(5 years, 11 months ago)
Lords ChamberThat the Bill be now read a second time.
Relevant Documents: 11th and 32nd Reports from the Delegated Powers Committee
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.
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.
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.
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.
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?
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.