Andrey Lugovoy and Dmitri Kovtun Freezing Order 2018
Peter Dowd Excerpts(6 years, 3 months ago)
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Peter Dowd (Bootle) (Lab)
It is a pleasure to serve under your stewardship, Sir Edward.
I thank the Minister for setting out the reasons why the order is before us. We accept and believe that it is an appropriate, commensurate and proportionate response in relation to the specified persons, given the circumstances of the case as set out in the report to which the Minister referred. I am pleased that the Minister has been able to give us further information.
On that basis, we will support the order.
Question put and agreed to.
Taxation (Cross-border Trade) Bill (Seventh sitting)
Peter Dowd Excerpts(6 years, 3 months ago)
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Peter Dowd (Bootle) (Lab)
I beg to move amendment 6, in clause 31, page 18, line 31, at end insert—
“(3A) Before laying a draft of an Order in Council before the House of Commons in accordance with section 32(10)(a), a Minister of the Crown must lay before the House of Commons a statement about—
(a) the arrangements entered into; and
(b) the Minister’s assessment of the effect of the arrangements on trade relations with other countries and territories.”
This amendment requires a statement to precede a draft of an Order in Council giving effect for the purposes of import duty to a Customs Union with another country or territory.
The Chair
With this it will be convenient to discuss the following:
Amendment 82, in clause 31, page 19, line 10, at end insert—
“(8) No regulations may be made under this section after the end of the period of five years beginning with exit day.
(9) Any Order in Council made under subsection (4) and any regulations made by HMRC Commissioners under subsection (5) shall cease to have effect after the end of the period of six years beginning with exit day.
(10) In this section, ‘exit day’ has the meaning given by section 14(1) (interpretation) of the European Union (Withdrawal) Act 2018 and subsections (2) to (5) of that section apply to the term under this section as they apply to the term in that Act.”
This amendment limits the duration of the delegated power under Clause 31 to the period ending five years after the United Kingdom leaves the European Union and limits the duration of any delegated instruments under the Clause to six years, so that a permanent customs union would require primary legislation.
Clause stand part.
Peter Dowd
It is a pleasure as always to see you in the chair, Ms Buck. I want to speak to Opposition amendments 6 and 82, which seek to amend clause 31. Clause 31 in its current form gives Ministers the powers to create a customs union between the UK and another country, overseas territory or multilateral body, including, for example, the European Union.
There has been much debate in this Committee of the possibility of the UK forming a customs union with the European Union after we leave. It is stating a fact that when the UK leaves the European Union it will also leave the European customs union. However, we have been consistent in our belief that it would be wrong to take the option of the UK forming a customs union with the EU off the table at this early stage of UK negotiations. Therefore, we welcome the Government making specific provision for the option of a customs union in the Bill.
There are a variety of customs unions, and an internal customs union between the UK and its overseas territories and Crown dependencies is far different from a customs union with a single country or a multinational organisation such as the EU. It is a welcome sign that the Government have considered that and ensured that clause 31 is drafted in a way to fit the scenario.
Although the Opposition accept the principle of what the Government are attempting to do, we once again take issue with the concealed manner in which they plan to do it. Under the measures in clause 31, the formation of a customs union would be made through the declaration of an Order in Council, completely cutting out Parliament, in effect, as I understand it—the Minister may wish to clarify that.
We have heard from Ministers on a number of occasions that their action is related to delegated legislation, for example, and that it is always commensurate and proportionate. Setting up a customs union, of whatever construction, without commensurate and proportionate parliamentary involvement is not consistent with the approach that the Government have taken thus far in relation to that commensurate and proportionate principle. It is simply a matter of the Government changing the goalposts capriciously. I completely acknowledge that the Minister may put me right on that.
This appears a rather strange way for the Government to uphold the central theme espoused by those advocating leaving the European Union—of “taking back control.” It confirms one of the central objections that we have made time and time again, and stated throughout this Bill and others, concerning Executive overreach and the centralisation of power. That issue will not go away any time soon. Conservative Members also have concerns about that.
Opposition amendment 6 would instead require a Minister to make a statement to the House of Commons on the establishment of a customs union, outlining the specific details of the customs union and how they were reached, as well as the effects of the new customs arrangements on trade with other countries and territories. I consider that—I think that most people will—to be the minimum level of parliamentary oversight that we should expect, and one that would ensure the Government are accountable to this House.
Several customs unions exist in the world, including the EU customs union, Mercosur and the Caribbean Community. There are more in the pipeline, with negotiations on potential customs unions taking place in the middle east, parts of Africa and between New Zealand and Australia. Under amendment 6 the House will be able to give proper scrutiny to what kind of customs union the Government have in mind. Is that a detail that Parliament need not bother about? Our view is that it is an important fact.
If the Government intend to keep the option of forming a future customs union with the European Union on the table, as clause 31 makes possible, they must consider the variety of needs of UK businesses, manufacturers and stakeholders. Customs unions are ordinarily designed to address trade in goods. However, the new UK-EU relationship will also need to deliver trade in services, cross-border Government procurement and, possibly, regulatory equivalence, as well as a host of other issues that others may want to comment on. I have made that point previously.
The debate on the UK’s future trading relationship remains controversial. The Secretary of State continues to shroud the progress of future deals in a veil of secrecy, under issues to do with commercial sensitivity, except when, as today, we are told there will be £9 billion of trade with China. The Government pick and choose what to tell us. We have consistently opposed such a level of secrecy, and we believe that Parliament should have the right to give proper scrutiny to future trade agreements and customs arrangements.
Amendment 6 would therefore ensure an open process, and a level of transparency around the negotiation and establishment of a customs union; it would ensure that the negotiation and implementation would be subject to parliamentary scrutiny. The amendment would also allow Members of the House, who bring diverse experience— a vast range of experience in many situations—and who represent a variety of key sectors and stakeholders, to debate an issue that is very important.
The Government would also be required under the amendment to consider the impact of the establishment of a customs union on trade with other territories and countries. That is an important factor, particularly given that, currently, the UK’s membership of the EU customs union means it is unable to enter into trade agreements outside the EU. Part of the issue is that we have seen what happens when Governments do not consider the impact of entering a customs union on trade with other countries.
We need only go back to the time when we first entered what was then the European Economic Community. We failed to take account of the impact on trade with Commonwealth countries, which then accounted for 20% of all imports and exports. The result was unhappy and damaging, with Commonwealth countries losing out. The Labour Prime Minister had to renegotiate better terms that ensured that trade with Commonwealth countries could continue. There is a history, and we need to make sure we get things right, as best we can. Parliament’s role is to tease those issues out, especially given the seriousness of this.
Amendment 6 is intended to prevent a scenario such as I have outlined by requiring Ministers to make clear to the House and other trading nations the possible impact of forming a customs union—internally or with another country or a multinational organisation—on trade.
Amendment 82 would limit the period for which a customs union agreed by the Government through delegated legislation could be in force. It would set the period at six years, after which the Government would have to introduce primary legislation if they wanted to extend the customs union. The amendment would be an important part of guaranteeing that Parliament, not the Executive, would have the final say in any customs union that was established. It would constrain and limit Ministers’ power and ensure that the long-term establishment of a customs union would receive the proper parliamentary scrutiny that such a move deserves.
Under clause 31, delegated powers could be used to bring the UK into a permanent customs union without a vote in the House of Commons. In that scenario, Members would not be able to assess the benefits of that customs union before the Government entered into it. There would also be no recourse to a reversal of the decision if it proved costly to the UK—other than through primary legislation, presumably, so let us do that first. Just as the Opposition have forced and required the Government to concede a vote to the House on the final deal reached in the negotiations between the UK and the European Union, amendment 82 would require the Government to put the formation of a future customs union to a vote.
There is of course a difference between a temporary customs union and a permanent one, and amendment 82 makes that distinction. While we accept that the Government may need the powers in clause 31 to put in place temporary measures as part of a transitional process, more permanent changes should receive proper parliamentary oversight and sanctions. We believe six years to be time enough for the House to consider the net benefits or costs of a customs union, be that an internal customs union with overseas territories and Crown dependencies, or a customs union with another country or a large, multinational organisation such as the EU. Six years would prove enough time for Members to assess whether that customs union protects UK manufacturers, supports UK businesses and works in the interest of the country.
As the Minister has stated many times, the Bill is a framework Bill. Clause 31 sets out framework powers that will give Ministers the ability to introduce regulations for the creation of a customs union. Our opposition to this matter is clear: while we welcome the Government including these powers in the Bill, as I said earlier, amendments 6 and 82 would guarantee that Parliament has the final say.
Mel Stride
Clause 31 caters for a situation in the future in which the UK has made an agreement with an overseas country or territory to enter into an arrangement to establish a customs union. The clause allows such a customs union to have effect for the purposes of import duty. It also allows HMRC to make regulations that might prove necessary to ensure that a customs union functions effectively.
As I previously set out, the Bill caters for a range of possible outcomes after the UK has left the EU. There are various circumstances in which the Government might wish to establish a customs union with a country or territory overseas, and to have that union apply for import duty purposes. One instance might be to establish a customs union with a Crown dependency—namely Jersey, Guernsey and the Isle of Man.
The clause caters for any international arrangements such as this that establishes a new customs union. The clause does not provide the power to enter into an international agreement; such an agreement does not require a specific statutory basis. Instead, it simply allows the UK’s customs regime to reflect such an agreement by providing the means necessary to implement it. Once an agreement has been reached, an Order in Council will be required before it can take effect for import duty. That order can itself be made—this is a critical response to the remarks of the hon. Member for Bootle—only if it has first been approved, in draft, by the House of Commons under the draft affirmative resolution procedure. I am sure the Committee agrees that that will afford a high level of parliamentary scrutiny for each stage of the process.
It is likely that further provisions will be needed to make an international agreement effective for import duty purposes. The most obvious instance would be to ensure that import duty is not charged on the movement of goods between the UK and the overseas country or territory. For that reason, the clause allows HMRC to make any necessary changes in regulations.
Amendment 82 seeks to add a restriction to that process in two ways. First, it would limit the ability of HMRC to make regulations to five years from exit day. Secondly, it would make any Order in Council cease to have effect six years after exit day. Both of those positions are misguided. I am sure that I do not need to remind the Committee that establishing a new customs union with an overseas territory or country is likely to be a long-term process, not least because of the need to ensure that it reflects the UK’s new international trading relationship once we have left the European Union. It would therefore be wrong to limit the ability to adapt the UK’s legislation to a period of five years following exit.
More importantly, it would be rather perverse to make any customs union simply cease to have an effect on domestic law after a six-year period. As I explained, the level of parliamentary scrutiny that would apply to such a union is very high, requiring both an Order in Council and the draft affirmative procedure in Parliament, as well as all the potential debates and votes that may occur around the negotiations that led to that customs union arrangement in the first place.
There is therefore no case for time-limiting an agreement in the way proposed by the amendment. Indeed, it could make it far more difficult, if not impossible, to reach any agreement if our overseas partners were aware that such an agreement would no longer function effectively at a future point because of limitations on powers in our domestic legislation. I therefore urge the Committee to reject amendment 82.
Peter Dowd
We will not press amendment 6 to a vote, but we will no doubt tease the issue out a little more in due course. Again, I am not completely reassured by the Minister’s statement in relation to affirmative resolutions. I do not accept that the process is as rigorous as he has implied throughout.
The other aspect is that, if Parliament will have to do huge amounts of work, we had better make sure that we get everything right and get the ducks set up in a row. The idea that the Government’s proposal and mechanism for authorising are commensurate and proportionate is, in my opinion, far off the mark. It is a very important area, and Parliament should have significantly more of a say in it.
This issue will clearly not be resolved today, any more than many other things will be, but it is really important. We will not push the amendment to a vote today, but there is no doubt that we will, in due course, come back to this issue and the whole question of parliamentary scrutiny, particularly in relation to this sort of matter. I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 31 ordered to stand part of the Bill.
Clause 32
Regulations etc
Kirsty Blackman
I beg to move amendment 89, in clause 32, page 19, line 18, at end insert—
“(c) regulations under paragraph 4(2), 9(3) or 14(4) of Schedule 4.”
This amendment provides for regulations made under certain provisions of Schedule 4 (regarding dumping of goods or foreign subsidies causing injury to UK industry) to be subject to the made affirmative procedure rather than the negative procedure.
Mel Stride
New clause 12 and its consequential amendments propose a process by which Parliament scrutinises and approves secondary legislation. The hon. Member for Aberdeen North referred to the process as the super-affirmative resolution procedure. I commend her on her creativity, but I must urge the Committee to reject what has been proposed.
As I understand the super-affirmative resolution procedure, it would initially require the laying in draft of any regulations, alongside an explanatory document and a declaration to which the new procedure would apply. It would also entail the appointment of a House of Commons Committee, which would initially have the power to recommend that more onerous procedures should apply to the draft regulations than those currently provided by the Bill. At the same time, those more onerous procedures would apply automatically to certain regulations, as set out in the amendments. The Committee would have the power to recommend that any draft regulations were rejected before they could be approved by the Commons under the affirmative procedure.
The powers of that Committee would be fairly wide, but at the same time, its remit would be relatively modest, only relating to the trade remedies provisions and regulations under clause 42 which deals with amendments regarding how EU law applies to VAT. I have already explained why it is entirely right that regulations for the trade remedies framework should be subject to the negative procedure. Clause 42, along with other provisions in the Bill, is necessary to ensure that the UK has a fully functioning VAT system once we leave the European Union. As there is limited direct EU legislation relating to VAT, the power in clause 42 is therefore equally limited. Given that limited scope, it is only right that its exercise should be subject to the negative procedure.
No case has been made that the existing and well-understood parliamentary procedures for making regulations are inadequate. To establish an entirely new procedure would mark a major precedent in Parliament and I cannot see any reason for doing so. That is particularly true in the case of limited regulation-making powers, which are the subject of the amendments.
Peter Dowd
Does the Minister not accept that this might be unprecedented, but so is leaving the European Union and all the institutions associated with it and all the mechanisms that go with it? That is unprecedented, so we need to have unprecedented parliamentary scrutiny of that unprecedented move.
Mel Stride
The word “unprecedented” could be applied to almost everything that happens in the future; it is always different to that which occurred in the past. I think it might be stretching Parliament’s patience if on every occasion we came across something unprecedented, we conjured up some unprecedented way of dealing with it. I really do not want to re-rehearse all my arguments on the relative merits, proportionality, appropriateness and so on of the various approaches that we take on those matters. To conclude, we believe that the various new parliamentary processes proposed would hamper the UK’s ability to respond swiftly to future developments and to provide an important but proportionate safety net to UK industry in a timely fashion.
Amendments 94 and 95 seek to retain the effect of direct EU legislation. Amendment 94 would do that by retaining EU regulations on VAT that will be brought into UK law as a result of the European Union (Withdrawal) Bill. According to the explanatory statement accompanying the amendment, that is so the EU legislation in the area will continue to have effect during the implementation period. Amendment 95 seeks to limit the power to exclude certain provisions of the VAT-implementing regulations.
The Bill enables the Government to respond to a range of outcomes. By way of background, the Value Added Tax Act 1994 and subordinate legislation already implements the majority of EU law on VAT, including the VAT directive. The 1994 Act as amended by the Bill will continue to apply post-EU exit. Few EU regulations apply to VAT and in the main those relate to single market reciprocal arrangements such as exchange of information. In the absence of an agreement, those will simply have no application—we would not want them to be incorporated into UK law for obvious reasons—which is why they are disapplied by clause 42(1). Removal of EU legislation that is no longer required or otherwise deficient is anticipated in the withdrawal Bill.
At this stage I will deal with the specific point made by the hon. Member for Aberdeen North about VAT, and how it operates now and might operate once we have left the European Union. She has raised issues that will certainly be very important—it is not the first time that she has raised such issues—to how businesses interact with what will then be the remaining EU27. I made it clear on Second Reading that we will look sympathetically and appropriately at the particular issue of the change from acquisition VAT to import VAT, including the change in timing of VAT payments with its effect on a large number of businesses as they trade with the European Union in future.
The note to amendment 94 refers to ensuring that EU legislation continues to have effect during an implementation period, but it may not be necessary to switch our provision on until after a transitional period or at all. Alternatively, EU regulations disapplied under clause 42(1) could be reinstated by the power in clause 51, which we will come to. What is ultimately required will depend on the outcome of the negotiations. However, we anticipate that the rules in an implementation period will be broadly reflective of the existing ones.
Amendments 89 and 90 seek to change the parliamentary process for some of the regulation-making powers provided in parts 1 and 3 of the Bill and their related schedules. For indirect taxation measures, it is common to have a framework in primary legislation supplemented by secondary legislation. The Bill establishes a comprehensive framework for a new standalone customs regime that will be underpinned by detailed and technical secondary legislation.
The trade remedies framework contains a great deal of such technical detail and the secondary legislation made under the Bill will comply with WTO rules, which is why we propose that the regulations are subject to the negative procedure. With that I ask Opposition Members to consider withdrawing their amendment, or at least the Committee to resist them.
Anneliese Dodds
I will respond briefly, if I may, to the Minister’s comments. I do not want to get into a semantic discussion about precisely what the speaker from the Hansard Society did or did not say. Ultimately, he was trying to preserve the independence of the Hansard Society. Therefore, when he was being pushed about the Bill more globally, he resisted. I can understand that, because he wished to protect the independence of the Hansard Society, but to my memory, he did not comment directly on the proposals that have been put forward by the Opposition. I do remember him commenting directly, for example, on the cumbersome and difficult nature of the negative procedure and the fact that it operates through early-day motions and all those kinds of things. I cannot remember him specifically saying that he felt that the suggestions being put forward by the Opposition were incorrect. He resisted being pulled towards a global assessment of the Bill, but I can understand why he did that, given his need to retain independence.
Peter Dowd
I can remind my hon. Friend of what Mr Blackwell said. In relation to the 150 delegated powers, he said:
“Some of the justifications I am struggling with, particularly as regards the use of urgency and non-urgency. I think time is an issue here, particularly if you do not have the backstop of further scrutiny by a Chamber—the second House—that is usually very good at looking at delegated legislation”.—[Official Report, Taxation (Cross-border Trade) Public Bill Committee, 23 January 2018; c. 53, Q77.]
He was absolutely clear and unambiguous that this really was not a way to do matters of this nature.
Kirsty Blackman
It has been an interesting debate, and I am glad to have had the opportunity to start it. I really do appreciate some of the clarification that has been given by the Minister, particularly around moving from acquisition to import VAT. As I said earlier, I do not want to press any of these amendments, because I would like to return to them at Report stage. I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Taxation (Cross-border Trade) Bill (Eighth sitting)
Peter Dowd Excerpts(6 years, 3 months ago)
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Anneliese Dodds
I am grateful to the Minister for his commitment to respond to any questions that are levelled by Select Committees in this area. That is a positive commitment. It is an area that we will keep an eye on, but after the discussion we have just had, I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 39 ordered to stand part of the Bill.
Peter Dowd (Bootle) (Lab)
On a point of order, Mrs Main. I indicated earlier that I wanted to speak on amendments 142 to 145 to clause 39, on animal welfare and sentience. I have tried to get in, but if the opportunity has passed, so be it. We may therefore have to pursue it on Report. I want the Committee to recognise that I did wish to speak and did indicate that.
The Chair
I am sorry, but we have moved on.
Clause 40 ordered to stand part of the Bill.
Clause 41
Abolition of acquisition VAT and extension of import VAT
Question proposed, That the clause stand part of the Bill.
Peter Dowd
I hope the Minister does it with more feeling next time. That was a whip through the clauses, but I will read them. The fact that any of us have any sentience at all is wonderful. I also notice that the Minister’s cut and paste button in relation to appropriate and proportionate has been in overdrive again.
This area of our future relationship with the European Union has been the subject of much public debate, because, like much of the Bill, part 3 is conditional upon the outcome of the Government’s Brexit negotiations, which appeared to take a further turn for the worse this week. This section of the Bill provides a framework for a new VAT arrangement between the UK and EU member states, to be enacted should we need to do so. Clause 41 makes no provision for the abolition of acquisitions, as far as I can gather, as a taxable event for goods entering the UK from member states and, in the absence of a negotiated agreement, goods would be subject to import VAT.
Amendment 133 seeks to add the affirmative procedure to secondary regulations under clause 42. The clause sets out that the automatic conversion of EU law into UK law following exit from the European Union does not apply in matters relating to VAT. It also provides the Treasury with the power to exclude or modify any other EU rights, powers, liabilities, restrictions, remedies and procedures by statutory instrument, currently subject to the negative procedure. The amendment would ensure that the modification or exclusion of EU rights, powers, procedures and so on would be subject to affirmative resolution.
It is a fact that when we leave the European Union, we will leave the EU VAT area, and therefore we cannot be subject to the rules governing it, at least until further negotiations have taken place. That is why we have not chosen to table amendments to clause 41, which as I have outlined, sets out the major legal changes necessary to exit from the European Union, but have instead sought to ensure that any further regulations necessary are subject to the proper scrutiny—appropriate and proportionate proper scrutiny.
I would like the Committee to once again note that the amendment is in line with the recommendations made by the Delegated Powers and Regulatory Reform Committee, which explicitly called for the powers to be made affirmative, as we are seeking to do. The report says:
“Clause 42(2) contains a wide power for the Treasury to amend VAT law which is retained EU law under clause 4 of the current European Union (Withdrawal) Bill...Regulations under these powers are subject to annulment in pursuance of a resolution of the House of Commons. Given the importance and scope of the powers in clauses 42 and 47, we do not consider that the regulations should only ever be subject to the negative procedure.”
I again appeal to members of the Committee to heed the advice of the Delegated Powers Committee and support our amendment to introduce proper parliamentary scrutiny to regulations made under clause 42.
Amendments 83 and 84 relate to clause 42. They seek to add what are commonly known as sunset clauses to the provisions in clause 42 and would limit the duration of the delegated powers to the period ending two years after the United Kingdom leaves the European Union, which we think is appropriate and proportionate in the circumstances.
As was pointed out by the Delegated Powers and Regulatory Reform Committee, the Government’s own White Paper, “Legislating for the United Kingdom’s withdrawal from the European Union”, acknowledged the importance of time-limiting delegated powers where powers are not needed in perpetuity, so there seems to be a little bit of flip-flopping on that one from the Government. Indeed, clauses 7 to 9 of the European Union (Withdrawal) Bill contain important time limits on the use of delegated powers. There are no corresponding sunset clauses on the use of delegated powers in this Bill—there seems to be a bit of a pick-and-mix approach to scrutiny. Despite the Treasury’s delegated powers memorandum acknowledging that the Bill has been drafted to cater for various contingencies that might never materialise—for example, if the UK left the EU without a negotiated agreement—we must have these scrutiny powers in place to keep checks on that one.
Peter Dowd
Yes, two buttons: control and whatever it is. As I have mentioned, we are not alone in this view, which is shared by the Delegated Powers and Regulatory Reform Committee. The Government ought to respond to our genuine concerns in this matter, and we will persist in asking them until they do respond to our genuine concerns and those of other agencies, bodies, organisations and people.
Mel Stride
I am grateful to the hon. Gentleman for his invitation to do some gymnastics, but I do not think they will be necessary, because his questions are easily answered. He referred to my cut and paste button in respect of “appropriate” and “proportionate” and he is right; there is a cut and paste button for those terms, because they are extremely important. At the heart of this is his cut and paste button, in which he regularly says something along the lines of, “All we are asking for is appropriate scrutiny on these important matters.” So the argument has gone back and forth over every area of the Bill as we have ranged across the various clauses.
Moving on to the hon. Gentleman’s remarks about the House of Lords Delegated Powers and Regulatory Reform Committee and its comments on sunset clauses, and his specific question about why we would have sunset clauses in the context of the European Union (Withdrawal) Bill but they would not be appropriate in the case of this Bill, the answers are clear and require no gymnastics at all. They are that the aims of this Bill are different from those of other Brexit Bills.
For example, while the European Union (Withdrawal) Bill makes provision for day one, with the understanding that further primary legislation will be made to supplement it, this Bill will be required in order to maintain a functioning customs regime, an effective VAT regime—as we are currently discussing in the context of these clauses—and an excise regime on an ongoing basis. There is a fundamental distinction between bringing the EU acquis into UK law and handling that process, which is the principal rationale for the European Union (Withdrawal) Bill, and what is happening on a dynamic, ongoing basis in terms of a customs, VAT and excise regime.
Mel Stride
I will be brief, because we are beginning to go around in circles, but I am very happy to discuss any of these matters offline, or to receive a letter from the hon. Lady, on the points she has raised.
