Draft Asian Infrastructure Investment Bank (Immunities and Privileges) Order 2015
(8 years, 6 months ago)
General CommitteesRead Full debate Read Hansard Text Read Debate Ministerial Extracts
The Parliamentary Under-Secretary of State for Foreign and Commonwealth Affairs (James Duddridge)
I beg to move,
That the Committee has considered the draft Asian Infrastructure Investment Bank (Immunities and Privileges) Order 2015.
It is a pleasure to serve under your chairmanship, Mr Gapes. The order was laid before the House on 12 October 2015. It gives authority for immunities, privileges, reliefs and exemptions to the new international organisation—the Asian Infrastructure Investment Bank—under the International Organisations Act 1968. Before I go into the detail of the order, I will set out some context with a few words about the bank and its links with the Government’s prosperity objectives.
The fast-growing markets of the emerging economies are becoming increasingly important to global trade, to British businesses generally, and to our values in the United Kingdom. The United Kingdom must, therefore, continue to play a significant role in developing the markets, as well as the global economy. Equally, we must expand into areas where we are economically under-represented. China is at the heart of some of that activity. The recent state visit by the Chinese President demonstrated the scale of the opportunities that lie in deeper co-operation between our two nations, and a key component of opportunity and growth in Asia is, and will continue to be, infrastructure. Satisfying that need is vital not only for driving growth but for increasing living standards across the region. It will benefit the whole global economy, creating new jobs, including for British business.
The UK has expertise in areas ranging from green investment, infrastructure and engineering to accountancy, finance and project management. Key to enabling effective support for infrastructure development in the region is ensuring that the Asian Infrastructure Investment Bank is well established as a high-quality and functioning international organisation, and that is why the UK has taken on such a strong role in supporting it. Our announcement in March of our desire to become a founding member was the first of any major western country. Germany, France and many others have now followed.
Richard Graham (Gloucester) (Con)
Does my hon. Friend agree that our early decision to become a member of the bank shows that our commitment to contributing to the economic development of more than 50 countries across Asia is strong? Does he also agree that that can only be good for British business in Asia, supports engagement with China, allows us to share our considerable experience across the region and is widely supported by business here?
James Duddridge
I could not agree more. Before coming to this place, my hon. Friend established a great tradition of working in that area, and he continues to leverage his expertise as a member of all-party parliamentary groups. I urge him to continue to do that, through his involvement with the fledgling development bank.
The order is part of the UK’s ratification process, and provides the privileges and immunities that will enable the bank to function as an international organisation in this country. It is part of the requirements laid out in the articles of agreement signed by the UK Treasury’s Commercial Secretary in June and is in line with the requirements of other international organisations of which we are a member.
Mr Gareth Thomas (Harrow West) (Lab/Co-op)
I apologise for the discourtesy of missing the Minister’s opening remarks. He mentioned other multilateral development banks. How does he see the new bank operating with the Asian Development Bank? One would think, instinctively, that there was some overlap or, if not, that there would be some sort of memorandum of understanding between the two. Does the Minister envisage that?
James Duddridge
I certainly envisage their working closely together, but equally closely with other international development banks, such as the European Bank for Reconstruction and Development, the African Development Bank and, to a lesser degree, the World Bank, which has a slightly different context and structure in relation to the order. There are plenty of development opportunities in the region and beyond, and I encourage all development banks and all Development Ministers across the world to work together. That is where the greatest rewards are, rather than in operating solely individually. Fundamentally, it is about operating collectively.
Mr Thomas
The Minister is aware that Mr Jin Liqun was appointed as the secretary-general of the multilateral interim secretariat of the new bank. Was Britain consulted on the appointment? Is it a genuinely interim one and, if so, will Britain be involved in the interviews for the permanent head of the bank?
James Duddridge
I cannot speak for the appointment process as part of the draft order. I am just setting out the basis on which those people will be employed. However, I am more than happy to look at the matter, if it is exercising the hon. Gentleman—as it appears to be doing. In relation to the draft order, I have made the comments that I wish to make and I therefore commend it to the Committee.
Catherine West (Hornsey and Wood Green) (Lab)
It is an honour to serve on the Committee under your chairmanship, Mr Gapes. I thank you for the opportunity to speak.
I welcome the strengthening of relations between China and the UK and see some merit in swiftly setting up this investment organisation. We agree that the UK’s commitment to the AIIB is a positive step to strengthen multilateral relations globally and to open investment opportunities for the UK. That said, I hope that the Government will take into account some of the opinions expressed in Committee to ensure that the UK’s commitment to the bank is based on a sound economic case that takes full account of social and environmental concerns and, importantly, delivers a fair and good deal for UK taxpayers and the local populations affected by the bank’s investment schemes.
I do not doubt the spirit in which the AIIB was set up, but I echo the concerns of my hon. Friend the Member for Feltham and Heston (Seema Malhotra) that there must be an assurance such that, when funds are invested in infrastructure schemes, those projects serve the interests of the populations affected by them. That is particularly important for projects in areas with high prevalence of poverty. The Labour party has a proud history of commitment to international development. I hope that the Minister will confirm that the UK’s investment in the bank represents a genuine commitment to international development, and is not simply a down payment for membership of a club.
The next issue is on the need for a multilateral response to climate change and environmental protection. It is welcome that clear efforts have been made to ensure environmental and social standards and the sustainability of the bank’s operation through the launch of a consultation process and the dossier subsequently produced, entitled “Environmental and Social Framework”, but concerns have been expressed that that policy-making process has occurred rapidly and narrowly. Rayyan Hassan, director of the non-governmental organisation Forum, based in Manila, commented that the bank’s environmental protection consultation wanted
“the entire world to comment on AIIB’s $100 billion safeguards. And they want to finalize it by December.” Historically, that is a short consultation period.
Given the lack of oversight, transparency has become a recurring theme with such large investment organisations. Has the Minister raised the issue directly with the AIIB secretariat? If so, will the Committee have the opportunity to scrutinise any representations made? Given that the UK has committed £2 billion to the AIIB, I hope that the Minister shares my view that it is vital for his Department to ensure that it is delivering a good deal for public-funded projects, especially given the Government agenda of austerity.
As a newly launched organisation, it is important for the bank to be able to integrate into existing global economic and political structures, working in collaboration with global stakeholders. The point made by my hon. Friend the Member for Harrow West was that we must not collaborate only with the World Bank, the IMF, the EU, ASEAN, the UN and so on. Will the Minister explain the exact mechanisms for how we, as a member of the investment bank, will operate in parallel to those organisations? How will he assure us that operations will be co-ordinated with and complementary to those existing organisations, rather than duplicative?
George Kerevan (East Lothian) (SNP)
There is much merit in the project, as others have said, and in the UK having an early involvement in it. In order for the project to fulfil its potential, however, we have to recognise some conflicts of interest, or at least potential ones. The Minister, in his reply to the hon. Member for Harrow West, was not clear enough about his or the Government’s response to that.
