HL Deb 02 February 1998 vol 585 cc423-5

Lord Wallace of Saltaire asked Her Majesty's Government:

Whether they plan to review the status of the several tax havens under British sovereignty.

Lord McIntosh of Haringey

My Lords, there is no internationally agreed definition of a tax haven. The Question refers to territories under British sovereignty. The Foreign Office is currently conducting a review of policy towards the UK's dependent territories. The questions under consideration include the state of financial regulation in the dependent territories and the constitutional relationship between the dependent territories and the United Kingdom. I understand, however, that the responses from the territories so far show little or no wish for change in their current constitutional status. Separately, the Home Secretary announced a review of financial regulations in the Crown dependencies, the Channel Islands and the Isle of Man, on 21st January.

The UK has been active in supporting international agreements to tackle harmful tax competition. On 1st December 1997 the ECOFIN group of Finance Ministers agreed a package of measures to tackle harmful tax competition, including a code of conduct on business taxation which aims to eliminate special business tax regime loopholes. The UK has also made a central contribution to work in the OECD on harmful tax competition, on which it is expected to produce a report shortly.

Lord Wallace of Saltaire

My Lords, I thank the Minister for that reply, in particular his references to the erosion of the tax base as regards business taxation. Will he confirm that this is a live question within the European Union as far as concerns British Crown dependencies, including Gibraltar, the Isle of Man and the Channel Islands? I understand that that is an item on the European Union's agenda. Will he confirm that, by any definition of a tax haven, a number of our Caribbean dependent territories rank high as places for businesses to base their operations in order to avoid high taxation?

Lord McIntosh of Haringey

My Lords, in response to the noble Lord's first question, I have already given an outline of the ECOFIN meeting on 1st December and of the results of that meeting. Those results do not, of course, relate specifically to UK dependent territories; they are about harmful tax competition wherever it may occur.

In answer to the noble Lord's second question, if there is no internationally agreed definition of a tax haven, I cannot say what countries would or would not fall within such a definition.

Lord Bruce of Donington

My Lords, can the Minister give some indication as to whether, at the meeting of ECOFIN to which he referred, the Commission raised the question of the Duchy of Luxembourg, which might he held to be in competition with the Channel Islands, not to mention the Netherlands Antilles and the Cayman Islands?

Lord McIntosh of Haringey

My Lords, I am not aware of any part of the ECOFIN report which refers to any of those three territories.

The Earl of Lauderdale

My Lords, can the Minister tell the House why an international definition of a tax haven is thought to be desirable?

Lord McIntosh of Haringey

My Lords, yes. If there is indeed harmful tax competition between countries, which, as the noble Lord, Lord Wallace of Saltaire, said in his supplementary question, can be damaging to business, it is desirable that there should be a certain degree of common action to avoid that damage.

Lord Barnett

My Lords, I appreciate the comprehensive replies that the Minister has given, hut, in the interests of greater transparency. would he care to set out clearly the objectives of our review? In other words, on the tax front, regardless of what happens in the European Union—which would upset my noble friend Lord Bruce of Donington—will it have as an objective the removal of the tax status altogether, which would damage the investment in those islands from non-UK taxpayers, or will it primarily be concerned with UK taxpayers and their relief from tax havens?

Lord McIntosh of Haringey

My Lords, if I had given a fully comprehensive reply, I could, of course, have given more detail about both the Foreign Office review and the Home Office review. The Foreign Office review will be explained in more detail by the Foreign Secretary in a speech on Wednesday to the Dependent Territories Association. I ask my noble friend to be patient until he has heard that speech.

The Home Office review of Crown dependencies is specifically concerned with financial regulation and will be fairly wide-ranging in its coverage of different issues within financial regulation.

Lord Campbell of Alloway

My Lords, that sort of capital tends to fly around from one tax haven to another. Can the Minister give an undertaking that, whatever measures are introduced, they will not have retrospective effect?

Lord McIntosh of Haringey

My Lords, I cannot give that undertaking without advice. However, I should be surprised if it were possible to introduce new regulations with retrospective effect.

Lord Mackay of Ardbrecknish

My Lords, in retrospect, does the Minister regret that the Government did not consult with the Isle of Man and Channel Island authorities prior to making their Statement on 21st January, as reported in The Times? Is not that at variance with the comments of his noble friend Lord Williams of Mostyn on 19th January in your Lordships' House when he indicated clearly that, with their independent jurisdictions, they should be properly consulted and every due regard given to their views? Does he further agree with his noble friend that that is one of their human rights?

Lord McIntosh of Haringey

My Lords, they will be consulted and due regard will be had to their views.

Lord Marsh

My Lords, does the Minister agree that a significant quantity of inward investment comes to this country specifically because the tax regime is found to be more attractive than elsewhere? Does he agree also that investors are frequently encouraged by Her Majesty's Government and the Bank of England to take advantage of those benefits?

Lord McIntosh of Haringey

My Lords, I have already indicated that there is no internationally agreed definition of a tax haven. There is certainly no definition which includes the United Kingdom as a tax haven.

Lord Razzall

My Lords, is the Minister prepared to expand a little further on the background to the Home Office inquiry? It was interesting that the timing of that inquiry coincided with significant publicity regarding the use of Guernsey in particular as a tax haven. Is the noble Lord prepared to indicate whether the Home Office inquiry is more concerned about the use of Guernsey and the Channel Islands as a tax haven or whether the interest is related particularly to the use of those islands as money laundering areas?

Lord McIntosh of Haringey

My Lords, the Home Office inquiry is in relation to financial regulation. I referred to it only for the sake of completeness in answering the Question about tax havens from the noble Lord, Lord Wallace of Saltaire.

Lord Sandhurst

My Lords, I come from Jersey and we should be grateful if, in future, the constitutional conventions could be more closely observed. Will the Government note that only last year the ambassador from the United States came to Jersey and rewarded the island with a cheque for 1 million dollars in response to its successful efforts in the prevention of money laundering?

Lord McIntosh of Haringey

My Lords, I have already indicated that neither of the reviews to which I referred involve any challenge to the constitutional arrangements either of the dependent territories or of the Crown dependencies.

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