Duty-free Sales

HL Deb 10 December 1998 vol 595 cc1032-4

3.25 p.m.

Lord Skelmersdale asked Her Majesty's Government:

Whether, in view of Commissioner Monti's opposition to their decision to seek a reversal of the agreement to abolish duty-free sales, they will continue to co-operate with Commission attempts to reduce "unfair" tax competition in the European Union.

Lord McIntosh of Haringey

My Lords, decisions on unfair tax competition are a matter for member states, not Commissioner Monti. The work on tackling unfair tax practices in the EU is being taken forward under the code of conduct on business taxation. The code was agreed by member states, not the Commission. It is a political commitment, not a legally binding one. The UK supports, and will continue to support, the code and the need to tackle harmful tax practices.

Lord Skelmersdale

My Lords, how schizophrenic can this Government get? On the one hand, they sign up to the new European way and tax harmonisation; on the other, they try to destabilise a long-standing EU policy on the abolition of duty-free sales. Which of those is an example of what the Prime Minister calls "being a leading player in Europe"?

Lord McIntosh of Haringey

My Lords, the Government are consistent on both matters. As the noble Lord well knows, the Prime Minister and Chancellor Schröder yesterday signed a statement of common position in which they confirmed that they regard unfair tax competition as damaging, but that they do not favour a unified system of corporate taxation. As for duty-free sales, a number of noble Lords on the Opposition Benches have been arguing for its continuation for a considerable time. The opportunity to raise the matter will arise in Vienna tomorrow and the day after and it is up to any head of state, including our Prime Minister, to raise it one last time.

Lord Grenfell

My Lords, with reference to the Anglo-German joint statement to which my noble friend has just referred, is he not encouraged by the fact that that statement says, and I paraphrase, that exceptions to initiatives designed to combat unfair tax competition should be granted where a member state can demonstrate that the competitiveness of Europe is in jeopardy? Does he not agree that that could protect our Eurobond market from the proposed withholding tax and render totally unnecessary any use of the British veto against such a tax measure?

Lord McIntosh of Haringey

My Lords, my noble friend's paraphrase is very close to the original, which I have with me. Yes, I can confirm that that is indeed what the common position means. I confirm that we will not sign up to any change which would damage the Eurobond market.

Lord Higgins

My Lords, is it not clear from the Prime Minister's exchange at Question Time yesterday that the Government are weakening as regards tax harmonisation? Is it not also clear from the letter signed with the German Chancellor that that is so? Can the Minister give us an assurance that in the discussions he mentioned a moment ago, the Government will be absolutely categoric in saying that they are opposed to the withholding tax, which would damage the City, and that they will oppose further harmonisation on savings taxes generally?

Lord McIntosh of Haringey

My Lords, I am sorry to say that the noble Lord has followed the interpretation of the distinguished political editor of the Financial Times, which is wrong. We have always said that as a last resort we would veto any unsatisfactory agreement. We now think, as a result of the common position taken up by the British and German Governments, that it will not be necessary; in other words, avoiding damage to British financial institutions, combined with the benefit of action against unfair tax practice, is now possible.

Lord Razzall

My Lords, does the Minister agree that, far from the conclusions we are asked to draw from the remarks of the Conservative Opposition, the remarks of Commissioner Monti refute recent scare-mongering on tax harmonisation? Does he not agree also that tax phobia can now be added to Europhobia as a political and economic illness to be avoided in your Lordships' House?

Lord McIntosh of Haringey

My Lords, in setting out the respective responsibilities of member states and the Commission, I did not intend in any way to criticise Commissioner Monti, who was perfectly entitled to say what he did.

Lord Elton

My Lords, to save the noble Lord great embarrassment when he reads Hansard's account of his reply to the first supplementary question, will he confirm that it was an entirely accidental and not a Freudian slip which led him to refer to the Prime Minister as head of state rather than head of government?

Lord McIntosh of Haringey

My Lords, the noble Lord is strictly correct. I apologise for any unintended mis-statement.

Lord Marlesford

My Lords, does the Minister agree that it is a great deal better to allow market forces to put pressure on governments to harmonise taxes, because that would harmonise them downwards, rather than to allow the Brussels Commission to harmonise them, which would almost certainly harmonise them upwards?

Lord McIntosh of Haringey

My Lords, we do not know the result of the deliberations of the group on the code for business taxation. We do not know what the result will be or in which direction harmonisation will occur. Clearly it has been a proper and a valuable initiative. I think the noble Lord should wait to see what comes out of it.