The Asian Development Bank, which has been in existence since the 1960s and of which we are a significant member, is funded or capitalised largely from Japan and, in its heyday, was seen mainly as a vehicle for Japan to invest across wider Asia in a positive way. However, it is at least conceivable that in setting up the new Asian Infrastructure Investment Bank the Chinese Government are setting up a rival to the Asian Development Bank, which might get the new bank caught up in the manifest tensions between the Governments of China and Japan in recent years. There is room for more than one bank and China investing some $50 billion to capitalise the project is positive, but it must not become a political football. We need assurances from the Minister that the British Government will use their good offices, even behind the scenes, to ensure that that happens.
The Chinese Government’s explanation for why they are setting up the new bank ties very much to President Xi’s project of a new silk road to strengthen the infrastructure and transport links between Asia and Europe. That is an excellent idea, but those links must not simply end in Germany; they must also reach the UK. What strategy or vision do the Government have to ensure that the bank plays its part in extending the new silk road to the UK?
I do not make my final point tongue in cheek, but the Minister perhaps ought to have words with the Treasury, because it is of course trying to sell off our own Green Investment Bank on the ground that capitalising it will limit the Government’s ability to reduce the deficit. In the same breath as selling a successful green bank which has achieved infrastructure investment in the UK in just the areas we have been discussing, however, the Treasury is providing virtually the same kind of money to be the British contribution to the AIIB. My constituents might find such priorities a little odd—we are closing down the green bank, which has its headquarters in Edinburgh, on cost and deficit grounds, but we can find the money to invest in an infrastructure bank in Asia. Possibly we can do both—that would be my preference—but I want the Minister to reassure me that the Treasury will not come back next week and decide to pull out of the AIIB on cost grounds.
Mr Graham Allen (Nottingham North) (Lab)
It is a pleasure to serve under your chairmanship, Mr Gapes, as always.
I am delighted to see colleagues with vast experience of international development in Committee—my right hon. Friend the Member for Cynon Valley, my hon. Friend the Member for Harrow West and the right hon. Member for Sutton Coldfield, who was a distinguished Secretary of State. I hope that they will take the chance to talk about the important question of immunities and privileges as far as it extends to the broader remit of what China is trying to achieve in its foreign policy goals, which we appear to be swallowing, sometimes without taking too much time to see what it is that we are swallowing.
Immunities and privileges are important in that regard. I do not want us to become the Chancellor’s version of an eastern powerhouse. We will be putting about £2 billion into the bank. Will there be a return domestically, in the countries that will benefit from the projects, and in our own UK economy? Will we get representation? Will the immunities and privileges in the draft statutory instrument be sufficient to safeguard the British interest? That is my anxiety about the helter-skelter speed at which some things are being done politically—though we all wish the Chancellor well, because we all wish Britain well when we enter such engagements—and at the parliamentary level. You know better than anyone, Mr Gapes, that such things need proper, careful, steady scrutiny. We ought sometimes perhaps to take a leaf out of the Chinese book. If things took several years to come to fruition, we would be able to understand them in much more depth. Many people, even in the House, are totally unaware of what the bank will do and how it will fit with existing institutions. If we asked the man and the woman in the street about the Asian Infrastructure Investment Bank, they would not have a clue what we were talking about, yet we are going to cast £2 billion into that bank.
One of the good things, and one reason why I am interested in hearing the former Secretary of State’s comments, is that the institution is still a moveable feast. We have seen a number of changes, even in the past six months, in the Chinese position, in respect of, for example, the representation and stakeholding, and what the functions of such an investment bank might be. I wonder whether the former Secretary of State in his private moments, or perhaps even in a pubic moment today, might ask about the impact of the bank, and of Chinese economic and foreign policy, on our overall strategy for international development and for helping people in difficulties—abroad, of course, but also in our own country. I will not stray into nuclear power or the demise of the steel industry because you would rightly call me to order, Mr Gapes.
The other people who have raised warning flags are our good allies across the water, in the United States. They have asked a number of questions and we have consequently seen movement on the Chinese side. The Chinese have not said, “No, we’re not going to listen. It’s this or nothing else.” In such a negotiation, it is wise to play it long and keep a number of other things on the table. We have to develop international institutions, particularly with our friends and partners in China and India, but we need to ensure, rather like the Prime Minister is trying to do in Brussels, that the shopping list is not a closed one but one that can benefit from interaction and negotiation.
Over several months, the United States has, in an unusual way, flagged up rather clearly—in terms of our international friendship—some of its anxieties about our being a little too eager to chase after the Chinese dragon and accommodate its demands rather than to hold out and strike a tougher dealer. It is not good enough to say, “We’re going to let China come in. We’re going to trade with China.” We need to be clear about what that means. It has implications for the immunities and privileges we are talking about. For example, are the privileges and immunities granted to staff members of the World Bank identical to those granted by the order? Are we duplicating the facilities of the World Bank and many other international institutions? Was the establishment of the institution an attempt to create a counterpart to the World Bank? Perhaps we have seen that one off for the moment, but I do not get the sense that the Government are particularly clear about what they wish to do in that regard.
Regarding the immunities granted to people who will serve the institution, we also need to be clear that they do not give carte blanche to operate exploitative relationships, particularly with people who endure difficult working conditions. There is a lobby today about the Trade Union Bill. There may well be places where there are no trade unions and where workers are exploited, and we need to ensure that the people who run the institution take that into account. Who are those people? Are they representative? Will they give infrastructure resource to other countries to help them to develop with one hand, while encouraging practices that we would all condemn with the other hand? The people at the top of the organisation need to be aware of and clear about the need to develop these institutions on a much fairer basis.
Mr Thomas
My hon. Friend makes an important point, not least because the history of Chinese infrastructure aid to many developing countries, important as it has undoubtedly been, has often involved Chinese labourers effectively being imported into the country where the infrastructure is being built as a quid pro quo for the investment. Surely we need to ensure that that cannot be achieved as part of the investment we are potentially committing to this bank.
Mr Allen
That is why this particular statutory instrument is very important. The shareholders, stakeholders and staff of this institution who are going to enjoy the immunities and privileges being granted to them by this statutory instrument need to be on full alert that this is not an attempt to just co-operate and to maximise the exploitation of the people working in various parts of Asia covered by the institution.
Richard Graham
Does the hon. Gentleman agree that the concerns he and the hon. Member for Harrow West have raised actually form part of the rationale as to why the United Kingdom should be involved? This is effectively a membership club, and the more members there are in the club who are like ourselves, France or Germany, the more likely we are to be able to exercise influence in how this infrastructure is invested to the benefit of the countries and the populations of those countries.
