(13 years, 6 months ago)
Commons ChamberRead Hansard Text Read Debate Ministerial Extracts
The Economic Secretary to the Treasury (Justine Greening)
I beg to move,
That this House considers that the Draft Directive to introduce a Common Consolidated Corporate Tax Base (European Union Document No. 7263/11) does not comply with the principle of subsidiarity, for the reasons set out in chapter 2 of the Twenty-seventh Report of the European Scrutiny Committee (HC 428-xxv); and, in accordance with Article 6 of the Protocol on the application of the principles of subsidiarity and proportionality, instructs the Clerk of the House to forward this reasoned opinion to the presidents of the European institutions.
I am pleased to have the opportunity to discuss this European Commission proposal, which, as the House is aware, is potentially significant. I will highlight a few general points before turning to the specific legal and treaty issues which the European Scrutiny Committee has raised in its report and which are the subject of the motion.
I want to start by reiterating the Government’s commitment to ensuring that there is no further transfer of sovereignty or powers to the EU over the course of the Parliament. I also stress that the Government have made it clear that we will not agree to a proposal that might threaten or limit the UK’s ability to shape its own tax policy. I know that the motion focuses on whether the proposal complies with subsidiarity and proportionality, which are both important questions that I will address in turn.
Mr John Redwood (Wokingham) (Con)
This is extremely good news from the Minister. Will she confirm that the UK will not consent to the so-called six-pack measures on economic governance, of which at least three clearly apply to non-euro members and represent a transfer of powers?
Justine Greening
As my right hon. Friend will be aware, important discussions on economic governance are under way and are being resolved. I assure him that we have no intention, as I have said, of seeing any further powers transferred to Brussels. We keep a watching brief on not only the topic that we are discussing, but across the board. I am sure he is aware of a number of areas in which we are expressing concerns to the Commission, because we are concerned that further powers may be taken by Brussels.
Mr Peter Bone (Wellingborough) (Con)
Has my hon. Friend noticed that Her Majesty’s official Opposition do not seem to care much about this matter? I cannot see anybody other than the shadow Minister on the Labour Benches.
Justine Greening
Perhaps the actions of Labour Members demonstrate how ashamed they are that their Government gave away much of the rebate that the Conservative party, which is now part of the coalition Government, had achieved for our country.
Mr James Clappison (Hertsmere) (Con)
I am tempted to remind my hon. Friend that the rebate that the Labour party gave away cost more than £9 billion. I think that this question follows from what she has said: do the Government take the view that the draft directive would amount to a substantial transfer of power and sovereignty to the EU, if it were implemented?
Justine Greening
At the moment, the directive is in such a rough draft that it is not exactly clear in what shape it will end up. Important questions are already being asked not only by the UK but by countries such as the Netherlands and Sweden, and by some smaller and newer member states such as Lithuania. They are asking whether there is a problem that needs to be solved in the first place and whether the European Commission’s hypothesis about why a common consolidated corporate tax base is required is correct. The second debate that is starting to happen in earnest across Europe is about whether this solution is the best solution to solve that problem. The Government’s position is that we do not believe that the problem exists in the form that the European Commission articulates, and that this solution would not be the right solution to that problem, even if it did exist.
Justine Greening
Perhaps if I make a little more progress, it will help hon. Members to understand the Government’s position in a little more detail and where we are in the proposal’s development, which it is important to understand. It is also important to understand Parliament’s role in the process, which is the whole point of this debate.
A number of issues need to be addressed in the policy substance of this proposal. Those issues will have to be discussed among all 27 member states. That is why we have committed to engage in the ongoing EU discussions on this proposal. It is important that the UK participates fully in the negotiations, so that we can seek solutions that meet the interests of the UK and the EU as a whole. Although the issues of subsidiarity and proportionality are fundamental, we need to be ready to engage fully in the negotiations that are starting in Brussels. We need to engage not only in Brussels, but with our fellow member states to ensure that we influence them.
For example, member states will need to consider the implications of the proposal for companies operating across the UK, particularly if it were taken forward through enhanced co-operation. We should also seek to ensure that a common consolidated corporate tax base does not undermine UK competitiveness or create opportunities for tax avoidance.
Such considerations will involve examining some of the specific issues raised in the European Scrutiny Committee’s helpful report, such as the potential implications for the tax treaties and the risk of creating additional administrative burdens on business. Of course, one of the European Commission’s arguments is that the proposal will reduce burdens and provide simplification, but, like the Committee, the Government simply do not accept that argument.
I turn to some of the specific concerns that the Committee raised in its report. First, I will address the proposal’s legal base. Article 115 of the treaty on the functioning of the European Union provides for EU legislation that directly affects the single market. In strict legal terms, it is possible to make a case that that article is an acceptable legal base for a proposal such as that which we are discussing, but the Government have broader reservations. We do not believe that a common consolidated corporate tax base is necessary for the internal market to function effectively, and we do not accept the assumptions that appear to underpin the Commission’s proposal. At present, we are therefore not convinced that the proposal is consistent with either subsidiarity or proportionality. In this instance, we think it difficult to separate the two, because both centre on whether such an EU mechanism is necessary to achieve the objectives set out by the Commission.
Jacob Rees-Mogg
Establishing the legal base is absolutely crucial before the Government engage in negotiations about the form of the directive. May I draw the Economic Secretary’s attention to conclusion 2.12 of the European Scrutiny Committee’s report? It clearly states that the ability for the single market to have taxes refers to turnover taxes and VAT, and not to the type of tax included in the directive. If there is no legal base for the tax, is there any point in having further discussion?
Justine Greening
Our assessment is that it is possible to make the case that because article 115 of the TFEU relates to the effective functioning of the single market, it is relevant to consider whether the proposal would affect the single market. There is also the question whether there is any problem that needs to be addressed. We do not accept that there is, but if there were, we would have to ask whether the proposal was the right solution. That is what I mean when I talk about proportionality. We must also consider subsidiarity, and we do not believe that the two can simply be separated, because they go hand in hand.
For the Government to be reassured that the proposal complies with the fundamental principles of proportionality and subsidiarity, we would require far stronger justification from the Commission. We would need evidence that the existence of 27 different tax systems is a significant barrier to the functioning of the single market—we do not believe it is, or that the evidence is there to support such a conclusion—and directly results in all the specific tax obstacles that the proposal claims to address. We would also need evidence that the proposal is the only, or the best, way to address those tax obstacles. We will continue to raise those points with the Commission during our discussions, and we will continue to engage proactively and constructively with other member states on the important issues of policy substance, including those highlighted in the European Scrutiny Committee’s report.
As I have said, we are not the only member state that has raised significant concerns about the proposal, and we will continue to talk to others about their concerns and ours.
Mr Redwood
Is it not rather easier than that? We have always been assured by previous Ministers of the Crown that we have an absolute veto on tax matters, so do we not just have to say to the EU, “We have a veto, and the answer is no”?
