| Agenda 2000: Financial Aspects
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The Economic Secretary to the Treasury (Ms Patricia Hewitt): I shall begin by expressing my gratitude, to the hon. Member for Maldon and East Chelmsford for his extremely kind remarks. I assure him that all my right hon. and hon. Friends in the Treasury work just as hard as me. I am sure that he will have observed that the Treasury is at the bottom of the league table of sick leave in Departments. My civil servants take less sick leave, on average, than those in the private sector, and as far as I can see, Ministers take no leave at all. However, as he and other hon. Members have said, this has been an immensely useful debate. The hon. Member for Maldon and East Chelmsford asked a specific question about where the savings in the budget that we are seeking will come from. In order to achieve our stabilisation target for 2006, savings must come from all parts of the budget. Our focus is on that end point for the new financial perspective in 2006. The path of spending between 1999 and 2006 will be discussed further during negotiations with our partners. The hon. Gentleman referred to the United Kingdom abatement, quoted the recent remarks of a Dutch Minister and suggested that we might be isolated in this matter. ECOFIN discussions are confidential, and I must respect that, but I assure the hon. Gentleman that the Netherlands Government have recently published a document in which they approvingly refer to the target of 85 billion ecu as the stabilisation target for 2006. Several other member states also agree with that target. I turn to the issues that the hon. Members for Maldon and East Chelmsford and for Twickenham raised at some length on the Commission's various proposals for a variety of EU taxes and own resources. The huge variability in tax structure, as well as rates across the EU, make it extremely improbable that agreement would be reached. I stress again that taxation policy remains a key national competence. Corporation tax was mentioned. The hon. Member for Maldon and East Chelmsford will know that the Government have cut corporation tax to 30 per cent., and to 20 per cent. for small companies, which is significantly lower than under his Government. Both the hon. Members for Maldon and East Chelmsford and for Twickenham raised the fascinating matter of seignorage tax. Let me make it clear that a seignorage tax would effectively represent a tax on the profits of national central banks. Therefore, if it were applied across the 15 member states, it would raise a particular problem for those countries, such as the United Kingdom, which are not members of EMU. Support among member states for the EU having its own direct power to levy VAT, which has been on the agenda since the early 1960s, has been diminishing rather than increasing. Mr. Wilkinson: The Minister is making an important and welcome point about seignorage. I may have badly misunderstood, or perhaps she needs to educate me further probably both. If the United Kingdom were outside the single currency, how would the tax be imposed on those countries within the euro system? Surely their central banks will have virtually zero function when the European central bank has taken over. How will the tax be levied? How will it work? What will be the difference between its impact on those countries within the euro zone and those outside it? Ms Hewitt: I fear that the hon. Gentleman is taking me into realms of detail that the Commission might not yet have considered. As I understand the proposal, the revenue from seignorage in EMU member countries should be pooled and then redistributed back to central banks under a formula related to GNP. If the seignorage revenue in all member states were to be taxed, it would represent a tax on the profits of central banks, which we would be unwilling to accept. I shall return to the specific issue of VAT. Taxation is, and must remain, a key matter of national competence, because our constituents, our electors, hold national Governments accountable for taxes and, therefore, we must have powers over them. Any direct levy on VAT would make VAT much more complicated for Governments and business, especially small businesses. Again, we would be unwilling to accept that. The hon. Member for Maldon and East Chelmsford specifically referred to defence and a common security policy. Co-operation in defence policy means precisely that; it does not involve any proposal to increase spending or, therefore, contributions. My hon. Friend the Member for Broxtowe made some extremely important points about United Kingdom contributions and the broader budgetary context for contributions and receipts. It is relevant to stress that, for every pound that the United Kingdom receives from, for example, structural funds, we pay £1.50 in contributions. He and the hon. Member for Twickenham both raised the important issue of whether contributions should be based instead on GNP. Clearly, such a proposal would have significant advantages, of both equity and simplicity, in calculating national contributions. However, given the imbalance in receipts, an abatement for the United Kingdom contribution would still be needed. It is true to say that the United Kingdom would benefit from a GNP-based contribution, but it would be immensely difficult to negotiate such a shift for the reason, which I think the hon. Member for Twickenham recognises, that any state would be reluctant to concede an increase in their share of contributions and any shift to GNP-based contributions would, of course, require unanimity. If