Independent Adviser on Ministers’ Interests

Chris Heaton-Harris Excerpts

Tuesday 8th November 2016 Westminster Hall

[Chris Heaton-Harris (Daventry) (Con)]

It is a pleasure to serve under your chairmanship, Mr Hollobone. The reason why the two Ministers responsible for this matter are not standing here is that one is on paternity leave after the birth of his second son, Aubrey Valentine Hamilton, and the other is on a ministerial visit outside London. I spoke to the hon. Member for Newport West (Paul Flynn) last week to express their sorrow that they could not be here to respond to the debate. I hope that he finds me a suitable stand-in who does not say the word “transparency” too many times.

I thank the hon. Gentleman for his contribution, and I congratulate him on securing this debate and on speaking so fluently. The Public Administration and Constitutional Affairs Committee, of which he is a member, has been looking into the matter for some time, so the debate is timely. As always, I have listened to him and considered, as carefully as I can, what he said. I will try my best to respond to as many of his points as possible.

As the hon. Gentleman rightly said, the office of the independent adviser was set up by a Labour Government. It has a purpose that everybody knows about, and it is important to start by reiterating the lines of ministerial accountability. The very first section of the ministerial code makes it clear that:

“Ministers must...comply at all times with the requirements which Parliament itself has laid down in relation to the accountability and responsibility of Ministers.”

That is incorporated into a resolution of Parliament, as he well knows.

The code states what to all of us in politics is the blindingly obvious, which is that

“Ministers only remain in office for so long as they retain the confidence of the Prime Minister.”

It also sets out that it is the Prime Minister who

“is the ultimate judge of the standards of behaviour expected of a Minister”.

It is also he—I should say she; I must get that right now, in the new regime—who decides

“the appropriate consequences of a breach of those standards.”

She makes the decisions, and is accountable to Parliament and the public for those decisions. The independent adviser is someone outside Government who can provide the Prime Minister with independent advice. There has been no change to that approach, which has existed under every Government since the role was established under Labour in 2006.

There are two key aspects to the role, both of which are important and one of which the hon. Gentleman almost completely ignores. First, the independent adviser provides Ministers and their departmental private secretaries with advice on handling Ministers’ private interests in order to avoid any conflict between those interests and their ministerial responsibilities. That is set out in section 7 of the ministerial code and prevents any problems from occurring in the first place, helping to explain why fewer investigations are carried out by the independent adviser than perhaps the hon. Gentleman would like.

The second element of the job is to investigate when the Prime Minister, advised by the Cabinet Secretary, decides that allegations that an individual Minister may have breached the ministerial code of conduct are appropriate for investigation. Section 7 of the code sets out the adviser’s role with respect to ministerial interests, making it clear that:

“It is the personal responsibility of each Minister to decide whether and what action is needed to avoid a conflict or the perception of a conflict, taking account of advice received from their Permanent Secretary and the independent adviser”.

Again, that is a check to prevent problems from occurring in the first place, which helps to explain why so few investigations are carried out by the independent adviser.

Ministers are required on appointment to each new office to provide their permanent secretary and the independent adviser with a full list, in writing, of their interests that might be thought to give rise to conflict. Where appropriate, the independent adviser will advise Ministers and permanent secretaries on any action necessary to avoid a conflict or potential conflict of interest, removing future problems at the earliest stage. Ministers must then record in writing what action has been taken and provide the independent adviser with a copy of that record. The work is all behind the scenes, but it is crucial.

[Paul Flynn]

I did not use all the time available to me, so that I could give the Minister a chance to reply. Although I appreciate that he has difficulty in filling a quarter of an hour, it is not good enough just to repeat the situation and the rules of the code. He should answer the specific points I raised. Will he, for instance, tell us why the case of the right hon. Member for North Somerset (Dr Fox), the then Secretary of State for Defence, was not referred to the independent adviser, as Sir Philip Mawer said it should have been?

[Chris Heaton-Harris]

I happily took the hon. Gentleman’s intervention, but he has intervened on me with 10 minutes to go in my prepared speech, and I have plenty to tell him about all that if he will please wait for that particular passage.

I emphasise that this is behind-the-scenes work because it is so crucial, and by doing it we address a lot of problems before the issues might arise. The hon. Gentleman can hardly complain about the independent adviser being impotent when the independent adviser is doing so much work to prevent problems from occurring in the first place. Most importantly, the Government are as transparent as possible about the process. The Cabinet Office publishes a list of Ministers’ relevant interests twice a year, which enables external scrutiny of any potential conflicts. It is an ongoing process, not a one-off. The most recent list was published in July 2016, and the updated list will be published in a few weeks, when the hon. Gentleman will be able to enjoy the slim pickings in my first ever entry.

The pickings are slim because every Minister I know takes the ministerial code seriously from the first time they look at it. I wanted to continue being a trustee of a local charity in my constituency, but I took advice that I was not allowed to do so because it would be in conflict with the ministerial code. I could have continued with the trusteeship but, being in conflict, I would no doubt have been referred—happily, in the hon. Gentleman’s eyes—to the independent adviser for investigation. That is the process. The independent adviser’s job is to try to prevent problems from happening by giving sensible advice at key points in time.

The independent adviser, at the request of the Prime Minister and having consulted the Cabinet Secretary, investigates alleged breaches of the ministerial code. The decision on whether an individual Minister will remain in office is ultimately for the Prime Minister, who will take into account the facts established by the independent adviser. The results of any investigation by the independent adviser are made public.

As the ultimate judge of the standards of behaviour expected of a Minister, it is rightly for the Prime Minister, in consultation with the Cabinet Secretary, to decide whether an alleged breach of the ministerial code merits investigation by the independent adviser. In some cases, the Prime Minister may conclude that there is no need for such advice—the facts will already be clear. In other cases, she may decide that there is a need for further investigation before she can make a decision. In those instances, she may refer the case to the independent adviser. It is not the role of the independent adviser to initiate his own investigations. He is there to advise the Prime Minister on allegations of breaches of the ministerial code. He gives the advice; the Prime Minister makes the decision.

Let us also be clear that Ministers are personally responsible for deciding how to act and conduct themselves in light of the ministerial code, and they are responsible for justifying their actions and conduct to Parliament and the public. We also have an independent and robust free press in this country, which plays an important role in holding individual Ministers and the Government as a whole to account.

There have been suggestions in the past that the ministerial code should be ratified by Parliament. The Government’s view is that that would blur the lines between the Executive and Parliament. The ministerial code is the Prime Minister’s guidance to her Ministers on how they should conduct themselves in public office. Parliament already has a powerful range of mechanisms to hold the Government to account, some of which I enjoyed as a Back Bencher. The Government see no reason to change that well established approach and believe that the current model works well.

[Paul Flynn]

Will the Minister explain how the system worked well in the case of Kids Company? The accusation was of largesse, with huge amounts of money being given to the then Prime Minister’s project. The person who stopped the investigation of the obvious waste of £3 million was the then Prime Minister. How can a system be fair and reasonable, and how can it work, when the Prime Minister acts as judge and jury when he himself is accused?

[Chris Heaton-Harris]

There has been absolutely no suggestion of any breach of the ministerial code in that particular case. There have been a number of investigations, including one by the Select Committee on Public Administration and Constitutional Affairs, of which the hon. Gentleman is a member, and one by the Public Accounts Committee. The latter recommended a number of outcomes and lessons to be learned, and obviously those lessons will be learned, but there has been absolutely no suggestion of any breach of the ministerial code in that case.

The Government are confident that the role of the independent adviser, along with the broader commitment to transparency, will create a framework that is more robust and significantly stronger than the one that applies to the public sector. Publishing the list of Ministers’ interests is just one part of the Government’s commitment to transparency. The list, alongside the Register of Members’ Financial Interests, ensures that information about Ministers’ interests that are relevant to their Government role is in the public domain. Measures have been put in place, where necessary, to avoid any conflict of interest. The Government are proud to be one of the most transparent in the world, and we have taken steps to publish more information than ever before, including details of ministerial gifts over £140, overseas travel and any hospitality received.

The hon. Gentleman raised specific questions today about the role of the independent adviser, and he has raised questions about the independence of the role on numerous occasions. I have already made it clear that this is a personal appointment by the Prime Minister of the day. The post holder must be outside party politics and must provide his own independent views on the issues that are referred to him. The Prime Minister makes the appointment on the basis of an assessment of the post holder’s ability to provide such an independent perspective. It is our judgment that the current post holder, Sir Alex Allan, has the experience and necessary skills and judgment to make him ideally suited for the role. He has expertise, experience and ability to provide confidential and trusted advice to Ministers and their permanent secretaries from an independent, non-party political point of view.

I re-emphasise the process. If there is an allegation about a breach of the code and the Prime Minister, having consulted the Cabinet Secretary, feels that it warrants further investigation, she will refer the matter to the independent adviser on Ministers’ interests. Ministers are responsible for deciding how to conduct themselves in light of the code and for justifying their actions to Parliament and the people. The code makes it clear that Ministers only remain in office as long as they retain the confidence of the Prime Minister. The Prime Minister is the ultimate judge of the standards of behaviour expected of a Minister, and the appropriate consequences come from her if there is a breach of those standards.

I know that the hon. Gentleman will be slightly disappointed by my reply. He comes across as slightly —I don’t know—Trumpist in looking for conspiracy everywhere, where perhaps none exists. Proper investigations have taken place. It is important for us to realise that the Government take transparency very seriously, and we will not blur the lines between the Executive and Parliament. Parliament already has mechanisms to hold the Government to account.

Today’s debate has demonstrated remarkably strongly held views on this subject. My remarks will not have pleased the hon. Gentleman.

[Paul Flynn]

I recall the words of Chaucer:

“That if gold ruste, what shal iren do?”

He spoke of:

“A shiten shepherde and a clene sheep”.

What we have here is an accusation that if the head is behaving in a partial way, and if the Head of Government is rotten, the whole flock will be rotten.

[Chris Heaton-Harris]

The hon. Gentleman has gone on a bit about how the standing of politics and how this place is viewed by the public has gone down. Those who look at his Twitter feed will see that he does not particularly like his voters and how they voted on Brexit. Maybe that is a disparity that he would like to examine slightly more closely than this issue.

