House of Commons - Foreign Affairs

Select Committee on Foreign Affairs Eleventh Report

Accusations against Gibraltar by the British Government

43. A certain level of suspicion in Gibraltar was probably unavoidable in the context of any British-Spanish negotiations. But this suspicion has been fuelled rather than dampened by both the British and Gibraltar Governments. In the course of the talks, the British Government has taken issue with the Gibraltar Government on a number of matters unrelated to the main substance of the talks, such as pension arrangements and the publication of statistical information. Peter Hain went so far as to describe publicly, on the floor of the House, pension arrangements in Gibraltar as a "scam".[50]

44. We discuss the validity of the British Government's complaints below.[51] The timing of these complaints, however, details of which have found their way into the British and Spanish press, has been regarded by the Gibraltar Government as undermining its position. The issue of statistics, for example, was first raised with the Gibraltar Government in April 2002 by way of a letter from the Foreign Secretary to the Chief Minister, rather than more discreetly at an official level, and the Foreign Secretary's views subsequently found their way into the British press.[52] The Chief Minister sees something of an anti-Gibraltarian conspiracy in the fact that the issue was raised in such a way at such a time:

45. Whether or not there is any truth in the Gibraltar Government's view, it ought to have been obvious to British Government ministers and FCO officials that the way in which these matters were raised at the time that they were raised would be perceived as provocative. We conclude that by publicly questioning the probity of the Gibraltar Government during the course of the relaunched Brussels Process talks, the British Government has unwisely increased tension and suspicion of its motives within Gibraltar.

Accusations against Gibraltar by Spain, and the British Government's response

46. Spanish sources have long accused Gibraltar of being implicated in various illegal and "parasitical" practices, such as smuggling, money-laundering and tax evasion. In June 1999, our predecessor Committee reached the following conclusion:

"We conclude that the series of allegations which Spain makes against Gibraltar appear almost wholly to be without substance. In many cases, it is not just the Government of Gibraltar but the British Government as well which is traduced. It is deeply regrettable that allegations are made that cannot be sustained by a basis in fact. If concrete evidence of wrong-doing were produced, the British Government should act promptly to deal with the problem. But so long as allegations are unsubstantiated, the British Government should continue to rebut them promptly and decisively."[

47. We have seen no evidence to cause us to dispute this conclusion. The British Government, however, seems no longer to be rebutting Spanish allegations as promptly or as decisively as previously. When we asked Peter Hain to repudiate Spanish accusations, he replied that he "would prefer to concentrate on what we ought to keep our eye on here and that is trying to resolve aggravation between Spain and Gibraltar—both ways, complaints made both ways".[55] The Foreign Secretary has gone even further, claiming that complaints against Gibraltar by Spain, the EU and the OECD "require answers by Gibraltar",[56] and that it is "incumbent upon the Government and people of Gibraltar to recognise that the complaints that Spain has had in the past are not all without foundation".[57] We conclude that it is highly ironic that the British Government has given credence to complaints by Spain about law enforcement and the supervision of financial services in Gibraltar, given that these areas are the responsibility, not of the Gibraltar Government, but of the British Government and of the Financial Services Commission appointed by it.

48. On 5 June, a letter was published in the Wall Street Journal from Javier Ruperez, the Spanish Ambassador to the US, in which Mr Ruperez described Gibraltar as "a tax haven, a home of dubious money, a permanent suspicion, if not a proven reality, of trafficking, laundering and moonlighting."[58] The British Government failed entirely to respond to this letter, and it was left to the Chief Minister to reply. Indeed, when we brought the letter to the attention of the British Governor of Gibraltar, he appeared to be entirely unaware of its existence, although he has since let us know that this was not the case.[59] The Ruperez letter contains precisely the sort of unsubstantiated accusation which we would have expected the British Government to rebut decisively and promptly.

