Withholding Tax (Hansard, 28 January 1999)

§ 6. Sir Geoffrey Johnson Smith (Wealden)
What recent representations he has received regarding the withholding tax. [66519]

§ The Paymaster General (Dawn Primarolo)
I assume that the right hon. Gentleman is referring to the draft directive on the taxation of savings. We have received a number of representations on that subject. Most have expressed their concern about the potential effect of the draft directive on the eurobond market. We share that concern and I have already made it clear that we believe that eurobonds should be excluded.

§ Sir Geoffrey Johnson Smith
Bearing in mind what the hon. Lady said last December, if eurobonds are excluded, why have not the Government decided to veto the matter, or do they intend to show that it would introduce a system that would only increase transaction costs?

§ Dawn Primarolo
We have made it clear in the negotiations on the draft directive that we believe, first, that eurobonds should be excluded; secondly, that the best way forward is exchange of information and, thirdly, that we would not agree to any measure that would seriously damage Britain's interests. We are negotiating according to what is best for Britain.

§ Mr. Bill Rammell (Harlow)
Will the Minister confirm that the Government are opposed to tax evasion, that the withholding tax is an attempt to deal with tax evasion and that if the withholding tax is formulated to protect the eurobond market, it is worth pursuing? Does she share my view that on tax co-ordination, the Conservative party is suffering from selective amnesia, given that in the early 1990s, under Norman Lamont, the previous Government agreed to VAT proposals in the most substantive measure of tax co-ordination that this country has ever had?

§ Dawn Primarolo
I agree with my hon. Friend's point about the importance that the Government place on effective international action on tax evasion. However, in negotiations on the draft directive, we have continued to make it clear that exchange of information is the best way forward, and I repeat that eurobonds should be excluded from the draft directive.
On the consistency of Conservative Members, it was the right hon. Member for Wells (Mr. Heathcoat-Amory) who signed the memorandum and introduced proposals to the House on the VAT rate of 15 per cent. Before that, the deputy leader of the Conservative party also signed 466 that memorandum. They do not have mere collective amnesia—it is verging on dishonesty—about what they did in government.

§ Madam Speaker
Order. I am sure that the hon. Lady will want to withdraw that accusation.

§ Dawn Primarolo
I was referring to the dishonesty of a Government, Madam Speaker, and I was not for a moment inferring that individuals were dishonest. Of course I withdraw the remark.

§ Mr. Peter Brooke (Cities of London and Westminster)
Will the Paymaster General, whom I congratulate on her new title, assure the House that she understands that transaction costs represent as much of an invisible threat to the competitiveness of the City of London as withholding tax represents a visible threat?

§ Dawn Primarolo
We have continually made it clear as a Government—as I have in answering questions in the House—that protection of the European financial markets, especially the City of London, is very high on the Government's agenda. We would not agree to anything that seriously damaged that market.

§ Mr. John Whittingdale (Maldon and East Chelmsford)
The hon. Lady has rightly said that she wants to protect the eurobond market, but does not the fact that that market consists of unregistered bearer bonds make her favoured solution of information provision impossible? Does not she accept that information sharing is as damaging to the City as a withholding tax? Will she make it clear that the Government will veto any such proposal?

§ Dawn Primarolo
I think that the hon. Gentleman misunderstands the proposal. Although I am repeating myself, I shall make it clear again that we want eurobonds to be excluded from the directive and will not agree to anything that either seriously damages the City of London or is not in the best interests of the British economy. The hon. Gentleman is slightly confused in his questioning. Perhaps he would tell the House whether he thinks that eurobonds should be within the draft directive or agrees with us that they should be excluded?