Lord Pearson of Rannoch
Main Page: Lord Pearson of Rannoch (Non-affiliated - Life peer)European Communities (Amendment) Act 1993
Lord Pearson of Rannoch Excerpts
Baroness Bakewell
My Lords, I wish to address a small example of what has so far been elucidated in highly theoretical and impressive terms. In the course of this austerity Budget, the Government imposed what they hoped was an unnoticed small adjustment to taxation, but it was not unnoticed. It made the headlines and became known as the granny tax—a misnomer that was joked about on several television programmes in which I took part to discuss this move.
What was interesting about the days subsequent to the Budget and the discussion of the granny tax was the implication that pensioners had done well by the Budget. One segment of the population had been treated better than the rest. I wish to challenge that; I have on record that this is by no means the situation and that the Budget missed an opportunity to improve the economy among consumers. Some 50 per cent of pensioners pay no tax because they earn so little. The increase in the pension, which the Chancellor boasted about, was £5 for each pensioner and was merely a catch-up with inflation that had gone before; 4.5 million pensioners lost out, but not by very much. It allowed Age UK to refer to the Budget change as “small beer”, by which I think it meant small sums of money. Small sums of money for people who do not have very much are far more significant than large sums of money for people who have plenty. Those turning 75 were hit more by this Budget change than the 4.5 million who had the small loss.
Pensioners are suffering and they suffered from the Budget. They suffer because VAT affects all they consume; they suffer from the inflation in food, fuel and heating prices. I simply want to make the point that 10 million people over 65 are spending all they earn and all they get from their pension because they need to. Small adjustments in their favour would have increased spending across a large segment of the population and helped to boost the economy. This was a missed opportunity and the pensioners noticed.
Lord Pearson of Rannoch
My Lords, I trust that the noble Lord, Lord De Mauley, knows that he has my sympathy in his very difficult, some might say impossible, task. I trust he will forgive me if I start by asking whether it is not surreal, even grotesque, that we have to submit anything, let alone our Budget, to the corrupt, expensive and now pointless outfit in Brussels, which has not been able to have its own accounts signed off for the last 17 years in a row. In the background, and as a related matter, is it not even more absurd that this outfit in Brussels now presumes to tell us how to reorganise our own accounting standards, how much our banks and insurance companies should reserve and much other mischief that is actively designed to diminish the City of London and our vital financial services generally?
Could the noble Lord tell us what exactly the United Kingdom’s convergence programme is? With what are we converging and to what benefit? We are told that we are doing this in pursuit of the EU’s stability and growth pact. Surely even the Government must now acknowledge that this is a dead duck: that the whole EU adventure has not brought any stability or growth but merely civil unrest, unpayable debt and slump. The countries of the future sail on, including the Commonwealth, while we stay on the “Titanic”, with the iceberg obvious in front of us.
The European Communities (Amendment) Act 1993 was the Act that put the destructive Maastricht treaty into our national law. Perhaps the worst aspect of that treaty, at least for our friends in Europe, was that it paved the way for European economic and monetary union, or the EMU, the bird that cannot fly. It came complete with its attendant single currency, the euro, which is now causing so much havoc among its members and elsewhere. The United Kingdom was of course right to avoid that part of the treaty, and credit for this is often given to the then Prime Minister, Mr John Major, and later to Mr Gordon Brown when he was Chancellor of the Exchequer. However, I understand from friends in the Civil Service that neither of these gentlemen deserves much credit for this fortunate deliverance. The credit should instead go to the bureaucrats in the Treasury and the Bank of England, who disliked the EMU because it would have passed much of their power to the European Central Bank in Frankfurt. The Treasury would no longer have been top dog in the British pecking order. That position would have passed to the Foreign Office—perish the thought.
Be that as it may, it seems that our proceedings today have their justification in the failed process of European economic and monetary integration. I cannot see, therefore, why we should have anything to do with it. Why should we submit anything at all to Brussels, let alone our Budget? It is true that the Government have rightly refused the insolent demand by Brussels that they should submit our Budget to Brussels before the House of Commons sees it. They are to be congratulated on that small show of defiance. However, I come back to the question: why are we doing this at all? I fear the noble Lord’s answer will be that it is a treaty commitment, that we take our treaty commitments seriously and that we will be fined by Brussels in the Luxembourg Court if we do not do it.
I conclude with some advice for the Government, which I have attempted to give before but which I do not think has quite sunk in yet: that there is no way in which the EU can enforce a fine against a donor member state such as the United Kingdom. EU fines can be enforced against individuals and companies in the national courts where they reside. Recipient nations can have their fines deducted from the money Brussels sends to them. This, however, does not work for donor nations such as us or Germany or, dare I mention it, Holland.
Perhaps the Minister could pass this advice on to his right honourable friend, Mr David Lidington, the Europe Minister, who I learned from today’s Daily Telegraph does not want us to pay the extra £890 million now being demanded by the Commission into the bottomless pit of Brussels. A senior EU official has apparently told the Daily Telegraph that we could be sent to the Court and fined if we did not pay up. So what? Just knock the fine off the £10.2 billion in net cash we sent Brussels last year—and it is more this year. Just knock it off and see whether they dare to do it again. If Mr Cameron and his Conservative colleagues started to behave like this, they might even win the next election. So it should be with this insulting Motion before us, which I oppose.
