Taxation (Cross-border Trade) Bill

2nd reading (Hansard): House of Lords & 3rd reading (Hansard): House of Lords & Committee: 1st sitting (Hansard): House of Lords
Tuesday 4th September 2018 Lords Chamber

Second Reading (and remaining stages)

15:20

Moved by

[Lord Bates]

That the Bill be now read a second time.

Relevant Documents: 11th and 32nd Reports from the Delegated Powers Committee

[The Minister of State, Department for International Development (Lord Bates) (Con)]

My Lords, the Government have been clear that, following the UK’s exit from the European Union and its customs union, we intend to secure a deep and special partnership with our nearest trading partner. As we seek to pursue a bold, new and independent international trade policy, the need to avoid friction in trade with the EU will continue to be of the utmost importance. This is one of the underlying principles behind the Government’s proposals set out in the White Paper published on 12 July—to create a UK-EU free trade area that establishes a common rulebook for industrial goods and agricultural products. This will maintain high standards in those areas, but the Government will also ensure that no new changes in the future take place without the approval of Parliament.

As part of our future economic partnership with the EU, the UK will also propose a new customs model with the freedom to strike new trade deals around the world—a facilitated customs arrangement. Under that model, the UK would apply its own tariffs and trade policy for goods intended for the UK, but apply the EU’s tariffs and trade policy for goods intended for the EU. As a result, the need for customs checks and controls between the UK and the EU would be avoided, removing a friction which would otherwise cost UK businesses billions of pounds a year, and avoiding a hard border on the island of Ireland.

The details of the future economic partnership—and, within that, our future customs arrangements—are of course a matter for negotiations with the EU. I turn to those negotiations. We have already published, in the lead-up to the June European Council, a joint statement with the European Commission. It sets out the progress we have made thus far in finalising the text of the withdrawal agreement on the majority of remaining separation issues. We are having constructive discussions and our negotiating teams continue to work at pace to ensure that those are finalised by the autumn.

Of course, it is vital that the UK is prepared for a range of outcomes from the negotiations, and the Government have already taken a great many steps to ensure that this is the case. Indeed, the Bill represents a significant part of those preparations. As set out in the customs Bill White Paper, which noble Lords had the opportunity to debate on 5 December 2017, it allows the UK to establish a new, stand-alone customs regime, and will ensure that VAT and excise legislation operates as required on EU exit. Since the referendum—both before and after the publication of the future partnership paper on 15 August 2017—the Government have met over 300 businesses and other organisations involved in international trade throughout the UK to discuss customs, VAT and excise, and a further 1,700 to discuss wider EU exit issues. This engagement has been taken into careful consideration when drafting the Bill.

The Bill contains a number of provisions that are absolutely essential for any future customs regime to function effectively, regardless of the outcome of the negotiations. These include: enabling the UK to charge import duty on goods, including those imported from the EU, in Clause 1; enabling HMRC to set out how, and in what form, customs declarations should be made, in Schedule 1; giving the UK the freedom to vary the rates of import duty as necessary, and setting out the factors that the Government must have regard to when doing so, in Clause 8; allowing the UK to continue to offer zero or low-tariff access to its markets for less developed countries following EU exit, under its own unilateral preferences scheme, as set out in Schedule 3; together with the Trade Bill, establishing an independent trade remedies regime, set out in Schedules 4 and 5; and providing the power for the UK to maintain existing customs union arrangements with the Channel Islands and the Isle of Man—which we will most certainly seek to do—which is set out in Clause 31.

Moreover, the Bill contains a number of provisions enabling subsequent changes to the VAT and excise regimes, which may later be required but cannot be predicted as this stage, which are set out in Parts 3 and 4. Finally, in Parts 5 and 6 there are a series of necessary and appropriate powers to support the transition from the current customs, VAT and excise regimes and to ensure that the UK is able to respond effectively to the outcome of the negotiations.

Throughout the passage of the Bill through the other place, the Government heard representations from a range of stakeholders, from both within and outside Parliament. In light of these representations, we made a number of amendments to the Bill as it went through the other place. For example, amendments were made following feedback from parliamentarians, including the work of the Delegated Powers and Regulatory Reform Committee, which wanted to ensure that the scrutiny and scope of the Bill’s powers are appropriately balanced, including by “sunsetting” and by applying the affirmative procedure in certain cases. There is also explicit confirmation that the Treasury will have regard to the interests of UK producers when setting any future import duty rates, and changes were made to provide more clarity in the Bill on the operation of the UK’s future trade remedies regime.

The Taxation (Cross-border Trade) Bill is of course not the only piece of EU exit legislation that the House will consider. The European Union (Withdrawal) Act, which completed its passage through Parliament in June, will perform a critical role in ensuring a functioning statute book on the day we leave the European Union. Furthermore, it confirms that it is for this Parliament—and in some cases the devolved legislatures—to make any future changes. The Act will maximise certainty for individuals and businesses as we leave the EU. It is in no one’s interests for there to be a cliff edge, so the laws and rules that we have now will, so far as possible, continue to apply.

Looking forward, the Trade Bill, which will receive its Second Reading before your Lordships’ House next Tuesday, will provide important continuity for UK businesses, workers and consumers, and for our international trading partners. This key legislation serves the purpose of enabling the preservation of the UK’s current trade and investment relationships, while creating necessary legal powers to ensure we are ready to operate independently when we leave the European Union.

Finally—although not exhaustively—the EU withdrawal agreement Bill will be brought forward once the negotiations have been concluded and Parliament has approved a final deal agreed with the EU. The Bill will be an essential part of the UK’s preparations for a smooth and orderly exit from the EU. The Government have already, on 24 July, published a White Paper in advance—Command Paper 9674—entitled Legislating for the Withdrawal Agreement between the United Kingdom and the European Union. It sets out a number of provisions, covering citizens’ rights, the implementation period, the negotiated financial settlement, procedures for the approval and implementation of the withdrawal agreement and a framework for our future relationship. The White Paper gives Parliament time to begin considering the content of the Bill ahead of its introduction, including by providing detail on the substantial areas of agreement that have already been reached with the EU, in particular our deal on citizens’ rights, the financial settlement and the time-limited implementation period.

The Bill before us today takes significant steps to make certain that the UK is ready for EU withdrawal, by allowing the UK to establish a stand-alone customs regime and by ensuring that our VAT and excise legislation operates as required on exit day. As we begin our discussions with the EU on the end state, of which the customs union is a key part, the Government will continue to be guided by the drivers underpinning the proposed model, as set out in the White Paper of 12 July. For this reason, we confidently anticipate a future in which the UK will be able to pursue trade deals with partners across the world and, at the same time, one in which our trade with the EU will remain as frictionless as possible and in which we avoid a hard land border between Northern Ireland and Ireland.

These are also the principles informing the Government’s approach to the Bill, which I commend to the House today. I beg to move.

15:31

Amendment to the Motion

Moved by

[Lord Tunnicliffe]

As an amendment to the motion that the bill be now read a second time, at end to insert “but expresses grave concern that the Government agreed to accept, without detailed Parliamentary scrutiny, substantial measures that contradict both the United Kingdom’s stated negotiating position and commitments already entered into with the European Union; and that the bill introduces additional barriers to securing a United Kingdom–European Union customs union.”

[Lord Tunnicliffe (Lab)]

My Lords, I turn first to the Bill, which will be needed in any sensible Brexit scenario. As a supply Bill, it is not the role of this House to hinder its passage. Nevertheless, it is appropriate to set out the criticisms that we have of this legislation and the context in which we are having this Second Reading debate today.

Once again, as the Government have done in all previous Brexit Bills, powers from Europe are being repatriated, not to Parliament, but to the Executive. Labour opposes those clauses that give the Treasury huge amounts of delegated power to set regulations and future customs duty tariff rates through the back door. Parliament, not the Executive, should have the final say.

Labour supports the creation of a truly independent Trade Remedies Authority to help protect UK industry and advise the Government on how best to tackle the dumping of state-subsidised goods on the UK market. However, the Bill also provides the Secretary of State with a veto to prevent adoption, against the advice of the TRA, if he determines that it is not in either the economic interest or the public interest, both of which remain undefined. Overall, Labour is concerned about the lack of detail in the Bill to protect UK manufacturing and business. The proposals are pitiful, to say the least. They are weaker than those currently in the EU and those in most developed trading nations, and they will put manufacturing jobs at risk.

However, it is to be welcomed that the Government have made a number of concessions to Labour amendments. Of particular note are concessions that strengthen the role of the TRA, introduce sunset clauses for delegated powers and give Parliament a vote on the raising or lowering of import duty and excise duty and on the raising of VAT.

The Government must resource and staff HMRC to guarantee the successful implementation of the new customs and tariff regime. Its staffing levels have been cut by 17% since 2010 and are set to be cut further this year.

I turn now to the White Paper, The Future Relationship between the United Kingdom and the European Union, Command Paper 9593, which is now more popularly known as “Chequers”. Although it represents a move away from the type of proposal advocated by many Tory Brexiteers, the proposals stop well short of the comprehensive customs union that Labour has called for. We believe that, instead of floating a complex and bureaucratic customs fudge, the Government should focus on negotiating a comprehensive customs union for all goods and on securing a proper position for services.

I now turn to my amendment, which in summary is addressed to the amendments tabled by the European Research Group, but let us once again look briefly at the White Paper. Labour cannot endorse it but one has to admit that it is better than nothing. It could conceivably move the process along and it is the first document to acknowledge that compromise is necessary. However, it was two years in the making and it was blown out of the water within a few days of publication. I am referring not to the resignation of two Cabinet members—individuals whose promotion few of us could understand in the first place and whose absence from the Cabinet can only but improve its overall capability—but to the fact that it was torpedoed in this Bill by amendments tabled by members of the ERG.

Let us look first at the two amendments that relate to a customs union. Labour believes that we should seek to negotiate a new, comprehensive UK-EU customs union. For that reason, we were pleased to see Clause 31 in the Bill. Before amendment by the ERG, it provided a potential vehicle to negotiate a customs union. Now, encumbered by Clause 31(5), it will be difficult to use in the frighteningly few weeks left. Add to that the deletion of paragraph 14 of Schedule 8—a power that is essential for a customs union—and the amendments all but cut off this essential area of compromise.

However, the biggest torpedo of them all is new Clause 54. Turning back to the White Paper, its biggest idea is set out in paragraphs 13 to 21 of point 1.2.1 under Chapter 1, starting on page 16. Of particular note is paragraph 17a. In effect, it says to the EU: “We want to be part of your free trade area but set our own overseas tariffs. If our tariffs are less than yours, we will collect your tariffs for goods destined for the EU. We will not, however, expect you to collect our tariffs at your border if they are greater than yours. A simple compromise: we will protect your external tariff regime; we are not asking you to set up a complex system to protect ours”. This compromise, as I said earlier, has been blown out of the water by new Clause 54—an amendment proposed by Priti Patel, Jacob Rees-Mogg et cetera.

The new clause specifies reciprocity. The Government would be allowed to collect EU tariffs at our borders only if the EU were required to collect UK tariffs at its borders. There was only a limited possibility that the EU would accept the White Paper compromise but, burdened with reciprocity, as it now is, I put it to the House that the probability is now negligible.

How did these damaging amendments get into the Bill? Were they introduced in Committee in the other place and carefully debated and scrutinised? No, they were introduced at the last possible moment on Report. Why did they get through? They got through because the Prime Minister gave in to the ERG. A Back-Bench group of Tory Brexiteers now effectively has control of the Brexit negotiations.

That brings me to the sorry performance of Theresa May. I, like many, breathed a sigh of relief when she became Prime Minister—a sigh of relief because the alternatives were Boris Johnson, David Davis or Michael Gove—but her performance has been lamentable. We should not be surprised. She was, after all, the Home Secretary whose actions brought us the present crime wave, the hostile environment and the Windrush scandal. She clearly has no understanding of negotiation. Negotiation is a process whereby two sides explore each other’s positions and motivations to seek common ground as a basis for agreement. It is not, in general, aided by going behind the back of the other side’s nominated representative. Negotiation is a remarkably personal affair where respect and empathy are crucial. Her colleague, Dr Fox, has opined that a no-deal exit is a 60:40 probability. A no-deal exit would be a disaster for all our citizens. If it happens, she will have been responsible for the worst political event of the last 45 years.

I do not intend to divide the House on my amendment. Success would have no effect and would be represented in the Brexit press as this House exceeding its authority. However, I hope the debate will cause the Government to pause and think again; to listen to the proposals from across the House, and particularly from the Labour Party; to wrest control from the ERG, and to deliver a Brexit deal for all our citizens. I beg to move.

15:40

[Baroness Kramer (LD)]

My Lords, I start by saying to the Government that it is a travesty that this Bill comes to the House as a supply Bill. The Government attempted to get it classified as a money Bill in the other place, and they failed. But it was completely unnecessary for the Government to put in the four-word phrase that turned this into a supply Bill. That was done simply to prevent any amendment by this House. No Government would do that if they had confidence in the content in the Bill and the very use of the manoeuvre, frankly, underscores the Bill’s inadequacies.

