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Lord Davies of Oldham: My Lords, I agree wholeheartedly with the noble Lord that the important objective is to ensure that our fellow citizens can use the English language easily and effectively. Those who learn a foreign language have an added advantage because they have to master additional concepts in the structure of language. But only a minority of students in our schools have ever learnt foreign languages to any significant level, so our objective must be to ensure that English is taught effectively at all key stages of school development.

Lord Skelmersdale: My Lords, returning to the supplementary question of the noble Lord, Lord Smith of Clifton, is it not a problem that English is developing with a lot of words from America? Does the noble Lord recall Professor Higgins’s observation that in America they have not spoken English for years?

Lord Davies of Oldham: He did, my Lords, but there are often advantageous acquisitions from the United States. I know that people find it jarring when a noun suddenly becomes a verb. The word “task” is often used as a verb now, which is an Americanism, but it is effective and communicates accurately. Just before we become too strenuous in our criticism of others, I noticed that the debate proposed by the noble Lord, Lord Tanlaw, today on gilt-edged bonds was initially spelt g-u-i-l-t.

Viscount Brookeborough: My Lords, what efforts have been made to increase spoken English among our ethnic minorities, as the language of school is only part of the problem? An example of something that we do not think was done very well is that, before devolution, the Government promoted at great cost the speaking of Gaelic and Ulster Scots in Northern Ireland to people who already spoke English. They did not put those considerable sums into teaching people who had no knowledge of our language.

Lord Davies of Oldham: My Lords, the noble Viscount has identified an important point. The Government are putting emphasis on the fact that all arrivals in this country intending to settle here should have a command of English. Our fellow citizens cannot play their full role in our society nor enjoy its benefits if they are not familiar with the English language. Therefore, I agree largely with the points the noble Viscount makes.

Croatia: NATO Membership


11.30 am

Asked By The Earl of Dundee

The Minister of State, Foreign and Commonwealth Office (Lord Malloch-Brown): My Lords, the UK Government are firm supporters of Croatia’s membership of NATO. We were pleased with the offer made to Croatia and Albania at the 2008 summit to begin accession talks. We completed our ratification of the accession protocols in January 2009. We are urging all

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other NATO allies to do so in time for both Croatia and Albania to join as full members at NATO’s 60th anniversary summit next week.

The Earl of Dundee: My Lords, I thank the Minister for his reply. I declare an interest as chairman of the UK parliamentary group on Croatia. Before the summit on 3 April, as the Minister indicated, NATO candidacies have to be ratified by existing members. So far, however, not all existing members have ratified Croatia’s accession protocol. What further steps can the Government now take to assist the timely completion of that process before 3 April?

Lord Malloch-Brown: My Lords, the noble Earl has in mind a little legal problem in Slovenia, where a political party has appealed Slovenia’s ratification to the courts. The Slovenian authorities have assured us that they hope to clear this hurdle in advance and that the ratification documents are ready to go. We hope that all will be done in time and we can celebrate the 60th anniversary with these two new members both joining.

Lord Astor of Hever: My Lords, on these Benches we believe that Croatia’s NATO membership is good for both Croatia and the region. Does the Minister agree that it would also be a good stabilising factor for Bosnia-Herzegovina, which is currently going through some rather turbulent political times?

Lord Malloch-Brown: My Lords, there are a number of similar accession issues in different countries, but we have always made clear that we would support logical expansions. In general, expansion has slowed for broader geopolitical reasons that we are all familiar with.

Lord Wallace of Saltaire: My Lords, we understand that at the 60th anniversary summit of NATO there will be agreement on setting up a new NATO strategic review. Given the degree of disputation among members about how far NATO enlargement should go—to the western CIS, the southern Caucasus, et cetera—and about NATO’s future role outside Europe, will Her Majesty’s Government do their best to ensure that Parliament has the opportunity to discuss what that NATO strategic review should include at an early stage?

Lord Malloch-Brown: My Lords, as always, I cannot commit the Leaders of the House to specific items of business, but this strategic review is enormously important and we should, if possible—and I do not see why not—have an opportunity to discuss it here. The two membership expansions that caused such controversy last year—Georgia and Ukraine—are not likely to feature heavily at the summit this year. There is a feeling that a solid process is now in place.

Lord Dykes: My Lords, paying tribute to the skills of the Croatian negotiating team on EU membership, can the Minister say something about the likely prospect of them joining next year in a considerable double whammy?

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Lord Malloch-Brown: My Lords, Croatia has made significant progress over recent years and we welcome the Commission’s indicative road map, which would allow the reaching of the final stages for negotiation with Croatia in 2009. It is an ambitious document. The view is that Croatia will need to step up its efforts to meet it. Certainly, the road map does not represent any weakening of our conditions-based approach. Those conditions absolutely must be met in order to secure membership. Full compliance with the ICTY remains a key condition of progress towards the EU.

Lord Elton: My Lords, does the noble Lord suppose that the noble Lord, Lord Smith of Clifton, regards the words “double whammy” as an acceptable part of the English language?

Lord Malloch-Brown: My Lords, the noble Lord is adding a suitable note of casual, American jargon to our otherwise stiff English here.

