What does the convoluted EU renegotiation prose mean?

The EU has not agreed to the UK’s request to cease paying Child Benefit to children of migrants to the UK who do not live in our country. Instead the EU proposes an amendment to Regulation 883/2004 (one of the regulations that prevent us having the welfare system we want). This would give member states an option “with regard to the exportation (sic) of Child Benefit to a member state other than where the worker resides, an option to index such benefits to the standard of living in the member state where the child resides”

This is not clear. Does it mean we would have to pay 80% of our Child Benefit to a country whose living standards were 80% of ours? Does it mean we would have to pay more child benefit than we get to Luxembourg where average earnings are higher than in the UK? Some think it means we could pay the level of Child Benefit received in the host country where the child is living. In that case we would have large savings on Child Benefit in most of the eastern members of the EU, but would be paying more for migrants from Germany or Denmark.

What is clear is we will not be allowed to simply discontinue paying Child Benefit to non UK resident children.

Nor has the EU agreed a simple ban on benefits to newly arrived migrants for the first four years after their arrival. Not only is there the elaborate process of the emergency brake, but also the requirement that over the first four years of any migrants stay we would gradually increase payments to them so that by the four year mark they are already at full benefit levels.

When it comes to protecting the UK from EU controls on the Euro and financial institutions, again there is legal complexity and lack of clarity. The government wanted an assurance that the Uk will continue to regulate and control the City, and keep away from Euro area controls and regulations. Instead the text includes the following important qualification:

“without prejudice to Union mechanisms of macro-prudential oversight for the prevention and mitigation of systemic financial risks in the Union and to the existing powers of the Union institutions to take action that is necessary to respond to threats to financial stability”.

So the main problem remains. What authority will the UK preserve over its important financial sector, and how much will the rules and controls comes from the EU?

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Why travel in a car that needs at least half a dozen emergency brakes?

The government is busy trying to retrofit the EU car with emergency brakes to stop it being driven in a direction the UK does not wish to go. Why not get out of the vehicle and get into our own, and drive it where we wish?

The government inherited an effective emergency brake fitted to stop us having to enter the Euro, written into the Treaty.

We also have an emergency brake applied to keep us out of Schengen, but the free movement rules work round its effectiveness.

The government originally wanted an emergency brake to limit inward EU migration. This idea seems to have been dropped.

The government is negotiating an emergency brake for benefits to EU migrants. Unfortunately the one on offer is not in our control and could be overturned by later Court judgements or Council decisions.

The government is seeking an emergency brake to stop future requirements needed by the Eurozone from applying to the UK.

The government claimed to have an emergency brake in place to keep us out of all Euro area bail outs, yet we were dragged into the short term loan for Greece last summer.

When a country needs as many special arrangements as this you need to ask if it is in the right institution.

The only emergency brake that works is one in the sole control of the UK and written into the Treaty.

None of these new proposed brakes are to be written into the Treaty, so they can easily be ignored or overridden at a later date.

If the car you are in needs six emergency brakes because the driver is going in the wrong direction for you, maybe it is time to get your own car and drive it yourself.

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A possible right to stop future EU laws if enough countries agree with us

Well there’s a surprise! In future if a majority of EU Parliaments agree, we can stop an EU proposal we don’t like. How does that differ from being able to stop an EU Commission proposal today if we have enough votes around the Council of Ministers table? Not a lot.

The only thing that works for us is a veto – or exit from the EU. If we can veto a new law then we return power to UK voters and their Parliament. Nothing else works. What matters more is the huge number of laws already agreed and the big obligations placed on us by the current treaties. Our democracy has already been badly damaged by the legal controls placed on us.

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Staying in the EU is the risky option

The main problems the Stay in campaign have is they do not like much of the current EU, and can’t tell us how much more centralisation there will be.

They seek to argue that the EU is just a trading club. They say they don’t want to join the Euro and the common borders, two of the crucial central features of the modern EU. Staying out of them causes all sorts of difficulties for us and the other members.

The EU is on a wild ride to political union.

The UK’s contributions to the EU have shot up in recent years. They will go on demanding more tax from us as their union will be expensive.

The UK has surrendered power after power to the EU, especially in the Treaties of Amsterdam, Nice and Lisbon with the loss of many a veto over EU action and law making.

They will ask us to surrender more in the forthcoming Political Union Treaty, Meanwhile each Directive or regulation passed is another surrender of UK power to decide.

How much will the UK’s contribution be by 2020?
Won’t the UK be expected to contribute to the rising costs of bureaucracy and to larger regional transfers needed owing to economic failures within the Eurozone?

How many more laws will they pass that will apply to us even if we do not want them?
Will they admit that every Regulation and Directive is another area of life where we can no longer decide for ourselves? How many more will there be and do they want?

