§ Lord BroxbourneMy Lords, I beg leave to ask the Question standing in my name on the Order Paper.
§ The Question was as follows:
§ To ask Her Majesty's Government whether the difference of view between them and the EEC Commission in respect of the interpretation of Article 28 of the Sixth VAT Directive regarding the zero rating of certain goods and services is yet resolved; and whether they will make a statement on the current position and prospects in this matter.
The Chancellor of the Duchy of Lancaster and Minister for the Arts (The Earl of Gowrie)My Lords, it is not resolved. In their reply to the European Community Commission the United Kingdom Government have said that they do not accept the views set out in its reasoned opinion. A full summary of this reply is reproduced in the report of the Treasury and Civil Service Committee on Harmonisation of VAT, published on 6th February 1985. It is now for the Commission to decide whether to pursue the matter to the European Court of Justice.
§ Lord BroxbourneMy Lords, while thanking my noble friend for that reply relating to the current position, may I ask him, without tempting providence unduly, to go a little further as to future prospects in the matter? Do Ministers remain convinced, subject to the uncertainties of the law, of the validity of their contention that these goods comply with the specified criteria for zero rating in the 1977 directive? If that is so, having regard to the uncertainties imposed on undertakings as varied as the production of animal feedstuffs and the construction industry, will Ministers now urge the Commission either to come to a satisfactory and speedy settlement or, in default, to use its powers under Article 169 of the treaty and refer the matter forthwith to the European Court of Justice for a final decision?
The Earl of GowrieMy Lords, Ministers are indeed satisfied that our present zero rates are legitimate, that they work well, and that they are clearly understood and well accepted. It is our view that they do not cause significant distortion of Community trade. The difficulties perhaps spring from a desire for harmonisation for its own sake. As to the other parts of my noble friend's supplementary question, I am, of course, unable to say what the Commission will decide to do.
§ Lord Stoddart of SwindonMy Lords, will the noble Earl go a little further and say that the question of British taxation is a matter for the British Chancellor 692 of the Exchequer and the British Parliament? Will he also confirm that in this matter it is possible for the British Government to use their veto? Will he confim that, if necessary, that veto will be used?
The Earl of GowrieMy Lords, I am sorry to say that the noble Lord has not got it quite right. We have treaty obligations as well as autonomy in terms of domestic taxation.
Lord Bruce of DoningtonMy Lords, is the noble Earl aware that the Luxembourg Convention covers situations of this kind and that it would be quite legitimate, if Her Majesty's Government so wished, for them to exercise their veto? Is the noble Earl further aware that this country and Belgium were the only countries in the EEC to ratify the sixth directive prior to its due date in 1978? Therefore, we have shown ourselves to be communautaire. Will the noble Earl give the House an assurance, in words often used outside this context, that he will "see them off-if there is an attempt to damage the interests of the United Kingdom?
The Earl of GowrieMy Lords, I am glad that the noble Lord is showing himself a master of contemporary political idiom. The fact is that a lot of this anxiety is hypothetical. My right honourable friend the Chancellor of the Exchequer has stated in another place that, for his part, he does not intend to make any further extension whatever of the VAT base during the lifetime of this Parliament. The European Commission has not yet put the matter to the European Court of Justice; but it has not, I have to say, yet given indications that it intends not to do so. If it did do so, those proceedings would of course provide a further opportunity for us vigorously to state our case.
§ Baroness SeearMy Lords, will the noble Earl agree that, Luxembourg agreement or no Luxembourg agreement, the veto should be used extremely sparingly if the new start in Europe that we all look to see is to come about?
The Earl of GowrieMy Lords, I agree in general with the noble Baroness but I have to say that I feel very strongly about this issue. It would be quite intolerable, I think, if we were to be put under needless pressure to harmonise VAT for its own sake.
§ Lord BroxbourneMy Lords, while not wishing to urge on my noble friend the belligerent courses suggested to him by noble Lords opposite and without wishing to enter into the complexities of the Luxembourg Convention, would he at any rate make certain that the Community Commission does refer the matter to the court as soon as possible, having regard to the fact that there is a one-sided aspect to this? It alone can refer the matter and not a member state under this particular procedure.
The Earl of GowrieMy Lords, while I do not wish to use the convention that I shall draw my noble friend's remarks to the attention of the Commission, I imagine that it will find a way of listening to what he has had to say.