The Government have claimed on numerous occasions that the Bill is merely technical, designed to enable Customs to function post Brexit. If that were so, the content of the Bill would not presuppose any particular outcome from the ongoing negotiations of our future relationship with the EU. Instead, it sets up barriers to negotiating an arrangement that would allow the UK to remain in the customs union and the single market. Those barriers were reinforced when the Government chose to support the four amendments from the European Research Group—the militant hard-Brexit wing of the Conservative Party. But then, we are beginning to recognise that so much of this process has been about power struggles within the Conservative Party, and the national interest, jobs, the economy and our young people are all relegated to an incidental role in what really matters to the Government—which of them will be Prime Minister. That is why today I am moving the Motion in my name and on behalf of my colleagues, and I will be pressing it to a vote because I disagree with the noble Lord, Lord Tunnicliffe: the attention of the Brexiteers has to be drawn by action and comment, and the kind of action we can take in this House is to vote when we are able.

Some will ask why I am bothering to do that when the Chequers proposal, much of which is expressed in the Bill’s clauses, is already dead. They have a point. The facilitated customs agreement is unacceptable to Barnier and the EU leaders; the Tory Brexiteers absolutely hate it—David Davis and others have said that they will vote against it; and, frankly, most Tory Remainers cannot stomach it. But that is exactly my point: a proper process through this House would have allowed workable structures to be proposed, debated and offered to the Commons.

The facilitated customs arrangement is unworkable; it does not provide for a frictionless commercial border between the UK and the 27 for goods, never mind that it utterly neglects services, which, as we often point out in this House, are 80% of the UK economy and often wrapped into, not separate from, manufacturing. The FCA’s complexity in dealing with imports and tariff differentials is an invitation to fraud on an industrial scale, especially when it comes to parts and bulk imports. There is no hope of policing a system of this extraordinary complexity with so many loopholes and difficulties inherent in it. It deals only in very limited part with the Irish border issue, which is surely critical to all of our negotiations, and it is completely confused over the handling of country of origin requirements. Indeed, as best I can work out, it expects the EU to renegotiate every trade deal, of which there are 40, so that for exports UK parts are treated as local EU content. Yet it also insists that for imports the EU and the UK will operate separate country of origin regimes—in other words, a completely non-reciprocal arrangement. That is just the beginning of some of the many complexities around country of origin. It also loads on to businesses layer after layer of form-filling and activity tracking along with, as I say, country of origin being only one of those intensely complex burdens.

I talked to someone running a small business manufacturing party goods for sale across most of Europe who is very much up on these issues. He has calculated that the cost of the new paperwork alone would lose him every single one of his European customers. Frankly, it is death to his business. The FCA requires us to leave the EU VAT area so that VAT would have to be paid at the time goods cross the border in both directions. The cash-flow hit would wreck many companies, especially small ones. Our biggest manufacturers are writing to us with desperate pleas for resolutions, guarantees of no delays at our borders and no trade or non-trade barriers. The FCA and its reliance on authorised economic operator status for the big players is costly and cumbersome, even for those that have a whole legal and technical department to begin to grapple with its requirements.

I would love to hear from the Government what the real cost is to businesses of their Chequers proposal. Which businesses will be unable to survive? Which will have to lose customers or leave the UK? Which jobs are under threat, and where? Moreover, what about the costs to the Government? Our major ports have struggled to manage existing international trade, which is why the European Commission is taking us to court for a number of failures. Many of our smaller ports have no customs staff to speak of and our key trade arteries, our roll-on roll-off ports, cannot cope with even a two-minute delay.

Therefore, I say to the Government: show us the numbers and tell us the cost of leaving the customs union. Or is this simply a political decision with the implications for our economy merely being sketched in effect on the back of a fag packet? The Government counter any questions with a complacent discussion of “no deal” and are advising warehouse building, stockpiling and planning to move activity to the 27. Frankly, that will be an economic disaster. I will not spend more time talking about “no deal” because I am sure that others will pick up the issue in the course of the debate, but I do not believe it is something any Government should contemplate, and I am shocked by constantly hearing that we will be able to enjoy a prosperous future, deal or no deal.

I have not even touched on the constitutional issues. The Delegated Powers and Regulatory Reform Committee has done its usual outstanding job, and I am sure other speakers will talk more extensively about them. But once again we are seeing Henry VIII provisions, and especially in this case a significant expansion in the use of public notices. All of this underscores once again why the Bill should go through this House being subject to detailed scrutiny, which would tackle exactly that kind of issue.

From pretty much every perspective, this customs Bill is inadequate and wrong-headed. It should at the very least allow our continued membership of the customs union and the single market; it should require a proper economic assessment of leaving the customs union, and it should respect Parliament and the balance of power. Given that it does none of these, frankly, I would argue that the people should be able to have a say again, on both this shambles of a negotiation and any final deal. For those reasons, I have tabled the Motion to amend that stands in my name.

15:48

[Lord Kerr of Kinlochard (CB)]

My Lords, it is a pleasure to see the noble Baroness, Lady Kramer, back in such sparkling form after the holiday, and I very much share her view that it is regrettable that we in this House are not allowed to do our normal job on this Bill. There is a lot of technical stuff in it and our job of scrutinising, of considering possible omissions and anomalies, and of suggesting through the contribution of judicious amendments improvements to enable the other place to think again would seem to make a classic case for a Bill of this size, complexity and detail. The House of Lords would have handled it very well, but it seems that by procedural stratagem we are being denied a substantive opportunity, and that for me is wrong. I very much regret it.

I want to ask two questions about the Bill and draw attention to two omissions. My first question is about the Trade Remedies Authority, which turns up in Clause 13 and has its duties relating to imports thought to be affected by unfair subsidies or anti-dumping cases spelt out in two of the schedules. It surprises me that I do not find the Bill establishing the authority. It does not tell me about the authority’s composition. It tells me about some of its duties but where is the power that establishes it? Can we be told how independent of government it will be? How will consumer and producer interests be balanced in its composition? How will the differing interests of parts of the Kingdom be balanced? The October White Paper spoke about the need for UK-specific thresholds but in the smaller Celtic economies, a producer concern that would not be seen as substantive in relation to the UK economy might loom large in particular sectors. Will the devolved Administrations or Assemblies be able to nominate representatives to the Trade Remedies Authority?

I may have missed something: perhaps these questions have been answered already elsewhere but they are not answered in the Bill and I do not understand why. How will the authority be staffed? The section of the Commission that handles anti-dumping is ferociously efficient and equipped with powerful economic analysis, which you need because producer interests tend to get front-page attention and may not advance national—or EU, in this case—interests. Have we recruited these people? What kind of people are we trying to recruit? Are they capable of carrying out this important task?

Secondly, when will the Government give the country some idea of how they intend to use the power conferred on them by the Bill? In mid-August, we were told that Dr Fox’s department decided to terminate 72 of the 114 EU tariffs currently imposed as anti-dumping measures or because of unfair subsidies. Which 72 will they be? Business might like to know that; it would helpful for planning. How does this relate to the role of the Trade Remedies Authority? Does it exist in shadow form? Has it been consulted? Will it be consulted or is it just being pre-empted by a fiat by the department, in which case my question about its powers and composition may be irrelevant?

This relates to a wider concern about uncertainty. The Minister spoke about the need for certainty; he is absolutely right. Current uncertainties are holding up investment and precluding sensible business planning. Dr Fox is keeping very quiet. Presumably, he sticks to his Heritage Foundation/Adam Smith Institute/Henry Jackson Society principles. Presumably, it is with a light heart that he decides to axe 72 import tariffs because he is a devoted free marketeer, but he is not saying that now. He is keeping quiet about which sections of the economy he would prefer to open up to greater competition. He is not stopping Mr Gove assuring the farmers or the environmental interests that they are going to be protected. Yet, if Dr Fox starts negotiating—as I suppose he will one day—with Canadians, Americans, Australians or New Zealanders, he will find that what they want most of all is access to UK markets for their farm products. This conflicts slightly with the assurances Mr Gove has given, although it might be absolutely in line with what Dr Fox, the free marketeer, and the Adam Smith Institute would like.

I do not know whom to believe. I think the Government are trying to speak out of both sides of their mouth. They are trying to please everybody at present by keeping us all in doubt as to what their import policy would be. Of course, Dr Pangloss of the Sunday Telegraph assures us that the consumers are going to win and prices are going to fall. Meanwhile, the agricultural producers are being assured by Mr Gove that they are going to be all right. Everybody is a winner. This is certainly the view of Pangloss in the Telegraph. It would be good if the Government took a view and told us—perhaps next week, when we will be talking about the Trade Bill—what their import policy is. Is the current balance of producer and consumer interest to change, as Dr Fox would presumably like? On agriculture, is it the farmers and food processors who are going to succeed, or is it the foreigners and consumers? Are any tariffs that matter to farmers and food producers among those which Dr Fox has decided should be axed—the 72 that are condemned? At present, everybody is being assured that all will be okay. It is Pangloss time, but to govern is to choose. In the context of this Bill and of the Trade Bill, the Minister should tell us where on the spectrum—from liberal, open markets to protectionism—the Government are going to stand.

What is missing in this Bill is any provision for the two options spelled out in the White Paper: the highly streamlined customs arrangements or the new customs partnership. Under this partnership, our customs authorities would segregate goods designed for consumption in this country from goods heading for onward export to the EU, charging our duties on the former and EU duties on the latter. I do not mourn either omission. As the former Foreign Secretary’s article in last weekend’s press eloquently expressed, the invisible, highly streamlined frontier is a pipe dream which is easily translated by the press into sound and fury signifying nothing. There is nothing underneath it. It is not possible. The EU will not change the rules for its frontier regime which it, with our active participation, has developed down the years. When we leave the EU customs union, we will be outside its frontier, which will be run according to its rules. The touch has got lighter over the years. The turnaround has got faster over time, but we cannot expect a sudden step change, an entirely new regime or a loophole for the British alone. It is not going to happen.

As for the partnership, I thought it was dead on arrival. I knew it was dead when, as the noble Lord, Lord Tunnicliffe, reminded us, the Government immediately changed the Chequers plan in response to ERG pressure. They demanded that the 27 similarly clog up their ports by segregating their imports too and that they should run a two-tier tariff system, charging our duties on goods in their ports where the final destination was our country and tracking them until they got here. Why should they do that? Why should they impose this massive new friction on themselves? It was never going to happen. It was cloud-cuckoo-land. As M Barnier said at the weekend, it would be a bureaucratic nightmare. He is right.

I have a slightly different take on this from that of the noble Lord, Lord Tunnicliffe. I want to ask the Minister whether he can confirm that the absence from the Bill of any provision for the partnership, the absence of any government amendment which would permit them to introduce the partnership and the acceptance by the Government of Clause 54 mean that they have dropped the partnership and that we can waste no more of our time on it? I hope that that is true, because it would very unwise to waste any more of the negotiators’ time in Brussels in talking about it. It will not fly.

That brings me back to the only practical way I see of avoiding the frictions of a customs frontier with our biggest trading partners and our closest neighbours and friends. When in April this House voted by a large majority to amend the withdrawal Bill to ask the Government to explore the possibility of a customs union with the European Union, it was responding to the concerns of British business, manufacturers, the transport industry, importers, exporters, the CBI, the TUC, Keidanren, the BDI and, of course, anyone awake to the potential problems in Northern Ireland.

As far as I know, nothing has happened since 18 April to change the situation that the House considered then, when it thought it justified to explore the possibility of a customs union, except that it has become clearer that solving the frontier issue will determine whether there will be a withdrawal agreement or we face a cliff edge. It has also become clearer that of the Government’s two options for avoiding the choice, neither work.

I hope that the Government will even at this late stage explore the possibility of a customs union between the UK—if it has left the European Union—and the European Union. I think that this House will have to come back to this question next week when we consider the Trade Bill.

16:02

[Viscount Trenchard (Con)]

My Lords, I am grateful to my noble friend Lord Bates for introducing this Second Reading debate. I realise that this Bill has been designated a money Bill and therefore, perhaps fortunately, your Lordships’ House cannot amend it. The House will have opportunities to review and improve the associated Trade Bill at length following its Second Reading next week. It is most unhelpful, and detrimental to the country’s interests, that the noble Lord, Lord Tunnicliffe, and the noble Baroness, Lady Kramer, have introduced the amendments to which they have spoken, because whatever agreement may or may not be reached with the European Union on our future trading relationship, we need a new customs regime to be in place before we leave the EU on 29 March 2019. This is necessary whether we ultimately agree a form of the proposals adopted by the Cabinet at Chequers, whether we enter a Canada or Canada plus-type free trade agreement with the EU or whether we leave the EU with no deal agreed and initially trade with our European partners under WTO rules.

The noble Lord, Lord Tunnicliffe, argues that the Government accepted amendments to this Bill without adequate parliamentary scrutiny, but these matters have been debated at length both in your Lordships’ House and in another place and the Government have committed to giving the House of Commons a vote on the final agreement that they reach with the EU. The passage of either amendment would have no effect on the legislation and this Bill, as a money Bill, can be passed without your Lordships’ consent. Nevertheless, adoption of an amendment expressing regret will strengthen the perception, held widely across the country, that your Lordships’ House does not respect the democratically expressed will of the people that we should leave the EU. That does further harm to the standing and reputation of the House. In addition, it gives further solace to the EU negotiators, who want us to agree to a deal where we remain closely tied to their regulatory regime, and encourages them to believe that we will blink first and ultimately agree to an arrangement whereby we are unable to take advantage of new opportunities to expand our trade with the wider world and whereby we will continue to pay vast sums towards the ever-growing budget of the Union but without any say over how those funds are to be applied.

