The Channel Islands and the European Union (Hansard, 9 December 1998)

§ The Minister of State, Home Office (Lord Williams of Mostyn)
My Lords, the Channel Islands are not subject to European Union instruments on taxation. But the Government strongly support European Union, Organisation of Economic Co-operation and Development and Group of 7 initiatives to counter harmful tax competition, avoidance and evasion wherever they exist. Therefore, the Government are encouraging the Channel Islands and the Isle of Man to co-operate with those initiatives.

§ Lord Waddington
My Lords, I thank the Minister for that reply. However, does he agree that, while every country, every jurisdiction, should, like the Crown dependencies, co-operate in the fight against money laundering and international crime generally, there would be grave dangers in our accepting the right of the European Union—or, indeed, the OECD—to demand changes in the tax arrangements of the dependent territories and the Crown dependencies merely because those arrangements were considered to amount to harmful tax competition in the sense that they deprived other countries of revenue? Is there not a real danger of the European Union picking on the allegedly harmful tax competition provided by the Crown dependencies, and then, having persuaded us to accept that case, using exactly the same arguments against Britain as part of its campaign for harmonisation of taxes generally, and business taxes in particular?

§ Lord Williams of Mostyn
My Lords, the recent report from Andrew Edwards made it quite plain that the island authorities had made it clear that they want to take a constructive part in international discussions about harmful tax competition. I can say specifically—and this may be of assistance—that we insisted that the principles of the EU Code of Conduct on Business Taxation and the proposed directive on taxation and savings should be, within the framework of the constitutional arrangements", between the United Kingdom and the Channel Islands.

§ Lord Shore of Stepney
My Lords, the House will certainly recognise that the question of harmonisation of 928 taxation within the European Union is very sensitive. However, can my noble friend confirm that the study of the Channel Islands tax practices is part of that vast review of alleged harmful tax competition which is now going on under the chairmanship of a junior Treasury Minister, Mrs. Dawn Primarolo? Can my noble friend also confirm that among the "harmful practices" already identified are those helpful measures introduced only last year by my right honourable friend the Chancellor of the Exchequer to assist the film industry, together with other measures in the past that helped to establish the enterprise zones within the UK as major areas for development? Can my noble friend further confirm that the banning of those valuable tax concessions will not be subject to a veto?

§ Lord Williams of Mostyn
My Lords, this is a very sensitive area. Indeed, I expect that is why I was asked to deal with it. There is no conspiracy involved. I am repeating now, for the third time at least, the fact that the review which was carried out by Andrew Edwards was not a review of tax practices; it was to do with financial regulation in the Crown dependencies of the Channel Islands and the Isle of Man.
I repeat what I said on the last occasion. The Treasury is always alert to questions of harmful tax competition, unlawful tax havens and the like. That is part of the normal duty of any prudent Chancellor of the Exchequer. However, as I said, there is no conspiracy; nothing is being hidden. As my noble friend Lord McIntosh of Haringey said at least half a dozen times when the same questions were put to him a few days ago, we shall, where appropriate, put United Kingdom interests first.

§ Lord Hylton
My Lords, does not this question reveal a far wider problem; namely, that of speculative and hot money, usually residing in offshore tax havens, which is totally out of control in the world system?

§ Lord Williams of Mostyn
My Lords, that was one of the reasons for having the Edwards review of financial regulation. He said—and I paraphrase now rather than quote—that the Channel Islands and the Isle of Man were in the top league of offshore financial centres. But plainly the islands themselves assert, maintain and believe that they do not want unlawful, illegitimate money going through their financial centres. They have promised to co-operate with Her Majesty's Government in tightening up their internal regulation. I am chairing the committee and the first meeting of this co-operative committee will take place on 21st January of next year.

§ Lord Higgins
My Lords, a radio programme today suggested that the Government have issued a statement regarding tax harmonisation. Given its importance, can the Minister say whether included in that statement is a reaffirmation of the position that he has described as regards the Channel Islands?

§ Lord Williams of Mostyn
My Lords, I do not think any statement made on the radio this morning needs to 929 reaffirm what I have said so often. The constitutional arrangements between Her Majesty's Government and the Channel Islands are plain: we have a power of last resort to interfere with their domestic matters, which includes taxation. It would be unprecedented for Her Majesty's Government to interfere with their domestic legislation, which includes taxation. I cannot make the position any clearer than that.

§ Lord Tebbit
My Lords, the noble Lord, Lord Williams of Mostyn, referred to harmful tax competition. But, as tax competition normally drives taxes down, how can that be harmful?

§ Lord Williams of Mostyn
My Lords, if one jurisdiction has tax arrangements which disadvantage its competitor nations, it is quite capable of being harmful. Not all tax competition drives taxes down. I think that the noble Lord will remember that very often taxes are reduced on the basis of political philosophy. I think he will recall that within his own experience. If your Lordships wanted me to—I imagine you would not—I could give the whole of the definition of harmful tax competition, which runs to about half a page. But not today, I hear.

§ Lord St. John of Bletso
My Lords, in accepting that taxation matters form no link between the European Union and the dependent territories, is it not the case that the Edwards Report demonstrates clearly that the Channel Islands and the Isle of Man are implementing strict financial controls which are internationally recognised?

§ Lord Williams of Mostyn
My Lords, the Channel Islands and the Isle of Man have stricter controls than many of their overseas dependent territory competitors. They recognise that one has to be constantly alert because the minds of the accountants know no limits as regards ingenuity. One has obviously to be prudent, careful and up to date in dealing with potential abuse.