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Mr. Jeremy Browne: The hon. Gentleman raises a legitimate concern about currency fluctuations within the year and the effect on tax liability. Does he conclude that the Conservative policy of shadowing the deutschmark in the early 1990s would be wisely replicated by shadowing the euro now so that those difficulties could be avoided? That is not my view, but it seems to be the view of Conservative Back Benchers.
Mr. Bone: Mr. Atkinson, I am sorry that I accepted that intervention. It would be quite out of order for me to deal with it. I promised to stick to the clause and I will do my best to talk about this and the technical issues that come up.
There is an important point here that I had not understood before. In the past, MEPs were taxed on their salary as though they were British citizens. That made a lot of sense, and I understand it entirely because there was no Community tax involved. We now know that there was a Community tax, and I am not sure on whom this was charged. There is an issue. Were these officials or employees of the European Union? If they were, were they just being taxed as citizens of some European Union state and not being taxed here, or was there double taxation? That is a really important point. How much money was involved?
Mr. Hands: I expect that the Government will answer that all of the people affected were not resident in the UK, but I suspect that the EIB has some kind of London representation. It would be interesting to hear from the Minister whether those people have been affected since 1968.
Mr. Bone: My hon. Friend makes a very important point to which I hope the Minister will respond.
I was just about to refer to clause 56(1)(c) which reads:
“Article 14, 15 or 17 (pensions for old-age, incapacity and survivors)”.
Can I move straight on from there to the Secretary of State for Business, Innovation and Skills, with responsibility for regulatory reform, enterprise and science, First Secretary and Lord President of the Council—and deputy Prime Minister—the noble Lord Mandelson? He was a commissioner. What was his tax position? Was he being taxed in this country or was he paying some sort of Community tax? Is it something new? Has there been a loss to the Exchequer or has the poor Lord Mandelson actually been paying tax twice? Will there be some sort of retrospective relief for commissioners? I assume that the commissioner is regarded as ordinarily resident in this country.
Lord Mandelson is a high-profile case, but there must be many other people who were caught in this position. It is important to know whether they were paying UK tax, both UK tax and EU tax, or only EU tax. People will want to know that information.
Clause 56 is right in principle, in that it saves British citizens from paying tax twice, but it has opened up a can of worms. Therefore, I hope that the Minister will be able either to answer now all the questions that have been raised or, if that is not possible, to write to the Committee with that information.
11.30 am
Kitty Ussher: May I start, Mr. Atkinson, by saying what an honour it is to serve under your chairmanship? I think that I am serving under you for the first time and I welcome you to the Chair.
It is a pleasure to debate with the hon. Member for Hammersmith and Fulham. I thank him for his kind words. Indeed, as he said, I recall that we had a lengthy debate during the deliberations on the Finance Bill last year. My memory is that it was about sovereign debt issuance and he gave an extremely interesting and, I am sure, historically correct account of various currency crises and sovereign debt issuances by various countries, including the UK. I also seem to remember that my contribution to that debate was principally to point out—rather continually—that although that account was very interesting, it was perhaps not entirely relevant to the specific point on the issuance of Islamic bonds that we were discussing at that time. I feel a strange sense of d(c)j vu now, one year on.
Mr. Hands: With your forbearance, Mr. Atkinson, I want to point out that the Minister is right that that debate was about sukuk bond issuance, but the question was whether or not it was advisable for a sovereign issuer to be issuing structured notes, regardless of the structure. The debate was not actually about Islamic finance; it was about whether or not sovereign issuers should be going down that road.
I must say that now might be the opportunity for the Minister to apologise for misquoting me later that week to an audience in the City of London in a talk about Islamic finance, by claiming that Conservatives were opposed to Islamic finance, which is certainly not the case. So the debate today gives her an opportunity to apologise for misquoting me, which happened in the same week as the debate that she referred to.
The Chairman: Order. I think that honours are even in this respect.
Kitty Ussher: Thank you for your clarification, Mr. Atkinson. All I will say is that my sense of d(c)j vu has now increased.