Justine Greening
My right hon. Friend is absolutely right to say that we can say no for ourselves, but the problem, as he is aware, is that under the treaty, a smaller group of nine or more member states—
Justine Greening
My right hon. Friend says that that is fine, but there is a danger for our country that even that would have an impact on the tax planning that we could undertake with corporations as member states choose whether to opt in or out. We want to ensure that we are in those discussions at this earlier stage, before we get to that part of any future process. We do not know whether we will get to that stage—many member states might share our concerns—but we absolutely need to be in there now, making our case, because we do not want to end up with a smaller group of member states going down that route, which could, depending on their decisions on tax loopholes and avoidance, which are complex, lead to negative unforeseen consequences for the UK tax system’s competitiveness, which might happen even if the UK were outside any possible future proposals.
Chris Leslie (Nottingham East) (Lab/Co-op)
That was a lucid explanation—irony, of course, sometimes does not work in Hansard. The right hon. Member for Wokingham (Mr Redwood) has hit the nail on the head. Why does the motion not say no to the consolidated corporate tax base proposal?
Justine Greening
At the moment, there is no proposal on the table. A proposal is being worked up, but things are at an early stage. Member states have had, I believe, two working group meetings with the Commission to talk about how any proposal might operate. Fundamental questions are still being developed on, for example, how the formula will work, and a host of other issues. As I have said, part of the challenge is how any avoidance loopholes might work in practice, and whether they would be substantial. We are at a very early point in the process. Today’s debate allows Members of our Parliament to have their say, which we can then add to the Commission’s process.
Mr William Cash (Stone) (Con)
The Opposition Benches are virtually empty, but there are also no Liberal Democrats in the Chamber—there is a sort of let-out under the coalition agreement.
The Minister seems to be referring to enhanced co-operation, which the agreement says is the basis on which the Government will be engaged in discussions to help to shape a corporate tax base that does not undermine the competitiveness of the EU or the UK. She has made it clear that enhanced co-operation would have that effect, so clearly, we will not under any circumstances accept it. Therefore, the answer can only be no. Why do we not say so?
Justine Greening
As I have said, we need to manage risks, and it is unclear at this point where the process will end up. However, there might be risks posed by enhanced co-operation. We need to be part of the discussions to ensure that our arguments carry weight. Our arguments will not carry weight if we are not part of those discussions from the beginning, because we say that we never want to be involved. That is not a sensible approach. In addition, I do not agree that it is as simple as saying, “We don’t want to be in it,” because the proposal might go ahead in a different form involving a limited group of nations, which could still affect us, even if indirectly. I want to make it absolutely clear tonight what the Government are fundamentally seeking to achieve. We will not agree to any proposal that will threaten or limit our ability to shape our tax policy.
Mr Clappison
I support the course that my hon. Friend the Minister is taking this evening with the motion, as far as it goes, and the Opposition have revealed via an intervention that they do not understand the treaty to which they signed up. However, following what my hon. Friend the Member for Stone (Mr Cash) and my right hon. Friend the Member for Wokingham (Mr Redwood) have said, is not the fear of what others may do by way of enhanced co-operation robbing us of our right to a veto and the requirement for unanimity? Is that not a new doctrine? If we do not agree with the proposal, let us say no rather than robbing ourselves of the veto by worrying about what others may or may not do.
Justine Greening
As has been pointed out already this evening, we ultimately have the ability to say no, but rather than having to do so, we want to ensure that we carry the majority of member states in the first place. That is precisely what we are doing now, and we want to ensure that we are in a position to do it as effectively as possible.
I assure the House that we are putting our points across. Tonight’s debate is a key part of that, because it is an important opportunity for the House to put on record its concerns and views as these proposals develop. The proposals are at an early stage, but they are shaping up to be important and fundamental.
Nigel Mills (Amber Valley) (Con)
We are inviting the Minister to say whether she agrees that, as I believe, no form of consolidated tax base will ever be acceptable. It is vital to our competitiveness that we can attract business here with a more competitive way of calculating the tax base, so any proposals under which we would not have that competitive edge must be bad for our nation. It is all right saying that this is a draft, but I cannot think of any form of this proposal that could ever be in our interest.
Justine Greening
My hon. Friend might well be right, but I want to make clear the rules and the processes going forward. No member state can unilaterally block the use of enhanced co-operation. Of course we can decide whether we want to be part of that—I have clearly set out the Government’s concerns about the proposal—but I am saying to the House that we need to participate in the debate and ensure that we influence the underlying proposal. We do not want to end up being unable to stop enhanced co-operation simply because it was a proposal that we fundamentally did not want in the first place. We need to make our case, with other member states, in order to influence the proposal as it develops, and that is precisely what we want to do.
Mr Cash
The Minister is always well informed, so I am sure that she knows that the Tax Commissioner has already said that if there is a veto—if, in other words, the Commission does not get unanimity—it will go ahead with enhanced co-operation. If we know that to be the case, why do we not just say no and be done with it?
Justine Greening
The Commission might, as my hon. Friend has said, take a view, but we need to understand what other member states think about the proposal. This evening is a chance for us, as a member state, to allow our Parliament to voice its concerns. The European Scrutiny Committee, which he chairs, has produced a helpful report that will no doubt form a basis of this debate.
I shall now finish my remarks so that other Members can put on record their views on the report.
Chris Leslie
The Minister has essentially enunciated a continuation of the policy advocated by the previous Administration. In fact, this common consolidated corporation tax base proposal has been around for a decade or so. In that time there has not been a massive change in policy, which is interesting, because I had anticipated that, in her quasi-Thatcherite mode, the Minister would say, “No, no, no!” to this proposal—but she did not.
As I said, it is interesting that the motion is quite carefully worded. It specifically mentions “reasoned opinion”, “subsidiarity and proportionality” and so forth, but if passed it would not actually instruct the House of Commons to reject the directive as drafted. I suspect—on this point I was considering intervening on the hon. Lady, but I thought I would let her finish—that it might be more to do with the Liberal Democrat position on this issue. [Interruption.] The Minister rolls her eyes, but there are no Lib Dems here so it is difficult to put them on the spot.
Hon. Members will be interested to hear the Lib Dems' official policy on a common consolidated corporate tax base. In their 2009 document, they stated that they would “address the variability issue” on cross-border corporation tax
“by developing a medium and long-term statement of business tax policy, covering a minimum two parliament timeframe. This statement would…identify areas for greater international co-operation on tax policy. A clear area for co-operation is in the movement towards a harmonised tax base in the EU, often referred to as a Common Consolidated Corporate Tax Base”.
So, there is a loud voice—muscular and visible, as we now know—in the coalition arguing vociferously in favour of a common consolidated corporate tax base. I say that for the benefit of the House, because it is important that hon. Members know the facts. Given that the motion was published only this morning on the Order Paper—hon. Members did not really have notice of exactly the Government’s proposition, which is quite ridiculous—and that all 298 pages of the supporting papers were published only yesterday, I am not surprised that many hon. Members have not yet woken up to the opinion being taken of the Government on this matter.