Peter Dowd
We will not press the clause to a vote, because we have persistently made this point all the time. I completely accept that it gets pretty tedious, but it gets pretty tedious from this side as well, when we keep on getting told that Parliament cannot have the scrutiny that it constitutionally and rightly deserves. We will come back to this point.
I have to say that other nations and democracies, much younger than this one, are perfectly capable of dealing with such issues, very detailed issues, without this sort of carte blanche approach that the Government seem to take, where they want to block every opportunity for us to scrutinise. They are not even prepared, when things might have calmed down in relation to the processes of exit, to give us the opportunity to check them via a sunset clause and that is deeply regrettable.
Question put and agreed to.
Clause 41 accordingly ordered to stand part of the Bill.
Clauses 42 and 43 ordered to stand part of the Bill.
Schedule 8 agreed to.
Clause 44
Excise duties: postal packets sent from overseas
Question proposed, That the clause stand part of the Bill.
Kirsty Blackman
I am not trying to wrong-foot the Minister, but I just want to make a brief statement in relation to postal packets from overseas. I have mentioned the issue in previous debates. I genuinely think that it will affect individuals living our constituencies across the four nations of the UK. People will be shocked when they see the changes coming in relation to excise duty. It is incumbent on the Government, when HMRC make the relevant regulations, that they are as widely publicised as possible, and that if possible, some transitional arrangement should be put in place on costs. If people suddenly find that their postal packets are subject to an incredible charge to which they were previously not subject, they will be pretty upset, and rightly so.
Whatever HMRC does on the issue, we ask the Minister to ensure that there is adequate publicity and that any charges put in place are proportionate and not excessive, because people will be incredibly upset and negatively affected.
Peter Dowd
It is important that we deal with the question raised by the amendment regarding sunset clauses. The Government originally did not want any of the sunset clauses in the European Union (Withdrawal) Bill, but they were required or forced—people can call it what they will—by hon. Members from across the parties to put in sunset clauses. We were told at the time that the inclusion of a sunset clause in that Bill would result in the end of civilisation as we know it. Of course, someone threw a bucket of water over the Government, and they freshened up and realised that they were not going to get away with not having sunset clauses.
The Government have persisted in Committee—they might be doing the same with the Trade Bill—to argue against sunset clauses. They would have us believe that sunset clauses are some foreign or alien concept in parliamentary democracies. Well, they are not. There were even sunset clauses in the nuclear deal with Iran. Sunset clauses exist in all sorts of legislation, including treaties—and we have some 3,000 treaties. They exist right across the piece in legislation. Indeed, the coalition Government, when introducing the Enterprise and Regulatory Reform Act 2013, basically insisted on sunset clauses to reduce the legislative burden. When it suits the Government to have a sunset clause, they will have a sunset clause; in fact, they introduced an Act to have sunset clauses. They are now telling us that sunset clauses are outrageous, and will somehow mess up the whole VAT regime.
Other countries have sunset clauses. For example, sunset clauses in Texas mean that, after 10 or 12 years, some agencies will cease to exist unless they can prove their appropriateness, consistency and status. They have to go through that process. Even organisations have sunset clauses applied to them and they have to show how relevant they are.
The Prevention of Terrorism Act 2005 had a sunset clause. In the past, sunset clauses have been applied to the effectiveness of legislation, and yet we are now being told today that they are somehow outrageous and that the whole Government will grind to a halt if we have them.
Some Canadian legislation—in fact, a whole range of Canadian legislation—has an automatic five-year sunset clause. The Canadians manage perfectly well with sunset clauses. The question is: are this Government so fearful of a sunset clause, so fearful of challenge and so fearful of scrutiny, particularly in relation to this amendment, that they do not want sunset clauses?
There are even sunset clauses in Australia, and they seem to manage. Australia has general sunset clauses; they are not even specific. They have sunset clauses for whole swathes of legislation and they manage perfectly well. South Korea also has sunset clauses. Perhaps that is why it has such a booming economy—because the sunset clauses mean that, time after time, they test and challenge. The only sunset clause in North Korea, no doubt, is the sunset on democracy. We do not want that; we want sunset clauses for the powers this Government have taken for themselves.
Jonathan Reynolds
My hon. Friend is making a fantastic speech about the applicability of sunset clauses around the world. Again, however, we have to get back to this point: if the Government still need these powers after the sunset clause is done and the powers no longer exist, they simply have to come back to Parliament. It is not the case that they do not have the power to deal with things; a strong, united Government, with a parliamentary majority, would quite easily be able to come back and put on the statute book anything they needed. That argument simply has not been addressed by the Government.
The Chair
Order. Before I call Mr Peter Dowd, I will say that we are all immensely interested in South Korea, Texas, Australia and all the other places he has listed, but could he get back to this particular amendment?
Peter Dowd
I was trying to show that in this case there is a requirement for a sunset clause. It is absolutely crucial that we have sunset clauses and I am trying to show—I know that you will appreciate this, Mrs Main—that they are capable of being delivered.
Peter Dowd
That is spot on. We have raised that issue time after time. Having sunset clauses and taking control back is a sign of a confident Government who are strong and stable and know their direction of travel. That is why I am sure that every Government Member of the Committee will support the amendment’s specific proposal for a sunset clause.
The Parliamentary Under-Secretary of State for International Trade (Graham Stuart)
I just want to pay tribute to the hon. Gentleman and to the Labour party, because Labour does not just talk about sunset clauses; it actually works on them. And it is noticeable, frankly, that with real momentum behind sunset clauses, moderate leaders, councillors and moderate MPs are being hounded out. That is a true sunset clause.
Peter Dowd
We want transparency and openness, and that is why we are demanding sunset clauses, unlike the Under-Secretary of State, who would like this House to be as dark as Erebus. We want a sunset clause, and Parliament, the people and the Hansard Society all demand a sunset clause. We insist on sunset clauses and we will persist in insisting on them.
Mel Stride
Clause 51 confers a power on the Treasury or the Secretary of State to make regulations for VAT, customs or excise in consequence of, or otherwise in connection with, the UK’s withdrawal from the EU.
The Bill contains a comprehensive set of provisions to establish a stand-alone customs regime and to ensure that VAT and excise legislation will function as required on EU exit. The Bill does that through a mixture of primary legislation and powers to make subordinate legislation. Together the provisions will allow us to deal with a range of negotiated scenarios, as well as to prepare for a non-negotiated scenario. That will ensure that the UK’s customs, VAT and excise regimes function as required upon EU exit and thereafter.
The UK’s future arrangements for customs, VAT and excise will become completely clear only when negotiations are concluded. We cannot of course be certain what the detailed arrangements to be agreed will be, which is why the power in the clause is drafted as it is and why it is not possible to give an exhaustive list of the situations in which the power may be used. For example, we will need to use it to implement agreements with the EU that might involve alternative provisions to those made in the Bill, such as different amendments to those made to the VAT Act 1994 by schedule 8. Equally, the power will need to be used to address deficiencies similar to those dealt with in clause 7 of the EU (Withdrawal) Bill, to amend existing legislation to ensure that it is consistent with replacement domestic legislation; to legislate for policy decisions made in preparation for, or as a result of, a non-negotiated scenario; to transition existing EU trade remedy measures; or to legislate to deal with unforeseen developments arising from EU exit.
It must be noted that that the power is not an unlimited one: the scope of the power is, first, limited to VAT, customs and excise legislation; and, secondly, to changes that are made in consequence of, or otherwise in connection with, EU exit. As changes potentially required as a consequence of, or in connection with, EU exit may relate to primary legislation, the power extends to amending primary legislation, including the Bill. Given that we need to prepare for or implement a range of outcomes, including those that may differ from those set out in the Bill, it is appropriate that the power permits the Bill itself to be amended.
The affirmative procedure will be required for any use of the power to amend primary legislation in consequence of, or otherwise in connection with, EU exit. Any regulation that makes changes to primary legislation will have to be approved by the House of Commons if it is to have effect beyond the 28-day period starting from the day it is laid. That is unless clause 52 applies, in which case the relevant period extends to 60 days. The clause itself will make no changes but confers a power on the Treasury, or the Secretary of State, to make changes in the future in consequence of, or otherwise in connection with, EU exit.
Amendment 120 seeks to ensure that the power to make regulations under the clause is exercised only when it is necessary to do so. The Government oppose the amendment because it limits their ability to prepare effectively for EU withdrawal. The Bill is drafted to cater for a variety of long-term outcomes from negotiations on the future relationship with the EU.
In that context, the power is necessary to ensure that the UK can deal with a range of possible consequences of, or matters arising in connection with, EU withdrawal, and maintain fully functioning customs, VAT and excise regimes in a range of scenarios. Changing the wording to “necessary” may narrow the power in such a way that the Government cannot prepare effectively for EU withdrawal. That is because some of the uses for the power may be appropriate, but it may be hard or cumbersome to prove that they are necessary. For example, policy decisions may be made in consequence of, or in connection with, EU withdrawal where one option is chosen over others. That is “appropriate”, but it may be said that they are not “necessary”, since one option is not necessary in the sense that other options are available.
Anneliese Dodds
I am grateful to the Minister for those clarifications and commitments, particularly on staffing. It is good to hear that the Government are considering ensuring that there are sufficient human resources. However, as I hopefully made clear in my remarks, I am concerned that, from an international perspective, we will still be under capacity. There may be reasons for that, but I would like the Government to explain them. We seem to be radically below par compared with other comparable nations.
When it comes to IT, the Government have now accepted that there are many challenges, and I understand that the CHIEF—customs handling of important and export freight—system will now be run on for a period. That is sensible, but it would have been good to get that agreement earlier, because not having that assurance before caused business some concern. Obviously, the CDS programme was announced before the European referendum—it has been a long-running process—but it is important that we recognise the additional pressure that that switchover will put on services at the very time a new customs regime might be coming in. I will not press the amendment, but we may move the new clause, as with a number of other new clauses. I am grateful to the Minister for those clarifications, so I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Peter Dowd
I beg to move amendment 18, in clause 55, page 38, line 15, leave out
“on the day on which this Act is passed”
and insert
“when the condition in section (Pre-commencement review: effects on frictionless trade with European Union) is met”.
This amendment is consequential on NC10.
The Chair
With this it will be convenient to discuss the following:
Amendment 21, in clause 55, page 38, leave out line 23 and insert—
“(1A) Section (Pre-commencement review: effects on frictionless trade with European Union) and this Part come into force on the day on which this Act is passed.”
This amendment is consequential on NC10.
New clause 10—Pre-commencement review: effects on frictionless trade with European Union—
“(1) The condition in this section is met when—
(a) the Treasury has carried out a review in accordance with the provisions of this section, and
(b) the Chancellor of the Exchequer has laid a report of that review before the House of Commons.
(2) The review by the Treasury under this section must consider the likely effects of implementation of the provisions of this Act on the prospects for frictionless trade with the European Union after the United Kingdom’s withdrawal from the European Union.
(3) The review must consider separately the matters specified under subsection (2) in relation to—
(a) circumstances in which there is no withdrawal agreement with the European Union (within the meaning of section 9 of the European Union (Withdrawal) Act 2018),
(b) any implementation or transitional period after the United Kingdom’s withdrawal from the European Union, and
(c) the period subsequent to that specified in paragraph (b).
(4) The review shall have regard to information provided by the Secretary of State about the likely outcome of negotiations between the United Kingdom Government and the European Union.”
This new clause requires the Treasury to provide an assessment of the effects of implementation of the Bill on the prospects for frictionless trade staffing and IT requirements for implementing the provisions of the Bill, and the prospects of those requirements being met prior to commencement of the main provisions of the Bill.
Peter Dowd
The proposals seek to provide commencement for various provisions in the Bill under parts 1 to 5. New clause 10 seeks to require the Treasury to carry out a pre-commencement review considering the likely effects of the implementation of the provisions of the Bill on the prospects for frictionless trade within the EU after the United Kingdom’s withdrawal from the EU.
The review should also consider circumstances in which there is no agreement with the EU and an implementation or transitional period after the UK’s withdrawal. It would also have regard to information provided by the Secretary of State about the likely outcome of negotiations between the UK and the EU. As the explanatory statement that accompanies the new clause makes clear, we seek to ensure that the Treasury makes a proper assessment of the impact of the implementation of the Bill on staffing and IT requirements in the context of maximising frictionless trade across the UK border.
In evidence to the Committee, the Public and Commercial Services Union commented on staffing, which the new clause seeks to ensure is properly addressed, as my hon. Friend the Member for Oxford East also indicated. Since 2006, the number of HMRC staff has roughly halved, from more than 100,000 staff members to 56,000, and the proposed office closures suggest that more might be on the way. It is not just PCS that is concerned. Anastassia Beliakova said:
“Another concern…is that there is an evidenced shortage of staff dedicated to goods checks. That has been ongoing for a number of years, and questions are being asked about whether there is sufficient resource and focus allocated to goods checks and support. Those questions will become much more acute with all the coming changes.”––[Official Report, Taxation (Cross-border Trade) Public Bill Committee, 23 January 2018; c. 4, Q1.]
At the end of the day, it is incumbent on the Government to hear what we have to say and act before it is too late to enable frictionless trade, which is one of their primary concerns.
Mel Stride
Amendments 18 and 21 to clause 55 and new clause 10 seek to require the Treasury to review the likely effects of the Bill on frictionless trade with the EU, and for the Chancellor to report that to Parliament before commencement. I assure the Committee that the Government are committed to providing information on the impact once the outcome of the negotiations is clearer.
We believe that putting those requirements on the face of the Bill is unnecessary. Any changes will be set out in secondary legislation, and Parliament will of course have the ability to consider, scrutinise and decide upon the content of that legislation in the normal way. Furthermore, any review that is carried out before the outcome of the negotiations will necessarily be somewhat speculative.
Peter Dowd
I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Peter Dowd
I beg to move amendment 19, in clause 55, page 38, line 15, leave out
“on the day on which this Act is passed”
and insert
“when the condition in section (Pre-commencement review: effects on border experience) is met”.
This amendment is consequential on NC11.
The Chair
With this it will be convenient to discuss the following:
Amendment 22, in clause 55, page 38, leave out line 23 and insert—
“(1A) Section (Pre-commencement review: effects on border experience)and this Part come into force on the day on which this Act is passed.”
This amendment is consequential on NC11.
New clause 11—Pre-commencement review: effects on border experience—
“(1) The condition in this section is met when—
(a) HMRC Commissioners have carried out a review in accordance with the provisions of this section, and
(b) the Chancellor of the Exchequer has laid a report of that review before the House of Commons.
(2) The review by the Commissioners under this section must consider the likely effects of implementation of the provisions of this Act on the border experience of importers and exporters and those engaged in associated economic activities.
(3) The review must consider separately likely effects on the border experience of those importing goods from or exporting goods to the European Union.
(4) The review must consider the matters specified under subsection (3) in relation to—
(a) circumstances in which there is no withdrawal agreement with the European Union (within the meaning of section 9 of the European Union (Withdrawal) Act 2018),
(b) any implementation or transitional period after the United Kingdom’s withdrawal from the European Union, and
(c) the period subsequent to that specified in paragraph (b).
(5) The review shall have regard to information provided by the Secretary of State about the likely outcome of negotiations between the United Kingdom Government and the European Union.”
This new clause requires HMRC to provide an assessment of the effects of implementation of the Bill on the border experience of importers and exporters and those engaged in associated economic activities, with particular reference to trade with the European Union, prior to commencement of the main provisions of the Bill.
Peter Dowd
The amendment seeks to oblige HMRC commissioners to carry out a pre-commencement review of the effect on the border experience. The Chancellor of the Exchequer will then be mandated to lay a report of that review before the House.
The reasoning behind new clause 11 is simple: we are facing a shift of enormous magnitude, which demands a corresponding change in our approach to how we practically handle the processing of customs at the border. The change comes at the same time as existing resource challenges to HMRC. We are concerned and will continue to be so about the issue of provision to the appropriate authorities. I have made that point to the Minister time and again, and I hope he listens to what we are saying, even at this late stage.
Kirsty Blackman
I have significant concerns about the way this clause is going to work, given that the UK Government’s priority in the Border Force has been immigration rather than customs staff. Therefore, there has been an erosion of the customs staff who have got experience and understanding of the frontline. I am not yet convinced. Although the Government are talking about putting extra people into HMRC, I have not heard enough about equivalent extra staff being put into the Border Force so that it can appropriately police things in relation to customs. I have significant concerns about the border experience, and I note that that is not just on the south coast of England. We have borders when things come in on international flights or ports outside the south coast of England. It needs to be taken over the whole geographical spread of the United Kingdom.
Mel Stride
Amendments 19 and 22 to clause 55 and new clause 11 seek to require HMRC to review the likely effects of the Bill on the border experience of importers and exporters, and those engaged in associated economic activities, and the Chancellor to report that to Parliament before commencement of the Bill. The reasons why the Government will resist them are similar to the reasons given for resisting the last group of amendments. It is not appropriate to legislate for such a review, because the experience of businesses at the border will depend on the outcome of the negotiations with the EU, the resulting details of the new customs regime and the resulting changes needed to maintain a fully functioning and legally operable VAT and excise regimes.
To respond to the specific points the hon. Member for Aberdeen North made about the Border Force, it is absolutely vital, as she has suggested, that we have appropriate resource. Of course, that is a Home Office matter and not within the direct remit of HMRC or the immediate scope of the Bill, but I reassure her that we are working across Government and closely with the Home Office to ensure that, whatever occurs in the negotiation and whatever the results for our day one arrangements, we will be ready in terms of both the Border Force and Customs and Excise.
Peter Dowd
The Minister has heard what I have to say. We will not be pressing the amendment, although we will press the new clause. I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Kirsty Blackman
I beg to move amendment 102, in clause 55, page 38, line 17, after “(2)”, insert “and (2A)”.
This amendment paves the way for amendment 103.
Mel Stride
I will start by addressing new clause 13. The hon. Lady will be aware that the issue of the potential move from acquisition VAT to import VAT and its effect on cash flow for businesses was raised by the Chancellor in the autumn Budget. We are very aware of that, as the Chancellor has indicated.
On Second Reading, from memory, I was intervened on by my right hon. Friend the Member for Loughborough (Nicky Morgan), the Chair of the Treasury Committee, who raised the same issue. Prior to that, I had had a meeting with her to discuss the matter in some detail. I was able to provide her with an assurance on the Floor of the House that was sympathetic—I think that word was used—to the issue. We certainly do not wish for a situation in which we are significantly damaging businesses as a consequence of any changes. Indeed, in this debate I have clarified that, under the terms of section 38 of the Value Added Tax Act 1994, we have the powers to make the kind of changes that my right hon. Friend and I would probably agree are appropriate.
I am grateful to the hon. Lady for not pressing amendments 102 and 103, which seek to prevent the Government legislating for a future outside the EU VAT area before we produce an impact assessment on the effects that leaving the EU will have on imports.
Peter Dowd
I welcome that point. I would speak to the amendment but I will not, given the time. Does the Minister have any indication what the timetable might be for that structure in relation to deferrals, or can he come back to us?
Mel Stride
That question prompts another question: at what point do we reach that matter in the negotiations with the European Union? It is not possible to answer that question because it depends on when we get our deal and where the parameters around VAT, imports and exports are. All those matters land in that negotiation. I reiterate the reassurance that we have the ability and the powers within the VAT Act to act accordingly and we have a firm intention to ensure that we deal with the concern we have all identified.
Mel Stride
Yes, Mrs Main, necessary and appropriate levity has been put into our proceedings. I thank all Members for their contributions, as I always say on this occasion, particularly those on our side. When my hon. Friend the Member for York Outer intervened, that was a stellar and special moment. It was a highlight on our side of the Committee.
I thank the Opposition Front-Bench spokesperson, the hon. Member for Bootle, before he disappears into the sunset—probably under the auspices of his own sunset clause. I thank him for his usual good humour. His Henry VIII quote was particularly good, but I am convinced that, as with all the others, he probably just makes them up. I can assure the hon. Member for Aberdeen North I will get my oomph back on Report. My mojo will be in fine form. I thank the hon. Member for Oxford East for the assiduous approach that she has taken to her duties on the Committee and for not mentioning on this occasion the dead dog and the bicycle, for which I am ever so grateful.
I thank the Treasury and HMRC, in particular my officials, Tom Doherty, Matthew Parry, Emily Marsh and Fraser Eccles, for all the support that they have given to me personally, and the other Departments, the Department for International Trade and the Department for Environment, Food and Rural Affairs, that have contributed to the process. I thank our new Minister, the Under-Secretary of State for International Trade, my hon. Friend the Member for Beverley and Holderness, who put in a fabulous performance on his first Committee as a Minister, with great force and great style. I thank the Whips on both sides, who are the unsung heroes. I always thank the Whips because I care about my future and my career.
I thank Hansard and the Doorkeepers. I also extend a heartfelt thank you from the whole Committee to the witnesses who appeared before us—perhaps specifically to Joel Blackwell, who has emerged as the most celebrated witness of our proceedings. I thank them all for having contributed in such a positive way.
Peter Dowd
Further to that point of order, Mrs Main. I thank you and Ms Buck for the eloquence in which you have chaired the meeting, and for your forbearance. I thank the Clerks, Hansard and the Doorkeepers for their sterling work; they have even more forbearance. I thank colleagues who have undertaken scrutiny in a forensic, good-humoured and professional fashion, and that includes the Members on the Government Benches. I also thank all our staff, Sam Goodman, Tom Peters, Sophia Morrell and Jack Jenkins, for their hard work on the Bill.
The whole debate has been pretty commensurate and pretty good. I finish with a couple of things: the Government epitaph will be “Down with sunsets!”; and, finally, “Parting is such sweet sorrow”.
Kirsty Blackman
Further to that point of order, Mrs Main. In addition to the other thanks, I think this has been a very good debate and we have spoken in a lot of detail about a huge variety of issues, because the Bill covers a number of different things. The amount of knowledge expressed in the room has been a good display of what Parliament can do when it is doing something in the right way.
In particular, I say a huge amount of thanks to the Clerks, who have been absolutely invaluable in their support to me. I could not have done this without them—they have been fantastic, so I thank them so much.
Taxation (Cross-border Trade) Bill (Third sitting)
Peter Dowd ExcerptsThursday 25th January 2018
(6 years, 3 months ago)
Public Bill CommitteesRead Full debate Taxation (Cross-border Trade) Act 2018 View all Taxation (Cross-border Trade) Act 2018 Debates Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 25 January 2018 - (25 Jan 2018)
Mel Stride
I welcome the hon. Lady to the Committee. She mentions the location of the new HMRC hubs as they are rolled out, and I will make two important points. First, Border Force, which is very much part of the frontline, is in the Home Office’s remit, not HMRC’s. Secondly, proximity to the hubs or otherwise is not critical in determining whether HMRC provides the support that Border Force and other agencies require. The absence of a hub close to a need does not mean that HMRC staff cannot be in proximity to that point; they do not need to be based constantly at any one hub.
Peter Dowd (Bootle) (Lab)
May I pick up on that? I will not repeat what my hon. Friend the Member for Oxford East said, but try to reinforce the seriousness of the evidence witnesses gave on Tuesday. Mr Runswick said:
“HMRC is closing offices in places such as Southampton…So we think that there will be a real struggle to deliver the work that HMRC does with Border Force in that situation. My union believes that HMRC should pause the office closure programme until it is clear what the Government will need HMRC to do in a post-Brexit situation.”––[Official Report, Taxation (Cross-Border Trade) Public Bill Committee, 23 January 2018; c. 37, Q45.]
I want to tease out a little more from the Minister. Does he recognise that argument at all? It seems to be business as usual.
Mel Stride
I welcome the hon. Gentleman to the Committee. He reiterates the point that the hon. Lady just made, so I will spare the Committee a repeat of every element of my answer. However, specifically with relation to the points made in the evidence session by Mr Runswick, the trade unions have been resistant to the changes to HMRC wholesale, right across the piece. Therefore, when it comes to arguments about whether HMRC can be effective in clamping down on avoidance, evasion and non-compliance, bringing in tax yield and so on, the argument has been run that we need a number of offices in multiple locations to do that.
The critical answer is that the very nature of running an efficient tax system and customs regime needs technology, the right skills and the right people. That lends itself to having a concentration of such individuals in hubs, where skills and IT can be developed and brought in to be effective. Without repeating my answer to the hon. Gentleman’s hon. Friend, the Government and HMRC are clear that the configurations of the new hubs will lend themselves to appropriately support the new customs regime.
Anneliese Dodds
I shall speak to amendment 78, which has already been referred to. To be clear, we already have a list in the Bill of different considerations that ought to apply when calculating the rate of import duty for goods in a standard case, which includes,
“the interests of consumers…maintaining and promoting the external trade…maintaining and promoting productivity…the extent to which the goods concerned are subject to competition.”
