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7 pm
Mr. Jack: This is an intriguing new clause. I hope that the Financial Secretary will be able to shine a little light into what, from the speeches so far, seem to be increasingly murky waters.
One of the things that worries me in overall terms is that, as my hon. Friend the Member for Rochford and Southend, East (Sir T. Taylor) said, something was
introduced after careful thought in order to confer a tax advantage on one part of the United Kingdom, yet, for the reason that the Minister described in response to my intervention--it offends competition law--it is being changed. She also prayed in aid state aids. I am now less clear about the matter than I was before she replied. If the Financial Secretary will do me the courtesy of listening, I should like to ask her why, for example, 100 per cent. scientific research allowances that are available in Northern Ireland are not affected by the proposals.
In general, two important tax principles are raised by the new clause. One is whether giving any 100 per cent. allowances contravenes the currently unspecified competition laws. The second is whether a sovereign member of the European Union choosing to grant a tax advantage to one area within its own boundaries runs foul of our position in the EU.
I have always understood that one of the principles that one operates in tax in this area is that of fiscal competition. My understanding is that, up to now, a country wishing to confer certain capital allowances for certain purposes on certain tax regimes has never been challenged; we may have whatever allowances we like. It is difficult to answer why we appear to be corrupting that advantageous position by the new clause. The Financial Secretary must spell out very clearly how competition law interacts with the sovereign right of the UK to levy its own tax rates.
We are facing harmonisation by the back door. The Financial Secretary winces, but she will know that, when I was in the Treasury, all our EU partners--certainly the major players who valued independence of their tax-determining regimes--would have fought tooth and nail the case of Hoechst v. the European Union on a matter connected with corporation tax because they did not want somebody else determining their tax law.
If, as my hon. Friend the Member for Rochford and Southend, East says--he and I have not always agreed on matters European--there has been a change of Government policy, let us have it out in the open. It is no use the Financial Secretary shaking her head. One of the values of these debates is that we may tease out any new interaction between competition law and tax law, with which the new clause deals.
I should like a specific answer to the question how, for example, Northern Ireland can benefit from a 100 per cent. scientific research allowance but cannot benefit from the original proposal. Will the Financial Secretary spell out the competition laws that are corrupted by the proposed state aid?
We know that one country may confer a benefit through the tax system, but another may do so by another mechanism. It is certainly of interest to those in the Department of Agriculture for Northern Ireland to know of the disquiet among Northern Ireland pig producers over the moneys that were passed to French pig producers in connection with difficulties faced in the French industry. The £150 million that the French Government passed to their pig producers was supposedly to deal with restructuring their industry. The French Government may have decided to deal with that matter via a tax allowance. Similarly, we may have responded by giving our pig industry a tax allowance for various matters such as welfare.
Has there been any attempt in framing the new clause to ensure that there is equivalence of help across the EU, given that we may choose to help an industry via tax allowances, but another member state may deal with such a situation by another method? I am now more confused than ever in understanding how there can be parity of competition. The example that I quoted is not hypothetical; it a real issue that affects pig producers not just in Northern Ireland but in the United Kingdom generally.
It might have been helpful if the Financial Secretary in her opening remarks had compared and contrasted capital allowances north and south of the border. By and large, the use of assets, particularly agricultural assets, is the point of comparison. I would have liked to have known that we were not disadvantaging ourselves in Northern Ireland by the proposed measure.
I turn to an aspect on which my right hon. Friend the Member for Wells (Mr. Heathcoat-Amory) touched in his pertinent and perceptive comments. In tax terms, this is a highly unusual measure. DANI is to make statements on what qualifies for tax allowances. Can the Financial Secretary tell me whether those judgments are challengeable via the commissioners of the Inland Revenue? It strikes me that we have a one-way street. DANI will be able to make judgments--there is no definitive list in the new clause--but there appears to be no mechanism for challenging them. The only way in which taxpayers may normally deal with such circumstances is to challenge an Inland Revenue ruling through the commissioners. I am not clear whether that mechanism will be open to people in this matter.
The proposed subsection (3CE) is even more mysterious. It says that DANI authorisations
I do not understand how a fiscal activity puts us in contravention with competition laws when we already have an ability to set sovereign rates of tax as we choose. I underscore the importance that I attach to being given clear explanations of why we thought that the legislation as originally drafted was all right, but we are now told that it must be modified by new clause 7.
