Fisheries Bill (First sitting)

Committee Debate: 1st sitting: House of Commons
Tuesday 4th December 2018 Public Bill Committees

The Committee consisted of the following Members:

Chairs: † James Gray, David Hanson

† Aldous, Peter (Waveney) (Con)

† Brown, Alan (Kilmarnock and Loudoun) (SNP)

† Carmichael, Mr Alistair (Orkney and Shetland) (LD)

† Debbonaire, Thangam (Bristol West) (Lab)

† Duguid, David (Banff and Buchan) (Con)

† Eustice, George (Minister for Agriculture, Fisheries and Food)

† Grant, Bill (Ayr, Carrick and Cumnock) (Con)

† Hill, Mike (Hartlepool) (Lab)

† Hollinrake, Kevin (Thirsk and Malton) (Con)

† Jones, Mr Marcus (Nuneaton) (Con)

† Lefroy, Jeremy (Stafford) (Con)

† Morris, James (Halesowen and Rowley Regis) (Con)

† O'Hara, Brendan (Argyll and Bute) (SNP)

Pennycook, Matthew (Greenwich and Woolwich) (Lab)

† Pollard, Luke (Plymouth, Sutton and Devonport) (Lab/Co-op)

† Smith, Owen (Pontypridd) (Lab)

† Stewart, Iain (Milton Keynes South) (Con)

† Sweeney, Mr Paul (Glasgow North East) (Lab/Co-op)

† Tracey, Craig (North Warwickshire) (Con)

Gail Poulton, Lis Gerhold, Committee Clerks

† attended the Committee

Witnesses

Bertie Armstrong, CEO Scottish Fishermen’s Federation

Barrie Deas, Chief Executive, National Fishermen’s Federation Organisation

Andrew Kuyk CBE, Managing Director, UK Seafood Industry Alliance

Paul Trebilcock, UK Association of Fisheries Producer Organisations

Martin Salter, National Campaigns Co-ordinator, Angling Trust

Public Bill Committee

Tuesday 4 December 2018

(Morning)

[James Gray in the Chair]

Fisheries Bill

09:25

The Committee deliberated in private.

09:28

[The Chair]

As you all know, we are here to consider the informative bit of the Fisheries Bill. We will first consider the programme motion, which is on the amendment paper. After that we will consider a motion to enable the reporting of written evidence for publication and then a motion allowing us to deliberate in private. I call the Minister to move the programme motion.

Ordered,

That—

(1) the Committee shall (in addition to its first meeting at 9.25 am on Tuesday 4 December) meet—

(a) at 2.00 pm on Tuesday 4 December;

(b) at 11.30 am and 2.00 pm on Thursday 6 December;

(c) at 9.25 am, 2.00 pm and 5.00 pm on Tuesday 11 December;

(d) at 11.30 am and 2.00 pm on Thursday 13 December;

(e) at 4.30 pm, 7.00 pm and 9.00 pm on Monday 17 December;

(f) at 9.25 am and 2.00 pm on Wednesday 19 December;

(2) the Committee shall hear oral evidence on Tuesday 4 December in accordance with the following Table:

[The Chair]

Under the programme order, the deadline for amendments to be considered at the first line-by-line sitting of the Committee will be the rise of the House on Thursday, so if Members wish to table amendments to be considered next week in Committee, they must table them by the rise of the House on Thursday.

Resolved,

That, subject to the discretion of the Chair, any written evidence received by the Committee shall be reported to the House for publication.—(George Eustice.)

[The Chair]

Copies of written evidence that the Committee receives will be made available in the Committee Room.

Resolved,

That, at this and any subsequent meeting at which oral evidence is to be heard, the Committee shall sit in private until the witnesses are admitted.—(George Eustice.)

[The Chair]

Why on earth we have agreed to potentially meet in private now, I have no clue. However, the learned Clerks know better than I. We will now move on to the interesting part of the session.

Examination of Witnesses

Bertie Armstrong and Barrie Deas gave evidence.

09:30

[The Chair]

I am delighted to welcome the Scottish Fishermen’s Federation and the National Fisherman’s Federation Organisation to give evidence. For the sake of Hansard, will you kindly introduce yourselves before we start questions?

Bertie Armstrong: Certainly, in alphabetical order, I am Bertie Armstrong, chief executive of the Scottish Fishermen’s Federation, which is the trade association that looks after the catching sector in Scotland. It has nine constituent associations and a geographical spread. It covers some 450 fishing boat businesses from smallest to largest.

Barrie Deas: I am Barrie Deas, chief executive of the National Federation of Fishermen’s Organisations, which is the representative body for fishermen in England, Wales and Northern Ireland.

[The Minister for Agriculture, Fisheries and Food (George Eustice)]

Q What have been the main shortcomings of the common fisheries policy from your perspective, and what would you hope to achieve through a domestic fisheries policy?

Bertie Armstrong: The central ill of the common fisheries policy is the matter of the distribution of catching opportunity—the so-called relative stability—which places us, from our waters, in the position of 60% of the seafood assets removed from our waters being in the hands of non-UK EU fishing nations. The relative figures for other coastal states, one of which we will become on Brexit day, are Norway 85% or thereabouts and Iceland 90%. So the primary ill is common access to our waters and statutorily giving away that amount of our natural capital.

The second ill of the CFP is that it is distant and remote, and the process is effectively moribund. It is dysfunctionally distant. It is centralised by treaty and cannot be uncentralised or regionalised to any proper extent. The Bill must seek not to replace one unworkable system with another.

Thirdly, and finally, some political elements of the CFP in terms of practical fisheries management are counterproductive and unworkable. For instance, no one wishes to discard our perfectly edible fish, but the way it is linked to the CFP will simply not work.

Barrie Deas: I very much share Bertie’s views. The essential problems with the common fisheries policy for the United Kingdom lie in its inception, which was based on the principle of equal access, and ten years later, the principle of relative stability that allocated shares that do not reflect the resources that are in our waters. The comparison is with what we would have been had we been an independent coastal state for the last 45 years, like Norway. It is a huge disparity.

We are tied into an asymmetric and exploitative arrangement. The departure of the UK from the EU and therefore from the common fisheries policy provides us with the first opportunity to break free of that. The content of the Fisheries Bill is extremely important in terms of taking the powers to control who fishes in our waters—the access arrangements—and to renegotiate the quota shares.

I very much share Bertie’s view that the common fisheries policy has been cumbersome to deal with and very remote from where the impact of the decisions are felt, which has led to a huge gulf between fairly grandiose legislation and failure at implementation level. The gulf between primary legislation and its implementation has been recognised by the Commission and in the common fisheries policy. In recent years there has been an attempt to address it by introducing an element of regionalisation. Unfortunately, the treaty of Lisbon and the introduction of co-decision making into fisheries involving the European Parliament has moved active decision making even further away from where it counts and where its effects are felt. In that sense, we have moved in the opposite direction.

[George Eustice]

Q Obviously, at the moment every part of the UK has access to each other’s waters. The Bill protects that in the first clause by having a key purpose of equal access. Are you happy with that approach?

Barrie Deas: Yes. I think there always has been the right of UK fishing vessels from any part of the country to fish anywhere in the waters. We think that is an important principle that should be retained. The NFFO has some problems with the impact of the devolution settlement on fisheries, which makes it much more complex, but the fundamental principle of equal access for UK vessels is one that we support.

Bertie Armstrong: Likewise, the Scots fleet would like to continue to be able to catch its prawns off South Shields as well as in the Fladen Ground, but we are too small. I think the central and relevant point is that there has been no arm-wrestling and no desire for regionalisation of the catching area. The heft of the UK exclusive economic zone is great because of the area and its seafood contents; it is not great in terms of home nation fleets. I do not think there is any sense in splitting it up, or any requirement to do so.

[George Eustice]

Q Finally, on the issue of a fair sharing methodology in future international negotiations, do you share the approach outlined in our White Paper, which is a move to using zonal attachment as the basis for future sharing arrangements?

Bertie Armstrong: From my point of view, in the strongest possible terms, there has to be some sort of principle for division. Given the fact that there will be access as we have access, for instance, to Norway, there will be access by European boats to UK waters. We need to be very careful not to put anything on the face of the Bill that is obstructive.

Barrie Deas: The most extreme example of the distortion in quota shares is English channel cod: the UK share is 9% and the French share is 84%. Other examples include Celtic sea haddock: our share is about 10% and the French share is 66%. Those kinds of distortion have been part and parcel of relative stability and equal access, and they need to be addressed as a matter of urgency.

The principle of zonal attachment is used in the division of quota shares between the EU and Norway, so it is already accepted by the EU in that context. Obviously, it does not work to their advantage in relation to the UK, which is why it is not unexpected that they are very unhappy about the change. The broad picture is that the principle of zonal attachment, reflecting the resources that are in the UK water, should be the basis for allocating quotas in the future, in our view.

