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Lord Pearson of Rannoch: My Lords, before the Minister sits down, when he comes to answer the questions about the water costs, will he put a copy in the Library? I am, of course, aware of the study which took place in 1994--I was a member of your Lordships' Select Committee at the time--and we found that it was entirely inconclusive. Not only did we not have the faintest idea what any other country was doing at the time, but the Commission refused to answer the British Government. I do not know whether the new Government's charm offensive in Brussels has been so successful as to encourage the Commission perhaps to give an answer about what other countries are up to with these incredibly expensive water directives.

If the Government are to resist this worthy Bill, can they explain why they continue to resist sponsoring an objective cost benefit analysis of our membership of the Treaty of Rome?

Lord Falconer of Thoroton: My Lords, as to the first point, of course I will place the answer in the Library. As to the second point, Members can read the report for themselves and form a judgment as to what its effect would be. As to the third point, the idea of a cost benefit analysis would lead to such contention that it would be extremely difficult to produce something that would command widespread support.

Lord Pearson of Rannoch: My Lords, a 1994 report is a 1994 report; it is therefore completely out of date. Most of the expenditure we are contemplating under the water directives will take place after that date. Can we not find out what the other countries are doing? If we do not know the scale and effect of these directives they fall under Article 5 of the Treaty of Rome, as amended by Amsterdam; and if the European Union has not put out a cost benefit analysis on all these water directives, it falls under what used to be Article 130R. So we need not carry out these wretched things if we do not want to.

Lord Willoughby de Broke: My Lords, I am most grateful for the contributions of all noble Lords who have taken part in the debate. Perhaps I may deal with one or two of the points that have been raised. The noble Lord, Lord Bruce of Donington, the noble Lord, Lord Taverne, and the Minister made the point that it would be impractical to ask businesses, the consultees, to

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provide the costs; that it would be too onerous for them. As my noble friend Lord Trenchard made quite clear, individual businesses are only too conscious of the extra costs involved if a regulation is anti their business. They will know how damaging the regulation is and have the answers ready for the consultation process that I hope will be pursued. I think businesses would welcome it rather than dislike it if they were required to provide figures for the Government. So that is a non-point.

I was very impressed by the foresight of my noble friend Lord Pearson of Rannoch in bringing the condom directive with him. Being a Friday, it is probably something for the weekend. The noble Lord, Lord Stoddart of Swindon, referred to an error or a failing in my Bill. I hope that we can amend it. We should, of course, have time to debate the impact statements when they are produced in Parliament. We will have the opportunity to amend that when we come to the Committee stage. I will have to take advice as to whether Clause 3 should include secondary legislation.

I am sorry that the noble Lord, Lord Taverne, did not think that I talked as much sense in my Bill as I thought he talked sense in his speech in the genetically modified crops debate; I very much agree with what he said then.

Despite the opposition of the Government, which I quite understand--they do not want to do any more work or expose the shortcomings in some of the legislation they have pushed through under European directives and regulations--the Bill is worth while. I believe that such shortcomings should be exposed, as do many businesses, particularly small ones.

I repeat my thanks to all noble Lords and to the Minister for the courtesy with which he replied. I hope that the House will give the Bill a Second Reading.

On Question, Bill read a second time, and committed to a Committee of the Whole House.

European Tax Harmonisation (Veto) Bill [H.L.]

2.8 p.m.

Lord Waddington: My Lords, I beg to move that this Bill be now read a second time. The purpose of this Bill is to require this and any future government to obtain the approval of Parliament and the public before agreeing to any proposal to limit further our right in Britain to decide on our own taxes and our own tax rates. That does not seem to me to be a very unreasonable requirement.

Not so many years ago it would have been thought unthinkable that any independent sovereign country would give up its right to levy whatever taxes it thought appropriate. A country's freedom to decide what to tax, and how much, is the bedrock of national sovereignty, one of the hallmarks of a free independent nation. The power of our elected representatives to decide what tax the voters should pay is a fundamental part of our democracy; and if this or any future government really are persuaded that there would be some advantage for the British people in our agreeing in some particular area to accept further inroads into our sovereignty, and

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into our democratic rights, they should come before the country to explain why and try to convince the public of their case.

The Bill comes before the House only a few days after the European elections. If the results show anything, they show that in Britain there is a deep-seated hostility to our giving up the pound, and that the brainwashing--the public money spent to convince people of the inevitability of our joining the euro--has had only limited effect, that people see nothing extreme or anti-European in keeping our own currency and something very extreme in the ambitions of others to surrender our national currency and monetary institutions. They certainly see that there is something terribly defeatist and absurd in the notion that the world's fifth largest economy, a country with membership of the European Union and free access for its goods into the European Union but with worldwide interests, cannot keep its own currency, while countries like Canada, New Zealand and Australia can keep theirs.