How can the noble Lord object to the amendment ensuring that we should agree to collect tariffs on behalf of the EU only if the EU agrees to do the same on our behalf? Is my noble friend the Minister confident that the facilitated customs arrangement could be made to work efficiently and that it would not be a deterrent to third countries that might otherwise be keener to enter a free trade agreement with the UK? The FCA clearly would work better if it were reciprocal than if it were just one way. If goods from a third country are imported into an EU member state for onward delivery to the UK in a sector where the UK would have applied a lower tariff rate than that applied by the EU, unless the FCA is made reciprocal the EU state initially importing the goods destined for the UK would have to apply the higher EU tariff and the importer would later have to seek a refund from the UK Exchequer, which would seek reimbursement of the difference from the EU. This would be very cumbersome and would have a negative effect on trade between the third country and the UK via the EU. The FCA is cumbersome enough anyway.

Of course, as noble Lords are aware, Monsieur Barnier has indicated that the EU will have difficulty in accepting the FCA in its proposed form. Surely the noble Lord, Lord Tunnicliffe, agrees that if we were to agree to collect duties on behalf of another state, we should certainly expect that other state to collect the same on our behalf. Is he also objecting to the amendment that binds the Government by law not to accept a difference between the tax regimes operating in Northern Ireland and in the rest of the UK? It would again be most unhelpful if the amendment were to be passed, giving the impression to the EU negotiators that your Lordships’ House would be willing to see Northern Ireland develop into a semi-detached province, still effectively a member of the EU in fact, if not in name.

Both the Conservative Party and the Labour Party clearly stated in their manifestos at the general election last year that the UK would leave the customs union, yet the noble Lord’s amendment laments the fact that the Bill introduces barriers to securing a UK-EU customs union. Has the Labour Party’s policy changed since the general election? Has this been made clear? The policy adopted by the Conservative Party and maintained by the Government consistently is that we should leave the customs union and the single market. Those who now seek either to remain in the customs union or to create a new customs union do so in the belief that it is more important to continue to trade with the EU in exactly the same manner as we do today, submitting to EU regulatory standards over which we have enjoyed steadily decreasing influence. Those standards are, in many cases, unnecessarily cumbersome and unduly inhibit innovation—for example, in the medical and scientific fields. In recent years when the UK has objected to the adoption of new EU regulations in both goods and services we have invariably been overruled.

Why do we not hear about the costs in terms of jobs that would have been created here, and tax revenues lost to the nation, as a result of companies establishing businesses outside the EU in order to avoid the EU’s suffocating regulatory tentacles? I can understand that the establishment of borders across which supply chains operate will require change and increased reporting, but technology can mitigate that in the same way that it does across the United States-Canada border. I am absolutely not advocating a race to the bottom. I wholly agree with the Government’s policy of maintaining the highest standards across the board, especially in areas such as the environment and food safety. However, high standards do not require in all fields adherence to the unnecessarily bureaucratic standards set by the EU, which offer no real additional protection to the consumer over standards applied by the United States, Japan or other non-EU countries.

In the medical field, for example, too much weight is given to the precautionary principle, which makes it more difficult to gain approval for new life-saving drugs and makes the EU an unfriendly jurisdiction in which to conduct research and development. The chief executive of a major Japanese pharmaceutical company told me during my visit to Japan in July that it is true that Brexit will increase the cost of its European operations, but it has already invested a considerable sum in adapting its corporate structure to what may be necessary post Brexit. On the other hand, he believes that the UK will remain the best place in the world to conduct research and development and introduce new drugs, and that the regulatory environment in the UK post Brexit should encourage such innovation with a more constructive and less bureaucratic approach.

I believe that those who want to avoid changing anything are misguided because they want to keep a relationship with the EU which does not really work well for us and never has. They are prepared to forgo the considerable upside which will accrue if we are truly free from EU shackles and can again apply our influence at the global level, where our enhanced voice in the development of sensible, global-level regulation will offer appropriate and necessary consumer protection without unduly restricting the freedoms to innovate and develop new processes which are necessary for a brighter, more prosperous future for our citizens.

The amendment of the noble Lord, Lord Tunnicliffe, seeks to tie us into the customs union. The amendment of the noble Baroness, Lady Kramer, further seeks a second divisive vote, in the misguided hope that the Liberal Democrats can persuade the people to vote to remain in the customs union and single market. But 80% of the UK’s economy comprises services, of which 75% do not form part of the single market. Only 15% of our output is exported to the single market and in recent years the EU has taken a declining share of our exports.

Noble Lords should read the excellent paper on CPTPP, Trading Tigers, published by Policy Exchange, which illustrates the opportunities available to the UK from acceding to that partnership. The authors do not claim that increased trade with the TPP 11 would immediately replace our EU trade but I believe that the UK’s increasing trade with them and other non-EU trading partners would soon outstrip any damage to UK-EU trade, even under the undesirable scenario where we fail to agree a deal with the EU and trade under WTO rules. The noble Baroness forgets that when Jacques Delors was driving through his plan to create the single market, its negative aspects were widely seen as a move to create a “Fortress Europe”. At that time, the chief concern was the threat posed to European manufacturers by Japanese exporters; Edith Cresson attributed Japanese economic success to her view that they lived like ants.

The Government’s policy—reflecting the manifestos put forward at last year’s general election, which were supported by 85% of voters—is to leave the customs union and the single market. It is therefore absolutely necessary and strongly in this country’s interest to support this Bill, which is necessary to enable the UK to establish its own customs regime and implement its own trade remedy measures. Although the noble Lord, Lord Tunnicliffe, has said that he will not seek to divide the House, the noble Baroness, Lady Kramer, has indicated that she will press her amendment. This is also unhelpful and, I believe, contrary to the country’s interests and I urge the House to reject it.

16:15

[Lord Hain (Lab)]

My Lords, it will come as no surprise to the noble Viscount, Lord Trenchard, that I disagree with virtually everything he said. As the Bill confirms, the Brexit charabanc is lurching giddily along, dragging our country towards a completely unknown destination. Even at this not-quite 11th hour, no Brexiteer, and certainly not the Prime Minister, has the faintest clue how we will be trading with our biggest partner—Europe—or any other country for that matter. No wonder the pound has plummeted and businesses engaged in any way with the outside world are at their wits’ end. It is therefore hardly a surprise that, although the Bill allows for the creation of a stand-alone customs regime for the UK, there is as yet no idea what shape it will take.

Everybody knows the mantra is “Brexit, dammit”, but nobody knows yet what it means, and maybe we never will until after we crash out into the nirvana of Trumpian free trade. That does not matter a jot because we will be free of Brussels—free, free at last—but God knows what new chains will now restrict our jobs, our prosperity, our businesses and our workers. I am no historian but I cannot think of any equivalent situation our country has ever faced as a result of a conscious act of government policy which says, “We’ve no idea where we’re going but we’re going there anyway”. Has the British political class ever done anything more utterly, profoundly irresponsible? Yet this Parliament, to our utter shame, has so far simply indulged in rubber-stamping it.

It should therefore be no surprise to anyone that the Bill illustrates how neither No. 10 Downing Street nor the arch-Brexiteers in the Conservative Party are now in control of their Brexit fantasies. Neither has a plan as the clock ticks down. What unites them is that it must click down regardless of the consequences. The people have spoken—full stop. We are going we know not where, but we are going anyway. This is rapidly becoming an act of collective national madness.

With the Chequers deal based on her flawed White Paper, the Prime Minister was supposed to be keeping the UK close to the single market after Brexit, with some magical thinking about customs arrangements. Never mind that the services sector, forming a mere 80% of our economy, was abandoned. The importance of the Bill and the parallel Trade Bill should not be underestimated. Borders matter. Those who fantasise that the UK can enjoy frictionless trade under WTO rules need to understand that those rules mean hard borders, including within the island of Ireland. Even under the WTO’s most-favoured-nation rules, if we did not enforce the border in Ireland, we would be in breach of our agreements with other parts of the world, as would be, in parallel, the Republic and the EU. That would be a disaster for the economies of Northern Ireland and the Republic and would gravely threaten the peace and prosperity which have flourished since the Good Friday agreement of 1998, which is a binding treaty recognised under international law to which this Government pay lip service, but which is being steadily undermined by their whole approach to Brexit. No developed country trades purely on WTO rules, and it is fantasy to suggest that Britain should be the first to give it a go. Moreover, less than two weeks ago the director-general of the WTO pooh-poohed the idea that the UK could fall out of the EU straight into compliance with WTO arrangements, pointing out that it would take quite a time to negotiate the transition.

The debates on the Bill in the Commons demonstrated that the Government are a hostage to a minority of their own Back-Benchers, who chose to table four changes as wrecking amendments. The Chequers compromise can be seen as the Prime Minister’s attempt to steer her dysfunctional Cabinet towards a softer Brexit strategy that would mitigate, to some extent, the most damaging economic consequences of a hard or, worse still, a no-deal Brexit, but it started to fall apart at the first hurdle. Rather than risk defeat and a possible government collapse, these European Research Group amendments to the Bill were accepted by No. 10 and now potentially constitute new red lines, which may hinder the conclusion of a successful Article 50 withdrawal agreement.

The amendments in question were, first, to introduce the need for primary legislation if the Government want to keep Britain in a customs union. As my noble friend Lord Tunnicliffe and the noble Lord, Lord Kerr, have convincingly argued, and as Labour has compellingly argued, the case for a customs union with the EU is overwhelming—in order, among many other things, to avoid rules of origin requirements and check whether goods qualify for preferential tariff arrangements. According to the Government’s own analysis, these rules can burden businesses with additional administrative costs amounting to between 4% and 15%.

Furthermore, once the UK ceases to be regarded as EU territory, UK component parts and products will no longer benefit from zero tariffs as EU products under EU free trade agreements. That means that if the Government’s facilitated customs arrangement does not work, the fallback position will be no customs deal at all, which would be deeply damaging for our manufacturers. This could have a huge impact on UK trade and is the reason why a customs union is absolutely necessary for the sake of British manufacturing, international trade and Northern Ireland’s peace.

A second ERG amendment accepted by the Government ruled out a customs border in the Irish Sea between Northern Ireland and the rest of the UK. This was accepted as in line with the Prime Minister’s previous position, despite her commitment in the UK-EU joint report of 8 December 2017:

“In the absence of agreed solutions, the United Kingdom will maintain full alignment with those rules of the Internal Market and the Customs Union which, now or in the future, support North-South cooperation, the all-island economy and the protection of the”,


Belfast/Good Friday agreement.

The purpose of the second ERG amendment seems to be to destroy the negotiating room within which discussions on such backstop arrangements could take place. However, the most substantial and visible impact of the Bill will be at the UK’s borders—seaports and airports—and on our land border with the Republic of Ireland. It allows for the Irish border to return to being a customs border between the UK and Ireland. That means that goods leaving Northern Ireland will have to be cleared for exit from the UK and for entry to the EU.

First, goods crossing the border must be covered by a pre-departure declaration, partly to offer evidence of their status for VAT-free export. Secondly, goods will be able to enter the customs territory only through a designated place of clearance—which, for a land border crossing such as on the island, usually contains facilities for customs examination and clearance, including access to the relevant customs software systems to ensure that detailed information on the goods is submitted for recording and risk analysis purposes, and that correct duties are paid.

Thirdly, goods will be subject to customs duties from both sides. Fourthly, traders are more likely to be subject to requirements for import and export licensing. As the UK leaves the EU, all businesses in Ireland and Northern Ireland that trade across the Irish border will have to be properly registered to do so. Proper rollout of any trusted trader scheme requires time and agreement with trading partners.

Fifthly, the Bill will change common experience for VAT and excise. Import VAT will be charged on all imports from outside the UK. Sixthly, if goods have to be inspected, there has to be the facility and capacity to do so. For the movement of agri-food produce, for example, including livestock, a rigorous veterinary and plant health inspections clearance regime must be in place. All of this illustrates the importance of getting a deal with the EU that avoids the need for customs controls between the EU and the UK.

How ironic it is, then, that this Bill also now contains a provision that risks making such a deal far less likely. The addition of this proposed new clause as a result of ERG dogma has ramifications not just for the Irish border; it also has implications for the current Brexit negotiations at a macro level. This was the Government’s intention in accepting it.

The so-called backstop in the draft withdrawal agreement is intended to prevent the scenario I have outlined previously coming into effect around the Irish border. However, what the ERG amendments, and therefore the subsequent new clause, do—in a fairly crude way—is to prevent that backstop being workable. It forces a scenario in which the Irish border is a customs border in the Bill. More to the point, by making it more difficult for the UK and EU to finalise the withdrawal agreement, it makes such a scenario all the more likely. This is no imaginary problem; there are no harmless consequences.

In July, the Prime Minister made her first substantial visit to Northern Ireland. When there, she visited the village of Belleek, on the Fermanagh-Donegal border. Belleek is in many ways a typical Irish border village. It has a population of Catholics and Protestants, British and Irish citizens, cross-border families and cross-border workers. A good number of such workers are employed by one business that straddles the border, with its front door in the Republic and its back door in the UK. As Theresa May’s entourage descended on the village, that business owner described the impact of the uncertainty around Brexit in a powerful way. “Out here”, he said, “We’re cannon fodder”.

