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Mr. Stephen Dorrell (Charnwood): The Chief Secretary has laid considerable stress on his claim that the Government support tax competition as a principle. Why did the Chancellor sign the document produced by the group of European socialist parties, titled "The New European Way", one of the principal purposes of which was to prepare the way for greater tax harmonisation? Why did the Chancellor sign a document that commits the Government to a policy that the Chief Secretary now says they oppose?
Mr. Byers: I do not know whether the right hon. Gentleman is relying on the Conservative research
department brief, which has kindly been supplied to me. We seem to have a reciprocal agreement to exchange briefing notes between the official Opposition and the Government. If we co-ordinated it, perhaps we could save costs. Perhaps I should not say such things. I was pleased to take the right hon. Gentleman's intervention to get some balance in interventions from Conservative Members. We heard from an anti-European and have now heard from a pro-European--at least, I understand that that is the right hon. Gentleman's current position. The document that the Chancellor signed addressed issues not of tax harmonisation but of tax competition and if the right hon. Gentleman reads the document in detail, he will see that.
Mr. Dorrell: I was relying not on the Conservative research department but on the document provided in full on the internet. The Chief Secretary claims that it does not address tax harmonisation, but it addresses tax policy co-ordination--it is all in a word. A passage in the document specifically commits the signatories to greater tax policy co-ordination, but the Chief Secretary said that that is not Government policy. Did the Chancellor sign up in a fit of absent-mindedness? What is the Government's policy?
Mr. Byers: The policy is clear: we will judge every issue on its merits. We will exercise our veto over those that are not in the national interest, but we will not take the dogmatic approach of vetoing everything, as the Conservative Government did.
Mr. Nick St. Aubyn (Guildford) rose--
Mr. Byers: I must make some progress, because I have probably taken longer than most hon. Members would wish me to so far.
Britain is not alone among member states in insisting that direct taxation is a matter for the national state. There is no proposal--nor any prospect of one--for the harmonisation of income tax in the European Union. No member state believes that there is a case for a European rate of corporation tax. Even the President of the Commission has said that
Five measures in the United Kingdom tax system are on the list to be considered by the code of conduct group. Five other measures relate specifically to Gibraltar. The fact that a measure is discussed by the group does not
necessarily mean that it thinks that they are harmful, or that any pressure will be put on the United Kingdom to change them. The United Kingdom will submit a robust defence of the five measures that the group will discuss, and we are confident that they do not constitute harmful tax practices. We are able to submit a robust defence because of the criteria to be applied.
A potentially harmful measure is one where the effective level of taxation is lower than the general level of taxation in the member states in question. For a measure to be harmful, it also has significantly to affect the location of business activity in the Community. For example, it can be argued that a measure confined to small businesses is not harmful.
Measures are to be scrutinised against the following five further criteria; whether the measure is directed only at non-resident companies; whether it is ring-fenced from the domestic market; whether there is no real economic activity associated with it; whether the rules for the determination of profits are consistent with those of the OECD; and whether the measure is transparent.
As for the more general work of the code of conduct group, we have made it clear that we support fair tax competition and will not agree to any measures that will harm United Kingdom businesses and jobs. However, we believe that it is right to take action to tackle harmful tax practices, and that is what we intend to do.
As I said earlier, the Government believe that our approach to Europe should be based on common sense, putting reason before dogma. The test has to be whether proposals deliver economic or financial benefits to the United Kingdom. That is the Labour Government's principled position on Europe, which puts the national interest first, and it is worth contrasting that with the Conservative party's position. It has ruled out membership of monetary union for 10 years. Even if it were to be in Britain's national economic interest to join before then, it would not matter because joining has been ruled out for at least 10 years.
I remind the House of the comments made by the right hon. Member for Horsham when he was interviewed by The Observer. He was asked whether what he was saying was that, even if the single currency were a success, he could not use that to decide whether or not to join. The right hon. Gentleman replied, "Absolutely." That is another example of personal political positioning.
Mr. Malcolm Bruce (Gordon):
I extend the condolences of my hon. Friends and myself to the Chancellor of the Exchequer on the loss of his father, who
When I read the Conservative motion, I thought that it was sensible, but I am concerned by the way in which the argument has stacked up, which reveals two things. First, the Conservatives in government understood the practicalities of trying to secure co-operation on tax matters by voluntary agreement, but in opposition they have sought to turn that constructive approach into an anti-European rant. They are deliberately and mischievously failing to distinguish between voluntary co-operation for tax co-ordination--good--and the imposition of harmonised tax rates against our will--bad. Those are two quite different propositions. Yet Conservatives deliberately blur and mix them, so that people are not quite sure what is being addressed. Ultimately, it is not possible to support the motion because of the spirit behind it.
Liberal Democrats strongly believe that taxation is, and should remain, a national matter, and that we should be prepared to use our veto in the national interest. At the same time, if we can co-ordinate tax matters better with our European partners by agreement, that is all to the good. In doing so, we may be able to advance our national interest.
