Examination of witnesses (Questions 100-119)
WEDNESDAY 2 MAY 2001
DAWN PRIMAROLO
MP, MISS MELANIE
JOHNSON MP, MR
IVAN ROGERS,
MR PETER
CURWEN AND
MR RICHARD
BROWN
100. It is not just a bit convenient for you,
Minister?
(Dawn Primarolo) Mr Ruffley, if I could just perhaps
answer one question at a time. Let us be absolutely clear. This
is a Commission study. They will determine when it goes on the
agenda. It is not influenced by anything else, except the Commission
having completed the study. Originally the study was asked by
Ecofin to have been available at an earlier stage. For some reason,
I am sure due to pressure of work, the Commission have not been
able to complete. When they have completed it will be available
and then I will be able to answer the specific questions on anything
which may be contained in that. It is not shared with us at this
stage.
101. That is a kind of "the dog ate my
homework" explanation?
(Dawn Primarolo) The dog never ate my homework.
102. Maybe it should have done.
(Dawn Primarolo) Did it eat yours?
103. The report in the Financial Times,
30th April, where it was reported that ". . . Her Majesty's
Government has tried to encourage the Belgian Prime Minster and
the Belgian Finance Minister to tone down their interventionist
ambitions particularly in relation to tax harmonisation",
have you read that report?
(Dawn Primarolo) I saw the report, yes, in the Financial
Times, as I am sure we all did. There is often much speculation
around with regard to European issues and particularly the sensitive
issue of tax because of its importance as a Member State determined
matter on unanimity. It is simply wrong to suggest that tax harmonisation
is on the agenda or, as we have discussed many times before in
this Committee, is a necessary part of a single currency. I can
answer questions specifically on Government policy but speculation
in the press, as you have already suggested to me, I should not
engage in speculation.
104. Is tax harmonisation popular in this country,
do you think?
(Dawn Primarolo) I think the people in this country
concern themselves with the prospects that they have for security
in their employment and security in the future and what they want
to see is a dynamic economy here in the United Kingdom. As we
all know it is a matter of some discussion in our communities
of the best place for the UK economy to flourish, whether that
is within a single currency or not.
105. It is convenient, is it not, that tax harmonisation,
which is not universally popular in this country, is not going
to be raised prior to what most people expect to be a General
Election in this country? I therefore ask you finally, Minister,
in connection with that, can you give a categorical denial to
this Committee that the United Kingdom Government in any manifesto,
any official, any representative, any minister, has not sought
to get the Belgian Presidency to downplay or otherwise marginalise
tax harmonisation issues because of the proximity of a likely
General Election in this country?
(Dawn Primarolo) To date, the Belgian—
106. What I want is a categorical denial so
we are absolutely clear.
(Dawn Primarolo) I know what you want. You want an
answer and given that there are no proposals on the table to date
made by Belgium then your assertion that something has gone on
is simply incorrect.
107. You will not tell us what is in this report?
(Dawn Primarolo) We are awaiting the next Presidency,
as all Presidencies do, laying out their intentions for the Presidency.
The only thing that I am aware within my remit that the Belgians
have made a clear statement in different places about is their
commitment to take the tax package forward in the same way as
this Presidency and the previous Presidency did.
108. I will repeat the question so that you
can have a second attempt at either confirming—
(Dawn Primarolo) There is no need to be rude, Mr Ruffley,
you can put the question—
109. I will.
(Dawn Primarolo) —but the answer is there are
no proposals from the Belgian Presidency on the table and, therefore,
we have not responded to any proposals because there are not any
on the table.
110. Has any representative of the United Kingdom
Government made representations to the Belgian Presidency about
tax harmonisation issues?
(Dawn Primarolo) We have no proposals from the Presidency.
111. Is that a no or a yes?
(Dawn Primarolo) We do not approach on the basis of
something that we do not know. Tax harmonisation is not on the
agenda. Other Member States do not support the prospect of tax
harmonisation. The way forward has been accepted as dealing with
harmful tax practices and in dealing with the efficient operation
of the single market and using exchange of information and enhancing
transparency as a way of developing all our economic agendas.
There has been no indication from the Belgian Presidency that
they intend to run their Presidency any differently from those
principles.
112. That was not the answer to the question,
so let the record show you do not deny it.
(Dawn Primarolo) Too many Perry Masons here.
Mr Beard
113. The Treasury submitted a paper to the informal
European Council meeting in Stockholm entitled "European
economic reform: Meeting the challenge" which called
for national governments to undertake enterprise policies to promote
research and development and venture capital. Could you say what
progress has been made in that?
(Miss Johnson) I am sorry, I thought you were originally
directing your inquiry to the Paymaster-General. I think it may
be more appropriate to me. I am very sorry, could you possibly
start from the beginning again. My apologies.
114. The Treasury submitted a paper to the informal
European Council meeting in Stockholm in March this year entitled
European economic reform: Meeting the challenge. The basic
theme of that was to call for national governments to undertake
". . . enterprise policies to promote research and development
and venture capital with greater effort in basic research and
the arrangement of entrepreneurial spin-offs from universities".
I wonder if you could say what progress has been made in that
direction?