The third ERG amendment Theresa May accepted makes it illegal for Britain to collect EU tariffs at its ports unless Brussels agrees to act on a reciprocal basis. The Government insisted that the amendment was consistent with the customs policy as outlined in the White Paper because they envisaged using a formula to govern the flows of money based on trade patterns between the EU 27 and the UK. However, the White Paper does not explain exactly how this would work, and it seems highly unlikely that the EU will accept such a plan. There are further technical problems with the proposed facilitated customs arrangement, as it would appear to breach elements of the General Agreement on Tariffs and Trade—GATT—which is part of the World Trade Organization rules.

It is, in any case, a complete and utter delusion that the UK, with a market of 60 million, can improve on the negotiating strength we already have as a member of the EU with a market of 500 million, as far as free trade agreements with third countries are concerned. The point is that trade will become more costly and burdensome outside the EU single market and the customs union, and our businesses and manufacturers will be at a disadvantage compared with their European neighbours and competitors.

The ERG’s fourth amendment concerned VAT. Because the authorities need to know whether goods have crossed the border to properly apply the tax, the EU VAT area is absolutely crucial to avoiding a hard border. We currently have around 25 million customs declarations requiring payment of VAT at the border. That will potentially rise to 255 million after Brexit. Either goods are checked as they cross, requiring hard infrastructure and border friction, as happens in Switzerland and Norway, or we seek to stay in the EU’s system, which operates on the basis of a paper trail to track the movement of goods and requires European Court of Justice rules to apply. If the Government adopt neither option, it opens the UK up to massive fraud where goods enter the country VAT-free and people evade tax, depriving the Treasury—and therefore our already cut, battered and overstretched public services—of crucial revenue.

In conclusion, the debates on the Bill have illustrated that, as the reality of Brexit becomes clearer, the case for it disintegrates. Instead, the case for delaying Brexit and for giving not only Parliament but the people a meaningful vote, or a people’s vote, on any draft withdrawal agreement becomes ever more compelling. I am delighted that my own trade union, the GMB, has today supported the principle of a people’s vote.

16:30

[Lord Fox (LD)]

My Lords, as we have heard, this Bill sets out an alternative customs regime—an alternative to a customs union that has served us well. The Bill is so clearly inadequate that the Government have had to hide behind the designation of a supply Bill, which is obviously designed to thwart sensible democratic scrutiny. We are lucky to have a Minister who has outside experience and sees things from beyond the hall of mirrors here. A lot of his experience is based in the north-east of England, so I am sure that he knows that the Bill sets out a significant downgrade for the United Kingdom—a degradation of our future, not an enhancement.

We currently have a customs and trade relationship with our biggest trading partners that works. Goods move seamlessly, paperwork has been minimised and duty gets paid. Even if everything in the Bill works as the Government expect—which of course it will not—the Minister knows that the nation’s customs regime will be substantially worse than what we have today. Goods will be held up at the border; paperwork will be increased; duty will be dodged; and supply chains will slow, and ultimately bypass the United Kingdom altogether. In the Government’s parlance, we will not have a frictionless system; we will have a great deal of friction. But there is still time for the Minister to renounce the briefs in front of him and submit to what he and others on his Benches know to be true: the customs union and the single market offer so much more to the people of Britain than what is before us today.

Elsewhere, the Government have trumpeted their industrial strategy, highlighting the need to tackle disappointing productivity numbers, which is a Treasury priority. Yet everything that this Bill stands for will reduce productivity. Efficient activity such as just-in-time manufacturing will be totally disrupted. For example, suppliers are already being asked to increase their inventories, massively reducing cash flow in small businesses and adding to costs and to complication. The Government have claimed to be planning for the future, so what does their analysis say that the Bill will deliver in practice? How much will it cost? How many extra people will be needed in both the public sector and in business to administer the red tape? Big business can probably afford it, but small businesses most certainly cannot, as my noble friend Lady Kramer said.

What is the lost opportunity—something that cannot be accounted for—of using our talented people on this activity rather than on something that is actually productive? Does the Minister not agree that we should be using the energy and intellectual resource of our people to address the real challenges facing the country? There are huge global changes going on, never mind the ones we are trying to effect. The march of the digital revolution is going to change everything, and the demographic time bomb stands already as a significant change. Would the Government not rather that the talents of our people were employed on those things rather than on this useless, non-productive activity?

Meanwhile, in the ports and the Channel Tunnel, roll-on roll-off will be replaced by “hang around a minute while we have a look”. What is the contingency plan here? What is the estimated holding capacity that will be required at our ports? What advice will the Government be giving regarding the checking and segregation of loads? People and businesses need to know how to restructure their supply chains to meet these challenges.

We know that the Bill makes us worse off compared to the customs union and the single market. By how much will the customs regime reduce productivity in the United Kingdom? How much further behind France will it take us? How much GDP growth are the Government prepared to surrender in order to push the policy through—1% per year, 2% per year? The compounded effect of that reduction in growth in GDP will be disastrous—but of course this Government will be long gone before the real effects are felt.

There is more, not least—as we heard so eloquently just now from the noble Lord, Lord Hain—to do with Ireland and the border. Brexiteers have huffed and puffed and say that the issue is exaggerated. Then they posit some solution that has not been invented yet and clearly is not practical. The Bill creates two discrete customs systems on the island of Ireland. Nothing in the Bill facilitates a border solution that maintains the Good Friday agreement. That is because the two conditions of having two customs regimes and the Good Friday agreement are mutually exclusive. This Bill is anathema to the Good Friday agreement.

Much else needs the proper scrutiny of this House—scrutiny that is being denied. For example, we have heard a lot already about the facilitated customs agreement. We should thank the noble Viscount, Lord Trenchard, for explaining just how simple it will be to operate. In fact, it is impractical. How do the Government expect it to work? What plumbing will go together to make it work? How will the Bill enable the maintenance of non-tariff trade in both directions? As we heard from previous speakers, it seems clear that this will be extremely difficult. Who will maintain and track the rules of origin, and how? What are the details behind the rules for outward processing and repair? Is that a loophole? If not, how will we make sure that it works properly? How will the provisions to offer preferential access to developing countries change from what we have, and who will benefit? That is just a short list of all the missing details that we need—as set out by the noble Lord, Lord Kerr—to understand the plumbing of the customs agreement. These details will be left hanging as the Tory party continues to squabble among itself.

The Bill represents a proposal to make things worse for the citizens of the United Kingdom—not just slightly worse but very seriously so. The Government know that; the Minister knows that. I echo the mention of history: perhaps the Minister could cast his mind back, or get his officials to, and give us an example of where any Government have made changes that they know will downgrade the living conditions of their citizens. What other Government in history have knowingly made such a self-harming decision?

The Liberal Democrats oppose the Bill. Leaving the customs union and the single market will cost the people of the United Kingdom dearly. That individual cost should be explained, and voted on in a people’s vote. The Bill establishes a separate customs regime from that of the European 27, so there can never be a friction-free border between the Republic and Northern Ireland. That means that the Good Friday agreement cannot be honoured. The hiding of the Bill behind the false status of a supply Bill shows the Government at their weakest, and the grabbing of so many Henry VIII powers for the Executive is tantamount to unconstitutional. That is why I will support my noble friend’s amendment to the Motion.

16:39

[Lord Browne of Ladyton (Lab)]

My Lords, it is a pleasure to follow the noble Lord, Lord Fox. I hope that his speech has engaged the Minister’s business experience and encourages him to take back to his colleagues in government the significantly persuasive detail of the argument he presented. I also hope that the Minister will refer particularly to that in his response to the debate.

I do not suppose that this will be much of a surprise to anybody but I support the UK’s continued membership of a customs union with the European Union. However, like my noble friend Lord Tunnicliffe, I recognise the necessity of this legislation for an alternative customs regime should we find ourselves out of the European Union without a deal—which, frankly, looks increasingly likely—or with a deal that requires us to leave the customs union.

This is a complex piece of legislation. It consists of 58 clauses and nine schedules and includes provisions covering some of the most complex areas of legislation: import duty, export duty, VAT and excise duty. It is astonishing that it comes before your Lordships’ House in the state it is presently in. I agree with the noble Baroness, Lady Kramer, and the noble Lord, Lord Kerr, about the designation and the motivation for the designation of the Bill as a supply Bill. It is difficult to avoid the conclusion that the sort of scrutiny that this Bill demands is being avoided. Candidly, in the time that I have been in your Lordships’ House I have never before contributed to a debate on a Bill that was designated as a supply Bill. When I was preparing for this debate I wondered what the point of it was, but having listened to the speeches thus far, I can now see that this is a significant opportunity for people to make good arguments, even if they do not affect the legislation before the House.

These restrictions were not before the House of Commons. The other place had the opportunity to scrutinise the Bill fully but it can hardly be said—and I read the report of all the debate there—that it has done so. I draw attention in particular to the proceedings in the other place on Monday 16 July, when both Report and Third Reading were conducted over four seriously timetabled hours, with reducing times offered to speakers as the debate progressed. A minuscule number of Members of the other place managed to contribute to the debate. The consequence was that, as the Official Report shows—these statistics do not particularly prove anything but are indicative of the position—Report and Third Reading are contained within 127 columns of the report, covering the less than four timetabled hours of debate. Sixty-five of the columns are necessary just to record the amendments that were considered and the votes thereon, and only 59 columns record the debate. It is not possible for the Government to come to this House and say that the Bill has been scrutinised or—as the noble Viscount, Lord Trenchard, told us—that it has been considered in the other place and voted on. It has not been considered at all. I spent more time reading the amendments and looking over the votes in the Official Report than I spent reading the debate. It is a disgrace. What is the position of the Government and the Brexiteers on how this squares with taking back control to our Parliament?

While I am on the subject, perhaps the Minister, in his summation, will explain to your Lordships how telling the people who run businesses in Northern Ireland that, in the event of a no-deal exit from the European Union, if they want to know how to conduct cross-border business, they should ask a foreign government how to do it, is consistent with taking back control of our own destiny. That appears to be the compelling argument for us leaving the European Union in the first place. Who thought that that was the right response to give to the people of Northern Ireland?

Among the amendments considered on Report, which my noble friend Lord Hain went through in some detail, were four put forward by the ERG—the European Research Group—which were designed to kill off the possibility of the Prime Minister agreeing a Brexit deal on the basis of the Chequers agreement. It appears that they have worked. I understand that they have been aided by the position that the remainers in the Conservative Party have also taken on the Chequers agreement, and that it is now dead in the water, but they certainly would have worked on their own. Recent evidence suggests that the Prime Minister is now hemmed in by both sides of her party. In the current environment, the space for a deal that all sides of the Conservative Party and the EU 27 can agree is virtually non-existent.

It is incomprehensible why the Government accepted these amendments. All of them were designed to undermine their preferred Brexit policy. It is also instructive that the Minister, in his opening remarks, completely ignored all these amendments. He referred to amendments in a generic sense but made no particular reference. We talk about ignoring the elephant in the room, but there is a massive elephant in this Bill. It significantly changes both the Bill and the Government’s policy, yet in the Minister’s introduction of the Bill to your Lordships’ House, it was as though it did not exist. As the Minister knows, I admire him greatly. I suspect that the reason why he did that was that he could not bring himself to put forward the argument that was asserted by Mel Stride, the Financial Secretary to the Treasury, in some very short sentences in summing up the debate on Report, when he said that these amendments not only are not as damaging as they may seem but are consistent with the Government’s position. There is no persuasive argument for that.

An analysis of the amendments, which my noble friend Lord Hain has done, shows that they damage the Government’s position significantly and undermine it completely. I challenge the Minister, if he is able, to give us not bland assertions over a couple of sentences, as his colleague in the other place did, but a serious analysis of these amendments and their effect on the Government’s position. If he wants to explain to us that they do not change the Government’s position, can he please share them with us in summarising the debate? I had intended to go through each amendment to explain why they have that effect, but my noble friend did that for me. I could not do it any better so I will rest with the arguments he put forward.

Over the next couple of minutes—recognising the constraints that are upon me in this speech and upon this House, and recognising that I see little point in referring to any specific provisions of the Bill, but out of respect for those beyond this House who have taken the time and trouble to consider the provisions of the Bill and to provide us with briefings for today’s proceedings—I would like to make reference to one or two points, and to two particular briefings. I invite the Minister, at least in the fullness of time, and perhaps in written form, to respond to the points made by both the Law Society of Scotland and the Fairtrade Foundation, whose briefings I received and both of which impressed me.

The Law Society of Scotland makes a compelling case about the scope of the delegated powers contained in the Bill—echoing concerns over the use of Henry VIII powers, as discussed significantly in the context of the then European Union (Withdrawal) Bill—and about the importance of ensuring that the Government are obliged to consult stakeholders in the process of setting regulations to establish a customs regime. As is its wont, the society proposes in its briefing paper a number of very specific and well-argued amendments to the Bill. I ask the Minister to consider these amendments and, perhaps, to respond to the House in some fashion about the Government’s position in relation to them.