Lord Davies of Stamford
My Lords, I will come back to the Budget, if I may, and not take up the very challenging, provocative and frankly misconceived points that the noble Lord has been talking about in the European Union context. I do not want to come back to the macroeconomic stance represented by the Budget for more than two very brief remarks, because that matter has been thoroughly dealt with by my noble friend Lord Eatwell and the noble Lord, Lord Skidelsky. I also want to talk about two particular tax proposals in the Budget, the significance of which has unfortunately not been sufficiently understood so far.
Before I do that, I have those two brief comments on the macroeconomic debate. First, it is clear that the Government are committed to the Pigouvian idea, which was discredited in the 1930s and is clearly being discredited now, that if the Government cut borrowing and spending, then the reduction in aggregate demand following from that would be automatically compensated by an equal and opposite increase in borrowing by the private sector to finance consumption or investment spending. That is a very hoary doctrine that, as I said, has been proved to be wrong in the past. The Government seem to continue to be committed to it. It has become a sort of Panglossian piece of self-deception on their part.
The phrase that the noble Lord from the Treasury used this afternoon—I heard the Prime Minister use exactly the same phrase earlier today in another place—that the solution to a borrowing crisis cannot be more borrowing reflects the preference of this Government to fall back into PR slogans rather than to think through matters carefully. It is a completely nonsensical statement. Clearly, if you have a deficit, you cannot get rid of it overnight. If you are going to continue with a deficit, you are going to continue to increase borrowing. We are merely talking about the rate at which you continue to increase borrowing. There is no doubt that the solution, whatever it is—whether it is the one we on this side of the House propose, or the one to which the Government opposite are committed—would involve more borrowing. We want more clarity, a bit more analysis and perhaps a little more straightforwardness with the public, and rather less of the generation of PR slogans to disguise reality from the public.
The two particular points emerging from the tax proposals in the Budget which I want to highlight this evening are not matters which will rouse great passion around the breakfast tables of millions of families in this country. They might even seem, at first glance at least, rather technical and esoteric but they are extremely important in terms of the vibrancy of the supply side of the economy, the ability of the economy to respond to opportunities, and the willingness of people to risk their money—to invest in new or expanding businesses, to generate wealth and employment in the future. I have already raised in the earlier Budget debate the first measure that I am concerned about. I was given a one-sentence response by the noble Lord, Lord Sassoon, which made me feel that the Government either did not want to or could not be bothered to engage seriously with the issue. This concerns the introduction of a general anti-avoidance rule. I am in favour of the introduction of a general anti-avoidance rule, with the important condition—I always make this clear in any debate on the subject—that, to avoid doing considerable damage to the economy, it must be accompanied by a provision under which HMRC would provide pre-transaction rulings to taxpayers.
Briefly, what a general anti-avoidance rule—a GAAR—means is that every taxpayer is exposed to the risk that HMRC will suddenly challenge his or her tax return and say, “We are not accepting this particular structure or bottom line of taxable income because we think that you have engaged in some artificial practice for the purpose of tax avoidance. Therefore we are going to see through this structure and tax you on a completely different basis”. Under a GAAR regime, you never quite know when you may be exposed to such a risk. I suppose that it is true to say that if you always make sure that you adopt structures which cost you the most tax of any structure that you could adopt to solve a particular problem or to arrange for a particular transaction, you would not be exposed to a revenue challenge of this kind. That, of course, would mean that there would be an enormous increase in the tax burden. That would be a very undesirable thing. It is not something that the Government have ever thought of, I am quite certain. If, in fact, you have a reasonably tax-efficient structure which you have adopted for totally respectable operational, strategic or other reasons, you are always exposed to the Revenue saying, “No, no; you only did this in order to avoid tax, so we are going to attack you with the GAAR”. The only way around this is to have a system under which you can ask HMRC in advance whether or not it would accept a particular structure and, if it does, you know that you are safe. The IRS regularly provides pre-transaction rulings, and there is no reason whatever why HMRC should not do so. I will come on to that in one moment.
The first proposition that I put to the Minister is that the effect of introducing a GAAR without a pre-transaction ruling facility is greatly to increase tax uncertainty in this country, or to reduce tax certainty. I do not think that he will argue with that, but he will argue with my second proposition, which is that tax certainty is an important factor in the determination of willingness to exist and the location of investment decisions. That decision process which sometimes may be more intuitive and sometimes may be an explicit equation will always include certain key factors. Of course, these include political stability, the real output cost of labour, access to markets, availability of skills and monetary stability. All these things are important, but tax rates are important and tax certainty is extremely important. Therefore, if you change the variable of tax certainty, or produce a greater degree of tax uncertainty, you will change the outcome of that particular equation. You will have less investment. That is a very undesirable thing to do.