How can we trust them when they said the UK would still be free to set its own taxes and welfare benefits? We have just seen the UK cannot make minor changes to welfare, and cannot alter VAT on tampons when public and Parliament are united in wanting to do so.

Why did so many of the Stay in people want us to enter the European Exchange Rate Mechanism which did so much damage to jobs and business? Will they apologised and admit they were wrong? What have the learned from that?

Why did so many of them think we ought to enter the Euro? Why have they changed their mind?
Do they support the EU’s proposed Financial Transaction Tax, or are we right to try to avoid it?
Hoe does the UK avoid being dragged into the costs, laws and responsibilities of the Eurozone?

How did EU policy towards Ukraine work out? Has that made us more or less secure?

Being part of the EU exposes us to the Russian gas energy risk, to the political tensions on the eastern borders of the EU and to the failure of the EU to control its borders.
Staying in is the risky option.
Staying in is a wild ride to political union.

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What does Brexit look like? A lot better than staying in.

The Better Stay in Europe campaign only wants to paint gloomy and false pictures of the complexities of Brexit. They have nothing positive to say about belonging to the EU. Out of the EU we will be free to make our own laws and spend our own tax revenues as we see fit.

The Leave campaign does not want the UK to seek a Norway style deal, as we see no need to pay any money into the EU once we have left. Canada, Australia, Mexico trade well with the EU without having to pay for the privilege.

Once the voters have chosen to leave, there are two options. The UK could invoke Article 50 under the Treaties and enter a negotiation lasting up to two years – or more – to decide which agreements we wish to keep and what we wish to change. That would be playing the EU’s game and may take longer than is desirable.

The UK could simply amend the 1972 European Communities Act to make clear that as from the Exit vote all EU laws and rules in the UK depended on the authority of Parliament and no longer derive from the Treaties or the European Court. All present laws and rules would continue for the time being.
Armed with that change the UK would then be able to negotiate which agreements and rules need to remain to facilitate our trade and economic relations with the EU, and which can be amended or repealed if the UK wishes. I would expect the rest of the EU to want to keep the trade agreements, mutual market access, pipeline, transport and other agreements. The EU for its part would have to accept that in other areas the UK is free to legislate as it wishes – over borders, benefits, environment, energy and much else.

The UK could simply rely on World Trade Organisation membership to stop tariffs and other barriers being imposed. In practice both sides will wish to do better than this. Germany has already made clear they don’t want extra tariffs like a 10% tariff on cars, so the resulting deal will be similar to the current position, WTO plus.

The UK would reassure former partner countries that we wish to sort out the matters where we are still involved – mainly trade – on an amicable basis to a sensible timetable, but reserve the right to get on and sort out matters like borders, welfare and criminal justice where the act of leaving restores sovereignty.

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Leave must mean leave

Again yesterday when debating on TV BSE just kept the lies flowing that when we leave we will continue to pay money to the EU and accept free movement.

Two of the main reasons to leave are to get our money back and to control our own borders. Mexico with a free trade agreement, Canada and 160 other countries around the world trade with the EU but do not pay contributions to the EU budget, and do not accept freedom of movement. So will BSE stop the lies that we would need to in order to trade?

We do not want some half way house agreement leaving us partially in. We wish to restore our own democracy. Our trade with the EU is not at risk and we do not have to opt in to some associate membership in order to buy and sell cars or wine or legal services.

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Taxing times for Google and others

I am going to break off from the EU exit series for a couple of days to deal with taxation, as there is an ill informed topical debate underway about it. I am publishing this blog for tomorrow early this week-end as some Sunday journalists may find it helpful.

There are two major judgements involved with reaching a fair tax settlement for successful multinationals. The first is where was the profit made, given that they incur costs and earn revenues in various countries. Some of them, for example, chose to establish their headquarters – and therefore incur substantial costs – in Ireland as Google has. They go there partly because Ireland has a much lower rate of Corporation Tax than other European countries. The UK cannot complain about that, as the UK’s own company tax strategy is to cut our rate so we attract headquarters and other cost bases from higher tax countries. We want the employment and investment, and would like companies to export from the UK around the rest of their group. When the company earns revenue in the UK it can of course offset the UK costs against the revenue, but it can also claim that some part of the costs it incurs elsewehere, as in Ireland with its headquarters, can also properly be taken off its UK revenues before striking a profit. The amount is a judgement which its own accountants, managers, auditors and the competing tax authorities all have to consider.

The second related issue is transfer pricing. Where a good or service produced by a multinational incurs production costs in more than one country the company is allowed to set transfer prices for the semi finished good or contribution to the service from country A into country B where the good or service is finished or delivered. Again a judgement is involved, as these are often just internal prices. In my simple model where just two countries are involved both countries tax authorities have an interest. Each will want the highest possible transfer price for their part of the work and the lowest for the other country’s, to maximise their part of the total profit so they can tax it. A company would like the profit to be highest in the lowest tax country, but all reputable companies will want to strike a fair price as they understand the morality of doing so. They also understand that to be able to persuade the tax inspectors in both countries concerned the fairest price should have the most chance of meeting with approval. In practice many countries may be involved where activity happens in plenty of places and contributes to the final good or service.

