Wednesday, 5th May 2004
Jeffrey Donaldson MP
Carl Mortishead
- The speakers - |
|---|
Jeffrey Donaldson,
MP
Unionist Politician |
Carl Mortished
Internation Business Editor of the Times
| For further details contact:
Robert Oulds, Director
The Bruges Group, 216 Linen Hall, 162-168 Regent Street
London, W1B 5TB,
UK
Tel: +44(0)20 7287 4414 Fax: +44(0)20 7287
5522
E-mail: info@brugesgroup.com |
The promised referendum on the EU constitution has given the British people
a golden opportunity to transform the debate on Europe and to put the facts
about the proposals before the electorate. The European elections offer the
chance for a national debate on the European Union, but the real issue is not
Europe but the ability of the British people to determine their own future.
After a generation of seemingly inexorable movement towards European Union the
promise of a referendum on the European Constitution has finally given the
British people an opportunity to take our destiny back into our own hands.
the promise of a referendum on the European Constitution has
finally given the British people an opportunity to take our destiny back into
our own hands
There is no more fundamental democratic issue than the question of
sovereignty. This is an area in which people who live in Northern Ireland
have a particular interest. What is it that marks out a nation, apart from
it's people? What makes a nation powerful? Surely, it is the capacity to
control your own economy in order to generate wealth and the ability to defend
yourself from attack and to act in the national interest from a security
perspective. In short, it is economic and military power. Why do you think
the promoters of Euro federalism want a single European currency and a
European army? When you give control of your economy and your defence, you
give up your sovereignty.
Whilst flawed comparisons with little value have been made between the
situation in Northern Ireland and other conflicts throughout the world, I
believe that there are valuable lessons to be learned from Northern Ireland in
the debate about sovereignty.
As a part of the United Kingdom which has a land border with the Euro Zone,
a part of the United Kingdom which has witnessed how this Government will
approach a referendum which they want to win at any cost and a part of the
United Kingdom which understands that sovereignty is not a light switch that
is simply turned on or off at will, we recognise that there are indeed clear
lessons and warnings from the experience of Ulster.
I thought it might be useful to examine the European issue from the
Northern Ireland perspective and see what lessons can be learned from our
experience.
In Northern Ireland regardless of whether the issue is the future of
Northern Ireland, the Scottish football team supported, one's view on the
Middle East conflict and even Europe there is a fundamental division between
unionists and nationalists. Of course there are people from the unionist
community who are strong supporters of the European Union and the movement
towards a European Superstate, but the overwhelming number of unionists would
regard themselves as Euro-sceptics.
Both major unionist parties could broadly be described in this manner and
find common cause with those in Great Britain who oppose the Euro, the new
Constitution and the diminution of sovereignty in the UK. Debates within
unionism during the European Parliamentary election will probably not focus so
much on the big question of the direction of Europe as both parties take a
similar position but on the question of who can best deliver from Europe for
the people and the constitutional question of the day in Northern Ireland.
To a greater or lesser degree since the European Parliamentary elections
were first held in 1979, Northern Ireland has returned two 'euro-sceptic'
MEPs. Indeed back in 1975 Northern Ireland, I believe voted to stay in the
Common Market by the smallest margin in the entire UK. There was a clear
unionist majority for leaving the Common Market but nationalists had very
strong support for staying in.
The SDLP are unapologetically pro Europe and see it as the
solution to every problem
Whilst the debate has moved on considerably since the 1970s, the general
division between unionists and nationalists remains. The SDLP are
unapologetically pro Europe and see it as the solution to every problem. Sinn
Fein are somewhat more confused about their position. Having been in the
vanguard of the campaign against the Nice Treaty in the Republic of Ireland
they now appear to support the introduction of the Euro into the UK.
For the last thirty years the people of Northern Ireland have faced a
challenge to their sovereignty both at home and abroad. Whilst we, like all
British citizens, have had to face the ever growing threat from Europe we have
also had to face challenges to our own citizenship at home.