That is why we suggest that we should have a holistic look at other matters that should be considered.
That is particularly important when it comes to the calculation of import duties with a view to environmental sustainability. When the current chief co-ordinator at the World Trade Organisation, Christiane Kraus, was at the World Bank, she spelled out reasons why environmental considerations might be relevant to the setting of trade parameters, in the absence of other mechanisms for promoting global environmental common goods. We may well be entering a period where it is very difficult to get international agreements on environmental matters, not least because of the direction of the American Administration, so it seems sensible to retain the possibility of so-called eco-tariffs in the Bill.
In addition, even inside the EU’s customs regime, there is evidence of illegal waste trading. Revelations from the Environmental Investigations Agency concerning the toxic trade in cathode ray tubes from the UK to Nigeria and Ghana make for very disturbing reading.
It is absolutely appropriate that we refer to sustainable development in relation to import duties, and to refer to it in this clause would rectify the fact that there is no mention in the rest of the Bill—I was very surprised by this—of the many factors relating to sustainable development that are otherwise covered by the EU customs regime. There is no mention of the environment, aside from the competitive environment; of forestry, aside from in relation to trading stamp schemes; or of chemicals, waste or wildlife. That is a significant departure from the EU customs regime.
The EU’s rules around authorised economic operators indicate that, for a company to become a member of that scheme, it needs to show that it does not have a record of serious infringements, including infringements against environmental legislation. EU legislation is clear that that status can be suspended if there is a threat to public safety, the protection of public health or the environment.
Many other areas in the customs regime that reference or have cross-connections with accompanying EU legislation are not picked up in the Bill. EU forest law enforcement, governance and trade—FLEGT—covers a licensing scheme for timber. That is relevant to import duty costs, because the importer is liable for the cost of the verification of any licences and of the translation of any paperwork related to its enforcement. Illegal, unreported and unregulated fishing is strictly controlled through EU regulation. Trans-boundary shipments of waste must comply with the 2006 EU waste shipment regulation.
The CITES treaty applies to wildlife, so we would still be covered by that when we leave the EU, but the EU goes further—that is incorporated in the overall customs regime. For example, there are regulations about documentation and labelling and a longer list of species upon which import controls are applied for the EU compared with under CITES. Finally, when it comes to measures about trade in environmentally-damaging chemicals, we have EU-level quotas on ozone-depleting substances and carbon-producing F-gases, and a notification procedure for other potentially dangerous chemicals.
I accept that in all those areas we could be asking for lots of different amendments to try to rectify some of these problems—I am sure Members will try—but having that environmental sustainability criterion for assessing import duties in the Bill, and placing it near the start, will raise its profile, which the Government sadly seem not to have considered at all when putting the Bill together. That is worrying given the prominence of these matters within the EU’s existing customs regime.
Peter Dowd
It is a pleasure to serve under your stewardship, Mrs Buck. I hope that, as in the sessions on the Finance Bill, we will have a major climbdown—the Minister and other members of the Committee will note that from that Bill.
The SNP amendment 106 would require the Government to have regard to the public interest in considering the rate of customs tariffs on our exit. It would add a public interest test to the four existing conditions that the Bill requires the Treasury to have regard to when deciding to apply customs tariffs to goods entering the United Kingdom. Those existing conditions in the Bill are the interests of consumers, the desirability of promoting external trade, the desirability of promoting productivity in the UK and the extent to which goods are subject to competition.
Members will note that, throughout the passage of the Bill, we have been seeking to ensure parliamentary scrutiny. We will continue to do so. In one of the evidence sessions, we heard from one witness, Kathleen Walker Shaw, the European officer of the GMB union, who said that she spent many evenings drafting her union’s response to the trade White Paper only to find eight hours later that the Bills had been published. I think that it is fair to say that that was not a particularly isolated view in the session.
The Opposition have concerns about the specifics of the SNP amendment, which means we take a slightly different approach. We believe that, in key sections of the Bill, the public interest is being used as a mechanism to widen the powers of the Secretary of State. That is perhaps most pronounced in schedule 4, which empowers the Secretary of State to reject a recommendation of the Trade Remedies Authority based upon a belief that it is not in the public interest. I respect people’s beliefs, but in this forum they have to be based on evidence, and I am not sure that we will get much of that. We have tabled a number of amendments of our own, and I want to dwell on them.
It is incumbent on me to point out that public interest is not defined in the Bill. That leaves a good deal of room for manoeuvre for the Secretary of State to determine the public interest, without appropriate parameters about precisely what it means. Precision is not one of the endearing features of the Bill. We are happy for the Government to have powers to take the public interest into account in certain circumstances, but only on the basis that it is concretely defined in primary legislation. That is yet another lacuna in the Bill, and a stubborn point that will be addressed time and again in these proceedings.
The Minister used the example of national security in the evidence session on Tuesday. That does seem a useful definition of public interest, and we believe that national security should provide an explicit limit to the definition of public interest in the Bill. We know, after all, that the Secretary of State has some novel ideas about what the public interest might be. They are views that ostensibly focus on the needs of the consumer over the producer. However, it has to be said that that is a one-dimensional approach taken by the Government, which was laid bare in the witness session. In response to the Financial Secretary’s question about consumers potentially being disadvantaged compared to producers, Ms Crawford responded:
“Consumers are also workers who are employed in some of these industries, and they will not benefit from having unfair trade practice disadvantage them and the quality of their goods. That is something we must bear in mind.”––[Official Report, Taxation (Cross-border Trade) Public Bill Committee, 23 January 2018; c. 42, Q53.]
That is a more sophisticated definitional approach than the Government’s.
Although we support the efforts of the Scottish National party to introduce checks and balances, we have concerns at this stage. In that regard, we cannot support the amendment. I hope the hon. Member for Aberdeen North will take our statement in good faith.
Mel Stride
We have had a wide-ranging debate on this group of amendments, much of which covers matters that we will come to later in the Bill. I will focus my remarks on the details of the amendments and the clause.
The hon. Member for Scunthorpe rightly pointed out that I said earlier that the Government’s intention was to ensure that we had a minimum of change in the regime, for the obvious reason of providing familiarity and certainty to businesses. That is an important point and it is why clause 8(5) takes precedent from the Treaty on the Functioning of the European Union. It is very much grounded in where we currently are, as opposed to venturing out to pastures new, some of which would be unfortunate or inappropriate, or so the Opposition would have us believe.
The hon. Member for Oxford East mentioned authorised economic operators, which we will come to in clause 22, to make the general point that a number of things do not appear in the Bill, such as our habitats and various other things in existing EU legislation. On AEOs, the Bill introduces powers in clause 22 that will allow us to address exactly those elements when HMRC and the Treasury come to lay regulations as to, for example, what qualifications there might be to become registered as a certified AEO. Those kinds of issues can be picked up at that time and scrutinised further by the House.
The meat of clause 8 is in subsection (5), which states:
“In considering the rate of import duty that ought to apply to any goods in a standard case, the Treasury must have regard to…(a) the interests of consumers in the United Kingdom”
and
“(b) the desirability of maintaining and promoting the external trade of the United Kingdom”.
It is hard to see how that would not have to take into account the manufacturing element and the health of the manufacturing sector. Subsection (5)(c) states that the Treasury must have regard to
“the desirability of maintaining and promoting productivity in the United Kingdom,”
It is very difficult to see how the manufacturing sector, which represents around 10% of the UK economy, could be entirely ignored or in any sense neglected. Subsection (5)(d) states that the Treasury must have regard to
“the extent to which the goods concerned are subject to competition.”
I suggest that manufacturing would be core to any decisions on the setting of duties made in that context.
Subsection (6) states:
“In considering the rate of import duty that ought to apply to any goods in a standard case, the Treasury must also have regard to any recommendation about the rate made to them by the Secretary of State.”
As the Committee will know, the term “Secretary of State” refers to any Secretary of State in any Department, so on concerns relating to sustainable development, the relevant Department—
Mel Stride
Amendment 2 would require the Treasury to consider recommendations made by a relevant Select Committee or a resolution of the House of Commons when considering the rate of import duty that ought to apply in the standard case.
The Treasury will listen closely to recommendations from a range of interested parties, including relevant Select Committees and, of course, Members of the House. In addition, Select Committees already have the power to question Ministers on policy within their departmental remit, and the Treasury will answer any questions from relevant Select Committees. Therefore, the Government believe that it is not necessary to include that in the Bill.
Amendment 3 would place the same obligation on the Treasury when considering what provisions to include in regulations related to quotas, such as determining the rate of import duty applicable to goods that are subject to quotas, and amendment 4 would introduce that requirement when making regulations concerning tariff suspensions. For the same reasons that I set out in relation to amendment 2, the Government do not believe that it is necessary to include such provisions in the Bill.
I have one final point in response to the point made by the hon. Member for Aberdeen North about scrutiny and needing provisions in the Bill. This Bill will, of course, have Report stage, which will be an opportunity for scrutiny by a far wider group than a Committee on which the Government might typically have a majority of one. Every Member of the House will have an opportunity to participate in that debate and consideration of further amendments.
Peter Dowd
The amendments seek to ensure that the Treasury must have regard to any Select Committee recommendations or House of Commons resolutions in two circumstances: first, when setting the rate of import duty on a specified good; and secondly, when lowering the rate of import duty on specific goods. Through the amendments, we seek to improve the mechanisms of accountability and ensure that any decision taken by the Treasury on duties and tariffs is taken on the basis of a democratic approach to the management of our economy, with a full and proper place for Parliament and its constituent parts.
We want the UK to have a full and functioning customs system in place when we leave the European Union. The powers transferred in the Bill give the Chancellor, the Secretary of State or others the ability to restructure the entire economy at a few strokes of a pen, without any consultation with those affected by changes to our customs regime. That is deeply concerning for anybody.
Since the Government failed to win a majority at the recent general election, we have seen numerous attempts to centralise power within ministerial portfolios, reducing the role of Parliament and the scrutiny of Government decisions, as has been alluded to on a number of occasions today. The Bill is yet another example of that trend. As the Lords Delegated Powers and Regulatory Reform Committee made clear, the current trend is towards a “massive transfer of power” to the Executive and away from Parliament. Every parliamentarian in this room should be deeply concerned about that because, at the end of the day, we get £75,000 a year to come here and scrutinise the Government and we are not being allowed to. We are therefore seeking to introduce the checks and balances necessary to ensure that a future customs framework and its operation continue to have proper democratic scrutiny and oversight. Stakeholders should be brought into the process.
The amendments would introduce an advisory capacity for Select Committees or the House in the process of determining import duties. That would broaden the number of those who have a democratic role in supporting and informing decision-making. That is what we are here for. Currently, as the Lords Committee made clear, the Bill provides 150 separate powers to make tax law. We are merely suggesting that widening the number of parliamentarians who can influence those decisions is a matter of building a genuinely rigorous democratic process.
Crucially, as hon. Members are aware, Select Committees are made up of Members from across the House. That cross-party approach can only support a proper decision-making process on the important issue of customs tariffs. We hope therefore that Members will consider the benefits of including the expertise of a Committee or the House in general within the vital process of examining evidence and providing independent advice— the Government may not wish to hear that advice, but it should nevertheless be given to them. Ultimately, that can only help to support the work of the Treasury in achieving the best outcome, regardless of party concerned.
It is reasonable in distillation to assert that Mr Blackwell from the Hansard Society said that there is a problem that
“the balance between Parliament and the Executive...has always been on the side of the Executive”––[Official Report, Taxation (Cross-border) Public Bill Committee, 23 January 2018; c. 51, Q71.]
This is a chance to rebalance that. Given the extent of delegation to Ministers set up in this Bill and other Brexit Bills, the role of Parliament is being downgraded. The Government know that; Members in this room know that; consumers know that; and producers know that and the public know that. The Government should think on that. Frankly, they should come clean, have the courage of their convictions, acknowledge it publicly and, in so doing, stop hiding behind what for many people are the vagaries of procedure—negative, affirmative and so on. We ask the Committee to support our amendments today in the interests of democratic scrutiny.
Question put, That the amendment be made.
Taxation (Cross-border Trade) Bill (Fourth sitting)
Peter Dowd Excerpts(6 years, 3 months ago)
Public Bill CommitteesRead Full debate Read Hansard Text Read Debate Ministerial Extracts
The Chair
With this it will be convenient to discuss the following:
Amendment 7, in clause 32, page 19, line 14, leave out subsections (2) to (4).
This amendment is consequential on NC1.
Amendment 8, in clause 32, page 19, line 31, leave out
‘other than regulations to which subsection (2) applies’.
This amendment is consequential on NC1.
New clause 1—Setting the customs tariff: enhanced parliamentary procedure—
(1) This section applies to—
(a) the first regulations to be made under section 8, and
(b) any other regulations to be made under that section the effect of which is an increase in the amount of import duty payable under the customs tariff in a standard case (within the meaning of that section).
(2) No regulations to which this section applies may be made by the Treasury in exercise of the duty in section 8(1) except in accordance with the steps set out in this section.
(3) The first step is that a Minister of the Crown must lay before the House of Commons a draft of the regulations that it is proposed be made
(4) The second step is that a Minister of the Crown must make a motion for a resolution in the House of Commons setting out, in respect of proposed regulations of which a draft has been laid in accordance with subsection (3)—
(a) the rate of import duty applicable to goods falling within a code given in regulations previously made under section 8 or in the draft of the regulations laid in accordance with subsection (3);
(b) anything of a kind mentioned in section 8(3)(a) or (b) by reference to which the amount of any import duty applicable to any goods is proposed to be determined; and
(c) the meaning of any relevant expression used in the motion.
(5) The third step is that the House of Commons passes a resolution arising from the motion made in the form specified in subsection (4) (whether in the form of that motion or as amended).
(6) The fourth step is that the regulations that may then be made must, in respect of any matters specified in subsection (4)(a) to (c), give effect to the terms of the resolution referred to in subsection (5).
This new clause establishes a system of enhanced parliamentary procedure for regulations setting the customs tariff, with a requirement for the House of Commons to pass an amendable resolution authorising the rate of import duty on particular goods.
Peter Dowd (Bootle) (Lab)
It is a pleasure to see you in the Chair, Mrs Main.
The new clause establishes a system of enhanced parliamentary procedure for regulations setting the customs tariff, with a requirement for the House of Commons to pass an amendable resolution authorising the rate of import duty on particular goods. It requires a vote in the House of Commons to authorise the rate of import duty on particular goods through enhanced parliamentary procedure. The details are set out in the new clause—it is indeed quite detailed.
I do not consider asking for normal parliamentary oversight to be a controversial request, as shocking as that might seem to the Government. They have made it clear that this is a money Bill and will therefore avoid proper scrutiny in the House of Lords. I sound like a stuck record, but Parliament’s ability to scrutinise has been a theme since the general election.
That concession highlights a key point, however: this is Parliament’s power of the purse. That convention dates back to Charles II and ensures that taxes cannot be collected without the consent of the Commons. We should be deeply concerned about this Bill getting through because we were not alert to or cognisant of the significant issues that face us. In all the melée of Brexit, the EU (Withdrawal) Bill, this Bill, the Trade Bill and the other Bills that will come through, we must assert our right as parliamentarians to hold the Government to account, particularly when it comes to taxes.
The raising and lowering of tariffs is effectively the taxation of goods coming into the country. It will bring revenue to the Exchequer that will have a significant impact on public finances and departmental budgets, not to mention the economy as a whole. I could push further on the £350 million a week for the NHS, but I will not on this occasion—I know the Minister will be pleased.
The Financial Secretary to the Treasury (Mel Stride)
Thank you for not mentioning it.
Peter Dowd
The Opposition believe that, just as changes to tax are brought in in the form of a money Bill, so should changes to tariffs and customs duty. That is practical, reasonable and very responsible, if I may say so. We are not suggesting that there should be a vote every time that a tariff is raised or lowered; instead we envisage the Government regularly introducing to Parliament a list of changes for Members to scrutinise and vote on.
The alternative to a democratic and open process is the hoarding of power in the Treasury or the Department for International Trade, which alone will set the UK’s future customs tariffs. The workings and logic behind their decisions will be largely unknown, and hidden from the scrutiny of the House. That is the theme of our amendments with regard to the Select Committees. The Minister says that Select Committees will be able to bring the Minister in, question them and have a chat with them, but I am afraid that is not strong enough.
This is the biggest constitutional change we have had for as long as anyone can remember, and it is incumbent on us to ensure that when we have major shifts in power between the Executive and the Commons, we can challenge them. I think a confident Government would acknowledge that. I would not use the word “concede”, but I think a Government, who were confident in their own abilities—
Peter Dowd
I refuse to use the phrase “strong and stable”, but if the Government had confidence in their policies, they would not shy away, in any way, from the proposals that we have set out. I am interested to hear what the Minister says about them. In the oral evidence sessions, several witnesses expressed concern, and were reluctant to agree that the lines of communication between businesses, between organisations, between agencies and so on were conducive to getting a proper hearing. I think Members most probably got that message from the witnesses. Communication lines are there, but in a sense no one is at home; that is certainly the perception that I got.
Customs tariffs will be unamendable and unchangeable except, in effect, at the whims of the Chancellor and a Trade Secretary. It may well be that those individual Ministers are very open to dialogue and persuasion, and are in listening mode. Then again, they might not be, and this Parliament has always challenged the whim of whoever might be in power. [Interruption.]
The Chair
Order. I am sure the hon. Member for York Outer (Julian Sturdy) knows where the off switch is. Perhaps he would like to find it?
Peter Dowd
The Government have done precisely the same thing in relation to scrutiny—they have turned it off.
As I said, we cannot allow this to be left to the whims of a Minister, because as has been suggested in the last day or two, the amount of Ministers coming and going has been vast, and it is causing a certain amount of dissonance in the operation of Government from what I can gather, and from what the report says. So, we cannot have a system that is at the whim of this dissonance, so to speak, in two or three years’ time—whichever party is in power.
Ultimately, this comes back to the phrase by James Otis, which must have been quoted millions of times in the House in the three or four centuries since it was spoken: “No taxation without representation”, because that leads to tyranny.
Kirsty Blackman (Aberdeen North) (SNP)
It is a pleasure to be here and to have you in the Chair this afternoon, Mrs Main. We support new clause 1, which has been tabled by the Opposition, and we would be happy to support it if they decide to put it to the vote.
I have concerns about clause 8 because of the deficiencies that we discussed earlier. I hope that, by Report, the Government will have come back to some of the suggestions that the official Opposition and the Scottish National party have made, and given them some level of consideration. Although clause 8 has deficiencies, it is my working assumption that even if we were in a customs union—which would be my preferred option—we would still need to set our tariffs and to lodge those schedules with the World Trade Organisation, so, even in the event of the UK being in a customs union with the EU, I imagine that there would still be a requirement for the Government to have the power to set tariffs.
On that basis, clause 8 is necessary whether or not the Government decide to come out of the customs union or to pursue a customs union. So, although it is deficient, we need to do something. It would be useful if the Minister was to say that he might consider coming back on Report to some of our amendments—even if he said he would consider it, that would be incredibly helpful—but as I said, we will support Labour’s new clause.
Mel Stride
The Government of course listen to everybody who has an opinion—or, should I say, a relevant opinion; a rational opinion, even—on the matter in hand, and we will continue to do so.
The hon. Member for Bootle raised the obvious and important point that with Brexit in the round, we are looking at a big constitutional change—I think that was the expression he used—which is undoubtedly true. However, he seized on that known fact to suggest that in the narrow case of the change in the duties on specific goods, we should therefore have a highly augmented level of scrutiny. I do not think that the two things are linked. The Bill deals narrowly with duties, and more robust scrutiny is suggested through the affirmative statutory instruments for the first introduction of the tariff and for all duties that are changed in an upward direction afterwards. He stated that there will be a huge change, but the Bill’s purpose is to narrow down that change wherever we can, not least regarding our tariff arrangements.
Peter Dowd
I understand exactly where the Financial Secretary is coming from. Given the level of change and the surety that we must give people that these matters are being carefully and assiduously considered, the parts are in a way greater than the sum. Does he therefore agree that it is important to send a message that Parliament—appropriately, through a proper mechanism, and not through ministerial diktat—should be able to consider these matters in more detail than it can under the mechanisms and frameworks being provided by the Government?
Mel Stride
The hon. Gentleman has eloquently revisited the points that he made in his opening remarks. We have a narrow scope for the tariff’s introduction, with all the thousands and thousands of different categories, duties, goods and so on that will be contained within it. It allows for provision to vary those duties. As I mentioned, we have said that when the tariff and all the duties that are under it are introduced—and indeed, when the duties are increased, or the Government seek to increase them—the affirmative procedure will be in place. Given the narrowness of the scope of the regulations and the fact that enhanced scrutiny will be in place through the affirmative procedure, I hope that the hon. Gentleman feels that that will be enough under the circumstances.
Before I deal with the specifics of clause 8 and the new clause, I will respond to the hon. Member for Aberdeen North. She exhorted me to consider her pleas carefully—how could I possibly not, under those circumstances? I can reassure her. As we were discussing earlier, I had haggis for lunch, with some mashed potato and swede, and I now have the “Braveheart” spirit—although that did not end all that well, did it? However, fortified with that spirit I will do my utmost, as I would in any case, and consider the amendments very carefully. I am sure that the hon. Lady will return to the matters on Report.
Kirsty Blackman
I beg to move amendment 107, in clause 9, page 6, line 24, leave out “may make regulations” and insert
“must make regulations following consultation with relevant stakeholders”.
This amendment requires the Treasury to consult relevant stakeholders before making regulations giving effect to an arrangement for a preferential tariff.
To explain the reasoning behind our amendment I need to mention a couple of things in the clause. It is headed, “Preferential rates: arrangements with countries or territories outside UK” and the explanatory note explains more about those:
“This clause broadly covers any arrangements, international agreements or memoranda of understanding”.
Therefore it relates to whenever there is a move away from a most favoured nation tariff into a free trade agreement, or some other form of preferential tariff rate.
This short amendment would make two changes to the Government’s intentions around the clause. First, it would leave out “may make regulations” and insert “must make regulations”. In subsection (1), the Bill states that,
“the Treasury may make regulations to give effect to the provision made by the arrangements”.
If there has been an international agreement, surely the Treasury must make regulations, because that would be sensible. That is the first change we suggest.
The second change we suggest is on consultation. It is clear that there has not been the right level of consultation. The Government have said that if they are varying the rate of import duty downwards rather than upwards, there should be a less rigorous procedure, but if the rate of import duty is varied downwards, that may have a greater effect on our local producers and manufacturers. The amendment asks for there to be “consultation with relevant stakeholders” in advance of not just international agreements, but any of these changes.
When the Government are deciding to make international regulations, it would be useful if they first consulted the House using the existing processes. I understand that most Governments across the world make trade regulations with the authority of the House, rather than simply by the authority of the Executive. In the absence of those kinds of changes, which are outside the scope of the Bill, we are asking for the Government to definitely make the regulations—if they are bound by an international treaty or agreement, it would be sensible to do so—but to consult with relevant stakeholders. We want to put that duty of consultation on the Government.
Peter Dowd
The points that the hon. Lady makes hit the nail on the head in relation to engaging with those who will be affected by the legislation. I fully understand where she is coming from.
The clause allows the Government to introduce through regulations a lower preferential rate of duty applying to goods originating from specific territories. It also covers a broad range of situations, including arrangements between the UK and a British overseas territory, free trade agreements negotiated with Britain and other countries, and a possible customs arrangement with a large economic regional organisation such as the European Union. Preferential trade agreements comprise a variety of arrangements that favour member parties over non-members by extending tariff and non-tariff preferences. PTAs, particularly free trade agreements, have proliferated in recent years. In the post-war period, the EU has developed the largest network of PTAs in the world. The explanatory notes state:
“The ability to use a preferential rate under an arrangement may be subject to any conditions specified in the arrangement, including…quotas, rules of origin or safeguard measures.”
Given that context, it is important that stakeholders are taken into account, as the hon. Lady says. There could be a wide range of stakeholders, and the proposal suggested by the Minister did not go far enough. He almost seemed to suggest that everybody is included, but everybody is not included if the Secretary of State does not want to include them. The clause presents another example of the litany of delegated powers found throughout the Bill. The Treasury takes immense powers without proper consultation right across the board.
Clause 9 is beyond vague when it comes to explaining what consideration the Treasury will make when introducing regulations that will pave the way for offering preferential rates. The clause leaves a range of questions unanswered, particularly around the test that the Treasury will put in place before preferential rates can be included.