I hope my remarks today have made it clear how the Government take issues of ministerial conduct very seriously, but we remain of the view that the appointment and dismissal of Ministers is a matter for the Prime Minister. We are satisfied with how the current model works.

Question put and agreed to.

Outsourcing and Tax Credits

Chris Heaton-Harris Excerpts

Friday 4th November 2016 Commons Chamber

[Chris Heaton-Harris (Daventry) (Con)]

Does the Minister agree with this recent statement about the Government’s position on this matter:

“We welcome this recognition from the government”?

That was said by the general secretary of the Public and Commercial Services Union.

[Simon Kirby]

My hon. Friend makes a valuable point. It is, I think, important to say that, particularly for vulnerable people, overpayments lead to debt. That is why it is important to make sure that we get the payments right and do not make mistakes. We must act in a fair, appropriate and customer-focused way.

Tax Avoidance and Multinational Companies

Chris Heaton-Harris Excerpts

Wednesday 3rd February 2016 Commons Chamber

[John McDonnell]

The hon. Gentleman has taken an interest in this matter over many years and has regularly been in debates with me in this Chamber. I fully agree that we need a more radical approach.

Let me complete the recommendations briefly, because I think that they will open up a much wider debate. Thirdly, we need an end to mates’ rates and sweetheart deals with major corporations. Tax law should be applied fairly whatever the size of the company. Fourthly, we need full transparency in the relationship between Ministers and companies, so I want to see publication of all the minutes of all such meetings. Fifthly, we need firmer action to curb the tax avoidance industry, so action should be taken against the advisers when the tax avoidance schemes they designed are found to be unlawful by tax tribunals and courts. The same advisers advise Her Majesty’s Treasury and help write our tax laws. That is unhealthy and unacceptable.

[Chris Heaton-Harris (Daventry) (Con)]

Will the hon. Gentleman give way?

[John McDonnell]

I cannot give way, because I am concluding my speech.

Sixthly, we clearly need independent scrutiny of HMRC and the implementation of taxation policy overall. Let us now explore the establishment of a cross-party committee, along the lines of our Intelligence and Security Committee, to perform that role. Finally, we need an end to the counterproductive staffing cuts and office closures at HMRC.

For most of my time in Parliament, I have been campaigning for a fair tax system that secures tax justice. Of course companies such as Google make a significant contribution to research and development and through the employment they provide, and I welcome that, but we expect all companies to play fair when it comes to their tax responsibilities. I am unable to accept the Government’s amendment because it fails to support our key demand for openness and transparency. The amendment would remove Labour’s central demands for publication of the Google deal and the adoption of full public country-by-country reporting. If anything good is to come out of the sordid deal that the Government cut with Google, I urge Members of this House to use this opportunity to secure a just, fair, open and transparent system of taxation for our country and to start that process by backing our motion today.

Energy BILL [ Lords ] (Fifth sitting)

Chris Heaton-Harris Excerpts

Tuesday 2nd February 2016 Public Bill Committees

[Philip Boswell]

We would be willing to discuss that, depending on the benefits. The RO was developed and evolved for good reason.

[Chris Heaton-Harris (Daventry) (Con)]

I understand the hon. Gentleman’s point, and I was interested in the intervention from my hon. Friend the Member for South Suffolk. My understanding is that in 2015-16, out of the £850 million spent on the renewables obligation, expenditure in Scotland was £520 million—60%. Is the hon. Gentleman saying that the Scottish Government are willing to take half a billion pounds of spending on board?

[Philip Boswell]

The short answer to that is no. We are looking for dispensation from paying the £92.50 strike price for Hinkley Point C—double the current electricity rate—that seems to have been imposed on the rest of the country by this Government.

It is also important to honour the Smith commission recommendations on how power is devolved to Scotland, where appropriate, so that Scotland can make its own decisions about its economic development. In the light of those developments, control over the renewables obligation must be returned to Scottish Ministers.

[Chris Heaton-Harris]

It is a pleasure to serve under your chairmanship, Mr Bailey. Given what the hon. Gentleman just said, I point out to him that as his party has a policy of achieving 100% renewable energy provision in Scotland, so much of it dependent on onshore and offshore wind, when the wind is not blowing there, Scotland—if it is independent—will have to come crawling to a country that will be setting a rate based on what it can sell on the market, rather than being generous. That is a hostage to fortune for any Scotland, future or past.

[Callum McCaig (Aberdeen South) (SNP)]

Does the hon. Gentleman acknowledge the statement from the Secretary of State on the renewed vigour with which the UK will pursue interconnections, to enable the UK to do exactly that?

[Chris Heaton-Harris]

We had a conversation earlier—I believe the hon. Gentleman was in the room—about the importance of interconnections and what they bring, including risks, when it comes to our continent. To a certain extent, I agree with him.

I will start by doing something quite unique in this debate: quote the Conservative party manifesto verbatim, not because, as my hon. Friend the Member for North Dorset said, I did not read it in the first place—that would be a slur beyond belief—but because this whole debate is essentially dancing on the head of a pin about how words should be used. Let me start with the opening salvo. The bolded headline is:

“We will halt the spread of onshore windfarms.”

That is fairly definitive and certain: we are going to stop any more onshore wind farms. The manifesto goes on to say

“Onshore wind now makes a meaningful contribution to our energy mix and has been part of the necessary increase in renewable capacity. Onshore windfarms often fail to win public support, however, and are unable by themselves to provide the firm capacity that a stable energy system requires.”

This is the bit we are debating today:

“As a result, we will end any new public subsidy for them and—

to help the hon. Member for Stalybridge and Hyde, that is “and”, not “and/or”—

“change the law so that local people have the final say on windfarm applications.”

[Clive Lewis]

Will the hon. Gentleman read the next paragraph in his party’s manifesto, which talks of

“committing £1 billion for carbon capture and storage”?

I would like to hear his comments on that, because the Chancellor has clearly cut that £1 billion pledge, which was in black and white in his manifesto. Government Members chop and change when it suits them, which makes our point about investor confidence.

[Chris Heaton-Harris]

I thank the hon. Gentleman for his points.

[Simon Hoare]

Picking up on the point just raised by the hon. Member for Norwich South, as far as I am aware the Minister has clarified that the carbon capture arena will now move within the purview of the OGA and it will be the OGA that will decide what is best to be done in that field, rather than the very costly blanket ban which the other place sought to impose on the Bill. The hon. Gentleman’s fear is misplaced.

[Chris Heaton-Harris]

I thank my hon. Friend; I could not have put it better myself and that is handy, because I was quoting from a Library document and I could not have told hon. Members what the next paragraph would have been, so I very much appreciate my hon. Friend’s help.

I gave a bit of a history lesson explaining why I set up what was almost a caucus, to use American terms on the day we are getting the results of the Iowa presidential caucuses. I think I could say that the 101 Members of Parliament I got to sign a letter and then campaign pretty hard were a caucus. The caucus that I led—it was not just me leading it; there were plenty of people taking a strong lead in this area—was certain about what it wanted to achieve when it came to the future policy for onshore wind. We wanted to make sure that onshore wind received no new subsidies. We were fed up with the way our communities had been treated.

As I said on Second Reading and as I think the Committee has agreed, I was quite happy about the second part of the commitment—a change to the law so that local people have the final say on wind farms—because I thought that that was pretty much the case, until a particular wind farm planning appeal came about. That was the Kelmarsh wind farm appeal, when the planning inspector ruled in favour of the development going through because he said that national policy in the area of renewable energy trumped all local concerns. And those local concerns were huge: they were concerns about a grade 1 listed building built in 1732 and about the site of the battle of Naseby. The inspector said in his report that this wind farm would have a “distinct visible presence” over Rupert’s viewpoint, King Charles’ oak viewpoint, Sulby hedges, the Royal Observer Corps lookout post and Mill Hill viewpoint. These are places and viewpoints from the battle of Naseby which I would argue—and I do argue with my colleagues—was the battle where Parliament fought for itself properly and won properly for the first time. The birthplace of Parliament was going to be overlooked by massive turbines, nearly the size of the London Eye.

The inspector said that national policy outweighs

“any harmful impacts it may have in terms of the setting of heritage assets, the living conditions of local residents in terms of visual impact and noise in particular, the…enjoyment of the countryside, biodiversity, notably bats, and other matters”

What I thought was a local issue to be dealt with local planners, which is where I think the whole Committee wants to return such matters, was being elevated to national policy level.

[Clive Lewis]

The hon. Gentleman is being generous in giving way. Will he be joining the community of Balcombe and other communities across the country who are opposing fracking in their areas? Will he be supporting them in the local decisions they are making, very powerfully, in opposing fracking? Fracking, as we have heard, will potentially have a national contribution to make, but locally, they do not want it. Will he respect their opinions as well?

[Chris Heaton-Harris]

As I said on Second Reading, we need to evolve our planning system so local communities benefit very much from any developments. I cited the French system which my fellow Eurosceptic colleagues will be very uptight about. There is a better way of dealing with planning when it comes to helping local communities to decide whether to take onshore wind, fracking or other things, but I do not think we are there yet.

To return to what happened in my constituency with onshore wind, with which this part of the Bill deals, we launched a very simple campaign. We got on board, some Members will recall, the former Energy Minister, my right hon. Friend the Member for South Holland and The Deepings (Mr Hayes), who said, “Enough is enough. We are going to make changes.” I thought that was a good signal that the Conservative manifesto might have something fairly solid on this. The following Energy Minister, my right hon. Friend the Member for West Suffolk (Matthew Hancock), said on the Floor of the House on 6 March 2015—a date that in my mind definitely came before the General Election campaign:

“We have made it absolutely clear that we will remove onshore wind subsidies in the future, and that the current 10% that is in the pipeline for onshore wind is plenty.”—[Official Report, 6 March 2015; Vol. 593, c. 1227.]

I thought that was probably enough of a signal as to where our manifesto was going. Forget the petitions, the questions, the debates and all the other points that were made on the Floor of the House. I was very pleased when I saw the Conservative Party manifesto.

If Opposition Members choose to dance on the head of a pin about whether “new public subsidy” refers to renewables obligation certificates or anything else, perhaps that allows me to talk about things in the second part, which we have all agreed. Let us talk about the way that local people can have the final say on these matters. Let us talk about something the Committee has agreed on previously—how we decommission big energy projects.

