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Lord Marsh: My Lords, I apologise for interrupting this unholy alliance, but it is very difficult to acknowledge the genuine concern that everyone has for the fact that a large number of pensioners on state pensions are receiving an inadequate amount and, at the same time justify, as both Front Benches do, the £7 billion a year going to top rate taxpayers. Does the Minister agree that that is an absurdity?

Baroness Hollis of Heigham: My Lords, I am not sure that I understood the noble Lord, though that may be because of my stupidity. Is he querying the tax relief that goes to top rate pensioners from the £7 billion?

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Lord Marsh: No, my Lords; I am suggesting that it is absurd in this situation that state pensions are not means tested in terms of top rate taxpayers. We acknowledge that there are people who are under-provided for in the state pension scheme, while at the same time we give pension benefits to people who clearly do not need them and who are paying very high rates of tax.

Baroness Hollis of Heigham: My Lords, pensioners, including the highest rate pensioners, will pay tax on their basic state pension at something like 40 per cent. The commitment we have made is that the basic state pension is a universal pension available to all, which will rise in line with prices. However, as I said a moment ago, I believe we all accept that for pensioners to enjoy a comfortable standard of living to which they are entitled they need a good second pension on top of that. So far too much of our pension provision has been shaped by images of the person who has a job for 40 years, who never changes that job and who works full time with one employer.

We need to develop new, flexible pension arrangements. We need to include the self-employed. We need to look after carers and those with intermittent earnings. That is the way we are going. However, the assumption that those who pay the highest taxes do not pay tax on their state pension is simply wrong.

Lord Stoddart of Swindon: My Lords, will my noble friend confirm that over the past 18 years the basic state pension as a proportion of national earnings has consistently dropped and that if nothing is done to increase pensions beyond the retail prices index the state pension will gradually be phased out? Can my noble friend assure me that something will be done in future years to maintain the value of the state pension in relation to average earnings?

Baroness Hollis of Heigham: My Lords, our policy is clear. The basic state pension will rise in line with prices but that alone will not be sufficient, as my noble friend said. By the year 2050 that alone would produce a pension of only 7 per cent. of average earnings. That is why we seek a state second pension and the measures taken together will be worth about £30 or £40 a week more than the sum that a person who earns £6,000 a year would receive at present.

Baroness Gardner of Parkes: My Lords, I accept what the Minister said; namely, that the basic state pension will not be means tested. However, she then said that people will nevertheless receive a guaranteed income. I do not know what that is if it is not another form of pension. I cannot understand how the Minister intends to give that to people without means testing it. Will she clarify that?

Baroness Hollis of Heigham: Yes, my Lords. The basic state pension at the moment is £65 a week, which is below the level of what a pensioner would get if he had no capital and was therefore entitled to an income support top-up. The guaranteed minimum pension

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represents £75 a week as opposed to £65; that is, the basic state pension plus a premium on top which will be paid automatically to those pensioners who have no capital and no alternative earnings. That way we shall ensure that they are at, and above, income support levels.

European Union: Tax Harmonisation

3.2 p.m.

Lord Blaker asked Her Majesty's Government:

    What recent consultations they have had with other European Union governments about the harmonisation of taxes.

Lord McIntosh of Haringey: My Lords, let me answer by drawing from the joint statement made by the German Chancellor and the Prime Minister in December which states,

    "We strongly support action to combat unfair tax competition ... But we will not support measures leading to a higher tax burden and jeopardising competitiveness and jobs in the EU ... At no stage have we considered measures to harmonise personal income tax ... We fully support the need for enhanced co-operation in the fight against tax abuse and evasion...But where tax policy is used to support wider health and environmental objectives, there may be advantages in co-ordinating action across the EU".

Lord Blaker: My Lords, the Minister and the Government set great store by the veto. If an application by the Government to join the single currency is met by the response that we may do so if we agree to a general harmonisation of taxes--which is what Herr Lafontaine wants--or that we should agree to a move towards qualified majority voting on tax matters, what would be the Government's response? Will the Minister give a unqualified assurance that no such deal would be accepted?

Lord McIntosh of Haringey: My Lords, that question makes two presumptions, neither of which I can accept. The first one is that there is a move towards general tax harmonisation in the European Union. I have already quoted the boss of Herr Lafontaine to make it clear that that is not the case. The second assumption is that some such condition will be made on an application to join the single currency. I do not accept that proposition either.

Lord Bruce of Donington: My Lords, in view of the constitutional and economic importance of these tax harmonisation considerations, I ask the Government in the most non-controversial fashion whether they will make available to Members of this House a pack consisting of the important documents that have been issued by the Commission and by the Government and which have either been sifted or are due for scrutiny by the various Select Committees? I am quite sure the Government will agree that that would be most helpful to the detailed discussions which sooner or later will have to occur in this House.

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Lord McIntosh of Haringey: My Lords, the explanatory memoranda which accompany all draft directives are available to all Members of this House.

Lord Taverne: My Lords--

Lord Higgins: My Lords, part of the so-called harmful tax practices--

Lord Carter: My Lords, I suggest that the noble Lord, Lord Taverne, speaks and then the noble Lord, Lord Higgins.

Lord Taverne: My Lords, following the constructive suggestion of the noble Lord, Lord Bruce of Donington, will the Government continue a pragmatic approach to the question of tax harmonisation, recognising that certain kinds of harmonisation are obviously desirable--one can hardly argue against state subsidies and not oppose certain special kinds of tax incentives which have the same effect--but, on the other hand, also recognising that certain kinds of harmonisation, which would lead to the loss of business across the Atlantic or elsewhere, would be undesirable? Will the Government continue to be pragmatic in their approach?

Lord McIntosh of Haringey: My Lords, my first Answer, which made it clear that we shall continue to be pragmatic, demonstrated that that is the policy not only of the British Government but also of the German Government.

Lord Higgins: My Lords, why is the "hit list" of so-called harmful tax practices which is being considered by the European Union Code of Conduct Group not being published when our national interests are at stake and many of our industries may wish to make representations on the subject? More specifically, last Thursday the Minister said that roll-over relief for British ships is on the list. Can he give the House an assurance that other much heavier subsidies and tax reliefs for shipping in other European countries are also on the list?

Lord McIntosh of Haringey: My Lords, when the noble Lord uses the phrase "so-called harmful practices", he has decided that certain practices are harmful. We do not accept that the five examples that we have given to the European Union are harmful. There are 80 more such examples practised by other member states. Those are retained in confidence by ECOFIN until the Code of Conduct Group has completed its consideration.

Lord Boardman: My Lords, is the noble Lord content that taxes should be imposed on British subjects by a consortium over which we have no control?

Lord McIntosh of Haringey: My Lords, that is simply not the case. My first Answer, and every answer I have given on this point over recent weeks and months, have made it clear that we are in control of our own fiscal policies.

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Lord Ewing of Kirkford: My Lords, in view of the interest in this matter can my noble friend tell your Lordships' House whether, should tax harmonisation be introduced, it would mean that those who receive tax free allowances would need to start paying taxes?

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