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Lord Monson: I thank the noble Lord for his reply. I am pleased to hear that the Council has rejected the European Parliament's request. We shall have to continue to be very vigilant in the matter. However, I do not believe that we can go further today. I beg leave to withdraw the amendment.

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Amendment, by leave, withdrawn.

5.30 p.m.

Lord Stoddart of Swindon moved Amendment No. 3:

Page 1, line 14, at end insert:
("Provided that Her Majesty's Government shall lay before both Houses of Parliament an annual report on the operation of Article 2(1) (c) of the latter decision;").

The noble Lord said: As noble Lords will know, Article 2(1) (c) refers to VAT and to the determination of a uniform rate. I shall not read out the article. Article 10 refers to the arrangements for a possible introduction of a fixed uniform rate applicable to the VAT base.

I hope that I have understood the meaning of uniform rate. I take it to mean—I stand to be corrected—that we shall have a uniform rate for VAT across the Community, and eventually a standard base also. If I am wrong no doubt I shall be corrected. However, as I say, Article 2(1) (c) when taken in conjunction with Article 10 could be a ticking time bomb which, if allowed to explode, will have serious implications for parliamentary control of taxation and for the people of this country. They could find themselves paying taxes not strictly levied by their elected representatives. That seems to me to be taxation without representation. I hope that I read the article correctly, and that I shall be corrected if I do not. That means taxation without representation.

As I understand it, we already have the elimination of zero-rated VAT on such items as books, periodicals and newspapers, children's clothes, new buildings and transport fares hanging over our heads. The pass has already been sold on domestic fuel, which now has VAT levied at 8 per cent. No doubt in due course further attempts will be made to levy the full 17.5 per cent. tax on domestic fuel. We are already under threat of a big extension of VAT on essential items. The Commission will not be satisfied until we have VAT on everything, including all foodstuffs.

The implications for the economy alone, especially for the retail prices index with the inflationary pressures, of allowing anybody other than the properly elected Parliament and Government so to decide, are horrific. Yet that is what is being contemplated by the EC with the apparent full consent and approval of the British Chancellor and the Cabinet. No doubt that squares well with the Chancellor's fanatical support for a single currency which he knows perfectly well implies a single Government complete with taxing powers. However, it does not square with democratic government and parliamentary control. Indeed, if control was lost over the range of Vat rated items and the rate of VAT, that would be the final betrayal of Parliament and of the right of the people to proper representation before taxation, including the right to boot out those who would impose taxation which the people believe to be oppressive or unnecessary.

As I understand it, what the Chancellor has ostensibly agreed to will not be possible under the regime foreshadowed by the Council, by our own Government and by the decision in October 1996. I have no doubt that we shall be told that the Government have the veto

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over all matters of taxation; that qualified majority voting will not apply in the case of taxation. But we have no guarantee that the Government will not cave in to pressure as they so often do—and most recently did in allowing the Spanish fishermen further access to fishing grounds to the disadvantage of British fishermen, further endangering fish stocks in British waters.

Having given in, the issue will first be represented as a great victory—game, set and match, so to speak—and a triumph for our negotiations. Then when the truth is revealed—that it is a bad deal for Britain and the powers of Parliament—and Parliament shows signs of rebellion, it will be told that the Government made an international agreement which Parliament must honour. That is what the Government did over the Bill that we now discuss. The matter will then be made one of confidence, with dissolution threatened if Parliament dares to rebel. We know the end of the story because it is all written in the House of Commons Hansard.

We must ensure that Parliament, and especially the House of Commons, are never again faced with the blackmail that they encountered over the Bill. That is why the amendment should be passed in order to help Parliament to keep proper control over what the Government do, especially over taxation. I beg to move.

The Earl of Onslow: This pass has already been sold. When there was a row over whether fuel should be taxed, it was noticeable that the Labour Party—if peradventure by the most unlikely of coincidences it should ever become the Government—studiously avoided giving an undertaking that it would remove VAT from fuel. That particular pass has been sold. Parliament has already allowed its taxation rights to be inhibited. The issue obviously slipped through; perhaps people did not understand it, but it has happened. I do not know how we can claw that matter back. Somehow we must claw it back because the rights of taxation are at the root and core of all government.

If one takes away the right to tax, one takes away the power to govern. That is how the whole of English parliamentary tradition arose. Parliament said to the king, "You have run short of money, and if you want some more you will have to come and ask us for it". That is how the core of English parliamentary tradition and government arose. That is why, that directive having been agreed, we cannot now lower VAT below 15 per cent. If any amount goes on, that can only be agreed unanimously. But equally any amount can only be taken off unanimously. The idea that the Greeks may say, "No, you can take some VAT off children's shoes which has been imposed", fills me with total disbelief.

Anything which can be done to restrict the rights of the European Commission to impose any tax on British subjects must be encouraged above anything else.

Lord Cockfield: I am sure that the noble Lord, Lord Stoddart of Swindon, will be greatly relieved, if somewhat disappointed, that Article 2(1) (c) does not bear the meaning that he seeks to put on it. It could not possibly bear the meaning that he seeks to put on it; it has never borne the meaning that he seeks to put on it; and it will never bear the meaning that he seeks to put on it. It is merely an item in a calculation that has to be

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made to ascertain the contributions given by individual member states, all of which have slight differences or greater ones in their VAT coverage.

If you tax 12 or 15 people by means of a calculation based upon any concept you like, you must have a uniform concept on which to do it. Therefore, what is created is what is called a Community assiette. I am sorry to use foreign words in replying to the noble Lord, Lord Stoddart. You set up a notional system which would provide the same amount or the same basis of revenue which you then use to calculate the contributions. That has nothing whatever to do with the system that a member uses in its own member state. In fact, it is a recognition that systems differ from one member state to another.