Lord Stoddart of Swindon
My Lords, I should like to join the noble Lord, Lord Myners, in pointing out that the Benches opposite are virtually, but not quite, empty. The one occupant is from the junior partner of the coalition. I have to sympathise with the Minister who is to reply, the noble Lord, Lord De Mauley, because his party has completely deserted him. It is a very serious matter for a Government when a Minister is confronted by so many erudite speeches from the Labour Benches and, indeed, the Cross Benches. The last speech that we heard was very amusing indeed. This has enabled the Opposition to make a concerted attack on the Government’s Budget, and their economic policy, without one criticism or speech of reply from the Benches behind the Minister. That is quite shocking and I hope that in future the Whips, or whoever else is in charge, will ensure that the Minister is far better supported than he has been this evening.
This debate is,
“to move that this House approves, for the purposes of section 5 of the European Communities (Amendment) Act”.
As I have already said, what we have had, except for the excellent speech of the noble Lord, Lord Pearson of Rannoch, is a debate on the Budget and economic policy. I have to say that I congratulate all those who have spoken, because the speeches have in some ways been superior to those made in the House of Commons. That is something that noble Lords and people who read Hansard might care to consider when we debate, perhaps in the next Session, the future of this House.
First of all, I support what my noble friend, if I can call him that, Lord Pearson raised—the matter of Europe and whether we should be having this debate at all tonight. When I saw the item on the agenda, my mind went back to 1992 when the Maastricht treaty was before Parliament, having been signed by the then Foreign Secretary, who then said, “Perhaps I had better now read what it says”. We had a long debate about what was going to happen with regard to the Maastricht treaty. At that time, people such as me and the noble Lord, Lord Pearson, warned that what was contained in that treaty would eventually lead to many powers reverting from this House and the Government to the institutions of the European Union. So it has happened. As the noble Lord, Lord Pearson, rightly said, it is absurd and outrageous that we, the Government and Parliament, should have to send our economic policy and our Budget over to Brussels to be supervised by the Commission and 26 other countries. That is not self-government, if I can put it that way; it represents being governed from abroad by bureaucrats who are completely unaccountable and insensitive to what our own nation state requires, or what is required by the other nation states in the European Union.
The document I am holding here is the Convergence Programme for the United Kingdom, but convergence with whom and for what purpose other than to create a single European state? Why would we wish to be concerned with the basket-case countries on the brink of default and collapse? The Conservatives say that they want to be in Europe but not governed by Europe, but convergence is about government, and about European governance. As I have already said, it is outrageous that this country should be obliged to submit its plans to Brussels bureaucrats for oversight by 26 other countries, many of which are very much smaller and less important than us.
What if Parliament refuses to agree? We could have a vote tonight. Probably everyone has gone home, so we might even win it. What if Parliament refuses to agree to submit the convergence criteria? What then? The noble Lord, Lord Pearson, raised this matter. He told the House that it was impossible for the Commission—or the Community or the Union, as it is now called—to fine, but we have been amazed at the sort of things that the European Union and its institutions can do, so I am not at all certain that he is right that no attempt would be made to fine this country if we refuse to submit our economic policy under Section 5.
Lord Pearson of Rannoch
My Lords, I did not say that no attempt would be made to fine us. It is certain that an attempt would be made to fine us. A fine would indeed be issued by the Luxembourg so-called court of so-called justice. All I said was that there is no way that Brussels and Luxembourg can force a donor nation to pay a fine.
Lord Stoddart of Swindon
I hope the noble Lord will be able to answer that question. They could not send troops over here to enforce their will. I do not want to keep the House for much longer, although there have been some long speeches tonight, but people in this country are getting quite disillusioned with politics. The Hansard Society published its latest figures today, which show that only 42 per cent of the electorate are interested in politics—a 16 per cent drop since the 2011 figures. Their disillusionment is understandable because they have realised that the United Kingdom is increasingly governed not by its own elected Parliament but by the EU and other international institutions. No wonder percentage turnouts at elections are now so low because people see no point in voting for a Parliament in which EU treaties hand decisions and governance to the EU and its institutions.
Lord Davies of Stamford
In response to what the noble Lord just said to the noble Lord, Lord Pearson, is it not the case that the auditors have consistently declined to sign off on those aspects of the accounts of the Union which involve money disbursed by member states—for example, structural funds and CAP funds? There have been a number of difficulties in a number of countries, but there has never been any doubt at all about the robustness of the accounts of the Commission and the institutions of the Community. Therefore, this issue is an indictment of a lack of federalism, not of too much feudalism. If the Commission were directly responsible for disbursing all these funds, there probably would be no problem. The problem is with member states that have had a lot of difficulty in keeping accounts properly.
Lord Pearson of Rannoch
Before the noble Lord rises to reply to that well known canard, it is, of course, true—is it not?—that a third of the budget is under the direct control of the European Commission. If the noble Lord, Lord Davies, would like to understand how it really works, instead of continuing to produce Europhile propaganda, I suggests he reads Brussels Laid Bare by Marta Andreasen. Then he will understand how the whole thing works, and we will no longer have these fruitless debates trying to pretend that this is not the fault of the corrupt octopus in Brussels but entirely the fault of the wicked nation states, which are also at fault, of course.