Mr Allen
The hon. Gentleman makes a wise point. There is always a balance between engagement and, in a sense, pushing away from countries in an attempt to penalise them for particular practices. We have all been through this in so many different fields with so many different nations, but here we have the chance for a lever. I am arguing, and my hon. Friend the Member for Harrow West argued very clearly, that we need to use those levers. We can still do that now because, as we have seen, China has retreated from its position of having a majority shareholding in this institution. It said at one point that no other non-Asian nations should be involved in this.
There is still flex and there is still time to manoeuvre. If we are too aggressive in our amorous approaches to China, they could take us for granted. They need a negotiating partner with a harder edge to move some of the broader ideas that we all share across the House on international development. We should not waste this opportunity by rushing too hastily to a conclusion. The hon. Member for Gloucester makes an excellent point: this could set a precedent for how we negotiate other things internationally. I do not want to go too far—
Mr Allen
In terms of the immunities and privileges we are talking about, those sorts of idea could be associated with things such as the international regulation of banks themselves, so that we have a global response and reaction. This could be a start in terms of ensuring that workers’ rights are respected. You will call me to order for mentioning this, Mr Gapes, but perhaps even the Robin Hood tax that many people have spoken about—
Mr Allen
So with your guidance and advice, Mr Gapes, I would like the Minister to respond to the question of whether there is still time and flexibility—as we have proven in the past six months—to negotiate slightly more firmly than we have apparently done in the past three or four weeks. We are being asked to deliver virtually anything and sign a blank cheque, which, I think, would be bad for our country. Above all, it would send a bad signal to those around the globe who look to Britain to stand up for workers’ rights and oppose gross exploitation of the sort that we have sometimes seen in Chinese businesses. The negotiations give us the opportunity to take the moral and ethical high ground, which we have not fully taken advantage of.
Mr Thomas
The people of Harrow West have always been interested in multilateral development banks, and they will certainly be interested in this new addition to the family. I want to pick up where my hon. Friend the Member for Nottingham North left off. One recognises the global Realpolitik that has clearly influenced the Prime Minister’s enthusiasm for contributing to this new bank, but one hopes that the Minister and his colleagues in the Department for International Development will, as my hon. Friend suggested, start to ask much tougher questions than those that the Minister suggested in the part of his opening remarks that I was able to hear are being asked.
Multilateral development banks have always been a cosy club. The Americans always get to pick the head of the World Bank; the Europeans always get to pick the head of the European Bank for Reconstruction and Development; and it is usually a Japanese national who gets chosen to be the head of the Asian Development Bank. There is therefore a sense that this new multilateral development bank is on the horizon partly because the Chinese want their own bank that they can control. That suspicion is fed by the appointment of Mr Jin Liqun, who seems to be the de facto chief executive of the new bank. I look to the Minister to give a fuller answer on whether he is there for a short or a long period, whether there will be interviews and whether Britain will be on the interview panel.
There is usually a series of vice-presidents to handle particular parts of a multilateral development bank’s portfolio. It would be good to hear a bit more about the structure of the proposed bank. Will there be a series of vice-presidents? Which countries does the Minister expect will provide the heads of the bank? Is this perhaps an opportunity for another Member from Nottingham to take up a position in the international development world? Is there a chance for Britain to hold one of the vice-presidencies of the new bank, given our significant contribution?
On staffing, given the scale of the spending that this multilateral development bank will presumably be able to make—very large sums of money will be committed to very large infrastructure projects—what will be the governance arrangements for those projects? Will Britain have a dedicated official and a team to support them, as we do at the World Bank and the Asian Development Bank, who will be able to go through the fine print of each proposed investment and pick through whether the environmental and social safeguards that the bank eventually signs up to are met in full?
Will there be a process by which Britain and others can raise human rights concerns, if there are any, about particular infrastructure projects? I ask that in the context of Sri Lanka, a country that certainly needs significant multilateral investment—the Chinese have been showing considerable interest in providing that—but where significant human rights concerns remain, particularly in the north and the east. It would be a tragedy if British investment in the new bank was inadvertently to reinforce through infrastructure spending the denial of human rights to particular groups in Sri Lanka.
Mr Allen
I am not sure whether my hon. Friend was seeking to nominate me for some sort of position in the bank when he mentioned a Member for Nottingham who could keep an eye on things, but modesty would forbid me from accepting such a role. There is a Member of Parliament for Nottinghamshire—the right hon. Member for Sutton Coldfield—who is eminently qualified to defend the interests of working people, as he ably did when he was the Secretary of State for International Development. He is too modest to get to his feet and acknowledge that, but he is in the Committee. Perhaps the Minister might think carefully about how we safeguard people in that position, because we have seen recently—
The Chair
Order. This is an intervention, not a speech. I would be grateful if the hon. Gentleman brought his remarks to a close.
Mr Thomas
I am grateful for my hon. Friend pointing out to me that Sutton Coldfield is slightly further away from Nottingham than I had initially realised. Being from London, we are sometimes a bit hazy about the distances between constituencies north of Watford. Indeed, the right hon. Member for Sutton Coldfield might be an excellent potential vice-president if the Foreign Office was willing to fight for him to get such a post. Perhaps the first thing would be to know whether Britain will have a chance of nominating one of the deputies or vice-presidents to that role.
As I was alluding to, some of the commentary about the new bank has pointed out that its byelaws require a 75% super-majority for major decisions. That will effectively give China a de facto veto on personnel and policy decisions. It would be helpful to know whether that commentary, which was issued at the end of June this year, is still accurate, or whether there have been changes to the byelaws. It would be a concern if we were simply to pump money into the organisation with the Chinese having a veto over all the big decisions, particularly if we had significant concerns about spending going forward.
The previous Labour Government were pushing for reform of the processes for appointing the heads of multilateral development banks. I do not know whether the right hon. Gentleman carried on that work, but it would be good to hear from him on that subject.
The Committee and the whole House are entitled to hear what reassurance the Minister can give us on this crucial matter. Sadly, there was often little opportunity in the House to debate the work of the multilateral development banks. All too often, debate took place only when major funding decisions were being announced. Can the Minister set out whether there will be a change in that regard? Given that it is a new institution, early scrutiny on the Floor of the House might be important.
Finally, the AIIB released draft environmental and social safeguards. A series of NGOs have expressed concern about those safeguards, and it would be useful to hear from the Minister whether Britain has taken any of them up and whether there have been any reforms of and improvements to the draft guidelines.
Mr Andrew Mitchell (Sutton Coldfield) (Con)
It is a pleasure to appear before you, Mr Gapes; I think that it is for the first time.
It is also, of course, a pleasure to welcome the Minister back to his place. While he has been away, I think a DFID Minister has been covering for him, and many of us would have expected this debate to have been conducted by a DFID Minister. It may well be that such is the synchronicity between the Foreign Office and DFID these days that he has been filling in for the Minister of State, Department for International Development, my right hon. Friend the Member for New Forest West (Mr Swayne), who I had expected to see here.
