 House of Commons |
Session 2008 - 09 Publications on the internet General Committee Debates Finance Bill |
The Committee consisted of the following Members:Liam Laurence Smyth,
Committee Clerk † attended
the Committee Public Bill CommitteeTuesday 16 June 2009(Morning)[Mr. Peter Atkinson in the Chair]Finance Bill Committee(Except clauses 7, 8, 9, 11, 14, 16, 20 and 92)Clause 56MEPs’
pay, allowances and pensions under European Parliament
Statute 10.30
am Question
proposed, That the clause stand part of the
Bill.
Mr.
Greg Hands (Hammersmith and Fulham) (Con): Thank you,
Mr. Atkinson, and welcome back to the Chair for
what I think will be a very interesting day for the Committee. May I
also welcome the hon. Member for Burnley back to her previous
Department? We went head to head last year on a particular clause in
the previous Finance Bill, so it is good to have her
back. Clause
56 relates to the tax treatment of Members of the European Parliament.
It gives tax relief against United Kingdom tax for the new, or maybe
not so new, Communities tax that the European Union will levy on
MEPs’ salaries and benefits. The relief will operate in broadly
the same way as if the MEP had paid, for example, Belgian tax on his or
her earnings. The peculiarity involved, however, is that the UK has no
dual taxation treaty with the EU.
The
explanatory notes state that, in subsection (1), the clause
“extends the
application of ‘double taxation relief’ under the Income
and Corporation Taxes Act 1988 (ICTA) to European Community tax
deducted from the pay, transitional allowances and pensions of members
of the European Parliament (MEPs) under the new Statute for Members of
the European
Parliament”. It
is worth placing the statute’s reference number, 2005/684/EC,
Euratom, on record, as I will refer to it in due course. The
explanatory notes go on to explain that, in subsection (2), the
clause “also
amends the Income Tax (Earnings and Pensions) Act 2003 (ITEPA) to
provide that payment of transitional allowances to MEPs under the
Statute will be treated as termination payments in line with the
current treatment of other, similar
payments.” It
is important for us to consider whether the termination payments are
indeed in line with the current treatment of other similar payments, at
least in the UK. I intend to examine MEPs’ pay, transitional
allowances, pensions and termination payments, all of which are covered
by the clause.
Let me begin
by giving some background information on why the payment of MEPs is
changing at all. MEPs’ pay will be going up as a result of the
new scheme of central payments by the EU, rather than payment by
the Cabinet Office as is currently the case in the UK. In practice, the
new common salary for all MEPs across the EU will mean a significant
pay increase in sterling terms for UK MEPs. To be fair, the situation
is a result of the decline in the value of the pound thanks to the
Government’s policies against the euro since the statute was
voted on. At the time of the vote, MEPs were voting for a pay rate that
was very similar to the current rate, and that was the same as an
MP’s pay
rate.
The
Exchequer Secretary to the Treasury (Kitty Ussher): I
cannot resist asking whether the hon. Gentleman feels that that is an
argument in favour of joining the
euro.
Mr.
Hands: It most certainly is not. I have heard some fairly
spurious arguments in favour of joining the euro, notably from the
noble Lord Mandelson in recent days, but that particular argument may
be the most spurious of them all, so we reject
it. Mr.
Peter Bone (Wellingborough) (Con): Does my hon. Friend
share my concern that the Labour party—sorry, the
Government—is now encouraging Britain to join the
euro?
Mr.
Hands: I thank my hon. Friend for his intervention. He is
quite right. I recall that there were a number of tests involved, but
they seem to have been thrown out by the Minister, who has returned to
the Treasury from the Department for Work and Pensions. Perhaps she
came under influence while she was at the DWP.
The fact that
the salary, at the time it was voted upon, would be broadly similar to
that of an MP was an important factor in Conservative support for the
new statute at that time. As far as MEPs’ tax arrangements are
concerned, UK MEPs are currently paid monthly via the Cabinet Office,
and under those arrangements they pay tax through PAYE, along with
national insurance contributions. After the end of the tax year they
have to complete a self-assessment form, send it to Her
Majesty’s Revenue and Customs at its public department No. 1
office and pay any tax that was not already paid under PAYE. On the
face of it, that looks pretty much like the arrangements for any other
taxpayer.