Chris Leslie
I am very tempted by the hon. Gentleman’s invitation to do so. As I said, we have not changed our policy from when we were in office, and the Government have decided to pick that up. We do not wish to see the harmonisation of corporation tax rates; nor do we believe that this CCCTB proposal is justified, although there are legitimate cross-border issues that we need to discuss. For example, the CBI has raised the important issue of how businesses operate and the compliance costs that companies working on a cross-border basis can sometimes incur. It is legitimate to listen to those points, although there may be other, non-EU ways of addressing them. For example, we could make bilateral, country-to-country arrangements—through some of the double taxation treaties, and so on—to deal with those issues. Indeed, I would like the Minister to address the issue of bilateral discussions, which I understand the Treasury says in the reasoned opinion it might wish to pursue. It would be very helpful indeed if she could tell the House what negotiations the Government have already entered into along those lines.
Mr Redwood
Does the shadow Minister, like me, find it democratically distasteful that a 102-page draft law governing the whole of our corporation tax regime, along with supporting papers amounting to 298 pages, should get only one and a half hours of debate, and that this is all the scrutiny that we are allowed?
Chris Leslie
Yes, I agree with the right hon. Gentleman on that. We need to begin to readdress entirely the accountability deficit. I know that this Parliament already tries valiantly to address it—in Scrutiny Committees and elsewhere—but this is a debate about serious proposals. The Treasury is often an intermediary these days when it comes to new regulations and policy changes. It is important that we should think about the design of our Government and our Parliament in tackling proposals as they come along.
As I said, I am interested in the Government’s line. We will not take issue with them on this proposal this evening, but we want to watch where they go with it. All I am asking of the Minister is whether coalition policy is taking into account the Liberal Democrat official line.
Justine Greening
We are one Government and this is a Government motion. The hon. Gentleman can take it from the motion that it has the support of the coalition Government, who include two parties.
Chris Leslie
That is very helpful, and it means that the Liberal Democrats must have undergone a de facto change of opinion. I suppose that we can ask the Liberal Democrats. [Interruption.] The hon. Lady says, “Ask them,” but we cannot. Anyway, I do not want to intrude on private grief, one Government or not—although probably not—and neither do I want to take up too much more of the House’s time.
The hon. Lady has said that she is anxious that, if we are not careful, a smaller group of states might just go ahead with the enhanced co-operation procedure in any case. What assessment has been made of the potential impact on UK businesses, tax revenues and so forth? Which other member states does she think are most likely to go ahead? What role could we play in ensuring that we are not sidelined or excluded from those discussions, but instead have an impact on them?
Those are the key points that we need to address right now. I am generally worried about the Government’s disengagement from those European issues that really matter to this country. As we know, the Minister has a habit of signing Treasury memorandums about European matters that are perhaps not always agreed to by others in her party. I am referring to the European stability mechanism documentation that she signed, when she agreed that cross-party consensus was gained between the previous Government and her Administration. We will obviously be debating that on another occasion, but, for the time being, we will be keeping a watching brief on where the Government stand on this matter.
Mr William Cash (Stone) (Con)
This is of course about direct taxation, and I welcome the Government’s limited stand against the draft directive, for the reasons given in the motion endorsing the European Scrutiny Committee’s report on the points that the Minister has just summarised. I remain concerned, however, about one matter still hanging over the debate. The Minister might be able to guess what I am about to say. It goes back to a motion that was before a European Standing Committee which asserted, in the name of the Government, probably for the first time since 1640—I mentioned Pym and Hampden just now—that the British Government, as a sovereign Government, were only primarily responsible for direct taxation, whereas in fact our Parliament is exclusively responsible for it. That motion was put to a deferred Division in the House and passed, which is pretty alarming. I invite the Minister to be rather clearer than she was the last time I put this point to her, because it must be made absolutely clear that this House is exclusively responsibility for direct taxation.
The Minister has been at pains to describe the context of this measure in the light of the questions of subsidiarity, but some Members might recall that it was on 27 April that I raised this matter with the Prime Minister, together with the proposed increase in the European budget and the Portuguese bail-out, not to mention prospective Greek bail-outs and whatever else. I said that we expected the answer to be no to each of those proposals. His reply referred only to the increase in the EU budget, and I hope—for reasons that have been expressed in interventions, including my own—that we are unequivocal in reserving to ourselves the absolute determination, and not merely the right, to say no to these proposals, because they infringe a number of important principles. I shall come to those in a moment.
I want it on record that the coalition agreement states that there should be
“no further transfer of sovereignty or powers”
to the EU. Our Committee report looked at that and found it wanting in relation to the EU referendum Bill. The Government have also said that they would reject any proposal that
“might threaten or limit our ability to shape our own tax policy.”—[Official Report, House of Lords, 16 February 2011; Vol. 725, c. WA172.]
I have the greatest respect for the Minister, as she well knows, but she left out the next bit, which was the word “but”. That word “but” is represented by Banquo’s ghost, who is not sitting on the Liberal Democrat Front Bench tonight—[Interruption.] Ah! My hon. Friend the Member for Harwich and North Essex (Mr Jenkin) is there, acting as a surrogate, which is extremely unlikely in the circumstances, although I am delighted to see him and I hope that he will contribute to the debate at some point.
I want to continue with the words that come after the word “but”. They are that, “under enhanced co-operation” the coalition Government will
“engage in discussions to help shape a CCCTB that does not undermine the competitiveness of the EU or the UK”.
Now that is a monumental exception, because it is obvious, for reasons that I shall explain, that the proposal will undermine the competitiveness of the EU and the UK ab initio—and the Government know it. It follows from that, as light follows day, that there is no reason for us not to put our foot down now and say no. We know that the Tax Commissioner is saying that this is going ahead under enhanced co-operation, and this it not something magicked out of the air, as he knows perfectly well that that is what Germany, France and other countries are intending to do. When I provide the figures on the number of member states engaged in the process, as I shall in a moment, perhaps matters will fall into place.
The proposals before the European Scrutiny Committee are, for reasons set out in our conclusions, all profoundly objectionable, but the draft directive falls down particularly on four main issues: one, the sovereignty of this House; two, the insufficient legal base; three, an inadequate and unconvincing impact assessment; four, grounds of proportionality, making the doubling of tax regimes in the EU, the cost of establishing 27 new regimes and the apportionment formula excessively disadvantageous for certain member states.
I add that the Oxford university centre for business taxation says in its policy briefing that
“it is unlikely that the introduction of the CCCTB would bring significant benefits to the EU in aggregate in terms of employment, GDP or efficiency, although some individual countries could benefit significantly.”