Most people can see that although it is perfectly possible to have a single currency and still have different tax levels--just as, for that matter, it would be possible for us to keep the pound and have the same taxes as others--the single currency in Europe is but a step to full economic and monetary union. There can be no disguising that fact, and if noble Lords want evidence of that, they need only look at the words of the president of the Bundesbank when he said recently,

    "The European Currency will lead to member nations transferring their sovereignty over financial and wages policies as well as in monetary affairs. It is an illusion to think that States can hold on to their autonomy over taxation policies".

But I think that many people do not yet realise that even outside the single currency our right to pursue our own tax policies is under threat from the plans within the European Union to harmonise taxes throughout the Community and from the Government's pathetic failure to respond firmly to this threat. In fact, while the Government have protested their opposition to tax harmonisation, their actions have belied their words; and they have completely undermined what they say is their own position not just by their preparations to take us into the euro, but by their twists over the Commission's draft directive on a withholding tax, which is already threatening to drive the London eurobond market to Switzerland, by their leading role in the Code of Conduct Group on Business Taxation and their hearty endorsement of the EU's plans to do away with so-called unfair tax competition, and by their support for the federalist designs of their socialist partners on the Continent.

First, the withholding tax, where almost every day a new spin is being put on the Chancellor's step-by-step approach towards what looks like being an abject surrender. Let us go over the history. At first the Chancellor told us:

    "The United Kingdom will not accept a directive that requires every member state to impose a withholding tax". A few weeks went by and then we were told that the Treasury was in discussion with the industry on a compromise which would limit the directive's effect to holdings of less than 40,000 euros. By the 25th May

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    there seemed to be better news, with Alastair Campbell letting it be known that there was a growing optimism in Whitehall that the withholding tax would slip off the agenda at the ECOFIN meeting of that date. But for once Mr Campbell was not very successful in his spinning, and the very next day the newspapers were reporting that Germany was satisfied that Britain was not fundamentally opposed to the directive, and would soon strike a compromise. Mr Eichel, who had presided at the ECOFIN meeting, was saying:

    "My feeling is that in principle there is a willingness to compromise". How could Mr Eichel have got that impression if Mr Brown had done and said nothing to warrant it? The answer is that he could not, and that Mr Brown had done something to warrant it. It turns out that he agreed to draw up a paper detailing ways in which a directive could be altered not to remove but to limit its impact on the London market. That was only a week or so after he had told the House of Commons that Britain would not accept any directive requiring member states to introduce a withholding tax.

It is about time that there was less of this business of telling one story in Westminster, and another in Brussels. It is about time that Mr Brown backed up his statement to Parliament, that he would accept no directive, with a clear indication, which he has not given, that the veto will be used.

Let us look at the plans to do away with so-called unfair tax competition. Unfair tax competition, which of course has nothing to do with tax evasion or illegal activities such as money laundering, is a concept beloved by those whose own improvidence and profligacy prevents them from matching the tax incentives offered by their neighbours to businesses looking for a congenial environment in which to operate. In the European context, it has been invented by Germany as a device to staunch the investment flight from Germany to states with lower labour costs and more friendly tax regimes.

Our rates of tax are below the European average, so when a country such as Germany talks of unfair tax competition, it is looking at Britain not as a fellow victim of unfair competition but as the villain of the piece. In short, Germany looks upon tax harmonisation as a way of undermining the advantage we now have as a result of lower tax and lower social security contributions, which allow us to attract business that it cannot.

The chosen instrument to bring about this harmonisation is the European Union Code of Conduct Group, chaired by Dawn Primarola, and set up in May last year to decide whether any business taxes or reliefs in member states constituted harmful tax competition.

Well, we know how Jacques Santer described the British decision to sign up to the code. He said, last November, that Britain's signing up to the code had the effect of nullifying the British veto and was a device to side-step the European Union treaties that require unanimity before tax harmonisation can be legally enforced. Perhaps the Minister will tell us in due course whether Jacques Santer was right or wrong on that, but

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surely we can all agree that the fact that he, in his capacity as President of the Commission, looked upon it as a device to bring about tax harmonisation is a very good reason why we should treat it as such, and not as the innocent exercise that the Government would have us believe that it is.

So where have we got to with this exercise? We may well ask. For the Government, which are for ever telling us of their dedication to open government, did their level best to conceal what was going on from the British people. Despite constant questioning in Parliament, the Government refused to disclose the list of taxes and reliefs under consideration by the Code of Conduct Group. The full extent of the exercise became public only after someone went to a Dutch Government website, and we then learnt that 185 tax measures and reliefs had been singled out for possible harmonisation or elimination.