The Fairtrade Foundation provided an interesting briefing which covers both the trade and customs Bills. It points out that this Bill, as drafted, makes no reference to sustainable development and would allow tariff changes to take place without regard to their impact on developing countries. It hopes that the Bill will be amended to include sustainable development criteria to which the Secretary of State must have regard in Clauses 8(5) and 39(4). I am completely confident that it would not be the Minister’s intention for tariff changes to take place without regard to their impact on developing countries. I trust that in due course the Minister will take this into consideration and respond to the point being made in this briefing. Perhaps a suitable amendment to the Trade Bill could address this deficiency if it is not possible to do so in this Bill. I assume that the Government have copies of these briefings; if not, they can be provided.

Finally, I want to make a specific point about customs and excise. I am in possession of a briefing from the Scotch Whisky Association. This is a significant industry not just for Scotland but for the United Kingdom, with £4.3 billion or more of exports. It is a very active co-operator and partner with the Government in the customs and excise environment. Tomorrow, I will attend a meeting of the All-Party Parliamentary Group on Scotch Whisky and I know that representatives of the industry will ask me—because they do so every time I meet them—what the timetable is for the implementation of these new customs arrangements.

This is an organisation which has contributed to the development and introduction of the present European customs arrangements that allow spirits to be traded across the European Union, the excise duty being paid only when the goods arrive at their destination. It is called the EMCS. The industry helped the Government to build this system, so it knows the problems, for the industry and for the Government, associated with building new customs systems. Frankly—I summarise bluntly what they say—its members tell me that it is now too late for us to get new customs or excise duty arrangements not only for the EU but for their industry in time for any of the expected dates on which we will leave the European Union. It will take years.

Therefore, perhaps the Minister can give some indication of how long—once this Bill is passed and becomes law, as inevitably it will—this industry should expect to wait before customs arrangements are worked through and bedded down so that it can continue to make the sort of contribution that it does to the economy of this country.

16:52

[Baroness Altmann (Con)]

It is a pleasure to follow so many excellent speeches. This Bill is meant to help us deal with any outcomes that arise from our negotiations for leaving the EU. Its aim of establishing an independent UK customs regime based on the EU regime, adjusting VAT and giving powers over customs duties, makes sense if we are leaving the EU single market and customs union, although of course ostensibly—I will return to this in a moment—the Bill also gives the Government the power to establish a new customs union.

I welcome the hard work carried out in the other place by honourable and right honourable colleagues and many others to maximise the use of affirmative procedures to ensure that important taxes and tariffs are properly scrutinised by Parliament, and I welcome the Government’s acceptance of the sunset clauses—all changes called for by the excellent House of Lords Delegated Powers Committee.

Following last-minute amendments narrowly passed, by just three votes, in the other place, unfortunately the Bill before us today is poorly drafted with some worrying potential flaws. The UK, for example, is now able to enter into a customs union with the EU only if this is passed by a separate Act of Parliament. From a scrutiny and consistency point of view, this seems problematic. Why should an Act of Parliament lock be just for one territory? The scrutiny that comes with joining or establishing a customs union should surely apply equally to all territories. This amendment also means that the Bill cannot now be the conduit for the UK to be in a customs union with the EU, even if that becomes government policy. The Government would still need primary legislation, which is contradictory given that this Bill is the very primary legislation that should give the Government the power to do that, having repatriated those powers from Brussels. It is of concern that we would allow bad legislation to reach the statute. Of course, I respect the House of Lords’ constitutional role to resist amending a supply Bill, but the Government must be careful not to abuse their constitutional role.

This important piece of technical and complex legislation has been rendered incoherent and inconsistent to appease the European Research Group, while actually killing the main government proposal for customs in the process. If we wanted the EU to take the Chequers proposal seriously, it was not terrible helpful for the Government to accept the ERG’s wrecking amendments to the Bill almost immediately. The Government have said that they do not view these as wrecking amendments, but they were clearly intended as such: the EU thinks they are such and many on these Benches can see that too—indeed, many noble Lords have stated so this evening. Arguing that black is white does not change the colour.

Clause 54 is not consistent with the Government’s supposedly agreed position. Section 1.2.1 of the Chequers White Paper refers to the facilitated customs arrangement that the Government hope to enter into with the EU, and I have welcomed that as a starting point to get us to the negotiating table. It states that,

“the UK is not proposing that the EU applies the UK’s tariffs and trade policy at its border for goods intended for the UK”.

So the Government now find themselves in direct conflict with their own White Paper. As the noble Lord, Lord Kerr, and so many others have already stated, the EU cannot be expected to do this. Worryingly, therefore, the ERG amendments are forcing us closer to no deal.

I note with disquiet the increasing voices that seemingly are willing to support no deal. Moving to a regime based on WTO rules would not be in our national interest. Let us be absolutely clear: no deal is unquestionably a bad deal. It would be disastrous for our country and, indeed, for the EU—it would be like launching an economic war on the EU. The declaration that this is “not the end of the world” is scant comfort for our country. Yes, no deal would not be as bad as nuclear Armageddon, but the British people were promised that Brexit would mean a better future. By demanding the impossible of the EU and then blaming it for not giving it to us, we cannot help our country’s future.

The Conservatives are the party of free trade. How then could we seriously be countenancing a no-deal outcome which would mean losing the great free trade deals that we currently have, not just with the EU but with so many other countries outside the EU, which our membership has delivered? Operating under WTO rules would mean that we must follow the internationally agreed norms. We would undermine our integrated supply chains and put British manufacturing at risk. This is not what people voted for.

As the noble Lord, Lord Hain, and many others have so rightly said, no deal would be disastrous for Northern Ireland and Ireland. There are no technological solutions that would allow for a frictionless and free border without a proper customs partnership—or whatever one calls it; some kind of customs union—and regulatory alignment. The lack of serious concern for this issue, and the careless statements dismissing concerns about honouring the Good Friday agreement, should, I would have hoped, be anathema to the Conservative and Unionist Party. However, the obsession with “Brexit at all costs” seems to trump all else.

The Bill is about tariffs, but what about the vitally important non-tariff barriers and rules of origin, which would hamper our trade with or without this Bill? Unless we can retain customs union and regulatory alignment, or something that delivers the same but may not be called that, it is difficult to see our national economic success continuing.

I had other points to make, specifically on various amendments, but as so many other noble Lords have expressed the same sentiments so well, I finally ask my noble friend to please relay concerns from these Benches and respectfully request that more care be taken before sending a Bill to this House in this state. It is particularly important to legislate responsibly if the Bill in question is a supply Bill or a money Bill.

17:00

[Lord Whitty (Lab)]

My Lords, the Minister gave a very succinct introduction to the Bill but, looking at it, it is pretty hefty. It would normally be dismissed as technocratic and complex, but it is nevertheless more substantial than perhaps the Government or the Minister suggest. Moreover, it is on a subject that neither this House nor the whole of Parliament has considered as part of a legislative programme for more than 40 years. All the issues, such as tariffs and some of the other things that are either dealt with or partially dealt with in the Bill, have been matters for the EU. Moreover, the denial of this House’s detailed scrutiny by designating this a supply Bill is an affront to this House and its committees’ constructive role in dealing with this very difficult Brexit issue.

Broadly, I make three points. First, it is a nonsense for us to consider the Bill separately from the Trade Bill that will reach us next week and from wider issues. There are a number of reasons for that, many of which have already been spelled out. Among other things, the Trade Bill sets up the Trade Remedies Authority. It contains the outline of the powers of that authority and the situations in which they would arise. But the actual fiscal remedies and some of the reasons for engaging with those fiscal remedies are in this Bill but without the overall framework, which is in the Trade Bill. The two need to be considered together and we need to address what kind of new, independent trade remedies body we need in those circumstances.

One problem with the Bill is that it is inevitably a contingency Bill, like much of the other legislation that has passed through this House in the Brexit context. But a contingency Bill should be able to deal with all the potential contingencies. As far as I can see, it deals with very few of them. It gives the powers, and some of those powers are subject to Henry VIII procedures, but it does not specify in which contexts those powers will operate.

We all know that there is still a range of possibilities for the final outcome of negotiations, which will probably not be known in November and will involve a long drawn-out process of coming up with a full-blown trade agreement with the EU. It is looking on the optimistic side that we will eventually reach such a deal, but it will be complex. If it is a free trade agreement, certain consequences follow. There will be consequences for our tariff levels, which will presumably be dealt with in the EU, but countries that are not in a free-trade agreement with us would have to abide by WTO rules. In other words, there would have to be an equivalent for all non-free trade agreement countries. That is a constraint on the powers that appear to be in this Bill.

We are of course in a situation where the Government are proposing the Chequers proceedings, which have in part been cut off at the knees by some of the amendments, referred to by others, that were passed in the Commons the other month. However, some are not appropriate for the different potential outcomes. If we are in a Chequers-facilitated customs arrangement, which the EU is at present rejecting, certain requirements need to be laid down in the Bill itself, including procedures, for example, on rules of origin. I think it was my noble friend Lord Tunnicliffe who said that at the moment there is a contradiction on how rules of origin are likely to be proceeded with. They will be proceeded with in one context for imports and another for exports from the UK to the EU.

A lot of questions have not been answered and they can be answered only by a full debate on all the aspects of trade policy and trade legislation before us, and how they would apply in different situations. To take another example, we know that currently both this Bill and the Trade Bill reflect the Government’s intention to roll over the existing EU-third country arrangements and simply apply them to the UK. However, you first have to ask the third country whether it will agree to that, and indeed in some circumstances whether the EU would agree to it because it is not as simple as all that, particularly when dealing with agreements involving a high degree of agricultural trade. You then have issues such as import quotas, which have to be split between the UK and the EU in the event of our leaving. Those quota issues are not addressed in the Bill.

There are other internal contradictions in the legislation, most of which have already been referred to because they arise from the amendments made at the behest of the ERG in another place. I happened to be in Brussels with your Lordships’ Select Committee on the day those amendments were passed. I am the only member of the committee present because the others are meeting upstairs. There was bemusement on the part of EU officials, including Monsieur Barnier himself, about what seemed to have happened; namely, the Prime Minister’s shiny golden Chequers agreement had been undermined within days by accepting the amendments produced by the ERG. Some of the amendments are ambiguous and I hope the Government’s lawyers are addressing the particulars. I will take just two examples, one of which is now Clause 54. It arose because of the need for reciprocity as far as the movers of those amendments were concerned, but no one is proposing reciprocity. We said in the Chequers proposals that we would be prepared to collect EU taxes at our borders. We have made no proposition that the EU should collect our taxes. Since we know that the EU is sniffy about the notion that we should collect its taxes, its representatives are hardly likely to fall over themselves with glee at the proposal that they should be subcontracted to collect our taxes. Reciprocity in itself does not make sense in the context of the Chequers agreement.

It is also true—potentially disastrously so—that the following clause, Clause 55, which deals with Northern Ireland, could scupper any agreement on Northern Ireland, which is difficult enough in any case. Let me make it clear that I am not in favour of a border down the Irish Sea, but it is true that already, before we have left the EU, Northern Ireland is dealt with separately in some respects on trade issues. It has a regulatory structure for food and farming that is effectively the same as that of the Republic of Ireland. It is a single epidemiological area in relation to animal disease. There are other provisions in terms of the ability to acquire Irish citizenship and therefore EU citizenship, which mean that Northern Ireland is being dealt with differently from the rest of the United Kingdom. As my noble friend has said, the common electricity market will also have to be dealt with differently from the energy market in the rest of the United Kingdom. To lay down in that amendment that no such separate provision, which implies no regulatory provision, should apply to Northern Ireland that does not apply to the rest of the United Kingdom, seems yet another barrier to a proper agreement on the Northern Irish border.

My last point is probably the most important. I cannot find anywhere in the Bill provision for parliamentary scrutiny of future trade negotiations and outcomes—and therefore tariffs and tariff regulation —which is the subject matter of the Bill. Before we were EU members, all treaties were regarded as deliverable through the royal prerogative; they were therefore a matter for the Government, not Parliament. That was modified slightly in 2010 as far as treaties in general are concerned, but trade treaties over the past 40 years have very much been subject to scrutiny in great detail in the European Parliament. Our negotiating stance and tactics and the final outcome have been subject to scrutiny by European Parliament representatives. We propose moving to a situation where such trade agreements will not be dealt with like that, at least not explicitly, in default of any government commitment. We are reverting to the time when medieval monarchs made these deals between themselves and we were sheltered under the royal prerogative.

It is not only Europe that is subject to detailed parliamentary scrutiny; so are potential partners with Europe. Congress had a major role when the US was trying to negotiate the TTIP with the EU, as did the Canadian Parliament. We need a determination by this House and another place for a strong, authoritative international trade committee, either jointly or in both Houses, to oversee our future arrangements, in the context of which the detailed propositions in the Bill will operate. Without that, we will take back control not for the people’s representatives but for the benefit of the Executive alone.

17:11

[Lord Adonis (Lab)]

My Lords, I agree entirely with what my noble friend Lord Whitty said about the need for proper parliamentary oversight. I also support the amendments in the names of my noble friend Lord Tunnicliffe and the noble Baroness, Lady Kramer, which I will vote for if they press them.