It cannot be said that these are not big energy projects. Supposedly, decommissioning is a given—the costs are being set aside when it comes to the North sea—but it is not yet part of the Bill when it comes to onshore wind. The Committee debated earlier the jobs, the supply chain, recycling, the sites that are properly and safely returned to nature—all phrases used by the hon. Member for Southampton, Test about the decommissioning of oil and gas. Yet we currently have a system in place that simply does not allow for decommissioning bonds or any way to ensure that the developer ends up paying to decommission a huge chunk of metal being stuck in the countryside. If we are talking about making sure that local people have the final say on wind farm applications, perhaps we should allow them to include the costs of decommissioning to be stuck into a fund and subtracted from subsidy at source.

[Dr Whitehead]

The hon. Gentleman has mentioned schemes that are in the pipeline and related that to the “Enough is enough” comment made by the right hon. Member for South Holland and The Deepings. He has also mentioned local people having their say. Does he agree that a scheme on which local people had had their say and was therefore given planning consent was, first, “agreed by local people”, which is the first test of the Conservative manifesto, and secondly, “in the pipeline”, which is test two of the Conservative manifesto? Does he agree that that is a pretty accurate description of his position?

[Chris Heaton-Harris]

I agree with the first part of that, but I cannot believe that many of these developments are in the pipeline, as the hon. Gentleman says, at this point in time.

I want to discuss how the second part, which we all agree on, could be strengthened, should the Government choose to do so, were their clear manifesto commitment to be derailed, perhaps not here in Committee, but in another place. Members, particularly the SNP Members whom I heard on the Floor of the House only last week, have rightly been concerned about people’s safety, whether it is nuclear sites or energy sites generally. Everyone has been concerned about safety.

There is an element of safety that I believe could be built into the planning system. My hon. Friend the Minister knows that I have been lobbying hard for this to be included in the planning system in respect of onshore wind. This is a crucial difference between onshore and offshore wind: although they are similar technologies, offshore does not raise this concern about excessive amplitude modulation. That is the low thumping noise that people hear if they stand in the appropriate place away from a turbine. It is possible to predict where it will fall and it causes huge concern to local people near onshore wind turbines. Offshore wind does not have the same effect because there are no people living in dwellings nearby, supposedly.

The noise from wind turbines could quite possibly be the next big public health scandal. It has been known about for a very long time. There have been reports since 1995 on the phenomenon of how very low frequency noise generated by turbines, which has been defined to include infrasound, was the cause of annoyance reported by neighbours. The reports included numerous physiological responses that were described as sensations including a feeling of pressure, a sense of uneasiness, booming and thumping pulsations. A huge amount of work has been done in Australia, Japan and now in the United Kingdom on where turbines are situated and how that affects people’s sleep and patterns of stress.

Normally, one would expect this to be taken into account when a planning order is drawn up. In 1987, this was all well known but in the early 1990s, as more and more onshore wind turbines were built, there was a policy decision, I guess one might say, to ensure that concerns about noise limits and planning criteria would not affect where turbines could be situated. A document for noise called ETSU-R-97 was therefore drawn up. It has been massively criticised ever since, but until recently there was no silver bullet to show that it did not work properly because it did not measure the very low frequency background whumping sound that causes people great difficulty.

It could be said, and has been said in debates in this place, that this was a noise condition devised by the wind industry for the wind industry to promote the wind industry and ensure that local concerns about noise were not taken into account. It was certainly referenced in the Kelmarsh decision. Over the last decade or so, the wind industry has fought tooth and nail to defend those standards and guidelines. It has resisted every attempt by anyone to try to change them, but things have changed massively in the past couple of years. The Department itself has recognised that amplitude modulation exists and causes great concern. I FOI-ed every local planning authority in England to find whether they had had issues with noise from wind turbines. A large number had had such issues and had sent environmental health officers to investigate, but there was no central Government guidance on this particular type of noise, which is causing people to become sick. Just recently, the wind industry itself has recognised that amplitude modulation causes the issues I have described.

If we were truly concerned about amplitude modulation and how it might affect individuals up and down this country, we would allow local people—in line with the final part of the paragraph in the Conservative party manifesto that I mentioned—to stick in noise conditions for any planning applications that came forth for onshore turbines. We surely want to avoid a public health crisis in future. We probably recognise that we have not done enough in the past to ensure that people’s health is properly taken into account. There are ways in which the whole Bill can be tightened in this area.

--- Later in debate ---

[Clive Lewis]

Can the hon. Gentleman envisage a situation where he actively campaigns against wind turbines that are already established?

[Chris Heaton-Harris]

There are communities out there now that are directly affected by amplitude modulation from wind turbines. I can cite Cotton farm in South Cambridgeshire. That constituency is on the border between two local authorities, both of which have passed motions in the council chamber and written to the Government asking for stronger guidance on these points.

Noise is monitored on a regular basis by a set-up in the community to scientific standards. When an onshore scheme is mooted, noise readings are taken using the same equipment, verified by a third party. Because we can predict when amplitude modulation is likely to occur—it depends on atmospheric conditions, meteorological patterns and wind speed—and can see all those factors happening in front of us, we can predict where the noise will fall. The developer can therefore be asked to shut the turbines down so that they do not cause harm, as has happened in Cotton farm a couple of times. I can absolutely see myself campaigning with other communities up and down the country to ensure that the amplitude modulation from turbines that are already up does not cause undue concern in local communities.

Initially, 10 or 15 years ago, the equipment required to set these up was very expensive. Now, it can be done for about £3,000. Most communities, and certainly a number of developers, could afford that, which would possibly take this problem away. I am trying to make the point to the hon. Member for Norwich South that there are, as my nan would say, many ways of skinning a cat.

The Government have been particularly slow to implement these provisions. I would like them to go further. I am pretty sure I could get together a decent-sized political caucus to do that. If we seriously intend to argue against part of the Bill falling under the auspices of the Salisbury doctrine, and if we are going down the line of dancing on the head of a pin over these issues, the consequences further down the line for this industry will be a lot worse than if we accepted that the Government had a clear manifesto pledge that they are effecting today.

[Jonathan Reynolds]

It is a pleasure, Mr Bailey, to be on the Committee. I had not intended to make a speech about the group of amendments but, as ever, Government Members’ contributions have led me to get to my feet. Many of their arguments have not been robust enough; many of the positions advanced have, quite frankly, been flawed and deserve further attention.

My starting point is that anyone considering the needs of our energy system right now has to admit that the most pressing priority is to ensure that our credentials for investability are maintained and strengthened. Our energy system requires billions and billions of pounds of investment, partly because so much of our generating capacity is going off line in the next few years, at the end of its natural life; partly because the capacity market has not worked as well as was hoped in incentivising new gas; partly because Hinkley C is in as much trouble as it was always going to be—we do not know whether it will ever be there when we need it—and also because we need to take coal out of the system, as a clear priority shared by all political parties. The need, therefore, to ensure that our energy structure is an attractive jurisdiction in which to invest must absolutely be maintained.

Much of the argument that has been advanced has been about the changes to onshore wind being clearly signposted in the Tory manifesto—indeed, demanded by the windy caucus, which is a wonderful new term to add to our political discourse. I do not dispute that; ideological opposition to onshore wind has been a part of the modern Conservative party for some time. I do not disagree with the legitimacy of the move any more than I disagree with the legitimacy of all the other bad things the Conservative Government are doing to the UK, but my point is that there is surely a duty on the Government to ensure that the decision is taken in such a way as not to damage the UK’s overall credentials as a jurisdiction in which to invest.

--- Later in debate ---

[Chris Heaton-Harris]

I do not want to be pedantic and I hope that the hon. Gentleman takes this point in the way in which it is meant. On Second Reading, we did not have Storm Henry passing through and wind was therefore producing just about 1% of our energy. At any one time, the figure flexes between 0% and, I believe, up to 18%, but it always needs gas turbines churning in the background as a back-up.

[Jonathan Reynolds]

We are straying a bit beyond the narrow remit of the Bill, but the point is an important one. On Second Reading—the hon. Gentleman and I were there—the overall figure was 5%, not 1%. It was 1% at the specific moment that the hon. Gentleman spoke—I will give him that—but in that 24-hour period it was running at about a quarter of the energy produced by our entire nuclear fleet, which is not a small contribution.

I recommend that all hon. Members take the time to go to National Grid’s control centre to see the multitude of different generating assets that can be turned on, or brought off the system, as required to keep the system in balance. That is not done as a short-term response to the current level of wind. National Grid’s weather planning system tells it exactly what it will need on certain days, and it is tremendously effective. I do not agree with the simplistic point that every megawatt of wind energy will have to have a corresponding megawatt of traditional gas generating capacity to back it up. Frankly, the people who are skilled at running our entire network do not tell me that that is the case, and I am willing to believe them given how successful they are at running the overall system.

VAT Evasion: Internet Retailers

Chris Heaton-Harris Excerpts

Thursday 14th January 2016 Westminster Hall

[Chris Heaton-Harris (Daventry) (Con)]

I beg to move,

That this House has considered VAT evasion and internet retailers.

It is a pleasure to serve under your chairmanship, Mr Hanson. I think it is for the first time, so I hope that I will obey House procedure sufficiently not to get into trouble and be told off.

First, I thank the Backbench Business Committee for giving me time to talk about this subject with those who are interested. I only bid for the debate before the Backbench Business Committee on Tuesday at 2.30 pm, so to receive a chunk of time in Westminster Hall so quickly is a great honour and a bit of a surprise. Consequently, a number of Members who wanted to participate could not be here. For example, my right hon. Friend the Member for Chesham and Amersham (Mrs Gillan) is holding a dementia event in the House at the moment, and even though she has been in this House for 23 years she still struggles to be in two places at one time. Thus she could not be here today to talk about how one of her constituents in particular, Mr Richard Allen, has been so gravely affected by the issue I will describe.

I guess I should open by giving a snapshot—a festive one. I do not think I am a cheapskate, but before Christmas I was looking for some cheap presents for my family online. I was particularly aiming for bargains available for next-day delivery. I hope Members will be interested to hear about these bargains; some of them might be partial to online shopping themselves.

