Common Consolidated Corporate Tax Base

Bernard Jenkin Excerpts

Wednesday 11th May 2011 Commons Chamber

[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.

--- Later in debate ---

[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.