that proposal were pursued, we would carefully consider the important issue of exchange rates, to which the hon. Member for Twickenham referred and to which I shall return later. The hon. Member for West Dorset made a fascinating contribution and many references, which I shall not pursue, to therapy. I would not wish to intrude on private grief, but perhaps I might be permitted to observe that the agreement that we have achieved between the parties in Committee this morning has been much easier than reaching agreement between members of the hon. Gentleman's party on the vexed issue of Europe. There is not the conflict of views, either within my mind or within the Government, that the hon. Member for West Dorset suggested; there are different objectives which need to be balanced and progressed simultaneously. There is the objective of helping underdeveloped regions, whether through regional policy within the United Kingdom and, indeed, other member states, or through the structural funds within the union as a whole. There is the objective of reforming the common agricultural policy in the interests of consumers and taxpayers alike. Moreover, there is the goal of achieving a fair balance in national contributions. We must pursue all those objectives at the same time, within an envelope of financial discipline. The hon. Gentleman elaborated further on the specific question for cohesion funds and structural funds. They serve different purposes. As I am sure that the Committee knows, the cohesion funds are specifically designed to enable countries to meet the Maastricht criteria and thus qualify for the third stage of EMU the irrevocable fixing of exchange rates. Any countries that continue to qualify for cohesion funds should receive an allocation nearer to the average for the period 1994-99, rather than at the all-time high levels of 1999. It is because the cohesion funds are designed to enable poorer countries to reach Maastricht criteria that we consider that once they have achieved those criteria and joined the third stage of EMU, further payments from the cohesion funds should not be necessary. The structural funds are different. As I said, their objective is to moderate the regional imbalances that occur within nations, as well as across the European Union as a whole. My hon. Friend the Member for Gedling raised our eyes to the grander vision of Europe, to which I know that all my hon. Friends subscribe. He vividly reminded us that the enlargement of the European Union, which we seek, will bring in the former communist countries Mr. Wilkinson: Some of them. Ms Hewitt: Over time, many of them. Enlargement will bring the former communist countries into a common framework of human rights, economic dynamism and social justice. My hon. Friend also raised the important issues of fraud and maladministration within the European Union. It was a major priority of the United Kingdom presidency to improve the financial management of the Community and to fight fraud. That is why we are extremely interested in the European Parliament's proposal for an independent fraud office. My hon. Friend and the hon. Member for Maldon and East Chelmsford also raised the issue of reform of the common agricultural policy. As we said in our manifesto, it is essential that we reform the CAP. The Commission accepts the need for reform. What is unacceptable is that the increased level of taxpayer-funded compensation to farmers, which is the price of negotiating reform of the CAP, should be made permanent. The Commission proposes that the compensation payments to farmers within the existing 15 member states should be permanent, but should not be matched by compensation payments to farmers in new member states. That is not sustainable or fair. The hon. Member for Twickenham raised the question of convergence of living standards and of whether or not we are above the average. That is precisely where the exchange rate becomes so important. If we apply purchasing power parity, we find that we are still below average in terms of per capita GDP. The essential point, as I stressed earlier, is that, as we were in 1984, we are still 10th among the current 15 members, but we are still contributing more than several wealthier member states. As the hon. Gentleman rightly said, energy tax is a matter for consideration and discussion in many other member states most notably Germany. We will pursue that matter in particular as we consult on the recommendations in Lord Marshall's report. My hon. Friend the Member for Harlow also stressed the need for common agricultural policy reform. I hope that I have already responded to at least one of his concerns. On his point about the Commission's assumptions about GNP growth, as I said, we believe that the 2.5 per cent. assumption is over-optimistic. The own resources ceiling is set as a proportion of GNP, and thus rises with GNP. The financial perspective is set in billions of euros, not as a proportion of GNP. That is why we need a margin between the financial perspective and the ceiling, to allow for the possibility that growth will not meet the assumptions upon which the Commission bases its figure. We can achieve that necessary margin through our plans for stabilisation. We have a clear strategy The Committee having sat for a period of two and half hours, The Chairman put the Question already proposed from the Chair, pursuant to Standing Order No. 119(8). Question put and agreed to. Resolved,
Committee rose at One o'clock.
The following Members attended the Committee:
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| Prepared 11 November 1998 | |
