On Wednesday night of 11 May, I welcomed the Government’s limited stand against the draft directive on the EU’s introduction of a Common Consolidated Corporate Tax Base, for the reasons given in the motion endorsing the European Scrutiny Committee’s report. I remain concerned, however, about one matter still hanging over the debate. It all 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 – at the time of Pym and Hampden – 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. That is pretty alarming. The Government must be clearer – at least clearer than the Treasury minister was the last time I put this point to her, because it must be made absolutely clear thatWestminster is exclusively responsibility for direct taxation. After all, on Wednesday night’s debate, the objective of this tax base is to raise money to pay for the profligate, incompetent and failing European project.
The Government was at pains to describe the context of this taxation measure in the light of the questions of subsidiarity but on 27 April I raised the 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. I said that we expected the answer to be no to each of those proposals – ‘No, No, No!’ His reply referred only to the increase in the EU budget, and I hope that the Government remains unequivocal in reserving to ourselves the absolute determination, and not merely the right, to say no to these proposals. They infringe a number of important principles.
The Coalition Agreement says: “We agree that there should be no further transfer of sovereignty or powers over the course of the next Parliament.” Our European Scrutiny 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.”
I have the greatest respect for what the Government are trying to do, as they well know, but the Minister in her speech left out the next bit, which was the word “but”. After the words are “but 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 that the proposal will undermine the competitiveness of the EU and the UK. And the Government knows very well.
As light follows day, 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.
The proposals before the European Scrutiny Committee are, for reasons set out in our conclusions of our report all profoundly objectionable, but the draft directive falls down particularly on four main issues: one, the sovereignty of the 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.
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.”
Under the formula of Roland Vaubel of Mannheim University, it is well known that there is such a thing as “regulatory collusion” and that through 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 Centre for Business Taxation has its finger on the concerns here.
The objective of this tax base 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: there is no stability, no growth and no pact.
The creation of a two-tier Europe will 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 bailout procedure, the covert mechanism for which is the stability mechanism, coming into effect in 2013.
As the European Scrutiny Committee has insisted, this whole proposal for direct taxation proposal is in breach of the principle of subsidiarity. 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. The House of Commons has done so – but interestingly enough, the House of Lords has not.
In passing the motion, the House challenged the breach of subsidiarity. As far as I know, of the 27Member States, the five that are on our side are Ireland, Malta, Netherlands, Poland and Sweden. I am informed that Cyprus, Greece, Hungary and Slovenia have no plans even to scrutinise the proposal. Those yet to decide include Austria, Bulgaria, the Czech Republic (the lower chamber and the senate), Denmark, Estonia, France, Lithuania, and Luxembourg. Romania, Portugal, Italy and Spain believe that the draft directive complies with the principle of subsidiarity. The German Bundesrat is considering it only on the basis of content.
However, 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 in advance, the EU Tax Commissioner will say that he has already received a demand to proceed with enhanced cooperation.
We have a serious problem on our hands. But we do have another card up our sleeve. 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 plain and simply ‘No’ (which I think that they should have done already), the House of Commons should take the matter to the European Court of Justice. Of course, it would save an enormous amount of time and trouble if we simply recognised that Parliament is sovereign – and that it has the right to take the action that it has taken.
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 were present at the debate on Wednesday night), there is every reason for the Liberal Democrats to back down and not veto the Conservative party veto simply because of the Coalition arrangements. The Prime Minister should do what I asked him to do at Prime Minister’s Question Time only two weeks ago and say “No, no, no.” That would save us 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 administrative burdens and lose the UK an estimated total of £58 billion, again over 10 years. We already 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.
Whether this direct taxation 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 must put our foot down, lead from the front, and say no. The window of opportunity to do this exists – but we need to hear it from the Prime Minister’s own lips. He will then be able to enjoy as much success on this battle as he, and we, enjoyed in the context of the Alternative Vote – when the Liberal Democrats got their come-uppance.