Bertie Armstrong: May I add a practical example of the ills of not doing that? To make a discard reduction or ban, or a landing obligation, work, the fishing opportunity in the area has to resemble what is in the ocean. The great distortions of the CFP mean that you simply cannot make that work, because you get choked immediately on having caught all of one species and still having quota for another. There needs to be an underlying principle, and zonal attachment is the one that, by common sense and instinct—apart from the fact that Norway has accepted it—makes the most sense. If we approach the whole of our new role as a coastal state with the idea that common sense and sustainability are central, we will do well.

[Luke Pollard (Plymouth, Sutton and Devonport) (Lab/Co-op)]

Q The Minister asked about redistribution of quota from our EU friends to UK fishers. Do you feel that there are enough powers in the Bill to give certainty about how redistribution will take place, and is redistribution a nice-to-have aim and objective, or is it something that will actually happen if it is included in the Bill?

Bertie Armstrong: The Bill in its present form enables the UK to work as a coastal state in the way that other coastal states do, so the answer to that is yes. We would be greatly comforted by the insertion into the Bill of a date of assumption of sovereignty. The self-suggesting date is the end of the transition period—the implementation period, in our parlance. In other words, the end of December 2020.

[The Chair]

I am very sorry, but I am finding it hard to hear you, perhaps because I am a bit deaf. Would you mind speaking up a bit?

Bertie Armstrong: I will, forgive me. The date of the end of December 2020 should therefore be inserted into the Bill so there is a commitment to becoming, in practical terms, a coastal state.

[Luke Pollard]

Q Do you get a sense that there is a plan for how quota will be drawn down against our EU friends, rather than our having the ability to have control our waters, and then have the same quota share between UK and EU fishers?

Bertie Armstrong: There is a whole fisheries agreement laid down in the withdrawal agreement, which is yet to happen. That is the point. Your question does not indicate from whom I would seek that answer. There is a whole fisheries agreement to be negotiated. Well, we say negotiated, but you need to ask, “Who owns this place?” After Brexit, we own this place. This is the UK’s natural capital. That places a pretty strong trump in your hand of cards for the negotiation.

At one end of the spectrum of the fisheries agreement is, “None of you get in at all and fish anything,” which is absurd. At the other end of the spectrum is, “We’re going to give up and shut the fleet down. You can have at it and have the lot.” The negotiating ground is in between. We would like to see, in the fullness of time, the UK’s fishing opportunity representing zonal attachment or something close to it. That is what should be the result.

Barrie Deas: The UK will be an independent coastal state under international law. The United Nations convention on the law of the sea carries certain rights and responsibilities, including the responsibility to co-operate on the shared management of shared stocks. That is a starting point. There is a very important link between access rights and the renegotiation of quota shares. You can use the EU-Norway example as the most relevant model for future management. The UK is engaged in bilateral negotiations with the EU. That will be about setting quotas and total allowable catches at safe levels. It will also be about access arrangements for the coming year, and it will be about quota shares. That link between access and quota shares is the key to delivering a change and rebalancing of quotas to the UK, where needed. There will be a certain degree of access for European fleets—how much is to be negotiated—and there is the rebalancing of the quota shares. Those two things should be inextricably linked, and that is where our leverage lies in addressing the quota distortions that are there at the moment.

[Luke Pollard]

Q Okay, but there is nothing in the Bill necessarily that gives certainty about when that drawdown period will take place against it.

Witnesses indicated assent.

[Luke Pollard]

Q On the economic link, having fish caught under UK quota but landed in foreign ports means that the economic link between the UK quota—fish in UK waters—and the benefits to the UK is not always naturally construed. How much fish, especially from quota owned by foreign boats and caught by our EU friends, is landed in UK ports at the moment? How much should be landed, if we are to impress that an economic link should be included in the Bill?

Bertie Armstrong: It is a complicated question. We should look to other coastal states. There is great assistance in looking at other models. Iceland and Norway—to cite the pair of them again—place much stronger economic links on ownership of vessels and ownership of the stewardship of the fishing opportunity, which is less strong in the UK because of EU regulation. Everyone will know that in the late 1970s the UK attempted to apply a 75% ownership limit to foreign investment in fishing vessels and lost in the European courts because that was illegal under European law. It had to be 75% European ownership. There is an opportunity downstream to have another look at ownership.

[Luke Pollard]

Q But that is about ownership rather than about landing, is it not?

Bertie Armstrong: The first thing that happens if you make rules about landing is that you have a boat full of mackerel and you cannot land it until Friday, which is very prejudicial. If we are to make rules about landings which make instinctive perfect sense, to capture the economic activity into the land, we must have a sensible vision of how much volume we will need to cope with and how that will be done seasonally. Making simple rules is likely to produce more problems than it will solve. It would be more helpful to have a vision for the UK fishing industry. In the withdrawal from the EU lies the opportunity effectively to double the economic activity associated with UK fishing, including the whole of the supply chain. As long as we are ready for that, the landings will take place into the UK. We look forward to the day when all UK fishermen will want to land their fish into the UK, because we are a world seafood leader and that is where they will get their best price.

Barrie Deas: The principle is that UK quotas should bring proportionate benefits to the UK. That is the starting point. The question is how you do that. The obligation to land a certain proportion of the fish is there in the current arrangements—the current economic link—but there are other options to meet that question of equivalence. Requiring all fish to be landed in the UK would mean an intervention in the market, because if there are economic benefits to landing particular species abroad where there is higher value, there is obviously an economic purpose to doing it that way, so we have to be careful about that. It is right that the economic link requirements are reviewed in the new circumstances, but I quite like the idea of having the flexibility, as long as there is an equivalence, and it is all linked back to the fundamental principle that UK quotas should bring proportionate benefit to the UK.

[Peter Aldous (Waveney) (Con)]

Q I have two questions. Do you think the Bill will lead to increased fishing opportunities both for new entrants and for what until now have been called the under-10s, although I think it is important we try to get away from that descriptor? Picking up on the Minister’s comments about equal allocation across all UK fisheries for all UK boats, do you think that principle lies comfortably with the sustainable management of individual fisheries? I say that because there is a concern that it is difficult to do that when you get boats from other parts of the UK coming into waters off the East Anglian coast, and not only off the East Anglian coast. It is a concern that has been raised with me about waters off the north-east. Yesterday I was hearing about problems with managing cuttlefish down off the south-west where this problem had arisen. I would welcome both your views on those two issues.

Barrie Deas: On increased fishing opportunities and how they could be allocated, for a number of reasons, including case law in the English courts, but also the stewardship that comes along with rights of tenure, which have been an important factor in stabilising our fisheries over the last 20 years, our federation takes the view that for existing quota it should remain the same, but for additional quota we think there is a conversation to be had on the most appropriate use of that. There is a range of options.

Perhaps we are being a bit narrow here. You alluded to the division line at under-10, which has, I think, caused distortions in the fleet and unintended consequences —you have a cohort of high-catching under-10s, sometimes called rule beaters or super-under-10s, that have kind of distorted fishing patterns. There is recognition that we need to move beyond that now. In that context, there is an issue about how you define genuine small boats—genuine low-impact vessels—and I accept that. My organisation would be very interested in taking them out of the quota system altogether. That does not mean not taking into account their contribution to mortality. In a sense, it is a reversion to what we had in the early days of under-10 metre management, where sufficient quota was allocated and we did not have to have monthly quotas for that class of vessels. There is a very interesting conversation to be had about the future and new entrants and how the genuine low-impact fleets fit into that.

Equal access has been an important principle and there are dissatisfactions wherever you have a nomadic fleet arriving on the doorstep of a local fishery. That would be true of our boats fishing in bits of Scotland, I suppose, and certainly you hear these kinds of things about Scottish boats fishing off the Northumbrian coast or down in the south-west. Fishermen are competitive. They are competing with each other as well as with foreign fisherman. That is the context in which you have to situate that particular issue.

Bertie Armstrong: Mr Aldous, your question was about new entrants in under-10s. The enabler for a better deal for new entrants in under-10s will be the uplift in opportunity for fishing that comes with Brexit; otherwise, we presumably have fixed the problems already with the fishing opportunity available. The situation is different as you go around the coast. The small-vessel fleet in Scotland has a different character and tends to use creels, or pots, to catch shellfish—that is a great generalisation; there are others—so there is a different set of problems. It is generally inshore and small scale and is therefore best sorted out locally, but I think there will be a better deal for all with the uplift in opportunity.

There is another abiding principle here. If you are going to make alterations to arrangements for fishing, the fish need to be there to be caught. It is one thing to give someone tons of fish; it is quite another if the fish are not there in prime condition with a business plan for getting them landed and into a logistics chain. Much is made of the big mackerel catchers in the pelagic fleet, and much is made of rather lurid statistics about what percentage is held by what number. You cannot catch 250,000 tonnes of mackerel in winter, 100 miles to the west of the British Isles, with hand line under-10s—you simply cannot. But a few hundred tonnes to the hand line under-10s, provided the local arrangements pay attention to making sure there is a whole logistics chain and they are going to get that fish to a place where somebody wants it, is where the opportunity lies.

