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Lord Monson: My Lords, perhaps I may just correct the noble Lord, Lord Pearson. I did try to make the point that I believe that the referendum should only be used in extreme circumstances.

Lord Pearson of Rannoch: My Lords, I agree with the noble Lord. I am simply saying that the withholding tax would, in itself, to me be an extreme circumstance, given the massive damage it would do to the City of London. Certainly the sort of tax hikes that are on the way if we were to join economic and monetary union, which have been estimated at a minimum of 25 per cent, would, I should have thought, be a matter of sufficient national interest to justify a referendum or, indeed, referenda.

The trouble is that, unfortunately, and thanks to the factual detail and working of the Treaty of Rome, to which successive governments have so foolishly committed us, we are much more committed to running our economy, including our tax policy, on communautaire lines than most people and perhaps the Government realise. For example, we do not actually have an opt-out from EMU. Our long-term ability to avoid tax harmonisation must be in doubt. One ploy which the European Union is contemplating at the moment is to simply make tax harmonisation a requirement of the single market. We have already been told that the single market cannot work without tax harmonisation. If the British Government were not strong enough to veto that development, then tax harmonisation would be subject to qualified majority voting under single market legislation; and that would be the end of that.

I say that we are much more committed to tax harmonisation than we think and that we probably do not even have an opt-out from EMU, against the background that there are at least six articles which were not included in Protocol 11 of the Maastricht amendments to the Treaty of Rome, which has become the new Protocol 25 under the Amsterdam amendments. So even if the United Kingdom continues to exercise its opt-out from EMU, which is contained in that protocol, these six articles would remain in force and their combined effect allows the UK to be taken to the Luxembourg court for unlimited fines if we do not run our economy on communautaire lines. I have no doubt--indeed, I am sure that we will eventually, if we have not left this wretched treaty--that we will be taken to the Luxembourg court for such anti-communautaire activities as exporting unemployment, competitive devaluation or, in the example covered specifically by this Bill, unfair taxation.

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It is useful to bear in mind the decision of the Luxembourg court against what my right honourable friend John Major, when he was Prime Minister, thought was our opt-out from the 48-hour week. When one looks at that, one must realise that the value of our opt-out from EMU and from tax harmonisation is extremely questionable. Perhaps I may very briefly quote three paragraphs of a letter which my right honourable friend sent to Monsieur Santer, the President of the Commission, on 12th November 1996, after he thought he had obtained an opt-out from the working time directive when he had insisted on an opt-out from the EU's social policy, but the Luxembourg court showed that he was wrong. He wrote as follows:

    "Dear Jacques,

    My intention in agreeing to the protocol on social policy at Maastricht was to ensure that social legislation which placed unnecessary burdens on businesses and damaged competitiveness could not be imposed on the United Kingdom. The other heads of state and governments also agreed that arrangement, without which there would have been no agreement at Maastricht". That is quite an important statement. The letter continues,

    "However, in its judgement today the European Court of Justice has ruled that the scope of Article 118A is much broader than the United Kingdom envisaged when the article was originally agreed as part of the Single European Act. This appears to mean that legislation which the United Kingdom had expected would be dealt with under that protocol can be adopted under Article 118A. That is contrary to the clear and expressed wishes of the United Kingdom Government and goes directly counter to the spirit of what we agreed at Maastricht. It is unacceptable and must be remedied". My right honourable friend and the previous government then said that they would block everything to do with the Amsterdam Treaty if he was not satisfied on this point. However, he then lost the election and the new Labour Government regrettably signed up to the social chapter, the Amsterdam Treaty and all the rest of it.

