Select Committee on Treasury Minutes of Evidence

Examination of witnesses (Questions 120-139)



  120. We do not like it but we have to live with it because the constitution does not allow us to do anything about it, is that the position?
  (Dawn Primarolo) The legal advice was that Royal Assent should be given, yes, because it was a package wider of other things that were perfectly acceptable and Jersey did not want to amend the package.

  121. Is it policy now to live with it indefinitely?
  (Dawn Primarolo) We have very extensive and continued discussions with our overseas and Crown Dependencies on these issues and will continue to do that. Jersey is in no doubt that we are not enamoured and do not like this particular regime but, as I have said, on legal advice Royal Assent was given.

  122. Could you say what estimates have been made of the impact of this on Treasury revenue and company location decisions?
  (Dawn Primarolo) I am afraid I do not have that figure to hand and I doubt very much whether we would be able to specifically quantify it, except to say that we took immediate action. We considered it to be a considerable loss, hence announcing it in October 1999 and actually legislating in the subsequent Finance Bill, which we only do for anti-avoidance on measures that are considered extremely serious. I would have to look back at what we said in terms of our press releases, which would have had to have been very specific on that issue, and I am happy to make sure you have that paperwork.

  123. Will that cover company location as well as tax revenue?
  (Dawn Primarolo) Location is rather a moveable feast. Location is not necessarily a tax point, that is the whole point about the designer regime. I understand the point you are making and I will see whether there may be something we may say. I have to be honest and say I doubt it on the second point but we could be specific.

Sir Teddy Taylor

  124. Very briefly, Minister. Very helpful reply given. Would you just confirm that Jersey and the other Channel Islands, through their activities bring great benefit to the economy of the United Kingdom? Is that the view of the Government, that with the transfer of the funds to London and with the other activities they have overall they bring great benefit to the United Kingdom?
  (Dawn Primarolo) Indeed. Our relations with our overseas and dependent territories, yes, of course, are positive and mutually beneficial, as they gain a great deal from the partnership with us, of course, hence the relationships. That does not mean, Sir Teddy, that we do not have a view on what should be the highest and best practice and believe their best future lies in reaching those highest international standards and, therefore, will express views to them in the numerous meetings that we have with them on a whole range of issues.

  125. Secondly, would you confirm that Jersey and the other parts of the Channel Islands are not part of the European Union?
  (Dawn Primarolo) Indeed, yes.

  126. Can you confirm that for us?
  (Dawn Primarolo) Yes.

  127. The third thing is would you confirm, because of the structure of their economies, there is no way at all in which Jersey and other parts of the Channel Islands because of the very limited expenditure they have would not need to apply anyway the levels of taxation which, for example, Britain has to do? Inevitably their level of taxation would be a great deal lower.
  (Dawn Primarolo) Their taxation levels are a matter for them. We have discussed this at committees before. Any country's preference for their level of taxation, what they use it for, how they raise it, is a matter for them. What is a matter for consideration by Her Majesty's Treasury, and representing the best interests of the United Kingdom, would clearly be to ensure that our best interests are advanced as well and that we have a duty in discussions with all of our Crown Dependencies and overseas territories to keep them informed and encourage them for the security of their economic future that actually they comply with the very highest of standards in economic markets. That will be their best security. All countries will be concerned, as we see repeatedly in the press, when they feel that revenue which should have rightly paid tax in one country finds itself, because of a predatory tax measure, being paid somewhere else. I am sure that would be of concern to you because if that happens that would have a direct influence on our ability to fund public expenditure or our tax rates, which I know is dear to your heart.

  128. Final question. Does the Government, therefore, accept that the only way forward is positive and constructive dialogue with Jersey and the other Channel Islands? There is no question that the Code of Conduct or any other practice provides the right for the British Government to determine the tax policies of the Channel Islands?
  (Dawn Primarolo) I would say yes to the first part of your question that clearly a positive dialogue is always the best way forward. That is the way that we would want to proceed and we are proceeding, and very productively. On the second issue—and these are the precise words that I have used before because it is important in these issues of constitutional arrangements—it would be unprecedented for Her Majesty's Government to legislate for the overseas territories on taxation and would be contrary to the policy of successive governments. Therefore overseas territories have the greatest measures of autonomy in their internal affairs, and we need to maintain that, and that those affairs are consistent with the ultimate responsibility the UK has for their good governance. That is the precise wording which makes clear that our relationships are guided by the constitutional arrangements between us.

  129. Could I thank the Minister for her very helpful answers which I am sure will be read with great encouragement in the Channel Islands.
  (Dawn Primarolo) They hear it quite a lot from me, I can assure you.

Mr Kidney

  130. Paymaster General, the Chairman did not say earlier, would that be your 21st birthday?
  (Dawn Primarolo) That is two drinks I owe you now. I think it is 21st second time round plus a bit.