Almost everyone except the Minister accepts that the Chequers policy on tariffs and customs is now defunct. The Minister knows it to be true; he just cannot say so. The Bill is essentially a trade destruction Bill in that it helps to dismantle our current membership of the European customs union and single market without any policy, let alone a credible strategy, to put in its place. I would say that this is the height of Executive irresponsibility, but coming from a Government who have turned irresponsibility into an art form and created in Brexit a giant political Ponzi pyramid scheme waiting to collapse, it is sadly par for the course.

However, I want to concentrate my remarks on one issue. The position of Northern Ireland was precarious before the Bill and impossible after it because of the Rees-Mogg new clause—Clause 55—which the Government accepted in the Commons at the last minute to stave off certain defeat. It reads as follows:

“It shall be unlawful for Her Majesty’s Government to enter into arrangements under which Northern Ireland forms part of a separate customs territory to Great Britain”.


We all know the clause’s genesis: in the European negotiations leading to the EU and UK’s joint report last December, Mrs May accepted the necessity of a backstop in respect of Northern Ireland whereby if new hard border or customs controls of any kind were necessitated by treaty provisions—or their absence—affecting Great Britain after Brexit, Northern Ireland would remain subject to European law and customs and trade provisions to ensure “full regulatory alignment”. Mrs May struggled hard to avoid a commitment to such alignment and the backstop but she had no choice, for two reasons: the Government’s pledge and treaty obligations to observe the Good Friday agreement, and the reality that the Republic of Ireland would simply have vetoed any EU negotiating provision that did not guarantee that there would be no border infrastructure or mobile border controls between the Republic of Ireland and Northern Ireland.

As I said, Mrs May struggled hard against those provisions, so much so that when she was in Belfast last month—in a visit orchestrated and supervised by Arlene Foster, the DUP leader who has Mrs May at her beck and call—the Prime Minister disowned the backstop, saying that it should not be a legal mechanism in European law and should be time limited. In other words, it should be a backstop that is not a backstop, like an insurance policy that does not provide any insurance. That analogy is a bit close to the bone because British insurance policies will lose a lot of their insurance cover if we leave the European Union next March without a deal.

In saying this, Mrs May is parroting the critique of the Northern Ireland backstop which, disgracefully, is now par for the course among Brexiters. When I challenged Mr Nigel Farage about this in a debate last week, he said that the concerns about Northern Ireland were,

“entirely got up by Barnier”,

and that, anyway, Ireland was a “tiddly” country. This echoes Mr Boris Johnson who attacks Mrs May every day for letting Ireland become the “tail wagging the dog” of Brexit. Not to be outdone, Mr Rees-Mogg has suggested that the answer to the Irish problem is for the Republic of Ireland to follow us in leaving the European Union. If it does not, we might need searches at or near the border,

“like there were in the Troubles”.

In other words, this is a choice between neo-colonialism and a return to the politics of the 1980s which, I am afraid, sums up Mr Rees-Mogg’s approach to Brexit as a whole. Whatever else Mrs Thatcher did in the 1980s, she did not seek to leave the European Union.

These attempts to undermine the Good Friday agreement and the Irish backstop are utterly reprehensible —indeed, chilling to anyone with any experience of Ireland. The speech by my noble friend Lord Hain was very much to the point. Despite this, the Irish backstop is still the formal negotiating position of both the United Kingdom and the European Union. Thanks to your Lordships, the European Union (Withdrawal) Act enshrines in statute that any withdrawal agreement must conform to the Good Friday agreement.

To return to last December’s EU/UK joint report, your Lordships will recall that it was nearly derailed at the last minute because Arlene Foster and Mr Rees-Mogg worked out that, if there had to be “full regulatory alignment” within Ireland, but Great Britain was leaving the customs union and the single market, then there would have to be a tariff and customs barrier down the Irish Sea. To forestall this—in yet another layer of the Brexit Ponzi pyramid—Mrs May gave a commitment that there would be no hard border down the Irish Sea, nor within Ireland. As your Lordships appreciate only too clearly, after our 150 hours of debate on the then European Union (Withdrawal) Bill, this means that any Brexit which involves Great Britain leaving the customs union and the single market is not possible unless something fundamental gives.

This brings us to Chequers. As the House knows, the Cabinet imploded after Chequers, with the resignations of the Foreign Secretary, the DExEU Secretary and a string of junior Ministers. The Prime Minister was forced to appoint Mr Raab as her Brexit negotiator and thereby disown her own Chequers policy of “a facilitated customs arrangement”. This language was an attempt to disguise a customs union. It was, unsurprisingly, rumbled by Arlene Foster and Mr Rees-Mogg within minutes, which is why the Prime Minister was forced to concede new Clause 55, prohibiting any customs regime for Great Britain which is different from that in Northern Ireland. So we now face a policy which is completely impossible unless Brexit involves no change of any substance in the customs union or the single market in their application to the entire United Kingdom.

There is no point in my pressing the Minister on these fundamental issues of government Brexit strategy because he will simply read out his brief, but can I ask him two specific questions? First, do the Government continue to support a backstop which has legal force and is not time limited? Secondly, does the Minister accept that no deal, in the form in which the Government presented it as an option last week, is incompatible with the Good Friday agreement? It is possible for the Minister to give a one-word answer to both questions. I look forward to hearing whether the Minister—whom I greatly respect—gives me a straight “yes” to both or whether he is forced to dissemble. If he dissembles, people in Ireland will be even more alarmed than they are today.

17:19

[Lord Hannay of Chiswick (CB)]

My Lords, the powers of this House in respect of this Bill are, as many speakers have said, limited by convention as it is brought forward, rightly or wrongly, as a supply Bill, so there is no power to amend it. For practical purposes, our scrutiny is limited to this Second Reading debate, so it is important that the Minister, who is well known for giving serious and clear answers to questions, does precisely that to the important points that have been raised from all quarters of the House, particularly given the chaotic circumstances that marked the passage of the Bill in the Commons and that have led to many of the questions posed today. There is no lack of them.

I will first raise a point that has not been raised much in the debate hitherto—perhaps not at all. If I have understood the matter correctly, and the Minister will certainly correct me if I am wrong, under the Government’s preferred option for the outcome of the Brexit negotiations—namely, a deal struck this autumn which would include a withdrawal treaty containing a 21-month effectively standstill period—there will be no question of raising any supply under this Bill before January 2021 at the earliest. We should not forget that the 21-month period is likely to prove grossly inadequate—most people now think that it is—and will need to be extended in one way or another by some means or another.

During the transitional period of however long, be it 21 months or longer, the UK, as I understand it— the Government are in agreement with this—will remain within the EU’s customs union and be subject to the EU’s budgetary rules and procedures. So the scope for using the powers in this Bill will be nil. The only circumstances in which the Bill would be used earlier would be if there was no deal, which would give rise to the need for the powers in it. But the Government say that it is not their preferred option to have no deal and that they fervently wish to get a deal—and they had better get one, because the consequences of going over the cliff in March 2019 are dire indeed. So why not bring forward this Bill in the early months of 2019, and only if by then it is clear that the transitional period will not be available—a period during which we are debarred from using the powers in the Bill, if I have understood it correctly? Could the cause for this haste be explained largely by the Government’s doubts as to whether, in circumstances where there was no deal, there would be a majority in Parliament to pass the Bill at all? In any case, legislating now for a no-deal outcome sends the worst possible message to our EU partners about whether we really are negotiating in good faith.

That is made all the more problematic by the next set of questions that I will put, relating to the amendments to the Bill that the Government accepted in extremis in the Commons. The amendments were put forward by the rather oddly named European Research Group—odd because I cannot remember it ever having done a bit of research. They were put forward quite explicitly as amendments designed to wreck the Cabinet’s Chequers negotiating position. That was stated quite clearly in the full light of day. The Government clearly shared the view that they were wrecking amendments—otherwise, why on earth did they put on a three-line Whip to vote against the amendments? Then, suddenly, the clouds cleared, the sun shone and the Government decided that they were not wrecking amendments after all and were acceptable. As Dr Johnson said, impending execution concentrates the mind remarkably. Will the Minister give some account of the thought processes behind that volte-face?

Two of the amendments in particular require further detailed explanation. Several noble Lords have gone over them and I shall do so briefly again. The first relates to the collection of customs duties on imports, both on imported goods coming to the EU via the UK and on goods coming to the UK via an EU member state. Under the Government’s Chequers plan for a facilitated customs arrangement, we would hand over to the EU duties on goods merely transiting the UK, but we would not expect the EU to do likewise for goods arriving to us, for example, via Rotterdam. That latter requirement has now been spatchcocked into the Bill by the European Research Group amendments, and will therefore be on the statute book: that is what we are being asked to agree this afternoon. Has that amended proposal—the one that requires reciprocity—been put to the EU 27? That is a quite simple question: yes or no? If it has been put to them, have they rejected it, accepted it or just cleared their throat? Or are the British Government’s post horses still labouring between Aix and Ghent? Perhaps the noble Lord can say where we are on that.

I will ask him again: was it not, and is it not, a wrecking amendment with respect to Chequers? I think that it is. Or are the Government perhaps hoping to get agreement in Brussels on their original proposition, without reciprocity, and then return to Parliament to repeal the amendment that they were forced to accept in July? That would be a pretty gruesome situation.

Then there is the amendment relating to the systems for charging value added tax. This amendment, if I understand it correctly—again, the Minister will correct me if I am wrong—forbids the UK remaining in any EU system for charging VAT. But that will surely inevitably introduce a new element of friction, a new element of bureaucracy, into UK-EU trade. If so, it will cut right across the main objectives of the facilitated customs arrangement. Another wrecking amendment, perhaps? Perhaps the Minister can explain how that is to be managed.

Finally, how satisfied are the Government that the provisions of the proposed facilitated customs arrangement are, in reality, compatible with WTO rules? Have they consulted the WTO on the matter? Normally, exporters expect to know which rate of duty they will pay when dispatching their goods. That will not necessarily be the case under the proposed arrangement.

I apologise for raising some rather detailed questions, but these are important matters that need clarification before the Bill passes, as it necessarily will, on to the statute book. In any case, I fear that, in the absence of fully satisfying explanations, I shall be supporting either or both of the amendments that have been put before the House.

17:28

[Lord Stevenson of Balmacara (Lab)]

My Lords, I shall speak very briefly to reinforce the point made by a number of the speakers on all sides of the House, particularly by my noble friends Lord Browne and Lord Whitty: that we share the view of many people that this Bill is inexplicably linked to the Trade Bill. As I will be leading for the Opposition on that Bill, I thought I would dwell on a couple of the points that link the two Bills, in a way that I hope will be helpful to the future debate.

Having said that, it is important to recognise that the Bill as drafted is, in the narrow sense, a supply Bill—it undeniably deals with taxation issues and tariff arrangements—but it lacks a wider context in which these things can be properly assessed. Scrutiny would have been one way forward on that, but I think there will be room within the Trade Bill to pick up on some of the points made today. I give notice to the Government that, given that the Trade Remedies Authority is dealt with in the Trade Bill, it would seem possible to amend that Bill and thereby change what is currently going through in the customs Bill before us.

This has been a good debate, which has exposed many issues that will need to be returned to during the Trade Bill debate or elsewhere. Like many others, I do not think there is much point in repeating those issues here. For me, what still needs to be addressed, perhaps during that Bill’s Second Reading next week, is: what exactly constitutes a trade Bill appropriate for an independent United Kingdom? I say this not in any political sense but because there has been an absence of debate and discussion on this throughout the country since we lost direct responsibility for it in 1972. During that period, two big things have happened.

First, people have become more interested in trade as a social policy issue—something that needs to be looked at and interrogated more directly than it currently is. Within that, there needs to be further consideration of how to get away from understanding trade in terms of a physical movement of goods. Clearly, services are heavily involved and need their own consideration, but opportunities are now rare to purchase goods without having to consider the services that relate to them. However, it is not restricted to that. As the noble Baroness, Lady Altmann, said, we have to think carefully now about other barriers to trade. Whether they are regulatory or done to restrict access or use, all these things have an impact on trade which will not be dealt with if we focus only on the tariffs to be charged, now or on behalf of others, then collected and passed on.

Secondly, we have to look at trade policy as decisions on it are taken which affect other aspects such as employment, development impacts in third countries, impacts on the environment and human rights. These issues are much more widely discussed and debated in civic society today; many Members of the House will have been lobbied in anticipation of the Trade Bill, which will raise these issues. I am not saying that we will necessarily want to espouse all of them, as some involve rather narrow interests. Nevertheless, they raise a rather wider context in which we have to debate our trade policy and we must not ignore them.

On the narrow point of the role and function of the Trade Remedies Authority, there will be a series of debates on amendments which will be brought forward. They will look at its independence and explore what these two new concepts of public interest and economic interest will be in practice because without understanding those, it is not possible to understand how decisions will be taken by that body and what impact they will have on our trade activities.

We have touched in a number of ways on the role of the devolved Administrations in trade policy. If that is to be brought back from Brussels and given to the devolved Administrations, it must follow that structural changes will be needed in how we organise matters relating to trade policy to accommodate their views and aspirations, and the changes that they would like to see. At the moment, the Board of Trade is a possible way in which to do that but there are other issues, which I know the Government are thinking about. We will need to have more detail about committee structures in Parliament and on whether there will be something jointly between the two Houses, or perhaps a role for the House of Lords to develop its expertise, pursuant to the loss of work that will come through for the European Union committees. It could have a role in sectoral issues and of course in geographical issues, which will need to be brought forward. In any case, if we are to at least emulate what is happening in Europe on trade policy at the moment, we will need to find ways of bringing into the process the civic society elements which are currently excluded from discussions on trade policy in the UK. A role must be found for them: whether that is through some form of joint committee, or a process which will allow those who have views to take them forward in some form of debate or discussion, has yet to be decided.

