Channel Islands: Taxation Laws (Hansard, 29 June 1999)

§ The Minister of State, Home Office (Lord Williams of Mostyn)
My Lords, the report of the Royal Commission on the Constitution, known as the Kilbrandon Report, sets out in paragraphs 1497 to 1513 the limited circumstances in which, in its view, the United Kingdom Parliament would be justified in using its paramount powers to legislate for the Channel Islands and Isle of Man. Legislation on taxation has always taken the form of laws enacted by the island legislatures.

§ Lord Waddington
My Lords, I thank the noble Lord for that reply. Is it right that in purported compliance with the Code of Conduct on Business Taxation, which requires member states to report measures constituting unfair tax competition to the Code of Conduct Group, the Government reported for possible elimination 11 tax measures in Guernsey and Jersey? What right had the Government to do so when the Channel Islands are not territories of the United Kingdom within letter M of the code but self-governing dependencies of the Crown, and the Code of Conduct is not, therefore, an international agreement requiring the Government to interfere in the islands' affairs? What right have the Government to interfere when the islands are not members of the EU and, in the words of the very report to which the noble Lord referred (at paragraph 1535), the taxes that they impose, and their level, remain a matter for the islanders to decide?

§ Lord Williams of Mostyn
My Lords, the noble Lord, Lord Waddington, is right in his description of the constitutional relationship. The islands are self-governing Crown dependencies, each with its own internal independent legislature. The Code of Conduct group is being chaired by my right honourable friend the Paymaster General. I am happy to reassure the House about an important point upon which we struggled and which we insisted upon having incorporated in the code. It requests member states to apply its principles to its dependent and associated territories only, within the framework of their constitutional arrangements". That point is extremely important.

§ Lord Barnett
My Lords, harmful tax competition is a serious matter, whether it applies to the Channel 171 Islands, the Isle of Man or even Bermuda, where the noble Lord was recently a distinguished governor. However, are not these matters best dealt with at an international level? Is the Paymaster General having serious discussions in the EU to bring forward a helpful directive to stop such harmful tax competition?

§ Lord Williams of Mostyn
My Lords, my noble friend is right in saying that this is an international matter. A number of approaches are being taken. We have set up the Code of Conduct Group; the draft directive on savings is still subject to my earlier caveat within the framework of the constitutional arrangements; and an OECD forum is compiling a list of tax havens for November this year. I should stress that the islands are taking part in that exercise and it is fair to all concerned to draw to the attention of the House paragraph 14.10.3 of Andrew Edward's report which states: The island authorities have argued with force that the issues involved in harmful tax competition are far from simple or straightforward". Turning to the point made by my noble friend Lord Barnett, the report continues: They have made known, rightly in my view, that they wish to play a full and constructive part, through whatever channels are available, in the global discussions".

§ Lord Pearson of Rannoch
My Lords, do the clauses which the Minister quoted from the Kilbrandon Report not make it absolutely clear that this country does have the right to override the islanders' wishes in tax matters if our international obligations, such as those contained in the Treaty of Rome, so require? In those circumstances, can the Minister tell the House what is the outcome of the recent deputation of civil servants from the islands to the EU Commission in Brussels to discuss this problem?

§ Lord Williams of Mostyn
My Lords, paragraph 1499 of the Kilbrandon Report identifies five headings where paramount powers might be capable of being exercised. The important rejoinder I would make is that the report states: We would stress cur view that an element of opinion and of political judgment may sometimes enter into a decision whether or not the exercise of paramount powers is justified". I believe that the proper way ahead—and I have tried to do so constantly since I took over the responsibility—is to have as full discussions as possible. The islands' authorities have constantly told me that they welcome discussion and recognise that they have their part to play. They ask—and reasonably, in my opinion—that their concerns and troubles shall be heard. As regards the noble Lord's last question, I believe that discussions are continuing.

Lord Short of Stepney
My Lords, the questions could cause great and unnecessary worries in the Channel Islands. My noble friend has said, first, that under our constitutional arrangements we do not legislate in tax matters for the Channel Islands. That is their prerogative and we intend to uphold it. Secondly, 172 thanks to a protocol negotiated at the time, the Channel Islands are outside the European Union, and therefore its authority.

§ Lord Williams of Mostyn
My Lords, the noble Lord, Lord Waddington, asked me specifically about the European Union and I agreed with his description of the constitutional relationship. I repeat that legislation on taxation has always taken the form enacted by the legislatures. We do not exercise jurisdiction over their tax systems. However, we have our own domestic interests which I and my colleagues in other departments try to reconcile with the legitimate interests of those who live in the Channel Islands and the Isle of Man.

§ Lord Boardman
My Lords, does the Minister believe that taxation could be imposed on the Channel Islands without the consent or agreement of their elected representatives?

§ Lord Williams of Mostyn
My Lords, life is not so simple. One cannot cut out the quotations because the Kilbrandon Report describes the relationships. I repeat that we have never legislated for internal taxation for the islands. We do not exercise the jurisdiction. We should listen carefully to what they say; they have always been courteous enough to listen to what Her Majesty's Government have to say.