I will just make a couple of points, tempted and seduced as I have been by the hon. Member for Nottingham North, with whom I have sparred and indeed co-operated over the last 30 years, since we entered the House, although in my case I have broken service through an enforced sabbatical.
On the point made by the hon. Member for Harrow West, it is important to note that the appointment of Mr Jin Liqun, which many of us have welcomed, is an operating matter for the bank, and the role of Britain as a core and founder investor in the bank will be set out clearly in the shareholders’ agreement, as it is with the other development banks, in which, as the hon. Gentleman will know very well, Britain takes a leading part. That will be what determines whether or not Britain was consulted. However, the reasons why my right hon. Friend the Chancellor decided—rather bravely, I think—to be an early investor in the bank are absolutely the right ones, because this is clearly going to be a major feature on the development landscape. Britain has skills and advantages to bring to the table of what I hope will be one of the most successful of the international development banks.
It is no secret that in the developing world there was irritation when Jim Kim was appointed as head of the World Bank. That was not because there is anything wrong with Jim Kim—he is an excellent leader of the bank—but because it was not open to international meritorious competition. As has already been alluded to, it was part of the stitch-up that means that the Americans appoint the president of the World Bank and the Europeans appoint the president of the IMF. We need to move beyond that now. I cannot reveal the workings of Government over the appointment, but the hon. Member for Harrow West may be certain that there was considerable discussion about that appointment. There was an outstanding deputy head of the World Bank, Ngozi Okonjo-Iweala, who was a candidate, and we need to move beyond that old deal and ensure that the next head of the World Bank is appointed by a full, meritorious trawl of everyone who is available, so that that particular concern is removed.
The Minister is absolutely right to express Britain’s strong support for this bank. It will be part of the architecture from which the poorest people in the world will increasingly benefit, as the work of all these development banks becomes more directly attuned to that core purpose. I very much hope that the Committee will welcome the decision by Britain to be part of this bank. It is part of Britain’s leadership on international development, and it is most welcome on that account.
Ann Clwyd (Cynon Valley) (Lab)
It is a pleasure to speak under your chairmanship, Mr Gapes. Normally, we are on another Committee together, but I am very pleased to see you on this one.
I have one or two questions for the Minister. Paragraph 7.5 of the explanatory memorandum says:
“Her Majesty’s Treasury has policy responsibility for the Bank.”
I would like him to explain what “policy responsibility” means.
Paragraph 7 of the explanatory memorandum says that
“the Bank will focus largely on investment in infrastructure sectors such as transport, energy and water across members of the bank from that region.”
I notice that one of the countries that have already signed the agreement—one of the 57 prospective founder members—is Myanmar. One thinks of the needs within Myanmar, particularly the needs of people such as the Rohingya, who are being persecuted in that country, and whether they will be considered when infrastructure investments are made in transport, energy and water. If policy responsibility means influencing decision making, as I assume it does, I would be interested to hear the Minister’s plans.
James Duddridge
First, in summarising the debate, I thank my hon. Friend the Member for Sutton Coldfield for his comments.
James Duddridge
I am terribly sorry to have insulted my right hon. Friend so early in my speech. I apologise profusely. He suggested that I should be working closely with the Department for International Development, which I certainly am. Today I stand here as a Foreign Office Minister with responsibility for protocol. However, I would like to work much more closely across a number of subjects with my right hon. Friend the Member for Welwyn Hatfield (Grant Shapps), who kindly deputised for me when I was ill for much of the last year.
I will try to deal with all the points that have been raised in this debate in broad themes. I will touch on individual points, mentioning individual Members, as and when. A number of Members brought up social and environmental issues, and the UK has been involved in discussions on those subjects from an early stage. The UK has encouraged the bank, and members of the bank, to consult widely, and Her Majesty’s Government have specifically had discussions with NGOs—those discussions will continue—on how the bank will operate and on the bank’s standards on social and environmental issues. There have not been specific discussions on the projects that the right hon. Member for Cynon Valley mentioned, but there are wide-ranging discussions encompassing all the issues, including human rights.
The hon. Member for Harrow West asked about the interim appointment. I confirm that Britain was consulted on that, and an election is expected for the full-time appointment. He probed me further on governance more generally, and I confirm that there will be 12 non- resident board members. How they will fit geographically, and the areas they will cover, are still being negotiated. Additionally, there will be a number of vice-presidents, but I remind him that a lot of these development banks have many members—in this case, there are already 57 members. However, Britain is well placed, given the Chancellor of the Exchequer’s early entry.
The policy lead will be through Her Majesty’s Treasury—this issue has been raised by a number of Members—and we will maintain a strong influence, but the exact positions both of the non-executive board and of the vice-presidents are still to be negotiated. However, I note that both in the time of the hon. Member for Harrow West and in current times we have strong experience of multilateral development, and we are well placed to assist the bank.
Mr Thomas
Is the Minister aware of any non-Chinese candidates for the permanent position heading the bank? Why does the Treasury have the policy lead? Given that DFID has responsibility for multilateral development banks, why has this particular bank been taken out of its control?
James Duddridge
The bank has not been taken out of anyone’s control. The Chancellor has been close to this work, which is perhaps why it is a Treasury lead. I have not been involved, so I am not aware of specific candidates in the longer term. As Minister with responsibility for protocol, I have looked at the governance issue in relation to immunities, privileges, reliefs and exemptions and what that might mean for different individuals.
The question of shareholding gives me an opportunity to address the super-majority. China will have the largest share capital, which translates to a voter shareholding of 26.1%, so the hon. Gentleman is right in his assertion that there is a blocking super-majority. However, the combined shareholding of non-regional members is higher than the Chinese holding, at 26.7%. In relation to the Asian Development Bank, I understand that there is an ongoing discussion about a memorandum of understanding between the two banks.
The hon. Member for East Lothian raised some concerns about the Japanese, and subsequently the hon. Member for Nottingham North raised similar issues about the US position in relation to this bank. The US was initially sceptical but it would be fair to say that its tone has softened over recent months, particularly after the recent Chinese state visit. The US acknowledged the contribution that this new bank could make. It is very much not a zero-sum arrangement. This will be a beneficial addition to the piece.
Richard Graham
The Minister makes a number of important points about the governance of the new AIIB. Is there an opportunity for this new bank to be headquartered in Hong Kong, which has the advantage of Chinese sovereignty and the strong rule of law that might give it the credentials needed to play an important part in infrastructure developments across Asia?
James Duddridge
The point of the order is to lay the foundations for the bank to operate across our jurisdiction in the UK, rather than to draw reference to where it might have other headquarters or regional headquarters.