I do not propose to weary the House with a full quotation of the articles concerned, but there are a few extracts which I think should be placed on the record to show exactly how serious this situation is for the United Kingdom. The first article I have chosen--which has not been excluded by Protocol 25 under the Amsterdam amendments--is Article 2 of the consolidated treaty on the European Union, loosely referred to as Maastricht. I refer particularly to the first indent thereof. The United Kingdom is committed to this. The article states,

    "to promote economic and social progress which is balanced and sustainable through the strengthening of economic and social cohesion and through the establishment of economic and monetary union, ultimately including a single currency in accordance with the provisions of this treaty". That could not be clearer. We are committed to economic and monetary union in Article 2 of the Maastricht Treaty. Actually that article goes back to the original Treaty of Rome.

I suggest that "the strengthening of economic and social cohesion" must put strong pressure on our tax policies. Article 3 of the same Maastricht Treaty states,

    "The Union shall in particular ensure the consistency of its external activities as a whole and in the context of its external relations, security, economic and development policies".

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    There we are; once again we are committed to communautaire economic policies. However, the position becomes worse and more specific. Article 2 of the treaty establishing the European Community--known as the TEC--states,

    "The Community shall have as its task by establishing a common market and economic and monetary union to promote throughout the Community a harmonious and balanced development of economic activities and economic and social cohesion and solidarity among the member states". There it is again; it is a case of economic and monetary union absolutely with knobs on, but I should have thought that tax policy was included in that.

Article 4 of the TEC states,

    "For the purposes set out in Article 2 the activities of the member states and the Community shall include the adoption of an economic policy which is based on the close collaboration of member states' economic policies". I should have thought that it is difficult to have an entirely independent tax policy under that provision.

Article 98 of the TEC states,

    "Member states shall conduct their economic policies with a view to contributing to the achievement of the objectives of the Community as defined in Article 2". The provision in Article 99.1 of the TEC is, I think, inescapable. It states,

    "Member states shall regard their economic policies as a matter of common concern and shall co-ordinate them within the Council in accordance with the provisions of Article 98". I shall not weary the House with the penalties for falling out with this communautaire economic policy, as they are contained in Articles 226-229 of the TEC. They are draconian and allow for unlimited fines in the Luxembourg court, against which of course, in true Euro style, there is no appeal.

I welcome this Bill, but in this matter, as in every other matter concerning the Treaty of Rome, this country is much more bogged down than people think in the quagmire of the treaty into which governments of all hues have so foolishly led us over the past 25 years. I think that this Bill, if passed, would at least give the people a say, which at the moment they no longer have except through an extremely esoteric representation in the Council of Ministers by the executive and not by the House of Commons. It would at least give the people a say in whether they want to suffer the undoubtedly enormous tax increases which this country faces if we are to stay in the Treaty of Rome.

3.10 p.m.

Lord Bruce of Donington: My Lords, I am most grateful to the noble Lord, Lord Waddington, for introducing the Bill, if only as it enables us to refer to the question of the veto--which, I observe from the face of the Bill, does not appear anywhere except in the Title. The Bill is entitled European Tax Harmonisation (Veto) Bill but the term "veto" does not appear elsewhere. However, it affords us the opportunity of discussing the principle beyond it.

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Lord Waddington: My Lords, perhaps I may refer the noble Lord to Clause 3 and "tax harmonisation proposal". Subsection (b) states:

    "requires adoption by unanimity in the Council of Ministers". Therefore one is talking only of a tax harmonisation proposal where the Minister has a veto.

Lord Bruce of Donington: My Lords, I accept the noble Lord's further elucidation of the veto because it of course gives me the opportunity to raise the matter.

I well recall the occasion when my noble friend Lord Stoddart and myself had the opportunity from the Benches opposite--with the full approval of the Leader of the Labour Party, now a Commissioner in Europe, and of a parliamentary candidate who, sometime later, became exalted to a rather higher rank--of opposing the Single European Bill 1986, as it then was. My noble friend and I fought the Bill with some resolution and were opposed by the Conservative Party, which formed the Government at that time.

I also recall--as I hope your Lordships will recall-- that my noble friend Lord Stoddart, myself and others were faced in the Maastricht Treaty deliberations with a rather different situation. My own party, the Labour Party, in effect, formed a coalition with the Conservative government at that time in order to get through the Maastricht Treaty legislation.

