European Union (Amendment) Bill

I would like to make a small contribution on the amendments tabled by the noble Lord, Lord Pearson, who I still regard as my noble friend. As noble Lords will probably be aware, I have not yet spoken during the proceedings on this Bill. It has been in the very capable hands of my noble friends Lord Howell and Lord Hunt. I have, of course, been following the progress of the Bill, if that is the correct word, and I feel honoured to be part of the Front Bench for the purposes of this evening. I shall not be expressing any views on Amendment no. 129 on xenophobia. I could not, however, let Amendment no. 130 on taxation pass without a brief comment. I have in the past spoken in your Lordships' House about the role of the EU, in particular the European Court of Justice, in relation to taxation, and that will be the focus of my remarks. The founding treaty and all subsequent amendments seem clear: direct taxation is not an EU competence and ought to be the sole responsibility of member states. However, it is a fact that the European Court of Justice has been slowly but surely building a common European tax law under the guise, as the noble Lord, Lord Pearson, has explained, of freedom of establishment. This is a relatively recent phenomenon. There was only one direct tax case decided by the ECJ in the 1960s, none in the 1970s, four in the 1980s, 40 in the 1990s, but well over 60 by halfway through this decade. There is also a big tail of cases still to be decided. This is thus a problem that has emerged on this Government’s watch, yet they seem set on ignoring it. I shall not weary the Committee with the cases that have been decided by the ECJ. They do not all involve the UK’s taxation system, but they have involved some of the largest companies within the UK: Cadbury Schweppes, British American Tobacco, Marks & Spencer and ICI. For these companies, it makes sound commercial sense to challenge UK tax law if they perceive advantage in so doing. I do not blame them in any degree, because they must try to do the best for their shareholders. If that involves using an EU weapon to challenge the basis of taxation set by our Parliament, it is obvious that they must do so. These cases have created great uncertainty about the UK’s tax code. That is harmful in the context of a tax code which is the longest in the world and among the most complex. From the perspective of the UK Treasury, these cases, often decided against the Government, have created uncertainty about future tax receipts and involved complex Finance Bill provisions to overcome ECJ objections. Many billions of pounds of tax revenues have been, and probably still are, at stake. The noble Lord, Lord Pearson, asked how much decisions have cost. I would add: how much is still at risk? I have talked about the cases brought by companies, but the Commission, too, can attack member states’ tax regimes. It has expressed a willingness to be ““proactive”” in this, which is a chilling prospect. I cannot begin to understand why the Government have not fought strongly against the concept of the ECJ’s ability to overturn what our Parliament decides on tax. It ought to be in the interests of the Government, as the guardian of the UK’s finances, to do so. It ought also to be in the interests of the Government to preserve the competitiveness of the UK and our ability to differentiate ourselves from the rest of the world, in which I include the rest of the EU. A part of any country’s competitiveness includes tax competitiveness, which is well accepted by all those organisations which draw up international league tables of competitiveness. I hope that there would be no argument in this Chamber that tax competition is good for society as a whole, since it works with the grain of global free markets and against those who try to erect barriers to trade. Tax competition also provides a healthy check on the Governments’ ability to raise taxes too high. We are seeing the salutary effect of tax competition at the moment, as major UK corporates signal loud and clear to the Government that the UK tax system has gone too far and made the UK an uncompetitive environment for companies which hold significant interests overseas. The Government have taken their eye off the ball of tax competitiveness for the UK. My party, when we return to government, will strive to restore our tax competitiveness. We will need maximum freedoms, including freedoms within the EU, to achieve that. The noble Lord, Lord Pearson, will appreciate that the picture I have painted requires a more comprehensive set of statutory defences against the incursions of the EU into the tax affairs of the UK than are provided by his amendment. His Amendment No. 130 is useful in ruling out the harmonisation of rates of direct taxation and the imposition of direct taxes, and I support it to that extent. It does not, however, deal with the most damaging problem of the ECJ’s ability to strike down our tax laws and interfere in the structure of our taxes. The amendment does not reinforce our precious freedoms to achieve tax competitiveness in the UK. I wish that his amendment had gone further. I accept with weary resignation that the pass was sold long ago on indirect taxation, but noble Lords should be under no illusion about the role of the ECJ in relation to VAT. It is far from benign. But that is a topic for another day.