structural funds will be 1.27 per cent. of GDP at the beginning of next year. I have not heard anyone argue the case for retaining within the nation state the flexibilities of variable and differing income tax levels, by underpinning those with a 20p in the pound shift in taxation to European federal structures. I should like to be with any Member of Parliament who tried to explain that on the doorstep. I suspect that the only thing it would prove is that, under conditions of extreme pressure, all Members of Parliament can run the 100 metres in an extremely short space of time, because we would get short shrift from the electorate were we to make that case. We must be careful about saying that tax-varying flexibility can currently be found in the United States of America. It is not the same and it is dishonest to suggest that it could exist here without there being a substantial shift of direct tax contributions from member state level to European federal level.
Mr. Letwin:
The hon. Gentleman is making a most interesting and thoughtful speech--indeed, the point he has just made is seminal. However, does he agree that a further point goes with it--that for all sorts of obvious cultural reasons, mobility of labour within the United States is vastly greater than can be expected within the European Union; and that, therefore, the need to adjust to those flexibilities through central funding is paradoxically less in the United States than it will be in the European Union?
Mr. Simpson:
That is an important point. Most serious analyses of conditions in Europe, both positive and negative, recognise that language and culture make the people of Europe far less mobile than the population of the United States of America. In addition, the greater the levels of that forced internal mobility, the greater the social conflict that arises between local communities and those who are defined as outsiders, so I am cautious about where that would take us.
On the other hand, we could argue that it would be possible to have internal redistribution mechanisms of the sort in which Germany gave an inspirational lead. When Germany was reunified, one of the commitments that the west made to the east took the form of a solidarity tax, which recognised that huge transfers of resources were needed to end the poverty and build the basis of social inclusion in a united Germany. The equivalent of an extra 7p in the pound in taxation was voted by the German people in order to build that basis of social inclusion. I have nothing but admiration for the Germans for doing that.
Is that immediately translatable to a European Union level? Sadly, the answer is no. As was demonstrated by the Court of Auditors report--which was rightly raised by my hon. Friend the Member for Crewe and Nantwich (Mrs. Dunwoody) in relation to democratic accountability--the problem affecting European institutions as they stand is that there are huge weaknesses in the way in which Europe is able to manage and account for money, with £3 billion unaccounted for and up to 5 per cent. of funds lost to fraud. It is not acceptable for any of us to apportion blame for that, because we are all caught up in it. This country is no holier than any other member state in terms of the misuse of funds and the abuse of European structures in our own interests.
The problem is that, if there was a shift in funding into European structural coffers and the amount was multiplied by five, fraud would be multiplied by 50. That is the consequence of trying to put more resources into a framework that is clearly deeply and seriously flawed. Those who believe in a single currency and want it to work must acknowledge that the institutional and financial structures of Europe would have to undergo a massive sea change in order to make it possible.
The document I referred to earlier sets out the key challenges that must be addressed if social cohesion is to be built in a future European context. I shall quickly deal with the key points. The first is found where the authors, in a lovely little sentence, call for
The second key point the authors make is:
The third point is to observe that
I hope that hon. Members on this side of the House at least will address that agenda seriously. I hope that we will applaud the initiative taken by our sister parties in Germany and France and by the coalition of parties that contributed to this document. I hope that the Government will agree to take forward several practical suggestions from this debate. I think that the document has serious shortcomings, but we could substantially improve the dialogue and the direction in which it is heading.
I shall conclude by making four suggestions. First, in the discussions about how best to harness footloose capital it would be helpful to consider the devastating destruction of tidal speculation movements against countries and currencies globally. A European-wide lobby must change the international financial architecture so that we can introduce a transactions tax on speculative capital. That is commonly referred to as the Tobin tax, as Professor James Tobin of Harvard university was the first to suggest it. It involves imposing a tax rate of 0.5 per cent. on speculative capital movements. That would be sufficient to raise the reserves that could underpin and support countries that are subject to speculative ventures against them and act as a disincentive to speculative, but not serious, investment.
My second suggestion concerns our treatment of other forms of footloose capital. We are currently bombarded by reports in our daily newspapers about factories closing in order to rationalise production elsewhere. The scale of job losses is sometimes breathtaking. As I entered the Chamber tonight, I picked up a letter about my constituency, where Marconi Communications has announced that
America takes an interesting approach to that problem. It is already exploring the idea of "A" code taxation based on the "site here to sell here" presumption. America believes that companies cannot reserve the right to sell into the US economy goods that they are unwilling to pay to produce in that economy, or because they are unwilling to sustain wage rates in production and contribute to tax revenues that would begin to relocate or retrain those whose labour they have abandoned. The Americans are toying with the idea not of ending the notion of public subsidies for industry and essential manufacturing, but of trying to build a stakeholder component into that process. We must tell the corporate sector that there are no free
handouts: we are talking about obligations that accompany entitlements. Those obligations are based on public stakeholdings rather than unconditional public subsidies.
