Taxation of Savings: Proposed EU Directive (Hansard, 5 October 1998)

§ Lord McIntosh of Haringey
My Lords, the Government are in favour of effective international action against tax evasion. However, we are firmly committed to preserving the competitiveness of European Community financial markets. We are taking an active role in the development of the proposals, but much work will be needed on the detail.

§ Lord Pearson of Rannoch
My Lords, I thank the Minister for that reply. It will, however, be rather disappointing to the City of London. If, for instance, a withholding tax of 20 per cent. is applied in the European Union and not elsewhere, one effect will be to drive our huge Eurobond market to Zurich and New York.
Can the Minister tell us whether it is true that the Commission have not even produced a cost-benefit analysis for this crazy project? Secondly, does he not agree that this directive is further clear proof of the Commission's determination to harmonise tax within the European Community, very often to the detriment of the United Kingdom's more global economy?

§ Lord McIntosh of Haringey
My Lords, the noble Lord's first question was about a cost-benefit analysis. I do not understand that a cost-benefit analysis has yet been produced, but the negotiations have only just started and I have no doubt that member states will require such an analysis as the negotiations proceed.
In answer to the noble Lord's second question, no, I certainly do not agree that this is a step towards tax harmonisation. There are clearly advantages in collective action to deal with tax evasion, and that has to be set against the potential for disruption and disadvantage to European Community financial markets.

§ Lord Stoddart of Swindon
My Lords, is it not the case that on many occasions the previous government and this Government have repeatedly told us that taxation is a matter for the House of Commons and not for any European institution? Is it not also true that this decision will have to be by unanimity? Can my noble friend assure me that the new Labour Government will veto this proposal because it is in breach of the conventions, and undermines the role, of the House of Commons?

§ Lord McIntosh of Haringey
My Lords, my noble friend knows the answers to those questions because I gave them in Written Answers earlier this year: first, 162 according to my Answer of 30th June to the noble Lord, Lord Pearson of Rannoch, that the draft directive would have to be agreed by all member states; secondly, in answer to my noble friend's Question, that, if adopted, the proposed directive would require Parliament to pass implementing legislation before it could take effect in the United Kingdom. My answer to my noble friend on both those points is, as he well knows, positive.
As to the question of a veto, I have made it clear that there are potential advantages as well as potential disadvantages in this proposal. In those circumstances, it would not be very clever to start negotiations with the position that we would veto any conclusions.

§ Lord Wallace of Saltaire
My Lords, can the noble Lord make it clear how this subject, which is related to tax evasion, is related to the Government's current inquiries into offshore financial centres, in particular those under British jurisdiction within the boundaries of the EU: the Channel Islands, the Isle of Man, and Gibraltar? Part of the purpose of this directive, pushed by the German Government and others, as we are well aware, rather than by the Commission, has, after all, to do with tax evasion on savings.

§ Lord McIntosh of Haringey
My Lords, the noble Lord is right that one possible outcome of such a directive, if it were adopted by unanimity and passed by all the parliaments of the European Union, would be the possibility that paying agents would move outside the European Union and might move to the kind of territories to which the noble Lord refers. That too will be part of the consideration which the Government will have in its pursuit of the negotiations.

Lord Renton
My Lords, does the noble Lord agree that the states within the European Union cannot manage their differing economies unless they have control over their own tax laws? Will he therefore make sure that the Government veto this attempt to impose a tax law upon us?

§ Lord McIntosh of Haringey
My Lords, there can be no question of imposing a tax law upon us. As I have made clear, this proposal is made under Article 100 and requires unanimity. It also requires parliamentary action, so there is no question of imposition.
As to the question of a veto, as I have already made clear, we do not think it is clever to enter negotiations where there is a potential for advantage to us by threatening a veto.

Lord Bruce of Donington
My Lords, is the noble Lord aware that the Prime Minister himself has already given the assurances which are apparently required? He said in regard to this matter at the recent European Summit: We have made it absolutely clear that we believe that Britain's right to determine its own defence, immigration and taxation policies is sacrosanct and absolute. That will remain the case". Will the noble Lord give the House an assurance that as and when proposals that come from the Commission or from the group that has been formed go 163 to COREPER, the Committee of Permanent Representatives, instructions are given to our representative to insist that the documents produced do not go on List A which are not seen by the Council but are forwarded promptly to the Treasury, the Foreign Office and the Prime Minister's Office?

§ Lord McIntosh of Haringey
My Lords, in reply to my noble friend's first question, it causes me no pain to agree with the Prime Minister. Of course, I can confirm, as I have done at least twice in the last few minutes, that no taxation policy can be imposed on this country under a draft directive under Article 100.
My noble friend's second point is more technical but it seems interesting and I shall be glad to pass it on to my colleagues.

§ Lord Higgins
My Lords, is it not clear that this directive is likely to have a serious effect on the position of the City of London and is not likely to be in the overall national interest? The Minister refers to negotiations. Is it not the case that the draft is already in its final form, and is it true that no consultations have taken place with interested bodies in the City of London?

§ Lord McIntosh of Haringey
My Lords, it is not true. Consultation has taken place with the City since the first publication of the draft directive, and it continues. The London Investment Banking Association produced a very detailed and helpful memorandum on the subject and was encouraged to do so by the Government. That body will be encouraged to continue to take part as the negotiations progress.

§ Lord Haskel
My Lords, does my noble friend agree that tax harmonisation is a significant element in achieving a level playing field, which is so important for the competitiveness of British industry?

§ Lord McIntosh of Haringey
My Lords, there are advantages in tax harmonisation, but under the European Community's legislation to which we have signed up there is no provision for the imposition of tax harmonisation.

§ Lord Pearson of Rannoch
My Lords, perhaps I may press the noble Lord on his supplementary replies to his noble friends Lord Stoddart of Swindon and Lord Bruce of Donington. The Minister said that at the end of the day it would be for Parliament to decide the matter. Is it not true that, even if both Houses of Parliament scrutinised this directive and found against it, were the Government to agree it in Brussels there would be absolutely no hope of the House of Commons here overturning it?

§ Lord McIntosh of Haringey
My Lords, the position is as I have already stated it. First, the proposal requires unanimity because it is an Article 100 matter and before it can be implemented Parliament is required to pass the necessary legislation.

§ Lord Islwyn
My Lords, does my noble friend agree that if unanimity were agreed in Europe when the matter came before the House of Commons primary legislation would be required, or could it be got through by means of an obscure order?

§ Lord McIntosh of Haringey
My Lords, my understanding is that it would require primary legislation. In the past similar provisions have been included in finance Bills.

§ Lord Boardman
My Lords, does the Minister agree that the result of the consultations to which the noble Lord has referred was completely hostile to the directive? Can the Minister say what estimate has been made of the resultant loss of revenue to this country if the directive takes effect?

§ Lord McIntosh of Haringey
My Lords, certainly the representations that I have read from the London Investment Banking Association are entirely hostile, but LIBA represents the City of London. The Government, who are responsible for the collection of revenue, have another legitimate interest, namely the restriction, reduction and even elimination of tax evasion. We must take both interests into account and reach a rational conclusion.