Channel Islands/Isle of Man: Financial Centres (Hansard, 30 November 1998)

§ Lord Williams of Mostyn
My Lords, the development of the Channel Islands and the Isle of Man over recent years as important international financial centres derives from their handling a wide range of financial business and increasing their dealings with all 236 parts of the world. As indicated in the recent review by Mr. Andrew Edwards of financial regulation in the islands, their business has grown to be genuinely international. It is not possible to quantify the particular benefits derived by the United Kingdom from these developments. However, I refer the noble Lord to the figures in the review which illustrate the continuing close links between the islands and the United Kingdom.

§ Lord Wallace of Saltaire
My Lords, I thank the Minister for that reply. I am anxious to consider the costs as well as the benefits. I am sure that the noble Lord has read Article S9 of the Edwards Report, which states: Offshore centres generally are sometimes criticised for maintaining tax regimes that divert business from onshore jurisdictions and deprive them of tax revenues". The remainder of the report deals with the process of sustaining and developing the scope of those offshore centres. Is it in Britain's long-term interests to encourage the further development of centres closely associated with the United Kingdom which exist to encourage the avoidance and evasion of tax?

§ Lord Williams of Mostyn
My Lords, the noble Lord asks about benefits. Perhaps I can help him by considering Article 2.6.4 of the Edwards Report. which states: The banks"— in the Channel Islands and the Isle of Man— invest a high proportion of their deposits and other liabilities in or through the UK". In Jersey, which has deposits of £100 billion, 48 per cent. is lodged in the United Kingdom; in Guernsey the figures are £50 billion and 34 per cent., and in the Isle of Man, £20 billion and 55 per cent. Plainly there are significant advantages to the United Kingdom financial centres from those transactions.

§ Lord Waddington
My Lords, will the Minister help me on this point? What right has the European Union to interfere in the affairs of the Channel Islands and the Isle of Man so far as concerns their tax structures?

§ Lord Williams of Mostyn
My Lords, the Channel Islands and the Isle of Man are not fully part of the European Union, as the noble Lord rightly implies. The constitutional position in the Channel Islands and the Isle of Man remains the same as that I described, I think last week. They are Crown dependencies. They have internal legislatures; and the United Kingdom, let alone any other party, is only entitled to intervene and impose legislative solutions as a matter of last resort.

§ Lord Cledwyn of Penrhos
My Lords, can the Minister undertake to arrange the transfer of two or three of these financial centres from the Channel Islands to the island of Anglesey where they would be perfectly safe and where they are much needed?

§ Lord Williams of Mostyn
My Lords, I know that my noble friend is the representative of another 237 offshore island, but so far as I am aware people in North Wales normally keep the cash under the bed rather than in the bank.

§ Lord Barnett
My Lords, can the Minister spell out the benefits we gain from the tax arrangements in the Channel Islands and the Isle of Man? Have the Government any plans to do anything about them, even if the proposals are initiated in the European Union?

§ Lord Williams of Mostyn
My Lords, we have our European obligations which we attempt to discharge. But we constantly remind our colleagues in Europe that the constitutional arrangements for the Channel Islands and the Isle of Man are not the same as the arrangements between Her Majesty's Government and the European Union. My right honourable friend the Chancellor of the Exchequer is always alert to see whether or not there is any improper leaching of tax revenue from the United Kingdom exchequer. That is part of his continuing duty.

§ Lord Henley
My Lords, the Minister mentioned the Edwards Report which was published earlier this year. The noble Lord will remember that that investigation into the financial affairs of the Channel Islands was announced without any consultation with the Channel Islands governors. Can he give an assurance that any further reviews of the financial regulations of either the Channel Islands or the Isle of Man will be conducted in a spirit of full consultation and co-operation with their respective governments rather than the Home Office acting as the mere agent, it appears, of the European Union?

§ Lord Williams of Mostyn
My Lords, that is quite wrong. The review which the Home Secretary announced was announced publicly for the first time in another place. The Speaker of another place is rightly jealous of the fact that public announcements should be made first in another place. I myself ensured that the lieutenant governors in all the islands were notified in advance. A very harmonious relationship exists between the governments of the islands and the Home Office. They have promised full co-operation. The Home Secretary has asked me to chair a committee which will start work in the early part of next year, namely January, to see how we take matters forward.

§ Lord Quirk
My Lords, as a loyal Manxman, I declare some interest. May I ask whether I am not right that the Edwards Report praised not merely the Manx finance legislation as being, better than that of most European Union countries", but also praised the contribution that the three Crown dependencies made to UK plc in the form of some £350 billion which are, channelled from the rest of the world through the Islands to the UK"? 238 Furthermore, since most of the large institutions in the Isle of Man are branches of UK companies, is it not the case that the profits from those companies earned on the Isle of Man flow through to the UK?

§ Lord Williams of Mostyn
My Lords, I confirm that the noble Lord has quoted accurately from Mr. Edwards's report. I sought to give figures by way of examples of those large sums of money in terms of bank deposits. I did not include anything to do with unit trusts or insurance matters.
The Edwards Report states that the Crown dependencies have been very successful. They are clearly in the top division of offshore finance centres. I think that that speaks rather highly of them.

§ Lord Shore of Stepney
My Lords, the Minister will be aware, as is the whole House, that we are on the eve of a major European Union tax offensive in order to bring about tax harmonisation to follow monetary union with fiscal union. This, of course, is an opening gambit because we are a little more vulnerable in the Channel Islands than elsewhere. Can my noble friend give me and the House an assurance that on no account will we allow any proposal emanating from the European Union to impose a withholding tax upon interest and dividends paid in the United Kingdom; and in particular that the City of London will not find that it is subjected to a tax which would affect its eurobond business?

§ Lord Williams of Mostyn
My Lords, I am not well aware that there is a massive offensive on tax harmonisation. I read it in the newspaper but that does not necessarily convince me of the accuracy of the report, particularly as it seemed to be based substantially—and wholly innocently I am sure—on a mistranslation and misunderstanding of what was said. My noble friend will know that eager as I am to please him on these occasions, I could not conceivably, nor would your Lordships expect me to, give a permanent guarantee in respect of anything which may be produced by No. 11 Downing Street.

§ Lord Harris of Greenwich
My Lords, will the noble Lord accept that those of us who do not accept that there is any form of conspiracy theory in that regard would wish to indicate that it is perfectly right for the Government to organise the Edwards Committee examination of our relationship with the Channel Islands and the Isle of Man, given our responsibility for the good governance of those islands?

§ Lord Williams of Mostyn
My Lords, Mr. Edwards was asked to carry out quite a limited exercise; namely, to review financial regulation in the Crown dependencies. He was not concerned with the question of tax harmonisation nor constitutional relationships. Everyone to whom I have spoken on the islands knows that, in a sense, their reputation is their capital. Therefore, they want the best possible financial regulation in their respective jurisdictions for obvious reasons.