I make that point because, under the formula of Roland Vaubel of Mannheim university, it is well known that there is such a thing as regulatory collusion and that, by the clever use of certain majority voting systems, through negotiations in the case of unanimity as in this instance or by enhanced co-operation, it is possible to arrive at a point where some countries benefit to the disadvantage of others. The Oxford university think-tank has its finger on that issue.
It is quite clear that the objective of this tax base—this is the important part that needs to be borne in mind on the big landscape—is to raise money to pay for the profligate, incompetent and failing European project. Countries such as Greece, Ireland and Portugal are either on the verge of or in danger of bankruptcy or are actually going bankrupt because of the systemic failure of economic policies. The stability and growth pact does not work: as I have said before, there is no stability, no growth and no pact.
The creation of a two-tier Europe will merely exacerbate these problems, as was noted when we debated the European Union Bill, and will lead to ever-greater German domination over the European economy. The economic predominance of Germany in east and central Europe might be a good thing from its point of view, but we now have a transfer Union and a massive redistribution of resources. What we are also witnessing as a result of the failure of this project are riots and protests as Germany repatriates its profits at the expense of cheap labour unit costs from the countries in which it has put investment in the centre of Europe, as Portugal, Greece and even Ireland have found to their cost. The pumping of money supports not so much the member states as the French and German banks, which have lent money indiscriminately to suit themselves—and we are expected to engage in the bail-out procedure, the covert mechanism for which is the stability mechanism, coming into effect in 2013.
As the European Scrutiny Committee insists, this whole proposal is in breach of the principle of subsidiarity. I remind the House that this principle is intended to ensure that decisions are taken as closely as possible to the citizen. Direct taxation is such a policy. The national Parliaments are able to use the procedure under the treaties to challenge breaches of subsidiarity. At present, there are only six countries whose parliamentary Chambers propose to, or have, issued a reasoned opinion. We have, but, interestingly enough, the House of Lords has not. I think that we should note that.
In passing the motion, the House will challenge the breach of subsidiarity. I suspect that the Minister has figures that are even more up to date than mine, but as far as I know, of the 27 member states, the five that are on our side are Ireland, Malta, Netherlands, Poland and Sweden. I am told that Cyprus, Greece, Hungary and Slovenia have no plans even to scrutinise the proposal, that those yet to decide include Austria, Bulgaria, the Czech Republic—the lower chamber and the senate—Denmark, Estonia, France, Lithuania, and Luxembourg; that Romania, Portugal, Italy and Spain believe that the draft directive complies with the principle of subsidiarity; and that the German Bundesrat is considering it only on the basis of content.
The picture is very uncertain. There is no guarantee that the accumulated number of reasoned opinions will be sufficient to meet the threshold requiring the European Commission to review the proposal, and because that will be known somewhat in advance, the tax commissioner will say that he has already received a demand to proceed with enhanced co-operation.
We have a serious problem on our hands; however, we have another card up our sleeve. Unbeknown to some, although I am more than happy to share the information with the House, under article 8 of protocol 2 the United Kingdom Parliament can go to the European Court of Justice, which has jurisdiction to determine our claim as the House of Commons—which is regarded as a separate Chamber—that the principle of subsidiarity has been breached. That gives us the basis for a challenge.
I believe that if the Government are not prepared to say no—which, for the reasons that I have already given, I think that they should have done already—the House of Commons should take the matter to the European Court of Justice; but would it not save an enormous amount of time and trouble if we simply recognised that the House is sovereign, that it has the right to take the action that it has taken, that the European Scrutiny Committee has done its job at this stage in the proceedings, and that the Minister is profoundly on our side of the equation? I know her sentiments, and I also know her Parliamentary Private Secretary. He was a member of the European Scrutiny Committee with me for years. He would be jumping about all over the place about this if he were still a member of the Committee, and agreeing with every word that I am saying.
Leaving aside the attack on Thatcherism, of all things, by the Deputy Prime Minister immediately after the disastrous showing of the Liberal Democrats in the polls, which is probably why no Liberal Democrat Members are present today—and, for that matter, the let-out that they have been given in the coalition agreement, which I think I have now shot to pieces—I would say that there is every reason for the Liberal Democrats to back down and not veto our Conservative party veto simply because of the coalition arrangement, and for the Prime Minister to do what I asked him to do at Prime Minister’s Question Time only a few weeks ago and say “No, no, no.” That would save a great deal of time and argument.
The UK corporate tax director of a major European bank has said that this proposal would increase our corporation tax and drive investment away, reduce our GDP by £73 billion over 10 years, increase the administrative burden, and lose the UK an estimated total of £58 billion, again over 10 years. We know that Mr Sarkozy and Ms Merkel are in favour of the competitiveness pact, which affects us although it is presented as a eurozone matter. I believe profoundly that, whether the proposal involves enhanced co-operation, the creation of a two-tier system, or whatever other means or machinations may be produced by the Faustian pact that is being devised in Europe, we should put our foot down, lead from the front, and say no. I am prepared to admit that the opportunity to do that exists, but I want to hear it from the Prime Minister’s own lips. He will then be able to enjoy as much success in this context as he, and we, enjoyed in the context of the alternative vote the other day, when the Liberal Democrats got their come-uppance.
Nigel Mills (Amber Valley) (Con)
It is a privilege to follow my hon. Friend the Member for Stone (Mr Cash), although I shall not follow his lead by addressing European law in forensic detail. In these debates, we run the risk of getting lost in the detail of legal technicalities and forgetting to look at why the whole idea before us is bad for Britain and bad for Europe. Although I understand why the Government have put forward this proposal, I want at the very least to try to improve it and to make the final agreed measure the least bad it can possibly be. More than that, however, I think we must explain why the whole idea is so bad for all European Union member states and try to persuade them to kill it off and not run with a slightly improved version.
My hon. Friend set out some of the reasons why this is bad for Britain. There is great concern that it would lead to tax revenue disappearing from Britain and going to other member states. We should consider the three proposed allocation keys: the number of employees and the wage bill; the value of tangible assets, but not intangible assets except in some limited circumstances; and the level of sales. Those keys will greatly favour economies that have high employee-intensive and asset-intensive industries, and I am not at all sure that that is how we would describe our economy, or whether it would accord with our vision for our economy in the future. The amount of profit, and therefore tax revenue, could be skewed, with the extra sums going to the nations with high numbers of employees and high-value tangible assets. As a result of this measure, multinational groups would be able to allocate certain activities and thereby place their corporate tax bills in territories that would result in their getting a lower rate than we might want. We must thereore be very careful.
From my experience as a tax adviser for 13 years, I can say that what we want is choices. It would be a great start if we could choose whether or not to be in the regime, or if we could choose to be in, and then try to have a completely different allocation key if we can find one that gets us a lower bill. The draft directive allows that. The aim must be to get every possible chance to choose. If I can choose where to base and allocate certain activities, I can come up with some clever ideas on how to reduce my tax base. In these days of internet sales, where we recognise a sale to have been made is an interesting exercise. Is it where the server is based, for instance? It could be set anywhere we like, I think.