I think the central reason that unionists in Northern Ireland are
overwhelmingly Euro sceptic is related to our understanding of the importance
of sovereignty and the dangers inherent in giving it up. We have battled from
the inception of the state of Northern Ireland and even before then to
preserve the supremacy of the Westminster Parliament against the designs of
Irish Nationalists, therefore I suppose it is not surprising that we do not
wish power to be transferred to Brussels.
One lesson which is common to both the Northern Ireland question and the
Euro debate is that change is always gradual, a kind of 'creeping integration'
and the proponents of change sell it as a sensible and natural evolution.
Dangers inherent in such movement are often dismissed as scaremongering and
those who raise such issues are castigated.
In 1975 if the Government had explained exactly what the next thirty years
would hold in Europe would the result of the referendum not have been very
different? We have learnt the bitter lesson that what Governments say on
such issues and what Governments - all Governments, do are very different.
The Euro has been the central issue in the European debate over the last
few years as it was seen as the first opportunity the British people would
have to cast a vote on Europe.
In Northern Ireland we are in the unique position within the UK of having a
land border with the Euro Zone. That gives us a particular understanding of
the impact that the introduction of the Euro might have. It is clear that the
Euro in the Republic of Ireland has led to higher and higher prices with the
country now being one of the most expensive places to visit in Europe.
I do not believe that it is in the interests of the people of Northern
Ireland in particular or the people of the UK in general to be a part of the
Euro zone. I believe there are sound economic reasons for this view, of which
I am sure you are all well aware, but fundamentally I believe that this issue
goes beyond economics. It is a question of sovereignty.
There are some Europhiles who are honest enough to concede that a single
currency is merely a staging post for some form of United States of Europe,
but more often they suggest that our currency can be abandoned without any
impact on our sovereignty. They are quite wrong. When a nation gives up it's
currency and a large degree of fiscal control, it gives up sovereignty.
We have now been promised a referendum on the issue of the new
Constitution. This is one Government U-turn which is to be heartily welcomed.
There is no doubt that the scale of the volte-face on this issue has been
truly remarkable. The true motivation for it may well have much more to do
with internal power struggles within the Labour Party than it does with any
belated conversion to uphold the rights of the British people.
There may be a commitment to a referendum and this is undoubtedly a victory
but as we have learned in Northern Ireland - where there are opportunities
there are also dangers. Defeat for the Euro constitution at the hands of the
British people will be the first really significant electoral brake which will
have been put on the European train in the UK.
It will be a signal that the British people can no longer be taken for
granted and the direction of the EU must change.
No matter how strong our position is today - and recent opinion polls would
suggest that opposition to the Constitution is solid - complacency is our
greatest enemy.
There is undoubtedly a lack of knowledge in the community about what a
European Constitution would mean for the British people. The most crucial
weapon in this debate is information. This referendum looks like an act of
folly by Tony Blair but do not write off the ability of the Government to
shape the debate and win the debate.
There are parallels between the way the Government won the
referendum on the Belfast Agreement in Northern Ireland and how they will seek
to win the referendum on the European constitution
There are parallels between the way the Government won the referendum on
the Belfast Agreement in Northern Ireland and how they will seek to win the
referendum on the European constitution. Fortunately there are also
significant differences.
The yes campaign in Northern Ireland did not wish to debate the detail of
the Belfast Agreement or analyse the consequences of a yes vote. Instead they
painted the battle as a simple good versus evil, peace versus war and the
future versus the past. This is a convenient way to ignore the difficult
issues which are presented by constitutional change.
The yes campaign in Northern Ireland did not wish to debate
the detail of the Belfast Agreement or analyse the consequences of a yes
vote
I imagine the yes campaign for the constitution will play the same game.
The constitution will be sold on the basis of the only sensible approach to
take, difficult consequences will be ignored and opponents will be castigated
as enemies of progress. Yes, scare tactics will also be deployed, perhaps
with subtlety, but they will form part of the campaign to 'persuade' the
British people that the proposed constitution is in the national interest.