Looking around, I was able to find an Apple iPhone 6 Plus, with 16 gigabytes, in gold. It was being sold at £572.64, which was £46.36 cheaper than buying it directly from apple.com. I found that offer online from a British-based seller. If I had purchased that iPhone—I did not, as it was way too expensive and far outside my ballpark figure—I would have been saving a great deal of money, and because it was a British-based seller, I would have been supporting a British small or medium-sized enterprise. I am a Conservative and we are, after all, in this together, and supporting SMEs is part of an important long-term economic plan.

I thought that price was a tiny bit unusual, but I did not spend too long thinking about it as I was Christmas shopping. I probably would not have thought of it again until, at one of the last events before Christmas where I met constituents, I met a business-savvy constituent of mine who had contacted me because he found himself in trouble. I bought him a cup of tea, we sat down and we went through what had been going on with his business.

My constituent had 20 years of experience in e-commerce, website development and internet marketing, and had set up an online retail business in 2010 selling goods on his own website, eBay and Amazon. He told me:

“Our sales grew to £689,000 a year by 2013 and we ranked in the top 5 sellers in our market sector on eBay. In early 2014, in the space of 6 months, our sales collapsed from £57,000 to £21,000 a month. In the past 18 months, our sales have increased to £30,000 and we struggle to compete on a daily basis”

with what was happening online among his competitors. He said:

“My company has now lost over £550,000 in sales and we are currently losing £25,000 in sales a month”.

He believes that is because a “VAT fraud” is taking place. He went on:

“Almost all of our UK based competitors have seen equally dramatic loss in business, with some shutting up shop completely.”

He said that many of his UK competitors had made their staff redundant and moved out of their warehouses. He himself has lost his life savings and is talking about selling his house. Some individuals are close to bankruptcy. He told me that he now lived in rented accommodation, running a business from his dining room.

He gave me an example of what is going on. He sells bicycle lights for £11.99, making a £1 profit, while other online sellers currently sell the same product for £7.99. That competition in price is a no-brainer for the consumer; the two products are identical, so which one would any of us choose to buy? That means that his turnover and profits have halved in two years.

If someone flicks through the website for that other retailer, which might well be a UK-based company, it seems to have a legitimate VAT number. However, it might be neither legitimate nor a VAT number, and then my constituent might have a problem, because that competitor would have an unfair advantage. My constituent told me that he has been ill with the stress that he has been caused, and he estimates that he and his family can last only another six months at the current pace, at the end of which his business will collapse.

Let me go into some more detail, because Members might wonder what caused such a change of fate for my constituent and his business. He told me the precise reason for it; he believes that it is VAT evasion. Of course, that is why I asked for the debate, and I intend to explain a little further the background to the problem and its growth.

Online marketplaces such as eBay and Amazon do not make it compulsory for sellers to display verifiable business information, such as an accurate company name, a physical business address and a VAT number. It is simple to see, through the online seller information, when a company is not UK-based and displays no VAT number. Several foreign companies have now decided to have a UK-based company number and, as I have said, they have put some sort of number in the field that shows they have a British, or even German, VAT number.

For non-established taxable persons—companies from outside the UK that warehouse in the UK and dispatch goods from the UK to customers in the UK—the correct procedure is to register for VAT as soon as they have any stock in the UK. Since 1 December 2012, all NETPs supplying goods in the UK have been required to register for VAT and to apply VAT to all sales from their very first supply of goods or services onwards. There is no threshold.

Sellers on online marketplaces used to advertise their business locations as UK-based, yet they would be a foreign company. That could be spotted through delivery times. When I used to go online, the delivery time for those companies would be from 21 days to 63 days, because the product was coming from China. That no longer happens. Consumers made a choice—they could pay a bit extra for goods that would turn up in the next few days; or a bit less for goods that would turn up after quite a long time.

To combat that problem, the online retailers introduced marking systems to allow customers to rate down a seller for late delivery, causing the seller from afar some problems and prompting the growth of fulfilment centres, as some retailers tried to overcome the bad reviews that they were receiving.

If we put together those two issues, it is suggested that small overseas sellers in their thousands are now importing goods into the UK in advance of orders and not properly registering for VAT. Sellers can then arrange for the online marketplace to dispatch the stock from its UK warehouses once orders are placed. Through that route, they not only reduce delivery time but benefit from the added bonus of avoiding VAT charges. They can therefore charge lower prices than their UK-based, VAT-paying competitors.

Chinese-owned fulfilment companies in the UK provide special eBay and Amazon fulfilment services for Chinese and other non-UK businesses. Chinese sellers allegedly send their stock, pre-packed and barcoded, to fulfilment centres in China. The stock is then forwarded on in bulk to their UK fulfilment centres. How Chinese sellers move their stock into the UK is unclear, as is whether they pay any duty at the time. Indications suggest that by using the low-value consignment relief and low-value bulk import procedures, Chinese sellers are bringing in vast volumes of goods, many of which are undeclared. They appear as items already sold to the UK, but they have been pre-sold and are held in UK fulfilment centres. Presenting themselves as a UK entity enables the sellers to claim that they are under the VAT threshold as a reason for not displaying a VAT number. That is an illegal practice, and it threatens the viability of UK SMEs in online retail, since those committing VAT fraud can undercut prices and provide fast delivery from their UK-based stock. British retailers say they are being put out of business by such foreign companies, particularly from China, selling their products through e-retailers such as eBay and Amazon.

To return to my Christmas shopping trip, I decided I would buy a handful of extra cables for my Apple iPhone. When I was clicking through the system, I thought the cables were being sold by a UK-based company, with VAT charged. I just looked at the price on the screen—I did not realise that I was almost certainly buying from a company that, although registered in the UK, had a fake VAT number. I did not realise that I probably would not be paying VAT on the cables.

By failing to account for VAT, sellers are acquiring a distortive advantage over UK businesses in the marketplace. The final price paid for goods by the consumer is much lower than it would be from UK competitors. Chinese and other non-UK businesses therefore now dominate many market sectors on eBay, and there are huge numbers of them on Amazon, too.

The unbranded Android smartphone and tablet market sector on eBay.co.uk generates sales of some £80 million a year. Chinese sellers account for 40% of those sales in the UK, representing about £32 million a year. The top Chinese seller in that market sector, which lists stock located in the UK, makes annual sales of £2 million a year and is not VAT-registered.

Adding insult to injury, fraud breeds fraud. Due to built-in online algorithms, those that sell more on web marketplaces get a prime position at the top of searches and listings. Given that they are then the first listing a consumer sees when searching for an item, they sell even more, pushing their VAT-paying competitors further out of the picture and ensuring that they remain at the top. That means that the sellers can monopolise online marketplaces, leading to price distortions in UK online retail and VAT-registered companies being unable to compete. Not only does that result in the UK taxman losing money from unpaid VAT, but the knock-on effects for UK business and competition are huge.

I will give some specific examples that have been highlighted to me. Photo Direct is making sales of just under £10 million. If it is evading tax, that equates to £1.67 million in VAT evasion a year. It started trading on eBay.co.uk 12 years ago in July 2003. It is one of the largest VAT-evading companies found trading on eBay and it runs two eBay business seller accounts. It specialises in selling VAT-free cameras, iPhones, iPads and tablets. Its stock is housed in the UK. It is using a Hove-based PO box not displaying a VAT number or full company name. In December 2014, it made sales on eBay of £838,412. Its bestselling item was the familiar Apple iPhone 6 Plus 16GB in gold, which is the one I described slightly earlier. Photo Direct sells it for £572.64, which is £46.36 cheaper than Apple.com. That item alone accounted for £36,649.21 of sales. On contacting the seller to inquire whether a VAT receipt would be issued for a £2,000 camera, the seller confirmed that the price does not include VAT. Its PayPal account traces back to a business in Cedarhurst, New York, called Robscamerastore.

Another example: eBay seller My-elink is run by CSJ Communications Technology Ltd. It started trading on eBay.co.uk eight years ago on 14 November 2008. CSJ Communications Technology operates seven eBay business seller accounts, all using the same company name and VAT number. Combined sales were £5,812,308 last year, equating to an expected amount of VAT of just under a million pounds, or £968,718. A company name, an address, which is in China, and a UK VAT number—150540153—are all listed. However, the VAT number is not registered to the Chinese company CSJ Communications Technology; it is registered to Pocketdeal Ltd, a UK-registered company that was incorporated on 23 August 2012. The VAT number does not belong to CSJ Communications Technology.

Those kinds of evasion have been found to occur online on at least the two major platforms I have already mentioned: Amazon and eBay. The extent of the evasion is dramatic. If I read out a list of the sellers that have been accused of committing such fraud, Members here today might become a little bored with me, but I will not let that stop me. The founders of vatfraud.org, working alongside trading standards officers, have identified 500 VAT-evading overseas business seller accounts.

To start with, I will go through a small range of the UK eBay sellers with no VAT numbers. I have talked about Photo Direct, but the eBay sellers universal-electronix, richmondcam, mechanic_warehouse and right89hifi all have turnovers of more than £3 million a year. Further down the list, the 37th largest seller without a VAT number is digitalbravo2014. It had a mere third of a million pounds of sales. The company is registered in the United Kingdom with UK stock, but has no VAT number.

Transferring platforms, I could talk about Amazon stores with no VAT number listed. I could direct Members to Ringke Official UK Store, which sells phone cases and accessories. It is registered in Texas and has no VAT number listed on its Amazon.co.uk page. It also offers Amazon Prime free delivery. I can buy from that seller and get my goods much quicker than from another retailer, with the advantage of possibly not having to pay VAT. Zeto UK sells portable phone chargers, games, computers, headphones, electronic accessories and so on. It has no VAT number listed anywhere on its page, and its orders are filled by Amazon. Inception sells mainly Apple products. It has a customer services address in Manchester, a business address in Hong Kong, no VAT number listed and orders fulfilled by Amazon.

I will move further down that list of case studies. They are from vatfraud.org, so they are all online for Members and others to have a look at. When the case study was done, Rearth USA LLC, an iPhone and smartcase provider, was one of the largest sellers of such items on Amazon.co.uk, Mr Hanson. You might even have looked at the goods online yourself. It also has Amazon stores in other EU countries with no VAT numbers listed. A secret shopper bought a product from this company and asked for a VAT receipt. The company stated it was in the process of applying for one, apologised and refunded the notional VAT that would have been paid by the customer for that good.