49. The Chief Minister has told us that Spanish allegations against Gibraltar are utterly without foundation, and he had the following comment to make on the British Government's

position:

50. We are concerned that the British Government appears to be accepting that certain Spanish accusations against Gibraltar are justified, without making it clear how they are justified, or indeed what those accusations are. There may or may not have been some basis for such accusations in the past, but we have seen no evidence to indicate that there is any more substance to Spain's complaints against Gibraltar today than there was in 1999, when a British Government minister was prepared to say on the record that the "vast bulk" of the Spanish allegations were "completely unjustified".[61] We conclude that there is no parallel to be drawn between Gibraltar's legitimate complaints against Spain and Spain's unjustified accusations against Gibraltar. We recommend that the British Government should, as our predecessor Committee recommended, rebut such allegations promptly and decisively. We feel strongly that the Government's failures to rebut Spain's unfounded allegations have let the people of Gibraltar down. If the Government believes that any of the Spanish allegations are in fact justified, it must set out clearly in its response to this Report which allegations these are, and how it expects the relevant authorities to remedy the situation.

NEGOTIATING TACTICS AND OPTIONS FOR THE FUTURE

51. It is unusual in international negotiations that a party to those negotiations should publicly announce concessions that it is prepared to make before the negotiations have been completed. This, however, is precisely what the British Government has done in the course of the Brussels Process talks. On 12 July, the Foreign Secretary told the House that joint sovereignty with Spain over Gibraltar was acceptable to the British Government. This announcement is particularly surprising given that there have apparently been no concomitant concessions from Spain. The result of this is that Spanish sources have been presenting the British announcements as a minimum that Spain can expect from any joint agreement. The Chief Minister has described the Foreign Secretary's statement as "a gratuitous betrayal of our political rights and legitimate aspirations as a people".[62]

52. The British Government risks giving the impression that it is more concerned to achieve an agreement with Spain, almost at any cost, than it is to ensure that the Government and people of Gibraltar support this agreement. We conclude that the British Government now faces an unenviable choice. On the one hand, it can continue to negotiate on the issue of joint sovereignty and reach a bilateral agreement with Spain which may be in the wider British interest, but which will not be acceptable to the Government or people of Gibraltar. On the other hand, it can withdraw its joint sovereignty proposal—with the risk that Spain will react negatively, both bilaterally and against Gibraltar—re-establish trust and good relations with the Government and people of Gibraltar, encourage Spain to do the same, and only then attempt to negotiate an agreement with Spain, with a representative of Gibraltar participating as a full negotiating party (whether under the British flag or not). We further conclude that this dilemma is entirely of the Government's own making.

Enfranchisement for European parliamentary elections

53. In February 1999, the European Court of Human Rights (ECHR) held that the United Kingdom had breached Article 3 of Protocol No. 1 to the European Convention of Human Rights, ruling that Ms Denise Matthews, a British citizen resident in Gibraltar, was denied the right to participate in elections to the European Parliament. We and our predecessor Committee have held the Government to its legal responsibility to ensure the enfranchisement of the Gibraltar electorate for European parliamentary elections.[63]

54. We were therefore gratified when, in oral evidence to us on 28 November 2001, Peter Hain announced

55. We welcome this announcement. By acting unilaterally, the British Government will enable Gibraltar citizens to vote in the elections without prior amendment of the 1976 EC Act on Direct Elections, which would have required unanimity among EU member states.[65] Given that this action is to be unilateral, we were somewhat surprised when Peter Hain told us that "Spain has dropped its opposition to our insistence on giving the people of Gibraltar the right to vote in the European elections. That is why we have been able to proceed."[66] We are bemused as to how Spain's opposition could prevent unilateral action by the United Kingdom to enfranchise people who are, by any interpretation, residents of the European Union. We recommend that the Government in its response to this Report explain what measures any European Union member state could take to obstruct unilateral action by the United Kingdom to enfranchise the Gibraltar electorate.

56. Gibraltar, with a population of less than 30,000, will clearly be subsumed for voting purposes within a pre-existing United Kingdom region.[67] We appreciate that this is not an ideal solution. If, however, it is nonetheless effective, and the only realistic way of enfranchising the Gibraltar electorate by 2004, then we support it.