I am sure that all members of the Committee agree that reciprocal preferential rates are the foundation of free trade agreements. Again, that goes to the heart of who is to be consulted on this one, and the clause gives a free hand to introduce regulations that will create preferential rates and seem to open the door to the Treasury to—
The Chair
Order. This is a narrow debate on amendment 107. There will be a debate on clause stand part later. I ask the hon. Gentleman to confine his remarks to the amendment proposed.
Peter Dowd
I will, Mrs Main, and I will come back to the clause later if that is appropriate. I am just trying to support the contention made by the hon. Member for Aberdeen North that stakeholders are crucial to making the measure work. Having tried to set out the context, I am happy to sit down and to come back later to talk about the clause more generally. However, I support the hon. Lady’s contention.
Mel Stride
As the hon. Member for Aberdeen North has said, the amendment seeks to do two things. It would require the Treasury to consult before giving effect to a trade arrangement that has been agreed with another territory or country, and to make regulations in such circumstances.
To take the first of the points, any consultation on regulations made under clause 9 would not be meaningful as the Government would not be in a position to take account of the views received without withdrawing or renegotiating the agreement reached. As set out in the trade White Paper, the Government have committed to engaging stakeholders throughout the process of negotiating new trade arrangements.
On the proposed requirement for the Treasury to make regulations, it goes without saying that the Government are required to meet their international obligations in the trade agreements that they have entered into. The word “may” is used, however, because there might be unforeseen circumstances that make it inappropriate for the Treasury to be obliged to lay regulations. As I say, however, the Government will of course be bound their international obligations.
On that basis, I urge the Committee to reject the amendment.
The Chair
With this it will be convenient to consider:
New clause 2—Preferential rates under arrangements: enhanced parliamentary procedure—
(1) This section applies to—
(a) the first regulations to be made under section 9 in respect of a country or territory outside the United Kingdom, and
(b) any other regulations under that section the effect of which is an increase in the amount of import duty applicable to any goods set by any regulations to which paragraph (a) applies.
(2) No regulations to which this section applies may be made by the Treasury in exercise of the power in section 9(1) except in accordance with the steps set out in this section.
(3) The first step is that a Minister of the Crown must lay before the House of Commons—
(a) a statement of the terms of the arrangements made with the government of the country or territory outside the United Kingdom; and
(b) a draft of the regulations that it is proposed be made.
(4) The second step is that a Minister of the Crown must make a motion for a resolution in the House of Commons setting out, in respect of proposed regulations of which a draft has been laid in accordance with subsection (3)(b), the rate of import duty applicable to goods, or any description of goods, originating from the country or territory.
(5) The third step is that the House of Commons passes a resolution arising from the motion made in the form specified in subsection (4) (whether in the form of that motion or as amended).
(6) The fourth step is that the regulations that may then be made must, in respect of any matters specified in subsection (4), give effect to the terms of the resolution referred to in subsection (5).
This new clause establishes a system of enhanced parliamentary procedure for regulations setting lower import duties as a result of an arrangement made with the government of another country or territory, with a requirement for the House of Commons to pass an amendable resolution authorising the rate of import duty on particular goods.
Peter Dowd
My new clause 2 would require a vote in the House on regulations that lower import duties as a result of an arrangement between the Government and another country. I will wrap that up with speaking to the clause in general, with your permission, Mrs Main.
The powers the Government have given themselves under the Bill to offer preferential rates to other countries through free trade agreements, and with no regard to the House of Commons, should concern us all. I will return time after time to the theme of parliamentary accountability. The lowering of import duties, if done carelessly and without consultation of key industries, can have disastrous economic consequences that can destroy whole sectors and cost jobs and livelihoods. The Government have made it clear that this is a money Bill, as I said earlier, and will therefore not be subject to further scrutiny.
In that regard, the raising and lowering of tariffs are in effect the taxation of goods coming into the country. As far as I am concerned, it is crucial that we maintain frictionless negotiation of free trade agreements, instead of risking the scenario that I am afraid the Bill will almost inevitably enable or provide for. It appears that the powers outlined in the clause, as in other clauses, comprise a huge accretion of power to the Treasury, which will give it a hegemony in Parliament, notwithstanding the issue of negative or affirmative resolutions. Ministers will be left to their own devices to introduce regulations where they see fit, with no parliamentary oversight of any significance, and no requirement to consult industry or the relevant stakeholders that the changes will affect. Similarly, there is no inkling about what considerations or conditions the Treasury will agree to when it comes to entering into preferential rate agreements, particularly whether industries will be protected by the use of quotas or rules of origin.
Peter Dowd
My hon. Friend makes a very important point. There is a danger that we are walking into this with a bit of a fuzz around us. We just do not know the impact this will have on us. If the Government do not get it right, as in spot-on, it is potentially very dangerous for our industries. That is why we are concerned, which is another of our themes in relation to the Bill: one is about democratic accountability, and the other is about how the Bill will protect our vital industries, from manufacturing right the way through the whole ream.
The scenario I referred to earlier is far from absurd and reflects the reality that, when it comes to negotiating and signing free trade agreements, there are always winners and losers, particularly when negotiating with countries that are larger both in population and economic size.
The free trade agreement negotiated between Australia and the United States in 2004 was negotiated in a relatively quick period, and it was so bad that officials refused to recommend it to the Australian Parliament. John Howard, the then Prime Minister, was forced into signing it by President George W. Bush, who essentially reminded him of the close security collaboration between the two countries. After signing, John Howard was often and repeatedly chided by political opponents who would shout, “Where’s the beef?”—a reference to the failure of the free trade agreement to stimulate beef exports for Australia.
We do not want to be in that situation. The UK could easily find itself in a similar scenario whereby we will offer preferential rates to the USA or China, with little in return. In November, we had Wilbur Ross, the US Commerce Secretary, saying that the UK retaining EU regulations on chemicals, genetically modified crops and food safety would represent “landmines” for a potential deal. The Secretary of State for International Trade is reported to have given him private assurances that this would not be a problem.
Stakeholders could find themselves shut out of the process. The Opposition’s concerns are not scaremongering, particularly when we have a Secretary of State who has already made it clear that he supports a race to the bottom, with cheaper consumer goods and weaker regulations and standards. Again, our witnesses spoke about how it is not consumer against producer—the two are almost interchangeable. If we look at the trade remedies outlined in the Bill, we see the Government have ensured there is a clear economic interest test for the Treasury to follow that does not consider the interests of UK manufacturers or key industries, which is unique among most World Trade Organisation countries.
If this Bill and the Trade Bill remain unamended, the Treasury will have to take the advice only of the Secretary of State in that regard, but it will receive a recommendation from a Trade Remedies Authority that will be appointed by the Secretary of State and no doubt made up only of people he trusts—that does not mean that anyone else does—unless its composition is amended in the Trade Bill. We saw that only yesterday, with a vote in the House of Commons in relation to the Electoral Commission. Parliament is entitled to express a view on such appointments, but in this case I do not think we will get that capacity. It certainly does not seem to be in the Bill. Key stakeholders will therefore bear the brunt of any changes to tariffs and again effectively be shut out of the process.
Those key stakeholders will be at the mercy of a Secretary of State who appears to be desperately attempting to negotiate free trade agreements at any cost and potentially to pay a price that most of us would not be prepared to pay. If hon. Members do not have the ability to challenge it, the Treasury will also have a free hand to introduce regulations that will set the framework for the lowering of tariffs which, if we are not careful, will change the UK economy as we know it. I exhort the Committee to think carefully on the proposals in the Bill and to take into account what we say in our new clause.
Graham Stuart
I thank the hon. Lady for her passionate espousal of a number of interesting issues. I will respond as best I can, but my three weeks in this post probably does not match her many years of expertise.
As highlighted, clause 10 and schedule 3 ensure that the UK can operate a unilateral trade preference scheme when the UK leaves the EU, supporting our long-standing commitment to support developing countries. The group of least-developed countries, as set out in schedule 3, are among the poorest in the world. As I said, providing nil-rate import duty access to goods from those countries helps them to reduce poverty through trade and is part of the UN’s sustainable development goals. Clause 10 enshrines that in UK law, ensuring that the commitment will be maintained in future. The clause is not prescriptive about the level of import duty for other eligible developing countries—they are listed in part 3 of schedule 3—that are not designated as least developed. However, as I have mentioned and as the Government set out in the trade White Paper, the Government’s policy intention is to ensure continuity at the point of exiting the EU by replicating the market access of all countries currently part of the EU’s generalised scheme of preferences.
I take on board the fact that the hon. Lady talked about being more ambitious. We have said that, as a Government, we wish to be more ambitious, but we need to bring into place in this country continuity from the existing system and give assurance and confidence that we are not opening up. If we open up the issues more widely, we will create uncertainty as to what we will continue—we may be strengthening in some areas; we might weaken in others. I therefore ask the hon. Lady to accept that I need to think and talk to her over time about some of the issues that she has raised. We do want to be more ambitious in the future, but for now, we believe that the right thing to do is to have continuity with the existing system and bring that as effectively as we can into UK law.
The amendment proposes that changes to schedule 3 be done by the affirmative procedure. As I have mentioned, eligible developing countries will be determined with regard to the classification by the World Bank or UN. The Government need to be able to react promptly to a country’s change in economic circumstances. Similarly, the power to specify the meaning of the term “arms and ammunition” is intended to allow the preference scheme to adopt the same nomenclature enabled through clause 8 for the customs tariff, which will itself be constrained by international nomenclature.
As I said, our intention is closely to replicate the EU’s preference scheme, including the GSP-plus tier. That is the enhanced tier of preferences available for economically vulnerable countries that ratify the international conventions I have mentioned. We expect beneficiary countries to continue to respect the conditions in GSP-plus, including meeting those international obligations. Those conditions will be set out in secondary legislation, as clause 10(2)(b) allows.
The question is asked why we would give preference to Cambodia even though land disputes have occurred following the EU’s everything-but-arms access. A key objective of the UK is building the UK’s prosperity by increasing exports and investment and promoting sustainable global growth. Greater prosperity leads to greater stability. We are aware that the Government of Cambodia have taken steps to improve their issue of economic land concessions, such as introducing a compensation process. Furthermore, the Ministry of Environment cancelled more than 20% of all economic land concessions. For now, therefore, we continue to work through the EU’s GSP monitoring system, and we seek to bring the existing system into UK law.
Peter Dowd
I rise to speak to the Opposition’s new clause 4 and will also touch on schedule 3, if I may. We do want to require a vote in the House of Commons on the giving of preferential rates unilaterally to developing countries—I do not mean in relation to amendment 80, but in future. We can all agree that the Government have a responsibility to ensure that our trade policy works for everyone, including the poorest in society, and how tariffs are set has an important bearing on that.
The Minister was very clear and comprehensive about the Government’s direction of travel. I welcome him to his position—as a former Whip, he has come out of the darkness into the light—but I also agree that the current Government Whip, the hon. Member for Macclesfield, is much better.
Kirsty Blackman
I thank the hon. Gentleman for that clarification. I appreciate that his knowledge of sugar is better than mine.
On quotas in particular, the situation is that the UK and the EU Commission have now decided how to divide the quotas and the amount that is lodged as a schedule with the WTO. However, in September 2017, Uruguay, Canada, Thailand, Argentina, Brazil, New Zealand and the US wrote a letter to say that they contested the way in which the UK and the Commission had decided to divide up the quotas, and that they had a concern about the decision taken. I can understand that concern.
For example, let us say that beef is coming into the UK and the EU. If we have a collapse in the beef market in one of those places, the beef cannot simply be redistributed to other countries. That is particularly so in the case of the UK. If the UK ends up with a tenth of the EU’s quota for beef, and the quota allows for 100 tonnes of beef, 10 tonnes of that are a quota allocated to the UK. If something strange happens in the UK, everyone decides that they do not want beef burgers or steaks any more and the market collapses, the country exporting the beef to the UK cannot just send it to another country, because the UK schedule will be the UK schedule alone.
I can therefore understand why countries are unhappy with how that division is working and why they have come back to say that they do not think it is a technical rectification. That is a serious thing in the WTO, because if the change of quota is not a technical rectification but a modification of the schedule, it needs to go through more of a process in order to be agreed.
My big concern is that none of that seems to be in this legislation. None of the way in which the UK Government will be dealing with the WTO on quotas or defending itself against challenges brought to the WTO seems to be in the Bill. While I am on the subject, to throw the cat among the pigeons, I have not seen anything in the European Union (Withdrawal) Bill, in this Bill or in the Trade Bill that gives the UK Government the power to lodge schedules with the WTO. I hope the UK Government have not missed that and it is written somewhere in one of the pieces of legislation, because it would be rather unfortunate if the UK Government were, post-Brexit, unable to lodge schedules with the WTO or to have its most favoured nation tariffs lodged with the WTO.
I hope that that power is in one of the pieces of legislation—I am happy for the Minister to come back to me and mention it afterwards—because clearly we want to be in a situation in which, post-Brexit, the UK continues to be a functioning country and is able to have tariffs, not just preferential ones but most favoured nation ones as well. Generally, I have concerns about the provisions on quotas because I am not sure that they adequately fulfil all the things that the UK will need to do on quotas.
I have thrown an awful lot of things at the Minister—not literally, I hasten to add for anyone reading this later—and I am happy for some of them to be dealt with at a future sitting. My concern, however, is that because we are leaving the EU and doing so in a short period of time, so legislation has been hastily drafted, some things might be missing. If that is indeed missing, that would be amusing because it is pretty fundamental going forward. I will appreciate the Minister’s providing some clarification, if he can, on the clause.
Peter Dowd
Our new clause 3 would require the House of Commons to pass an amendable resolution authorising the key provisions of the proposed regulations. It would also require that regulations establishing a licensing or allocation system are subject to the affirmative procedure.
As with the other related new clause we have discussed today, there are four steps set out in our proposed process. First, the Minister lays a statement to the House along with the draft regulation that is proposed to be made. Secondly, the Minister lays a motion setting out the various duties and tariffs that the Government wish to impose. Thirdly, the House would have to pass a resolution on that motion. Finally, the regulations will be made. Amendment 11 is consequential on the above, making a small technical change to clause 32 to accommodate our proposals.
Ultimately, however, we are less concerned with the exact steps for any process for ensuring parliamentary oversight. We just want to see that the Government are acting on the principle that Parliament should have an extended role in scrutinising the changes in this regard. As I have said previously in relation to the other clauses, we seek to guarantee an enhanced parliamentary process. The logic is pretty undisputable. The Government have tabled this Bill as a financial Bill, as I referred to earlier on. In that regard, the House of Lords does not have any capacity to scrutinise it and the Commons does not have the same capacity it usually would. We ask, therefore, that as in all other financial matters a case is presented to the House for a debate and a vote.
It would be a very unfortunate outcome if the Treasury was to acquire powers to alter the rate of taxation without such basic democratic processes. The Government really should think a little longer than this—it is not a short-term matter. It is of course more conceivable that they may be in opposition sooner than they think. They should be looking to construct a fair process for scrutiny, with, in effect, cross-party agreement as to what that would be, in the light of this significant change that we are about to face in one way or another, maybe within the next 12 months or so, possibly a little longer, but the reality is that we are facing change. This House has to face up to the fact that scrutiny processes need looking at, especially with regard to finance.
Mel Stride
The hon. Member for Aberdeen North rightly raises the issues around quotas. First, we have to work out what those quotas will be. We have existing arrangements through the European Union and we are currently in discussions regarding, as she has suggested, how the various quotas should be allocated, whether that be on the basis of consumption, or consumption and other issues that we might consider. The point I would make on that is that this Bill is enabling, in that sense, rather than prescribing or seeking to suggest any particular outcome to those discussions.
In the hon. Lady’s second point she raised an example of 100 tonnes or 100,000 tonnes of beef, and a certain amount coming by way of a quota to the UK, and then circumstances of that changing not to our liking, and asked what we would do in such a situation. That prompts the question as to where the quota itself originated.
Mel Stride
I am grateful to the hon. Gentleman for reasserting his arguments, but our arguments remain as I set out in my earlier remarks.
Question put and agreed to.
Clause 11 accordingly ordered to stand part of the Bill.
Clause 12
Tariff suspension
Peter Dowd
I beg to move amendment 5, in clause 12, page 8, line 40, at end insert—
“(6) No regulations may be made under this section unless a draft has been laid before and approved by a resolution of the House of Commons.”
This amendment requires regulations under Clause 12 to be subject to the affirmative procedure.
The Chair
With this it will be convenient to discuss the following:
Clause 12 stand part.
Amendment 9, in clause 32, page 19, line 32, after “regulations” insert “under section 12 and”.
This amendment is consequential on Amendment 5.
Peter Dowd
I am pleased that the Minister is getting the drift of our line after several hours—[Interruption.]—I hear the Minister saying “with much repetition” from a sedentary position, but I do not think it is as repetitive as the Government’s refusal to give Parliament scrutiny. It is a persistent “No, no, no” from the Government, and that is dangerous. I do not say that as a Labour Member per se; I say that as a democrat. It is crucial that Government Members recognise that. I am sure some of them do, because these things come back to bite Members when they are in a different position. I exhort them to listen to what we say—no matter how often I say it.
The Chair
Order. I suggest that the hon. Gentleman’s comments should be pertinent to the part of the Bill that he is discussing, rather than a reiteration of points that have already been made.
Peter Dowd
I understand that, Mrs Main. Amendment 5 is another amendment pertinent to the clause, in that it continues to wish to hold the Government to account. That is not just the view of the Opposition, but of the House of Lords Delegated Powers and Regulatory Reform Committee, which I have referred to before. It says that the Bill involves a “massive transfer of power” that gives Ministers over 150 powers to make tax law for individuals and businesses. Those laws will run to thousands upon thousands of pages, with little opportunity for us to scrutinise them. The Treasury’s delegated powers memorandum alone, which sets out in detail all those law-making powers, runs to 174 pages.
The Fairtrade Foundation has raised concerns over the use of delegated powers in the Bill around the setting of tariffs and the establishment of rules of origin. That relates to developing countries—we touched on them earlier—where, in some instances, there is a high dependency on the UK market and where there are products with tight margins, so changes to tariffs could make or break the livelihoods of producers.
The Hansard Society also rightly pointed out in its evidence that unless the Government can give a compelling reason, all Henry VIII powers should be subject to the affirmative procedure, which the Delegated Powers and Regulatory Reform Committee is also in full agreement with. Mr Blackwell from the Hansard Society does not see any evidence in the delegated powers memorandum that justifies the Government avoiding an affirmative procedure. Nor does the Hansard Society understand the Government’s justification and distinction between the use of urgent and non-urgent powers.
I will continue to repeat that this House is entitled to scrutinise the Government appropriately and as much as it wants within the confines of procedures. I wish that the Government would listen not only to the Opposition but to virtually every organisation out there who tells them that in these times of significant change, the Government should open their arms to scrutiny and challenge and not shut the door in our faces.
Mel Stride
Clause 12 provides for an exception to the application of the standard rate of duty as set under clause 8. It allows some or all of the import duty that would otherwise be charged on specified goods to be waived for a specified period of time. The primary purpose of a tariff suspension is to facilitate domestic production by ensuring that businesses have access to the supplies that they need. A similar exception to the application of the standard rate of duty exists under the Union customs code. A suspension could be introduced on the Government’s own initiative, or after a request for one: for example, from a business.
Suspensions are usually applied to certain types of goods. Any goods that will be subject to a suspension will be specified by regulations. For example, under the current arrangements suspensions are generally granted only where the good is a raw material or unfinished product, which will be used by UK manufacturers; where no competing domestic product exists; and where the goods covered by the suspension are subject to a significant amount of duty. In other words, the suspension would have a material benefit for UK industry.
A suspension of duty would apply for a given period of time that could be extended. Where a continuation of a suspension implies a lasting need to import a certain product at a reduced or zero rate, the Government would look to reduce the standard rate of duty. To be consistent with WTO rules, a suspension on any given good must be granted equally to every country and supplier. Regulations made pursuant to the clause will be subject to the negative procedure.
Amendment 5 and consequential amendment 9 to clause 32 change the proposed parliamentary procedure for regulations relating to tariff suspensions from the negative procedure to the draft affirmative procedure. The Government believe that the scrutiny procedures that apply to the exercise of each power in the Bill are appropriate and proportionate, taking into account the length and technical complexity of the regulations and the frequency with which they are likely to be made.
For tariff suspensions, the negative procedure is both appropriate and proportionate. The power in clause 12 only permits the standard rate of import duty to be temporarily lowered and could not be used to increase the rate. Delays in implementation of suspensions owing to the use of the draft affirmative procedure would only be to the detriment of UK manufacturers.
I will provide an example that might be pertinent to our debate. The suspensions are likely to be numerous and detailed. For example, in the last round of EU suspensions, a UK business successfully applied for a tariff suspension on a specific type of gearbox with a hydraulic torque converter, with at least eight gears and an engine torque of 300 newton metres or more. It is the kind of gearbox I might have in my Rolls-Royce car, perhaps. It is not clear that such a level of detail would benefit from a greater level of parliamentary debate, despite the fact that we have debated Rolls-Royces, and by extension gearboxes, to some degree in this debate today.
In short, the clause is a crucial part of the overall import duty regime, allowing the Government to take action to support manufacturers in the United Kingdom. I therefore move that the clause stand part of the Bill.
Peter Dowd
Given the time, I will spare the Committee further scrutiny. I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 12 ordered to stand part of the Bill.
Ordered, That further consideration be now adjourned. —(David Rutley.)
Taxation (Cross-border Trade) Bill (First sitting)
Peter Dowd Excerpts(6 years, 3 months ago)
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Peter Dowd (Bootle) (Lab)
Q
Anastassia Beliakova: An issue that our members have raised—this was something that we heard from members even before the whole Brexit question arose—is staffing capacity and in particular the ability to help businesses with day-to-day questions that they may have. That is particularly important when businesses apply for various trade facilitations, such as inward processing relief, or for various forms of certification, such as to be an authorised economic operator. There used to be a helpline at HMRC that is no longer available. Businesses would find it helpful if that were reintroduced. Another concern they have raised is that there is an evidenced shortage of staff dedicated to goods checks. That has been ongoing for a number of years, and questions are being asked about whether there is sufficient resource and focus allocated to goods checks and support. Those questions will become much more acute with all the coming changes.
Peter MacSwiney: There are always questions raised about the Customs Declaration Service, which is the replacement for the customs handling of import and export freight programme. I have said many times that I still believe that between CDS and CHIEF, the computer system will have sufficient capacity to handle the declarations. To pick up on Anastassia’s point, to enable goods to move freely through the border post-Brexit we will have to rely on advance information and bulk entries done with some form of simplified procedure. As far as I can see, Border Force is not engaging very much with trade. What it wants the processes to be and what data elements it wants are still unclear. Customs seems to be getting bogged down with the authorisation process. All of that could do with being streamlined.
Gordon Tutt: Our association members have customers who cover a wide range of different trade sectors. One of the common problems we have is getting approvals processed quickly. That is particularly worrying. One of the recent changes that has been mooted is that before a trader can have their approval granted, they will have to have their software contracts in place. Most traders would not want to go to the cost and trouble of organising and paying a software contract if they did not know they would get the approval. It puts the cart before the horse. Having said that, we are expecting to have discussions with HMRC through the Joint Customs Consultative Committee sub-group on how we can best streamline the whole approval process.
William Bain: One of the key things that our members have said to us is that the last big change they were asked to adjust to, which was the introduction of the Union customs code, took companies three years to get ready for. There is good engagement with HMRC, but there is concern about the capacity of the new CDS system to handle perhaps 255 million customs declarations a year, depending on the kind of deal that is or is not negotiated in the next few months.
Peter Dowd
Q
Peter MacSwiney: The lines of communication are in place. I do not think there is enough time to have any real meaningful discussions. I think the original view from the trade was that a five-year transitional period would be a minimum. Even if we get two years, it is difficult to see what we could achieve in that timeframe.
Gordon Tutt: From a technical perspective, we always work on a general rule that it takes two years from the time that we have the full technical specifications to the time we can actually implement. That gives you an idea of where we are at the moment. We are working closely with HMRC’s technical teams on the CDS development. It is not an easy task. We are looking at a replacement to a service and a system that both the Government and the trade are highly dependent on. Clearly, we want to make sure that we get that absolutely right. We believe that Customs has taken some very sensible approaches, but we probably need to further mitigate the risk by enabling CHIEF to continue for a longer period, thereby allowing the transition from the current service to CDS over a longer period of time.
Chris Davies (Brecon and Radnorshire) (Con)
Q
Gordon Tutt: First, yes, you are right—it is an enabling Bill. It is very good that much of it is already contained in the Union customs code, so it actually provides a really good basis for future UK legislation. It also avoids an awful lot of new requirements on trade, particularly on our side of the systems, because it adopts much of the concepts of the technology and the data that are already maintained in the UCC legislation.