I say this because I hope that the House will realise that the attitude of myself and my noble friend towards the question of the veto has not been arrived at by some caprice or some gust of emotion that has arisen over the past two or three months or perhaps even years but was put before this House as a result of a very deeply held conviction that we were quite right in insisting on the veto. That received an affirmative response from the then Leader of the House, who said that the veto still remained intact.

We queried it then from the Opposition Benches because we recalled a situation in May 1982 when the British Government in Council tried to veto a settlement in that year of the price review. The Government at that time, through the then Minister, proceeded to try to exercise their veto. A difficult situation then arose because the Council declined to accept the veto on the ground that in its opinion Britain's national interest was not involved. Our opinion of course was that it was involved, otherwise we would not have tried to use our veto. In the end the Council's decision not to accept the British veto and to refuse to acknowledge it won the day. This put doubt in the minds of my noble friend Lord Stoddart and myself when it came to the debate on the Single European Act as to whether the veto was valid. I had the honour of reciting to the then Conservative Benches the events of May 1982. Notwithstanding that, an undertaking was given in the most specific terms that the British right of veto on matters affecting national interest would be retained.

My noble friend and I raised exactly the same point in relation to the Maastricht Treaty. We asked whether the British right of veto still remained. We were given the most equivocal undertakings, which appear in Hansard, that it did. The House will recall that in recent

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months, following the raising of the tax harmonisation proposals, I asked exactly the same question. I was given the unequivocal answer--as a matter of honour of course--that the veto still remained.

Before I conclude, I shall repeat that question. If I am told that the British right of veto is still exactly the same as it was when I was given that affirmative answer two or three months ago-- I shall not bother to produce the quotation from Hansard, which I can obtain quite easily--I shall immediately accept that. However, I shall accept with some misgiving. I shall do so not because I in any way mistrust my noble friend the Minister or the Government but because I know the way that the Commission works. I have had long experience of it not by remote control in London but personally in Brussels. I know the way it works.

We have seen the Commission documents. There was an initial proposal for a code of conduct over tax harmonisation but it was not to be binding. I remember the words well. Over the months, the term "binding" seems to have disappeared. There has been an insidious process of trying to modify the code of conduct and to remove the British veto.

The Commission produced a memorandum a few months ago on own resources in which it made it clear that it wanted to tax itself in order to augment its own resources. At the same time it advocated that the British rebate should be cancelled. The Commission has never made its position clear. It wants to levy its own taxes outside the scope of the British Government, among others. I shall be glad if my noble friend the Minister can repudiate what I have said. As a matter of honour, I would immediately accept and welcome his repudiation.

There is much talk about the necessity of Britain being at the heart of Europe. I wonder what that means. It cannot be said that we are not at the heart of Europe in defence matters as we have recently dominated military proceedings. It cannot be argued that our language is unknown in Europe and that we do not have any claim to be heard. The fact is that English is generally accepted as being the language not only of Europe but of most of the world.

I ask my noble friend this question. Is it really right, for the sake of perhaps personal friendly contacts, which I agree are extremely important, that every time we want something different from what may be wanted in other countries we should be accused of being anti-communautaire? Is there any real obligation on the British Government to agree with everything that the other states want? Is that up to us? What means do we have to do anything other than state our minds? We are a nation, a country, and we have a history. Some of us may say that it is distinguished, others less distinguished, but nevertheless we have a history of our own. I plead with my noble friends that for the sake of being highly regarded in Europe in personal, political and technical terms it is not necessary to agree with everything or to believe that, because we disagree, there is something reprehensible about that and that we need to be cast into the outer darkness of European affairs. That is a lot of nonsense.

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If there is a future for us in Europe, a proper future, it is a future in which Europe respects us too. It is one in which the Commission is not seen as a commission of bureaucrats and as the only body in Europe that really matters, particularly when we consider its recent record which has been so miserably revealed over the past few months. That is not exactly the kind of ideal administration to which respect should be given as of right.

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