For some, there is an attraction in such Europe-wide measures. If I were an American finance director I might think, “I have 27 EU subsidiaries, and sorting out all the tax returns and compliance issues is horribly complicated, but now I can just do one nice and simple tax return. Great!” In the US system however, there is a federal corporate tax, but also a load of different state systems. I do not think anyone would say its system is at all simple, or would choose to adopt that model.
We should be looking to take away some of the tax barriers across Europe. Frankly, the EU has led to the creation of some unnecessary tax obstacles. The idea that the EU involves a tax simplifying arrangement is somewhat laughable. About seven years ago, we had to extend transfer pricing rules to apply between UK resident companies of the same group because we were concerned that the European Court would otherwise throw out the transfer pricing rules that only applied on cross-border transactions. That increased the compliance burden on almost every corporate tax group in the UK. Ideally, we would allow our large groups to have a consolidated tax filing in the UK of all their UK entities, and thus take away the need to keep separate records and make separate transactions. We cannot do that because we fear European law would strike it out for no particularly good reason, yet we can try to have this complex arrangement for the whole EU.
We would think that the EU would be taking away withholding taxes, yet its directives allow withholding taxes on certain transactions between member states. If we are going to spend a lot of time and money looking to simplify tax across the EU, let us look to take away the barriers that are already there, and not create whole new levels of complexity we do not need. This whole agenda is a complete blind; this has to be seen as a drive towards a single European Union, a single federal state and a single tax system. If we want to be competitive, we are making exactly the right moves in reducing our tax rate, but there is more to a competitive tax system that attracts overseas investment than just the rate; there is the tax base, and the stability and simplicity of the system. If there is one message for the Government coming out of this, it is that we need to simplify our tax regime to make these ideas, which are superficially simple but which would not turn out to be so, seem less attractive.
I took the time to look through the draft directive on a common consolidated corporate tax base and I could see a few things in it that will attract some multinational directors. Its level of tax depreciation or capital allowances allowed for fixed assets is somewhat higher than we are reducing ours to. As I recall it, the EU is allowing 25% on a reducing balance basis, rather than the 18% that our level is now down to. Various other things in the directive may also be found attractive. We should focus our energies on trying to simplify our tax system to keep our competitive advantage, which arises from some of the reliefs we offer. We should also try to take away the tax barriers around Europe and not create a whole new complex system. We should not waste loads of time and money and miss the big picture.
Mr John Redwood (Wokingham) (Con)
Tonight’s debate should be a vital one because, after all, it is about sovereignty; it is about power. The might of this House of Commons in its great years was based on one very simple proposition: that only a vote of the House of Commons could impose or remove a tax on the British people. It was that power which our predecessors fought for and achieved, and it was that power which was crucial to grant the supply to the Government, who could then choose how to spend it, on the advice and with the votes of the House of Commons.
We have been assured and reassured by countless Ministers of the Crown since we joined the European Economic Community in the 1970s that taxation was always a matter for unanimity; that we would always have a veto over any tax matter; and that there was no question of the European Union interfering and choosing taxes for us or running our tax system. Under the previous Labour Government, tax was said to be a defensible red line, which they always told us they had always protected. Under previous Conservative Governments, Ministers could rightly then say that it was always a matter entirely for the jurisdiction and decision of this House of Commons.
Yet tonight, in this small and short debate, we are presented with a 102-page draft law which is a comprehensive new corporation tax system for the European Union, including the United Kingdom. Worse still, we have been warned in a friendly way by the Minister that if this country disagrees with it, a group of countries may go ahead under some other procedure and create it anyway, and they will then exert extraterritorial jurisdiction over the UK because they will try to tempt our companies away from our system to their system. As my hon. Friend the Member for Amber Valley (Nigel Mills) has just said, tax advisers and accountants will be able to play all sorts of games under this complicated system so that companies that have some activities in Britain could be tempted into the European Union opt-in system. That would mean that the British Treasury and British Ministers would no longer have jurisdiction over them; we would get back only what the sharing formula allowed, which the European Union would be in charge of.
I assume that it is because the Minister is worried about that eventuality that she has not come here with a straightforward proposal just to veto the whole thing. My advice to the Government is that this should be the issue we fight over. This proposal is so outrageous, it is such a comprehensive violation of subsidiarity, as they call it, and it is such a U-turn from the proposition that a member state has control over its own tax affairs that surely we should veto it. If we vetoed it and other countries still wanted to go ahead as a lesser group than the European Union, we should follow things through and say that it therefore does not apply to the United Kingdom and we will not operate it in respect of companies that are properly domiciled here and should be taxed here under our rules. We should set the rules for organisations and companies undertaking activity in Britain, making money in Britain and employing people in Britain. If we cannot do that, what is the point of this House of Commons? I think the Minister is in a stronger position than perhaps her officials and advisers have suggested.
We have heard, I think rightly, from my hon. Friend the Member for Stone (Mr Cash) that the legal base is not correct. In order to justify all the statements that this is a matter for unanimity, it must come under that measure in the treaty that states that other proposals can be produced but that they require the unanimous consent of all member states. It must come under a unanimous base. Once it is a matter to be decided under a unanimous base, we can then save the European Union a lot of time, trouble and money because we can simply say that we do not wish to have a collective corporation tax system and that Britain is going to use her veto. For once, surely, the United Kingdom could have some influence over the agenda of the European Union and we could show that we mean it when we say that taxation is for national decision—that it is a matter for subsidiarity, in the EU’s language, or a matter of sovereignty, in my language.
I would like to ask my ministerial friend what the point was of this House solemnly legislating to maintain, uphold or reaffirm the sovereignty of the British Parliament if we cannot even choose our own corporation tax regime. What is the point of our going along with the negotiations to try to ameliorate, improve or abate the severity of this draft law if we are doing so in the spirit that we will end up with a law of sorts anyway? We will then hear from the Minister that instead of it being something that we have vetoed, it is something we have taken the worst out to make it a bit more tolerable so that we can go along with it. It will not be necessary for the other member states who want the measure to use a special procedure to get it, and there will be no need for us to say to them that we refuse to go along with it or comply with it.
Mr Cash
Does my right hon. Friend recall the words of Chancellor Kohl, who, only 10 or 15 years ago, made it clear that, on the question of the speed of the convey, which is what this is all about, he would want the front of the convey to go ahead, led by Germany, and for the other Member states to be left in such a parlous condition that they would eventually, in his words, have to catch up?
Mr Redwood
My hon. Friend is quite right. That also explains why the European Union is so keen to try to get the Irish rate up, because if it is to have a common system such as this, it would not want a weak link. The EU would see a weak link as a state that dared to set a more realistic and lower rate in order to attract business.
Steve Baker (Wycombe) (Con)
As ever, my right hon. Friend makes his points with incredible force. Does he agree if the European Union follows the policies of bail-outs and political interference with business all the time, we will keep seeing measures like this one again and again until we head towards a single centralised economic system of government?