James Duddridge
I cannot immediately confirm the location. However, if I am inspired later in my speech, I will clarify that point for the hon. Gentleman. Other hon. Members raised the issue of trade unions and the exploitation of workers. Specifically, labour rights have been and continue to be considered as part of the environmental and social standards that are being negotiated.
In relation to questions from the hon. Member for Nottingham North about the man in the street—clearly the people of west Harrow are better educated on multilaterals than those elsewhere—I gently suggest that perhaps the man on the street or the man on the Clapham omnibus would not know about the intricate workings of the European Bank for Reconstruction and Development or the African Development Bank, which are two similar institutions that do great work.
I said that I would return to the hon. Member for Harrow West on the location of the headquarters. Evidently, the location has already been decided to be Beijing.
The hon. Member for Nottingham North asked about the speed at which we should move. We have moved quickly and we did that deliberately to co-ordinate with an opportunity. The Chancellor has been a visionary in that regard, which will be good for the region and for the UK.
Question put and agreed to.
Resolved,
That the Committee has considered the draft Asian Infrastructure Investment Bank (Immunities and Privileges) Order 2015.
DRAFT Representation of the People (England and Wales) (Amendment) (No. 2) Regulations 2015
Draft Representation of The People (Scotland) (Amendment) (No. 2) Regulations 2015
(8 years, 6 months ago)
General CommitteesRead Full debate Read Hansard Text Read Debate Ministerial Extracts
The Parliamentary Secretary, Cabinet Office (John Penrose)
I beg to move,
That the Committee has considered the draft Representation of the People (England and Wales) (Amendment) (No. 2) Regulations 2015.
The Chair
With this it will be convenient to consider the draft Representation of the People (Scotland) (Amendment) (No. 2) Regulations 2015. I will ask the Minister to speak to both the instruments. At the end of the debate, I will put the question on the first motion and ask the Minister to move the remaining motion formally.
Tommy Sheppard (Edinburgh East) (SNP)
On a point of order, Mr Hamilton. I am in favour of discussing both statutory instruments together; it is commendably efficient, and I support both of them. However, under the amendment to the Standing Orders made last week concerning English votes for English laws, is it appropriate for me, as a Scottish Member, to participate in a decision about statutory instruments pertaining to England and Wales?
The Chair
I am advised that the changes have not had any effect on delegated legislation Committees thus far, so every Member is entitled to vote on every delegated legislation Committee for the time being—and, of course, we are debating an amendment for Scotland as well.
John Penrose
It is a pleasure to have you looking after us today, Mr Hamilton. I reassure the hon. Member for Edinburgh East that he is not only welcome but entitled to speak and vote on this secondary legislation.
The Committee will be aware that individual electoral registration, or IER, was successfully introduced last year, enabling for the first time people in Great Britain to apply online to register to vote. Since then, nearly 12 million people have applied to register under IER, three quarters of whom have applied online. I recently spoke at Policy Exchange about the vision for future electoral registration, maximising opportunities for a complete and accurate register, and ensuring that as many of our citizens as possible can participate in our democracy. People rightly expect digital services to be built around them, and we want to do that, making the system as efficient as possible while driving down costs. The regulations are a modest step towards that future.
The regulations will remove the requirement on applicants for electoral registration to provide their previous name if it has changed in the past 12 months. Instead, they allow applicants to provide their most recent previous name if they wish; it is no longer mandatory. The Electoral Commission is required, when designing the application form, to provide a space for non-mandatory provision of the most recent previous name, and an explanation of the fact that if previous name details are not provided, additional personal information may be required to verify the application.
Secondly, the instruments make changes to the correspondence required to be sent by electoral registration officers to electors and applicants for electoral registration. Thirdly, the regulations update the electoral register application form and the annual canvass form to bring them in line with changes made by the Criminal Justice and Courts Act 2015 to the jury summoning age in England and Wales, to ensure that the correct information for jury summoning is collected on the electoral register. They also authorise electoral registration officers in England and Wales to inspect marriage records in order to improve the accuracy and completeness of the electoral register. Finally, the regulations make a minor, consequential amendment relating to the provision of personal identifiers for postal voting.
The changes are relatively minor and technical and, I hope, are therefore relatively straightforward. I do not propose going into huge amounts of detail at this stage, although I am obviously happy to answer any questions that Committee members have. I commend the regulations to the Committee.
Wayne David (Caerphilly) (Lab)
It is a pleasure to serve under your chairmanship, Mr Hamilton. The amendments in the regulations, although relatively straightforward and modest, are important, and I would like to put a few points to the Minister and hear his response. Generally, we are supportive of the changes; we think that they make practical, good sense. I also welcome the fact that there appears to have been a wide measure of co-operation, co-ordination and advice given and taken by the Government.
I am particularly pleased that there appears to have been a fruitful co-ordination with transgender organisations, which expressed concern about the Government’s initial suggestions. Is the new formulation that the Minister is presenting in the regulations acceptable to the transgender organisations that initially made representations of concern?
My second question to the Minister arises from the concerns expressed by the Electoral Commission. As we unfortunately saw during the efforts to bring forward the date of IER’s full implementation, the Government do not always take on board the Electoral Commission’s advice, even though it is well-meaning and well-founded in fact, but it seems that on this occasion at least, the Government have taken on board the commission’s worries. I would like to press him slightly on that.
I understand that the Electoral Commission made three observations, to which the Government have responded. The first concern was about the suggestion that no formal communication need be issued where the ERO has determined that someone has ceased to satisfy conditions for registration. I am slightly concerned about that. I understand the Government’s desire to reduce bureaucracy and paperwork, but clarification is necessary.
Another concern was that when there are formal objections to a registration application, the objector will not be informed of the result of their objection. That is a little strange. There cannot be that many objections by individuals or organisations to people being on the electoral register; they should be informed of the outcome of deliberations, especially if they have been involved in the hearing. The Electoral Commission has other concerns, but I would respect the Minister if he could give clarification of what he has said to the Electoral Commission on those points.
The situation in Scotland might be dealt with separately, but it makes sense to raise it at this point in our discussion. The Scottish Government have expressed concerns that apply to both the English and Welsh situation, as well as the Scottish situation.
The Chair
May I clarify something for the shadow Minister? We are taking both the regulations together, so we are discussing the relationship to Scotland as well as to England and Wales. Scotland is highly relevant.
Wayne David
Thank you, Mr Hamilton. I have a general request for clarification from the Minister. A large number of measures regarding electoral arrangements are devolved to the Scottish Government. Has the Sewel convention been put into effect here? If it is necessary for whatever reason—perhaps to maintain a degree of uniformity and coherence—for the UK Government to make legislation applying to the Scottish Government, was a formal submission made by the Scottish Government under the Sewel convention? That is a general point.
