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House of Lords

Wednesday, 10th March 1999.

The House met at half-past two of the clock: The LORD CHANCELLOR on the Woolsack.

Prayers--Read by the Lord Bishop of Oxford.

Royal Assent

The Lord Chancellor (Lord Irvine of Lairg): My Lords, I have to notify the House, in accordance with the Royal Assent Act 1967, that the Queen has signified her Royal Assent to the following Act:

Road Traffic (NHS Charges) Act.

Public Utilities: Millennium Compliance

Viscount Brentford asked Her Majesty's Government:

    Whether they have discussed with the public utilities continuity of services in the first days of the new millennium.

Lord McIntosh of Haringey: My Lords, the public utilities, their sponsoring government departments and the regulators belong to the National Infrastructure Forum. Forum members share information about millennium preparedness with the aim of meeting the Government's objective that there should be no material disruption to essential public services over the millennium. The regulators are commissioning independent assessments of the utilities' preparedness for the millennium date change. They include plans to ensure that utilities can maintain services to the public if critical elements of their business are damaged.

Viscount Brentford: My Lords, I am grateful to the noble Lord for that Answer. Is he aware of the large measure of anxiety and concern in the country about discontinuity of resources at that time? How should I reply to a small business which has sent me a copy of a letter from its electricity company saying that it gives no guarantee or warranty about continuity of electricity supply over that period, although that small business and its machines are very dependent on electricity? I am also concerned about pensioners if electricity is cut off for a week or so over that period. How should I reply to such concerns?

Lord McIntosh of Haringey: My Lords, the Government are aware of the public anxiety and are concerned that the public should be reassured where that is appropriate, which is in almost all cases. The question of a warranty is a legal issue and I understand why the utilities are unwilling to give a warranty. However, the noble Viscount may be reassured to know that 46 per cent. of electricity companies have already established that there is no substantial risk of material disruption and 52 per cent. are on course to meet the

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deadline--in other words, they will sort out problems well before that date. In addition, the 2 per cent. which still have problems outstanding are mostly older generators which may not necessarily be in use at the time of the millennium.

Earl Attlee: My Lords, how many telecom operators licensed by Oftel have yet to declare themselves millennium-compliant?

Lord McIntosh of Haringey: My Lords, all telecom operators either have declared themselves to be millennium-compliant in the sense that there are no substantial risks of material disruption, or have in hand programmes for meeting the deadline in good time.

Lord Razzall: My Lords, having listened to the Minister's replies, I have a slight concern, so will the noble Lord confirm--and perhaps make this answer slightly stronger than was his Answer to the noble Viscount--that the Government take responsibility for ensuring that there will be no problems?

Lord McIntosh of Haringey: Yes, my Lords, of course. The Government take responsibility for ensuring that the public services, the utilities and, as far as we can influence them, the private sector companies are millennium-compliant. As I said in my Answer, we are also taking serious steps to ensure that services to the public are maintained if critical elements of the utilities' business are damaged at the time of the millennium. We have in hand contingency plans which will be co-ordinated between the utilities through the National Infrastructure Forum to ensure that any damage is kept to the absolute minimum.

Lord Mackie of Benshie: My Lords, does the Minister advise the public to lay in essential stocks; for example, for Hogmanay in Scotland?

Lord McIntosh of Haringey: My Lords, I think that the noble Lord should stick to his usual habits. I am sure that he lays in stocks for Hogmanay. He will, of course, recognise that the holiday period will be rather longer over the millennium. I am not advising that he should lay in stocks of, for example, tinned food.

Imported Works of Art: VAT Increase

2.41 p.m.

Lord Pearson of Rannoch asked Her Majesty's Government:

    Whether the United Kingdom will be obliged to increase the rate of VAT on certain imported works of art from 2.5 per cent. to 5 per cent. in June 1999 and, if so, what effect this will have on the international competitiveness of the British art market when combined with the effects of a possible droit de suite directive.