Mr Redwood
My hon. Friend is right. The EU believes that imposing more complex and higher taxes is the answer to the deficit problem, whereas the answer to the deficit problem is growth, more business, more activity and more jobs. Everything the EU does by way of higher tax rates, more regulation, more interference and more layers of government prevents that from happening. That is the Greek tragedy that we are witnessing as we debate today.
The latest figures on the Greek Government website imply that the Greek deficit got a lot bigger in the first part of this year because tax revenues plummeted, because the economy is in worse recession, and because spending has gone up, both because they are not controlling it and because spending goes up in a recession. That is the tragedy of the European model—of the bail-out model and of “extend and pretend”, whereby we extend the credit and pretend it will be all right. It is not going to be all right and that approach is causing disaster, unemployment and tragedy.
Thomas Docherty (Dunfermline and West Fife) (Lab)
The right hon. Gentleman has mentioned several tragedies and I note with some interest that the Treasury team includes this Minister, the Economic Secretary, whose views on Europe are well known, the Chancellor, whose views are very well known, and the hon. Member for Chelsea and Fulham (Greg Hands), whose views are also very well known. Perhaps the real tragedy is that the Liberal Democrats in the Treasury team, who are not even here tonight, have forced this policy on the Government.
Mr Redwood
I am not sure I believe that. We have heard from the Minister that they are a happy and united team and that she is proud of the work she has brought to us. I am saying that I would like her to improve the work and to go back and make that happy team one that can perhaps make us happier. The simple answer is veto. She should say, “No, this cannot work. It is a dreadful constitutional intrusion on a country that desperately needs its own economic recovery to accelerate, that needs lower tax rates and greater tax simplification and that needs to promote economic growth.” My right hon. Friend the Chancellor is beginning to do that, but I think more measures are needed to secure the deal and make sure it works.
I am quite sure that this huge deal—the 102-page draft law—is not the way forward. My hon. Friend the Minister says that there is no proposal, but I regard a 102-page draft law as a very serious proposal. Experience has taught me never to underestimate the power and persuasion of the European Union when it wants to do something. I think that it is now on a great push to establish all the central powers it needs for the economic governance of a single-economy, single-country model, and that this is part of it along with the economic six-pack. My strong advice to my hon. Friend is that Britain can do better, Britain needs to say no and Britain needs to exempt herself from all this, as we are entitled to do, so that we keep a sovereign Parliament and a growing economy.
Jacob Rees-Mogg
Indeed; thank you so much for that sedentary intervention.
It is very interesting that, as my right hon. Friend the Member for Wokingham (Mr Redwood) was saying, between 1688 and 1972, taxation could not be levied without the permission of the House. Since 1972, tax rates have been changed at the whim of the European Union. What is more, it happens to use duties levied on imports in exactly the way that James II would have been familiar with—it takes the same anti-parliamentary approach. James II called them tonnage and poundage; the European Union calls them anti-dumping measures but it changes them with arrogance as it sees fit.
I want to talk about the legal aspects of this issue, because they are the absolute crux of it. I raise this point with my hon. Friend the Minister because there is no point in negotiating for months if there is no legal basis in the first place. The Government should be very clear and rigorous about this and should take it, if necessary, all the way through to the European Court of Justice. That might be a Court in which many of us do not have a great deal of confidence and it might be a Court that is in principle a federalist Court, but none the less it is there and its procedures should be used.
Let me read out paragraph 2.12 of the European Scrutiny Committee’s conclusion on this issue:
“The draft Directive is concerned with direct taxation. The legal base cited for it is Article 115 TFEU. This article allows EU legislation to approximate national legislation which directly affects the operation of the single market, but”—
this is the key point—
“this provision is expressly ‘without prejudice to Article 114’. Article 114(2) TFEU provides that Article 114(1) TFEU ‘shall not apply to fiscal provisions’. Article 113 TFEU, the only provision referring to the harmonisation of taxation, is limited in its scope to ‘turnover taxes, excise duties and other forms of indirect taxation’. There is therefore no express provision in the Treaty for the harmonisation of direct taxation.”
Mr Bernard Jenkin (Harwich and North Essex) (Con)
In that quote, my hon. Friend used the word “approximate”. What is the legal import of the meaning of “approximate”?
Jacob Rees-Mogg
My hon. Friend leads me away from the essential point, which is that the EU does not have any authority over direct taxation, whether it is approximating it or not, so the approximation is irrelevant in relation to direct taxation because the treaties do not provide for that. If the treaties do not provide for it, then the EU cannot provide for enhanced co-operation without a specific treaty amendment, which would of course be a separate veto-able activity under the treaties as they exist.
We often complain about European law, and I do not like the fact that laws made by this Parliament can be overturned by the European Court, but as that is the world in which we live, when European law is on our side we ought to use it. So I reiterate my plea to the Minister in the European Councils to say that we are uncertain of the legal base and that we would like a clear legal judgment from the European Court of Justice before we proceed with further negotiations.
Now there is also a fall-back position, as my hon. Friend the Member for Stone (Mr Cash) said. If the European Court of Justice were, as a federalising court, to invent a legal base, we could then come back to the point of subsidiarity, where this debate is so relevant and important. We are putting the argument to Europe and saying, “You have put these fine protections into the treaties. You have used these grand-sounding words—not as clear as the 10th amendment to the United States constitution, but none the less words that are supposed to protect the rights of sovereign member states. Let’s now see if you mean it. Let’s now see if you, the Commission, will accept the argument for subsidiarity, and if you won’t, whether the court will back it up and whether the proposals will fall on that basis.”
If all this fails, then I accept the Minister’s position. I must confess that it is a reassurance to those of us on the Eurosceptic wing of the party that it is the Minister who will be conducting the negotiations, because at least we know that it is not, as some on the Opposition Benches would have said, a woolly Liberal negotiating. It is somebody who wields a handbag in as fine a way as the great lady—[Interruption]—the blessed lady, so we have confidence that the Government’s negotiations will be tough.
It is fair enough to go through a process, if that is where we end up, but ultimately the response must be no, not least because tax competition is a thoroughly healthy thing.
Chris Ruane
If the Chief Secretary to the Treasury has forced the Minister’s hand, and has forced a veto, should he be known as Danny DeVeto?
Jacob Rees-Mogg
I heard that joke when it was made from a sedentary position. I thought it was funny five minutes ago, and it has got better by being shared with the whole House. It is a shame that all the sketch writers have gone home, or the hon. Gentleman would have had a lead in the papers tomorrow.
Let me conclude on this point: tax competition is healthy. It is good for nations and benefits Europe, companies and, ultimately, Government tax revenues. So we have a Minister battling for us who has three things that she can say. First, the draft directive is illegal under the treaties as they stand; secondly, the House of Commons believes that it does not meet the requirements of subsidiarity; and thirdly, it is a dreadful idea anyway and it ought to be binned.