On the detail of the proposals before us, will the Minister respond to two points made by the Scottish Government about both sets of regulations? The first concerns a need expressed by the Scottish Assessors Association and the Electoral Management Board for Scotland, bodies with which I am not particularly familiar. They made the point, echoed by the Scottish Government, that they are slightly concerned about the need to reduce communication, and about the stipulation that those who have made submissions expressing concern about people being on the electoral register will not be informed of the result of deliberations.
The Scottish Parliament had a more general concern that the Government were perhaps putting fiscal constraints and the need to save money ahead of the need for clarity and as much straightforwardness in the process as possible. I read carefully what the Scottish Government wrote, and I detected concerns—perhaps not explicit—that the Government in London are passing measures, not wholly warranted, that smack a little of penny pinching, rather than enhancing democracy. I would appreciate it if the Minister responded to those points. Provided that his responses are satisfactory—I see no reason why they should not be—Labour Members will not oppose them.
John Penrose
I will endeavour to respond to the points raised by my shadow counterpart, beginning with the question about previous names. He is absolutely right that a number of organisations representing the transgender community were concerned about the impact on transgender people’s willingness or ability to register successfully. We listened carefully to those concerns. There was not unanimous agreement that the accommodation should be made—there were some dissenting voices against it from outside the transgender community—but we decided to go with it, and it has been widely welcomed in the transgender community; I have a long list of organisations with which we consulted in the run-up to the regulations, and broadly speaking, everyone within that community has been pleased. I therefore hope that it will result in higher levels of registration in one of the more difficult-to-reach and less well represented groups on the electoral register.
My shadow counterpart also mentioned that the Electoral Commission provided us with useful advice. He is right that we do not always agree with the Electoral Commission, but we always pay close attention to what it says. In particular, he mentioned its reaction to correspondence on registration. Some Scottish and various other bodies commented as well. The regulations make changes regarding the correspondence that must be sent between electoral registration officers and electors or applicants to be registered. The changes are designed to help reduce the administrative burden on electoral registration officers; the potential for confusion among members of the public, by avoiding multiple pieces of correspondence; and the overall costs of the process of electoral registration.
The regulations amend how EROs can send confirmation of registration to successful applicants, and what information that confirmation must contain. When EROs have conducted a review of an individual’s entitlement to registration, they will require the ERO to notify the individual in writing of the outcome and to provide information about the appeal process. They also require the ERO to send the individual notice in writing of the outcome of a review hearing, and to provide information about any appeal process.
The regulations amend the categories of case in which the ERO does not need to send a letter to any person affected by an alteration to the electoral register. The Government are also taking the opportunity to correct an error in the 2001 regulations about personal identifiers for absent voters. I hope that that clarifies where we have gone in the regulations. It is all relatively detailed, but I hope that it shows that we have been paying attention to many of the comments made and responses to the consultation.
Finally, my shadow counterpart asked about the Sewel convention. I am informed that it does not apply specifically in this case. However, as I hope he would expect, we have consulted with the devolved Governments, and Scotland has certainly indicated that it is happy with the regulations, so we have proceeded on that basis. I hope that that answers the hon. Gentleman’s questions, and that we can move to what I hope is a widely supported approval of the measures.
Question put and agreed to.
DRAFT REPRESENTATION OF THE PEOPLE (SCOTLAND) (AMENDMENT) (No. 2) REGULATIONS 2015
Resolved,
That the Committee has considered the draft Representation of the People (Scotland) (Amendment) (No. 2) Regulations 2015.—(John Penrose.)
Common System of VAT (Vouchers)
(8 years, 6 months ago)
General CommitteesRead Full debate Read Hansard Text Read Debate Ministerial Extracts
The Chair
It may be helpful to the Committee if I briefly explain how we intend to run this afternoon’s proceedings. The whole thing must last no longer than two and a half hours. Therefore, we will conclude at 7 pm at the latest. First, a member of the Committee who is also a member of the European Scrutiny Committee may, if he wishes, make a five-minute statement explaining why the European Scrutiny Committee has decided to refer the documents for debate. I understand that Mr Mackinlay intends to do that.
There will then be up to an hour of questions to the Minister who may, if he wishes, start with a brief introductory statement, during which time he may not be intervened upon, rather like a statement to the main Chamber. There is then an hour of questions, which, if I wish, I can extend by a further half hour to make it a total of an hour and a half—as long, it says on my note, as it remains edifying. I hope it will be thoroughly edifying. Finally, the remainder of the two and a half hours that the entire procedure takes up is available for a formal debate of the documents on the basis of the motion that the Minister will, by then, have moved.
The Financial Secretary to the Treasury (Mr David Gauke)
On a point of order, Mr Gray, it was my understanding that the Minister was permitted a 10-minute statement, but I will obviously take your guidance. I am keen to anticipate as many of the questions that the Committee no doubt has as fully as I can in my opening remarks, therefore saving the Committee any trouble. I will be guided by you.
The Chair
Knowing the charm and eloquence in which you habitually engage, I am sure that the Committee would be delighted for you to provide a 10-minute statement. If you ask for it, we could, no doubt, agree to 15 minutes, although I think 10 minutes will do. First, does a member of the European Scrutiny Committee wish to make a brief explanatory statement about why it has referred the documents to this Committee?
Craig Mackinlay (South Thanet) (Con)
It may help the Committee if I take a few moments to explain the background to the document and the reason that the European Scrutiny Committee in the previous Parliament recommended it for debate—it has been some time coming. The 2006 principal VAT directive consolidates the legislation governing VAT in the European Union to ensure smooth operation of the single market and equal treatment for all businesses trading across the EU.
The directive lays down rules to ensure a consistent approach to the questions about how much VAT is charged, when it should be declared and to which tax jurisdiction the tax should be paid. However, vouchers can present difficulties in relation to all those questions. The increase in cross-border use and distribution of vouchers, and the differences in treatment between member states, are some of the main causes of double or, indeed, non-taxation.
In May 2012, the Commission issued the proposal for a directive to amend the principal VAT directive to clarify and harmonise the rules on the VAT treatment of vouchers. The entitlements of the holder of a voucher are typically for goods or services or to receive a discount or a rebate in relation to a sale or a supplier. The issuer assumes an obligation to supply goods or services, to give the discount or to pay the rebate. In defining a voucher that way, the draft directive identifies it as an object in itself that can itself be supplied, meaning that the extensive distribution services in place for vouchers would be subject to VAT.
At the same time, a system for vouchers needs to recognise that, although VAT on any distribution service is captured, there is only one payment for the underlying goods or services for which the voucher acts as evidence of the right to receive. Thus, the draft directive would define supplying of the right to receive as a supply and would have subsequent supply viewed as a single transaction.
