HL Deb 23 April 2002 vol 634 cc119-22

2.43 p.m.

Baroness Whitaker

asked Her Majesty's Government:

What is their response to the report by Professor Paul Bernd Spahn on the feasibility of a tax on foreign exchange transactions commissioned by the Germany Ministry for Economic Co-operation and Development.

Lord McIntosh of Haringey

My Lords, the Government have been closely following the debate about the feasibility of a tax on foreign exchange transactions, including Professor's Spahn's work. Other studies, such as the recent Commission report of February 2002, Responses to the Challenges of Globalisation, which was requested by EU Finance Ministers, have raised questions about the feasibility of the tax. The Government are not convinced that the tax would be particularly effective in stabilizing international capital flows, but are committed to exploring the full range of options for increasing the amount of financing available for development.

Baroness Whitaker

My Lords, I thank my noble friend for that promising Answer. Does he agree that the study makes it clear that such a tax is feasible, and that the main obstacle to developing it is in fact political will? Does he further agree that this would be the most promising way to respond to the Chancellor's call for innovative ways to finance international development?

Lord McIntosh of Haringey

My Lords, I do not quite agree. In paragraph 25 of his summary, Professor Spahn states that the obstacles, are related to political will, to international co-operation, and to legal enforcement". That range of difficulties is a good deal wider. The problem is: whose political will? We may have the political will, but do the offshore havens, for example, which might take over currency markets have the same political will? As for the Chancellor's pursuit of the matter, we have enough evidence from his contribution to the UN Financing for Development conference in Monterey last month, where European and US pledges were made for an extra 30 billion dollars before 2006 for overseas development.

Lord Beaumont of Whitley

My Lords, do the Government have any plans to raise this matter at the G8 summit? The host will be Canada, which has already committed itself to this approach; and representatives from France and Germany will also be present—France having passed preliminary legislation for such a tax.

Lord McIntosh of Haringey

My Lords, I have no doubt that the matter will be raised at the G8 summit, especially in view of the participation of the countries referred to. The currency transaction tax is not the only global tax that is being considered. The issue has been discussed for a very long time, since Willy Brandt and Gro Harlem Brundtland raised it. There could be global taxes on carbon dioxide emissions, on aviation fuel, and on arms exports. But all present the same difficulty as the Tobin tax; namely, that they require near universal support to be effective.

The Earl of Northesk

My Lords, without in any way gainsaying the worthy intent of those who advocate the so-called Tobin tax, does the Minister recall his observation in a debate on this matter some two years ago? At that time he said: I am sorry, I would like to think that it would work but I cannot believe that it can".—[Official Report, 8/6/00; col. 1323.] Does the Minister agree that nothing has happened since that debate to make the practicality of such a tax any more certain?

Lord McIntosh of Haringey

My Lords, perhaps I am a little less blunt than I was two years ago. This is what happens—it grinds you down after a time, doesn't it? Fundamentally, I think I am saying the same thing now as I was then. The problems are, as Spahn said, political will, international co-operation and legal enforcement. There must be near universal acceptance and enforcement in order to make such a tax work.

Lord Newby

My Lords, does the Minister agree that, so far as concerns political will, by far the single most important player is the United States? Will he urge his colleague the Chancellor to use the close relationship that the Government now have with the United States to build on the steps that it took at Monterey to accept some responsibility for the development of the poorest countries in the world, so that fresh impetus can be put into examining how these taxation proposals might he made effective—whether it is the Tobin tax, the Spahn tax, or any of the other options set out by the Minister?

Lord McIntosh of Haringey

My Lords, that is exactly what the Chancellor has been doing. That is exactly what he did so effectively at Monterey in March—from which the additional pledges from the European Union and the United States resulted. Indeed, there have been pledges of 12 billion dollars a year of ODA funding after 2006. In addition, the Chancellor has been pursuing, including with the United States, his plans for an international development trust fund, which I think the noble Lord would agree would he a very effective step forward.

Lord Paul

My Lords, will my noble friend confirm that a tax on foreign exchange transactions before we join the euro would make British products even more expensive, making it difficult to compete in Europe?

Lord McIntosh of Haringey

My Lords, given the Government's view that the precondition for a currency transaction test is that it should be universal, it should not make a great deal of difference whether it is carried out before or after joining the euro. The question to be considered as regards the feasibility of a currency transaction test is whether it would increase currency volatility if it caused trading volumes to fall. That applies whether or not we are in the euro.

Lord Stoddart of Swindon

My Lords, has the noble Lord seen the report that appeared today showing that 39 per cent of aid issued by the European Union is going not to the poorest countries in the world, but to countries in eastern Europe? Bearing in mind that we supply one-third of those funds and that 39 per cent of that is £350 million, is it not a great and crying shame that assistance provided by the British taxpayer for the poorest countries is not finding its way there?

Lord McIntosh of Haringey

My Lords, I can nearly always be caught out by being asked whether I have seen something that was reported today. I do not get up early enough to read all the newspapers. However, it does not follow from what the noble Lord is saying that there is anything wrong with development aid going from the European Union to eastern Europe. That has been an explicit objective for a considerable number of years—since 1989, in fact—and it is not necessarily in conflict with help for the most deprived countries in the world. Both are necessary.

Lord Campbell-Savours

My Lords, is it fair to say that my noble friend is saying that he is not opposed in principle to Tobin, but he thinks it is unenforceable at the moment?

Lord McIntosh of Haringey

My Lords, my noble friend has said more precisely and concisely what I was trying to say, perhaps with greater verbosity.

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