Mr David Nuttall (Bury North) (Con)
It is always a great pleasure to follow my hon. Friend the Member for North East Somerset (Jacob Rees-Mogg), who sets out with such great clarity the grounds for my opposition to the measure. We have heard tonight a number of reasons why the proposal for a common Euro corporation tax, as I would like to call it, is wrong. This is yet another stage towards what the eurocrats are determined to proceed with—ever closer union.
We are here on a regular weekly or fortnightly basis, looking at the latest directive that comes before the House. Sometimes the directives could be described as dealing with relatively minor matters. This one most certainly cannot. The harmonisation and the Europeanisation or European Unionisation of the corporation tax base is a step too far. We have heard that its legal basis is unsound. It would, in my opinion, fall foul of the principle of subsidiarity. I believe that it is economically wrong.
It would be interesting to know how many FTSE companies in this country would be in favour of this crazy proposal. It seems that the only people who would benefit if it ever came into force would be those companies and tax jurisdictions that were outside such an arrangement. I accept that in the early days they could arrange their affairs in such a way as to make it attractive in order to encourage companies to come into the euro corporation tax area, but I am absolutely certain that before long, because of the bureaucratic and regulatory burden, they would have to increase their corporation tax rates to such a level that any companies that were ensnared within such arrangements would quickly wish that they had never become involved.
Mr Cash
Does my hon. Friend also accept that the objective at the heart of this is to move towards a harmonised tax system for one reason: to complete the circle of political union that will enable this to be one country, driven by fiscal direction, and at the same time to fill the belly of the European Leviathan with the money that will enable it to continue to create circumstances that will inevitably lead to more turmoil, implosion and a greater disaster than we already have?
Mr Nuttall
My hon. Friend hits the nail on the head. I see this as the thin edge of the wedge. It is the opening of a whole new war, and a whole new phase of European harmonisation. In fact, it is almost the final frontier, because it is the step towards a euro-wide sales tax and, ultimately, a euro-wide income tax that we would all be subject to. It is extremely difficult indeed.
I heard the Minster’s opening remarks, and it is to be welcomed that we will at least go back to our European partners and state our reasoned opinion for not proceeding with this. I am slightly concerned, to say the least, that we are not saying no outright, which would be a far simpler way of dealing with it. It reminds me of the message of the drugs campaign run when I was at school: “Just say no”. The simplest solution to the problem facing the House tonight would be just to say no. I see no great danger if other countries want to get together and operate a common corporation tax system—that may be ultimately what they want to do—but this EU proposal for a common corporation tax throughout Europe could be described as nothing other than giving away sovereignty, which, to come back to our national politics, is specifically outlawed in the coalition agreement, which states that there is to be
“no further transfer of sovereignty or powers”
to the EU over the course of this Parliament. If this would not be a transfer of sovereignty and powers, I do not know what would.
When the Minister responds to this short debate, will she give an estimated time scale for when she is likely to be able to come back and report on what success there has been in persuading other countries to adopt our position on this matter, and will she give an absolute confirmation that there will be no signing up to the proposal in any way, shape or form without the matter being brought back to the House for further consideration?
Mr Bernard Jenkin (Harwich and North Essex) (Con)
I am most grateful for the indulgence of the House in allowing me to take part in this debate, despite the fact, which I regret and for which I apologise, that I missed the speeches by the Economic Secretary to the Treasury and the hon. Member for Nottingham East (Chris Leslie), who speaks for the Opposition. I heard my hon. Friend the Member for Stone (Mr Cash) and the subsequent speeches, and I get the tenor of the objections that have been raised to the draft directive and the concerns, which have been very well expressed.
I wish to speak not so much about the substance of the directive as about the matter that is so germane to this debate: the nature of subsidiarity—what it is, and what we mean by it. That is the issue on which the debate hangs: a plea for subsidiarity.
We should remind ourselves what article 5 of the Treaty on the European Union says about subsidiarity:
“Under the principle of subsidiarity…the Union shall act only if and in so far as the objectives of the proposed action cannot be sufficiently achieved by the Member States, either at central level or at regional and local level, but can rather, by reason of the scale or effects of the proposed action, be better achieved at Union level.”
Back in 1992-93, when the Maastricht treaty was being debated, a great deal of Hansard ink was devoted to reporting the discussion of that principle, and I might say that I majored in the topic.
The advisory part of article 5 relates to the objectives of the proposed action, and subsidiarity is a purely relative concept if it relates to the objectives of the proposed action, so what are the objectives in the case before us? They are set out at the start, and this speech is, I am afraid, about the futility of depending on subsidiarity. Subsidiarity is a futile defence of the national interest.
Article 1 of the preamble to the draft directive states:
“Companies which seek to do business across frontiers within the Union encounter serious obstacles and market distortions owing to the existence of 27 diverse corporate tax systems. These obstacles and distortions impede the proper functioning of the internal market.”
The proposed directive refers to “disincentives for investment”, to the complexity in article 3 whereby the
“network of double taxation conventions between Member States does not offer an appropriate solution,”
and to the need for
“a single market for the purpose of corporate tax”.
Mr Redwood
I am delighted if a case can be made under subsidiarity, but surely there is a much simpler case: taxation of companies and incomes was never part of the deal for the powers of the European Union. What it is trying to do is quite illegal, and all we need to do is to say so.
Mr Jenkin
But that was always the danger with article 5 and the subsidiarity clause. There are some very general objectives set out in the treaties, and subsidiarity is one of those catch-all arrangements that can justify stretching the meaning of other articles, as we have already seen.
How does the European Union justify the bail-out mechanism that the previous Chancellor of the Exchequer approved under article 122 of the Lisbon treaty, which was designed for natural disasters? How can a crisis in the euro possibly be classified as a natural disaster? The mechanism has, however, been allowed to go through by default.
The arrangement before us is another that will go through by default if we do not challenge it. Indeed, article 26 of the draft directive, the penultimate paragraph of the preamble, states:
“The objective of this Directive cannot be sufficiently achieved through individual action undertaken by the Member States because of the lack of coordination among national tax systems.”
It goes on to justify the objective as being
“in accordance with the principle of subsidiarity”—
and in its own terms that is very difficult to argue with.
I appreciate the European Scrutiny Committee’s points about the direct legal base, but the European Union is going for an indirect legal base. That demonstrates that subsidiarity was always a deceit. It was always something that could be a centralising, as opposed to a decentralising, concept, and if we rest our case against the proposal purely on the principle of subsidiarity we will allow the EU, rather than what we want ourselves, to determine what is imposed upon this country. If we rest our case against this proposal purely on the principle of subsidiarity, we are allowing the European Union to decide what shall be imposed on this country rather than deciding what we want for ourselves.