Anastassia Beliakova: To add to that, yes, of course it is an enabling Bill. We and our members welcome the fact that it aims to replicate the UCC as much as possible because, as has already been mentioned, a lot of effort and time have been put into adhering to the new aspects of the Union customs code. However, what we have noticed is that some elements of the code have not been addressed in the Bill.
For instance on origin, the means of defining origin have been set out. However, origin declaration has not been mentioned. That is just as important, if not more so in some aspects, than rules of origin, when it comes to international trade. There are various means in which businesses now declare origin. Sometimes it is through sub-certification; sometimes it is through certificates of origin. We published a paper last week—there are copies available for the Committee—that shows that businesses are worried about compliance issues after Brexit. They want to know that there will be certainty going forward and support for them with that. We would view it as quite important to have at least one clause in primary legislation ensuring continuity in the means of origin declaration, which is further elaborated in secondary legislation.
Mike Hill (Hartlepool) (Lab)
Q
Anastassia Beliakova: I believe the figure has been cited as being 130,000 businesses who are dealing with customs declarations for the first time—that is, those estimated to be currently trading just with the EU. Of course, there will be businesses of different sizes. If you are a very large business, you will be working directly with the new system’s CDS and then you need time to integrate into that. If you are a smaller business, you are dependent on the provisions that your intermediaries, your freight forwarders, have put in place. A whole host of businesses will be affected that depend on a number of different bodies and Government putting the right measures in place with sufficient notice.
Peter Dowd
Q
Anastassia Beliakova: It would be very difficult to assess, because there are a number of factors. One is just the cost of a customs declaration. That will perhaps be more challenging for a smaller business that is trading ad hoc. If you are a large business trading at big volumes, the cost will be quite marginal for you.
But then there are other considerations. There is the time issue. Are you going to factor in any potential delays? If so, does that mean you have to provide for more warehousing facilities? Does that mean you have to keep an inventory? All those things are very difficult to quantify for a median figure, but they are things we know our members are starting to consider—some quite actively.
William Bain: If you move away from a just-in-time supply and sourcing mechanism, you have to look at stockpiling. That means you have to look at extra warehousing capacity. You have to change IT systems in terms of VAT and customs. All that comes at a cost for businesses, at a time in which we see the pressures in terms of footfall and retail spending.
Peter MacSwiney: As a software supplier, we support about 350 companies in probably 800 locations. We estimate that making the necessary changes, just to roll out our system, is going to cost in excess of £250,000 over the next two years. I do not know whether that is any help to you.
Gordon Tutt: One of the other issues is underwritten by the fact that some of the changes being introduced to the software systems would have been required anyway as part of the requirements to meet the UCC—new data set, new message types, more engagement in terms of electronic transactions. In addition, we are already working on CHIEF replacement, so the costs of that are already borne as part of the decision to replace CHIEF. As high as these costs are for some of the software suppliers and some of the trade sector, some of that cost would have already existed had we decided to remain within the EU.
Kirsty Blackman
Q
Peter MacSwiney: I think there is a structural issue. It is the view, certainly at the airports, that freight is the poor relation where the Border Force is concerned.
Anastassia Beliakova: I would say it is both. It is very difficult to assess within the Border Force how much emphasis is given to goods checks versus checks on people. We have heard from members that it seems as if the focus has definitely shifted over the years. It is therefore an area that would require either a change of focus with more focus to goods, or more people dedicated just on goods checks, from our perspective.
Peter Dowd
Q
Barbara Scott: Sure. I presume that Jeremey has already mentioned the fact that the new draft Bill moves away from the Union customs code. We had been told that the Union customs code would be the way forward for UK legislation, so we were surprised to see the new draft Bill presented in this way. If it is to be changed—personally, I do not see how we can change something in such a short period, given that the Union customs code took 10 years to put in place—how can we present something new that is a strong and proper piece of legislation? We will not be able to do that in the time available, which is all the more reason for picking up the Union customs code and tweaking it.
If we are going to change things, why produce something that to me looks like going back to the legislation that we had? Perhaps those drafting the Bill started by looking at legislation before the Union customs code, or even the Community customs code, because a lot of the wording is not modern. Perhaps that is the way that this has always been done, but it seems to me that we could at least use plain English that people understand, and present it in a clearer way. The wording of the Union customs code is sometimes a bit odd, but it is written in clear English that most traders and non-lawyers can understand. If we are to change this legislation, it would have been nice to have seen something a lot more fitting for today. A totally new customs regime is coming in, and if it is to be different, this would have been an opportunity to make it a shining star for Britain.
Peter Dowd
Q
“new UK legislation is needed to create a separate UK Customs regime.”
I think everyone acknowledges that.
“However, we believe the Government’s approach, of providing Ministers with exceptional (yet apparently permanent) powers to create a Customs regime from scratch, with minimum parliamentary involvement or scrutiny, in a very short space of time, is unnecessary.”
Why? What is wrong with that? The Financial Secretary is a very reasonable person, and I am sure that nobody would want to pull the wool over anybody’s eyes. What is the problem with that idea?
Jeremy White: Parliamentary scrutiny will be excessively difficult. That is the problem. We are talking about how to get this amount of material recast and properly analysed, with time to debate anomalies, difficulties, or even the uncertainty of it all. There are risks to the Revenue as well, besides business cost. The Revenue might think that it has a proper charge, but the problem with customs machinery as something that is modified or recast is that often the customs debts themselves result from a time when goods were on duty suspension. That is where customs duties are in two parts. First, there is a charge in the thing, in rem, on importation, and then the goods are on duty suspension until there is a charge, in persona, against a person who is then liable for the debt.
In the time between those two events, the goods are subject to all this regulatory machinery. Uncertain or defective provisions that could be subject to litigation will affect the Revenue itself. We will say what we think the legislation is—it will have its explanatory notes and its public notices—but once you have let it go, it is up to the judges to decide what it means, and traders and advisers might come up with a clever, nuanced interpretation of the Bill and statutory instruments that was completely outside your intention. So avoid that uncertainty, that litigation and that cost simply by allowing the withdrawal Bill to incorporate the UCC—as we thought it would—and then enact just the sensible few amendments or modifications that are necessary of the UCC. As I say, I am arguing only for that, not for the whole body of the customs legislation, some of which it is probably best to recast, subject to compliance with EU and international obligations.
Peter Dowd
Q
“The explanatory notes to the Bill state that the new standalone regime will be ‘largely based on EU law’ and that it is intended that the customs regime ‘will continue to operate in much the same way as it does today’.”
I want to tease out a little more on that. Do you think that aspiration will be delivered by the Bill?
Jeremy White: Not with its current commencement provision, no.
Peter Dowd
Q
“We are concerned that taxpayers’ rights in relation to an effective appeals process are retained. This Bill could be”—
you do not say “will be”—
“a backwards step in relation to an effective appeals process, because it affords such wide discretion to HMRC. We wish to see the adoption of clear unambiguous legal requirements for customs matters, which minimise commissioners’ discretion.”
Could you tease that out a bit more? That is in paragraph 6.1 of the Chartered Institute of Taxation’s evidence.
Jeremy White: A thorn in the flesh of the people who contributed to that section was clause 23, and in particular where certain results—particularly approvals—are treated as never having been granted if HMRC considers that approval would not have been granted if a deficiency was known at the time it was granted. That is just one example. There are a number of parts of the Bill where this construction is used whereby one authority—an administrative authority, a parliamentary authority or a Minister—considers that kind of discretion.
Yes, that is a useful construction in English for granting a power to make an instrument, but when it comes to affecting a trader’s relationship and whether they can be in business or not because they have got an authorisation, it should then be subject to the ordinary appeal to the simple, low-cost traders’ tribunal that we have learned to admire. All of the other authorisation-type decisions that HMRC could make are subject to appeal, and they are preserved properly by the Bill. The trouble is the Bill then adds in a few more, using a construction such as “considers” and “discretions”. It is bad enough now that sometimes we have to tell a client, “Sorry, you’re going to have to pay the money to go to the High Court and challenge the Ministers or HMRC on the basis of judicial review,” which is very expensive, discourages litigation and often discourages people from obtaining a remedy for their dispute.
This should not be controversial. It should be, “Yes. That is the right thing to do.” If we were able to add to a shopping list, we would say, “Can we please have all of the current disputes going on in the High Court in customs matters dealt with in a tribunal as well, please?” but that may be asking too much. If the scope of the Bill is wide enough for that and you could amend it to get that in, that would be good. We should not really have customs issues going to the High Court at all. They should all be dealt with in the first-tier tribunal tax chamber.
Mark Menzies (Fylde) (Con)
Q
Helen Dennis: A lot has been said about value addition and its potential post-Brexit. Our view is probably that the tariffs are not the key issue here. We already have duty-free, quota-free access for the least developed countries. If we take a country such as Colombia, or a GSP-plus country such as Bolivia, it is able to access the market with roasted coffee as well, duty free, but as I said before, with the free trade agreements, they may not all transition over necessarily. The biggest issue in terms of trade policy and development continues to be subsidy rather than EU tariffs. There are other issues, such as rules of origin or just getting the investment in roasting and processing facilities, that are more of an obstacle to moving into that kind of value-added activity.
Having said that, there is still scope for improving the tariffs. That goes back to the point about how we and the Government do that. Do we say that the Secretary of State has that power and authority, every three years or so, to revise the preference scheme to extend product coverage and potentially country coverage, and so on? Is that a conversation that happens through regulations under delegated powers, or is it something that a Committee of the House or another grouping, or Parliament in its entirety, would want to discuss, debate and have a vote on? There are lots of issues to unpack. I would certainly agree with the premise of your question, but some of the detail on that particular issue around coffee roasting does not impact as many countries as is sometimes talked about.
Taxation (Cross-border Trade) Bill (Second sitting)
Peter Dowd Excerpts(6 years, 3 months ago)
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The Chair
Thank you very much for that. If the gentlemen—or ladies—are finding this room warm and they would like to remove their jackets, they should feel free to do so. I call Peter Dowd.
Peter Dowd (Bootle) (Lab)
Q
Ben Richards: Our view is that, particularly in the scenario we will move into after Brexit, having an effective trade remedies regime for the UK is vital to protecting our manufacturing industries and the members we represent in those industries.
One of the major problems we have with the Bill is that, because so much of the crucial detail is being put into regulations, it is hard to assess properly at this stage whether it gives adequate protections. Certainly, from reading the Bill as it is now, our view as Unite is that it does not appear to give even the same protections as we currently enjoy in the EU regime, and we want to see a stronger trade remedies regime introduced in the UK in future.
Kathleen Walker Shaw: I work for the GMB, which has a number of members across a number of manufacturing sectors. I have to say that when I read the proposals in the Bill, I was extremely alarmed by how weak the remedies were in terms of anti-dumping cases. This is a complex area of trade law, and we know from the European experience, where there is a very robust system, that you cannot take your eye off the ball when you are pursuing those cases. They are very data, document and resource-heavy cases to bring forward.
I just feel that the provisions in the Bill do not fulfil the promise we were given that British jobs, British industry and the British economy would thrive post-Brexit. I feel that huge risks would be taken with our ability to protect and promote British industry and British jobs if the proposals were not amended.
Rosa Crawford: If I could add some specific concerns that we have, there is a compulsory lesser-duty rule in the Bill, which would mean that anti-dumping measures were not adequate. There is ample evidence that the lesser-duty rule is not efficient. Indeed, at EU level, the rules have been reformed to take away compulsory use of the lesser-duty rule, yet it is in the Bill, which would not provide adequate protection against dumping. There is also an economic interest test and a public interest test in the Bill. Those would allow the Secretary of State to veto recommendations by the trade remedies authority that trade remedies should be applied. We regard that as an overreach of the Secretary of State’s power that will not lead to an effective trade remedies mechanism being established.
Also, building on what Ben from Unite was saying, we are seeing a whole area of trade remedies in the Bill left to secondary legislation. China, a non-market economy, has clearly been one of the worst offenders in the last few years and has affected steel and other sectors in which we have significant numbers of members. There has been a real negative impact on jobs, and there is nothing in the primary legislation about how they will be dealt with. Again, for that we would need to see there being an effective trade remedies mechanism post-Brexit.
Peter Dowd
Q
Ben Richards: One of the things that we have been doing, as Unite, with the GMB, the TUC and our sister union, Community, is working very closely with employer organisations from a number of key sectors, in forming the Manufacturing Trade Remedies Alliance. That is in industries such as paper, steel, chemicals, tyres and in a number of other industries as well.
What is clear in our experience, certainly from Unite members, is that we have just gone through the steel crisis, which immediately threw up a crucial or fundamental issue for the UK’s manufacturing industries, but it feeds into many other areas. Our members in the paper industry are particularly concerned. There are also the rubber tyre and ceramics industries as well as many others, which are represented not only by Unite but by the GMB, Community and many other TUC unions.
Jonathan Reynolds (Stalybridge and Hyde) (Lab/Co-op)
Q
My worry on the public and economic tests is that, even in something like the steel crisis, there were people arguing for the benefits of very cheap steel coming into UK for construction and so forth. If those tests are not drafted correctly, frankly, we do not have any trade remedies at all. If we are going to have them in the Bill, how can we draft them to ensure that they are robust and fair? Who should be involved in the Trade Remedies Authority to ensure that that is the case?
Ben Richards: We need an opportunity to have that debate, which we will not have at all with the Bill as it is currently drafted. It will simply be written into secondary legislation—we will not have that ability. We have four or five minutes left to have a discussion about how it should be drawn up. It would take us another couple of hours. That is what we want, as a trade union movement: an involvement in these discussions and debates.
We have huge concerns about the way in which the appointments are being made to the Trade Remedies Authority. In effect, in the way that the Bill is currently written, we are not seeing one economic interest test but three. To give you a one-sentence answer about how it should be is very difficult: we want to engage in that debate. We want to have a role in that process in the future to ensure that our members are confident that those decisions are being taken with their interests in mind.
Kathleen Walker Shaw: On the Trade Remedies Authority, its structure is very important. We would like to see it set up in line with the Health and Safety Commission, where we have three employers, three trade unions and three other interests. I am a bit concerned that we are limiting that to nine, because I have a strong concern that devolved Administrations need to be involved in that process as well.
I would also like to see the Bill developed to give a role for parliamentary scrutiny—for the TRA to be liaising with structures within wider parliamentary scrutiny—on the European economic area IT, and on the decisions of the TRA, and to remove the power of the Secretary of State to veto a decision of the collective scrutiny of Parliament and the TRA on remedies. In that way, we might be some way to getting to the bottom of a justified and effective remedy.
Peter Dowd
Q
Kathleen Walker Shaw: You are picking at a wound there. I was the poor person that drafted our response to the trade White Paper. I spent a lot of evenings doing that and I was more than a little concerned when I submitted that paper—less than eight hours later, the Bills were published. For people who take policy and their engagement with Government and Parliament very seriously, it was difficult not to feel the contempt with which that response that I spent hours sweating over to place before Parliament was received.
Consultation over the trade and customs Bills is vital because the Government have to get this right. There is no margin for getting this wrong. The future of Brexit hangs on these two bills: trade and the taxation cross-border. That is what our success or failure post-Brexit will hang on. I am very nervous about it, but I am more nervous about the fact that the Government are pretending that they are consulting us and they are not. We are very serious people and we want to be taken seriously. We want to help you to get the trade Bill and the cross-border trade Bill right, but we can do that only if we are a serious part of the process.
We have been engaging, but we have not been listened to. It is not enough for the Government to say, “We have consulted”, because if you miss off, “But we haven’t listened to a word you’ve said”, the quality and the integrity of that consultation is brought into severe question. It will not stop us from being delighted at being invited to come and have these conversations with you—we are not making this up, particularly Alan, who works for HMRC.
Alan Runswick: On delivery, my union wrote to Jon Thompson, the chief executive of HMRC, immediately after the referendum result to say that it was a game changer, that he needed to pause the office closure programme, stop making people redundant and evaluate this new situation. We have not even mentioned, and we will not get to, the issue of import VAT for business and for delivery. As well as customs duties, there will be a big increase in import VAT transactions. They will need to be processed, and staff will need to run a compliance regime under the new situation, to counter evasion and avoidance.
We also feel that we have not been properly consulted. We have been trying to engage the Department in serious talks about delivery, how staff can be recruited and trained and how we can retain the existing skills. We most definitely feel that we have not had those serious discussions about how HMRC can be made fit for purpose in the new Brexit position.
The Chair
There are no further questions from Members, so I thank the witnesses for their evidence this afternoon.
Examination of Witness
Joel Blackwell gave evidence.
Mel Stride
Q
Joel Blackwell: Yes, absolutely. The negative procedure plays an important role. There is legislation that is extremely technical and almost administrative in nature, for which the negative procedure is appropriate. In our view, the scrutiny procedures in the Commons—not in the Lords—are inadequate. Our position is not that the negative procedure should not exist, but that something needs to be done to improve MPs’ ability to debate those SIs.
Peter Dowd
Q
Joel Blackwell: I do not think I would agree in those terms. There are serious constitutional issues raised by the withdrawal Bill and the related Brexit Bills. This is not the first time that the Government have used Henry VIII powers. This is not the first time, nor will it be the last time, that we see framework legislation, or skeleton legislation. In all honesty, the use of delegated legislation is unavoidable in legislating for Brexit. Framework legislation is probably unavoidable for Bills that deal with issues such as welfare and indirect tax law, particularly if they are subject to change and involve highly complex and technical detail. The key is parliamentary oversight of that.
There are numerous ways that you can constrain powers in Bills. We have seen some attempts to do that in the House of Commons, and no doubt we will see that happen in the House of Lords with the European Union (Withdrawal) Bill. Fundamentally, though, although you can try to tightly define powers or to insert a list of actions that you are not able to use SIs for, you are ultimately going to have to confront the inadequate procedures for scrutinising negative and affirmative instruments in the House of Commons; otherwise, it will not matter. If you really want to take back control and have meaningful and effective oversight of delegated legislation, you have to focus on improving the negative and affirmative procedures in the House of Commons.
Peter Dowd
Q
Joel Blackwell: I am not sure it is a significant shift; the problem has always been that the balance between Parliament and the Executive in the control of delegated legislation has always been on the side of the Executive. We have always argued, and have argued in this report, that you need to redress that balance, and part of that would be to improve the scrutiny procedures that I have mentioned. I would not say that there has been a fundamental shift from this Bill onwards. There has always been an issue regarding the balance of power in the use and scrutiny of delegated legislation.
Peter Dowd
Are you saying, therefore, that this is neither a quantitative nor a qualitative shift of power from Parliament to—
The Chair
I think that question has been posed in three different ways, so unless Mr Blackwell has anything else to say, I am not sure he can add to it.
Joel Blackwell: No.
Anneliese Dodds
Q
Joel Blackwell: On the first point, with regards to sub-delegation or tertiary legislation and this use of public notice, the fact that they will not be subject to any parliamentary scrutiny is concerning. We basically reiterate the points made in the Delegated Powers and Regulatory Reform Committee: that if public notices can do the same as regulations they should be subject to parliamentary scrutiny, just as regulations would be. Sub-delegation is an issue for us because there is a lack of parliamentary scrutiny. In some cases it might not be appropriate, but it should still be considered as usual practice, and at the moment it appears not to be.
With regard to the Trade Remedies Authority, the Hansard Society has not really considered that yet. My colleague Brigid has probably, as I speak, just finished on the Trade Bill, so I am happy to write to the Committee about our points on that.
Peter Dowd
Q
Joel Blackwell: The fact that it is usually not subject to any parliamentary scrutiny is of concern to us.
Mel Stride
Q
Joel Blackwell: It is a good point. Specifically on this Bill, it is the fact that it says it can do what regulations could do and that would be an issue. In terms of guidance codes of practice, they are laid before Parliament and that is not the case for this Bill. You would not necessarily have to clog up the system with things that are extremely administrative in nature, but there is the fact that Parliament is delegating a legislative power to the Government and if you can do what is done in regulations, it would make sense that they should be subject to the same level of parliamentary scrutiny as those regulations.
Nic Dakin
Q
Robert Windsor: I will take the lead on that, because the freight borders are heavily engaged in this. CDS has been an ongoing project for about three and a half years. Customs did quite a lot of research with industry on what its requirements were. They have been doing a development stage, which, I have to be honest, is highly technical and way beyond anything that I can understand, although software suppliers and the community service providers have been part of the technical workshops on it. They are now starting to talk directly to us and, as a trade association, we are receiving quarterly updates on the project. I really do not want to comment on whether we think it is going to succeed or be delivered on time, because at the moment it is still under development. Part of the problem that they have, which is not of the team’s making, is that some of the data elements are still to be defined within the Union customs code, such as the format of a unique consignment reference. That matter still needs to be resolved.
Richard Ballantyne: This is a technical area, and Robert and his colleagues will be concentrating on that, but all three of us sit on the Joint Customs Consultative Committee, which is HMRC’s main stakeholder committee, and there are opportunities to get briefings on CDS. I feel personally that if we want the information, it is there.
Tim Reardon: What I would say on CDS is that it is an importers and exporters system. As carriers, we have very little interface with it, but our engagement with Revenue and Customs has been constant and continual since the referendum result, when it became apparent that there was a significant new element of uncertainty about whether the 40% of the UK’s international trade that arrives and leaves in trucks on ferries was going to be able to continue doing as it did.
Richard Ballantyne: Yes, at a very general level, ports touch many Government Departments in terms of policy regulation, and of all the Departments, HMRC has been the most forthcoming since the referendum. The amount of engagement has been quite unprecedented. That is not necessarily to speak negatively about the other Departments, but HMRC has really taken the lead.
Peter Dowd
Q
Robert Windsor: The Joint Customs Consultative Committee meets three times a year, and it covers areas of strategy that are impacting on importers, exporters, freight forwarders, shipping lines, whatever. Since Brexit, the JCCC has established sub-committees specifically dealing with Brexit as an issue and that group, if I remember correctly, meets about four times a year.
The Chair
Before we go too far down a route that is not to do with this Bill, I hope that you can get your remarks back on track. I know you are answering Mr Dowd’s question, but the discussion seems to be somewhat off the message.
Richard Ballantyne: This Bill, this legislation, will be considered by that group.
Peter Dowd
Q
Robert Windsor: There was consultation about the White Paper but there has been no consultation about the actual Bill as it has come out.
Tim Reardon: The clauses of the Bill were not exposed to consultation at all before the Bill was published, as far as I am aware, and certainly not through the forum of the JCCC.
Richard Ballantyne: No—we are all on circulation lists so we get the information directly but, as you both say, it has not been formally considered, although part of that is because this has been quite a quick process. When we had the proposals to update CEMA—the Customs and Excise Management Act 1979—which I think was four or five years ago, there was time and consideration at the JCCC, so perhaps we had a better experience last time .
Peter Dowd
Q
“The Government’s White Paper…outlined an intention to apply a requirement for the goods in such vehicles to be declared prior to shipment so that, on arrival in the port, they can pass straight through in all but exceptional circumstances”.
You go on:
“Schedule 7, paragraph 28, appears to create powers for such an arrangement but is expressed in notably vague terms: their practicability will depend absolutely on detail that is absent.”
How significant is that at this stage, given that we are 15 months away from Brexit? When do you think that you will actually need the detail, especially in light of the fact that you have not been consulted on the Bill in the first place?
Tim Reardon: We would have liked it about four years ago, to be honest. The Bill—that particular paragraph in the schedule—provides for the concept that nothing may be shipped unless the vehicle operator has checked that a declaration has been put in. As a concept, that is unobjectionable, and it has the potential to work, but the devil is entirely in the detail.
Who will the vehicle operator be deemed to be, for example? The Bill widens the definition of a vehicle beyond what anyone in this room I would imagine understands a vehicle to be, so it is no longer simply a thing on wheels but a ship maybe, a train or an aircraft—all of those fall within the scope of “vehicle”. The vehicle operator is any one of those parties in the chain. What is the process by which that business will be required to establish that something has happened? All of those things are critical details to work out whether the thing can work or not.
The issue for us is that it is impossible to tell purely from the powers in the Bill that we will end up with a system that works. We might, and I have absolutely no doubt that everyone’s intention is to create a system that works, but it is impossible to say on the basis of something that is as vaguely drawn as the Bill that it will work. If this is the sole stage of the process where any scrutiny is applied, then clearly one has to take a great deal on trust and faith.
Peter Dowd
Q
Tim Reardon: To be honest, the answer depends on how different where we end up is from where we are now, because what takes time is changing of business processes, construction and reprogramming of IT systems and—worst-case scenario—civil works in terminal infrastructure development. All those things have lead times. How long the lead time needs to be depends entirely on what it is you are trying to do and how much you are trying to change from the current practical reality. Until we can define how different the end state is from where we are now, then—to be honest—it is impossible to put a timeframe on how long it will take to get there.