57. We conclude that the British Government is honour bound to carry out its promise to enfranchise the Gibraltar electorate in time for the European Parliamentary elections in 2004. We recommend that the Government ensure that adequate parliamentary time is made available during the next session of Parliament to ensure that the necessary legislation is enacted.

The British Government's complaints against Gibraltar

PENSIONS AND COMMUNITY CARE

The history of the pensions issue

58. Ernest Montado, the Chief Secretary of the Gibraltar Government, and Joe Bossano, a former Chief Minister, have submitted memoranda setting out their versions of the history of the pensions issue in Gibraltar.[68] We understand the central facts to be as follows.

59. Gibraltar has had a contributory pension scheme since 1955, which is, according to the Chief Secretary, non-discriminatory as to nationality and residence.

60. In 1969, the Franco regime in Spain unilaterally closed the Gibraltar border, a blockade which lasted until 1985. 4,500 contributing Spanish workers were thus prevented by their own Government from going to work in Gibraltar during this period. Their contributions ceased in 1969. A further 10,000 Spanish citizens had contributed at some time between 1955 and 1969. In 1969, Spanish workers constituted a majority (66 per cent) of contributors. The Gibraltar Government has repeatedly offered to transfer the total level (with interest) of contributions by Spanish workers to the Spanish Government. Its offers have been refused.

61. Between 1969 and 1985, while Spanish workers were not contributing, both contribution rates and benefit levels increased. An amendment in 1973, however, provided for pension increases for residents of Gibraltar who had not contributed to the pension fund at the new increased rates post 1969. The number of Gibraltarian pensioners in this category claiming on the basis of residence rather then contributions was minute.

62. EC Social Security Regulations prohibit discrimination in social security benefits (but not in social assistance schemes) on the grounds of nationality or residence. Upon Spanish accession to the EC, Spanish former workers in Gibraltar, irrespective of the level of contributions they had made, would become immediately and automatically entitled to receive a pension from the Gibraltar scheme at the same rate as Gibraltar resident pensioners, as a result, according to Mr Bossano, of the 1973 amendment. Mr Montado notes the following remarkable fact: that a Spanish former worker in Gibraltar with a full contribution record between 1955 and 1969, but who had made no contributions since then, would be entitled to a weekly uprated pension of greater value than the entirety of that worker's lifetime contributions.[69]

63. The liability was jointly calculated by the United Kingdom and Gibraltar at about £200 million at 1985 rates. The total content of the Gibraltar pension fund in 1985 was £13

million.

64. The Gibraltar Government first raised with the British Government the issue of this potential liability in a letter of 23 September 1976. The British Government attempted to reach an agreement bilaterally with Spain, and, having failed, approached the European Commission in 1983 suggesting two alternative solutions designed to reduce the liability to a sensible sum. In its submission, the British Government stated that "this problem is not the fault of the Gibraltarian authorities". The Commission rejected both alternatives and stated that if Gibraltar could not afford to pay the uprated pensions, the United Kingdom would have to meet the cost. We conclude that it is manifestly unjust for Gibraltar to be legally liable to pay uprated pensions to Spanish pensioners who had been prevented from making pension contributions for years by their own Government. We further conclude that it is unfortunate that the issue of this liability was not satisfactorily resolved before Spanish accession to the European Community.

65. In December 1985, the United Kingdom and Spain agreed bilaterally, without consulting Gibraltar, that Spanish former workers would receive the same uprated pensions as Gibraltar resident pensioners, as of 1 January 1986. In the same month, the British Government agreed to fund in full the payment of these pensions for three years. The Gibraltar Government handed over to the British Government the £4.5 million consisting of Spanish contributions (with interest) in the Gibraltar Pension Fund. In 1988, the British Government agreed to meet the full cost of the Spanish pensions for a further five years, on two conditions: that in 1993, the Gibraltar Pension Fund would be dissolved, and that pensions to all pensioners be frozen at 1988

rates.

66. In 1993, the Gibraltar Pension Fund was accordingly dissolved and pension payments ceased. However, the Spanish pensioners complained to the European Commission, and in 1996, the British Government again agreed to meet the full cost of the liability to Spanish pensioners, without time limit, but once again only if payments to all pensioners were frozen at 1988 rates. The Gibraltar Pension Fund was reinstated, and makes payments at the same frozen rates to all pensioners except the pre-1969 Spanish pensioners.