Google’s view of these issues – and its other judgements on where profit was made – led to a very low tax assessment in the UK from 2005 onwards which the then Inland Revenue accepted. In 2009 HMRC initiated an enquiry to see if it could challenge the way the UK profit was calculated. This enquiry was clearly a complex one, as it has only just resulted in the Revenue making a new determination of Google’s tax and Goggle having to pay considerably more as a result. This was not some political fix between a Conservative Chancellor and his big business pals. Ministers do not get involved in individual company tax calculations, do not see the details of a company’s tax submission or the Revenue response and are not allowed to interfere in an enquiry. Ministers do have to debate celebrated cases if the media and opposition pick up on them, but not on a basis of study of the individual tax account. Ministers do have to form tax policy, uphold or amend the law as necessary and be prepared to defend the results of tax law. The Revenue advises Ministers in general terms on what change is needed or how to defend against criticisms in the light of their detailed experience of the current law in individual cases.

What conclusions do I draw from this saga? Firstly, I support tax competition between countries and do not blame Ireland for setting a lower rate and for attracting headquarters and other costs as a result. Our taxation of a multinational that does have an Irish headquarters has to allow for the legitimate activity that such a location decision requires. It will mean some of the tax we would like to place on profits from UK revenue will pass to the Irish authorities or is not a profit at all. The Chancellor is right to respond to this part of the problem by lowering our rate so we can attract more taxable activity from other higher tax jurisdictions.

Secondly various loopholes in rules over where revenue and profits can be booked needed to be closed. This Chancellor has closed 40 such loopholes which allowed companies legitimately to avoid tax in the last decade which they cannot do now. The Chancellor has sought to deal with the overall problem through his attack on the diversion of profits by multinationals. He was right to take action to tackle profit diversion and if he needs to take further action I am sure he will next budget. Each budget sees the Revenue put forward proposals to deal with the latest legal schemes to divert profits to lower tax jurisdictions or to reduce reported profits by taking advantage of legal tax abatements.

Some on the left seem to think large multinationals are the super rich and all we have to do is to demand more money from them. We live under a rule of law in a competitive world. Those who want multinationals to pay more tax need to come forward with thought through amendments to our tax law which would achieve their aim without losing us the jobs and business. This argument is mainly about where profits are booked and which country therefore gets the tax, so where we seek change it is to repatriate profits from neighbours. In part it is also about tax taking a larger share of revenues. In some cases that may be a good idea, but we need to remember that company revenues are also needed to reward employees and to invest in the future. Multinationals, like many individuals, wish to minimise their tax bills by all legal means.

Let me conclude by dealing with conspiracy theories before they are written. I have no personal financial interests in Google or any of the other majors under scrutiny for paying too little tax. I have not even met the management of Google. Before writing this article and before appearing on Any Questions where I thought the issue might emerge I contacted Google so I could understand in general terms the way their tax bills since 2005 were first agreed and then subject to revision. I do have an interest in more healthy business and jobs in the UK, and understand that striking the right tax balance is not easy. This Chancellor has succeeded in getting more tax out of these companies than his Labour predecessors without so far losing business and profit to other countries as a result of his corporate tax policy. That is a win.

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We will be a democracy again if we leave the EU

A fundamental principle of democracy is that one government and Parliament cannot bind another.

To ensure the power of the people voters need to be able to dismiss a government that does not please and replace it with one that does. Any law, decision or spending priority that needs changing should be capable of change following an election.

Now we are in the EU there are many areas where UK voters cannot change policies by voting or through the pressure of public opinion.
An incoming government in many areas has to say we cannot change that law, that expenditure, that way of doing things, because it is set out in EU laws, regulations and directives.

A new UK government cannot make many changes to our energy policy to pursue cheaper energy, cannot set our welfare policy as we wish, cannot police our borders as we choose, thanks to EU laws.

The UK was signed up to Nice, Amsterdam and Lisbon, three centralising EU Treaties, by the last Labour government. The Conservative Opposition opposed all 3 for good reasons. We were not able to change a single clause in them once elected to office.

Greece has shown just how broken and damaged a democracy is when you sign up to the Euro as well as the rest of the EU laws. Greek voters discovered they can no longer change economic policy, however bad the existing one may be.

The UK has also signed a way a lot of her power of self government. The UK too is being taken on a wild ride to political union. EU law making and budget setting is incompatible with UK democracy.

THOSE WHO WANT TO STAY IN ARE IN DENIAL ABOUT HOW MUCH POWER HAS GONE

They either say little has gone, or they say we are stronger if we “pool” our sovereignty.