Richard Ballantyne: To follow on from that, all three of us were at a meeting this morning on border processes and so on, and one of the things we were talking about is the fact that the operators—the port operators, the carriers, the customs providers and other specialists—will not want to make any investments until they know exactly what the detail of the deal is and when that is firmed up.
The Chair
I call Kirsty Blackman. I am aware the Minister responding to the debate in the Chamber is on his feet, so we may well be interrupted for a vote; it will be up to the Committee to decide whether it wishes to resume with this panel after the vote.
Anneliese Dodds
Q
Richard Ballantyne: The British Ports Association is part of the European Sea Ports Organisation, which has a meeting tomorrow on Brexit that I am going to. It includes some of the main UK-facing ports, such as Dublin, Zeebrugge, Calais and beyond. It has been quite difficult. Some of those ports are state-owned, and it is quite difficult for the UK Government to talk with them, although there have been a number of information-type visits looking at customs arrangements as they are and what the operational situation will look like post-Brexit. We have good conversations.
In terms of what is going on with the customs authorities in those countries, it is varied. There is a French customs taskforce—that is an internal taskforce—that I think the ports there are plugged into. I went to see the French ports association to talk about Brexit, and it seemed on top of things, but it is a difficult one. There is a lot of mystery there. Just as the UK Government cannot divulge all the discussions they are having, the ports cannot divulge everything to us. They have to remember that negotiations are being led through the European Commission, so that is the correct avenue.
Peter Dowd
Q
Richard Ballantyne: As you know, the ports industry in the UK is market-led and market-driven. We have three types of port: local authority-owned ports, which operate on a commercial basis in competition with private ports; full private sector ports, or equity ports; and the trust ports, which are Dover, Aberdeen, London and so on, and they are still run on a private basis and pay corporation tax on any profits they make. Significantly, all of them are financially and strategically independent of Government decisions. That has worked. Effectively, the Government have delegated the authority to run the ports because they understand that you need technical experts to manage such things as safety and the commercial arrangements.
In terms of what is going on at the moment, the Government do influence the connections to ports. Ports have publicly owned road and rail connections. Following a lot of lobbying from my association and others, the Department for Transport is undertaking a port connectivity study, which is not about spending any money on connections but about assessing the state of the road and rail connectivity of the UK ports industry, and how we get ports more on the radar when big investment decisions like the road investment strategy and rail strategies are made and Treasury spending budgets are allocated. It is about us, perhaps, rising up. There has been a lot of big-ticket passenger-focused spend, such as HS2, Heathrow and Crossrail. Freight has felt a bit of a poor relation. We are working to improve that, but unfortunately freight does not vote, so it is a challenge for us.
Emma Hardy
Q
Richard Ballantyne: The Department is considering a lot of feedback from the ports. I know Sir John Randall, a former Member of this House, oversaw that as an independent chair. The officials are now working on the final detail. I hope it will make a number of recommendations, and it should be out within the next month. As I say, I think Sir John went to visit Hull.
Emma Hardy
He probably got stuck on the way there. That is good news, thank you.
Peter Dowd
Q
“It has been commented that the Bill is not as precise as Members would have hoped for”—
I suspect you were a diplomat in a different life—
“in terms of either the areas covered by the legislation or in certain cases the powers vested in the authorities. Also from our understanding this document will have to be read with other documents such as CEMA and secondary legislation which still has to be written which has the potential to cause confusion and thus perhaps hinder compliance from Trades perspective.”
To what extent will compliance be hindered? How extensive, how comprehensive, how problematic will that compliance be?
Robert Windsor: It is always more difficult where you have more than one source to draw the compliance requirements from. One of the things that my members have been used to are the codified laws and regulations that have come from Europe, in particular customs codes and things like that. They got more complex as time went on. Basically, there was a single point of reference, so people would go to that and at that point they would pretty much know what was written, how it could be interpreted in different member states—[Interruption.]
The Chair
Order. We are quorate. As has been explained, Mr Stace is giving evidence at another Committee and will be joining us somewhat later. We will now hear oral evidence from UK Steel, the Chemical Industries Association and the British Ceramic Confederation. This sitting will finish at 5 o’clock. Can I ask the witnesses who are here to introduce yourselves for the record?
Dr Laura Cohen: I am Laura Cohen, chief executive of the British Ceramic Confederation. I also chair the Manufacturing Trade Remedies Alliance, a group of seven manufacturing associations, three trade unions and the TUC with an interest in trade remedies.
Ian Cranshaw: Good afternoon. I am Ian Cranshaw, from the Chemical Industries Association. I am the head of international trade and the head of business development.
Peter Dowd
Q
Dr Laura Cohen: The EU has a number of trade remedies in place, the transition of which is being considered by the Department for International Trade at the moment. In the ceramics sector, which I am probably best placed to talk about, we have two measures in place, in tableware and in tiles. These are EU anti-dumping tariffs against Chinese-manufactured products. In tableware, until 2004, Chinese imports had been fairly steady, at around £20 million a year. They then rocketed to £160 million a year. The anti-dumping tariff was introduced in 2013. The Chinese imports have held steady, but even that has allowed our members to stabilise and invest, and employment has increased by 20% to 5,000 UK jobs since 2013.
On tiles, there were about £2 million to £4 million of imports in 2004, and that increased pretty rapidly to £30 million. Anti-dumping duties started in 2011, and they have now fallen back to about half that. Please note, we have just had a renewal in Europe of the measures, on 22 November 2018, following an expiry review. The dumping margin had increased during that period. UK manufacturing employment has increased by 40% to 1,000-plus UK jobs since 2011, so that is good news for UK jobs, but both measures really benefited the UK supply chain, not least the kaolin and ball clay industry in Devon and Cornwall, which employs about 1,500 people. That is part of the 2,500 jobs in the materials supply section of our membership.
Just to bring this example to life, the Minister, Mel Stride, met British Ceramic Tile in his constituency, which has about 400 manufacturing jobs, last week, and it reinforced the message. The Minister also has two Imerys clay quarries at Newbridge and Ringslade in his constituency, which supply the sector.
I just wanted to point out something about the renewal. The Chinese spare capacity increased between 2011 and 2016 by more than four times the entire European Union consumption. The European Commission was very concerned by this development. The extra capacity is propped up by state distortion. I do not say that lightly, because the evidence is quite clear. In December 2017, the European Commission produced a report on the Chinese economy which found gross subsidies and state interference in the manufacturing industry. I quote from the report. The first parts show:
“The overall picture that emerges concerning the framework in which economic activity takes place in China is one where the State continues to exert a decisive influence on the allocation of resources and on their prices.”
The second part of the almost 500-page report says:
“The analysis shows that the allocation and pricing of the various factors of production is influenced by the State in a very significant manner. The third part…examines a number of sectors. These include steel, aluminium, chemicals and ceramics. The sectors have been selected because they are the ones that have featured most in the EU’s anti-dumping investigations since the conclusion of the Uruguay Round. Taking the perspective of individual sectors allows a closer look at the specific rules and dynamics in that sector, but this examination also echoes the findings in the preceding two parts, i.e. the significant distortions resulting from the specific features of the Chinese economy and those found in relation to the various factors of production.”
The report noted that the State Council in China combines the implementation of the belt and road strategy, to actively conquer markets such as Europe. Therefore, anti-dumping remedies are there when competitors do not play by the rules.
The Chair
That was a very comprehensive answer. I hope we can condense further answers slightly.
Peter Dowd
Q
Ian Cranshaw: I may not go into the same detail that Laura did—I am sure I will receive some encouraging signs.
Just looking at some of the bigger numbers so that we all know how many trade remedies we are talking about, I think the EU has something like 130: 50-plus in steel alone; 27 in chemicals; and I think Laura mentioned a couple in ceramics. Again, you need to drill down and understand what the UK’s standing is in those 27 in chemicals across Europe. I believe there is just one where we have gone out, and I know there is a call for evidence by the Department for International Trade of all UK standing in all of the wider remedies in place. That puts it into context.
Again, I would hold my hand up and say that we are all on quite new ground in this area, apart from UK Steel, which has been incredibly active over the past couple of years. I held a roundtable with some member companies a year ago and got all of the major players in the UK chemical industry. That is interesting, because more than 70% of UK production is by companies headquartered overseas—so that was not necessarily UK companies.
It was very interesting that, when I talked to one of the German companies about trade remedies and trade defence instruments—I will not mention the name, but you will probably work it out—its perspective was, “Well, we have no trade remedy experience or personnel in the UK at all.” Nor did the trade association. We have happily contributed to EU development of policy, but actually, in leading on this, we had no expertise.
The German company pondered for a moment and said, “Actually, if in the future we had to raise a trade issue with the EU—us accusing it or it accusing us of dumping or subsidy—the UK transplant would have to ask our headquarter operation for advice and policy in the expertise in which to raise a concern or complaint to the WTO.” That was quite interesting. I am not sure if I answered the question, but that was a specific example.
Peter Dowd
Q
Dr Laura Cohen: A remedy is addressing unfair competition when overseas manufacturers are not playing by the rules. The ceramics industry and the tiles industry, such as in the Minister’s constituency, has invested very heavily in state-of-the-art, energy-efficient manufacturing with digital printing technology. Given a level playing field, it can take on the world. All we want is a level playing field, and trade remedies allow us to ensure we can get that free trade.
The Chair
Before we go any further, I would like to welcome Mr Gareth Stace, director of UK Steel. I know that you have been very busy on another Committee, so I am glad you have joined us. Do you want to come in on this? You got the drift of the question.
Gareth Stace: Yes. Apologies for arriving late, and thank you.
I would like to look at it from a different angle in terms of using what is the trade remedy and what are protections. The steel sector thrives on free, liberalised trade. A third of all steel produced in the world is traded across borders. We actually have zero tariffs—that is, zero customs tariffs—for steel between developed countries. What does that do? It enables us to be even more liberalised in our free trade. Trade remedies is a safety valve to enable that free trade to take place. I would say that, without trade remedies, we will actually see a rise in protectionism—it is not that with trade remedies we will see a rise in protectionism. Trade remedies allow for free trade to take place; it is not the other way round.
Ian Cranshaw: Within the Manufacturing Trade Remedies Alliance, which we are a member of, we actually do not use the phrase “protection”. There is a global rule-kit of trade, and all we are asking for is that people play by those rules and, if they do not, remedies come in. I was here listening to some of the earlier evidence and there was a balance of the consumer or the producer. Our view has always been that it is in the interests of all parties that inappropriate trade practices are removed—just play by the rules.
Peter Dowd
Q
Dr Laura Cohen: We have three major concerns with the Bill that we think, taken together, will give much lower duties than the EU, and that will attract dumped products from around the world. Those three main concerns at a high level are: first, the measurement of the dumping margin—the calculations and the methodology —particularly where there are distorted economies, and the absence of a methodology in the Bill; secondly, the combinations of various economic interests tests and public interests tests, and I will go into more detail on those; and thirdly, this lesser duty rule, and that is very much an alliance position. Overall, the effectiveness of trade remedies depends so much on the detail of the legislation that is completely absent in the Bill.
Much detail may be in secondary legislation eventually, as we heard from the Hansard Society, but that may be without much parliamentary input: it is likely to be a negative procedure. Even worse, much may be in guidance written by officials with hardly any parliamentary scrutiny at all. Important changes going through the European Parliament and the EU in trade remedies legislation have had extensive scrutiny, and important amendments have been made by MEPs and ex-MEPs, often working across parties. We need a similar level of political oversight in the UK system, but to do that the Bill needs alterations in those three areas. We are concerned because businesses, jobs and investment are at stake. I can go into more detail on those, or my colleagues can.
The Chair
We have quite a few questions, so maybe somebody can come back to you on that point if they need to. Mr Stace, did you wish to come in at this point?
Gareth Stace: There is a lost opportunity in the Bill in terms of looking at what is happening in the EU, which Laura has highlighted, particularly on changes that are taking place at EU-level on how it tackles the lesser duty rule—the UK Government have firmly said, “No, we are not going to follow that; we are going to do something different”—and how it treats non-market economies or economies that subsidise their industries. The Government are saying, “Yeah, we will follow that,” but because the detail is not really there, as Laura said, are they going to follow it to the letter, which would be great, or just broadly in principle? That is that whole thing of everything—I am sure you had already heard that before I arrived.
The problem with this Bill, and also with the Trade Bill, is that the proof will always be in the pudding. The Government can promise anything they like, but more than a third of all tariffs in place affect the steel sector and it hits us hard, therefore, if this system, when it comes out, is not appropriate for what it is trying to do. That is why we, in this primary legislation stage, are putting that in so much detail. Why are we doing that? Because we just do not know whether it will be in the secondary legislation or the guidance. That is not our fault; we have to set out our case in full now, at this stage. If the Government said to us, “Honestly, trust us completely and utterly. It will be in secondary or it will be in guidance, to the letter of what you are asking for,” then great, but at the moment we are sitting here very much in the dark. When we talk about day one from when we leave the EU, is that day one next year or day one in 2021? We do not know. If it is next year, we should be planning right now for doing something very different very soon.
Ian Cranshaw: One of the issues is the fact that these things cannot be rushed. We know that they are very complicated. The trade defence instruments modernisation programme in Europe took more than four years, and that is just in modernising a regime that has been in place for 40 years. One of the important concessions we got out of the EU somehow in the chemical sector, which we refer to as an enabling industry or a foundation industry, was about the importance of raw materials. On raw materials, the EU said, “Okay, if the raw material cost is 17% of the overall product cost, we will take in the raw material cost because we are aware of distortions that take place across many markets.”
We have one UK producer, which is specific in the UK, for which the energy cost is 40% of the total costs of the individual company, so it is hugely important. Its remedy is against Russia and gas coming out of Russia. Russia not only subsidises that industry, but does not observe the same environmental standards as we do. It has had every opportunity to do so, but it does not. There is a wider responsibility at play and that goes back to the comment earlier about it being in everyone’s interest to get this right.
Nic Dakin
Q
Gareth Stace: The timescales are not set out clearly enough. I do not want to go over old ground, but the hoops to go through at all the different stages will only lengthen that process. I am sure that will happen, calculating injury and dumping, but if was just dumping, that would happen very quickly.
I might have said already that in the US, provisional measures come in after 45 days and in the EU they come after nine months, which is coming down to seven. The UK has the opportunity to say that we will do it at six months, and we always—unless there are circumstances where it is not appropriate—apply retrospective duties of three months. So you get provisional duties coming after three months, which sends a very strong message to the market: do not dump your illegally traded goods here in the UK.
Ian Cranshaw: I think we would all be disappointed if we could not expedite the EU system, when it has to canvass views across 28 member states. We would have to canvass views in just the UK, so if we cannot bring that nine months—soon to be seven months—down further, an opportunity will have been missed.
Dr Laura Cohen: There is a tremendous opportunity here for Brexit. If an industry is suffering injury and dumping, it is really important that it gets sorted out quickly.
Peter Dowd
Q
Gareth Stace: From my point of view of steel, this time last year we had written five very detailed papers that DIT officials have been very pleased to receive. We have had very good engagement with them, so I could not actually fault that. We probably have had some difference of opinion, so although I heard, “We agree with 95% of what you are putting out,” I said, “That’s fine, but it’s the 5% that is crucial.” Like everything with Brexit, the issue is around that 5% and we do not understand the detail around that.
We continue to engage with DIT, but we have provided all the information we can; there is nothing more we can provide. That is why we are disappointed: in the face of this Bill in primary legislation, we have not seen the detail that the Government had the opportunity to put in.
Dr Laura Cohen: From our sectors, I echo what Gareth has said. As an association, we have had really good engagement with DIT officials. BCC has had four meetings as an association with Ministers or Secretaries of State in the past year. That is really appreciated. However, we have made our case very clearly and I do not know what else we can say. We need to ensure that businesses, investment and jobs get the best possible deal from Brexit.
Ian Cranshaw: As a group, we met Greg Hands. The Minister gave us a considerable amount of time. He had been briefed well and he understood our issues, but he just did not accept them—he had a different view. That is fine; we have to go away and refine our position and give the evidence that was required. Some of the evidence that he called on we would call less than proven.
We know that there was a discussion earlier about the make-up of the TRA and who helped formulate the Government view. They say that for the review on trade remedies they went to a very liberal think-tank and asked what the view is on this, so of course they got a very predictable response. We would have questioned whether they had taken in some of the advice and evidence from business, as they might have got a rounder view of what was required.
Gareth Stace: It was not a liberal think-tank, but a company that represents the Chinese steel sector against the EU. They could have chosen many; why did they choose that company?
The Chair
That is not for me to answer. There are no further questions from Members, so I thank the witnesses for their very comprehensive evidence this afternoon.
Ordered, That further consideration be now adjourned. —(David Rutley.)
Oral Answers to Questions
Peter Dowd Excerpts(6 years, 3 months ago)
Commons ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Mr Hammond
Yes, I agree with my hon. Friend. Keeping business taxes competitive so that we can attract international investment to this country is essential, but there is a quid pro quo: if taxes are low, they must be paid. We are determined to ensure full compliance and to lead in international forums in looking at ways of improving corporate tax compliance.
Peter Dowd (Bootle) (Lab)
The NHS is in crisis due to the tight-fisted approach the Chancellor takes to the public finances—unless a big corporation, a railway company or a failing construction firm needs a handout or a bail-out. During any discussions he has had with the Health Secretary, has he raised the issue of the funding crisis? If so, what solution has he arrived at to fund it properly, or will he be sending in the receiver?
Mr Hammond
The hon. Gentleman may not have noticed but we have put an extra £6 billion into the NHS. The first two weeks of the year are traditionally the highest pressure weeks in the NHS, and we have seen extreme pressure over the past two weeks. He may also not have noticed that we have a flu crisis going on, which inevitably takes its toll. In an ethically based health service, we treat the sickest patients first, and it is right that we prioritise those with urgent needs over those with routine needs in our hospitals.
Peter Dowd
That was an insouciant attitude, if ever there was one. The Chancellor’s local media report that the A&E department in St Peter’s Hospital in Chertsey in his constituency had the highest number of 12-hour waits for patients in Surrey at the start of last year. What imaginative explanation does he have for his constituents, if not the whole House, as to why they, like many others, have to wait for so long to get emergency treatment? I ask again: what substantive funding will he provide to the NHS?
Mr Hammond
The answer to that is the £6 billion of additional money that we put in at the Budget. I am glad that the hon. Gentleman raised St Peter’s Hospital in my constituency, because that gives me the opportunity to make an important point. As other Members will know, whatever the media say about the NHS in general, when one speaks to one’s own constituents about their experience in their local hospital, it is invariably good and they invariably have nothing but praise for the service that they receive from our excellent national health service.
Finance (No. 2) Bill (Fifth sitting)
Peter Dowd Excerpts(6 years, 3 months ago)
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Peter Dowd (Bootle) (Lab)
I beg to move amendment 56, in clause 38, page 27, line 6, leave out “69” and insert “69(1)”.
This amendment specifies the subsection of section 69 of the Value Added Tax Act 1994 that is being amended by Clause 38(2).
The Chair
With this it will be convenient to discuss the following:
Amendment 57, in clause 38, page 27, line 9, at end insert—
“(2A) In subsection (3) of section 69, for ‘subsection (4)’ substitute ‘subsections (3A) and (4)’.
(2B) After subsection (3) of section 69, insert—
‘(3A) In relation to a failure to comply with any regulatory requirement under section 77E (display of VAT registration numbers on online marketplaces), the prescribed rate shall be determined by reference to the number of occasions in the period of 2 years preceding the beginning of the failure in question on which the person concerned has previously failed to comply with that requirement and, subject to the following provisions of this section, the prescribed rate shall be—
(a) if there has been no such previous occasion in that period, £5,000;
(b) if there has been only one such occasion in that period, £10,000; and
(c) in any other case, £15,000.’”
This amendment increases the prescribed rate of a penalty for failure to comply with a regulatory requirement under section 77E of the Value Added Tax Act 1994 (as proposed to be inserted by Clause 38(8)).
Amendment 58, in clause 38, page 27, line 15, at end insert—
“(ba) after subsection (3), insert—
‘(3A) The period specified in a notice in accordance with subsection (3)(a) may not be longer than 10 days.
(3B) It shall be the duty of the Commissioners to give notice under subsection (2) in any case where they are satisfied that to do so would protect or enhance VAT revenue.’”
This amendment specifies the period for compliance with a notice under section 77B as no more than 10 days and requires HMRC to issue a notice in any case where VAT revenue would be protected or enhanced by doing so.
Amendment 59, in clause 38, page 27, line 32, leave out “60” and insert “10”.
This amendment reduces the period at the end of which a person must cease to offer goods in breach of the registration requirement from 60 days to 10 days.
Clause 38 stand part.
Peter Dowd
It is a pleasure, as ever, to see you in the Chair, Sir Roger. My hon. Friend the Member for Oxford East reminded me of the Sherlock Holmes case, “The Adventure of the Solitary Cyclist”. I am not sure whether someone who has a dog with them still counts as a solitary cyclist, but given that there is one cyclist, I expect they do.
If hon. Members look at our explanatory note on amendment 57, they will see that our proposals and the penalties we believe should be enacted certainly do not go as far as the penalties that the hon. Member for Brentwood and Ongar will be aware of, since I understand he did his PhD on the Mercian polity. That is reminiscent of another document, “Theft, Homicide and Crime in Late Anglo-Saxon Law”, which stated:
“It is a startling but infrequently remarked upon fact that for five centuries English law, which prescribed the sternest penalties for theft, contained…a relatively minor royal fine for homicide.”
We are not going to the sternest of fines for what is perhaps de facto theft here, but we are sending a clear message in relation to online marketplace avoidance, or effectively evasion, of VAT: “You don’t try to rip off the Government.”
Our proposals seek to address the growing levels of online VAT fraud and the responsibility of online retailers to play a much-needed part in tackling it. We now all spend a large proportion of our lives online, so it is unsurprising that more UK consumers than ever are buying a larger proportion of their goods through online marketplaces such as Amazon, eBay and others. In 2016, 14.5% of all UK retail sales were online, up from 2% in 2006. Just over 50% of those sales were through online marketplaces rather than directly by the seller.
The VAT rules clearly require that
“all traders based outside the European Union (EU), selling goods online to customers in the UK, should charge VAT if their goods are already in the UK at the point of sale”,
but, as hon. Members will be aware, some are not doing so. According to the National Audit Office:
“HM Revenue & Customs (HMRC) estimates that online VAT fraud and error cost between £1 billion and £1.5 billion in lost tax revenue in 2015-16 but this estimate is subject to a high level of uncertainty… The estimate is calculated from an assessment of the extent of under-valuation in a sample of medium and high-risk imports from high-risk non-EU countries, underpinned by assumptions informed by operational data and intelligence. This method uses an estimate of import VAT fraud as a proxy for the scale of online VAT fraud and error, and HMRC considers it to be the best estimate from data available,”
which is perfectly reasonable.
The Campaign Against VAT Fraud on eBay & Amazon in the UK estimates that online VAT fraud
“equates to £27 billion in lost sales revenue & additional taxes to UK businesses and the public purse in the last 3 years”
alone. What is more, HMRC has stated that it does not have data on online fraud and other losses before 2015-16, and as far as I am aware it does not plan to repeat the review of lost tax for future years. Similarly,
“HMRC estimates do not account for the wider impacts of online VAT fraud and error such as distortion of the competitive market landscape.”
Ruth George (High Peak) (Lab)
I have worked with major UK retailers for almost 20 years, and there has been growing distortion in the market, as between brick-and-mortar retailers and online retailers, on business rates in particular. Does my hon. Friend agree that if we do not tackle VAT fraud more proactively, it simply adds insult to injury for those honourable retailers that are investing in considerable job and employment opportunities in the UK?
Peter Dowd
My hon. Friend makes a valid point that goes to the heart of much of today’s discussion: those who seek to avoid should pay appropriate penalties.
The slowness of HMRC to respond to growing fraud online has been criticised by the Public Accounts Committee, which raised concerns first in April 2013 and more recently in October 2017. It is not alone; the National Audit Office reported in 2013 that
“HMRC had not…produced a comprehensive plan to react to the emerging threat to the VAT system posed by online trading.”
The report found that HMRC had developed tools to identify internet-based traders and launched campaigns to encourage compliance, but had shown less urgency in developing an operational response to it.
Trader groups, such as the Chartered Trading Standards Institute, have been raising concerns for many years, and claim that online VAT fraud has been a problem from as early as 2009, yet the Government did not recognise the problem until 2015. Nearly three years later, the Government are finally introducing measures that will force the Amazons and eBays of this world to be held jointly accountable for the VAT of online vendors that use their sites.
