HL Deb 29 July 1999 vol 604 cc1670-2

3.16 p.m.

The Earl of Clanwilliam asked Her Majesty's Government:

Whether they accept the recent projection of pension costs in Germany, France and Italy at 16 per cent of gross domestic product in 2000, and, if so, what United Kingdom taxes, if any, are likely to be subject to harmonisation.

Lord McIntosh of Haringey

No, my Lords.

The Earl of Clanwilliam

My Lords, I can understand the noble Lord being a little impatient with my constant application to this Question. Perhaps I may ask for his forbearance as opportunities to ask it are diminishing daily.

Does the noble Lord not agree that whether or not taxes are harmonised, pension costs are an integral part of any consideration of the ratio of debt to GDP, and therefore are relevant to convergence between EU countries and ourselves? Can the noble Lord clarify the Government's understanding of these established facts in the light of the description of them by his right honourable friend the Prime Minister in a recent "Question Time" debate as "myths"? Does that not contradict the headline which appeared in The Times which stated, Europe's pensions time bomb would send our taxes sky-high"?

Lord McIntosh of Haringey

My Lords, my Answer was "no", for two reasons: first, we do not accept the projection of pension costs in the noble Earl's Question. The most recent comparable data from the European Commission puts general government expenditure on pensions at 12.9 per cent of GDP in Italy, 11.3 per cent in Germany and 10.6 per cent in France. It is highly unlikely that it would increase to 16 per cent by next year.

My second reason for saying "no" is that even if there is such an increase in pension costs in other countries at some time in the future, they could not apply to this country. When the Prime Minister said it was a "myth", he stated—I quote from the transcript of the television programme: This idea of the pension fund, this is just part of the myth. There is absolutely no requirement whatever for us to bail out other countries' pension funds".

Lord Marsh

My Lords, does the Minister agree that the treaty is quite clear; there is no bail-out provision? However, in addition to the costs referred to by the noble Earl in his Question, there are also the pension funding deficits. In Germany and France, they are running in excess of 100 per cent of GDP and in Italy at something like 70 per cent against 10 per cent in the UK. Those figures cannot be ignored. Somebody will have to meet the bill at some time.

Lord McIntosh of Haringey

My Lords, I have given the most recent figures for government expenditure on pensions in the three countries referred to in the Question. Of course the noble Lord is right; at some stage somebody will have to pay for this. All the three countries concerned are urgently making reforms to their own pension arrangements. This country will still not be affected because of Article 104 of the EU Treaty.

Lord Grenfell

My Lords, with reference to the second part of the noble Earl's Question, perhaps the Minister will forgive a brief promotional soundbite. I commend to the noble Earl, Lord Clanwilliam, the report, published yesterday, of your Lordships' Select Committee on the European Communities, on taxes in the European Union. Does my noble friend agree that, as noted in that report, co-ordination, where justified, rather than harmonisation, is how the Commission now more accurately describes its tax policy? When the Paymaster General gave evidence to our committee, she stated: tax harmonisation is not on the agenda … in the European Union".

Lord McIntosh of Haringey

My Lords, I have not had an opportunity to read the report of the committee chaired by my noble friend. That is a pleasure I shall reserve for the holidays. I can certainly confirm that the Paymaster General was right. The tax harmonisation implications of the noble Earl's Question are simply not true.

Lord Saatchi

My Lords, is the Minister familiar with the great lawyer's dictum, "Never trust a man who says, 'trust me"? On the issue of pensions and tax harmonisation, is that not exactly what the Minister is asking the House to do? Is not the standard lawyer's response the right one? Of course, we trust the noble Lord: we know him to be an honourable and reliable man. It is his heirs and successors whom we doubt. What tangible offer can he make to reassure the House that the darkest fears of noble Lords on both sides of the House will not come true?

Lord McIntosh of Haringey

My Lords, I have never asked the House to trust me. I asked the House to trust in the facts. The facts are that any change in tax structures of the kind being referred to, other than those of limited circumstances already provided for in the treaty which has been in place for a long time, would require unanimity. As the Chancellor said when the question last arose, that is simply not going to happen.

Lord Clark of Kempston

My Lords, does the Minister not agree that the time bomb, so far as it relates to pensions, is the disparity between occupational pensions in this country and those of our partners in the European Community? If there is indeed going to be harmonisation, surely anyone who understands taxation is aware that that will apply to pensions. If there is a disparity between occupational pensions and the state pension, someone must find the balance. Would not that duty fall on British taxpayers?

Lord McIntosh of Haringey

My Lords, I do not know how many times I shall have to say this. Article 103 of the treaty states that there are no circumstances in which we can be called upon to bail out other European countries. Those countries which spend too much of their government expenditure on pensions are at risk. Under the terms of the growth and stability pact, they cannot meet the problem by excessive borrowing. They must deal with it either by cutting spending or by raising contributions. That is the issue which they are engaged in attacking at the moment. Under no circumstances will there be any consequence for British taxpayers.

Lord Peston

My Lords, may I ask my noble friend to reflect on his remark about how often he has to answer the previous question? Is he not aware that once mythology takes over, there is nothing a rational person can do to destroy it? He must simply accept that these days that is the frame of mind of noble Lords opposite who cannot face reality in any way.

Noble Lords

Hear, hear!

Lord McIntosh of Haringey

My Lords, all I can advise noble Lords opposite to do is to stop taking the tabloids!