So we have companies that are listed with VAT numbers that are not correct VAT numbers. We are able to check whether a VAT number is listed to the company we might have bought from. The European Commission website has free access, so it is easy to do so. A handful of such companies are trading on Amazon at the moment: JEDirect, Ipow-Official and EasyAcc U. There are also companies with no VAT number listed and none provided when asked. These include Hayesmall; Gugou; SLEO Accessories; Buyee, which has a UK local delivery service as well; InstaNatural EU; Ulike; Oxford Street; and Nestling Store. There are hundreds and hundreds of such companies.

Some, like GIL ENTERPRISE, state that all their prices include VAT but, again, refuse to provide a VAT receipt should someone ask for one. Companies with VAT numbers that do not match their business name populate the websites in great numbers: Avantek UK, which has the business name Claybox Ltd, and Simple Tek, which has the business name Shen Zhen Shi Futian Qu Sai Ge Dian Zi Shi Chang Qun Jian Dian Zi Shang Hang, so perhaps Simple Tek is better, but it is not right.

BUTEFO has the business name Shenzhen Kuanchuang Technology Company; LERWAY Technology Company has the business name shenzhenshi leerwei keji youxian gongsi; and Bravo Tech has the business name Wuhan Value Link E-Commerce Ltd. They all have VAT numbers that do not match their business names. I have pages and pages of such companies. To be sure of myself, I checked with the Clerks about privilege before I started talking today.

There are literally hosts and hosts of such companies out there trading in the United Kingdom. Anyone in this Room could go to the website—Amazon or eBay—and look for a good online, believing it was from a UK-based seller; it might even have a UK limited company number; and yet it is actually none of those things and is not paying VAT to HMRC.

It is alleged that the sellers are committing VAT fraud by failing to supply a VAT number, by presenting themselves as UK companies when they are not, or by fraudulently giving out a VAT number that does not belong to them. They despatch their stock in the UK on Amazon or eBay.co.uk. The combined sales on a list of more than 500 companies come to £300 million a year. If these sellers were allowed to trade for another three years, with the growth that they have at the moment they would generate estimated sales of £1.2 billion; if they evade VAT, they would evade about £200 million between them; and eBay would earn about £110 million in seller fees from them. These are just a sample. I am afraid it is likely that there are many more non-UK sellers committing VAT fraud on eBay, Amazon and other sites.

Paul Miloseski-Reid has been the lead officer on e-commerce for UK trading standards for the past nine years. Based on an analysis of thousands of marketplace traders, he estimates that up to £2 billion of VAT is being lost to the Exchequer each year. Paul estimates that online sales adding up to £10.8 billion annually come from overseas sellers who are not paying VAT. This huge number does not tell the full story. On top of the £2 billion that is lost through unpaid VAT, there are millions lost elsewhere through the indirect effects of this fraud. There is the loss of revenue and profit for UK businesses that are undercut and beaten on price and delivery time. Then there is the loss that comes from companies closing and the loss of jobs; the loss of corporation tax; the loss of PAYE and national insurance; and the loss of import VAT and duty through low-value bulk imports. Those are all big losses to our Exchequer. If we couple those with the fines that should be owed and backdated VAT payments, the £2 billion that could be recouped would undoubtedly be much more impressive and larger.

With such a large amount of money on the table, it may seem odd to Members that the practice is allowed to continue, but the firms involved insist that responsibility for charging the correct VAT lies with the sellers using the sites, and eBay and Amazon say that they cannot be held liable in cases of evasion. However, third party liability for VAT is now an established legal principle in the European courts. It was developed to combat VAT carousel fraud where some of those involved in the fraud were not necessarily the party fraudulently claiming the VAT refunds. Axel Kittel v. the Belgian Government and the Belgian Government v. Recolta Recycling SPRL were joined cases that introduced a test in 2006 for VAT fraud, which became known as the “Kittel principle”.

As HMRC explains on its website,

“The test in Kittel is simple and should not be over-refined. It embraces not only those who know of the connection but those who ‘should have known’. Thus it includes those who should have known from the circumstances which surround their transactions that they were connected to fraudulent evasion. If a trader should have known that the only reasonable explanation for the transaction in which he was involved was that it was connected with fraud and if it turns out that the transaction was connected with fraudulent evasion of VAT then he should have known of that fact. He may properly be regarded as a participant for the reasons explained in Kittel.”

The term “online marketplace” is not really a good description of what these websites actually do. In reality, rather than just offering space for retailers to operate like a marketplace would in the real world, they offer marketing, as well as payment and fulfilment services to third-party sellers. They not only advertise the goods but are handling the stock, issuing invoices and collecting payments. Some of them also offer the complete warehousing and fulfilment solution. Such websites claim, however, that they are unable to police sellers even if they were obligated to do so, which is obviously not true. It is not unknown for the websites to police sellers in relation to the products that they sell. Until the practice was banned by the EU, some of them prevented sellers from offering items on other websites at lower prices. If the websites can track something as complex as that, they can easily identify sellers who should be accounting for VAT on supplies.

Such websites regularly police sellers with regard to money laundering rules, EU directives and the like, and sellers have to provide details of their company address, passport details, copies of tax returns and other detailed information. Even to be able to start placing goods with them, the websites make their sellers sign up to terms and conditions that enable them to demand any data they require, including detailed sales figures and VAT data. It is therefore beyond doubt that these websites are able to establish the VAT status of a seller on their website. They could, and should, easily identify and exclude sellers that should be registered for VAT but are not. At the very least, they could detect and remove sellers that are using invalid VAT numbers, but they seem unwilling or unable to do even that.

The websites go far beyond what would normally be understood as the remit of a marketplace. The cost of the services provided in these so-called marketplaces is billed to the seller and included in the sale price of the item. It can, therefore, be demonstrated that the websites are effectively part of the production chain and so part of the supply chain. The websites objectively benefit from any fraudulent VAT transactions because the final sale price includes the VAT that should have been paid—fraudulently evaded VAT—from which they calculate their commission.

The websites benefit from the transactions and participate in them, they are part of the supply chain, and they are fully aware of the VAT status of the sellers on their site because they request VAT details from all sellers. They are also aware when supplies are made by sellers in the EU and in volumes that exceed the VAT registration value threshold. For all those reasons, they clearly do know, or at least they really should know, that VAT is due when sellers make such taxable supplies available for purchase in the EU. According to the Italmoda judgment, they are liable for any evaded VAT, as is any company in the supply chain upstream of the perpetrator. It is also a criminal offence for anyone to know about VAT fraud and not report it.

eBay has certainly been made aware of specific cases, and, bearing in mind the introduction of the non-established taxable persons provisions and the luxury of Amazon’s huge, lovely, wonderful legal department—which is definitely watching our proceedings—it is difficult to imagine that both companies have no idea that VAT evasion is occurring on their websites. The findings I have described and all the accompanying information has been reported to HMRC’s VAT fraud team, the Treasury and trading standards. The latter has been working with vatfraud.org to identify non-UK businesses with stock located in the UK that are not displaying VAT numbers. Trading standards submitted an initial list of 150 such non-UK sellers to eBay, asking the sellers to update their business information and provide VAT numbers in compliance with the EU electronic commerce directive 2002. eBay stated that it was the duty of HMRC to establish which sellers were VAT-registered.

The issue has been growing and left unchecked for some time, and we do not know the full extent to which it might have damaged UK small and medium-sized enterprises and how much VAT we might have collected had it all been paid correctly. A former HMRC inspector tried to deal with unregistered sellers on eBay a number of years ago, and told me that HMRC came to a dead end when eBay refused to co-operate. Yet, under EU law, HMRC could have tried to establish liability on the part of eBay. VAT evasion on online market places is a problem across the internal market. If the UK initiated action in the courts, I cannot believe it would not be supported by the European Commission, other member states, and all legitimate VAT-paying businesses in the EU. Establishing VAT liability for fraud on online marketplaces would end a problem that undermines fair competition across the EU. It would also reaffirm the Chancellor of the Exchequer’s stated intention to make positive reforms to the EU’s internal market.

The problem has existed for long enough, and it is not difficult to find, as I did in my office last night, when in just a few moments of amateur detective work we found a factory in my constituency. There is a service whereby people can register their official UK company name and address. We found that more than 900 businesses had registered. By clicking through a number of them, we found that a vast number of Chinese-registered businesses had a UK company registered in my constituency. Some were trading on these online platforms, and we could find none with a VAT number. If my staffers and I, who are no experts, can find that so quickly in my constituency, I am sure HMRC can.

Yesterday, a number of Members raised this matter at a meeting of the Public Accounts Committee. It was reported quite widely in many newspapers. I was pleased to see that the head of HMRC, Dame Lin Homer, testified that HMRC is taking the issue seriously. Perhaps a little prod from my hon. Friend the Minister would be helpful to ensure that it is taking it very seriously. Today’s Financial Times, though, reported a worrying statement that was made in the Committee: will the Minister comment on the head of HMRC saying that e-retailers were not accountable for evaded VAT? I do not believe that that is the case, based on established tax and European law.

I would really like to know why something that is so easy for us all to spot and prevent has been allowed to grow to such a size. In a way, I feel a bit guilty myself for not clocking something so obvious. When I went online before Christmas, I was thinking, “That’s not a bad price. It’s probably a Chinese company, but they say they are UK-registered, and I am going to get my good in a day or two’s time, so I’m just getting a good deal, aren’t I?” I failed to clock that, if a deal looks too good to be true, it probably is. Unfortunately, in this case, not being true is costing the tax collector, our Government, billions of pounds each year. I would like to think that the motion we are debating is the beginning of the end of that practice.

[Several hon. Members rose—]

--- Later in debate ---

[Rob Marris (Wolverhampton South West) (Lab)]

It is a pleasure to appear before you for the first time, Mr Hanson. This has been an important and fairly short debate. The hon. Member for Daventry (Chris Heaton-Harris), whom I praise for securing the debate, indicated when seeking it that he thought an hour and a half would be enough because the issues are quite simple. The solutions are quite complex, but the issue we are ventilating today is clear. It is about fraud. It is not tax avoidance, it is tax evasion.