My understanding is that HMRC has instead pursued civil operations against suspected evaders, as HMRC claims that difficulties in prosecuting suspected online fraud make that route lengthy, costly and uncertain of outcome; I suppose that is justice. Barriers include sellers being based outside the EU, and the need to show intent to commit fraud. I would like to ask the Financial Secretary to the Treasury how many operations HMRC has pursued since 2015, and what their outcomes were.
The Public Accounts Committee report on online VAT fraud found that HMRC had only recently begun to take the problem seriously, despite the fact this fraud leads to significant loss of revenue to the Exchequer, in effect depriving our public services of the funds they so desperately need. The Committee found that HMRC, rather than trying to use its pre-existing powers, waited until the introduction of new measures under the Finance Act 2016 before it attempted to hold online marketplaces responsible for VAT that had been fraudulently evaded by traders. HMRC has been too cautious in using those powers, and the Government have refused to name and shame non-complaint traders; so far, to my knowledge, they have not prosecuted a single one for committing online VAT fraud.
Professor de la Feria, an expert in tax law at the University of Leeds, pointed out that HMRC has not been doing enough to tackle the problem, despite the required legislation being in place. She argued that laws existing before the introduction of the 2016 measures provided scope.
Luke Graham (Ochil and South Perthshire) (Con)
As a member of the Public Accounts Committee, I was at the hearing on VAT fraud. Does the hon. Gentleman not recognise that VAT is incredibly difficult to police, especially on e-commerce platforms, given the international nature of a lot of the trade, including by small traders in China? Does he not accept that changes put forward in the Budget address some of the concerns that the Public Accounts Committee raises, and mark a positive step on the Government’s part?
Peter Dowd
Yes and yes, but that does not alter the fact that we need to push on as much as we can with tackling this issue. The amendments go some way towards helping and, importantly, towards sending a message to those who choose to evade VAT. In online marketplaces and fulfilment houses, fraudulent activity continues fairly unabated, and we must do something about it.
Professor de la Feria also believes that part of the reason that HMRC has been slow to tackle online fraud is that it is most likely considered not cost-effective to pursue it. Online marketplaces and HMRC are not doing enough together to tackle the problem, notwithstanding the action that has been taken. Online marketplaces continue to earn their commissions, and so their profit, from people who are defrauding the British taxpayer. Amazon, for example, organises regular presentations at Chinese fairs—a point referred to by the hon. Member for Ochil and South Perthshire—to recruit overseas sellers, I suspect; has plans to buy a shipping company; and fulfils orders and handles payments. That all suggests a very embedded relationship with the seller. Those connections and networks are there; people must know each other to set them up. HMRC should use those relationships and networks to do something about the problem.
Until we can incentivise online marketplaces to act, they will continue to offer a lacklustre approach to tackling online VAT fraud. In September 2016, HMRC introduced new legal powers to tackle online VAT fraud and error. They allow HMRC to issue a warning to online marketplaces about potential sellers who are not paying VAT. Since their introduction, how many times has HMRC used the new powers? How many sellers has HMRC issued a warning about, and what was the result of the use of the powers? Since they were introduced, HMRC has seen an increase in the number of new VAT registrations from non-EU sellers, but HMRC confirms that it is not aware of the proportion of those sellers that have in the past been trading and not charging VAT, or whether those sellers will be compliant in future. Last year, HMRC told the Public Accounts Committee that it expected to collect £50 million more VAT in 2017 from the traders that had recently registered for VAT, so can the Minister confirm that HMRC has collected that money, or is on course to do so?
According to HMRC, some online VAT fraud is due to a lack of awareness, some overseas sellers being unaware that they need to pay VAT. Both Amazon and eBay, when testifying to the Public Accounts Committee, agreed with that view and described the lack of awareness of VAT rules as a major element of the problem. What efforts has HMRC made to educate sellers in the UK about potential VAT fraud? More importantly, what efforts have been made to ensure that overseas sellers are aware of the need to pay VAT?
The other part of the problem stems not from error, but from clear criminality. HMRC’s strategic threat assessment, carried out in 2014, concluded that it was highly likely that organised criminal groups based in the UK and overseas sellers in China were using fulfilment houses to facilitate the transit of undervalued or misclassified goods, or both, from China to the UK for sale online. It is particularly concerning that HMRC is uncertain of the exact number of fulfilment houses in the UK. Surely one of the first parts of cracking down on this criminality is establishing the exact number of fulfilment houses in operation. That goes some way to dealing with the point made by the hon. Member for Ochil and South Perthshire. Perhaps the Minister can take a minute to explain what steps HMRC is taking to address the issue and crack down on organised criminal groups in the UK and other countries, and what efforts Border Force is making to tackle online VAT fraud by targeting fulfilment houses, where the goods are stored.
Once again, it seems that HMRC is hampered by the Government’s cuts to staffing and resources, and that this is having an impact on the Government’s ability to crack down on online VAT fraud. According to the Public and Commercial Services Union—HMRC’s trade union—in real terms, after the cost of inflation is taken into account, the resources available to HMRC are about 40% less today than they were in 2000. Since 2010, under this Government, HMRC’s staffing has fallen by 17%, and it is set to fall further under the “Building our Future” programme. These are important factors in relation to tackling evasion. That programme will close practically the entire departmental estate of 170 offices. How will that help with tackling the mass of VAT crime?
The elephant in the room is the added uncertainty about Brexit and its impact on the effectiveness of the measures. There is considerable uncertainty about the exact terms on which the UK will leave the EU, so it is vital to get to grips with this. Sellers based in the EU may end up operating under the same VAT terms as apply to non-EU sellers and therefore may also be tempted not to charge VAT. Perhaps the Minister can offer insight into what steps HMRC is taking to ensure that these measures will be robust, irrespective of the outcome of the Brexit negotiations.
There are already considerable control weaknesses at the border. The most recent European Anti-Fraud Office report on customs duties was scathing about the state of UK customs, arguing that “continuous negligence” has deprived the EU of almost £2 billion in revenues on lost Chinese merchandise. According to the report, British customs played a central role by repeatedly ignoring warnings to take action over Chinese textiles and footwear pouring into the EU. Since then, HMRC has failed to open any criminal investigations into specific fraud schemes. The European Anti-Fraud Office is so aggrieved with the UK Government that it has recommended to the European Commission’s directorate-general for budget that the UK should be forced to pay £2 billion directly into the EU budget.
Finance (No. 2) Bill (Sixth sitting)
Peter Dowd Excerpts(6 years, 3 months ago)
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The Financial Secretary to the Treasury (Mel Stride)
It is a pleasure to serve again under your chairmanship, Mr Owen.
The clause strengthens existing powers to make online marketplaces accountable for VAT evaded through their platforms. The growth and development of the online retail market mean that the average UK consumer can now buy a vast range of goods at very competitive prices, and have them delivered rapidly by sellers based all over the world. E-commerce plays an important part in the UK economy, but it also provides opportunities for abuse of the VAT system.
Businesses that sell goods to UK consumers via online marketplaces do not always pay the correct VAT to HMRC. When those businesses do not charge VAT correctly on their goods, they unfairly undercut the honest majority of businesses that comply with our VAT rules—that point was made by the hon. Member for High Peak. The businesses that do not charge VAT correctly abuse the trust of UK customers and deprive the Government of significant revenue.
At Budget 2016, the Government announced a package of measures to tackle online VAT fraud. That included a new joint and several liability provision giving HMRC the power to hold online marketplaces responsible for the future unpaid VAT of non-compliant overseas businesses that HMRC identifies operating on the marketplaces. It also included a fulfilment house due diligence scheme which opens for registration in April 2018 and will provide HMRC with an audit trail to track goods that UK-based warehouses are storing for overseas traders. The new package extends HMRC’s existing powers for tackling online VAT fraud. Taken together, the packages of Budget 2016 and autumn Budget 2017 are expected to raise just under £1 billion by 2023.
The clause strengthens HMRC’s existing joint and several liability powers and introduces a new requirement for online marketplaces to display valid VAT numbers on their platforms. Although online VAT fraud is not restricted to overseas businesses, the clause will ensure that joint and several liability rules cover all non-compliant businesses, including United Kingdom ones. It also strengthens the existing joint and several liability rules for overseas businesses and will enable HMRC to hold online marketplaces jointly and severally liable for the unpaid VAT of an overseas online seller from the point when the online marketplace knew or should have known that the overseas seller should be registered for VAT in the UK but was not.
At this point, I will turn to some of the specific points raised by hon. Members this morning. The hon. Member for Bootle was concerned about whether the measures are strong enough, although my hon. Friend the Member for Ochil and South Perthshire rightly pointed to the sittings of the Public Accounts Committee, in which the complexity and difficulties of this area have been highlighted.
Under the current arrangements, HMRC has received about 25,000 applications to register for VAT from non-EU-based online retailers. The VAT liability reported by such businesses has increased from £6 million in 2015 to £27 million in 2016, and we expect that to continue to rise. HMRC has issued more than 1,000 joint and several liability notices to online marketplaces resulting in the removal of non-compliant sellers. It has also issued assessments against online overseas traders for unpaid VAT amounting to more than £43 million, with a further £71 million in the pipeline. That covers at least some of the questions posed by the hon. Member for Bootle.
The hon. Gentleman also raised the issue of HMRC resourcing. We have provided HMRC with an additional £2 billion since 2010, which is part of the reason why it has been so successful in bringing in additional revenues by clamping down on avoidance, evasion and non-compliance. A further £170 million came through the recent Budget, which will raise more than £4 billion across the scorecard period. He also mentioned the issue of people and office closures. We have previously discussed how HMRC’s operations are now far more technology-driven and intelligence-led, and that kind of approach lends itself to the more centralised, high-tech, highly skilled operation that underpins much of the success that we are having today.
The hon. Member for Glasgow Central asked about VAT directives. I think—I am interpreting her remarks; she can correct me if I am wrong—that she might be referring to VAT arrangements between the EU and the UK. There is acquisition VAT, as opposed to import VAT, which applies to businesses importing from non-EU countries. The customs Bill going through Parliament at the moment will effect a change from acquisition VAT to import VAT. It will, of course, be down to the negotiation where exactly we land in terms of the arrangements that pertain after our exit from the European Union, but I assure her that HMRC will consider carefully the impact of where we land to ensure that we continue to make progress on online VAT fraud. She suggested a review after we have left the European Union of the measures and the operation of online platforms. We can certainly consider that for the future. I am sure that we will come back to the issue many times in the years ahead.
Finally, the clause requires online marketplaces to ensure that VAT numbers are valid and displayed on websites when they are provided by the seller. The requirement will be supported by regulatory penalty. Taken together, the changes will make it more difficult for non-compliant online businesses to trade in the UK, and will enable HMRC to tackle them more easily.
I welcome the opportunity to speak to the amendments tabled by the hon. Members for Oxford East and for Bootle. At this stage, I should say that something rather extraordinary and slightly worrying has occurred: the Government have decided that we are content to accept one of the amendments. After all the constant chipping away at us, one amendment has got through. I would not get too excited—it is slightly technical—but we are grateful to the Opposition for their scrutiny of the Bill and for tabling this amendment. The Government agree with amendment 56 and will therefore specify that it is section 69(1) of the Value Added Tax Act 1994 being amended.
Amendment 57 would increase the penalty for online marketplaces that fail to display a valid VAT number when provided with one. The current penalties refer to daily amounts and are entirely consistent with the penalties awarded for similar offences. In contrast, the proposed amendment could result in a marketplace receiving a penalty of up to £1.5 million for failing to display a valid VAT number for a single online sale. We believe that a sanction such as that would be unreasonable.
Amendment 58 would limit the time available for an online marketplace to ensure the compliance or removal of a non-compliant seller to 10 days after receipt of a joint and several liability notice. It would also require HMRC to issue a JSL notice in every case where VAT revenue would be protected or enhanced. Such an amendment would restrict HMRC’s ability in handling non-compliance on a case-by-case basis. It is also somewhat unfair, denying an online marketplace a sufficient opportunity to tackle non-compliance by sellers on its platforms before being held jointly and severally liable.
Similarly, amendment 59 would reduce the period in which an online marketplace must ensure compliance or removal of an overseas seller, from the point of view that it knew or should have known that a particular seller should be registered for UK VAT but is not. The amendment would reduce the period allowed from 60 days to 10 days. That would not allow enough time for an online marketplace acting in good faith to assist an overseas seller in becoming registered for UK VAT without still incurring joint and several liability. I commend the clause to the Committee.
Peter Dowd (Bootle) (Lab)
I am deeply grateful to the Government for accepting an amendment that specifies the subsection of section 69 of the Value Added Tax Act 1994 that will be amended by clause 38(2). It is very significant and a major climb-down by the Government. [Laughter.] May there be many more of them, Mr Owen. It is a delight to see you in the Chair.
I am not wholly convinced by the Minister’s protestations about the huge amounts involved and the latitude that the Government appear to give to people who, when they set up businesses, know the environment that they are operating in. These are intelligent people, entrepreneurs. They know exactly what they are doing so they should be aware, as much as they can be, of what the rules are when they get into the game, so to speak. That lots of these people are naive and not really sure what is going to happen and what the processes, the procedures and the rules are, is not the most convincing argument I have heard from the Minister.
The message that we have to send to people who wish to set up businesses is, “You will get a welcoming environment. We welcome entrepreneurs. We welcome you being part of our business society and our business communities. But you have to play by the rules, and if you don’t, your business may face sanctions.” That is the message that we want to sell, especially in the light of the fact that we are moving out of the European Union. There are huge amounts of uncertainty in the economy, so we just want to let people know that if they do come into that environment, they will have to be careful to play by the rules.
I do not think that our proposals, particularly in amendment 57, are especially onerous. The amount of money—cash—that companies will make will be quite significant; they just have to be clear that they play by the rules. So despite the Minister’s silver tongue, we will press amendment 57 to a vote, to make a point.
Amendment 56 agreed to.
Alison Thewliss
The arguments are as compelling today as they were in 2015, in 2012, or at any other point. The coincidence of it having to be done for certain fire services in certain combined authorities in England and Wales makes the case that this should have been done all along.
We welcome this measure. We tabled our new clause, which we will press to a vote at the appropriate stage, because we would like to see some more detail about the administrative consequences and the impact on revenue of allowing retrospective claims. We know that the Government will do things in retrospect—other parts of the Bill enable them to enforce regulations relating to tax avoidance and claim money back in retrospect—so there is no argument that moneys cannot be claimed back if people should have known about them before. The Government are willing to make allowances and make changes if there are things that people might or might not have reasonably known. They have made such changes in other parts of the Finance Bill. We have received lots of correspondence from people who feel as though they have been hard done by a measure the Government are introducing now, which they see as retrospective and unfair. If the Government are allowing retrospective measures elsewhere, why will they not allow it here so that the Scottish Fire and Rescue Service and Police Scotland get the money they have been due all along?
Peter Dowd
I rise to speak to new clause 1, tabled by the hon. Member for Glasgow Central. The Opposition welcome the Government’s decision to allow the Scottish Fire and Rescue Service and the Scottish Police Authority to claim retrospective VAT funds. The measures in the clause follow the Scottish Government’s decision in 2012 to establish a nationwide fire and rescue service for Scotland. The Treasury Minister at the time, now the Justice Secretary, wrote:
“Based on the information currently available it seems that, following the Scottish government's planned reforms, neither the new police authority nor the fire and rescue service will be eligible for VAT refunds under Section 33 of the VAT Act 1994.”
That Government decision meant that the Scottish police and fire services lost out on VAT refunds worth more than £30 million, of which Scottish police forces lost out on about £26 million. As a former chair of a fire and rescue service, long before the cuts to those services, I have to say that this amount of money would have been a strain even in those days. It is even more stressful now, so I can understand the anxieties and concerns of the Scottish Government.
To some extent, one could argue that it is a sign of recklessness that, in a time of austerity, the Government would effectively leave Scottish firefighters and police officers to fend for themselves. The Opposition therefore welcome the Government’s decision to reconsider their position, and to allow the Scottish police forces and fire services to retroactively reclaim the VAT—particularly given that the Minister’s reasoning at the time for denying Scottish police and fire services access to the funds was insubstantial at best. At times, it seemed to me and to other onlookers potentially malicious. I think that was the perception that people had at the time.
The then chief constable of Scotland, Sir Stephen House, when he testified to the Justice Committee of the Scottish Parliament last year, said that he was bewildered by the fact that the Scottish police force was the only police force charged VAT, as none of the 43 police forces pay VAT, and neither does the Police Service of Northern Ireland or the National Crime Agency, both of which are centralised agencies.
The Government’s decision to allow the Scottish police and fire services to claim retrospectively should not be controversial, even if it has taken a little time to get here. The Government have acted a number of times in the past to ensure that public authorities do not pay VAT, which is laudable. A number of Governments have done that, in fact. In 2001, the last Labour Government introduced a scheme to allow eligible museums and galleries to claim back VAT paid on most goods and services purchased, in order to grant free rights of admission to their collections. In 2011, the coalition Government introduced provisions as part of the Finance Act 2011 to ensure that academies, which supply free education but are not under local authority control—the phrase “under local authority control” is a misnomer if ever there was one, but it is important to use the language that people use, so we all know what we are talking about—were allowed to recover their VAT costs in the same way as local authorities. Similarly, in the March 2015 Budget, the coalition Government announced that from 1 April 2015, hospice charities, search and rescue charities and blood bike charities would be entitled to recover VAT incurred on their business activities, so there is a fairly well-trodden path regarding this issue.
Although we welcome the Government’s change of heart, allowing the Scottish fire and police forces to reclaim VAT retroactively is a drop in the ocean compared with the levels of gross underfunding and cuts to police and fire services across the country, including services in Scotland. New figures obtained by the Fire Brigades Union show that almost one in five frontline fire service posts—some 11,000 jobs—have been lost since 2010, which is a post-war record of job losses in that crucial service. That is all the more reason why this money should come back to those services. Since 2010, almost 8,000 full-time firefighter jobs have been loss. Fire safety inspections have fallen by 28% since the Government came to power, which is all the more reason why this retrospective or retroactive decision should be put into effect. The general secretary of the Fire Brigades Union said that
“Continued cuts to frontline firefighters and emergency fire control operators…are a serious threat to public safety.”
That is worrying.
The VAT refunds, although welcome, will not stop the deeper cuts to the fire service that are currently taking place, resulting in significantly fewer firefighters across the whole country. It is increasingly clear that VAT refunds will not prevent cuts in the service. As far as I can gather, the Prime Minister oversaw that when she was the Home Secretary. This may be the hand of the Prime Minister seeking some sort of retribution—on herself, perhaps—or rather, putting paid to past decisions.
To sum up, we welcome the proposals, but it would be helpful if the Minister could offer some examples where the grant could be claimed and what the criteria would be for things such as rescue charities hoping to access the grant as well. It is regrettable the Government have chosen to spend the last four years playing politics with the Scottish police and fire services. I hope the measure will ensure that VAT on every penny the police and fire services in Scotland spend will be refunded and that the Minister, at the same time, will ask his Government colleagues to look at the state of police and fire services right across the country.
Mel Stride
Clause 42 and schedule 12 extend the scope of landfill tax to disposals made at sites without an environmental permit, in order to prevent rogue operators from profiting by avoiding landfill tax. The clause also brings clarity to what material is taxable at sites that do have a permit. Landfill tax was introduced on 1 October 1996 to discourage the disposal of waste to landfill, and encourage more sustainable ways of managing waste. Since the introduction of the tax in the UK, landfilling has gone down by more than 60%. Illegal waste sites are a blight on local communities and can cause serious environmental damage. Although the Environment Agency can impose fines and criminal sanctions on operators of illegal sites, they are outside the scope of the tax. With no landfill tax to pay, rogue operators can undercut legitimate operators and make significant profits.
The Environmental Services Association estimates that waste crime costs the English economy over £600 million annually, with up to £200 million of tax being avoided. At the spring Budget in 2017, the Government announced a consultation on whether to extend the scope of landfill tax to illegal waste sites. Following strong support from industry, the Government confirmed their intention to legislate to extend the scope of landfill tax to illegal waste sites from 1 April 2018. Alongside this, in response to broad industry support in the consultation announced at Budget 2016, the Government are amending the definition of a taxable disposal. That follows a 2008 Court of Appeal ruling that some material received at a landfill site and put to certain uses is not waste, and therefore not taxable. That has created uncertainty about what constitutes a taxable disposal and has led to increased complexity for operators.
The changes being made by this clause will make all persons who are responsible for disposals at illegal waste sites, across the supply chain, jointly and severally liable for the tax. They may also be liable for a penalty of up to 100% of the tax, and in the most severe cases, HMRC will be able to prosecute those involved. In order to address the primary concern raised by stakeholders during the consultation, safeguards have been put in place to ensure that any genuinely innocent parties will not be liable for the tax. The clause will give industry certainty about what constitutes a taxable disposal. Currently, material is considered to be waste if certain criteria apply. The changes made by this clause will remove the waste criteria; instead, all material disposed of at a landfill site will be treated as taxable waste unless it is specifically covered by an exception.
To simplify the system further, we are also removing the requirement to notify HMRC of restoration activities undertaken at a landfill site. These changes will support the legitimate waste management industry by simplifying the tax system and providing clarity for landfill operators.
Let me turn briefly to new clause 15, tabled by Opposition Members. This would require the Government to commission a review of these changes within three months of the passing of this Act. A full assessment of the impacts of this measure was published in September 2017. At that time, the Government assessed that the measure would increase the cost of the illegal disposal of waste at unauthorised sites and incentivise the disposal of waste at legal—and more environmentally friendly—waste management operations. Following this, the Office for Budget Responsibility published an assessment of the revenue impact of the changes; £145 million is expected over the five years following implementation. Those impacts were assessed with the full support of the waste industry, and after further contributions from the Environment Agency.
Information about landfill tax revenues and the volume of disposals is publically available. HMRC publishes its landfill tax receipts twice yearly. The Environment Agency publishes additional information annually about disposals at permitted sites and the number of illegal waste sites in England. As such, the Government’s view is that the proposed review is unnecessary. I therefore commend the clause to the Committee.
Peter Dowd
The clause amends the Finance Act 1996 to include disposals at sites without an environmental tax disposal permit within the charge to landfill tax.
I would like to declare an interest. My hon. Friend the Member for Liverpool, Walton, will appreciate this; it is not to do with landfill tax, but it is important to give some context. We have a huge dock complex in my constituency. On several occasions in the past couple of years, the scrap metal kept there has gone up in flames, and it has taken days and huge amounts of public resource to get the fire under control. We have had many discussions with the organisations concerned, although that is not landfill. A fire at an illegal waste transfer centre in Hawthorne Road—in a residential area—took a week to put out. There were huge plumes of smoke for weeks on end. [Interruption.] That is probably the fire chief now, telling me there is another fire. I hope not. The issue of waste disposal, landfill, and the whole area relating to waste is very important.
The landfill tax was brought in nearly 20 years ago to act as a disincentive to landfilling material, encourage the use of recycled material and incentivise recycling more broadly. The tax is due on material disposed of at landfill sites in England, Wales and Northern Ireland that have an environmental permit or licence for waste disposal.
HMRC collects the tax from the permitted operators of landfill sites based on the weight and type of material landfilled. There are two rates of tax: a standard rate of £86 a tonne, and a lower rate of £2.70 for the least polluting material. The Department for Environment, Food and Rural Affairs and the national environmental protection agencies are responsible for the regulation and enforcement of environmental policy.
I could talk for another hour or two on the issue as it relates to my constituency, but on this occasion, I will spare everybody. Although HMRC is responsible for the administration and collection of the landfill tax, and there are a range of civil and criminal powers to address tax evasion and non-compliance, the question is whether HMRC gets on and does that.
Over the past 20 years of the tax, landfilling has come down by almost 60%, which is a positive achievement for society, but we cannot continue to produce this volume of goods made of materials that vastly outlast the use of the goods. That was the subject of an item on Radio 4 this morning, featuring the chief executive of Iceland. What we are doing is leading to huge accumulations of waste across the land, and the pollution of our ocean, as the recent BBC documentary “Blue Planet” demonstrated so powerfully. It is therefore positive that the Government are extending this disincentive to those operating illegally, to ensure that where enforcement is weak, a further layer of disincentive is put in place.
The Government’s consultation set out the logic of that extension, using the examples of three people who were fined by environmental agencies for illegally dumping 6,000 tonnes of waste. Under the law, they can be fined only through environmental protection levies, which in this case amounted to £170,000. However, if further legislation had been put in place to extend the territories that could be included under the landfill tax, that fine could have been as much as £500,000, plus a penalty of 100% of the tax and interest.