My final input, on behalf of slightly larger-scale fishing, is: be careful what you mean by low impact. The carbon footprint per kilogram of fish of a pelagic trawler catching mackerel is very much smaller than any other form of fishing, because you catch volume efficiently and quickly. There are many aspects to this.

In answer to the question, yes, there is extra opportunity, but there has to be extra opportunity to distribute. The problems are largely regional and should be sorted out regionally. We need to be careful not to place excessive detail on the face of the Bill. I suggest that a lot of this is best done by secondary legislation.

[Alan Brown (Kilmarnock and Loudoun) (SNP)]

Q Mr Armstrong, in answer to an earlier question you suggested that we might see a date of what you called sovereignty over quotas and waters. You suggested that the end of the implementation period as it is now—December 2020—was the ideal date. How does that square with the fact that there may be a backstop arrangement and the Prime Minister has said that, depending on what happens, we might need to extend the implementation period? How would inserting a date in the Bill work with the other flexibilities that are still to be resolved?

Bertie Armstrong: I would wish to dispense with the flexibility to extend for fishing the implementation period by placing a date on the face of the Bill. There will undoubtedly be some resistance, but that would not be up to me. That is why we would like to see that in there. We are on record as being less than completely happy that the implementation period applies to fishing at all, because legal sovereignty over the waters and the resource therein comes on Brexit day. However, we are where we are, and we recognise that the withdrawal agreement has compromises all over the place. We therefore, with reluctance, accepted the implementation period compromise, but we would not wish to see it extended at all.

The backstop has been much described, particularly over the last few days. Clarity is helpful on what happens. There are two preconditions: if the backstop clicks in and is applied and there is no fisheries agreement in place by that stage, and there is no prescription of what is in the fisheries agreement, tariffs will apply. Fishing will be cherry-picked out of the trade arrangements. Tariffs will apply to fish—which, by the way, the Scottish Government study indicates would not necessarily be a terminal problem—and access to our waters for other UK fleets would cease. So it would be a mess of large proportions and we are rather hoping that it would not apply.

I see some puzzlement about the lack of access for anybody else. If there is no fisheries agreement—and there is precedent on this, with EU-Norway arrangements, for instance—there is no access to each other’s waters.

[The Chair]

May I lay down a red line, particularly for our detailed consideration of the Bill, starting next week? The backstop and all that is not in the Bill. Those are, of course, important matters and they do have some relevance to and bearing on it, but our purpose today—and, indeed, during the process of consideration in detail, as of next week—is to consider in detail the words that are on the face of the Bill. Therefore, next week I will take a tough line on the broader political considerations and say that they are, I am afraid, simply out of order. They are important, but let us focus on the Bill.

[Alan Brown]

Q I accept your guidance, Mr Gray, but clearly there is the suggestion of the clear date versus how that would fit into the bigger picture. It is the same thing when we talk about future quota allocations and how that will work. Mr Armstrong mentioned the issue of tariffs in his answer. In yesterday’s questions to the Attorney General he said that the backstop arrangements meant that Northern Ireland would have tariff-free access to the EU and tariff-free access to Great Britain, whereas no other market will have that. Is that a concern, and how could that be addressed in this Bill?

Bertie Armstrong: To be honest, that is not where our focus lies at this point in time; it is on making sure that the Bill as an enabler of—I will use the phrase “the sea of opportunity”—makes it on to the statute book, rather than on the details of what does and does not happen to Northern Ireland in the event of a backstop.

[David Duguid (Banff and Buchan) (Con)]

Going back to Mr Pollard’s question about UK vessels landing elsewhere, for example Norway, can you say a little about what motivates fishermen to land elsewhere? What changes are required in our ports or onshore infrastructure to make landing in the UK more attractive, and is that covered by the Bill?

Barrie Deas: Money. That’s it, really. [Laughter] I had better say a bit more. Over the last 20 years, markets for fish have developed and diversified. Peterhead has become the pre-eminent white fish port in Europe. Flat fish tends to go to Urk in the Netherlands. South-west ports are sending prime, high-value fish to the continent, and then there is the shellfish market. From time to time there will be price differentials. Also, it can reflect where the vessel is fishing: for example, it might make sense to go to Denmark and land for one trip and then land back into Peterhead for the next, or to land into France. Fishermen are commercial animals. They are very much driven by catching fish but also by marketing fish, and price is key.

Bertie Armstrong: I would reinforce that. At the slight risk of crossing the red line again, and as I keep saying, the elevation of the UK to the world stage would mean that, in the simple arithmetic of volume and value, we would overtake Iceland. It would allow us the sort of conditions that our own processing industry would want to entice not only all our own landings but perhaps some from others as well. However, it is a matter of commerce and business, generally.

[David Duguid]

Q So there is the favourable price that you might get from landing elsewhere, but is there something about the ports or the processing facilities, in Norway for example, that the UK needs to catch up on? Could we do something through the Bill to help improve that? When you mentioned money, I thought you were talking about investment in our onshore facilities as well as the price on the market.

Barrie Deas: Over time, and with rebalanced quotas, there would be opportunities, because of the greater throughput, to look again at all these issues. I am not sure what you could put in the Bill particularly that would be helpful, given that this is a dynamic commercial issue that you are addressing. I certainly think that it is an important issue, but I would have to be persuaded that the Bill is the right place to address it.

[Mr Alistair Carmichael (Orkney and Shetland) (LD)]

Q Good morning, gentleman. I do not want to dwell on the date, but I think it will be an important part of our discussions when we come to line-by-line scrutiny. Your suggestion is that the date would be 31 December 2020, which is the currently envisaged end of the transitional period. You are resistant to any idea that we should extend the transitional period. How do you see fisheries management working from 29 March 2019 to 31 December 2020?

Bertie Armstrong: The provisions, as we understand it, are that we will act as a coastal state-designate during that period, participating fully in the coastal state arrangements that will set the catching opportunity for 2021.

[Mr Carmichael]

Q What does that mean in practical terms?

Bertie Armstrong: It would mean that, between now and then, there would need to be the construction of coastal state arrangements that include the United Kingdom as a stand-alone coastal state, and for the United Kingdom to participate in that. This is probably in 2020, but not before.

[Mr Carmichael]

Q That is the December Fisheries Council in 2020 anticipating the conclusion of the transitional period. You say that that is the position as you understand it. Is that on the basis of your discussions with the Government?

Bertie Armstrong: It is also as laid down in the withdrawal agreement. Happen as may, it turned up in a paragraph of the legal advice yesterday, which was not actually advice on what we ought to do on fisheries but was a repeat of what was in the withdrawal agreement.

Barrie Deas: The December Council later this month will be the last time that the UK participates as a member state. The whole apparatus of European decision making will then not apply to us; we will not have MEPs and we will not be involved in any of the decision-making forums. The transitional period is a little bit anomalous and strange, because the UK will be part of the EU delegation to EU-Norway next year but will not be in the room for co-ordination. There is some uncertainty about how that will work in practice, and we need clarity on that. I agree with Bertie that an implication of the withdrawal agreement is that in autumn or December 2020, there will be bilateral or trilateral negotiations with Norway that will set the quotas, quota shares and access arrangements for 2021. That is my understanding.

[Mr Carmichael]

Q That is in 2020, but not in 2019.

Barrie Deas: No—in 2019 we are in the implementation period. It is slightly anomalous that there is a lack of clarity about how that will work in practice. It is governed by a good faith clause for both parties, but it is still uncertain how that would work in practice.

[Mr Carmichael]

Q For the purposes of what would currently be the divvying up of whatever comes out of the EU-Norway arrangements, what is our status at the December Council in 2020? Are we there as the start of a new bilateral—is that how you understand it?

Bertie Armstrong: I know for a fact that you understand this, Mr Carmichael, but there is a point of principle that is worth mentioning. The December Council is something of a distortion of importance, because effectively it takes the pie piece—the amount of opportunity that was agreed in coastal states arrangements for the EU—and, in terms of relative stability, it fiddles about with the details and ratifies them. That will be of no real interest to us in times to come. This year it will be of extreme importance, but in times to come we will be involved in the rather more important division of the north-east Atlantic fishing opportunity. As an owner of a very significant piece of the north-east Atlantic, we will genuinely be at the top table, to use a hackneyed phrase. The December Council is not any form of top table; it is arm wrestling inside the EU for an already settled fishing opportunity.

[Mr Carmichael]

Q We anticipate that this year we will have a difficult December Council, given the science and what we know about North sea cod and other species. In my experience, these years very rarely come along in isolation. I think the anxiety is about how we are able to influence these decisions. The decisions that were made back in 2002 and 2003 about cod stocks in the North sea were central to the prosperity of the fleet. If we are not at the table in 2019 and 2020, how will we avoid becoming the dish of the day?