I thank the House of Commons Library and Retailers Against VAT Avoidance Schemes or RAVAS, which I met on 17 November last year. At the same time, I also met Neven Juretic, who is the director of Maikai Ltd and a constituent of the right hon. Member for Arundel and South Downs (Nick Herbert). Mr Juretic suffered considerable losses, as the right hon. Gentleman outlined today. I also met Paul Miloseski-Reid, the UK lead trading standards officer. I have to salute Mr Juretic for the immense amount of work he has done not only in successfully lobbying his excellent local MP, but in producing an excellent document that proposes a number of solutions, as well as outlining the scope of the problem that our country faces.

The sector is huge and growing. The House of Commons Library tells me that UK average weekly internet retail sales are £1.1 billion, or about £57 billion a year, and growing. That is more than 15% of all UK retail sales, and the figure has gone up by two thirds since 2010—it is growing massively. Many of the frauds involve small consignments, such as tablet computers or iPhones, and the number of small consignments arriving in the European Union from outside the EU has gone up from 30 million in 1999 to 115 million in 2013, the latest year for which I could get figures. No doubt the number will have gone up considerably since then.

According to HMRC’s preliminary estimate of the tax gap for 2014-15, 10.4% of it, or £13 billion, is VAT. No hon. Member is suggesting that a crackdown on internet retail sales fraud would recoup all of that amount, and not all VAT fraud in the United Kingdom is to do with internet retail sales, but it is a big and growing problem.

The European Union requirement on companies—and individuals, I think—to register is covered by the EU electronic commerce directive, which we adopted in 2002. That is going back 13 or 14 years, and given the pace of change it is likely to need revisiting. It certainly needs to be enforced. I am unclear about whether the provisions of the directive are being enforced in the United Kingdom, but that might be because of my misunderstanding of what it entails.

My understanding is that a non-EU person trading in the EU—the wording in legislation is a “non-established taxable person”—is required to register for VAT if making “taxable supplies” under the meaning of the principal VAT directive, regardless of whether trading is above the £82,000 threshold for registration required of a UK or EU company. Apparently, therefore—the Minister will correct me if I am wrong—legal persons from outside the EU are breaking that directive when goods are sold over the internet into the United Kingdom, yet there appears to be insufficient, if any, enforcement.

Mr Juretic proposed various solutions in his excellent report on billion-pound frauds. I am sure that the right hon. Member for Arundel and South Downs looked at those, and he has mentioned some of them. I am not sure that we need a specialist unit, but many of the solutions that Mr Juretic floated are worthy of discussion in some detail. I will not discuss them all today, but HMRC ought to be looking at them and at similar things. That gentleman has considerable experience, has the bit between his teeth and has done a huge amount of work.

The National Audit Office, too, has looked at the issue in some depth—in about 2014, because it was covered in a report on HMRC’s 2012-13 accounts. I might be putting a gloss on what was said by the NAO, which can speak for itself, but my understanding of the report is that the NAO was not convinced that the steps taken by HMRC on online VAT retail fraud were sufficient. The report made some suggestions.

We need action from the Government. I have a considerable amount of time for the Minister: he is mild-mannered, clever and dogged, and he has had his brief for a long time. He can probably remember, as I do, discussing VAT carousel fraud in Finance Bill Committees about eight years ago, which was the fraud du jour. There was a huge amount of fraud, and Labour, in government, put through measures that were largely supported by the then Opposition party, which now forms the Government. The then Opposition certainly entirely supported the principle of cracking down on VAT fraud, because not only is it an attack on much-needed Government revenue, but it means that there is not a level playing field for businesses such as that of Mr Juretic.

VAT fraud puts people in the UK out of work. It is not a victimless crime that is only about money. It is about jobs, people’s lives and how we as a society trade. That is changing, so we need to make changes to trade honestly. Consumers in this country are not getting a fair deal in knowing what they are buying and from whom.

I have personal experience of the situation, with a company called LightInTheBox—not that it was fraudulent. I tried to buy a tablet computer from it. I understand that sometimes such goods come from overseas, even from outside the European Union, so I looked carefully during the transaction, but I was never told that the computer was coming from outside the European Union. I thought, “Great, a standard tablet computer,” but it took six weeks to arrive and had come from China. I also had a demand from the Post Office to pay approximately £50 in import duties—understandably, because the goods had come from outside the European Union, addressed to me. I got the money back from LightInTheBox, incidentally—an honourable company, which paid my money back and accepted the computer back.

Though I say it myself, I am an educated person and I am of average skill at using the computer, but I do not believe that I was told, when I made that purchase, that the tablet computer was coming from outside the European Union. That might have affected my purchase, because things take longer to arrive from outside the EU and there is the possibility of customs duties, which are quite properly payable on something imported into the EU. It is easy to get caught out. People who want to act honestly as consumers might quite unwittingly be aiding and abetting fraud. It is not about consumers saying, “Oh, I’ll have a bargain. I don’t care about VAT”, although I accept that some might be like that. Other consumers want to play it straight but are misled by websites.

The Government must take some responsibility, because they have been in office for nearly six years. This fraud undoubtedly existed before, so when my party was in government we could have done something about it, but it has gone up massively since then, commensurate with the increased number of online retail sales. None of us knows for sure how much fraud there is, but we know that it is going on. Its extent is a bit unclear, which is one reason why HMRC seems not to have taken the issue as seriously as it should. Had it done so, we would know a bit more.

There has been a series of parliamentary questions, written and during debates, going back almost two years to February 2014. In what I think was a debate in Westminster Hall—the Minister will know—judging from Hansard, my hon. Friend the Member for Cardiff West (Kevin Brennan) asked questions. Subsequently, my hon. Friend the Member for Chesterfield (Toby Perkins) and my hon. Friend the Member for Salford and Eccles (Rebecca Long Bailey), now a shadow Treasury Minister, asked written questions. In the Lords, Lord Lucas has asked questions. This is an ongoing concern of Members of both Houses, and the Government should move a little more quickly on it.

When I read, as the hon. Member for Daventry did, remarks that the newspapers attributed to Dame Lin Homer in the Public Accounts Committee yesterday that the Revenue had been investigating online trading VAT evasion since the spring of 2015, my heart was not filled with joy. Dame Lin has, to say the least, a mixed track record of success in public service. To be fair to her, other people had indicated that the Government were looking at the matter, including the Minister in the debate here almost two years ago. He said:

“HMRC is working to identify and address the main risks posed by commercial online operating models for routing goods into the UK.”—[Official Report, 26 February 2014; Vol. 576, c. 409W.]

It was good that HMRC was looking at it two years ago, but what has happened in the intervening period? The Minister will no doubt tell us, but for those of us not in HMRC—I suspect this is the case for the hon. Member for Daventry, though he can speak for himself—it is not entirely clear what has happened since the Minister said the risks were being investigated. That is troubling.

Lord Ashton said, I think last autumn, that this was being considered at a senior level, so the Government are aware of it and Members in both Houses have been pushing the Government, but we hear reports from Mr Juretic—Mr Miloseski-Reid also referred to this—about insufficient co-operation between HMRC and trading standards. That is taking place against a backdrop where in many parts of England, and I suspect Scotland as well, local authority income is dropping, yet trading standards comes under local authorities and for some of those authorities a strong trading standards department may appear to be a lower priority than, for example—and understandably—social care for the elderly. In that case, what gets the chop? Unless HMRC really seizes this problem, it is likely to get worse.

The Government have made a bit of movement in the draft Finance Bill 2016, which laudably has been published. I laud the Government for the number of consultations they carry out on possible changes to tax-related matters—there are probably dozens outstanding at the moment. The draft Bill has 88 clauses and clause 79 touches on this matter, though, as I understand it, it does only touch on it, because it deals only with data gathering. It is important to gather data to know who is selling what to whom and who is registered and so on, but while the Government, with all their resources, are probably more correct in their assessment of law than I am, I am not sure whether they have got it right on the law in relation to retailers such as Amazon.

It is easy to focus on Amazon. I am sure that it is not only Amazon that has questions to answer in this regard, but it is an enormous company with enormous sales in the United Kingdom, so some of us—I think the hon. Member for Daventry did to some extent—use it as a bit of shorthand for mass online retailers. That is fair enough, and he may well be right that they are watching us. Despite my reservations about reports of working conditions at Amazon, I do use it for internet purchases. I did not buy the said LightintheBox tablet through Amazon.

I, like I suspect many people, have registered my credit card details with Amazon. I have a username, password and so on with it—in fact, it is the only organisation with which I deal that I ask to remember my credit card details. When my credit card statements come, charges for purchases I have made are taken from my credit card account in the name of Amazon, through its different permutations, because Amazon has different legal entities in the European Union. It does not just say Amazon; it will also have some initials or a qualifier that shows which part of the Amazon empire it came from.

I am not a contract lawyer, but as a lawyer who knows a bit about contract law—I knock about on it—that says to me, as a consumer, that I am buying from Amazon. When I make a purchase, I do not give my credit card details to another company; I give them to Amazon. On the face of it, when I look at my credit card statement, I see the money is going to Amazon. Therefore, I have a contract with Amazon.

It is often but not always the case—Amazon also sells direct—that transparently, as part of the purchase process, that order is fulfilled by another company. I do not have a contract with that other company; I have a contract with Amazon. Amazon presumably has a contract—it certainly has an agreement—with that fulfilling company, which might be Bloggs Lighting Ltd or whatever, but my contract is with Amazon. If Amazon has a contract with me and, one surmises, with Bloggs Lighting, Her Majesty’s Government have, on VAT fraud and evasion, considerable leverage with Amazon to say, “You, as a legal entity”—or several legal entities as in Amazon’s case—“trading in the European Union are selling to UK consumers and the goods are delivered in the UK.” That is because I am buying from Amazon.

That is my understanding of contract law. The Minister may be able to dissuade me and tell me that I have misinterpreted it, but, if that is the case, we should take another look at the law. As I, as a consumer, am buying from Amazon, it should be dealing honestly with me and dealing legally with those companies from which it buys the goods that it sells on to me.

Amazon should therefore be susceptible to legislation in the United Kingdom as to how it conducts its business. That legislation should not simply be the data gathering in clause 79 of the draft Bill, although that would be helpful. The legislation should also be that Amazon must ensure that those companies from which it buys goods that it then sells on to UK consumers online are VAT registered if their turnover is above the UK threshold or if they fall under the other legal architecture for VAT registration. That is because one imagines that, often, those companies are doing quite a bit of business with Amazon—Bloggs Lighting may sell a lot of lighting stuff to consumers who go on to Amazon.co.uk. Therefore, morally or legally, I do not think Amazon can step back and say, “We are an intermediary.” The hon. Member for Daventry may know that, in the school playground in the west midlands, when the teacher says, “You did something,” they say, “It wor’ me, Miss,” which means, “I am not guilty; I did not do it.”