However, once
the new Europe-wide statute is in force, UK MEPs who were re-elected in
2009 will have the option of staying in the current pay arrangements
for as long as they remain MEPs. If they do so, they will continue to
be paid their present salary with no change in the tax and national
insurance contributions arrangements that currently apply. If, however,
they decide to opt for the statute instead—new MEPs will have no
choice in that matter, as they must go for the new, standardised,
Europe-wide statute—they will be paid directly by the European
Parliament, their salary will be paid by Brussels and they will pay
that Community tax on it.
Under current
plans to implement the statute, the Government have decided to exercise
their right to apply UK tax as well, and we in the Conservative party
strongly support that. We have consistently argued that it would be
iniquitous for MEPs not to pay tax at the
same rate as their electors. They will therefore pay UK tax on their
salaries but will, under clause 6, be given credit for any Community
tax already paid, which is what is proposed in clause 56. They will
therefore be taxed at the same rate as a UK resident earning the same
salary in the UK.
My
understanding of the new statue is that, because MEPs will be paid by
the European Parliament, tax will not be deducted under UK PAYE.
Instead, any additional UK tax liability will be collected through
their self-assessment. MEPs will therefore need to set aside money from
their salaries to pay their prospective UK tax bills at the end of the
financial year. They will also continue to be liable for employee-rate
UK national insurance contributions on their salaries and will work out
their contributions each month and make payments, so UK MEPs face a
complicated regime.
So, that is a
rough synopsis of the provision before us. It is just a shame that the
clause could not have been debated a couple of weeks earlier, before
the European elections, when it would have been rather more topical. In
fact, I wonder whether the Government’s approach will be
coloured by the loss of five of their 18 MEPs earlier this month. There
are now so few Labour MEPs that I wonder whether the Government were
considering a late volte-face on clause 56 and dropping its provisions
altogether. With only 13 seats, Labour scored less than parties it
loves to criticise.
The
Chairman: Order. The hon. Gentleman did mention clause 56,
but he is nevertheless straying wide of the clause. I would be grateful
if he came back to the matter at hand.
Mr.
Hands: You are of course right, Mr.
Atkinson, but I will just finish the sentence. They won only
13 seats, fewer than the Polish Law and Justice party, which
is one
of—
The
Chairman: Order. I am quite happy to give some latitude,
but the hon. Gentleman is now taking liberties.
Mr.
Jeremy Browne (Taunton) (LD): Will the hon. Gentleman show
the leadership for which he is renowned by encouraging all Conservative
MEPs to forgo any additional
salary?
Mr.
Hands: I am not quite sure about the leadership for which
I am renowned, but what other salaries might be available to MEPs? Did
the hon. Gentleman mean outside
employment?
Mr.
Browne: No, I did not. I understand that they could decide
unilaterally to pay themselves the same amount, in pounds sterling in
equivalent terms, as MPs in this House, so any increase that they might
enjoy, as a result of either a higher rate of pay or exchange rates,
could be forgone.
Mr.
Hands: We obviously have many more MEPs than any
other party, so I have not been able to check those arrangements with
each of them, but I understand
that they will all be following the rules precisely. I refer
the hon. Gentleman to a document on the conservatives.com website,
“Our Commitment To The British People”. I accept that we
are straying from the debate a little, but precisely how our MEPs will
accord with the rules is there chapter and verse.
So, when it
comes to clause 56, I find it interesting that the Government are
proposing tax relief for MEPs, deciding to hide it from public view
before the European elections, and have almost no MEPs for the clause
to refer to.
Let me say a
little about the new rules for MEPs pay, coming into effect next month,
which, as mentioned, are the background to clause 56. The new rules
will have the most impact in poorer countries, such as Bulgaria, where
MEPs earn around 50 times more than the average domestic salary. As we
know, the rules will set a standard salary for all 736 MEPs, regardless
of the economic conditions of the relevant member state. The
think-tank, Open Europe, has
said: “The
huge gaps in pay will tempt the most talented people away from national
politics.” That
particular issue is probably beyond the remit of today’s debate,
but I notice that the Government seem to have decided that there is too
little talent left for them in the House of Commons, as shown by the
appointment of seven Peers to attend
Cabinet.
The
Chairman: Order. The hon. Gentleman is trying my patience.
I urge him to keep to the essence of clause 56,
which is about double taxation relief for
MEPs.
Mr.
Hands: Indeed, Mr. Atkinson.
