Common Consolidated Corporate Tax Base

William Cash Excerpts

Wednesday 11th May 2011 Commons Chamber

[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.

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[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.

[Mr Cash]

In this new guise of the Pym or Hampden of the British Parliament, am I to imagine, beyond the wildest speculation, that the Labour party is about to announce that it will vote against these proposals on the grounds that it does not veto the Commission’s proposals?

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[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.

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[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.

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[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?

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[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.

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[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.