Lord McIntosh of Haringey: My Lords, under EC law governing VAT on the importation of certain

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works of art, agreed in 1994 by the previous government, the United Kingdom should raise its VAT rate from 2.5 per cent. to at least 5 per cent. The Government are keen to change that, but the legal position can be altered only with the agreement of the European Commission and all other member states. It would be very difficult to estimate the combined effects of import VAT and droit de suite on the British art market.

Lord Pearson of Rannoch: My Lords, I am grateful to the Minister for that reply. However, I fear it means that he misled the House on 28th January when he said:

    "What we shall not do is level up to 5 per cent.".--[Official Report, 28/1/99; col. 1209.]
Since the Minister's Answer also proves that the Government's much-vaunted charm offensive in Brussels has failed, will they now invoke the Luxembourg compromise and use the veto to save this highly important national interest? It is worth double our pop industry to the United Kingdom economy.

Secondly, as our Eurobond market, our mergers and acquisitions industry and many other British interests are now on death row in Brussels, do the Government at last agree that the time has come for an objective cost-benefit analysis of our adherence to the Treaty of Rome?

Lord McIntosh of Haringey: My Lords, the noble Lord quotes me correctly on 28th January. Unfortunately, that part of my speech got completely garbled. Immediately before that I said that we would be seeking to level down to other countries, which is clearly nonsense. I apologise for saying that what we shall not do is level up when I meant that we shall do our very best not to level up, as the noble Lord knows.

The noble Lord then asks whether we have abandoned our attempts. On the contrary; at the Internal Market Council on 25th February my noble friend Lord Simon of Highbury managed to achieve further consideration of the draft directive by the Committee of Permanent Representatives. That means that we are talking again. Under those circumstances it would be premature to talk about using the Luxembourg compromise which-- I remind the noble Lord--can be used only in conditions of vital national interest. Meanwhile, we are carrying out an independent UK study of the directive. I will not go so far as to agree to the wider inquiry which the noble Lord wishes the Government to undertake.

Lord Shore of Stepney: My Lords, we all accept that it was very unfortunate that on 28th January a categorical assurance was given to the House that there was no question of tax changes being imposed upon us against our will. The Minister said, and I accept, that that was said in good faith. But it illustrates the lack of seriousness in the Government in assessing the pressures, dangers and risks of the drive for tax harmonisation which exists in the European Community today. Does he not agree that the increase in VAT of

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2.5 per cent. on imported art works to 5 per cent.--we cannot resist it; we have no veto--will do great damage to the London art market?

Further, does my noble friend agree that the additional droit de suite 2.5 per cent. levy will only add to the difficulties? Again, we have no veto on it; we can only stop it by establishing a minority in a qualified majority vote.

Finally, I want to put this to my noble friend.

Noble Lords: Order, order!

Lord Shore of Stepney: My Lords, it is terribly important to get this right. I raised the matter specifically at the time and was given an absolute assurance. Can we not now begin to understand that so much depends on obtaining agreement with our colleagues that the unanimity rule is not enough?-- otherwise we would never have agreed to impose the VAT, as the previous government did in 1994 without any opposition--indeed total acceptance--by the official Labour Opposition at the time. I hope my noble friend will give some assurances that he will treat further threats of the withholding tax and other matters with greater seriousness than has been shown so far.

Lord McIntosh of Haringey: My Lords, I understand and sympathise with the passion which my noble friend shows for these issues. However, he must not infer from that that anybody else is treating it with anything less than the serious attention it deserves. He is right in saying that the 7th VAT directive, under which these changes come, was agreed by the previous government without objection from the Labour Opposition. But that is the end of any party political point that can be made of it. These changes are not in themselves evidence of any fresh moves towards tax harmonisation in the general terms expressed by my noble friend. We will continue to encourage the development of measures against harmful tax competition while continuing our objection, which we can sustain, against tax harmonisation.

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