Ironically, the Government are bringing back MEPs to serve in the
national Government. I was going to come back later to the tax
treatment of a member of the European Parliament joining the
Government. As
the explanatory notes say, the new pay regime takes effect from the new
Parliament, which will assemble in a few weeks. The new package has
certainly raised some eyebrows, not least because it was voted on by
the European Parliament itself. New MEPs will automatically be subject
to the new package and re-elected MEPs will be able to choose which
package suits them best. I am not aware of any legislature in the world
that has that luxury. The consequence is that MEPs will be paid
directly by the Community, rather than by their mother country, and
will be subject to tax by the
Community. One
obvious area that the Minister needs to explain is the EU’s
ability to raise tax in its own right—the so-called “tax
for the benefit of the Communities”. At first, I thought that
the EU having tax-raising powers must be entirely new, but can the
Minister confirm that the European Community tax referred to in the
explanatory notes is derived from Council regulation No. 260/68 of 29
February 1968? It was designed for Commission staff and later European
Investment Bank staff. I shall be grateful if she will explain whether
the tax has existed for a long time. The tax is paid back into the EU
budget and clause 56 extends the scheme to MEPs. Can the Minister
confirm
that? The
Minister needs to explain which part of the EU raises the tax and where
it goes—for example, to which part of the EU budget. What is
more, even if the European Community tax is not new, I am sure that I
am not alone in being worried about its extension into fields not
foreseen in 1968. The ability to raise taxes would confirm broader
fears of a European superstate and measures to give it tax-raising
powers should generally be resisted—not least, powers over
elected representatives from the member states.
I found that
most sources on this Community tax were extremely opaque. The best
explanation that I could find was on the website of the
EIB: “Some
key-concepts concerning the community tax:
Progressive tax scale:
as with the majority of national taxation systems, Community tax is
based on the principle of a progressive tax scale: the greater the
taxable income the higher the rate of tax.
Brackets: Progressive
taxation is achieved by dividing the scale into brackets. The taxable
amount in each bracket is taxed at the rate applying to that
bracket. Top
bracket: the lowest bracket is zero-rated for tax purposes, the second
is taxed at 8%, and so on up to the top bracket, which is taxed at the
maximum rate of
45%.” 10.45
am Many
of us will find it ironic that the Finance Bill, which sees an enabling
clause to create a new 50 per cent. tax rate for all British subjects,
is the same Bill that allows our MEPs to be taxed by this “tax
for the benefit of the Communities” at a maximum rate of only 45
per cent. Having said that, it looks as if the HMRC reserves the right,
as I have said, for UK MEPs to pay tax on the difference between this
“tax for the benefit of the Communities” and UK tax.
However, the Minister will need to make that clear and it would be
interesting to know whether other states’ MEPs have to pay that.
Knowing in which states that is not the case would inform the debate a
great deal.
If this
“tax for the benefit for the Communities”, as referred to
in the explanatory notes, has been in place since 1968 and the UK has
had no double taxation treaty with the EU, which is actually the
origins of clause 56, have there been cases in the last 41 years of
someone working for the EU—perhaps the Commission, or a body
such as the EIB—actually being taxed twice? That is the
implication of the Government’s argument for introducing these
measures.
I suppose
that all those subject to the Community tax are probably resident in
Belgium, but that is not necessarily the case, perhaps, for a member of
staff of the EIB working in a London branch. I would be grateful for an
explanation of whether they are paid by the EU, but have effectively
been subject to taxation by both authorities in the period since 1968.
It would be helpful to have some light shone on that, because we are
talking about introducing a new clause which may have been needed in
1968, but not in 2009.
The Minister
will also have to explain the coefficients being used for these taxes.
Returning again to the EIB website, the best explanation I could find
of this “tax for the benefit of the Communities”
was: “The
original tax scale was laid down by regulation 260/68: coefficient of
100%. This coefficient is readjusted on a regular basis by the Council
of Ministers of the E.C. The current coefficient adapting the tax
brackets is
486.7097%.” So
the Committee needs to know what has been increased almost five fold
since 1968 in this “tax for the benefit of the
Communities” referred to in the explanatory notes.
Is it the level of the tax brackets, or the actual percentage taxed on
the lowest band? I simply do not understand what these coefficients
are, but it is very important for us to know what they
are. It
is worth having a look at what sort of sums might be involved in clause
56. The think tank Open Europe published a comparison last week between
the costs of the UK and the European Parliaments. Their findings are
that the European Parliament cost taxpayers a staggering £1.8
million a year for each MEP. That is in contrast to the House of
Commons, which cost taxpayers only £364,000 for each Member for
each year. The other place costs only £208,000 per member per
year. So the overall bill is over five times the level of a national
MP, or nine times the level of a peer.
|
| |
| ©Parliamentary copyright 2009 | Prepared 17 June 2009 |