Barrie Deas: Those concerns have to be there for the negotiations in 2019 for 2020. Science is going to be the basis of the decisions on total allowable catches. There is the good faith clause, but we do not understand the mechanics of how the UK will be consulted as we have been promised. However, 2020 for 2021 is an entirely different scenario: all other things being equal, the UK will be negotiating as an independent coastal state and will carry a great deal more political weight as a result.

[Mr Carmichael]

Q Have the Government ever given you any explanation of why they put us in this position in the first place? They were not going to give in, but then they gave in. Did they tell you why?

Barrie Deas: I think the answer is that a transition or implementation period was agreed to give business a chance to adjust to leaving the EU—

[Mr Carmichael]

Q But why was fisheries put in that?

Barrie Deas: The whole acquis—the whole body of EU law, including fisheries law—applies. As much as we would have liked to sidestep that, the Government made a calculation that that was not available or realistic.

Bertie Armstrong: Clearly the industry was not in the room when that happened. As I understand it, there would have been no agreement and it would have been stuck with four or five nations. Of the 27, half do not have a coastline. These pressures apply to a maximum of 11, but more like four or five, nations—

[Mr Carmichael]

Q So it was in order to get a deal?

[The Chair]

Mr Carmichael, that is your last question. We are all drifting beyond the Bill. We have four questioners and 10 minutes to get them in.

Bertie Armstrong: There is certainly a matter of relevance, although it remains subjective rather than objective. If we become dish of the day, there will be a time when we are a sovereign state with a complete grip on what happens in our waters. It would therefore be unwise for short-term gain to be exacted at that stage, providing that the Government of the day retained their backbone.

[Mr Carmichael]

Indeed.

[Brendan O'Hara (Argyll and Bute) (SNP)]

Q Mr Armstrong, the Scottish Fishermen’s Federation suggests that you represent every owner and skipper from Solway to Shetland. For the record, could you tell us who you represent and about the diversity of the fishing community in Scotland?

Bertie Armstrong: We represent the 450 businesses that are responsible for most of the quota species. For the non-quota species, a large number of vessels are one handed or two handed. They belong to no associations—that is not being dismissive, but if you are a one-handed fisherman, you do not have much time for politicking. We have the whole of the Shetland Shellfish Management Organisation and the whole of the Orkney Fisheries Association, but not the Western Isles Fisherman’s Association or some of the smaller associations down in the Clyde.

[Brendan O'Hara]

Q Clause 1(7) on page 2 and clause 10 on page 6 talk about the location of home ports and how licences will be administered by Scottish Ministers or by a Northern Ireland department. As regards your membership, how important is it that, within the confines of the Bill, there is a level-playing field across the United Kingdom post-Brexit, and that one part of the UK is not given a competitive advantage over another in fishing?

Bertie Armstrong: I am not seeing much in the Bill that awards that. Be aware of the stats here—I am about to make a statement of fact, not opinion. About 60% to 65% of the UK’s fish landings by volume and value come from the Scottish fleet. That is just an observation of the facts. With access to waters, the position of the ports, where the fish live, and a couple of decades of contracting and rationalising the industry, we have ended up with quite a lot of concentration in the core areas of Scotland.

I am aware—I am very concerned—that there should be a level-playing field and no prejudice against any area, but I am comforted by the fact that business will take care of that, as long as there is nothing obstructive. The whole point of the future is the increased economic activity, which business will take care of.

[Brendan O'Hara]

Q So you have no concerns that any one part of the United Kingdom may be given a competitive advantage against another post-Brexit?

Bertie Armstrong: It would be helpful if you framed the question as to which part you think is prejudicial.

[Brendan O'Hara]

Q If Northern Ireland were given preferential treatment ahead of Scotland, Wales and an English fleet.

Bertie Armstrong: We are back to the backstop, and that will kick in only if the backstop kicks in. Anybody’s guess around this room is as good as anybody else’s guess.

[The Chair]

We are drifting a little. I am keen to extract maximum benefit from our witnesses. We have three more questioners, so I will move on, if you do not mind, Brendan.

[Bill Grant (Ayr, Carrick and Cumnock) (Con)]

Q Gentlemen, notwithstanding the desire to have a date of sovereignty in the Bill, which may or may not be possible, in general terms are you content with the Bill?

Barrie Deas: Yes, I think the broad thrust of the Bill goes in the right direction. We have some concerns about particular aspects of it, but the Bill is necessary in order to give Ministers the power to set quotas, albeit in the context of international negotiations, to negotiate as an independent coastal state, to control access to our waters, and, on that basis, to renegotiate our quota shares. That is the main thrust of the Bill, and that is really important.

We also completely understand, having been within the common fisheries policy for so long and having had direct experience, that top-down, over-centralised management is not effective, sustainable management. We need the flexibility to adapt. Fisheries seem to be particularly prone to unintended consequences; you think you are doing one thing, and it generates perverse outcomes. We need to be able to address those in an agile, very prompt fashion, and the Bill contains those delegated powers. I know that there are political concerns about Henry VIII powers, and so on. I think those are valid concerns. As parliamentarians, you have a role in scrutinising secondary legislation.

We would also like to see an advisory council. They have something similar in Australia. They actually have something similar within the common fisheries policy, not that we would necessarily want to follow that particular model. An advisory council of people with experience of the industry, who understand the complexities of a highly diverse, complex industry, would be a kind of filter for legislation. We would like that counterweight, as well as parliamentary scrutiny, but we absolutely understand the need for delegated powers.

Bertie Armstrong: We met, discussed and agreed that as the common position for the two main federations in the UK. We would be a little more concerned about excessive additions to the Bill, rather than dissatisfied with the Bill as it stands.

[Mr Paul Sweeney (Glasgow North East) (Lab/Co-op)]

Q Clause 19 sets out that the Secretary of State must consult devolved Administrations and the Marine Management Organisation when setting total levels of catches and days at sea. However, the clause does not define the manner or rigour of that consultation, or indeed any other form of consultation with stakeholders or interested parties. Do you feel that there could be an opportunity to enhance the Bill and clause 19 with further definition of what that should entail?

Barrie Deas: That relates to the idea of an advisory council to run new ideas through a panel of experts—people who understand the complexities and nuances. It would be advisory. We understand that the job of Ministers and fisheries managers is to manage, but we think that an advisory council could add something, as it does in other countries—I would certainly recommend looking at the Australian model. It could make recommendations and provide advice on new legislation coming through. That is one of the areas where the Bill could be tweaked in the right direction.

Bertie Armstrong: In that clause, there is the little anomaly of adding the Marine Management Organisation. It is an organisation good and true, no doubt, but if you are talking about, as Barrie has described, a council of administrations, it is rather an ill fit for the MMO. Perhaps it would be a technical adviser.

Barrie Deas: To build on that point, when you see that consent is required from the Secretary of State, Ministers for Scotland, for Northern Ireland and for Wales, and then the MMO, which is the delivery arm of the Department for Environment, Food and Rural Affairs, it does seem, as Bertie says, an anomalous situation.

[The Chair]

I apologise to the remaining questioners, whom we have not been able to squeeze in. We have run out of time, bar a few seconds, so I shall simply say thank you very much to both witnesses for extremely useful evidence that will greatly add to our consideration of the Bill next week. Thank you very much for taking the time and trouble to come and give evidence to us this morning.

Examination of Witness

Andrew Kuyk gave evidence.

10:25

[The Chair]

Q With no further ado, I welcome the representative of the UK Seafood Industry Alliance. Will you kindly introduce yourself for the record?

Andrew Kuyk: Thank you, Mr Gray. My name is Andrew Kuyk. I am director general of the Provision Trade Federation, which is a food trade association, but as part of that role, I also represent the UK Seafood Industry Alliance, which represents UK fish processors and traders.

[George Eustice]

Q We heard earlier about the problems with relative stability as a sharing basis. I know that in a former life you had a role in the Department for Environment, Food and Rural Affairs when things such as relative stability were set up and principles such as the Hague preference were established. Could you explain to the Committee the genesis of the existing relative stability shares and why the UK ended up with a smaller share than has seemed appropriate?

Andrew Kuyk: How long have you got?

[The Chair]

We have until 10.55, so let us try to keep it brief.

Andrew Kuyk: This is going back into history. At the time, I was first secretary, fisheries, in the UK permanent representation in Brussels, so I was the desk officer for these negotiations. I will not go into it in too much detail, but Committee members may recall that we had already joined the EU by that stage. The common fisheries policy had to wait another four or five years; it was a lengthy and difficult negotiation. The background was that, at the time we joined, we did not have an exclusive 200-mile zone, although the concept existed. We joined the EU and became subject to what was known as the common pond. There was equal access within that, save for some coastal rights under the London convention. Also, prior to the CFP, fisheries were managed by things such as the North East Atlantic Fisheries Commission—NEAFC. There was a concept of high seas and so on. Total allowable catches and quotas, as a management instrument, were familiar, but they were not done within the EU, so we had to invent that system.