I have enjoyed the debate today hugely; I always enjoy it when the Conservative party splits very openly in front of our eyes. I have also enjoyed the revelation by the hon. Member for Taunton, when he said that it was difficult to put himself in the mindset of someone who served in the European Parliament. I do not know whether we should draw anything from that comment about his relationship with his leader.
Mr. Stuart: May I gently give the Minister a word of advice? It is possible that there is a difference of opinion within a party, but when it happens people should try to disagree without rancour.
Kitty Ussher: Opposition Members are obviously the best of friends. Moving on swiftly, I am of course grateful for the support of at least the Front-Bench spokespersons of both the main Opposition parties.
As today is the first time that I have served under your chairmanship, Mr. Atkinson, in an attempt to ingratiate myself with you I will attempt to keep my remarks specifically related to the clause. I remind the Committee that the clause simply does two things. Since the European Community is not a territory, as defined in double taxation law, we therefore need another piece of primary legislation to ensure that MEPs will not be subject to double taxation under the new regime. So, we are simply aligning the situation of MEPs with the existing provisions under double taxation law.
The other thing that the clause does is to ensure that the new transitional allowance, as it is called, which is now available to MEPs under the new system, has a basis in law, by linking it to the legal concept of a termination payment.
Mr. Bone: Is that a unique situation, or are there other organisations that are not territories that deduct taxation?
Kitty Ussher: I think that it is unique. If my view on that changes, I will let the hon. Gentleman know.
Mr. Hands: Can the Minister explain to us, therefore, why the situation is unique? My understanding is that the United Nations or the World Bank will pay their staff whether or not the Minister believes that they level a tax. If that is not the case, why not? Why is it only the EU that decides that it wants to have those tax-raising powers?
Kitty Ussher: Perhaps I can add that to the list of eight questions that the hon. Gentleman has put and that I shall attempt to answer.
Moving on to the specific points, I am delighted by the summary of the eight questions, although perhaps we could have cut to the chase and gone straight to them. I am slightly concerned because I think that I have more than eight answers, but I will do the best I can.
One of the first questions that the hon. Gentleman seemed to ask was whether this was a secret plan and why we were talking about this after the European elections of a fortnight ago. I am delighted exclusively to reveal that our policy was communicated to MEPs in a letter from the Minister for Europe in July last year. We also wrote to MEPs of all parties in March this year. So there was no intent to reveal it only now.
Mr. Hands: Will the Minister give way?
Kitty Ussher: I will, but I will not always give way if the hon. Gentleman seeks to intervene at this rate in future.
Mr. Hands: I thank the Minister for giving way and apologise if I am intervening too often. Can she tell us when she told the House of the Government’s intention to do that?
Kitty Ussher: Well, it is in the Finance Bill, so it will have been in the First Reading of the Finance Bill.
Moving on, I am delighted that the hon. Gentleman has been looking at the EIB website with such diligence. I will write to him on the precise point about coefficients. The substantive point seems to be that, as a result of the double taxation, MEPs will now be subject to an effective tax rate of 27.95 per cent. If we did not introduce the clause in the Finance Bill, their effective tax rate would be 21.84 per cent. So they will be paying more tax at the same effective tax rates as their constituents as a result of the clause, which I think all Members of the Committee would agree with.
The EC tax that is applied to MEP’s pay is the same tax that EU officials have paid since 1968.
Mr. Bone: I must have misunderstood that point. She is saying that MEPs are paying extra tax. Are they getting a refund? She seemed to imply that. What I thought the Minister was saying was that the Community tax was higher than the basic income tax in this country. If that was the case, there would be a refund. Am I wrong in that?
Kitty Ussher: I hope to be able to come back to the net position of the UK Exchequer as a result of all the changes. What I think his question was getting at was that marginal rates, and the way in which they are tiered, are actually higher in the UK than the EC rates. Therefore, as a result of the double taxation treaty, they will pay more tax in total, although there is a sort of credit put in as part of that process.