You can hear it now.....loss of influence in Europe, damage to our economy,
international isolation etc., etc.
Do not underestimate the ability of the Government to sell the unpalatable.
In 1998 they were able to persuade the people of Northern Ireland that
terrorist prisoners should be released, Sinn Fein/IRA granted automatic places
in Government, and the police force, the Royal Ulster Constabulary, which
combated terrorism for thirty years should be disbanded. By reducing this
debate to the simplistic and suggesting that there is no alternative to the
Government's proposals the seemingly unattractive is presented as the only
show in town.
Indeed it was a campaign which was not beyond deploying misinformation and
saying whatever it took to win. Claims by the no campaign which have proved
to be accurate were dismissed as scaremongering and instead the pro-agreement
forces made claims which were manifestly inaccurate.
Even despite all of the huge advantages the pro agreement campaign in the
early stages of the referendum struggled to convince the unionist population.
Indeed in the final days the Prime Minister himself was brought to Northern
Ireland to try to sell the advantages of the Agreement to the people there.
In the final days of the campaign he made five pledges to the people of
Northern Ireland. This was seen as a turning point in the campaign. What has
been forgotten by many is that within months the Prime Minister began
dishonouring the promises which he had made. Political expediency dictated
that they be dispensed with and the agreement having been approved these
'solemn' commitments were quickly disposed of.
A pliant media in Northern Ireland played along with this illusion,
uncritically accepting the Government line and demonising those who opposed
it. Coverage to the opponents of the Agreement was limited and the debate was
dominated by those who supported the Agreement.
On the European issue the forces are much more equal but the same tactics
will be attempted. Opposition to the Constitution will be equated as a desire
to leave the EU itself and the Government will seek to make this the key issue
of debate. The choice offered will not be between the constitution or no
constitution but more likely between sensible working arrangements for
co-operation and the end of Britain's role and influence in Europe.
The forces against the European constitution have strong political support
and backing by a large chunk of the print media. Whereas the anti agreement
parties in Northern Ireland were faced by a daily barrage of propaganda from
the Government. At least on the European issue the playing field is much more
level. Equally in the area of funding the pro agreement campaign was well
financed - from far beyond Northern Ireland.
We were faced by the combined ranks of the US President, the British Prime
Minister, The Irish Prime Minister, U2 and even Richard Branson. With all of
these people supporting the Agreement there was a clear indication about how
people were expected to vote.
As I have mentioned, there are great opportunities for the British people
to put a brake on the project towards a European Superstate. Our position is
strong but we must be wary of what lies ahead.
There is no greater protection for our position than a full debate on the
issues. We must not allow the Government to set the terms for the debate or
fight the referendum on issues which are not before the British people. They
will seek to use every form of persuasion and pressure possible. The more
desperate they will become the more outlandish the claims will become.
When the referendum does finally come, the campaign against the European
Constitution can be assured of the support of the vast majority of unionists
living in Northern Ireland. We must take advantage of the opportunity for a
debate on this crucial issue and reassert the sovereignty of the British
people.
I would like to talk to you today about two things but I fear that you may
find neither of them pleasant topics because both concern tax and tax is dull,
painful to experience and dull to deal with. To add to your pain, I am going
to suggest that tax is going to get worse for ordinary people in Britain. What
I hope will make it worth listening to is that the reasons that tax may get
worse are both surprising and difficult to avoid. Much of it has to do with
the EU but the EU is not entirely to blame.
Tax is going to get worse for ordinary people in Britain.
What I hope will make it worth listening to is that the reasons that tax may
get worse are both surprising and difficult to avoid. Much of it has to do
with the EU
The two things I wish to talk about are tax competition and tax
harmonisation. Harmonies sound sweet but for anyone with even a remote
acquaintance with the European Council of Ministers will know that there is
probably less chance that 15 European governments will agree a common business
tax rate than that they will agree to the creation of a common European army
and defence policy.