(Miss Johnson) There was endorsement at Stockholm
of the Chancellor's proposal that there should be a research and
development and innovation study and that should be ready for
the spring Council in 2002. That will share best practice for
raising research and development and innovation performance. We
think this is a very productive discussion and study and there
was renewed support at Stockholm for reforms to the EU research
and development budget aimed at creating a critical mass for the
EU in the most promising research areas. There is also work going
on on how to promote biotechnology, which is obviously a key technology
for the future, consistent with common fundamental values and
ethical principles which are obviously issues that arise in this
context.
115. Are you aware that the Select Committee
on Science and Technology partly addressed this question in looking
at why engineering and the physical science based industry were
so poor at innovation and came to the conclusion that it was not
for lack of money put into fundamental research but for lack of
money put into the much more expensive development? The European
Union in its various programmes that have supported research has
been particular about putting money only into basic research and
not getting too near the market and as a result we find that we
end up with a large queue of good ideas coming forward out of
basic research but we do not do anything very much with them in
Europe because we do not put the money into the development. Would
you use your good offices in promoting this to ensure that those
points, highlighted very clearly with a mass of evidence in the
Select Committee's report, are taken into account in assessing
how this scheme will work?
(Miss Johnson) I am very grateful to you for mentioning
them because I personally was not aware of them but I expect that
officials in the Treasury are well aware of them and that the
Chancellor is well aware of them. We will certainly bear those
points in mind. I think it is exactly the right timing for those
sorts of things to be taken into the discussions that are going
on in this area to make sure that we do get the best out of our
R&D investment in an EU context.
116. Could I just direct this question to the
Paymaster General? It is about the Code of Conduct covering tax
havens. Until last year the Government had delayed giving Royal
Assent to the 1998 Finance Bill in Jersey because it contained
a clause for allowing designer tax. In other words, a company
determining the tax level it would pay in Jersey on the criteria
of whether it allowed it to avoid tax in its home base. But now
the United Kingdom has accepted the practice of designer taxation
contained in the 1998 Finance Bill in Jersey. Could you say why?
(Dawn Primarolo) No, we have not accepted the particular
mechanism that you are talking about, the designer rates. The
UK will continue to seek an end to what we consider to be predatory
tax measures. Indeed, we introduced a defence against possible
loss of revenue as a result of the introduction of that particular
regime. I am sure you are aware that the regime in question was
within the Finance Bill for Jersey which had a number of other
issues to do with Jersey. As I have explained here, again on a
number of occasions, our relationship is bound by the constitutional
arrangements. What we did not want to do, and we tried very hard
to persuade Jersey on that particular regime, was there was no
way we wanted to be seen to condone such tax laws because we consider
them to be totally unacceptable. For some time there was discussion
with Jersey on this particular regime but in the end, on advice
taken within the broader considerations of our relationship with
Jersey and given that it had other items in it that were perfectly
okay and have been in since 1998, we were required to give Royal
Assent. I think this highlights something that Sir Teddy has concentrated
on a great deal at different times, both in the Chamber and in
this Committee, about the constitutional relationships between
ourselves and Crown Dependencies and overseas territories, which
is one of persuasion. We will continue to discuss with them this
particular regime.
117. Is this measure of designer taxation that
is within the Jersey Finance Bill compatible with the EU's Code
of Conduct? Are you saying "no, it is not but we have got
to accept it because they have threatened us with legal action"?
(Dawn Primarolo) I must admit I think I would need
to look just in detail. My initial reaction is no it would not
be compatible with the Code, which I know you understand is voluntary
and non-binding. It is a political agreement. As part of that
it is clearly stated that ". . . All Member States with dependent
and overseas territories would use their best endeavours within
the constitutional arrangements to see that niche regimes . .
.". This is basically where companies can design their corporate
tax rate in order not to have to pay tax in the country which
would normally otherwise have expected to have received it. I
am sure all of us would want to say that practice is totally unacceptable.
I do not remember—and I would have to check the list—that
this particular regime was within the listed regimes which were
considered by the Code of Conduct as of its report to November
Ecofin 1999 without unseemly ruffling through all my papers.
Chairman
118. Perhaps you can drop us a note on that?
(Dawn Primarolo) Yes,[3]
but I think the absolute thing is that we encourage our overseas
and dependent territories to comply with OECD, to the highest
level, of what we believe is behaviour of an international standard
that is acceptable, and we have some persuasion still to do clearly.
Mr Beard
119. Would it be fair to summarise this as the
position, that we tried to get Jersey to conform with the Code
of Conduct, they would not, and we could not do much about it
for legal reasons, especially because they threatened us with
the law?
(Dawn Primarolo) Well, with respect, it is wider than
the Code of Conduct. Her Majesty's Government found this particular
proposal offensive and, regardless of whether there was a Code
of Conduct or discussion at the OECD on harmful tax practices,
this would be a straightforward issue in terms of tax practice
which Her Majesty's Government would wish to discourage. Indeed,
we had to announce introductions into our tax regime to try and
defend ourselves against loss of action and that was announced
in October 1999. Frankly, the issue about whether it is in the
Code or not, it is an issue that it should not happen. We, vis
à vis Jersey, regardless of anything else, took the
view that it should not happen.
3 See p. 16. Back
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