The reason why there is an apparent imbalance in some of the quota shares is that the negotiation was done with reference to what was called track record, which was the catches historically taken by the various component parts of the EU fleet. Prior to our joining, most of the fish that were relevant to our domestic market were fished off countries such as Iceland and Norway. We had what then was our distant water fleet—large vessels based in Hull and Grimsby that went quite far afield to get the main species on which our market depended. Therefore, our track record was on those vessels, in waters that were not immediately covered by the EU common pond.

Also at the time—this is going back some 30 years—there was not—

[The Chair]

Mr Kuyk, I am keeping a close eye on the clock and would be most grateful if you would restrict your remarks as much as you can.

Andrew Kuyk: I will get there quickly now. The smaller vessels were not subject to logbooks and recording of catches. Our track record was good in relation to the bigger vessels, and the track record used for the decisions was going back 10 or 20 years prior to 1980. The track record for the smaller vessels was not so good. Therefore, one of the reasons why the quota shares do not necessarily reflect current realities is that they were backward-looking and based on partial data. That is the short answer to your question, Minister.

[George Eustice]

Q Thank you. Now I fast-forward to your current role. Most of your members import large quantities of cod, predominantly, from Iceland, Norway and even, I think, Russia, Finland and the Barents sea. Can you explain the nature of the preferential trade agreements we have with Iceland and Norway, and also the process of autonomous tariff rate quotas for other countries?

Andrew Kuyk: Briefly, for the benefit of the Committee, we have what I term the supply paradox. Roughly two thirds of what we eat in this country, we import, and a lot of that is not from the EU. Some 80% of what is caught by UK vessels is exported, mainly to the EU. The reasons for that are largely to do with consumer choice. The main species consumed in the UK are cod, salmon, haddock, tuna, shrimps and prawns. Obviously, the tuna and most of the shrimps and prawns are not available in UK or EU waters. The salmon is largely aquaculture. On species such as cod and haddock, we are very far from self-sufficient. Our total consumption of cod in the UK is about three times the total EU TAC for cod, so we are about 10% self-sufficient in cod.

We import that raw material because that is the market demand. A lot of that does not come from the EU, but a lot of it comes via the EU, which complicates the trade statistics. The Minister has referred to the autonomous tariff quota system—ATQs. This system is a regulation that normally runs for three years. It recognises that the EU, not just the UK, is a deficit market in fish. That relativity—about two thirds imports—applies to the EU market as a whole, so the EU recognises that the fish to meet consumer need are not available under its jurisdiction. Although there is an external tariff, it has these autonomous tariff quotas. Specified quantities are admitted, either tariff-free or at a reduced tariff, and they are negotiated on a three-yearly basis. We are just about to conclude the next agreement, which will run for only two years, rather than three.

Most of those imports come in through some kind of preferential arrangement. We pay some tariffs on some of them. There is the complication of trans-shipment through the EU; some of those are landed in, say, Rotterdam, Bremerhaven or wherever and then come to us as part of free circulation within the single market.

In summary, imports come through a variety of arrangements; some come as a result of the EU-Norway agreement. Various agreements are in place that give us the benefit of significant tariff reductions. Those are necessary, because otherwise we would not be able to supply market demand in the UK.

[George Eustice]

Q Finally, leaving aside shellfish and some of the species that we export for which tariffs are quite low, and looking specifically at your members who predominantly process highly processed cod products, what proportion of their production is re-exported to the EU, and what proportion of those highly processed products is sold in the UK?

Andrew Kuyk: I am not sure I would use the term “highly processed”. Quite a lot of it is things such as bread-crumbs; I do not know whether you regard that as a high degree of processing. It is to do with the presentation. These are consumer-ready, convenience products—fillets with some kind of coating. There is a growing line in ready meals—a meal opportunity: a fish product with vegetables and a sauce, and so on. Most of those imports are for domestic consumption, because we are a deficit market. There is some re-export. I do not have an exact figure, but I would imagine it is something like 10% or 15%—not more than that. The vast majority is to supply our domestic market.

[Luke Pollard]

Q The Bill does not talk very much about processing. If we were to include an economic link for anyone catching fish under a UK quota, where more fish was landed in the UK ports, what would the impact of that be on the UK processing sector?

Andrew Kuyk: It is difficult to say. Again, without going too much into the history, we used to have what I would call an end-to-end processing industry in the UK, where a whole wet fish would go in one end of the factory and a product would come out of the other. Over the years, that has become rationalised and specialised, and a lot of that first-stage processing now happens elsewhere. Some of it happens on board vessels, on factory ships. Some fish—I know this sounds anomalous, but it is sheer market economics—are sent to places such as China, where they are filleted, and come back as frozen blocks. The raw material for quite a lot of our processing industry at the moment is a pre-prepared product—it is not the fish straight from the boat.

That could be a problem on two or three different levels. It is a problem and an opportunity. Clearly, if there was more domestic supply available, the UK processing industry would do its best to cope with that, but that would require investment. I was listening to the earlier session. The front end of the processing factory does exist on a smaller scale in some parts of the country, but for the people who supply the vast volumes—a sort of 80:20 thing—that front end, the lines of people physically filleting the fish and so on, does not exist any more. To reinvent that, you would need the labour, which I know is a tangential issue not to do with the Fisheries Bill, but it is a broader issue for the food industry in relation to Brexit—the supply of labour—and you need the skill. You need both the people and the skill, and you would need some physical investment in capacity, more storage, more chilling and so on.

It is not as if there is under-utilised capacity. It is a function of modern business that capacity matches throughput and the market, so there is not excess processing capacity waiting for new supplies of fish. It would have to be put in place. It would require money, people and skills. To invest the money, you would need a sound business case that could give you a projection of what your price and what your market share would be. The price, critically, would depend on what your broader trading relationship was—tariffs and currency—and what the competition was. It is quite a complex jigsaw, but the short answer is that there is not significant under-utilised capacity that, at the flick of a switch, could suddenly cope with an influx of domestically caught fish.

[Luke Pollard]

Thank you. I think you are underselling the success story.

[The Chair]

Before we go on, Mr Grant looks as if he has a question on this particular point.

[Bill Grant]

Q The processing industry accounts for more than 50% of those employed in the fishing industry as a whole. Is there anything in the Bill that gives you concern that the security of those 14,000-plus jobs could be affected, or is there anything that gives you concern about the supply of fish, which is essential to secure the jobs? Is there anything in the Bill that concerns you in relation to job security and the security of the supply of fish?

Andrew Kuyk: I think not, in the sense that those are not areas that are covered in the Bill. It does not cover trading relationships or the kinds of issues that you are raising. From our point of view, is that a significant omission? Not necessarily, because my understanding of the Bill is that it is a piece of framework legislation, which gives the Government the necessary tools to manage fisheries in the UK and the marine environment, in a changed legal situation where we become a sovereign coastal state. It is the tool box for the management of fisheries. It does not address those issues. Do we have concerns about those issues? Yes, we do, but I am not sure that the Bill is the appropriate place for those concerns to be addressed.

[Luke Pollard]

Q I was just going to say that I think you are underselling the success story of British fish processing. I think the vast majority of our jobs in fishing are in processing. If more fish were landed, there would be a commensurate increase in potential jobs in processing. Earlier, you mentioned statistics about how much fish we export and how much fish we import, because there does seem to be an imbalance there. I do not think it is widely understood that we mainly export the fish we catch and import the fish we eat.

Andrew Kuyk: It is because they are not the same species.

[Luke Pollard]

Q Exactly. What are the complications? What situations would you want referenced in the Bill to ensure that there is easy and free trade in those fish products? I imagine that any tariff could have quite an impact on the level of trade across our boundary. Is there anything that needs to be included in the Bill to give fish processors the confidence that they need to invest in more facilities in UK ports and elsewhere?

Andrew Kuyk: I am not a parliamentary draughtsman, and I am not sure it is relevant to the subject of the Bill. I suppose it would be possible for the Government to include a trade section in the Bill. One of the things that unites the people I represent and your previous witnesses is that we do not think there should be a link between trade, access to waters and quotas. We think those are separate issues. I know, Mr Gray, that you do not want to go too near Brexit and the backstop, but there is a relevance, given that in the backstop you have a carve-out in article 6 of the Northern Ireland protocol, which exempts fish and fishery products from the single customs territory that would otherwise apply in the backstop, so there is the potential for tariffs to be imposed on UK exports.

To recap, the main things we catch are things like herring, mackerel and shellfish, for which there is not great demand on our domestic market—people prefer cod, tuna and salmon—but there is a good market in the EU. In that succession of hypotheses if there is not an agreement and we come into the backstop, UK exports would potentially face significant tariff barriers. There may be opportunities elsewhere, but that would have a significant impact on the trade. I genuinely do not know how you would guard against that in the Fisheries Bill.