Mr Cash
I know that my hon. Friend was able to come in only somewhat late in the debate, but the arguments that we have been presenting show that there are a whole series of weapons that we can employ. Subsidiarity happens to be a procedural device that is available to us by way of a reasoned opinion, which is what the motion is about. We are critical of the Government’s position in that they have not exercised their political will, for all the reasons that my hon. Friend and others have explained. This whole business is an infringement not merely of the word “sovereignty” but of the practical requirements of the people of this country to tax themselves by consent. That is what it is all about.
Mr Jenkin
There is absolutely no difference between me and my hon. Friend on that point.
To echo my right hon. Friend the Member for Wokingham (Mr Redwood), the Budget moment in the calendar of this House is the most important political occasion of each year, when the Chancellor comes to this House to deliver his Budget judgment and it is for the House to determine what the levels of expenditure, taxation and borrowing should be. That is absolutely fundamental not only to the mechanics of our democracy but to the culture of our democracy and the culture of this House. This proposal is a very direct challenge to government by national democratic consent.
The only, rather lame and late, point that I might be adding to the debate is a very simple one, and I do so for the same reason as that which led my hon. Friend the Member for Stone (Mr Cash) to lambast the concept of subsidiarity when it was first proposed in the treaty on the European Union back in 1992—the Maastricht treaty. It is, very simply, that subsidiarity is not sovereignty. Subsidiarity is subservience; it is submitting to the jurisdiction of the European institutions instead of the sovereign judgment of the British people as expressed in this House. Subsidiarity is no substitute for Government saying no, particularly where the veto is in their hands. I urge my hon. Friend the Minister to exercise that veto, knowing that she will have the confidence of the British people behind her, because they do not want her to say yes in this case.
Justine Greening
With the leave of the House, I would like to sum up the debate. We have had a full and constructive discussion on this proposal, which is, as we have heard, an important one. I want to close by reiterating a few key points, but also by doing my best to respond to the comments that have been made by Members—I was about to say across the House, but that is obviously not the case, given that the Opposition spokesman turned up with very few other people from his party.
First, I should address a couple of the points that the hon. Member for Nottingham East (Chris Leslie) made about the work that we do as a country with other member states. I can assure him that the UK has, for example, double tax treaties in place with all EU member states that set out mechanisms for allocating taxing rights to prevent the double taxation of companies, and structures for reaching agreement on double taxation relief and the exchange of information. He will be aware that there is also a mutual agreement procedure framework for resolving cross-border disputes about tax, including transfer pricing. It is because such mechanisms and frameworks are in place that we believe that the proposed approach is necessary.
The hon. Gentleman asked about the views that we have heard from business. We have heard a range of views, and discussions between business and Government are ongoing. In general, it is fair to say that business has not been actively calling for this proposal. It is also fair to say that some businesses have welcomed it—in particular, the prospect of allowing for cross-border loss consolidation. However, some companies are stressing that their support depends on the optional nature of the proposal. An awful lot of others, as we heard from my hon. Friend the Member for Amber Valley (Nigel Mills), have expressed concerns about the potential compliance and administrative costs, which are likely to be large for many companies, and the lack of certainty about how many aspects of the system would work—a concern that is shared by the Government.
My right hon. Friend the Member for Wokingham (Mr Redwood) rightly raised the issue of the veto, and I want to provide absolute reassurance to all Members that we will not agree to any proposal that might threaten our Government’s ability to shape the UK’s tax policy. We are prepared to use our veto.
As my hon. Friend the Member for Harwich and North Essex (Mr Jenkin) pointed out, subsidiarity is the basis of one of the arguments that we can make, but that is not the only argument we can make. We should challenge the substance of the proposal, as well as raising our objections to the fundamental principles underlying it. That is precisely what we are doing. I emphasise to the House that we should continue to challenge the substance of the proposals as they develop, even if we do not necessarily want to be part of them.
I disagree slightly with my hon. Friend the Member for Bury North (Mr Nuttall), because I think it is in our interests to understand what the proposals are in which a smaller group of nations may participate and whether they may have any direct or indirect impact on us as a member state. That is one reason why we want to be engaged in the discussions as they unfold. We also want to engage, because other member states are keen, as we are, to have their say on this matter. I do not accept that member states have reached a final position. The parliamentary debates and the development of those views are ongoing.
Mr Nuttall
I am conscious of time, so I will be brief. Will the Minister explain what line the Government will take in the negotiations? If the understanding is that we will not join at the end of the day, would it not be to our advantage to make the tax as difficult as possible, so that our companies have an advantage?
Justine Greening
We need to be careful to ensure that we understand the complexities of the proposals. For example, we need to understand how companies that also operate in the UK may use any avoidance loopholes, and whether that will impact on the way in which they operate in the UK and structure their corporations. We need to be smart about understanding the breadth of the proposals. Whether we want to be in them is one thing, but we must be conscious that they may have an impact on us even if we are not part of them.
Mr Cash
Will the Minister be kind enough—and be smart enough—to make it clear that we will not do anything that the Liberal Democrats had in their manifesto? I have a suspicion bordering on certainty that the wording in the coalition agreement is taken straight from their manifesto commitments.
Madam Deputy Speaker (Dawn Primarolo)
Order. I know that there is a terrible pull for the Minister to turn around and face the Benches behind her, but I remind her that she should be looking forwards, or towards me, so that we can hear clearly what she is saying.
Justine Greening
I will of course do that, Madam Deputy Speaker. Your observation demonstrates that there have been few questions from any part of the Chamber other than behind me. That shows which Members of this House are prepared to stand up for our national interest and scrutinise proposals that affect our national interest, and which Members would rather go home and watch TV than represent their communities as they should.
We are committed to pursuing our national interest. My hon. Friend the Member for Amber Valley was right to raise the issue of complexity in regulation and the need for simplification. The Government set up the Office of Tax Simplification because we understand why those issues are important in helping business domestically. We are taking those very same arguments to Europe.
When I look at the proposal that we have been debating tonight, I find it hard to see how it can be reconciled with, for example, the Europe 2020 document and strategy that have been launched, which are all about stimulating growth. The impact assessment of the current proposal gives rise to grave concerns that it will do the exact opposite of that. It could hinder growth, investment and employment. We will focus our arguments not just on whether the proposal complies with subsidiarity and proportionality but on the important issues of policy substance that have been highlighted. That is the best way to ensure that we get the right outcome for the UK and for our UK businesses operating across Europe. I can assure the House that the UK will continue to participate fully in the EU negotiations on the proposal, and I will, of course, as I have been asked, keep the European Scrutiny Committee updated on the progress of those negotiations.
Question put and agreed to.
Resolved,
That this House considers that the Draft Directive to introduce a Common Consolidated Corporate Tax Base (European Union Document No. 7263/11) does not comply with the principle of subsidiarity, for the reasons set out in chapter 2 of the Twenty-seventh Report of the European Scrutiny Committee (HC 428-xxv); and, in accordance with Article 6 of the Protocol on the application of the principles of subsidiarity and proportionality, instructs the Clerk of the House to forward this reasoned opinion to the presidents of the European institutions.