[Chris Heaton-Harris]

Is there not an incentive for Amazon and other e-retail marketplaces to sort this problem out? They earn their money from commission on the total price charged. While the market might have grown a bit, the cut that Amazon would receive from a £10 item would be better than the cut from £8 it might receive for a similar good that might have been sold in the way that I detailed in my speech.

[Rob Marris]

I certainly agree with the hon. Gentleman. To take that on one step, if someone were to buy an Apple iPhone through Amazon for, say, £500, which retails from Apple online at £600, and if the reason for the price difference is not a more efficient business model but VAT evasion, Amazon is at least morally complicit in that, because it gets a cut of a £500 sale that it would not have had if the consumer had gone direct to Apple. Therefore, in that example there is a moral risk to Amazon, and, I think, a legal risk, that it is benefiting financially from fraud, because it gets a cut of a sale that would not have been made had the fraud not existed. It needs to look closely at what it is doing.

The Minister said in a written answer on 26 February 2014:

“HMRC (in liaison with Trading Standards and other agencies) is undertaking intelligence driven investigations and projects to address concerns relating to the activities of online companies, including undervaluation of goods at import.”

That is very welcome, but it was two years ago that HMRC was undertaking those investigations and projects. I hope the Minister can tell us today that some of those investigations have at least made progress in the past two years. I realise that some of those investigations may have taken place and, in legal or criminal terms, led nowhere—that is the nature of investigations. We might find that there is smoke but no fire, as it were. In other cases, we might see smoke, investigate and find fire. Either way, I regard that as progress. If something looks a bit odd and we investigate it, we will sometimes find there is nothing illegal going on, and we will sometimes find there is something illegal going on. Will the Minister tell us how those investigations have proceeded and how many there have been?

The Minister also said in that written answer:

“Where the online trader is a non-EU company, HMRC has no jurisdiction.”—[Official Report, 26 February 2014; Vol. 576, c. 409W.]

I understand that, but two things occur to me. First, the 2002 EU electronic commerce directive should be enforced in the United Kingdom. Secondly, if HMRC has no jurisdiction over those non-EU companies, some but not all of which will be Chinese, HMRC should, as I have stressed, look at the companies over which it does have jurisdiction—for example, Amazon or eBay. Those are two of the major companies engaged in online retail sales in the United Kingdom, and those sales should be subject to UK jurisdiction. I understand all the difficulties of different legal jurisdictions, both within and without the European Union, but we need to get a grasp on this.

Simple data collection, as provided for in clause 79 of the draft Finance Bill 2016, is a step forward but is not sufficient. I hope the Minister will reassure us today that some of the investigations to which he referred two years ago have led somewhere and borne some fruit, and that HMRC will look seriously at the suggestions put forward by Mr Juretic in his report. If the Minister cannot enlighten us today as to which of those he thinks are worthy of a closer look, perhaps he could write to Members. I hope the Government will look closely at what legal powers it could take to address the Amazons of this world and of this jurisdiction.

--- Later in debate ---

[Chris Heaton-Harris]

It is a pleasure to serve under your chairmanship, Mr Davies, and I welcome you to the debate.

When I bid for time for this debate at the Backbench Business Committee, I was hoping to get 90 minutes sometime at the end of January so that I could secure the support of the former Chairman of the Public Accounts Committee, the right hon. Member for Barking (Dame Margaret Hodge). I served on that Committee with her for five years, and we had plenty of conversations about online marketplaces, how much tax they pay and how much tax they should pay—she was very interested in the issue.

Given that we had just 24 hours’ notice of the debate, I am pleased that we have the Minister, the shadow Minister and the SNP spokesman here. I am also pleased that my right hon. Friend the Member for Arundel and South Downs (Nick Herbert) was able to attend and talk about his constituent’s experiences.

Obviously, I was pleased to hear about the investigations and goods seizures that are going on, because my constituent would like to be assured that HMRC is not reacting slowly to a situation that is developing extremely quickly. More and more of these companies are being formed, and dormant companies that have already been registered are being activated and used in the way I described.

I am pleased that there have been high-level meetings with the top online marketplaces, and I would be fascinated to find out their reaction to the inquiries that are taking place.

[Rob Marris]

I do not seek to draw the hon. Gentleman on the timing, but perhaps he could say whether he understands why some Members, certainly on the Opposition Benches, feel a little frustrated—he may or may not express a similar view—about the apparent lack of urgency with which HMRC is dealing with this growing problem.

--- Later in debate ---

[Chris Heaton-Harris]

I have to say that I am with my constituent on this. I am particularly frustrated that it has taken a while for HMRC to publicly gauge the level of activity, although I have no idea what might have happened behind the scenes—having been a member of the Public Accounts Committee, and having had many a private briefing from HMRC over the last five years, I know that some things are best left unseen by the public eye. However, it has been frustrating for retailers who feel they are being unfairly competed against.

As I said, I was pleased to hear about the high-level meetings between the online retailers and officials. However, I was frustrated by the quote from Dame Lin Homer—the Minister repeated it today—suggesting that the Government and the tax authorities perceive no liability on online retailers. Even a tiny hint in a different direction would change behaviour very quickly.

There will be negotiations in the coming weeks, however. There is also the meeting on 26 March about the customs elements of this fraud. Potentially, there will also be opportunities to investigate this matter further in the Finance Bill and to look at the possibilities for giving the Government a helpful nudge so that they are as engaged as the Minister has been.

I thank everybody for their attendance, and I thank you, Mr Davies, for your kind guidance over the 13 minutes you have been here.

Question put and agreed to.

Resolved,

That this House has considered VAT evasion and internet retailers.

Greece

Chris Heaton-Harris Excerpts

Monday 29th June 2015 Commons Chamber

[Mr Osborne]

As I say, the primary responsibility lies with the eurozone and the European Central Bank, and they have put in place better mechanisms than they had three or four years ago. The European Central Bank has its outright monetary transactions mechanism, we have the European stability mechanism—in other words, bail-out funds—and the European Central Bank is also taking a supervisory role, so they are better prepared. However, I was very clear in my statement that however well prepared they are, a Greek exit from the euro would be a substantial financial shock, which would have an impact on the European financial system and on us. That is why we have taken steps to make sure our banking system is better prepared than it was seven or eight years ago.

[Chris Heaton-Harris (Daventry) (Con)]

There are no provisions in European treaties for a country to leave the euro, let alone to leave the euro and stay within the EU, so should Greece leave the eurozone, will not European treaties need swift and significant amendment?

[Mr Osborne]

As is often the case, my hon. Friend has gone to one of the interesting points in this whole issue. The best thing to do at the moment is to see how things unfold in the next few weeks, but it is fair to say that there is not an easy and clear mechanism for Greece to leave the euro.

European Union Referendum Bill

Chris Heaton-Harris Excerpts

Tuesday 16th June 2015 Commons Chamber

[John Redwood]

A register of interests would be one way of handling it. It would be quite complicated for large companies, but rather easier for grant-receiving organisations. The issue for companies is rather different. I am all in favour of business people taking an active part in our politics, but they may need to intervene as individuals, because if they are an executive in a very large company that has a broad shareholder base, they may not be speaking for their shareholders on a very political issue. People would ask them, “Is this your private view or are you speaking for the company and has it been tested in a company general meeting?” That is probably a debate for another day. I am all in favour of major business involvement, but unless someone owns the company they have to be careful in associating the company with their own particular views.

The conclusion I wish to put to the Government is that this Bill is extremely welcome, but it is work in progress. These are very complicated areas, because the EU is a unique and powerful institution. In order to have a fair assessment by the British people of its worth or demerits, we need to be very careful and to not in any way trammel our usual belief in independence and fairness when we test the mood of the people. I do not think the Bill quite yet meets that requirement, but I hope that, on Report, Ministers will have better and more detailed answers about how we handle the scale of campaign donations and the period prior to the referendum campaign proper with respect to controls over messages and financing, and that they will be able to address the very vexed subject of how much power, influence, money and messaging the EU itself can inject into what should be a United Kingdom debate.

[Chris Heaton-Harris (Daventry) (Con)]

It is a pleasure to follow my right hon. Friend the Member for Wokingham (John Redwood) and I want to draw on some of the points he made about amendments 10 and 53.

It is a very poor politician who spends a lot of time talking about his previous speeches, but I would like to refer the House to what I said in this Chamber on 13 January 2014, when we had a lively debate on the Europe for Citizens budget, which we had a right to veto at the time and which involved the funding of a whole host of European pet projects. One such project is the European Movement and, from the very position on which I now stand, the late and much lamented Charles Kennedy made an impassioned plea for us not to cut the funding for the organisation of which he was the president. That relates to the point I want to make: we should be very wary of how organisations that receive European funding will act during the referendum campaign and ask whether they should be regulated in some way.

The preamble of the draft regulations for the Europe for Citizens programme states:

“While there is objectively an added value in being a Union citizen with established rights, the Union does not always highlight in an effective way the link between the solution to a broad range of economic and social problems and the Union’s policies.”

Therefore it wants the organisations that it funds to be very positive in the arguments that they make when they engage with civil society.

The Europe for Citizens budget line, which the European Commission funds, gives the European Movement a very large sum of money. I do not wish to pick on the European Movement all the time, but it is a good example of an organisation that receives some money to campaign to present a positive view of Europe, which I know is welcomed by many in this House, and whose funding comes from the European Commission which, I believe, wants to ensure a certain result in the forthcoming referendum.

[Kate Hoey]

I have just had a letter from the European Movement signed by the current chair, Lord Kinnock, who worked for the European Commission and will presumably have an EU pension, which he will have to declare. The European Movement has asked us all to join because it wants to campaign to keep the United Kingdom in the EU. That is a classic example of EU money being used directly to further the cause of those who wish to stay in the EU, whatever reform comes about.

[Chris Heaton-Harris]

The hon. Lady is receiving a lot of letters this week, including one from the Minister for Europe and one from the European Movement. People are obviously interested in her views and she seems to have a great deal of sway on the Labour Benches—if only—as to how the debate will go forward. She is right.