It is simply wrong to deny the transfers when you see the thousands of pages of laws and Treaty clauses we are signed up to.

And it is wrong to say we are more powerful because we have one voice in 28 around the table.

Does our Prime Minister look powerful, rushing round the EU begging for changes to our welfare system which we can longer do for ourselves? It’s our money, but they tell us how to spend it.

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Why the UK will have more influence in the world if it leaves the EU

THE UK WILL BE MORE INFLUENTIAL WHEN IT LEAVES THE EU

Out of the EU the UK will regain her rightful place on world bodies. The UK will reclaim her own seat at the World Trade Organisation, in World Climate talks and similar fora.

Instead of having to broker a line with 27 other countries, the UK will in each case be able to form her own opinion and to advance it directly.

The UK will be free to make her own trade treaties with the USA, China, India and other leading countries. During 43 years in the EU the EU has failed to negotiate trade Treaties with these and other countries, and prevents us from doing so on our own.

The UK will retain her seat on the Security Council of the UN and her leading role after the USA in NATO.

The UK’s defence will continue to be assured by our own armed forces and by the NATO support.

Rule making for trade and related matters worldwide now occurs through world bodies. The UK does usually has to allow the EU to sit on these bodies instead of us. Out of the EU we will have our own seats on these organisations, and will have a more direct say in the world standards and rules that affect us.

Far from neglecting or ignoring us, out of the EU France and Germany will be keen to negotiate our support and agreement to various initiatives they will lead in the EU. We will have more influence over any common policy because we will effectively have restored our veto.

OUR OPPONENTS WILL CLAIM THE UK WILL LOSE INFLUENCE IF WE LEAVE

They ignore the fact that many decisions in the EU are now taken by majority vote, where the UK can easily be outvoted.

They are unable to explain how the UK can both influence central EU policies and stay out of the Euro which increasingly drives decision making in the EU

They claim the UK would have to adopt all EU rules outside the EU. This is simply not true. Outside the EU the UK would not have to adopt any EU rule it disliked for domestic or rest of the world activities. It would only have to adopt a requirement of the EU in order to sell a good or service to them, just as we have to accept customer requirements wherever we sell in the world.We meet US standards to sell to the USA, our biggest external market, but do not need to join their political union to do so.

They claim the UK will be sidelined outside the EU. On the contrary. EU states will want UK support for EU initiatives in the world. The rest of the world will take the UK more seriously once it returns as a full voting member to the main world bodies where it currently shares a representative with the other 27 countries of the EU.

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Leaving will be good for farmers and fishermen

When the UK leaves the EU it will carry on paying all the current grants to farmers.
We will have our own money to spend, and will have all the money we had to send to the EU to pay for our farm subsidies back under our own control.
A Conservative government will guarantee existing subsidy levels and will discuss with farmers if they need more or if they want the money paid in some different way.

Outside the EU the UK will be free to buy more of our own food in the UK without the problems of EU procurement laws.

We will be free to adopt modern technologies and innovations we think will help farmers and their customers.

The UK will regain her seat on The International Plant Protection Convention, and will have a stronger voice in combating plant disease worldwide.

OUR OPPONENTS WILL CLAIM WE WILL LOSE SUBSIDIES AND INFLUENCE

They are wrong on both counts.
We will have more of our own money to spend, and will guarantee current subsidy levels

We will have much more influence when we can say what we want and make our own decisions, instead of having to live with compromises with 27 other countries as our official view.

FISHING
Out of the EU the UK will regain control of our fishing grounds.
The Common Fishing Policy has done huge damage to our fish stocks and has allowed factory ships from the continent to come and take so much of our fish. A UK domestic policy could be more successful at husbanding our fishing grounds and giving priority to UK vessels. Norway, Iceland and Canada show how.

The Common Fishing Policy ranks alongside the Euro and the common energy policy as one of the great disasters of the EU, costing us jobs and environmental damage on a large scale.

ENVIRONMENT

Outside the EU the UK will be able to set her own environmental standards, and reward farmers and landowners for looking after our precious landscape and allowing others to enjoy it.

The UK will also be free to modify the water and planning laws which have assisted flooding and got in the way of good water management.

The Water Directives have worsened flood problems.

The UK can have a rural policy that looks after rural areas and is sensitive to UK needs.

OUR OPPONENTS CLAIM THE UK OUT OF THE EU WILL INTRODUCE LOWER ENVIRONMENTAL STANDARDS

That is not the intention of the current Conservative government. Parliament will be free to set higher or more effective standards if it wishes.

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  • About John Redwood


    John Redwood won a free place at Kent College, Canterbury, He graduated from Magdalen College Oxford, has a DPhil and is a fellow of All Souls College. A businessman by background, he has been a director of NM Rothschild merchant bank and chairman of a quoted industrial PLC.

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