We are told repeatedly by Gordon Brown that tax is a red-line issue over
which he will not step. The power to tax is not just a question of
sovereignty, important though that may be to many in this room. It is far more
important because along with the authority to go to war tax is the base line
of the state's power over its citizens. If Gordon Brown gives up the right to
tax us (and having already devolved the setting of interest rates to a
committee what is there left of the Chancellor's job?) he becomes nothing more
than a bureaucrat He is no longer a finance director making strategy but a
mere treasurer counting the pennies.
Tony Blair would have us believe the fiscal levers are safely
locked up in Westminster. Well, don't be fooled, because there are much bigger
forces at work
So, Tony Blair would have us believe the fiscal levers are safely locked up
in Westminster. Well, don't be fooled, because there are much bigger forces at
work. Bigger than Parliament and even bigger than Brussels. Businesses are
mobile; tax is just another facet of the business plan of a successful
multinational. Take Siemens, the German engineering firm as a theoretical
example. It might design a new mobile phone and it could do that in one of its
British laboratories, manufacture it in the Far East and sell it in America.
When each phone is sold, how much of the profit is earned in Britain, how much
is attributable to the American distribution arm or to an Asian low-cost
manufacturing location. Is any of the profit earned and taxable in
Germany?
I am sure that Siemens declares and pays every penny of tax it owes but we
all know that multinationals employ scores of people to ensure that the value
in a transaction is seen to be earned at the point and in the location where
less if not the least tax is payable. That is their duty to their shareholders
and we know GlaxoSmithKline is disputing a $5 billion claim from the American
Internal Revenue Service which alleges that the drug company used transfer
pricing to minimise its US profits. In this world of itinerant opportunistic
companies the locus of profit is a convenience and governments are at the
mercy of large corporations.
Schröder chose the moment of accession to spoil the party by
complaining about the low business tax rates offered by the new EU member
states... He called their low rates tax dumping and his finance minister, Hans
Eichel again suggested a solution and he mentioned the big bad bogy words: tax
harmonisation
Hence, tax competition. A world of freely competing tax jurisdictions
sounds wonderful if you are a mobile taxpayer. You hop across the globe
watching finance ministers compete in a sort of Dutch auction of tax rates,
forcing them to bid down to the level of lowest tax jurisdiction. But Gerhard
Schröder, the German chancellor, sounded underwhelmed at the prospect of such
a future last week. Schröder chose the moment of accession to spoil the party
by complaining about the low business tax rates offered by the new EU member
states, countries that hope to benefit from EU structural funds. He called
their low rates tax dumping and his finance minister, Hans Eichel again
suggested a solution and he mentioned the big bad bogy words: tax
harmonisation. He said: 'When people start asking why we are sponsoring
the transfer of jobs outside of Germany, then this is a problem for
everyone'.
To get a feel of what Eichel is talking about, let us look at those new tax
rates. Most of the original 15 EU member states have a corporation tax rates
of between 30 and 35 per cent. According to KPMG, the accountancy the firm,
the old EU-15 corporate tax rates have not change much over the past year,
falling from an average rate of 31.8 per cent to 31.5 per cent. France is 34
per cent, Italy 37 per cent and the UK is 30 per cent. Germany leads with 38
per cent but only Ireland has adopted an exceptionally low rate of just 12.5
per cent.
On that basis, the UK is quite competitive in Europe with a lower than
average tax rate. But everything changed when the 10 new states joined the
club. They have taken the average business tax rate down more than four points
to 27.4 per cent. Britain is now well above average.
What has happened is the Irish chucked a low tax snowball down the hill as
a domestic experiment in stimulating investment but the Irish snowball seems
to have caused an avalanche way out east. Anticipating their accession to a
big new pool of business capital, the Slovak Republic and Poland both cut
their business tax rates from 25 and 27 per cent respectively to 19 per cent,
half the German level. Latvia has cut its rate from 19 per cent to 15 per
cent, bringing it down to the same level as its neighbour Lithuania and
Estonia has decided to dispense with taxing business income altogether,
provided that earnings are reinvested.
The tax challenge of the former Comecon states has not gone unnoticed.
