Lord Lucas
To ask Her Majesty’s Government whether they have assessed the cost to the Exchequer of Low Value Consignment Relief.
The Commercial Secretary to the Treasury (Lord Sassoon)
My Lords, the latest estimate of the annual cost to the Exchequer of low-value consignment relief is £130 million for calendar year 2010, a reduction from the previous estimate of £140 million for fiscal year 2009-10.
Lord Lucas
My Lords, I am grateful to my noble friend for that Answer, which I find mildly unbelievable since the turnover of the largest company involved in this scam is around £500 million—and that is just one of them—on which we lose around £100 million a year. Does my noble friend agree that what started out as a quite reasonable relief for Channel Islands flower growers has now been abused to the point where it has destroyed whole industries in the UK? You can no longer on the internet retail records, computer memory, contact lenses or gifts. It is ever expanding and costing us thousands of jobs and, as the Minister says, hundreds of millions of pounds. Has not the time come to put a stop to it?
Lord Sassoon
My Lords, there is a very wide range of estimates of the effect of LVCR but I believe that the HMRC data are as reliable as—more reliable than—any. I am grateful to my noble friend for drawing attention to this issue because the Government are committed to tackling tax avoidance. In that context, we are actively reviewing the operation of this relief. Ministers hope to be in a position to announce any possible changes to the operation of LVCR flowing from the review in the Budget on 23 March.
Baroness Trumpington
I am sure that I have missed out on something, but could the noble Lord possibly tell me what it means?
Lord Sassoon
My Lords, I have to say that, until a few days ago, I was equally in the dark. I shall try to keep it within the seven minutes.
There is a scheme in European law to make sure that small-value goods imported from outside the European Union can be exempted from value added tax, because it would be disproportionate and a huge cost to consumers and businesses if every small parcel bought from outside the EU had to be scrutinised by the Royal Mail and VAT collected. So there is an exemption under European law for individual consignments up to the value of €22 or £20. At the moment the UK has a limit of £18, below which VAT on imports is not collected. I hope that that explains it.
Lord Newby
My Lords, will the Minister accept that while at one level it sounds a rather frivolous subject, we are talking about more than 90 per cent of all CD sales in the UK? It has had a damaging impact on retailers and is another example of the Channel Islands being able to benefit from a tax scam. Will he take back to his colleagues in the Treasury the view of many Members of your Lordships’ House that this is a classic area where a small change in practice by HMRC can yield very many benefits which not only are good in principle but can also be beneficial to the Treasury?
Lord Sassoon
My Lords, I fully accept my noble friend’s statement that this is an important area, which is why the Treasury is looking at it. It flows not from any scam but from the fact that the Channel Islands are treated as outside the European Union for these purposes. That goes back to the accession treaty. The previous Government took steps with the Channel Islands authorities to encourage them to introduce a voluntary restraint and caps on the activities of individual firms in this area. The issue relates not only to CDs and DVDs but to a whole range of goods. It is precisely because this is an important area and we want to make sure that the Exchequer is protected that Ministers are looking at what else we might do.
Lord Davies of Oldham
My Lords, the Minister’s response to his noble friend’s original Question seemed somewhat complacent in respect of the charge sheet of problems associated with this issue. He implied that things are improving, but the noble Lord, Lord Newby, expressed doubt about whether things are improving. I think that the whole House should be doubtful. With online sales increasing at their current levels and with this trade being very much a matter of online sales, it would be very surprising indeed if it was significantly decreasing. Would it not therefore behove the Minister to indicate that the Government intend to act in this area? If it is not an abuse of taxation—if it is not a scam—then it is certainly very close to being an avoidance of tax which we ought to put an end to.
Lord Sassoon
My Lords, I did not want to turn this into a political question; indeed, I attempted to give credit to the previous Government for the actions that they took in conjunction with the Channel Islands authorities. However, the fact is that the VAT loss is estimated to have increased very considerably—by approximately 50 per cent in the past five years—under the previous Government. Members of that Government are now saying that the situation is terrible and we need to take action, but what did they do in the five years in which the amount of revenue lost to the Exchequer increased by 50 per cent? They only talked to the Channel Islands authorities. We have immediately gripped the situation. Ministerial colleagues and HMRC officials are now examining what—in a very difficult and technical area—can be done. If there are things that we believe should be done, they will be announced in the forthcoming Budget.