Negotiations in the Council of this complex—I think the Committee has gathered that so far—and somewhat technical proposal has been long drawn out. It has not been clear what the final shape of the amending directive might be. Accordingly, the previous European Scrutiny Committee recommended this debate to enable Members to explore the details of the proposed solutions to a complex problem, and the possible consequences for UK businesses. The current Committee endorses that recommendation.
Mr Gauke
It is a great pleasure to serve under your chairmanship, Mr Gray. I thank my hon. Friend the Member for South Thanet for his opening remarks. I am pleased to have the opportunity to discuss the Government’s views on the EU Commission proposal on the VAT treatment of vouchers.
Vouchers in that context are the various types of token, paper and electronic card that we are all familiar with. Examples are book tokens, gift vouchers, luncheon vouchers, electronic in-store cards, mobile phone top-ups and internet-based purchase codes. Some vouchers are issued by the business that will redeem them, whereas others are issued by one business and redeemed by another, with reimbursement made behind the scenes.
The vouchers in question are those where a payment has been made and the voucher represents an entitlement to collect goods or receive services. Sometimes, the payment is made by someone else—a friend or relative, or a business—so the beneficiary may not have made a payment. We often call such vouchers “face value” vouchers, although nowadays the voucher’s value may not be physically written on them, particularly electronic vouchers. Neither discount vouchers nor traditional payment systems are affected by the Commission’s work in this area.
The interaction between “face value” vouchers and VAT systems is complex. EU law has failed to keep up with developments in the sector and developments in technology in particular. As a result, rules in member states differ considerably, which has led to many instances of double and non-taxation, and businesses find it difficult to trade vouchers across borders.
The key problem with vouchers is knowing how much VAT to charge. Generally we expect VAT to be charged when a payment is made. That works fine for CD tokens, for example, but for some gift vouchers no one knows how much VAT to charge until they are used to buy something, because almost all retailers sell goods subject to a variety of VAT rates.
The simple answer might be to apply VAT when the voucher is redeemed but, when a voucher is sold through a distributor, the retailer will sell it at a price below its face value to enable the distributor to take a cut. Therefore, the amount the customer pays is often different from what the redeemer receives. As a result, it can be difficult to identify the correct tax base. If we tax all distribution and redemption at the VAT standard rate, we end up collecting too much VAT.
Last year, the UK retail voucher market was worth about £5 billion. UK business leads the EU in developing such opportunities to facilitate business promotion. In the single market, we need harmonised VAT rules to permit effective cross-border voucher distribution. To trade effectively, businesses need rules that are consistent and easy to understand. The current rules for vouchers do not provide that. Each member state seems to have a different set of complex rules that businesses have to learn. Such differences also lead to double or non-taxation. The Government therefore support the initiative to identify some common VAT rules for vouchers.
On the specific details, the Commission’s proposal puts “face value” vouchers into two distinct groups: single-purpose vouchers and multi-purpose vouchers. SPVs are vouchers for which the information needed to apply tax is known when the voucher is issued, such as a CD token. MPVs are the more complex type of vouchers, such as a gift voucher, where the tax cannot be applied at the outset because it is not known what goods or services will be supplied until the voucher is used.
There is general agreement among member states that VAT on SPVs should be charged as if the sale of the voucher is the sale of the underlying goods and services that will be supplied when the voucher is used in the shop. VAT is therefore collected at each stage of distribution. That is how we currently treat SPVs and we fully support the work achieved in respect of them.
It has proved much harder, however, to determine the correct VAT treatment for MPVs. The Commission’s initial scheme was rejected by member states because it was too confusing and unpopular with businesses, who would have had to have shown their margins. Instead, member states examined alternatives. The solution on the table would require the shop to account for VAT on the face value as a default, but would allow the use of the actual payment details where they are known.
The Government are inclined to support that approach because, in the majority of cases, it would ensure that the correct amount of VAT was paid. It is also the approach taken in the UK with many MPVs. Although we think the issue is manageable, there would be an impact on some high street retailers where vouchers are issued and redeemed by the same party, particularly where the distribution is undertaken by intermediaries acting in their own names. We think that that will impact on about 6% of vouchers sold, but the businesses mostly affected will be the half dozen or so large high street chains.
Those few large high street retailers would probably want to adapt their systems. They already account for VAT using a special scheme. They might wish to renegotiate their arrangements with distributors so that they share the burden of collecting VAT more equally. The new scheme allows for businesses to make adjustments where the correct amount of VAT is known. It is also possible for the adversely affected retailers to change their arrangements with intermediary businesses to make it easier for them to identify the correct amount of VAT. We do not think that private consumers would pay any more VAT under the revised approach.
As I have explained in my letter to the Committee, we hope to make some changes before final agreement. Although the Government are minded to agree the revised approach to collecting VAT on sales involving vouchers, there is one aspect that we are keen to discuss with other member states: the VAT incurred by intermediaries that buy and sell vouchers in their own name and that will not, under the current text, be entitled to deduct the VAT on their costs. However, those charging a commission will be able to deduct the VAT incurred on costs, and one can imagine the practical impact of that as one person being able to deduct the VAT on the costs of his van while another could not. We believe that the intermediaries that sell vouchers should be treated as a special case so that their tax position is the same as other intermediaries, and we are continuing to press for those changes to the text.
Finally, having examined many possibilities for changes to the VAT rules, the majority of EU member states agree that the text on the table offers the best compromise against a background of it being impossible to please all businesses if we seek a common rule to avoid double and non-taxation. At the same time, most member states will have to accept at least some changes to their existing rules. Eleven member states agree with us on VAT deductions for certain distributors, as does the Commission. The only exception to that general common position is Germany, which has recently argued the need to distinguish tickets from vouchers for reasons of absolute clarity. We see that as an unnecessary level of detail and note that no other member state has supported Germany on that point. Tickets are outside this area of work, but are treated under VAT rules in the same way as SPVs. We hope that, if all member states can agree the text, Germany will be persuaded that the advantages of agreement outweigh its concerns.
I have set out the broad state of play on the Commission’s proposal on vouchers. Working groups are continuing in Brussels, and we expect that the matter may come to ECOFIN next year. With those remarks, I look forward to any questions from the Committee.
The Chair
With the Minister having explained the matter so clearly, we have an hour for questions. I remind Members that they should be brief and, crucially, include a question. At my discretion, they can ask supplementaries, if they wish.
Rob Marris (Wolverhampton South West) (Lab)
It is a pleasure to serve under your chairmanship, Mr Gray. In past years, you and I have spent many years working constructively, I think, together in this room.
The area is particularly complex. I hope the Minister will confirm whether I have understood the proposal correctly—it is quite possible that I have not—but when we boil it down, it is that single-purpose vouchers would be subject to VAT when they are issued and multi-purpose vouchers would be subject to VAT when they are redeemed. That is what I pick up from the papers. Incidentally, the papers are one of the few places outside church where one hears the word “redeemer” used.