In terms of our access to the raw materials we need, we have the ATQ system and the benefit of some EU trade agreements with third countries. Again, I do not know how you make a reserve carve-out and preserve that position in the Fisheries Bill. That would be our aspiration. As processors, we want free and frictionless trade, like any other part of the food industry. That is our headline message: free and frictionless trade. The deal on the table—the political declaration—holds out the prospect of free trade. That would be very good.

The friction will depend on the degree of regulatory alignment. Fish fall into the category of products of animal origin, to which certain special rules apply in the EU. As a third country, things would have to go through a border inspection post, and so on. Clearly, for a highly perishable fresh product, any increase in the degree of inspection control is potentially detrimental if it leads to delay. Even if the product is not spoiled, its commercial quality and its value will have reduced.

[The Chair]

We have 10 minutes for five questions. Let us be quick.

[Peter Aldous]

Q You said that 80% of our exports go to the EU.

Andrew Kuyk: We export 80% of what we catch. The majority of that goes to the EU.

[Peter Aldous]

Q Is there any scope for increasing exports outside the EU?

Andrew Kuyk: That is not really within my area of responsibility, because we are processors and traders. Quite a lot of that is exported as fish; it is not processed. You could argue from first principles that, as a UK industry, we should be getting more added value from that. Some of that fish is landed directly in EU ports. Although there is a market for that, you could argue that there would be greater economic benefit if we could get some of that value added and export.

There clearly are markets elsewhere in the world. We are a deficit market. Just a bit of propaganda for the fish industry: fish is a healthy, nutritious product, and is a renewable resource if managed properly and sustainability. There are a lot of people in the world for whom fish is their sole source of protein. There is a big demand for fish in the global trade, so there will be opportunities there, but as in any kind of market, it depends on how competitive you are. For the sorts of export that we have at the moment, which are predominantly fresh exports, not processed products, you have obvious barriers of distance. You would have to do something to make it a product that you could sell further afield. There is potential there, but going back to my earlier point it would require investment and to make the investment there has to be a sound business case.

[Mr Sweeney]

Q The Faroe Isles require boats fishing in their waters to land their catches in their ports, therefore benefitting their fish processing industry. Do you envisage similar provisions in the Bill to make that arrangement for Scottish ports?

Andrew Kuyk: I think that harks back to an earlier question. There is no surplus processing capacity to do that at the moment. You could legislate for what people have to do, in terms of where they land things, but I do not think you can legislate for how the processing industry or investors would respond to that opportunity. They might or they might not.

[Mr Sweeney]

Q As a supplementary, clause 28 mentions a grant scheme, which may be an opportunity.

Andrew Kuyk: Clearly, that would help solve the investment problem. Again, it would not be for me to pronounce on the use of public funds in that way for a particular sector of a particular industry, but if the Government chose to make grants available to do that, clearly that would help the business case for those kinds of investment.

[David Duguid]

Q I have anecdotal evidence that Dutch fishermen are currently catching about 80% of their small pelagic species in UK waters, and about 90% of that is being exported, with minimal processing, straight to west Africa. What can we do in this country to essentially cut out the middleman and make sure that the UK fleet is able to catch, land and export straight to these third countries?

Andrew Kuyk: Again, that is straying outside my territory as representing processors and traders. Your previous witnesses would be involved in that. Without going into the history too much, the Committee will be generally aware of the ability of people to buy quota and so on; it was freely sold and it was freely acquired. That is the way that the market has operated up until now. Clearly, were more quota available it would be possible for the UK fleet to seek to exploit these value added opportunities and, as you say, to cut out the middleman.

It would not necessarily be my members who would be involved in that at the outset, because that it is not business that we are currently involved in. The people who export those pelagics are not my members; it is the large pelagic companies on the catching side of the industry. It is done with minimal processing and minimal value added. I think that is a missed opportunity for UK plc, but I am not sure how much you can legislate for that. If you provide a framework that is conducive to that, then clearly business will step in with the right incentives and will do its best to take advantage of those possibilities.

[David Duguid]

Q Going back to what you said earlier about how the majority of our exports go to the EU, do you have any data on how much we export to the EU that is just minimally processed and further exported to third countries?

Andrew Kuyk: I do not have an exact figure, but I imagine that a clear majority of that would have no or minimal processing.

[Jeremy Lefroy (Stafford) (Con)]

Q You mentioned earlier the import of cod from the Barents sea, Russia, which is obviously outside the EU and the European economic area. What sort of friction is there in bringing that into the UK market, in comparison with what might be experienced in the future.

Andrew Kuyk: Virtually none, in the sense that quite a lot of this stuff is transshipped through other countries, as I have already explained. If it comes in to us through the tunnel there is no friction at all, as it has already entered the single market, so any formalities—border inspection and any controls—have taken place elsewhere. The same is true of some fish that comes from Norway; some of that comes overland into Sweden on lorries. It is not quite just-in-time in the same sense as in the automotive industry, but there is a narrow window—something like 48 hours maximum—for getting those lorries through and into the UK market. At the moment, that is frictionless.

[Jeremy Lefroy]

Q Do we import any fish from outside EU markets?

Andrew Kuyk: Yes, and we have some stuff that is landed directly in the UK. There are well tried and trusted systems, and any necessary adaptations have already taken place. We have the facilities to cope with fish that are landed directly in the UK—from Norway, Iceland or anywhere else—because that is established trade. It is well run-in, it functions smoothly and it is not a problem. My general answer is that at the moment we do not have friction either through the EU route or directly. There are controls and rules that have to be complied with, but there are tried and trusted systems. The relevant capacities for handling at ports and for storage are all there for existing trade.

[Luke Pollard]

Q I have a quick question. On supply chain fairness, there have been concerns in the media about the involvement of modern slavery in the employment practices of foreign food processors. Can you give a sense of what the UK processing sector is doing to ensure that no fish in our system are processed or caught using methods of modern slavery?

Andrew Kuyk: We certainly recognise that that is an issue in global supply chains. I think that both our members and our retail customers do their utmost through due diligence and audits to try to ensure that our own supply chains do not suffer from that. This is an issue in the textile industry and others; it is not restricted to the food industry. Part of our industry’s overall corporate responsibility is not just sustainability of the resource, but ethics and employment practices. That is part of the sustainability agenda of all major processors and retailers, and we do everything that we can to ensure that poor practice is eliminated.

[Luke Pollard]

Q So an objective in the Bill to ensure supply chain fairness—to ensure that there are no practices like modern slavery going on—would not be an obstacle to your sector operating?

Andrew Kuyk: No. As you said, there is already modern slavery legislation. Companies over a certain size must have policies in place. We would have no difficulty with that. Obviously there are some practical issues in supply chains in terms of tracing things back and assigning responsibility. On the aquaculture side—without going off at too much of a tangent—the fish feed might come from less well-regulated fisheries, but those are known problems in the industry and people are doing all in their power to tackle them, including using the commercial power not to source from areas where there is dubious practice. There is also the EU regulation on illegal, unreported and unregulated fishing, which I know we will wish to continue. There is no social chapter in IUU, but that is part of the approach to ensure that things are sustainably and ethically sourced.

[The Chair]

Mr Kuyk, I thank you very much for your most learned, well informed and well expressed evidence, which will be extremely useful to the Committee.

Examination of Witnesses

Paul Trebilcock and Martin Salter gave evidence.

10:54

[The Chair]

It is a great pleasure to welcome back Mr Martin Salter, who was the Member of Parliament for Reading West for a number of years and is a dear old friend of mine, and Paul Trebilcock from the UK Association of Fish Producer Organisations. Mr Salter is from the Angling Trust. Perhaps you could kindly introduce yourselves briefly for the record.

Martin Salter: Thank you, Mr Gray—I miss our late-night train journeys back to Swindon. My name is Martin Salter, formerly of this parish and now head of campaigns for the Angling Trust, the national representative body for all forms of recreational fishing. That includes sea angling, which according to figures from the Department for Environment, Food and Rural Affairs is an industry in its own right worth £2 billion to the UK economy, generating 20,000 jobs and supporting thousands of coastal businesses.

One of the reasons we were very keen to give evidence before you is that, despite the warm words from Ministers and in the White Paper, recreational sea angling is not mentioned in the Bill, and we are hoping that you will put that right.

Paul Trebilcock: I am Paul Trebilcock, chairman of the UK Association of Fish Producer Organisations. All producer organisations in England, Wales and Northern Ireland are in our membership. Our members account for more than 40% by value of fish and shellfish landings in the UK.

[George Eustice]

Q I will start with a question for Paul Trebilcock. The very first clause of the Bill sets out a number of important environmental targets for the sustainable harvest of our marine environment. In the south-west we have particular challenges with maximum sustainable yields in a mixed fishery. Would you explain, from the point of view of fishermen in the south-west, the types of challenge we have as we try to abide by that target?