Looking back on the history of this Bill, we are perhaps omitting from our debate today the fact that it had to be stopped earlier in the process because it was felt that it would not be able to deal with the issues that had been raised. It is a mystery to me why the Government decided that they were in a position to get the Bill through and that there would be some value in that result. Perhaps they might still consider whether there would be some benefit if this whole Bill were subsumed into the Trade Bill, and consideration given in the round as we go forward. It may be too late to stop the machine in its tracks—I do not look hopefully at the Minister for that—but it would be wrong to make a decision about a Bill dealing with a narrow issue when there is the prospect of a wider debate and discussion on the Trade Bill, which is coming down the track.

17:35

[Lord Purvis of Tweed (LD)]

My Lords, it is a pleasure to follow the noble Lord. I look forward to, if not a double act, many similar fellow contributions on the Trade Bill. I very strongly agree with him that, regrettably, many issues that we would have raised on the Bill will have to be raised during the passage of the Trade Bill. That is certainly not ideal, but this House’s voice must be heard. When we ask questions, the Government must listen.

We are engaged in the first negotiations in our country’s history to make a trading relationship harder. The Bill is the first key set of barriers to be created in this new relationship of erecting barriers rather than removing them. It is creating unnecessary uncertainty and cost and will make our trading nation’s story one of new barriers and burdens. The relationship can be as frictionless as possible, but there will be new sources of friction. On the basis of the negotiations so far, and from what we are able to discern from the Government’s position and the disagreement within the Government, there will be friction upon friction for the foreseeable future. There were epochal debates in this House on the Corn Laws and on free trade a century ago, referred to by the noble Baroness, Lady Altmann. We now have this Bill, which, owing to the cynical connivance, if not cowardice, of Ministers, we will not be able to scrutinise fully or seek to amend.

Why is it important? It should be important to all sides, whether they supported Brexit or remain in the referendum. Many on the leave side said before the referendum, and many noble Lords have consistently said since—making a compelling argument—that staying in a single market for goods, with all the regulations that that would necessarily bring and the European Court of Justice’s ultimate interpretation power of the common rulebook, is not consistent with Brexit. Now we have the Government saying that that is wholly consistent with Brexit. These are fundamental questions raised by the Bill and we have merely a couple of hours to discuss them. The House has considerable time for the Minister—I agree with other noble Lords in that regard—but this is no time for a tactic to reduce Parliament’s and this House’s proper role of reflection on and scrutiny of the Bill.

Many issues have been raised. My noble friend Lady Kramer raised fundamental questions about how the Bill will interact with rules of origin, which are a core element for many of our key trading businesses, which need certainty on this. Why is it important? It is important because it is critical to any operation of an FCA, but the Government have said that the rules of origin aspect will require no great burden of checks and investigations on whether a product being imported into or exported from the UK will comply with such regulations. Paragraph 17c of the Government’s White Paper referred to,

“for example … the point at which the good is substantially transformed into a UK product”,


and said that 96% of all such goods would not be liable for check. However, more than 40% of all goods that receive an EU tariff are of an intermediate nature. A good of an intermediate nature by definition must satisfy rules of origin regulations. The Government have given no indication of how such checks will be done or whether our goods or those we import into the UK will be able to comply with rules of origin obligations. Clearly, under the Bill there is an intention to have a differential tariff rate on the basis of those regulations. If that is based on no checks, it is incumbent on the Government to be clear about how that can work. That is only one of the questions raised by Peers in this Chamber today. My noble friend Lord Fox asked 17 sensible and substantial questions—I counted them. They were unanswered in the Commons, as the noble Lord, Lord Browne, said. There is a duty on the Government to reply to questions that this House asks them.

Those questions are over and above those asked now by those who were then involved in putting many of these proposals together, including David Davis and many others in the House of Commons who have been referred to. He said that he would not support the White Paper—and, by definition, any of the mechanisms of the FCA enabled by the Bill—because the underpinning operational foundation of it, a common rulebook of regulations, is worse than the situation that we have at the moment, within the European Union.

Will the Minister be clear about the point made by the noble Lord, Lord Hannay? It is not just a case of telling our European partners the position we seek for our future trade relationship; it is also about those 40 other countries and networks where we are engaged in discussion on rolling over existing trade agreements to a new post-Brexit scenario.

The Minister described the Bill, but he did not make a case for it. As the noble Lord, Lord Browne, said, he did nothing to describe the changes made in the Commons to the Bill as introduced to this House. How will new Clause 54, which destroys the FCA, operate? It is telling that the Government clearly do not think that this afternoon’s debate is very important. I think that the noble Viscount, Lord Trenchard, was the only speaker in support of the Government’s position. The Minister is nodding. If he can take that as a ringing endorsement of the Government’s position, he needs to worry later this evening.

As the noble Lord, Lord Hannay, asked, are we pursuing new Clause 54 in the negotiations? Is advice being published on how checks on the estimates on which the formula will be calculated, and are we in discussion with our European colleagues about how that will operate? What are the methodologies for the UK to operate under this system? Have we discussed with our European colleagues the methodology that we would expect them to apply for reciprocity?

When will the necessary changes be made for reciprocity? What is the legal basis from a European point of view? Clearly, if we are asking that of them, we need to understand the legal basis ourselves. As has been said, how can this possibly be squared with the situation in Ireland, where there will be a border where those checks will be necessary if we are asking that of the Irish Government?

How can we expect the European Union to place on other third countries the necessary requirements for them to define their goods when they export to the EU as we will expect them to do when they export to us? What arrangements will the EU be putting in place to ensure that there will be proper dispute resolution of this reciprocity? Those are just some questions that we would have hoped and expected to raise at a further stage of the Bill.

However, the uncertainty continues. At least the Government have now provided advice on the basis of there being no agreement. Their advice to businesses of 23 August on the new customs relationship ended with very clear advice: seek advice from your business advisers. If that is what our Government are saying to our businesses when the clock is clearly ticking, we are in considerable difficulty.

I asked a Question of the Minister for Health regarding medicines just before the Recess. Forty-five million packs of patient’s medicines are exported from the UK every month and 37 million are imported into the UK. Merck, GSK and AstraZeneca all forecast that if we leave the customs union, it could take five to 10 years for any technological solution—which would be under the FCA—to replace the system we have at the moment. They are now stockpiling, given the level of extra documentation. That is not project fear, nor is it a statement from the Treasury which the Department for International Trade can criticise; this is a fact from our business community.

The noble Viscount, Lord Trenchard, made a very powerful case, I think in support of the Government’s position, that we should rid ourselves of the European Medicines Agency regulation, and that we can thank God that we are leaving it. I suspect that there will have to be amendments to get rid of Clause 6 of the Trade Bill, of which the House of Commons asked that we should continue to be a part, and I am glad that that is the case.

We are often asked by people to offer scrutiny in this House, but there were clear voices from many on the other side of the argument, when we amended and asked the Commons to think again on the withdrawal Bill, saying that we were abusing our parliamentary processes. The Minister at the Dispatch Box said that we were going beyond our constitutional powers. However, contriving to classify this Bill in such a way to avoid proper scrutiny undermines that argument considerably. We shall have to come back on many specific issues, which regrettably we are unable to discuss today, whether on the regulations on anti-dumping referred to by the noble Lord, Lord Kerr, on the relationship with the FCA and our trading partners, or on the Treasury’s position and the advice it is giving about the state of the British economy if we leave without any agreement. We will need to come back to this, and from these Benches, we will do so consistently and strongly as a point of principle. That is why I endorse my noble friend’s comments: this House should express in the Division Lobby our position that we are not satisfied with how the Government are handling the Bill.

17:46

[Lord Davies of Oldham (Lab)]

My Lords, summing up a debate of this quality and range is the stuff of nightmares for me at the Dispatch Box because every single point that I put together prior to the debate has been more than adequately covered by the speakers, to whom, of course, the Government need to respond. Therefore, I have one consolation: however challenging the position in which I find myself, the Minister, after this debate, will find himself in an extremely challenging position. A series of questions have been asked to which it is entirely right that the Government should address themselves.

This is all the product of the collapse, effectively, of the Chequers agreement. The discussion in the Commons on this Bill, leading to the Government’s collapse in the face of the European Research Group’s onslaught, put the Government in the impossible position to which so many noble Lords have referred. The noble Lord, Lord Kerr, regretted the fact that this Bill has no Committee stage, so we are unable to bring a degree of detailed consideration subsequently, which we are used to doing. Given the fundamental problems with this Bill, I am not so sure that this general debate is not in itself sufficient for the Government to be obliged to think very hard and to think again. They need to deal with the obvious absurdity, to which the noble Baroness, Lady Altmann, referred: the trade remedies aspect of the Government’s proposals is in the next Bill, but this Bill has all the detail. We cannot discuss that detail because this is a supply Bill. The Government really do need to take these issues seriously and I think the debate next week on the Trade Bill will be a fundamental challenge to the Government’s position, which is woeful.

I, too, admire the noble Viscount, Lord Trenchard, in his support of the Government. He may not have anticipated being in such solitary isolation, but nevertheless, a look at the speakers’ list would show that not too many would be buttressing his argument. We are nevertheless grateful to him for presenting the argument to which the Government seem, at present, to have largely succumbed.

However, this means trouble for our negotiating position in Europe. In general terms, the questions raised on every aspect of the Bill present fundamental difficulties for the Minister in replying. In particular, we can sense—and have sensed for a year—that the problem of Northern Ireland will loom large for the Government as trade negotiations take place. My noble friend Lord Whitty, buttressed by my noble friend Lord Adonis, identified with great accuracy the implications of how critical that position is. I do not think the Government can finesse their way past that. I remember that, prior to Christmas, the Government were pleased that Monsieur Barnier and the negotiators on the other side announced that progress could be made because there had been some understanding of our position on Northern Ireland. It was never very convincing just what that understanding was. As soon as we get near legislation and look at the detail of what the Government’s policy on trade might be, we find that there is still an overwhelmingly difficult problem with Northern Ireland.

The Government cannot carry on with optimistic fudging. They have got to reach something definitive. They may not have announced, prior to the discussions on this Bill, that they would concede to the challenges put down by the European Research Group, but they have done. In consequence, there are crucial problems with our negotiating position, as identified by so many noble Lords including the noble Lord, Lord Hannay, who spent a considerable amount of time on this point. None of us can pretend that there have been many positive responses to the position the Government have adopted from Monsieur Barnier and those who represent the 27 other nations. Time moves on. We have very few months in which to avoid the position which some may regard as the proper outcome of these negotiations but which the Government have never said they contemplated and which the British people certainly never expected: that the only outcome is a hard Brexit and a fall back on the World Trade Organization. Noble Lords in this debate have identified the potential difficulties for the nation if we fall into that position.

I will keep my contribution short because I want to give the Minister the maximum amount of time to respond. He will recognise that there have been really substantial questions from every quarter of the House about the Government’s policies, particularly with regard to trade. The Commons largely called them out on this. We regret that we are not able to deal with it in significant detail, but we can all take some sustenance from the fact that, although today’s debate may not have dealt with all the issues in detail, it has identified the critical facts that the Government face as they develop their negotiating position. The Minister has got a pretty tough case to answer.

17:54

[Lord Bates]

My Lords, this has been a good debate. I now have the challenge of trying to respond to, by my calculation, 33 specific questions in the time allotted; if I am to abide by the Companion I should not exceed 20 minutes for winding up.

Before I address the key themes raised, I will say that a lot of the debate centred on the constitutional nature of what we seek to achieve through the procedure by which we are considering the Bill. I want to set out the context. The proposition made was, effectively, that this piece of legislation was being railroaded through both Houses and on to the statute book without sufficient scrutiny. To that challenge, I point out that it was on 9 October last year that the customs Bill White Paper and the trade White Paper were published; that it was on 20 November last year that the Taxation (Cross-border Trade) Bill was introduced to the House of Commons in a Ways and Means debate; that it was on 5 December last year that both the trade and the customs elements were the subject of take-note debates in your Lordships’ House; that it was on 8 January this year that the Second Reading of the Bill was debated in the other place; that, during debate on the EU withdrawal Act in your Lordships’ House, customs and trade implementation issues were readily and frequently the subject of amendments and of debate; that on 12 July the Government published their White Paper on the future economic partnership, which set out in detail the proposal for a facilitated customs arrangement; and that on 16 July the Bill completed its Commons Report stage and therefore now comes to your Lordships’ House.

[Lord Purvis of Tweed]

The Minister is making the point that the Bill started so long ago that we have had sufficient time to consider it—but some fundamental changes were made a week before the House of Commons rose for its recess. There has been no other parliamentary time to scrutinise the amendments made by the ERG, which could fundamentally change the Government’s whole proposal for a facilitated customs arrangement. There has been zero opportunity to have that consideration, and there will now be zero opportunity for it in this House as well.