Rob Marris
I understand that the Commission considered four options. One, perhaps unusually for the Commission, was to do nothing. One was what it is pleased to call—I confess that this is a new one on me—the “soft law” approach, which most people would call guidelines. Another was to legislate, and the fourth option was a ban. Which of those four—to do nothing, the guidelines, to legislate or a ban—was the preferred option of Her Majesty’s Government?
Mr Gauke
The first of the UK Government’s objectives was to address a level of inconsistency and confusion that exists under the status quo, so we were not in favour of the do-nothing approach. Equally, we see vouchers as having a role to play. Within the UK, we have one of the bigger markets, as one might expect—although it is perhaps bigger than one would expect based on the proportion of our economy. We would not therefore favour banning vouchers; that would be a very draconian approach.
To get the type of clarity that we think we need, we concluded that guidelines would not be sufficiently strong. Therefore, of the four options, we favour legislating and hope that we can reach agreement among all member states so that the Commission’s proposals can go forward in a legislative form, although, as I said, we have highlighted a couple of areas where we think they can be improved on.
Geraint Davies (Swansea West) (Lab/Co-op)
In the case of multi-purpose vouchers that are issued, for example, in Britain but redeemed in Germany, what account is the Exchequer taking of changes in exchange rates, in terms of the tax take?
Mr Gauke
The hon. Gentleman raises an important point. The reason why we think we need to make progress in this area is that, in itself, this area is complex. When one takes into account the potential cross-border nature of transactions, the need for greater clarity becomes all the more important.
If we want to facilitate cross-border trade—as the Government do, and there is cross-party consensus on that—addressing the VAT treatment of vouchers is an important factor. I have set out the principles of how the Government think that this should work; if we are looking at MPVs, the measure should apply at the end of the transaction as such. That principle would apply, notwithstanding any changes in the exchange rate.
Geraint Davies
In the case of a voucher worth €1when it was originally issued, but €1.20 or €0.80 when it was redeemed, would there be any bearing on the tax situation? Presumably if the voucher is redeemed in Germany, the tax is paid in Germany, is it not?
Mr Gauke
In terms of the principle, if the supply is in Germany, the voucher is subject to German VAT, for example. The exchange rate is essentially not an issue here; the issue is the VAT payable at the point of the transaction, which, in the case of MPVs, is at the end of the process, as it were—at the final point in the shop. That is the rate of VAT that has to be paid.
Geraint Davies
To put it simply, let us say that somebody had a pack of 240 PG tips with a 50p voucher on it and they redeemed that in Germany. Although perhaps it would not be accepted at all, if it was, the amount would be translated into euros and the tax would be paid on it, so it would have a different value than anticipated. I am asking whether that poses any problems.
Rob Marris
I have two further questions, if I may. As the Minister is aware, article 30a—I think it is a draft—defines “voucher”. It defines “single-purpose vouchers”, “multi-purpose vouchers” and “discount vouchers”. Are Her Majesty’s Government satisfied with those definitions?
Rob Marris
As the Minister said, this is a matter of considerable complexity. Were the proposals to go ahead—with, as the Minister mentioned, some fine tuning—would complexity for business increase or decrease? Which is the likely assessment?
Mr Gauke
It would be fair to say that there is some complexity in the current system because of inconsistency. The hon. Gentleman asks whether the draft directive will disrupt businesses because they will have to deal with a new regime. I would argue that it will not cause major disruption to businesses here. The most likely to be affected would be large, high street chains. High street shops that issue vouchers through distributors to other businesses would be most affected. Those that issue vouchers direct to their customers would be least affected.
Whether a business will be affected significantly will depend on the balance between the two types of operation within the same business. Some high street retailers issue both types of voucher. Some distributors might want to change their business model from buying or selling vouchers to arranging the sale of vouchers. That is quite possible.
Officials have had wide-ranging discussions with UK businesses on the changes. Although there may be some changes and disruption, the general feedback that officials have received from businesses is that they would welcome certainty on the matter in the future. Again, I make the point that, for the first time, VAT law would have a specific provision for VAT treatment of vouchers, which would mean that EU member states would have the same rules, making cross-border trading using vouchers far easier. Businesses would no longer have to set up different systems for different countries.
To give a topical example, the provisions would also make the collection of VAT on mobile phone roaming charges far simpler. The new rules would allow the UK to make changes to our law to make it easier to collect the right amount of tax on what the customer pays when using a voucher. Yes, there will be some disruption to and impact on high street retailers but, on balance, if an agreement can be reached, this is a favourable change.
Craig Mackinlay
To try to put into context the type of transaction that might be caught, I am thinking particularly of business-to-business transactions. I am not quite sure whether there is a voucher, but there must be one somewhere along the line. A reverse charge could come into play for some voucher that represents goods that could be redeemable elsewhere.
The rules for business-to-consumer transactions are obviously different. I would have thought that the most relevant example relates to the new digital services one-stop-shop rules that have applied since 1 January. I am thinking about an Apple iTunes or Google Play voucher, which I assume could be used on a computer in Germany to get a service delivered in Germany. The string of transactions could be complicated, but I am trying to understand how that might work under the scheme. I would assume that the German supplier of an iTunes service—whatever it is—would then be deemed to come under the German one-stop-shop arrangements.
I am also thinking about unusual transactions such as a restaurant discount voucher. Many companies in the UK offer diners the opportunity to join for a certain amount a year what is almost a club that allows a discount in restaurants. That would not cause difficulties in the UK, because I would imagine that joining the club is a chargeable supply, as is actually paying the reduced amount in a restaurant. It is just VAT. However, I am struggling to get my head around how it would work across borders. I am sorry to cause difficulties, but I want to understand how things might work in transactions, which makes the issue rather more important.
Mr Gauke
In part, I would go back to the principles that I set out in my opening remarks. As for business-to-business transactions for promotion purposes, to the extent that the reverse charge applies, that would operate as normal. The one-stop shop referred to by my hon. Friend is for business-to-consumer transactions only. There are some issues relevant to the one-stop shop, but I do not think that anything in particular arises as consequence of VAT on vouchers; the two things stand by themselves. To clarify an earlier remark, discount vouchers, to which the hon. Member for Wolverhampton South West referred, were removed from the proposal by member states, so the measure applies to face-value vouchers only. I hope that that is clear.
Resolved,
That the Committee takes note of European Union Document No. 9926/12 and Addenda 1 and 2, a draft Council Directive amending Directive 2006/112/EC on the common system of value added tax, as regards the treatment of vouchers; welcomes the objective of harmonised VAT rules for vouchers to support a smooth operation of the Single Market and fewer possibilities of double and non-taxation; and further notes that the Government is keen that any solution ensures that the right amount of tax is collected on what the customer pays, in line with the principles of taxation of consumption.—(Mr David Gauke.)