Why should we co-operate? On environmental issues, environmental taxes may well be more effective if they are agreed on a European basis. If we can plug tax loopholes--many of which are cynically exploited by financial institutions and accountants, many of whom are in the Conservative party--and argue for fairer duty levels on things such as our home-produced whisky, which suffers discrimination in some areas, that would be to our advantage, too. It is silly of the Tories to imply that such issues are neither to be looked at nor discussed.
Mr. Plaskitt:
The hon. Gentleman raises the important matter of environmental taxes. As Liberal Democrats are in favour of £29 billion worth of new environmental taxes, will he take this opportunity to spell out to the British public what they are?
Mr. Bruce:
I am not prepared to answer that question. If Labour Members intend to intervene with lists of questions, they had better get the brief right. This matter pops up in every debate. We shall continue to send hon. Members copies of our document. If they read it, they will stop asking silly questions.
We have some concerns about the issue that is currently being debated throughout Europe. We are in favour of co-operation but we oppose harmonisation. The Government must make the distinction clear. We should be seeking to build a liberal Europe. That is a good word. Such a Europe would not have unnecessary centralisation on these issues.
We certainly do not want a socialist Europe full of conformity, control and centralisation. Therefore, tax competition is the right discipline because it will limit tax variation of its own accord. It will ensure that European tax levels, although variable throughout the EU, will take full account, and will have to take full account, of competitive pressures in the wider world--a point which, to be fair, was clearly acknowledged by the Chief Secretary.
I am confused by the Government's position on duty-free goods. A leading article in the Financial Times today argued that there was a smack of cynicism and opportunism in the Government's about-face on the issue. Duty-free goods must ultimately go. They cannot be justified on economic grounds. They undermine many small businesses in Britain and erode our tax base, as many will testify.
The real question is whether it is wise of the Government to express what I would suggest is synthetic opposition to getting rid of duty-free goods when the issue has already been dealt with and when there is unlikelyto be a fundamental change of conclusion. The Government's position is unclear and inconsistent.
The third issue raised by the Opposition motion is what constitutes harmful tax competition. If we are talking about back-door subsidies of one kind or another, there can be a genuine debate about whether such subsidies should be eliminated by agreement, or whether each nation should be left to decide whether a subsidy is of benefit. That certainly should not be imposed on us. There are not more subsidies because, in a single competitive market, each nation ultimately has to determine that, in the long term, they are not in their economic interests.
There are those in the Irish Republic who are not entirely convinced that low corporation taxes have brought all the benefits that, on the face of it, appear to have been attracted. Businesses have located in Ireland to take advantage of the low tax rates, but they have repatriated the money. Ireland's GDP has been inflated to a level whereby it does not qualify for the cohesion funds which have been so important to the Irish economy. Most Irish citizens are not aware of the trickle-down effect of this wealth because it is not trickling down to the citizens. The Irish may want to reflect on whether that policy is in their long-term interests. We should allow market discipline and co-operation to be the way in which such anomalies are addressed, not central diktat.
We must be careful how we proceed because there may be measures which, for example, could help to promote employment in areas of high unemployment. They may be targeted and time limited to be of benefit, and it would be foolish to put ourselves in a situation where we never can agree measures to deal with special problems in special circumstances. Therefore, I urge the Financial Secretary not to give up tax breaks unless there is a clear case for doing so. I hope that when she replies she will make it clear that that would be her position.
In addition, when the Financial Secretary replies, some of us would like to know exactly where we are with tax relief on dividends for non-tax paying pensioners. That matter was on the Paymaster General's desk. He gave an undertaking to the House that it would be dealt with, but we now understand that it is on the Financial Secretary's desk. We would like to know whether she will deal with it and when she will make an announcement, preferably before the measure comes into effect.
My fourth point relates to the single currency. Today, the Prime Minister claimed to be engaging with Europe in order to promote our interests. That has been echoed by the Chief Secretary. The truth is that the decision to stay out of the single currency could make it more difficult in future for us to shape the European agenda and to serve our and other members' interests on tax policy
and budgetary issues. That could be a real problem to which the Government to date seem not to have an answer.
The Chief Secretary made a powerful statement to the effect that we will engage in Europe, argue our case and present a robust argument in favour of the British national interest. Unfortunately, there will be no British representative in the decision-making body of the European central bank. There will be no British representative in the Euro X committee of financial Ministers for the co-ordination of economic policy. Empty chairs cannot negotiate, and that is a danger which the Government have not addressed.
"income tax and corporation tax are sovereign national matters and will remain so."
The right hon. Member for Horsham, and the motion before us, raise the issue of the code of conduct group. I shall take this opportunity to inform the House of some facts, so that we do not allow prejudice to get in the way. The formation of such a group was first discussed during the United Kingdom presidency in November 1992. The group does not deal with tax harmonisation. It considers those measures that may be discriminatory and create harmful tax practices.
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