  131. We have not quite finished with the dependent territories. Can I just ask you how you are getting on in promoting the adoption of the exchange of information measures in our dependent territories?
  (Dawn Primarolo) A number of dependent territories and Crown Dependencies have indicated their willingness. There are a number of agendas here. There is the OECD, the G7 quite recently had something to say on the exchange of information, and, indeed, the specific proposals like taxation of savings within the European Union, and the general agenda. I had my officials compile a list of the number of occasions on which we have met to discuss this, which is rather long and I will not read it out. We are progressing with those discussions and they are going well, but I am sure that you can appreciate, as Sir Teddy has indicated in his contributions, there are real concerns that progress must be made on a level playing field and that all the changes are of benefit to all of us and there are not extreme adverse effects, so there are a number of issues that are still current in those discussions. I am trying to remember the list of countries that, for instance, have agreed with the OECD. I think the Isle of Man has just agreed. I think Jersey and, before that, indicating to us, Bermuda and the Cayman Islands on the question of exchange of information and the wider discussions in the OECD. There is progress there but, as we have discussed before, these are very delicate and, for some countries, difficult issues. So, as Sir Teddy has implored us, by persuasion and dialogue we are progressing.

  132. When the Council comes to adopt the Directive some time next year we will not be in the position, will we, of the British Government saying "we are so very sorry but because of our quirky situation we cannot actually make this stick in our dependent territories"?
  (Dawn Primarolo) No. We have made it clear at every point, both in the discussions on the Code of Conduct and in the discussions on the draft Directive on Taxation of Savings, precisely what our constitutional arrangements are. In fact, all the Communiques make it clear that they are imploring Member States to commit themselves within the framework of their constitutional arrangements to see the adoption of principles. We have always been very clear that we do not promise what we cannot deliver. As I have said, in the wider agenda in consideration of international standards, we believe that financial centres will need to reach those very high standards and we need to encourage them accordingly.

  133. The Council has to agree by unaninimity to adopt the Directive next year.
  (Dawn Primarolo) Indeed.

  134. And, again, if we went to the meeting and said "Because of our quirky constitution we have failed to deliver in our dependent territories this exchange of information" it is conceivable that Member States would not want to agree the Directive, is it not?
  (Dawn Primarolo) There are a number of issues that will need to be settled. As you will know, on the decision by the Council and the discussions that will happen with third countries and the question of equivalent measures, there will need to be a report back to Ecofin before the final decision is taken on the draft Directive. There are quite a large number of variables there and it is impossible at this stage, until we see the report and discussions with third countries, to know what the issues are. Naturally one of the points that the overseas territories are making, not unreasonably, is that they want to see a level playing field and that will be part of the discussion.

  135. How do you understand the exchange of information is being received by, as you quoted, third countries outside the European Union?
  (Dawn Primarolo) For instance, Switzerland have committed themselves to the document published by the OECD, whose title escapes me at the moment, I think it came out in June 2000. Somebody will tell me the name of the document in a minute, I am sure. This is a difficult subject and goes into the very complex question of banking secrecy. I would not want to either make comments that are unhelpful to those discussions when the transcripts of this Committee are read, or mislead the Committee. Those discussions are going on now and we will have a report to Ecofin on the progress and then the Council, by unanimity, will have to decide whether that is enough.

  136. What you describe there is the triumph of the British Government of turning round that great movement inside the European Union for the taxation of savings into an exchange of information regime. Would you agree that is so far a half triumph and the full triumph is when we have got the Directive agreed unanimously next year?
  (Dawn Primarolo) Yes. I suppose, having been closely involved in it, I sort of see the triumph in several levels. Firstly, we went from a minority to unanimity. Secondly, and most importantly, we established that exchange of information as a principle was the correct way forward, that tackling harmful tax measures was also the correct way forward. The question that Mr Ruffley referred to earlier on about tax harmonisation is simply not on the agenda. I think it does not have to be measured just in terms of this particular draft Directive but also in terms of the way the whole debate is now progressing within the European Union.

  137. Mr Ruffley, would that be the Mr Ruffley who asked his questions and has now left?
  (Dawn Primarolo) Indeed.

Mr Cousins

  138. Just a follow up question to those issues that Mr Kidney was raising with you, Paymaster-General. Is there any indication on this issue of the exchange of information, both on savings issues and more generally on tax, of a change of attitude by the incoming American administration?
  (Dawn Primarolo) Given everybody avidly reads the Financial Times—compulsory reading—there were some comments attributed. All I can say is that at the last G7 the statement that was issued, including with the support of the US, was ". . . to reaffirm support for all of the objectives of the multilateral effort to fight against tax abuse of the global financial system . . ." I am quoting directly from that. The American Government is very keen, as all governments are, to ensure that they get the correct amount of tax due by their taxpayers and therefore they are continuing to support the OECD and the G7 initiatives.

Mr Davey

  139. A quick point on that. Would you like to see the constitutional arrangements between the UK and its Crown Dependencies changed?
  (Dawn Primarolo) That is not a matter for me.

  Sir Teddy Taylor: Hear! Hear!

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