Paul Trebilcock: I should probably say at the outset that the fishing industry clearly has an interest and a priority to ensure the long-term sustainability of all our fisheries. Sustainability is at the very core of what we want from the Bill and the UK acting as an independent coastal state. However, in the words of Karl O’Brien at the Centre for Environment, Fisheries and Aquaculture Science, the MSY concept is scientifically illiterate. To have all stocks at MSY at a particular point in time is just not possible. In particular, in ultra-mixed fisheries, as we have in the south-west, there will always be ups and downs and natural variants. We are trying to manage a dynamic natural resource.

The concept of MSY is a good principle. Working towards MSY proxies on the key driver stocks is probably more practical than what we have at the moment, with an arbitrary legally binding commitment in the common fisheries policy that gives us some perverse pieces of advice. Zero TACs on stocks does not mean they will not be caught in mixed fisheries; it just means they are not taken account of in practical fisheries management. A far better way would be to have the MSY framework as an aspiration and to move towards it, and wherever possible have as many stocks as possible in that MSY range.

[George Eustice]

Q Some people say we can learn from Norway, which uses MSY and other approaches, too. Is there anything you think we can learn from that?

Paul Trebilcock: As I say, I think there are lessons to be learned from independent coastal member states such as Norway. Its approach to fisheries management takes the whole ecosystem into account and does not try just to manage stock on arbitrary numbers. There are lessons to be learned, such as using proxies or other indicators to ensure that the whole mix of stocks is going in the right direction and perhaps using the MSY as the driver for some of the key economic stocks. It is about trying to take into account that we are trying to manage a dynamic natural resource rather than something that neatly obeys some scientific modelling.

[George Eustice]

Q Mr Salter, I feel you are a bit glass half empty about the Bill. Clause 28(1)(e), which I am sure you have read, creates the powers to give financial assistance for

“the promotion or development of recreational fishing.”

That is in the Bill and it is the first time ever that we have created power to give financial assistance to angling. Is that something you welcome?

Martin Salter: What do you think, Minister? With due respect, it is obviously right and proper that the European maritime and fisheries fund makes some of it available to the commercial sector. That is fine, but you had six direct references in the White Paper to recreational fishing. One of the great failures of the common fisheries policy is the failure to recognise recreational angling as a legitimate stakeholder in the European fishery. That is a failure of the CFP that the Bill could put right. You could do that, as we state in our evidence, by putting on the face of the Bill, “The UK Government recognise recreational sea angling as a direct user and a legitimate stakeholder in the fishery.” That would be a win-win situation and it would add to the very welcome news that we are going to have access to EMFF funding.

[George Eustice]

Q I have done this job for five years. We meet every year—you are always invited ahead of the December Council, along with the commercial fishing sector, to discuss our priorities. Bass has dominated discussions, certainly in the past three years. What is it that you seek for us to do with legal powers? Obviously the Bill is about legal powers. Are you saying you would like a licensing regime for recreational anglers? In what way would you like us to legally recognise you?

Martin Salter: We, like you, are looking forward to saying goodbye to the annual horse trading that takes place at the Fisheries Council. It is worth putting on the record that, despite the reform of the CFP, some 44% of total allowable catch limits were set above scientifically recommended limits. That process is far from perfect, and it is to be welcomed that the Bill and particularly the White Paper talk in terms of world-leading fisheries management.

However, the point for politicians is that it is easy to claim that we are going to be an independent coastal state, but that does not deliver sustainable fisheries. Senegal is an independent coastal state, and its fisheries have been wiped out by super-trawlers, which are mainly European and have used their economic power to destroy the livelihoods of artisanal fishermen in independent coastal states. You will deliver sustainable fisheries management by having world-leading sustainable fisheries policy. You will deliver that by looking at the very best in the world. You should look at Norway and in particular at the United States. The Magnuson-Stevens Fishery Conservation and Management Act 1976 puts a statutory duty on the eight regional fishery councils to take action to rebuild fish stocks.

You asked what we are seeking. We would like to see on the face of the Bill a binding duty for Ministers to set total allowable catch limits in line with scientifically recommended evidence, rather than this dreadful horse trading that takes place every year at the European Fisheries Council, which is no model of sustainable fisheries management at all.

[George Eustice]

Q Do you not think that that is there in the very first clause of the Bill, in subsection (3), which states that the “precautionary objective” is to ensure that “living marine biological resources” are exploited in such a way that they are harvested

“above biomass levels capable of producing maximum sustainable yield.”

There is a legal commitment there.

Martin Salter: There is, but there is a section in the Bill about binding duties. Frankly, Minister, if I were in your shoes, I would want a binding duty. I would want to make it crystal clear that we are going to end the discredited system that has operated under the common fisheries policy and replace it with a legally backed duty to fish at sustainable levels, just as we have legally backed targets for climate change and emissions.

I am afraid I do not agree with Paul and my colleagues in the commercial catching sector about having MSY as an aspiration. Minister, you have piloted bass conservation measures more than anybody else, but usually in the face of opposition from the commercial catching sector. We have seen those conservation measures start to lead to the rebuilding of bass stocks in the UK, which is really to be commended. We need to be bold, we need to be outliers, we need to learn from the best in the world, and we need it clearly and simply on the face of the Bill.

[Luke Pollard]

Q Paul, at the moment, not all UK fisheries are classed as sufficiently sustainable under the UK Government’s procurement policies for the Government to buy fish from them. What needs to happen for all UK fisheries to be classed as sustainable, so the UK Government’s procurement policies enable their fish to be bought and so we can be proud that all our fisheries are sustainable?

Paul Trebilcock: I think we are well down the track on that one. Increasing numbers of UK fisheries have either achieved accreditation and are now Marine Stewardship Council-accredited, or are going through the process. Growing numbers by volume and across Scotland, England and Northern Ireland are achieving that. We are definitely moving in that direction, and the UK fishing industry is currently on a trajectory toward having all its fisheries on a sustainable footing. Contrary to Martin’s view, I think the people who will deliver a sustainable fishery and fishing industry are the fishermen themselves, those who are actively at sea. Currently, there are elements of the common fisheries policy, whether it be relative stability shares, access arrangements or some of the technical measures, that hamper the travel toward that sustainability.

The UK operating as a genuine independent coastal state, with a practical and balanced fisheries policy that takes into account all three pillars of sustainability—not just the environmental but the social and economic pillars—will in a very short space of time take the UK further down that track and ultimately toward our shared aspiration of all UK fisheries operating in a sustainable way that will allow the UK Government and anybody else to buy with a clear conscience.

[Luke Pollard]

Q Martin, I agree that this Bill seems to undervalue the contribution of recreational angling and fishing to the UK economy, especially our coastal communities. You mentioned in your earlier remarks that recreational angling was a key stakeholder in other jurisdictions around the world, with the US, Canada, Australia and New Zealand all recognising recreational angling as a key stakeholder. Do you think it should be included as part of this Bill that recreational angling is a key stakeholder and should be regarded as such as the new fisheries policy is introduced?

Martin Salter: Yes, thank you for that. We are promoting an amendment that states:

“Promoting the sustainable development of public access to recreational fishing opportunities as both part of the catching sector and the leisure and tourism industries, taking into account socio-economic factors.”

What is interesting, if we look across the pond at America, is that they have fishery management policies on some stocks. It is worth bearing in mind that those fish stocks that are of interest to the recreational sector do not clash desperately with the fish stocks that my colleagues from the catching sector wish to exploit. We are not interested in monkfish. We are not interested in hake. We are not interested in crabs. We are not interested in lobsters. We are actually only interested in something like 20% of fish landed into UK ports, so there is plenty of opportunity to look at sensible resource-sharing.

In America, the striped bass fishery, which was driven to extinction by commercial overfishing, has recovered as a result of tough conservation measures. They now have in place a resource-sharing operation where X percentage of the stock each year is reserved for the recreational sector, which generates huge value for the US economy. I can read the figures into the record if you like. We have the potential to do that over here. We can look at certain fish stocks and say, “Do you know what? We could deliver better for UK plc by managing that stock recreationally, or at least sharing a proportion of that stock.”

[Luke Pollard]

Q On that point, we have had representations about Cornish bluefin tuna effectively being allocated as a catch-and-release stock in future. That seems to be an area where there might be a tension between recreational fishing and those commercial fishers who might want to catch and use that in the food supply chain. How can the tension be resolved for a stock such as that, and is there anything that needs to go in the Bill about how stocks could be better managed where there is a potential clash?