There is one point on which I wish to support the noble Lord, Lord Stoddart. It is a great pity that we are not given more information about the financial relations between our own country and the European Union. In an earlier debate I suggested that the budget Red Book ought to contain a comparatively modest section—possibly of two or three pages and it already has many pages—which sets out clearly the financial relationships. That is not to produce an argument but merely to ensure that at least we have a solid basis of factual information which can underpin discussion of many of the issues.

Lord Bruce of Donington: I support the noble Lord, Lord Stoddart, on his amendment. I am quite sure that the Committee will be grateful for the usual authoritative utterances delivered with his customary modesty on what is really the state of affairs. He makes it quite clear that:

    "the application of a uniform rate valid for all Member States to the VAT assessment base which is determined in a uniform manner for Member States according to Community rules"

remains for most Members of the Committee, and, I suspect, for Members of another place who bother to read the regulations, a matter of some mystery. Therefore, I hope that when the Minister replies to the debate, he will reveal to the Committee the nature of the calculations involved in the determination of a uniform rate. The noble Lord, Lord Cockfield, suggested that perhaps in some future budget—if it should ever be considered by your Lordships' House—there ought to be three pages explaining how the calculations are arrived at. However, for this afternoon's purposes we shall be grateful for a brief summary from the noble Lord of how the uniform rate is determined. I am quite sure that the Committee will agree that the calculations are a matter which we ought to consider in Committee. They are matters of detail but since they affect the amount of money payable from the Consolidated Fund into European funds, they ought to be carefully considered and should not remain shrouded in mystery.

If Members of the Committee examine Article 2 1(c) a little further, they will find the words,

    "However, the assessment base to be taken into account"—

and so far we do not know how that is calculated—

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    "for the purposes of this Decision shall, from 1995, not exceed 50% of GNP in the case of Member States whose per capita GNP in 1991 was less than 90% of the Community average; for the other Member States the assessment base to be taken into account shall not exceed"—

and the article lists them: 54 per cent. of their GNP in 1995, 53 per cent. in 1996, 52 per cent. in 1997, 51 per cent. in 1998 and 50 per cent. in 1999. The article continues:

    "The cap of 50% of their GNP to be introduced for all Member States in 1999 shall remain applicable until such time as this Decision is amended".

I trust that the Committee is now seized of the detail comprised in Article 2 1(c). After all, they are matters of some importance in determining what the contributions of member states shall be.

Unhappily, GNP is nowhere defined. That makes it a little difficult for the matter to be considered even on Second Reading in general terms, let alone in Committee. The Government seem to resent even the existence of a committee to discuss the matter. So perhaps we may have the opinion of the Court of Auditors on it. The report of the Court of Auditors unfortunately arrived too late for the Government to take it into account when they were discussing the Bill in another place. However, in its latest report, the Court of Auditors has some pretty pungent observations to make about the way of determining GNP. With leave, I shall acquaint the Committee with what the report says about the matter. I trust that noble Lords will bear with me and the husky voice in which I deliver the comments.

Page 33 of the report of the Court of Auditors covering the financial year 1993 states:

    "In order to evaluate the ability to pay, or the relative prosperity of the Member States, the regulations"—

referred to in the Bill as "rules"—

    "in force sometimes refer to GNP and sometimes to GDP, which are evaluated in some cases in ecus and in others in purchasing power standards, (PPS). The choice of concept has repercussions on the financial responsibilities of the Member States. The Commission should explain the criteria which led to the adoption of GNP in ecus in the area of budget financing".

The report continues:

    "In spite of the measures already taken by the Commission, the degree of comparability, exhaustiveness and reliability of the data in respect of the Member States' national accounts should be improved and considerable progress may still be made so as to obtain a genuinely harmonized system, as the Court pointed out ... in its Annual Report concerning the financial year 1991".

The report states further:

    "As a result of the forecasting errors inherent in any GNP forecast there is a danger that the ceiling for levies provided for by Community legislation will be exceeded and the risk of bias in the allocation of the charge between the Member States, which then has to be corrected by means of an unwieldy system of balances".

Finally, in terms of ducking the system or the lack of information available to it, the Court of Auditors concludes:

    "Employing a statistical concept such as GNP, which does not correspond to a fiscal base which can be checked with a reasonable degree of certainty, may provide a means of ensuring that the financial responsibilities of the European Union are fairly divided up between the Member States. Nevertheless, the use of such a concept requires a considerable effort from the Commission and the Member

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    States to ensure that the national accounts are reliable and harmonized, and thus to ensure that the budget and policies of the European Union are managed rationally".

In other words, before the rules come into operation, the Commission and the member states of the Council have to agree on what GNP really is, and then to agree it so that beyond all reasonable doubt the ultimate contributions of the member states and the ceilings of the own resources demanded of them can be accurately determined. At the moment they cannot be.

One of the purposes in putting down this amendment is to acquaint noble Lords with the fact that many difficulties lie ahead and that, in spite of these abstruse calculations —which, if I may say so without offence, members of the Council do not themselves always understand—without some reliable check as to the accuracy of the assumptions that are made (the degree of accuracy which is insisted upon by firms of chartered accountants when they approve the prospectuses of companies; namely, that all the assumptions are correct and the calculations are reasonable) all this will be a lot of nonsense. Indeed, in their present form all they are designed to do is to obscure and ultimately damage the Council's perception of what may be the truth.

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