The history of Community Care

67. In 1989, a group of private individuals established a private charitable trust in Gibraltar called the Community Care Trust. Among its objects, the trust pays a financial sum (the Household Cost Allowance—HCA) to all persons of pensionable age resident in Gibraltar, regardless of entitlement to an old age pension. The trust received donations from the Gibraltar Government of £60 million before 1996, and a further £5 million subsequently.

68. The Gibraltar Government insists that payments of the HCA are not pension payments, presumably because they are payments made regardless of pension entitlement and by a private trust rather than the Government. However, Mr Montado admits that there is a connection between pension levels and the HCA when he states that the reason that the HCA was introduced was precisely because it was "wholly unrealistic" to expect Gibraltar pensioners to live on pensions frozen at 1988 rates.[70]

69. The British Government has apparently been aware of the existence (if not necessarily of the detail) of the HCA since at least May 1990. As of February 1996, the British Government has urged the Gibraltar Government to reform the HCA, on the basis that it is a social security and not a social assistance payment because it is based on age rather than need, and that it might therefore breach EU rules prohibiting discrimination because it is not paid to non-resident Spanish pensioners. The Gibraltar Government is not convinced by this argument, and claims furthermore that because the payments are made by a private trust, it has no power to interfere. Moreover, it argues that to reduce the class receiving these payments would be "socially retrograde and unfair on Gibraltar's elderly".[71]

The current crisis

70. In July 2001, the European Commission wrote to the British Government explaining that it had received complaints from Spanish pensioners that their pensions had been frozen, and asking for an explanation of the rules on regular increases of pensions in Gibraltar. In its response, the British Government explained that pensioners in Gibraltar received financial assistance in the form of the HCA. As a result, the Commission's focus appears to have shifted away from the issue of uprating payments to the Spanish pensioners and towards the detail of the HCA.

71. On 16 April 2002, the following exchange took place during FCO question time in the House:

"Mr. Mark Hendrick (Preston): Is my right hon. Friend aware that the pension arrangements in Gibraltar may be in contravention of EU law? What liabilities might the Government incur as a result?

Peter Hain: We are very concerned about this matter because, despite our warnings, the Government of Gibraltar have been indulging in what we think may be discriminatory pensions practices. I have had to write to the Chief Minister explaining that. The European Commission at present is investigating these potentially illegal practices.

... the House will wish to know that a bill of £77 million could fall on the taxpayers of Britain if, as a result of this scam, the Government of Gibraltar do not pick up responsibility and accept their obligations. So far, they have resisted ... I do not think that the House will support British taxpayers picking up a bill for a pensions scam that is down to the Government of Gibraltar. That Government must pick it up, and we will ensure that they do so."[72]

72. On 19 June 2002, the Foreign Secretary told us in oral evidence:

73. The British Government seems to be making the following allegations:

(i) that the Household Cost Allowance is in effect a discriminatory pension entitlement for Gibraltar residents of pensionable age, and that such an entitlement may be both illegal and immoral;

(ii) that the liability for paying uprated pensions to Spanish pensioners should fall on the Gibraltar Government rather than the British Government;

(iii) that the method by which Household Cost Allowance is paid is "a scam" or at the very least "opaque";

(iv) that the Gibraltar Government has been unco-operative and less than transparent in how it has handled this issue.

We now assess the validity of each of these allegations in turn.

50 HC Deb, 16 April 2002, col 453. Back

51 Paras 46-50. Back

52 eg. The Guardian, 3 June 2002, Financial Times, 4 June 2002. Back

53 Ev 32, para 69. Back

54 Fourth Report from the Foreign Affairs Committee, Session 1998-99, Gibraltar, HC 366, para 57. Back

55 First Report from the Foreign Affairs Committee, Session 2001-2002, Gibraltar, p 58, Q 62. Back

56 HC Deb, 27 November 2001, col 825. Back

57 Q 21 [Jack Straw]. Back