Examination of witnesses (Questions 120-139)|
WEDNESDAY 2 MAY 2001
MP, MISS MELANIE
JOHNSON MP, MR
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
(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
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
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
(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
(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 issueand
these are the precise words that I have used before because it
is important in these issues of constitutional arrangementsit
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.
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
(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
(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.
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 Timescompulsory readingthere 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.
139. A quick point on that. Would you like to
see the constitutional arrangements between the UK and its Crown
(Dawn Primarolo) That is not a matter for me.
Sir Teddy Taylor: Hear! Hear!