The landfill tax gap—the difference between what is collected and the estimates of what it should be—is £150 million, not including the waste dumped at illegal sites. There is clearly much more to be done to address this problem. Strangely, however, the Government’s impact assessment does not include information on Exchequer impacts of this extended tax. Fortunately, the OBR is here to help, with a prediction that tackling waste crime will raise £30 million in the first year. That will rise to roughly £45 million a year after. Will the Minister explain why the OBR believes that this measure will recoup only a third of the revenue that the Government estimate is missing? I am sure he will have the figures available, even if not today. As far as I can see, it does not seem a particularly good return on investment.
Peter Dowd
Fine. The point I am trying to make is that landfill capacity across the UK has decreased from thousands of sites, with only about 50 sites predicted to be in operation by 2020. Although we have talked about the period of time that our proposed reviews should cover, it is crucial that this one takes place not once, but regularly. The issue is serious, as I have set out.
Crucially, regional capacity also varies greatly, and the Government are not tackling that. This review will help us to identify the differences in a systematic way. For example, Kent is likely to have no landfill sites at all by 2021, according to SUEZ, which suggests that the Department for Environment, Food and Rural Affairs does not have the resources to look at its concerns. Perhaps if the tax was sent in the right direction, the Department would have the capacity. Although it is not his Department, I ask the Financial Secretary what contingency planning DEFRA has put in place in case the record on recycling worsens. It is important that the suggestion of a review is taken into account.
This proposal extends charges to illegal landfill. Illegal landfill will only increase if we begin to produce more waste than our capacity can handle. How does the Minister plan to deal with excess waste that surpasses our current capacity? He may want to pass that question on to one of his hon. Friends. Under the Prime Minister’s plan, by of which year will the UK end the use of landfill completely? How are we going to keep tabs on that, and what systematic process will we use? If we use the same methodology that the Chancellor used to get the deficit down, we will all be pushing up daisies by the time it is sorted. We hope that the clause will ensure that landfill waste falls, across both permitted and illegal sites, but the Government seem to be unable to tell us exactly how much landfill will be diverted into ecologically sound management as a result. Perhaps the Minister can enlighten us about those projections.
That is why we have tabled a new clause that is designed to establish how much revenue this measure will generate, as well as to measure the behavioural impact that it sets out to achieve. Our suggested review would look at the impact of extending landfill tax on the volume of disposals at both permitted and illegal sites. Alongside that, we believe it is important to measure the impact on the prevalence of illegal sites, as well as the amount of waste disposed at them. Everybody on the Committee recognises the importance of consigning landfill to the dustbin of history. To do so would deliver unquantifiable ecological effects and would, we hope, form part of a new respect shown by our society for the environment on which we rely.
Extending taxation to illegal sites will deliver a reduction in landfill, and it can therefore only be a good thing. I commend the Financial Secretary for introducing this measure. It is all the more important that the Government monitor and assess the impact of the measure, as well as investing revenue to ensure that it is enforced. We hope that all Members present today will support our review, in the name of good governance, to ensure that the UK continues to take steps towards no longer producing damaging and unnecessary landfill.
Mel Stride
I thank the hon. Member for Bootle for commending us for introducing this measure. Many of his remarks were fairly wide-ranging, and I think he recognised that some of them—for example, those concerning the amount of landfill that we have available and what our plans for it might be—related to other Departments. I hope that he will indulge me when I say that on those issues, it might be better for him to go direct to the Departments concerned.
Peter Dowd
I take your exhortation to keep things as tight as possible, Mr Owen, but there are occasions—I have asked the Minister about this—on which Departments really ought to work closely together to ensure that we have the balance right. That is difficult sometimes when we are doing something specific and technical. Nevertheless, I am sure he will agree that it is important to be able to bring other factors into the equation and get a proper bigger picture.
The Chair
I am grateful. Before the Minister proceeds, as both hon. Members have agreed that this is outside the remit of the Bill, I ask them both to confine their remarks to the Bill.
Mel Stride
The hon. Lady raised the issue of the potential substitution effect in individuals trying to avoid the priced-in tax on cigarettes by purchasing illegal cigarettes, which might increase the amount of illegal trade. I can tell her that tacking illicit tobacco is a key priority for the Government. Since 2000 the UK has adopted a strategic approach, with a wide range of policy and operational responses, in collaboration with other enforcement agencies in the UK and overseas. That effort has achieved a long-term reducing trend in the illicit tobacco market, despite duty rates increasing substantially over the same period. The percentage tax gap for cigarettes was reduced from 22% to 15% and for hand-rolling tobacco from 61% to 28%, so there appears to be some evidence that the substitution effect, or the increase in illicit tobacco coming into the country, is not quite as sensitive to some of the tax rises as one might instinctively imagine.
The hon. Lady asked what other measures the Government are engaged in to try to reduce smoking. As I have said, we are committed to reducing the prevalence of smoking through our tobacco control delivery plan 2017 to 2022, which also provides the framework for robust and ongoing policy evaluation. The plan sets out ambitious objectives to reduce smoking prevalence, including reducing the number of 15-year-olds who regularly smoke from 8% to 3% or less, reducing smoking among adults in England from 15.5% to 12% or less, reducing the inequality gap in smoking prevalence between those in routine and manual occupations and the general population—that touches on her point about the potentially regressive nature of tobacco tax—and reducing the prevalence of smoking in pregnancy from 10.5% to 6% or less.
We will of course continue to keep those measures under constant review. In fact, tobacco and smoking is one of the areas of public policy on which Governments of all colours have placed particular emphasis. There is a huge amount of scrutiny in that area and we will continue in that vein.
Question put and agreed to.
Clause 45 accordingly ordered to stand part of the Bill.
Clause 46
Power to enter premises and inspect goods
Peter Dowd
I beg to move amendment 60, in clause 46, page 40, line 18, at end insert—
“(9A) The powers under subsections (1) to (6) of this section are not available in any case where—
(a) information has been provided on oath by an officer in accordance with section 161A(1) of the Customs and Excise Management Act 1979 (power to enter premises: search warrant) and a justice of the peace has not issued a warrant in consequence, or
(b) an officer could reasonably have been expected to seek a warrant in accordance with the provisions of that section of that Act.”
This amendment provides that the powers to enter premises and search goods may not be exercised in cases where a warrant to search premises in relation to goods subject to forfeiture has been sought and refused or where such a warrant could reasonably be sought.
The Chair
With this it will be convenient to discuss the following:
Clause 46 stand part.
Clause 47 stand part.
Peter Dowd
As I said earlier, the Opposition are well aware that we need serious measures to tackle VAT evasion in this country. A National Audit Office report published in 2017 revealed:
“HM Revenue & Customs (HMRC) estimates that online VAT fraud and error cost between £1 billion and £1.5 billion in lost tax revenue”.
I referred to that figure earlier, but no one is certain that it is accurate. I also referred earlier to the fact that 14.5% of sales in Britain in 2016 took place online. I reaffirm what I said pretty unambiguously in my earlier speech: the number of online sales is growing and growing, so it is essential that we get to grips with VAT evasion. The picture has the potential to become more complex, depending on our direction of travel in relation to Europe.
We are absolutely clear that evasion is not acceptable and must be clamped down on. The National Audit Office report highlighted:
“UK trader groups believe the problem is widespread, and that some of the biggest online sellers of particular products, such as mobile phone accessories, are not charging VAT”
at all. It is therefore important that robust action is taken to address the issue before it creates an even bigger tax gap. We have already discussed the potential for that in clause 38, where we think the Government need to take a different approach.
That said, we have serious concerns over the scope of clause 46 in relation to that issue. The clause seems to give HMRC officials pretty wide-ranging and almost uncurbed powers to enter premises and search vehicles and vessels. There might be a civil rights issue regarding that power, and, as a result, the rules might be open to significant abuse. Although it is clear that action must be taken to tackle tax avoidance, we are worried that not enough thought and consideration are being given to the potential impact of the new powers. Indeed, this is evident in the Government’s own tax information and impact note on the measure, which was published just a couple of years ago, on 5 December 2016.
The delay here is notable, as this piece of legislation was originally intended for last year’s Finance Bill. It was postponed because of the general election and failed to appear in the Ways and Means resolutions once the Bill resurfaced. We have tabled an amendment to add a much-needed layer of security and protection for individual rights, while giving officers what they need to pursue suspicious vehicles or vessels and search buildings as necessary. As a result of our amendment, those actions would not be permitted if they did not satisfy the conditions usually needed for a search warrant. That would at least provide some judicial oversight and security for a procedure that could give HMRC and, potentially, other agencies carte blanche—I am not saying that they would do this—to abuse powers with no recourse.
Mel Stride
I thank the hon. Gentleman for his contribution and observations. Clause 46, as he pointed out, extends HMRC’s existing powers, allowing it to examine goods thoroughly away from ports, airports and other approved places that are under customs control. The power is expected to be exercised mainly in situations in which goods have been mis-declared at import and thus the correct amount of duty has not been paid.
Under their current legislative powers, HMRC officers working inland and post clearance are not permitted to examine and take account of customs goods; that includes opening, marking, weighing, loading and unloading them. Under section 24 of the Finance Act 1994, a customs officer has the power to enter the premises of a business that contains goods subject to customs duty, and to inspect those goods. That means that if there is reasonable cause to think that there has been a violation of customs law, an officer is only allowed to pick up and inspect goods visible at those premises. Today, HMRC officers often investigate sophisticated frauds involving customs goods, the majority of which are at inland premises and not within the confines of approved places such as ports and airports. It is therefore essential that officers are empowered not only to enter and inspect, but to examine and take account of goods.
The changes made by clause 46 will extend officers’ powers to examine goods thoroughly post clearance, inland, where a customs offence is suspected. The power covers all customs offences, but current operational experience suggests it will be largely used where goods have been mis-declared at import. The clause will enable officers to examine and take account of goods found on premises. It will allow the officer to mark, move, open or unpack goods or containers, or require a relevant person to provide assistance that is reasonable for the purpose of examining the goods. As the search power is for the purpose of searching containers, boxes and so on and not the premises, a warrant is not needed.
Amendment 60 seeks to deny HMRC those powers in cases where a search warrant has been sought and refused, or where a warrant could reasonably be sought. The purpose of entry under section 24 will be to carry out compliance checks, which will include examining goods to ensure they comply with any paperwork. That cannot be done effectively under the current power, because it only allows the inspection of goods.
Section 24 is not—and is not intended to be—a substitute for seeking a warrant. A warrant will be used when there is a need to enter and search a building or place where there are reasonable grounds to suspect the presence of forfeitable goods. A warrant also grants the power to force open doors and windows and open any obstruction. Unlike section 24, warrants can be used outside of business hours. If a warrant to enter and search a building or place was required and refused, the amendment could not be used to gain access.
We are amending these customs powers to ensure they work effectively, not as a means of unduly expanding customs power. At the moment, officers can merely pick up goods that are immediately visible to them, but on some occasions that is not enough. For example, to ensure that the contents of a box correspond to the relevant paperwork, it is necessary to be able to look inside the box and examine the goods. Under section 24, all visits are strictly regulated. They must be carried out during business hours, and most visits will be pre-booked, routine compliance visits. Officers currently receive training in how to conduct visits, which includes the legal basis and powers available to them. In addition, stringent rules, safeguards and guidance place limitations on an officer’s powers, ensuring that they are used proportionately and only where necessary. That will be updated when the measure is introduced.
The measure will extend the powers available to officers when visiting premises where there are customs goods. It will allow them to take account and examine goods thoroughly, making operational duties more effective. I therefore commend the clause to the Committee.
Peter Dowd
We take the Minister’s reassurances and explanation at face value. I am sure he will appreciate that, from that our side, the civil liberties issues are absolutely crucial. We will not be pressing the amendment to a vote but, given the civil liberties issues, we will be keeping a very close watch on the matter. I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 46 ordered to stand part of the Bill.
Clause 47 ordered to stand part of the Bill.
Clause 48
CO2 emissions figures etc
Peter Dowd
I beg to move amendment 61, in clause 48, page 42, line 15, leave out from “effect” to end of line 16 and insert
“from the date on which the Chancellor of the Exchequer lays before the House of Commons a report of the review carried out under subsection (13).
(13) A review under this subsection shall consider the appropriateness of the use of the New European Driving Cycle methodology for calculating carbon dioxide emissions for the purposes of the provisions amended by this section.
(14) A review under subsection (13) shall also consider the effects if carbon dioxide emissions were to be calculated for the purposes of the provisions amended by this section using the Worldwide harmonized Light-duty vehicles Test Procedure including
(a) the effects on the operation of those provisions,
(b) the revenue effects, and
(c) the effects on progress towards the Government’s targets for reducing carbon dioxide emissions.”
This amendment requires a pre-commencement review of the appropriateness of the current regime for calculating carbon dioxide emissions and the effects of a change to the WLTP procedure.
Peter Dowd
As we move towards the denouement of today’s proceedings, I thank you for your chairmanship, Sir Roger. The formalities will ensue later on, no doubt.
Clause 48 is designed to ensure that a car’s carbon dioxide emissions for the purpose of the Income Tax (Earnings and Pensions) Act 2003 and the Vehicle Excise and Registration Act 1994 will remain based on the existing testing regime known as the new European driving cycle. I hope that that is not the cycle we were referring to earlier. This is a Government clarification, following the introduction of a new regime for calculating CO2 emissions that is called worldwide harmonised light-duty vehicles test procedures, or WLTP.
I always welcome clarifications, as the Minister well knows. This clause specifically relates to the car benefit charge and car fuel benefit charge, which are duties paid by motorists and employers who provide and use company cars. Those charges are calculated using CO2 emission figures published by a car’s manufacturer. Higher emission vehicles are subject to higher charges than are vehicles with a smaller environmental footprint.
We need to examine the implications of the clause quite closely, especially in the light of the Government’s recent interest in the environment. I expect, as I alluded to earlier, that that is an attempt to enamour young people, and so far they have not taken the bait. This clause, which attempts to demonstrate the Prime Minister’s commitment to environmental protection, demonstrates that that commitment is not as deep as it could be. Before we examine the particulars, it is useful to reflect on the reason why the EU developed new emissions testing procedures—the WLTP and the real driving emissions test—which the Government are effectively suggesting we ignore.
In September 2015, the automotive sector was plunged into crisis when the Volkswagen Group admitted that it had installed defeat device software in 11 million vehicles that had been sold across the globe. The implications of that still rumble on. It was a clear case of corporate deception, in which vehicles were mis-sold using information that suggested that their environmental footprint was smaller than it was. The Transport Committee’s report into the scandal described how it
“brought the integrity of the auto sector into disrepute”
and “led to confusion”.
The same report points out, however, that although the case was one of corporate deception, it was also a matter of regulatory failure. The automotive sector is a large part of the UK’s manufacturing base, accounting for nearly £7 billion of turnover and more than £15 billion of value added, and roughly 1 million people are employed in the industry across the UK. It is clearly an important part of the economy, and that is all the more reason to ensure that it is properly regulated and trusted by the British public. I know that the Minister will completely agree with that.
The Transport Committee suggested, however, that regulators have known for years that the test used to measure emissions—the very same new European driving cycle test that the Government suggest we should continue to rely on—is unfit for purpose. The test was introduced in the 1990s and, in the words of the Select Committee, it
“has become unrepresentative of modern vehicle technology and real-world driving.”
Under the NEDC, testing takes place under laboratory conditions that are not reflective of real-world driving where, for example, speed and temperature differ.
You may be wondering, Mr Owen, why the specifics of emissions testing should be of concern to Members. One reason is that the evidence around the impact of car emissions on public health is stark. A growing body of evidence shows that nitrogen oxides are a significant hazard to human health. They can increase the risk of heart attacks, strokes and low birth weight, and they can aggravate a number of other lung and pulmonary conditions. According to the Department for Environment, Food and Rural Affairs, nitrogen oxides contribute to 23,500 deaths a year. That is why it is so vital that we get testing right and strengthen enforcement to ensure that a corporate deception akin to the Volkswagen scandal can never happen again.
Indeed, the European Union developed the new emissions testing framework as a direct response to some car manufacturers’ bad behaviour with regard to emissions testing. It is therefore odd that the Government should choose to stick to the old system for the purposes of taxation. The question is: why do they seek to do that? My assumption is that they know that taxing emissions on the basis of the new testing procedures will increase the level of taxation being applied through the car benefit charge and the car fuel benefit charge.
The Transport Committee report to which I made reference suggested that the Government should publish information explaining how vehicles tested under the WLTP compare with those tested under the new European driving cycle. Is that information in the public domain? Can the Minister confirm whether the Department has assessed the effects on the Exchequer of using the new testing regimes to calculate the amount of tax due, and can he set out the results of those assessments in due course?
My office made contact with the International Council on Clean Transportation Europe, which identified VW’s deception in 2015 and passed the information on to the United States Environmental Protection Agency. The council was clear that the type approval carbon dioxide emission values are expected to be about 20% higher under the new WLTP test than under the NEDC testing procedure, which the Government are suggesting that we stick to. The council said that that was due to a more dynamic speed profile, a more realistic vehicle test mass, lower ambient temperature and other conditions that reflect more closely typical real-world driving conditions.
However, the council informed my office that the political consideration has already been made regarding the jump in emissions figures through the testing regime, and that adjustment has been made to ensure that only three quarters of any increase in emissions will be counted. Can the Minister explain whether the Government have considered a similar compromise in the taxation being applied to emissions—one that recognises that the new tests are a better reflection of the actual emissions being produced, but that does not penalise those paying the car benefit charge and the car fuel benefit charge to the full amount?
Mel Stride
Clause 48 confirms that for vehicle excise duty and company car tax purposes, the data for a car’s CO2 emissions will continue to be based on the new European driving cycle, or NEDC. As the hon. Gentleman says, NEDC, which is the current testing methodology for producing definitive car emissions values, is being replaced by a new lab test, known as the worldwide harmonised light vehicles test procedure, or WLTP, which is designed to be more representative of normal driving behaviour. For example, it contains more accelerating/decelerating and includes variable-speed driving. At the autumn Budget, it was announced that the Government will transition the tax system to using these improved readings from April 2020. The announcement was made now to give notice to drivers and the industry.
The Government will discuss with the industry next year whether the current CO2 band thresholds in VED and CCT are appropriate. In the interim, this clause clarifies that vehicle taxes will continue to use NEDC values until April 2020. The hon. Member for Bootle asked why we could not use the real-world driving emissions test in the interim. It is used as a complement to lab tests, to check whether cars produce similar emission values on the road as in the laboratory. We could not use the RDE as the primary basis for saving tax bands, because that is not how these tests work; they would not allow us to compare two cars on a like-for-like basis. The changes made by the clause will ensure that drivers’ tax rates are unaffected for vehicle excise duty, company car tax and fuel benefit charges.
Let me turn to amendment 61, which proposes that the Chancellor review the appropriateness of the NEDC regime prior to the clause commencing, and the effects of the change to the WLTP on the Government’s targets for reducing carbon dioxide emissions and on revenue.
I appreciate that Opposition Members want to ensure that the Government continually review the appropriateness of their policies for reducing carbon emissions. However, delaying the commencement of the clause to review the appropriateness of NEDC would be inappropriate, as it would mean that the Driver and Vehicle Licensing Agency and HMRC would not have clarity about which emissions figures they should use to set tax rates for vehicles. For clarity, I reiterate that NEDC is the established methodology for calculating CO2 values.
Clause 48 is designed to clarify the law. Since September, manufacturers seeking type approvals for new cars have been required to show two different CO2 readings for their vehicles—one produced under the new WLTP test and another consistent with the current NEDC test. We cannot use both numbers for tax purposes. Therefore, to avoid confusion, the clause makes it clear that the DVLA and HMRC will continue to assign tax bands using the current NEDC procedure.
The Government will transition the tax system to the new WLTP test from April 2020. That transition period gives the Government time to consider, in consultation with industry, what the effects of the new system will be and whether the band thresholds remain appropriate in the context of recorded WLTP results. We are actively discussing that topic with industry, and we will announce our decisions at the Budget in the usual way. On that basis, I believe that the amendment is unnecessary, and I ask the hon. Member for Bootle to withdraw it.
Peter Dowd
Again, I appreciate what the Minister has said about keeping this under review, and about the 2020 date. We will keep looking closely at this issue, but on that basis, I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 48 ordered to stand part of the Bill.
Clauses 49 and 50 ordered to stand part of the Bill.
The Chair
I am conscious of the television monitor, as there may be a Division in the Chamber at any time. When it is called, we will suspend for 15 minutes if there is one vote, and for an additional 10 minutes for each vote thereafter.
New Clause 1
Review of retrospective VAT refunds for the Scottish Fire and Rescue Service and the Scottish Police Authority
‘(1) Within one month of this Act receiving Royal Assent, the Chancellor of the Exchequer shall commission a review of the potential consequences of allowing the Scottish Fire and Rescue Service and the Scottish Police Authority to claim VAT refunds under section 33 of VATA 1994 retrospective to the date of their establishment.
(2) The review shall consider—
(a) the administrative consequences of allowing retrospective claims, and
(b) the impact on revenue of allowing retrospective claims.
(3) The Chancellor of the Exchequer shall lay the report of this review before the House of Commons within six months of this Act receiving Royal Assent.’—(Kirsty Blackman.)
This new clause would require the Chancellor of the Exchequer to commission a review into what the potential consequences of allowing the Scottish Fire and Rescue Service and the Scottish Police Authority to make retrospective claims for VAT refunds would be.
Brought up, and read the First time.
Question put, That the clause be read a Second time.
Mel Stride
As is traditional on such occasions, I will say a few words about the Committee. I thank everybody who has participated in what has been a full and robust debate at every stage. I particularly thank the Opposition Front Benchers for their contributions and the good humour and levity that has been on display at various points in our proceedings.
I thank the hon. Member for Bootle for his frequent biblical and literary allusions, his classical quotations—a few of which I actually understood, but they were impressive none the less. We concede on this side that there were no Marxist mumblings, for which we were very grateful. At one point, he compared the Labour party to John the Baptist, but then accepted that that did not end very well. We were grateful for his contributions.
I thank the hon. Member for Oxford East for her forensic examination of all issues. It is agreed by popular acclaim, and by Members on both sides of the Committee, that that was impressive to say the least. When serving with her on a particularly memorable Statutory Instrument Committee, I was horrified to discover that she had digested in microscopic detail not only the treaty that we were discussing, but its forerunner as well, and she was able to draw on that experience in our exchanges.
I thank the hon. Member for Aberdeen North, who is not in her place, for her thoughtful contributions and the gentle but firm and persistent way in which she pursued the points that mattered to her.
It is fair to say that we have spent much time together—especially today, what with Treasury questions and the Committee. We have statutory instruments to look forward to, and we will also be engaged in considering the customs Bill. I hope that we do not forget sharing these golden moments. When we retire and Parliament disappears into the dim distance, perhaps we will have some kind of revival band and go out on the road to share our highlights of these occasions with the general public, like a band of ancient rockers who just keep going. Of course, the highlight of all highlights will be the story about the dead dog and the bicycle, which will never fade from our memories.
More seriously, Mr Owen, I thank you and Sir Roger very much for having chaired the Committee with such good humour, patience and impartiality; of course, we take that for granted. I thank the Whips as well. Having served as a Whip, I know how hard they work. They do not often receive much glory, but we are grateful to them for having kept things running so smoothly that the Committee is finishing early.
I thank Back Benchers on both sides of the room for their contributions—some were very good contributions, and there was a wealth of contributions from Members on our side of the Committee—which were gratefully received. I thank the Committee Clerks, Hansard and the Doorkeepers for their good service. I also thank all those who provided evidence to the Committee earlier on.
Almost last but certainly not least, I thank my officials at HMRC and at the Treasury: Dom Curran, Rachel Crade, Harry Pearse, George Houghton and Hugo Popplewell from my private office, all of whom have served and looked after me with great efforts, and to great effect. Finally, I thank parliamentary counsel, with whom I have struggled on this third Finance Bill of the last 12 months. Until we meet again, Mr Owen, thank you very much.
Peter Dowd
I would like to mirror everything that the Minister has said. It is not goodbye but au revoir, as far as I can gather. I thank you, Mr Owen, all Members who have participated, the Minister for his assiduous answers to questions—some of which I never asked—and all my colleagues. I also want to thank my staff and my colleagues’ staff, who have worked hard behind the scenes, while we have taken the credit.
The Chair
May I echo what both Front Benchers have said? I thank the House staff and the Clerks for the support that they have given us throughout proceedings on the Bill.
Question put and agreed to.
Bill, as amended, accordingly to be reported.