Hungary has cut its rate from 18 per cent to 16 per cent, prompting a panicky
response from Austria which has just cut its rate from 34 per cent to 25 per
cent. At one time the Central European state was on the frontline in the
defence of Western values from Soviet Communism. Now the Austrians are
protecting their socialist backsides from a competitive assault by
enthusiastic capitalists in the east.
Mr Eichel described Estonia's policy as 'a problem'. If one were
to dare to put words in the mouth of the Estonian finance minister, he might
say: 'Your problem is our opportunity'
Britain's policy is to support the likes of Poland and Estonia and along
with the Irish to vote against any harmonisation measures that might dare to
creep into a new European Constitution, if there is ever to be such a thing.
But is the Treasury really happy about all this? The answer is no. They are
not happy at all, they are worried and not just worried. They are terrified
because the well of business tax is depleting every year.
At its peak in 2000, Britain earned some £33 billion in corporation tax
receipts. We are well off the peak with 2003 revenues down to £29 billion and
many tax experts believe that the chances of making significant recoveries in
CT receipts are slim with or without a major profits recovery. The reasons are
not entirely clear? Some believe that the City has lost its ability to deliver
the super profits that characterised the stock market boom of the late 1990s.
But tax avoidance must be a major factor and that erosion of the revenue base
is likely to accelerate. KPMG's latest survey of business tax rates worldwide
shows that overwhelming majority of states reduced their business income tax
rates last year. The OECD average rate fell from 30.9 per cent to 29.9 per
cent, making Britain marginally uncompetitive for the first time among the
industrial countries.
And there is worse because, while the Council of Ministers in Brussels
argues about the respective merits of tax harmony and tax dissonance, another
European institution in Luxembourg is tearing apart the tax laws of member
states faster than parliaments can write them.
The 12 judges in the European Court of Justice are singing in perfect
harmony from a hymn book that all the member states have conveniently
forgotten about. It is called the Treaty of Rome and it says there shall be
something called freedom of establishment. No one in the finance ministries
across the Union imagined that taxpayers would claim this freedom in
challenging their tax bills.
In their increasingly desperate attempts to capture business income and
prevent its escape across borders to greener tax-free pastures European
governments have been hoisted by their own laws. In his last budget, Gordon
Brown introduced a set of bizarre rules governing transfer pricing between UK
companies and their domestic subsidiaries. Transfer pricing is what I
mentioned earlier, the ability of companies to load their taxable profit from
a high-tax country to a low-tax country by selling or buying goods between
companies within the group at higher or lower prices. Governments go to great
lengths to see through these arrangements but in a series of judgments the ECJ
has ruled that a tax law that discriminates between European subsidiaries on
grounds of nationality is unlawful. Seeing a major plank of his anti-avoidance
provisions about to be shredded the Chancellor created a nonsense. Henceforth
the British subsidiaries of British companies will have to comply with
transfer pricing rules, a measure which will cost of millions of pounds in
administrative burden for large companies. The new rules are utterly useless
and the Treasury will earn not a penny of extra tax by their enactment. It is
being done solely to protect the tax code from the European Court's
shredder.
The cases from Luxembourg are coming thick and fast. Discriminatory
taxation of foreign dividend income was an early and successful target. More
recently, the court has gone after anti-avoidance laws seeking to capture tax
sheltered in thinly capitalised companies. The Lankhort-Hohorst case was a
major victory for multinationals because it prevented the German government
from seeing through a debt-laden subsidiary and taxing the payments to its
parent as a dividend which is taxable rather than as an interest payment which
is deductible. Marks & Spencer has joined the ranks of eurotax litigants,
claiming that losses it sustained at a French subsidiary should be offset
against its UK taxable profits. Is this not a common market, asks the
retailer? Needless to say, the Inland Revenue does not agree and the matter
will have to be decided in Luxembourg.
