MPs say EU tax proposals could kill Gibraltar’s industry and cast Northern Ireland adrift

Gibraltar’s industry could stall, and Northern Irish businesses competitiveness could be eroded if the EU adopts proposals altering tax rules, according to a new report from the European Scrutiny Committee.

MPs on the Committee blasted what they called the government’s lack of interest and criticised that seemingly no impact assessment had been conducted on the proposal’s effects.

The government’s draft Energy Taxation Directive proposes yearly increases in the minimum tax on energy and fuels in line with inflation, removing several tax exemptions and linking tax levels to a fuel’s environmental performance. This could hit drivers, consumers, and businesses in the pocket, according to the report.

The UK rejected similar proposals while it was an EU member.

The Port of Gibraltar’s, whose ship refuelling facilities are among the largest in the Mediterranean and have benefited from exemptions on tax on maritime fuels would hugely suffer should negotiations between the UK and the EU on Gibraltar’s future trading relationship with the bloc result in full EU alignment.

Gibraltar is not covered by the UK-EU Trade and Cooperation Agreement signed at the end of the transition period, and the relationship has been governed by temporary arrangements reached at the eleventh hour in December.

Negotiations on a permanent deal will begin before the end of the year at which the EU’s current negotiating position includes effective control for Spain over Gibraltar’s tax levels.

The report also warns that under the proposals, Northern Ireland would automatically have to follow the EU’s new energy tax proposals if the government was unable to achieve its desired changes to the Northern Ireland Protocol.

Linking energy tax levels to inflation would result in the costs of fuel for end-users in Northern Ireland accelerating away from rates in England, Wales and Scotland over time if there are no equivalent rises in Britain. Energy-intensive Northern Irish goods would become increasingly uncompetitive in its home UK market as a result.

Depending on the tax levels determined by the EU there could also be some immediate tax rises in NI and the potential for fuel smuggling to become more prevalent if the proposals are adopted.

There is a risk of social consequences to this as unionists are opposed to any separation from the UK mainland, as riots against the Protocol earlier this year showed.

Sir Bill Cash, chair of the committee said, “Regardless of the Government’s intentions to negotiate more flexible settlements, as things stand Northern Ireland will, and Gibraltar may have to follow EU tax rules. The potential erosion of competitiveness of key industries in Northern Ireland and Gibraltar, and the possible social ructions that would follow, must be taken into account and taken seriously.”