Examination of witnesses (Questions 580
- 599)
TUESDAY 25 JULY 2000
THE RT
HON GORDON
BROWN, MR
GUS O'DONNELL,
MR JOHN
GIEVE, MR
ADAM SHARPLES
and MR ED
BALLS
580. Yes. I am trying to clarify. When that
point comes we will have to make a judgment as to whether the
euro is successful or not. In order to do that we have to know
what criteria we are judging the performance by in order to reach
a conclusion.
(Mr Brown) The question is is the euro going to be
successful for us in helping us create jobs, investment, these
are the five tests.
581. Are we at any point asking the question
is it successful for the countries who are already in it?
(Mr Brown) I think it is clear that if it is unsuccessful
for the countries already in it that will affect your view of
how you will conclude on the five tests.
582. Your view so far is that it is successful
for countries already in?
(Mr Brown) No, I did not say that. What I say is that
there are three issues that, if you like, have been central to
the discussion of the euro over the last 18 months. One has been
whether technically it has been introduced without disruption.
A lot of people said that it was going to be very difficult to
do and that has not been a problem. The second one has been, of
course, the question of whether there was growth in the European
economy. There is now growth in the European economy. The third
is the one I mentioned about the value of the euro. These are
not exclusive in terms of whether the euro is successful or not.
583. There are other criteria as well.
(Mr Brown) The other criteria, I am saying as far
as Britain is concerned it comes back to the five tests. Implicit
in each of these tests is the judgment as to whether the euro
is more successful than the existing arrangement.
Mrs Blackman
584. Chancellor, how important is cyclical convergence
within a currency area?
(Mr Brown) When you talk about the Maastricht conditions,
as to whether we can reach convergence in interest rates and convergence
in inflation, and whether we can have a level of borrowing both
in terms of debt as a share to GDP and the actual borrowing requirement
of the economy, you are talking about whether at a particular
point or a set of points in time you could reach convergence.
What we have added to this debate in our five tests is that the
convergence that we are looking for is one that we can genuinely
say is durable. In other words, you do not get to a point where
your interest rates are the same and then conclude that even if
they vary very quickly afterwards that is the same as convergence.
We want durable convergence.
585. There was a Treasury memo a few years ago
that talked about possible advantages to economic cycles being
slightly out of phase in the euro area. Could you explain some
of those advantages?
(Mr Brown) I do not know if this is one of the Treasury
memos or one of the leaked memos.
586. No, no, it is definitely a Treasury memorandum.
(Mr Brown) Is it published by the Treasury?
587. It is.
(Mr Brown) Is it the memorandum we issued in 1997?
588. UK Membership of the Single Currency
issued in October 1997, "... There may, in fact, be some
advantages to cycles being slightly out of phase".
(Mr Brown) I think you have to look over a period
of time. I think because Britain has had the history over many
decades of being a stop-go economy—and for this part of
the discussion this is not in my view a controversial point, it
is anything other than bipartisan—you have to be satisfied
that the convergence you are achieving or would achieve is sustainable
and is durable. Britain has had a more violent set of cycles than
has been true of some of the other countries, part of the euro
area or part of the major industrialised economies. Certainly
to achieve stability in monetary and fiscal policy, to have that
foundation of stability is an essential part, in my view, of achieving
convergence.
Sir Michael Spicer
589. Chancellor, Mr Davey's questions to you
were not very fair, were they? They made you out to be a mild
euro sceptic whereas, in fact, you are a secretly disguised euro
enthusiast, are you not?
(Mr Brown) I am a supporter of the policy I set down
in 1997. I am the person who put it to the House of Commons.
590. Could I ask you this question: in your
view does a single currency make a single tax system more profitable?
(Mr Brown) No, it does not.
591. Right. Can I ask you this question: why
is it that the Code of Conduct Group, chaired by the Paymaster
General, is recommending a cohesive tax on savings? Why is it
the broad economic policy guidance has been circulated with a
pro-cyclical fiscal stance being recommended and also the cyclical
tax co-ordination? Why is it Laurent Fabius wrote in the Financial
Times that the Euro Group should discuss tax matters? Why
are all these things coming from all sides?
(Mr Brown) If you look back at the Portuguese Summit
and the debate upon taxation, we said that there is no need for
the harmonisation of tax rates in Europe. We opposed the withholding
tax on savings. We said that the future of Europe should be based
on tax competition. We said that tax competition should not be
unfair competition. That is why there is a Code of Conduct Group.
What the Code of Conduct Group is doing is not dissimilar to what
the OECD is doing for the rest of the world, trying to eliminate
unfair tax competition, in other words the creation of tax havens
or the use of unfair state subsidies to disadvantage competitor
nations. I think even you who are against the development of the
European Union in the way that we set out in our statement of
1997 would agree with me that action against unfair tax competition
is necessary but you do not need to have tax harmonisation. We
have successfully, in my view, shown that the next stage of European
Monetary Union need not be tax harmonisation; indeed we have shown
that the next stage is to support tax competition based on eliminating
unfair practices.