How will the tax work if an official is employed by the EU, but, for example, works in London? We have heard members of the Committee mention, perhaps, the EIB staff in London and, of course, the European Commission has staff in London. EU officials working in this country will generally be liable for UK tax. Those working in Brussels will generally be liable for Community tax, but obviously each individual situation will be looked at individually.
Are there any cases in which someone working for the EU has been taxed twice? We are not aware of any such cases. The clause is required only because a specific statute has been introduced which provides for MEPs to be paid by the EU instead of by national Governments. That was not previously the case, so MEPs were not previously subject to Community tax.
There was a specific question about Community taxes being levied on transitional allowances. Those MPs who have recently stood down are entitled to resettlement grants under existing pay arrangements. Resettlement grants are subject only to UK tax; they are not subject to Community tax. There were a lot of questions about people who were not, perhaps, UK residents and what their situation was with respect to other member states. Not being a Minister for another member state Government, or indeed a tax administrator for the European Community, I am not able to provide specific answers. However, I will write to the hon. Member for Hammersmith and Fulham to answer the question whether MEPs need to pay tax to the Belgian or French authorities if they are resident there.
Mr. Hands: Can I take the Minister back to the point that was mentioned a moment ago? Although the MEP whom I mentioned might be an exception at the moment—going to be a UK resident but a non-dom—there will possibly be more cases in future. I mentioned that 9 per cent. of my constituency were EU nationals. It is not impossible—I think that the fourth Conservative candidate on the London list is probably an EU national. Will the Minister clarify the position of UK-resident MEPs who are non-doms?
Kitty Ussher: I am coming to that point. An MEP who after the elections of a fortnight ago ceases to become an MEP will be eligible for the transitional allowance under the new regime that the European Parliament has now agreed.
I come now to the specific points about residents and non-residents, and domiciled and non-domiciled status. In summary, the rules regarding resident and domiciled status for MEPs are no different from those for any other category of person. We know of only one UK MEP who has ever claimed non-residence in the UK. That might be useful background information. It follows that an MEP representing a UK constituency would not then be fully liable for UK tax because they are non-tax resident. It is unlikely that the situation would arise because most UK MEPs obviously have ties, duties and work to undertake, which means that they will be here.
Mr. Field: What checks would the Treasury undertake to ensure that an individual was not trying to suggest they were not domiciled anywhere—in other words, that there was some domicile that they were admitting to and therefore had tax liability in some territory?
Kitty Ussher: We take great pains to ensure that the tax law is not abused and that there is no fraudulent activity, avoidance or evasion. MEPs would be no different from any other category of person in that regard.
A non-resident, non-domiciled MEP would not be fully liable to UK tax. However, if they were non-resident —as I said, there has been only one case so far—like all other non-residents they would be liable to UK tax on the portion on their employment duties carried out here. Broadly speaking, days spent working in the UK would be liable to UK tax, as is normally the situation for other people, but employment duties carried out abroad would not be liable to tax.
A resident but non-domiciled MEP using the remittance basis would also be liable to UK tax on those employment duties carried out in the UK and, in some circumstances, as is normal, also liable to UK tax on their duties carried out abroad. I do not want to imply that this is something we are routinely looking into because, as far as we are aware, there has been only one case.
I apologise to the Committee, as I need to clarify what I said previously about whether this is a unique situation. There are some similar circumstances, as hon. Members rightly said, relating to the UN and NATO. I will write to the Committee to explain the parallels.
The hon. Member for Wellingborough asked about exchange rates used for the purposes of self-assessment. If an MEP is paid in euros, the conversion to sterling is at the time of payment, which is normal for any person paid in a different currency. I do not want to confuse the Committee further, and I am mindful of the fact that we have spent a lot of time on this, but I mention for the record that MEPs have the option of being paid in sterling. I do not know whether Conservative MEPs will be taking up this option.
A theme running through some Back-Bench Conservative Members’ remarks was whether the EU should have tax-raising powers and whether this was the thin end of the wedge. I wish to reassure the Committee that this is an extremely limited tax, which applies exclusively to EU officials and MEPs. It does not imply any wider EU tax-raising powers, and indeed has no basis in law to do so.
11.45 am
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