I do not want to pick on the European Movement. I have many friends in the movement. I suppose I should declare an interest as a former Member of the European Parliament, I believe I have a pension that is nestled away out there for my dotage. However, I am very wary of the fact that the European Movement can fall on only one side of this debate, funded by British taxpayers’ money channelled through the European Commission. Will the Minister be able to tidy up the regulations to ensure fairness in the way that taxpayers’ money is spent?

There are a host of non-governmental organisations and some charities—this goes to amendments which the right hon. Member for Gordon (Alex Salmond) and my hon. Friend the Member for Harwich and North Essex (Mr Jenkin) spoke about—to which European funding goes. Those organisations may then feel obliged to take part and push forward their own ideas on one side or the other in a European referendum.

[Dr Murrison]

Does my hon. Friend agree that the organisations that he is talking about are supranational organisations and therefore do not fall within the scope of the legislation we are debating today? Does he agree that we need to come to some sort of accommodation, as other hon. Members have suggested, with the institutions of the European Union to self-deny some of the actions that they and their organisations may be taking? If they do not, it is likely that some of those actions will be counterproductive and act against what we all want—a free and fair referendum.

[Chris Heaton-Harris]

I agree entirely. That is why I was attracted by amendment 10 in the name of my hon. Friend the Member for Stone (Sir William Cash). The British people are savvy enough to make their own decision in the referendum, based on the arguments presented to them about how their lives will be affected. The choice they make will be theirs and theirs alone. I do not believe that these organisations will have great influence.

However, now is a good time for us to discuss how we deal with some of the points that have been raised. I want the referendum to be seen to be free and fair, as I believe it will be. This is the ideal time in the process to do that as we have the Bill before us. I am keen for the Minister to be aware of the issues. Maybe there is no need to act. Maybe there is no need to go further than discussing them here today. Perhaps some tidying-up provision could be introduced on Report, though I have no idea what that might be. My hon. Friend the Member for Stone has consulted the Electoral Commission about foreign sources of funding. This is a grey area, with quite a large sum of money going to numerous organisations, NGOs and charities, and it would be nice for us all to know that that money will be spent fairly and not for political purposes in the referendum in the next couple of years.

[John Penrose]

We have heard an extensive set of contributions in this debate, including from my hon. Friend the Member for Gainsborough (Sir Edward Leigh), the hon. Member for North East Fife (Stephen Gethins), my hon. Friends the Members for Stone (Sir William Cash) and for Harwich and North Essex (Mr Jenkin), the right hon. Member for Gordon (Alex Salmond), the hon. Member for Glenrothes (Peter Grant), my hon. Friends the Members for Aldershot (Sir Gerald Howarth) and for North East Somerset (Mr Rees-Mogg)—he was kind enough to say nice things about the constitutional impact of Somerset—my right hon. Friend the Member for Wokingham (John Redwood) and my hon. Friend the Member for Daventry (Chris Heaton-Harris).

I will start by saying a few words about clause 3 in general. I will then speak to the Government amendments before endeavouring to respond to the various points that have been made by colleagues on both sides of the Committee. Clause 3 sets out that part VII of the Political Parties, Elections and Referendums Act 2000—PPERA—applies for the purposes of this referendum. It has been in place since 2000, so it provides a well-established and understood framework for regulating referendums in this country. For example, part VII sets the spending limits for campaigners during the referendum period and the rules on donations.

However, the legislation for two recent referendums—on the voting system in 2011 and on Scottish independence last year—although based on PPERA, also provided examples of how the controls on campaigning and the framework for conducting a referendum could be improved. Where those changes have improved the regulation of referendums, with the support of the Electoral Commission, we have sought to replicate them in the Bill.

European Union (Finance) Bill

Chris Heaton-Harris Excerpts

Thursday 11th June 2015 Commons Chamber

[Chris Heaton-Harris (Daventry) (Con)]

It is a pleasure to follow the hon. Member for Worsley and Eccles South (Barbara Keeley). She reminded us of a number of things. She reminded us of the first flip in Labour’s European policy, when her party chose to join a small group of Conservative Members who were concerned about EU spending, which was perhaps the foundation for Labour’s flip in policy on the EU referendum that we saw this week.

I very much welcome the hon. Lady’s words about trying to look at future EU budget spending and the need for significant control of that budget and the checks on it. My hon. Friend the Member for Wellingborough (Mr Bone) talked about the accounts not being signed off for two decades. For 20 years there has not been a positive statement on or assurance of the EU accounts being signed off. I have to remind the hon. Lady that in all the time that her party was in office, not once did her Government ask a question about the EU accounts not being signed off. It was only when the previous, Conservative-led Administration came to office that questions were first asked.

[Barbara Keeley]

The hon. Gentleman refers to what he described as the “flip” in the 31 October 2012 debate, but at the time we were referring back to a Labour position adopted on 12 January 2012 in a motion that ended with the words that we called

“on the Government to strengthen its stance so that the 2013 Budget and the forthcoming Multi-Annual Financial Framework are reduced in real terms”..”—[Official Report, 12 July 2012; Vol. 548, c. 523.]

[Chris Heaton-Harris]

Excellent. If we are going back in history, I guess I should share with the hon. Lady the fact that from 1999 to 2009 I was not in this House, but in the European Parliament. I sat on the budget and budgetary control committees, watching Labour Members of Parliament and Labour Ministers at the time not particularly bothering at all about EU spending, so I am delighted with the change of heart, because there is a need for focus on this area.

I do not intend to speak for too long because I know that a number of hon. Members want to make their maiden speeches. Small though the Bill is, it is, however, important and it deserves to have a decent amount of scrutiny by the House, which I am pleased to see that it will receive. The sole purpose of the Bill is to approve and implement the EU’s own resources decision, setting into legislation how the EU budget is to be funded, including the EU rebate. That is a big deal for us, because we stick in a massive contribution to the European Union. The Office for Budget Responsibility’s March 2015 economic and fiscal outlook report gives the net contribution figures for our country to the European Union. I had a debate in the Tea Room with my right hon. Friend the Member for Wokingham (John Redwood), who thinks that the figures are downplayed slightly, but they are the ones that I have to hand at the moment.

The net contribution for 2013-14 from Great Britain to the European Union was £10.2 billion; for 2014-15 it was £9.2 billion; and for 2015-16 it was £9.9 billion. Those are significant sums of money.

[Mr Rees-Mogg]

I wonder whether my hon. Friend thinks it is right to use the net figure, or the gross figure after rebate, because with the net figure the spending that is netted off is spent according to the requirements of the European Union; it is not necessarily spent in the way that a British Government would wish to spend it.

[Chris Heaton-Harris]

My hon. Friend is completely right about that, so I thought I should also share with the House the gross contribution figures given by the Office for Budget Responsibility in its March 2015 economic and fiscal outlook report. The gross contribution figures were £14.1 billion for 2013-14, £14 billion for 2014-15 and £14 billion for 2015-16. We are talking about massively significant sums and this Bill therefore needs some scrutiny, because it is the one that tells us how the EU budget is funded.

[Kelvin Hopkins]

These annual sums bear a striking similarity to the amount the Chancellor is proposing to cut from welfare spending. I would much prefer to see welfare spending increased and spending on the European budget reduced.

[Chris Heaton-Harris]

I hope the hon. Gentleman is able to spread that message far and wide across the Opposition Benches. What he says is true: wherever we have a cost in our finances, we make choices in other places. This is a significant sum, but it is one we have chosen to pay over. We must therefore ensure that we allow ourselves, as this decision on the own resources decision rightly does, to keep a check on how our money is being spent.

The European Union Act 2011 requires this House to give approval to own resources decisions. There has always been an Act of Parliament that does that, but the 2011 Act was a good piece of legislation—again, Labour Members came to it late in the process. It allowed greater scrutiny of how the Executive choose to act in European matters; it introduced the referendum lock on certain things; and it made sure that we get a debate on significant matters such as the one before us today. Although we have always had an Act of Parliament in place to do this, I welcome the greater scrutiny.

I should remind hon. Members of what the “own resources” of the European Union actually means. What are these figures for and where do they come from? Well, 12% of the own resources budget is comprised of customs duties, including those on agricultural products; a tiny sum, less than 1%, is sugar levies; there are contributions based on VAT, which comprises about 13%; and the remaining 74% or so is based on gross national income-based contributions. A significant mix of different things goes into our £14 billion gross contribution to the EU.

Actual European spending is set by the annual EU budget, but, as my hon. Friend the Minister said, the annual budget expenditure is governed by the ceilings set by the EU’s multi-annual financial framework. I was pleased to be reminded by him of the good job our Prime Minister did to ensure that the last MFF gave us an unprecedented real-terms cut in EU spending ceilings for 2014 to 2020, which was welcomed by Members on both sides of the House—it was eventually believed by the then Labour economic team.

Unlike the own resources decision, under EU treaties the multi-annual financial framework does not need the national approval of member states in accordance with their conditional requirements. Thus, it is already in force and this Bill deals only with the own resources decision. Alongside the agreement of the new MFF, we had this new own resources decision, which was formally adopted by unanimity by the Council in May 2014, and the Bill approves it for UK purposes. As the Minister said, the rules governing the UK rebate remain unchanged compared with the existing own resources decision. Alas, they do, however, repeat, and this answers a point mentioned earlier by the hon. Member for Luton South—

[Kelvin Hopkins]

North.

[Chris Heaton-Harris]

I mean the hon. Member for Luton North (Kelvin Hopkins). They roll in the old rebate loss that the former Prime Minister Mr Blair negotiated in return for common agricultural policy reform that we never achieved.

I have a couple of questions for the Minister, one of which has been raised previously by my hon. Friend the Member for North East Somerset (Mr Rees-Mogg). The Minister mentioned the minor additional costs that this might bring to us, because there do seem to be some compared with the existing own resources decision. He talked about their being offset by other corrections and I wonder whether he could detail what they are, because I could not find them in the explanatory notes. I also seek clarification on the answer he gave to my hon. Friend the Member for North East Somerset on the change in the European system of accounts. I did not quite understand the answer and I would appreciate it if he could go into a tiny bit more detail.

I welcome the Bill and the scrutiny it is giving to EU accounts, and I welcome the opportunity to talk about this in greater detail when we go into Committee next week.