§ Sir Teddy TaylorTo ask the Chancellor of the Exchequer what was the outcome of the meeting of the Council of Finance Ministers on 9 June; and if consideration was given to the harmonisation of value added tax levels.
§ Mr. Norman Lamont[holding answer 10 June 1992]: The Economic and Finance Council of the European Community met in Luxembourg on 9 June and I represented the United Kingdom.
The Council discussed the Spanish programme for economic convergence as part of its regular multilateral surveillance exercises. We welcomed the programme's objective of non-inflationary growth via macroeconomic stabilisation, including a tightened fiscal stance, and the undertaking of significant structural reforms. Particular attention was drawn to the importance of the Spanish regional governments in achieving fiscal consolidation.
The removal of rigidities, particularly in the markets for labour and services, combined with a stable nominal exchange rate were welcomed as policies to reduce inflation and encourage wage moderation. The scale of Spanish proposals to improve the functioning of their labour market and to deregulate services was acknowledged. The Council urged the rapid introduction of these measures while stressing their importance to achieving sustainable non-inflationary growth. It was also agreed that the Council's multilateral surveillance exercises should be strengthened by paying more attention to structural measures in promoting economic convergence.
Over lunch there was a brief discussion of Commission proposals for further loans to Bulgaria and Romania but no decisions were reached.
The Council also discussed the Commission's future financing proposals. I argued that the Commission's proposals to increase Community spending in real terms between 1992 and 1997 by about 21 billion ecu (£14½ billion)—an increase of over 30 per cent.—were unacceptable and I was strongly supported by a majority of other member states. I pointed to the findings of the European Court of Auditors, demonstrating the poor value for money from Community spending. I argued against any increase in the own resources ceiling, stressing 303W that the Community had to live within its means and that taxpayers should not be asked to accept substantial increases in Community spending at a time when there was a need for national budgetary restraint.
On indirect taxes, the presidency tabled a global compromise covering the eight draft directives on excise duty rates and structures for tobacco products, mineral oils and alcoholic beverages and VAT.
There was little substantive discussion on these issues. I recorded the various problems the current text posed. On the minimum rate for spirits, although the proposed figure of 600 ecu per hectolitre of pure alcohol was an improvement on its predecessor (1,000 ecu), it would still require at least one member state to increase its duty rate. I could see no case in logic for the minimum rate for wine to be set at zero, but for a high positive rate for spirits. I said that there would also need to be a commitment to review the rates in the light of a proper study on competition in the alcoholic drinks market.
On alcohol structures, I argued that the revised text for intermediate products was still unacceptable since it would require products of 10 per cent. alcohol by volume to be taxed at a higher rate than a wine of 17 per cent. alcohol by volume. I noted that there were also a number of important technical points to be resolved including the treatment of strong wines, denatured alcohol and alcohol in foodstuffs.
On tobacco rates, I stressed the importance the United Kingdom attaches to an underpinning cash minimum for cigarettes and other tobacco products.
On VAT issues, I stated that the United Kingdom view had not changed, particularly on the minimum standard rate of VAT, our concerns with the proposed treatment of works of art and the need to safeguard our present exemption at import; and to ensure protection for donated goods sold in charity shops. I expect ECOFIN to return to this dossier on 29 June.
A satisfactory political agreement was reached on a Presidency package consisting of the most contentious points in the draft Capital Adequacy Directive (which will provide a harmonized framework of capital requirements on banks' and securities firms' trading portfolios in support of the Second Banking Coordination Directive and the draft Investment Services Directive). This opens the way to further technical work on the rest of the Directive. An array of important points remain to be addressed before further discussion at ECOFIN on 29 June.
I ensured that the draft directive would allow securities firms to continue to take on large tradeable positions ("large exposures"), that it should provide an appropriate treatment of reverse repurchase agreements, stock borrowing and similar arrangments, and that it should have a mechanism for convergence with wider international standards currently under development. I successfully secured all these objectives, which I made clear were vital to the international competitiveness of the United Kingdom financial services sector.