We discovered that the ground was being prepared for British surrenders on capital allowances for small and medium-sized businesses in Northern Ireland; incentives for the film industry; roll-over relief on the disposal of ships; regional incentives such as enterprise zones; and various measures affecting the Channel Islands, the Isle of Man and the Dependent Territories. And now I read that we are in the ludicrous position of the EU committee chaired by a UK Treasury Minister also having in its sights some of the flagship measures recently introduced by Mr. Brown, which he said were measures necessary to boost Britain's productivity. I refer to 100 per cent capital allowances for scientific research and 40 per cent first-year capital allowances for small businesses.

What has finally given the lie to the Government's claims that they are against tax harmonisation has been their unstinting support for the declared federalist and tax harmonisation designs of their comrades in the socialist parties in Europe. Mr. Blair did not merely give token support for the socialist manifesto for Europe, The New European Way; the Chancellor's own adviser, Mr. Ed Balls, drafted it--including the commitment to deeper European integration, including tax harmonisation. Mr. Robin Cook, the Foreign Secretary, was the co-author with the leader of the French socialists of the European Socialist manifesto in the European elections. Mr Cook and his friends called for,

    "co-ordination of economic policy, and a reduction in the use of the veto to block new European policies".

I do not want to weary the House with too many quotations, but it is quite ridiculous to argue that tax harmonisation is not high on the list of priorities of most key figures in the European Union and the Commission. When the former commissioner of the single currency was asked, "Will tax harmonisation eventually extend to VAT and personal taxes?", he replied, "Why not?". The Italian Prime Minister announced last November,

    "In the age of the Euro, harmonisation of taxes is a necessity". I see that M Jospin, in his manifesto in the European elections, calling for EU-wide tax harmonisation, said:

    "we want a tax harmonisation plan covering capital [dividends, capital gains, withholding tax] and corporation tax, with the abolition of the national veto in the Council of Ministers".

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    As for Sr Prodi, he told assembled MEPs after his endorsement as president of the Commission that,

    "The single market was the theme of the 80s, the single currency was the theme of the 90s, and we must now face the difficult task of moving towards a single economy and a single political union".

Finally, we come to Chancellor Schroeder. Mr. Blair said the other day that Chancellor Schroeder was not one of these muddled-headed federalists, he did not want a single Europe; and that he had never met anyone who wanted anything of the sort. Chancellor Schroeder, who has talked of the single currency as a stepping-stone to political union, said that doing away with qualified majority voting on tax issues was the official position of the German Government. When he says that, he is pursuing an agenda which in his eyes flows remorselessly and inevitably from the goal of ever-closer union enshrined in the Treaty of Rome, but which is also of particular and immediate interest to a Germany determined to protect itself from the consequences of its own foolish taxation policies.

It is absolutely plain that the abandonment of the right to set our own taxes--the harmonisation for which these leaders in Europe and the European Commission yearn--can only mean that our taxes overall will rise to European levels rather than that European taxes will come down to ours. That means our taxes rising by at least one sixth and our business and top rates of income tax going up. Incidentally, if experience is anything to go by, as our taxes as a proportion of GDP rose to European levels our growth rate would fall and everyone would be the poorer. The message could not be plainer: if Britain wants to keep low taxes and continue to prosper it must stay outside Euroland, oppose the single currency and resist further attempts to transfer the power to tax from Westminster to Brussels.

I have no doubt that in reply the Minister will repeat what he said in this House:

    "I do not believe that the threat ... of tax harmonisation exists".--[Official Report, 20/1/99; col. 662.] He will say that the Bill is unnecessary and that the Government have either no intention of giving up the veto on tax matters or will give up the veto only when it is clearly in the country's interests to do so; and that it ill-behoves me to complain about tax harmonisation measures because the previous government agreed to some, as if the follies of the past justify equal foolishness in the future. While the Conservative government agreed to certain minimum rates of VAT, it is only under this Government that European tax harmonisation has extended to direct taxes; and it is only under this Government that harmonisation is being advanced as a move towards (to quote Sr Prodi)

    "a single economy and a single political union".

If the public want it, well and good, but it should be their choice. I commend the Bill to the House.

Moved, That the Bill be now read a second time.--(Lord Waddington.)

2.27 p.m.

Lord Stoddart of Swindon: My Lords, I congratulate the noble Lord, Lord Waddington, on bringing forward this Bill, although I do not agree with

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it entirely as I shall show. I also congratulate him on his speech. It is quite clear that, possibly for the first time, the noble Lord has listened to what people like myself have been saying for a very long time.

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