Lord Dubs: My Lords, does my noble friend agree that, provided the countries qualify, moving towards NATO membership and EU membership for the western Balkans is a desirable aim? However, some of us would be very concerned if we moved too rapidly in accepting Georgia and Ukraine into NATO. Some of us might not like that at all. I hope that the Government will be cautious about moving in that direction, albeit that he said it was for next year and not this year.

Lord Malloch-Brown: My Lords, let me be clear. We said that we see Croatia’s progress towards the EU and NATO as demonstrating the positive effects of enlargement in securing, as my noble friend said, stability and prosperity in the western Balkans. Perhaps I may correct him: I did not suggest that the issues of Georgia and Ukraine were for next year. I said that we have now, I think, put them on a less controversial path which has removed the immediacy and reflects the need that progress in that area has to be very considered.

Business of the House

Timing of Debates

11.36 am

Moved By Baroness Royall of Blaisdon

The Lord President of the Council (Baroness Royall of Blaisdon): My Lords, before I move the Motion in my name, perhaps I may remind all noble Lords that the Companion states that Oral Questions,

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I am sure that noble Lords would agree that short Questions and Answers will enable more noble Lords to ask supplementary questions.

I beg to move the Motion standing in my name on the Order Paper.

Motion agreed.

Procedure Committee: First Report

Copy of the Report

Motion to Agree

11.37 am

Moved By The Chairman of Committees

The Chairman of Committees (Lord Brabazon of Tara): My Lords, this report is self-explanatory and, I trust, uncontroversial. If noble Lords have any questions, I will of course do my best to answer them.

Motion agreed.

Taxation: Offshore Financial Centres


11.37 am

Moved By Lord Wallace of Saltaire

Lord Wallace of Saltaire: My Lords, this debate is taking place in a very different framework from what it would have been six to 12 months ago. When I first raised the issue of tax avoidance and tax evasion in the Crown dependencies and British Overseas Territories more than 10 years ago, I was struck by the hostile response to discussing an almost taboo subject. Senior officials from Jersey came to see me the next week to explain that Jersey has always been a low-tax jurisdiction, since 1204, as if whatever promises the King of England in his capacity as the Duke of Normandy may have made in 1204—I checked and there is no reliable contemporary record of what he is claimed to have promised—still contained its relevance to the world of global finance 800 years later.

The London representative of the Cayman Islands once sent me a sharp message demanding to know why I had put down a Question on the relationship between Enron’s fraudulent practices and the special purpose vehicles that it had established on the islands, without consulting her first. One noble Lord attacked me for not distinguishing more clearly between tax avoidance, and honourable and legal activity, and tax evasion, a practice on the other side of the law. A small number in both Houses have nevertheless continued to pursue this issue. I welcome the contribution that

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the noble Baroness, Lady Hooper, will make to this debate as one of those who has done so for many years.

Now we are in a different world and the massive scale of revenue due to national Treasuries lost through the manipulation of financial transactions through offshore financial centres has become a matter of concern to heads of Governments across the world and a major item on the agenda of the forthcoming G20 summit. There is now a far wider awareness of the thin line between avoidance and evasion, policed by highly paid bankers, accountants and lawyers, who earn their money by devising evermore complex schemes to hide profits and generate artificial losses through setting up trusts and companies in tax havens and moving money between the onshore and offshore worlds until its origins, ownership and tax liabilities are effectively obscured. We now have a term to cover this hazy area: aggressive tax avoidance, which describes deliberate efforts to get around whatever tax regulations there are, operating as close to the edge of what is legal as is possible.

The revelation that Barclays Bank had an entire department devoted to aggressive tax avoidance, setting up huge transactions for the sole purpose of generating artificial tax losses, and that its head was the highest paid executive in the entire bank, managing transactions that were just—but only just—within the law, sums up how far British clearing banks have moved from their respectable origins. I declare an interest here. My father worked for Barclays for 40 years. The bank paid for my secondary education and I grew up with a strong sense of a bank that had not lost touch with its Quaker origins. The current chief executive is married to a descendant of one of the founding Quaker families, but I fear that he has no sense of the principles that they embodied.

In recent months, the British Government have been leading calls for tighter international regulation of offshore financial centres. The Prime Minister has singled out Liechtenstein. The Chancellor, according to the Observer on 22 February, has launched a “blistering attack” on Switzerland. I sympathise with the Swiss response, as reported in Tuesday’s Financial Times, accusing Gordon Brown and Alistair Darling of double standards about the lack of transparency in their own back yard. A dozen of the OFCs listed in the US tax evasion Bill are under the British Crown: the Crown dependencies of Jersey, Guernsey, Sark, the Isle of Man and several of Britain’s remaining overseas territories, which have boomed as global financial markets have mushroomed over the last 20 to 30 years—Bermuda, the British Virgin Islands and the Turks and Caicos Islands have been the most successful. Gibraltar hangs between the two categories with funds flowing between Europe and Africa, and beyond.