My third suggestion is that we should expand on the document's ideas about green taxation. We have yet to have a serious debate about the different types of green taxation and the difference between progressive and regressive green taxation. I remind hon. Members of our clear slogan and principle in relation to the environment that we must pursue policies that make the polluter pay. We should also ensure that the footloose polluter pays more.
Earlier today, I referred to the Raleigh bicycle company in my constituency, which has spent about £28 million on a new production line with extremely high levels of environmental responsibility. It has reduced by a factorof 10 both in-plant pollution--the health and safety contributions--and end-of-line pollution. It has introduced wonderful through-put technology. However, the company complains that it is forced to compete on a price-only basis with Chinese or Taiwanese manufacturers who never accept any responsibility for reducing pollution in the production process.
We cannot pursue a common European policy that rewards the environmentally profligate and penalises those who operate within our domestic and European economies producing the environmental standards that we wish to see and share in. If we adopt that approach, we shall be able to take a lead in defining the economics of the 21st century and give practical form to the pledges that we made in Kyoto. If we do not have sustainable economics in the next century, we are likely not to have any economics worth talking about. We have done so much damage to our global climate and biodiversity this century that we will have to spend a large part of the next century undoing that damage and restabilising.
Finally, the document poses a clear challenge to define what a system of redistributive taxation would look like at a European level. In many ways, the closest that we have come to responding to that challenge in this country is the recent Acheson report on health. Acheson sets down a benchmark for measuring the necessary redistribution of resources and explains where we need to begin in a health and environmental context. If we were to take up those ideas and throw our responses to them into a European dialogue, I am certain that we would take a lead in Europe that many of our European partners would gladly follow.
I believe that that is the basis upon which we can define a stable, secure and inclusive Europe. It will be the case whether or not we have a single currency. I believe that the divides around the single currency issue are seriously flawed and misguided. At times, it is like trying to get our towels on to the deckchairs before our German or French competitors when the boat is the Titanic and we would be better off advising people to look for the lifeboats. That is the danger inherent in limiting the single currency debate.
"better coordination between monetary policy and employment and wage-policies",
and also
"a dialogue between the institutions responsible for economic policy, including the ECB and the European Social Partners".
That is wonderful for those accustomed to attempting to decode the contents of European documents. The authors want there to be democratic political control of the European central bank. For those of us who never really believed that Steady Eddie should have been allowed out on his own, it is welcome to hear that our social partners in Europe want democratic control of the ECB so as to deliver full employment policies and social inclusion policies, which are at the centre of their social, political and economic agenda. That would, of course, require a certain renegotiation of the Maastricht treaty, but between consenting adult member states, that strikes me as a perfectly legitimate objective because it is an essential underpinning of how to deliver social stability in Europe.
"In the last decade evidence from the EU has shown a disproportionate increase in the fiscal burden on immobile factors, especially labour, coupled with a reduction in the burden on mobile factors, especially capital."
The partnership between socialists and social-democratic partners in the European Union has at last recognised that there has to be a shift in the burden of taxation on to feckless and footloose capital; that we cannot continue to ask the poor and those who are in work to carry the tax burden for an increasingly reckless and deregulated global economy that is driving us all to ruin. I welcome the fact that the authors of the document have put that point so clearly on the agenda.
"EMU will intensify the potential for tax competition. Therefore, further efforts have to be undertaken to avoid harmful tax competition among the member states."
That is absolutely clear and absolutely right, if we are to avoid the flight to tax havens, eliminate hidden subsidies and avoid a game of beggar my neighbour in which we all try to undercut each other or to set up systems of corporate welfare, whereby we offer bigger bribes to lone-parent companies to come and live with us for a time based on an enduring love for which we are to pay good money. If we are to avoid all that, we have to find other ways of developing a sense of coherence and cohesion in the systems of taxation of corporate earnings. It is essential that we do that, whether within a single currency zone or not. The authors make the point that that effort is essential, if we are to
"make further progress in tax and benefit reform."
3 Dec 1998 : Column 1116
There has to be a sense in which that inclusive Europe allows us to enjoy the security and benefits that are present in the best economic arrangements, instead of being pulled down to the levels of the worst.
In that revisiting of a common view of Europe's tax arrangements, the authors say that there has to be a greening of the tax system and a co-ordination of savings and corporate taxation, not only within Europe but at the level of the Organisation for Economic Co-operation and Development. They want that to be the basis for the introduction of new Europe-wide regulations which use Europe as a lever to compel the institutions of the global economy to re-regulate global forces.
"a review of the Group's facilities has shown the potential for a reorganisation that would reduce costs and increase efficiency."
Unfortunately, the review requires the group to make 1,000 people redundant in order to continue its policy of production based on "high growth" and "high margins". That means that it will no longer operate in my constituency.
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