592. That may be so, and it may be a very noble
objective of the Government, but surely the Government is building
sandcastles against the tide. The logic of a system where you
have transparent and to that extent similar prices around the
euro area but you have inflexible wages and certainly inflexible
labour markets is going to be a need for essential transfer of
funds from rich areas to poor areas—it will be the logic
of the system?
(Mr Brown) It is true that under your Government the
Maastricht Treaty was signed and it did inflict provision for
some of these proposals. What we have actually done is withstand
and persuaded people that there is no automatic equation that
takes you from a single market and a single currency to a harmonised
tax system to a federal super state: that is the view that you
have put, that is the inevitable development of the European super
state. I take the opposite view. I believe that you could combine
a single market or a single currency, indeed, with fair tax competition
and with national governments agreeing that there will be mutual
recognition of individual national governments' standards rather
than some harmonised set of regulations which is imposed from
on high requiring what you are saying, massive state subsidies
and everything else. I believe the experience of the last few
months is that many people who thought that the next stage of
Monetary Union was tax harmonisation have actually seen that is
not the right way forward, it is not to the benefit of their economies
and it is not what we are going to do. I think if you give us
some credit for what happened over the withholding tax, and what
started under your Government as a proposal to harmonise savings
taxes right across Europe to deal with what was essentially a
problem of tax avoidance in some countries, we have managed to
persuade our colleagues that exchange of information is the way
forward rather than tax harmonisation. I believe that we are increasingly
showing people that the way forward is not to harmonise tax rates
nor is it to move towards a super state, it is to have national
governments working in closer co-operation for the things that
are needed to be done by closer co-operation.
593. I personally voted 48 times against the
Maastricht Treaty. One of the reasons why I did was precisely
because once it had become enshrined into the Treaty and to that
extent had become the law of the land it would be impossible to
do what you were just suggesting. Are you conceding, which is
very interesting in your last response, interestingly conceding,
the Maastricht Treaty now makes it—I do not use the word
inevitable—logical that there will be centralised taxation?
You may not like it, and you may try and argue against it—
(Mr Brown) I am sorry, Sir Michael—
594. You may not wish it but that is the way
things are going.
(Mr Brown) I think you should listen to what I say
rather than assume that what I am saying is exactly what you want
me to say.
595. I am trying to repeat what you said.
(Mr Brown) What I actually have said is that there
is now no direct relationship, in my view, between having a single
currency and having a harmonised tax system. Most people who now
look at these things throughout Europe, particularly those people
in Finance Ministries, would favour tax competition and fair tax
competition as I think you would favour as opposed to harmonising
tax rates. I think increasingly as this debate develops, just
as there is no need for harmonised tax rates even when you have
a federal state in the United States of America, people will realise
that even without having a federal state in Europe, and of course
having a single currency but not a federal state, there is no
need for tax harmonisation.
596. How do you argue against the fact that
all the organisations related to this in the European Union, the
one chaired by your own Paymaster General—all right you
put on one side the tax evasion issue, you can do that separately—so
far as the Broad Economic Policy Guidelines are concerned, so
far as what the Euro Group is increasingly wanting to do, how
do you explain this away? You cannot just wave a wand and say
"These things are not happening"; that is the way it
is.
(Mr Brown) Let us just deal with each one, one by
one. First of all, the Code of Conduct Group is dealing with unfair
tax competition. Now, would you want us to deal with that or not?
Presumably you would want us to deal with that. Where countries
are unfairly using state subsidies to give themselves an advantage
uncompetitively against their neighbours by either creating tax
havens or by having tax avoidance devices you would want us to
take action against it. It is what is happening in the OECD. It
is what is happening by bilateral agreements between countries
and it is what is happening in the European Union.
597. Fine.
(Mr Brown) Surely that is the right thing to do. To
suggest that to have a Code of Conduct Group is to have tax harmonisation
as if it is the harmonisation of tax rates is just completely
false. I hope that when you look at the issues raised by the Code
of Conduct Group you will now feel yourself able to support the
action we are taking.
598. What about the Broad Economic Guidelines?
(Mr Brown) As far as the monetary and fiscal policy
is concerned, it is hardly surprising that the Euro Group will
want to look at what is happening in fiscal policy and what is
happening in monetary policy. That is not a move towards tax harmonisation
at all.
599. You said yourself in an earlier question
to me that with respect to the United Kingdom there was a direct
relationship with fiscal policy, expenditure policy and taxation
policy. Now you are saying you can have two operating in different
ways. You can have monetary policy going one way and you can have
fiscal policy, presumably in theory, going another way. It cannot
be right.
(Mr Brown) No.
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