The Treasury could lose billions of pounds in tax receipts as
pages and pages of tax legislation accumulated over years in a painstaking
effort to prevent the escape of profit from the UK is consigned to the
dustbin
The Treasury could lose billions of pounds in tax receipts as pages and
pages of tax legislation accumulated over years in a painstaking effort to
prevent the escape of profit from the UK is consigned to the dustbin. What the
European Court is doing is nothing less than harmonising business taxes but
this is not the same harmonisation that Germany seeks. It is harmonisation
downwards. The prospect of companies quitting the UK, free of tax, cannot now
be precluded because of a decision by the Court this year. In the De Lasteyrie
case, the ECJ annulled a French law imposing capital gains tax on the transfer
of an investor's residence from France to Belgium. One of the main impediments
to companies moving abroad is the risk of creating a deemed disposal, and a
consequential taxable gain. The ruling in De Lasteyrie , which concerned an
individual, removes that risk within the EU. Tax experts believe the case is
also applicable to companies, opening the door to British companies that might
seek to benefit from Ireland's 12.5 per cent tax rate, or for that matter
Estonia's nil tax rate.
Could the European Court of Justice be signing the death warrant for
corporation tax? As a revenue raising measure, business income tax doesn't
work very well. Its main impact appears to be negative, the export of profits,
which in turn leads to the loss of investment capital and ultimately the
export of jobs to countries that offer lower tax rates. Governments attempt to
balance that effect by offering huge capital allowances which in turn reduce
the revenue potential of the tax. The biggest beneficiaries of corporation tax
are probably the accountants and lawyers who dream up schemes to avoid it.
Recognising this problem, the European Commission has a wizard scheme, a
proposed directive that would create a common European tax base. This would
not be the dreaded harmonisation but a set of rules that would determine not
how much a company pays but how big its profits were. A sort of European
accounting standard for the definition of taxable profits.
This would be a dream solution for corporate taxpayers. Wherever you are in
the EU, your profits would be deemed to be the same number of euros, for
example. The only question that would remain is at what rate the French fisc
taxes you and whether Finland might offer your company a better deal.
Needless to say, its a pipe-dream. Can we imagine for one second that
Gordon Brown would give up his right to fiddle with the rules on depreciating
research and development expenditure. Would not the Finns insist that employee
daycare must be an allowable expense and will the French require that all
restaurant bills, regardless of how incurred, be deductible from taxable
profit.
Perhaps we should give it all up as a bad job. There is an argument to
suggest that corporate taxation is just a tax on investment and, instead, we
should tax employees and the receipt of dividends. That is the Irish solution
but we in Britain have a problem going down this road. We derive a higher
percentage of our overall tax revenue from taxing company profits. Figures
compiled by the Institute for Fiscal Studies show that between 1996 and 2001,
the average take from corporation tax amounted to 10.5 per cent of total tax
revenues. That compares with 8.5 per cent for the US, 8.2 per cent for Italy,
6.3 per cent for France and only 3.9 per cent for Germany.
If Gordon Brown is introducing nonsense law to protect his corporate tax
base, it is because he knows he must do so or throw in the towel. And even if
he did remove his towel and expose the tax system for the frail creature it
really is, what should he do? How is he to fill the £30 billion hole left by
the demise of corporation tax? Indirect taxes already accounted in 2001 for
14.2 per cent of GDP, above the European average as was the personal income
tax burden, some 11 per cent of GDP.
In this country, the tax burden is rising, not diminishing. Between 1995
and 2001Tax as a percentage of GDP increased from 35.4 per cent to 37.5 per
cent. That does not leave many avenues open to a future chancellor to fill a
hole should he choose to relieve the corporate sector by a few billion. Where
would he look? Could we rely on those non-domiciled football mad Russian
billionaires to pay a bob or two? But something tells me that their affection
for Britain might prove short-lived. I fear that we, the ordinary taxpayers,
will have to bear the full burden of international tax competition unless we
look again at that thorny issue of how much of our money we want the
government to spend.
Ordinary taxpayers, will have to bear the full burden of
international tax competition unless we look again at that thorny issue of how
much of our money we want the government to spend | 