[Lord Bates]

The noble Lord says that, but I am not suggesting what he has just accused me of suggesting for one minute. I am placing this in context. There has been substantial scrutiny and time for debate on the issues. The Trade Bill will follow; it has its Second Reading on 11 September, as referred to by the noble Lord, Lord Stevenson. We hope that an agreement with our European friends will take place this autumn, and there will then be a meaningful vote. Following that, there will be an agreement and implementation Bill. Following that, a piece of legislation on the future economic framework will have to come before your Lordships’ House. Placed in that context, this Bill represents the fact that at the moment our customs, trade and tariff policies are hardwired into the European Union, so there is a legislative necessity for us to have a standalone trade and customs arrangement, legislatively underpinned, so that we can prepare for any eventualities that the negotiations throw up. We have been clear throughout that it is in the best interests of this country and of the European Union that we conclude in an orderly way, with an agreement, and that we move to frictionless trade as far as possible.

The debate has focused essentially on the following issues; I will summarise them as a way of trying to work through and answer as many questions as I can in the time available.

[Lord Hannay of Chiswick]

Since the noble Lord is moving on from the point about timing, could he answer the question as to whether the powers in the Bill have any practical applicability in the context of an agreement with the European Union which provides for a 20-month transition period, during which we will not be able to exercise any of these powers because we will still be following the decisions of the customs union and the single market? I accept that, if there is no deal, these powers will have applicability. Am I correct in thinking that the only circumstance in which they will have applicability before 1 January 2021 is if there is no deal?

[Lord Bates]

That is correct. Obviously I defer to the noble Lord, who has immense experience in this area—I believe that he was one of the team of negotiators who negotiated our entry into the European Economic Community—and knows it substantially. In his question, he gave the reason why the Bill is necessary: because we are not guaranteed a deal. However, we are guaranteed that business will need to trade, because we are a trading nation. Therefore, we need to be prepared for every possible outcome or eventuality.

The headings under which this debate has taken place are: the economic impact of Brexit, raised by the noble Baroness, Lady Kramer, and the noble Lord, Lord Fox; trade remedies, which the noble Lords, Lord Kerr, Lord Stevenson and Lord Davies, referred to; the Northern Ireland border and the Bill’s relation to ports more generally, raised by the noble Lords, Lord Hain and Lord Adonis; the progress of the negotiations, mentioned by the noble Lord, Lord Tunnicliffe—and following this debate, my noble friend Lord Callanan will repeat a Statement to update the House on that; the impact on supply chains, mentioned by my noble friend Lady Altmann; and the impact on free trade, mentioned by my noble friend—I underscore the friend element—Lord Trenchard, although the noble Lord, Lord Stevenson, also placed his remarks in the context of the Trade Bill. I have tried to address the constitutional concerns raised by the noble Baroness, Lady Kramer, and the noble Lords, Lord Kerr and Lord Browne. There were also points on rules of origin, which the noble Lord, Lord Whitty, raised, as he did in the take-note debate last December. The noble Lords, Lord Purvis, Lord Whitty and Lord Hannay, referred to the application of duties and the methodology of the tariffs; the noble Baroness, Lady Kramer, raised the important issue of VAT and the way it will continue; and the noble Lord, Lord Hannay, referred to WTO status. I put that on the record just to give those who read these concluding remarks some sort of structure in terms of how I will try to work my way through the debate.

First, on the amendments to Clause 31 and the charge that they have restricted the Government’s options, we have been clear that as we leave the EU, we will also leave the EU customs union. Therefore, the Government have no objection to an enhanced level of scrutiny related to the use of Clause 31. The Chequers agreement does not envisage a customs union with the EU as part of a future economic partnership. Therefore, the amendment is consistent with the White Paper.

The noble Lord, Lord Tunnicliffe, asked whether HMRC has the necessary resources. There was a full response from the chief executive of HMRC, Jon Thompson, to Meg Hillier, chair of the Public Accounts Committee, which did a very detailed report on this subject earlier in the year. He responded as to where they were, including in terms of independent reports by the National Audit Office on the infrastructure project assessments that had taken place.

We have committed an extra £260 million to ensure the UK’s new tax and customs arrangements with the EU, including compliance and customer services staff to resolve the design of the new IT requirement. Also on that note, it was pointed out—a number of noble Lords referenced the fact—that there will potentially be a requirement for the number of customs declarations generated electronically to rise to some 250 million. There are currently 55 million. The capacity of the system that has been designed is for up to 300 million.

The noble Baroness, Lady Kramer, asked about the business impacts of the facilitated customs arrangement. There will be no new routine checks or controls for UK businesses trading with the EU under the FCA model. There will be a range of facilitations to help UK businesses which export to the rest of the world. For UK businesses importing from the rest of the world, they will benefit from the UK’s own tariffs. We estimate that up to 96% of UK goods trade will pay the right or no tariff on the UK border. I note the point made by the noble Lord, Lord Purvis of Tweed, and I will come to it later. The remaining 4% of UK goods trade is most likely to pay the UK’s tariff through the repayment mechanism, which we will make as simple as possible by introducing a range of facilitations.

The noble Lord, Lord Kerr, asked about the Trade Remedies Authority, on which there are provisions in the Bill, but which gets its structure and overarching powers from the Trade Bill to come. The Trade Bill establishes the TRA as a non-departmental public body. It will have an independent chairman. There will be recruitment processes for people to form a shadow Trade Remedies Authority ahead of its being ready for our exit from the European Union. The upcoming Trade Bill provides an opportunity to explore those issues further.

The noble Baroness, Lady Kramer, asked about the impact on supply. The Bill establishes a stand-alone customs regime in relation to taxation. For this reason, it was introduced in the other place on a ways and means resolution. Bills introduced through such resolutions are Bills of aids and supply which, in accordance with established practice, are not amended by this House. There is nothing in this Bill that could not have been in a Finance Bill.

A number of noble Lords, including the noble Lords, Lord Browne and Lord Kerr, referred to Clause 54, saying that, as amended, it prevents the Government implementing the facilitated customs arrangement. The Government have been clear in their White Paper that, under the FCA, the UK would seek to agree a mechanism for the remittance of relevant tariff revenue. The UK has proposed a tariff revenue formula taking account of goods destined for the UK entering via the EU and goods destined for the EU entering via the UK. Clause 54 is therefore consistent with the White Paper.

The noble Lord, Lord Hain, claimed that this contradicts the UK’s commitment to the backstop, and therefore a hard border would be inevitable. This point was also made by the noble Lord, Lord Adonis, who invited me to give a one-word response. I am still working on that, but, if I may, I will give him the lengthy answer first. Clause 55 seeks to avoid a fiscal customs border between Northern Ireland and Great Britain by preventing Northern Ireland forming part of a customs territory separate from GB. That was the backstop arrangement negotiated in December. Since then, both the European Commission and the UK have made their positions clear. The concept of a hard border between the Republic of Ireland and Northern Ireland is simply not acceptable to the Government.

This clause is therefore a straightforward statement of government policy. The Government have always been clear that there will be no hard border between Northern Ireland and the Republic of Ireland and have committed to protect the constitutional integrity of the UK in the joint report in December.

The noble Lord, Lord Hain, among others, asked what that means for the Northern Ireland protocol. Our proposal delivers all our commitments to Northern Ireland and Ireland. It means that goods and agri-food would flow freely across the border, with no need for any physical border, infrastructure or related checks or controls, so the backstop would not need to be used. We have said clearly that we are committed to agreeing a legally operative backstop in the withdrawal agreement, and we will continue to negotiate on this as we intensify negotiations over the coming weeks.

There has been some criticism in terms of how the White Paper has been received, but there have been a number of positive remarks. Chancellor Merkel has said that we have made progress and that it is a good thing that we have proposals on the table. The Taoiseach said:

“The Chequers statement is welcome. I believe it can input into the talks on the future relationship”.


Kristian Jensen, the Danish Finance Minister, said just a couple of weeks ago that Chequers is a,

“realistic proposal for good negotiations”.

He said that we need to go into a lot of detail but that it is a very “positive step forward”.

The Government understand that the impact and cash-flow implications of the different rates of VAT, whether it is import VAT or acquisition VAT, are a very important concern for VAT-registered businesses. It was announced in the Autumn Budget that the Government will look at options to mitigate any cash-flow impacts for businesses. The White Paper on the future economic partnership, published on 17 July, makes it clear that the Government’s aim is to,

“ensure that new declarations and border checks between the UK and the EU do not need to be introduced for VAT and Excise purposes”.

They therefore propose,

“the application of common cross-border processes and procedures”.

I was asked what happens in the event of a no-deal scenario. The Government are confident that the UK can agree a deep and special partnership with the EU. However, a responsible Government should prepare for all potential outcomes, including the unlikely scenario in which no mutually satisfactory agreement can be reached. The VAT for Businesses if there’s No Brexit Deal technical notice confirms that, if the UK leaves the EU without an agreement, the Government will,

“introduce postponed accounting for import VAT on goods brought into the UK”.

I believe that that will be welcomed by businesses and it was as a result of listening to business that we brought that proposal forward. The noble Lord, Lord Browne, asked about delivery timescales. The UK and the EU will work together on the phased introduction of a new facilitated customs arrangement. The precise timeline will be agreed through negotiations with the EU.

The noble Lord, Lord Fox, kindly referred to my north-east antecedents and interest in that wonderful part of the country, which I share with my noble friend Lord Callanan. He talked about the impact on the economy of the north-east of England. We are currently enjoying the fact that unemployment in the north-east is at record low levels—down to 4.3%. That is the lowest level for 40 years and it compares to 8.3% in the eurozone. Therefore, I think that the north-east has the ingenuity, talent, ability and propensity for hard work to be able to look after itself whatever the outcome, and that goes for the rest of the UK.

I turn to the important matter of Scotch whisky. The Scotch whisky industry is a truly great British success story, and the EU accounted for around a third of the valuable Scotch whisky exports in 2016. The Bill provides the ability to adopt the EMCS after our withdrawal from the EU in order to manage suspended UK internal excise duties. The Government want to minimise burdens on firms while still having the tools to tackle the illicit trade which undermines all legitimate producers and retailers.

I think that I have covered the point about unreasonable powers in the Bill, but I particularly want to cover the issue of the no-deal version that the Government presented last week as being “incompatible” with the Good Friday agreement, to quote the noble Lord, Lord Adonis. That is a very serious charge, and we obviously recognise that successive Governments have placed that at the heart of their policies. The UK Government remain steadfast in their commitment to the Good Friday agreement, in both letter and spirit, alongside maintaining the common travel area and associated rights and avoiding a customs border in the Irish Sea. This will meet all the commitments which have been made to the people of Northern Ireland.

There is still a lot of negotiating to be done, but there are some things that we cannot compromise on because they are at the heart of what people voted for—for example, an end to the vast annual contributions to the EU, an end to the jurisdiction of the ECJ and an end to free movement. Inevitably, there are some who are unhappy with our proposals—people who want to reverse the referendum decision—and some who, rather than compromise, would prefer the most distant relationship possible with the EU. However, the country did not vote for either of those things. It is time that we came together and agreed a pragmatic Brexit that most people can support and get on with, and which is good for us, good for business and good for our European friends. I believe that this Bill represents an important part of the preparations for that aspiration. I commend it to the House.

18:15

[Lord Tunnicliffe]

My Lords, we put down our amendment to create a framework for the debate. We wanted to assure ourselves that it would not be a simple, formal, dry debate on the supply Motion. We have been successful in that, in the sense that this afternoon’s debate has been excellent and thoughtful and has created many, many questions. I am afraid that in my judgment, and I suspect in that of many others in the House, the Government have failed to produce credible answers that are internally consistent and capable of execution. In particular, they have failed to answer the question: have the ERG amendments to the Bill effectively destroyed the Chequers solution?

The Labour Front Bench will not be able to support the amendment from the noble Baroness, Lady Kramer, because it is not presently the policy of the Labour Party to support a second referendum. With that, and in accordance with my introduction, I beg leave to withdraw the amendment.

Lord Tuncliffe’s amendment to the Motion withdrawn.

18:17

Amendment to the Motion

Moved by

[Baroness Kramer]

At end insert “but expresses profound concern that the proposals in the bill are based on the Government’s flawed commitment to leave the single market and Customs Union, that the Government have failed to produce a comprehensive economic assessment of the consequences for the United Kingdom’s economy of being outside the Customs Union, that they have sought to limit the role of Parliament, and in particular the role of this House, in the revision and scrutinising of the bill, and that they have failed to provide an opportunity for the people of the United Kingdom to have a vote, prior to the United Kingdom’s departure from the European Union, on the terms of the new relationship between the United Kingdom and the European Union”.

[Baroness Kramer]

My Lords, in the light of the need for scrutiny, so illustrated by this debate, I beg to move the amendment standing in my name on the Order Paper.

18:17

Division 1

Ayes: 98

---

Liberal Democrat: 74
Crossbench: 12
Labour: 6
Independent: 2
Conservative: 1
Plaid Cymru: 1

Noes: 178

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Conservative: 144
Crossbench: 27
Independent: 3
Democratic Unionist Party: 2
Ulster Unionist Party: 2

18:29

Bill read a second time. Committee negatived. Standing Order 46 having been dispensed with, the Bill was read a third time, and passed.