Mrs. Roche:
This has been an interesting debate. If one had heard the opening remarks of the right hon. Member for Wells (Mr. Heathcoat-Amory), one would have thought that the Conservative party was in favour of first-year capital allowances. However, the right hon. Gentleman neglected to point out that, in 1984, Lord Lawson, then Conservative Chancellor of the Exchequer, phased out 100 per cent. first-year allowances.
Of course I understand the speech made by the hon. Member for Rochford and Southend, East (Sir T. Taylor); I assure him that I have a great regard for him and have no intention of falling out with him. However, I want to
make it clear to all right hon. and hon. Members who have spoken that, although the Northern Ireland measures were notified to the code of conduct group that is chaired by my hon. Friend the Paymaster General, we do not believe that they represent harmful tax competition. We are considering not that group, but state aids. I point out to the right hon. Member for Fylde (Mr. Jack)--in the gentlest possible terms--that I sometimes wonder whether we inhabit parallel Treasuries. The state aid rules were in place when we joined the EU. Any aid, including fiscal aid, can be found to be a state aid. That has always been the case; it was certainly the case when the right hon. Gentleman held the position of Financial Secretary to the Treasury.
Sir Teddy Taylor:
As the hon. Lady has suggested that the Government may not have reported this matter to the code of conduct committee, will she ask her officials to read page 63 of the committee's report, published on 25 May, reference 8231/99? The report gives the clear impression that the matter was one of a small number of alleged, harmful tax competition measures presented to the committee by the UK Government. I realise that Ministers sometimes do not see such reports, but it is there in black and white.
Mrs. Roche:
I am grateful to the hon. Gentleman for that intervention, but perhaps he did not hear me correctly. I said that the matter had been notified to the committee. However, we are dealing not with that group, but with the normal rules on state aids, and I shall deal with that during my remarks.
Mr. Heathcoat-Amory:
The issue is not whether the matter was notified to the committee, but whether the committee is investigating it as potentially harmful to tax competition. We submit that it is the latter; the matter is under review and hence may be withdrawn by the Government, under the assurance that they have already given that they would abide by the outcome of the committee.
Mrs. Roche:
The right hon. Gentleman is entirely wrong; the premise of his speech was wrong. It is not the code of conduct group that is at issue, but state aids. I realise that the right hon. Gentleman views that group as a vast conspiracy. Let me allay his fears. I am afraid that he goes home at night wondering whether the code of conduct group is following him. With my long experience as a constituency Member of Parliament, I have regularly had to reassure my constituents as to such fears. I am anxious to reassure him that it is not a problem.
When we introduced the measure, we said in our press release that it would need to be cleared with the European Commission as a potential state aid. Could we have been more open than that? It was clear from the start. State aid rules arise within the framework of Community competition policy and have a legal basis in the provisions of the treaty of Rome. The provisions make illegal any non-approved aid given by a member state in any form that distorts, or threatens to distort, competition by favouring certain businesses or regions, or the production of certain goods--that has always been in the treaty. The EC enforces state aid rules and approves certain state aids that are compatible with the common market.
In my introductory remarks, I pointed out that the Government support a tough stance on state aid. We have consistently supported initiatives both to tighten the state aid rules and to improve their implementation, with the overall aim of reducing distortions in the single market and of improving competitiveness in Europe. I think that the hon. Member for Rochford and Southend, East acknowledged that in his remarks. We introduced the 100 per cent. first-year allowances and the enabling legislation last year, to give a clear signal of our support for new investment in Northern Ireland. That is what it was all about. As we made clear in the press release, we knew that we should need to clear the measure with the Commission before it could be brought into effect.
"may, if given generally, be modified by that Department",
and
"may in any case be absolute or conditional."
Does that mean that DANI, or someone else giving an interpretation of the new clause, will be allowed a second bite at a ruling? It sounds to me as if some conditional ruling could be given, hinting that an allowance might be included, but subsequently modified or omitted. That is a recipe for, to say the least, a lack of clarity and certainly a lack of precision in operation. I, for one, would like some clarification.
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