Offshore finance has made these British territories rich. Bermuda is the fourth richest country in the world, according to CIA figures, after Liechtenstein, Qatar and Luxembourg. Jersey is the seventh and Guernsey, the Cayman Islands and the BVI are close behind, well ahead of the United Kingdom itself. The scale of the funds that they manage is enormous. According to the Tax Justice Network, an immensely

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valuable source of information, in 2007 Jersey had £466 billion in cash deposits and investment funds. That is to say, it had £5.2 million per head of population. Guernsey had a further £207 billion and the Isle of Man a modest £155 billion. Getting on for a tenth of assets held in the Isle of Man come from developing countries, which lack the clout or administrative capacity to chase tax fraud or laundered money, let alone to negotiate and enforce tax information exchange arrangements.

The Cayman Islands are home to a high proportion of the world’s major hedge funds. Of course, they are not really home to them; they are managed, effectively, from New York and London, but for tax reasons are domiciled in the Cayman Islands, along with a massive number of shell companies, special purpose vehicles and trusts. Many of them are registered in the offices of Maples and Calder, the largest offshore legal firm in the world. One of the founders of Maples and Calder is now a vice-chairman of the Conservative Party, although he tells me that—sadly for him—he no longer has a stake in the firm.

For all of these territories and dependencies, New Labour, like its Conservative predecessor, has preferred a system of light-touch regulation. The FCO and DfID encouraged the overseas territories to develop financial services as a way of lessening their dependence on British subsidies. On coming into office, the Labour Government set up an inquiry into the financial regulation of the Crown dependencies, which led to the Edwards report, which recommended an increase in regulatory staff to counter fraudulent activities and money laundering. I recall that two experienced officials were sent from London to the Channel Islands to raise standards; one was Mr Crook and the other was Mr Pratt. The small regulating staff—in contrast to the vast scale of funds moving in and out of the islands—has not been able to distinguish between clean money and dirty, or between the legitimate tax planning of multinational companies and the evasion of national taxation through offshore accounts.

On the British mainland, our Government scarcely trust any local authority smaller than 500,000 people to administer its own affairs, and then only under careful oversight from central government. For the Crown dependencies and overseas territories, the opposite is true. They are entities with fewer than 100,000 inhabitants, most with fewer than 50,000, and they are largely left to govern their own affairs. I defy anyone to define precisely the constitutional relationship between the Crown dependencies and the UK. Indeed, the Ministry of Justice acknowledged in a memorandum to a Commons committee last December that,

The noble Lord, Lord Bach, gave oral evidence to this inquiry in the light of the collapse of the subsidiaries of Icelandic banks in the Isle of Man and the Channel Islands, which gave rise to the delicate issue of whether British citizens who had deposited money there, in most cases to avoid tax on the mainland, would be entitled to claim compensation from the British Exchequer. He said:

“It is not our job to nanny the Isle of Man in any sense”,

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and an official with him helpfully added:

“I think that it is to put it too strongly to say that we have abdicated all responsibility for them”.

That is wonderful obfuscation.

The quality of governance in some of the overseas territories has been sufficiently questionable to force greater attention from Britain. I welcome the inquiries by Commons committees last year and the year before, and I hope that they will press further. Concern about the impact of far too much money on far too few people in the Turks and Caicos Islands has now led to an inquiry under Sir Robin Auld. His interim report, which was presented on 28 February 2009, refers to,

It also notes,

I look forward immensely to what he says in his final report.

Our prime concern as British politicians, and as Liberal Democrats, is with the massive loss of tax revenue to this country which the displacement of corporate and personal income to tax havens involves. A fair tax system requires loopholes to be closed: and tax havens provide massive loopholes. However, not only British taxpayers lose from this offshore network. Christian Aid estimated last year that the loss of corporate taxes to developing countries through tax havens, many of which are British-dependent tax havens, is around $l60 billion a year: 50 per cent more than the entire flow of official aid from OECD countries.

Part of the attraction of tax havens under the British Crown is their British system of law, with its underpinning of inquiry and redress if things go badly wrong. The banks, law firms and accountancy firms with offices in these havens are mostly British, not locally owned, using the islands as warehouses for the transactions that they nod through them and paying useful fees for the convenience of doing so. KPMG, Freshfields, Barclays and the Royal Bank of Scotland all work with, and usually have subsidiaries in, these offshore centres. They are also linked to others; Union Bank of Switzerland, which is now under heavy attack from the US authorities for encouraging tax evasion, manages offshore accounts for some 28,000 British citizens through its Jersey subsidiary.

The classic excuse for not tightening up procedures has been that we would lose out because others would be less tight. Now that we are in a multilateral situation in which all Governments are attempting to tighten up procedures, we need to know what Her Majesty’s Government are doing in response. In mid-December, the Government announced an independent review into British offshore financial centres, to be chaired by Michael Foot, formerly of the Bank of England and the Central Bank of the Bahamas. I hope that the Minister will update us on the progress of this inquiry in his reply, and tell us how the Government intend to engage Parliament when the report is published. Its establishment has been welcomed by the Crown dependencies that it will investigate, so I hope the

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Minister will assure us that it will not, like the Edwards report, be a friendly review that is intended to disturb established practices as little as possible, as some have suggested to me it might be.

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