Martin Salter: To be honest, Mr Pollard, I do not think that is a matter for the Bill. We are looking forward to meeting the Minister on bluefin tuna, although we accept that he is pretty busy at the moment with two Bills going through Parliament. It is interesting that the bluefin tuna is still on the endangered list, but the International Union for Conservation of Nature list goes back to 2011, which predates the International Commission for the Conservation of Atlantic Tunas stock recovery programme. That stock recovery programme has seen the global quota increased to something like 38,000 tonnes. The EU gets 20,000 tonnes of that. Under ICCAT rules, the EU has to allocate a small proportion to a non-commercial interest—in other words, a recreational catch-and-release interest. The recreational sector only ever needs a very small part of that quota because of the mortality rate for bluefin tuna. They are big, tough animals, and the Canadian model shows that their mortality rate is around 3.6%.

You can therefore have a very small quota in the UK and develop a thriving recreational tuna fishery. Given that the stock is slowly recovering, I should imagine that ICCAT would consider it far too early to start thinking about cranking up commercial exploitation in an area of the globe where it has not traditionally happened. A first run at tuna, if you like, really needs to be a tightly licensed, properly controlled recreational fishery that sits alongside the tagging programmes that the World Wildlife Fund is currently doing in Sweden and has also done in the Mediterranean.

We need to know a lot more about these wonderful creatures before we open the door to commercial exploitation, and the first stage would be to set up a recreational bluefin tuna fishery. That would generate an awful lot of money for the south-west and for Ireland, and it would also mean—this is really important—that there would be anglers out there looking after this resource. Frankly, if stakeholders are not engaged in the fishery, bad people will do bad things to fish, as can be seen in the amount of illegal and black fish landings that take place every year in this country.

[Peter Aldous]

Q I have a couple of questions. Mr Salter, the highlight of the Second Reading debate was the vision of my hon. Friend the Member for Broxbourne (Mr Walker) for what recreational fishing might do for local economies. Does recreational fishing need to be mentioned in the Bill for you to actually achieve that objective?

Mr Trebilcock, the Bill suggests an enhanced role for producer organisations. Are you fit for purpose—not your specific PO but generally—to fulfil such a role? At the beginning of last month the European Commission issued a reasoned opinion to the UK Government, which admittedly was about the management of POs but in which there was a strong suggestion that you are not doing what you should be.

Paul Trebilcock: You are absolutely right. The Commission is certainly having a look and gave a reasoned opinion about POs functioning in the UK, although that focused primarily on the compliance checks and the audit process by the Marine Management Organisation rather than the functioning of particular POs.

The short answer to your question is that, yes, I think POs are fit for purpose. They are primarily fishermen’s organisations, entirely funded by fishermen and run by and for fishermen to manage quota, market and represent. They have an extremely valuable role. Is there room to improve as we enter a new regime? Absolutely. Clarification of a standard that all POs across the country must deliver to, clarity of function and a greater understanding from people outside POs of what they actually do would all be really useful.

[Peter Aldous]

Q If I could just come back on that, you said POs function very much for the benefit of their local communities. The Lowestoft producer organisation in my constituency is made up of three or four accountants in the town but seven trawlers that never come near the port. I do not think that that is functioning properly.

Paul Trebilcock: No, but in response I argue that the Cornish PO, for example, is made up of around 150 different fishermen, from small handliners catching mackerel and bass through to beam trawlers. That is an example of how a producer organisation might work.

In the Lowestoft example, the local boats sold to Dutch interests, and there was an evolutionary process. The Lowestoft PO functions as a producer organisation, securing maximum price for its members and that sort of thing. The local community in Lowestoft chose not to be part of that. It is important that, as we enter the UK operating as an independent coastal state, all parts of the commercial industry are encouraged into producer organisations to ensure that they collectively understand and drive the function and operation of producer organisations wherever they might be.

You really have to be seeing the benefit. Perhaps that is a role where UK Association of Fish Producer Organisations and producer organisations in general have not particularly done well in explaining to and educating people outside the PO movement what they actually do for fishing communities. The reach and effect of producer organisations goes beyond their membership in a lot of areas. I know that the south-west and east of England POs will help those in the local community who are not even in membership. I strongly feel that producer organisations do a tremendous job around the country at the moment, and have the scope to build on that and do better things as we go into the post-Brexit era.

Martin Salter: The highlight of any debate is the contribution from the hon. Member for Broxbournero, as we know.

Do we need recreational fishing on the face of the Bill? It is great when the White Paper says:

“We will consider how we can further integrate recreational angling within the new fisheries framework recognising the societal benefits of this activity and impacts on some stocks.”

However—your constituents who fish recreationally will tell you this—for many years they have been a bit sick and tired of seeing their recreational sea angling experience fall off a cliff edge as stocks are overfished, and in some cases get driven into parlous conditions. They feel that the recreational sector, despite its economic significance—its significance for jobs and for coastal communities—is basically being left to feed on the crumbs that are left over after commercial exploitation has had its whack.

If you look at quality fishery management—at America and Magnuson-Stevens, and the New Zealand fishery conservation legislation—shares are allocated. There is proper resource sharing. There is consideration in a sensible, grown-up, policy development way—recognising the social and economic impacts of the exploitation of different stocks for different purposes. It might not just be for recreational fishing. It might be for diving or other forms of tourism. It might be for conservation. Yes, putting it on the face of the Bill would send a strong signal, and would also mean a sea change from the very discredited policies of the common fisheries policy. What I think the Bill is really about is recognising that this is a new chapter for fisheries management. That is why I would urge you to support our amendment.

[The Chair]

We have eight minutes for five questions.

[Mr Carmichael]

Q Paul, I think I agree with you that the work of the POs is much undervalued, and frankly not much understood. Tell us a little bit about the work of POs in terms of trading quota across the different parts of the UK.

Paul Trebilcock: One of POs’ functions is quota management. Part of that involves getting quota to those who need it—fishermen. That can be done through the swaps and transfer mechanism, which has evolved and developed over many years. Those can be swaps involving different quota stocks swapped for those needed. It can be leasing, it can be gifting, it can be borrowing and it can be a form of banking—it is quite a sophisticated and complex, or flexible, way of doing things, which enables it to be moved around to where it is needed, wherever possible.

[Mr Carmichael]

Q What happens if the Administration in one part of the UK, for example, tries to restrict quota trading among other parts?

Paul Trebilcock: At the moment we have the ability to trade across all parts of the devolved Administration quota tonnages on an annual basis, but it is not possible to move the fixed quota allocation units across Administration borders, which hinders business and stops FQAs getting to where they need to be—fixed quota allocation units for stocks off the south-west probably are not needed in Shetland and vice versa. The ability to rebalance that and free that movement would be welcome, but at the moment there is free movement of quota tonnages across the devolved Administrations, which is absolutely essential in getting quotas.

[Mr Carmichael]

Q And the Bill as it stands would allow that to continue free of political interference?

Paul Trebilcock: The Bill as it stands, as I read it, does allow for that. The risk, of course, is that there is the signal towards devolution that means the different devolved Administrations can, I think, as I read it, choose to have their own quota management rules. That is certainly a risk, but it does not appear on my reading to be a high risk. I would hope that all devolved Administrations were trying to work collectively for the benefit of their respective fishing industries and the UK as a whole, so retaining flexibility and restoring the flexibility to move FQAs would be a welcome addition.

[Jeremy Lefroy]

Mr Salter, you rightly placed great emphasis on sustainability. Given that in the UK we export most of our fish and export most of what we catch, most of what is consumed comes from places in which as an independent coastal state we rightly have no control over whether things are fished sustainably. Do you see a role for consumer-type markings on sustainability? Should that be left up to the industry or should there be some kind of legal basis so that we walk the walk on sustainability as well as talking the talk?

Martin Salter: I think consumers welcome guidance. It is a matter for you whether you think legislation is required, but when you walk into a supermarket you see a very complicated tapestry in front of you.

We have a very real problem with farmed salmon. Our colleagues from Scotland recognise it as an important industry, but if it were a land industry it would be shut down tomorrow given the appalling levels of pollution. The amount of sewage that is discharged as a result of the Scottish salmon farming industry into pristine marine lochs is quite horrendous. The wrasse that are prevalent around Mr Pollard’s constituency in the south-west are slow-growing fish of very little commercial value—often the first fish that youngsters catch when they go sea angling. They are being shipped live to the Scottish salmon farming industry as a cleaner fish to eat the lice because that is cheaper. That is a double bad whammy. The industry really needs to improve its act—I notice that Norway is moving a lot of its agriculture on to land so that it can deal with the effluent.

I still see an awful lot of people eating Scottish farmed salmon. I am sure Scottish MPs welcome the fact that they do so, but in sustainability terms and environmental terms it is a dreadful product—doubly dreadful because of its impact on sea fish down in the south-west. Perhaps statutory guidance would be welcome, or at least a level playing field in which agriculture was forced to clean its act up as farming practices on land have been forced to do over the years.

[The Chair]

We are running out of time. May we have a last question from Alan Brown?

[Alan Brown]

Q Mr Salter, you seem to be talking about having a percentage of quotas ring-fenced for recreational angling. How would getting that into the Bill work? Would it apply to future quotas to allow expansion of the sector?

Martin Salter: We are not calling for that to be in the Bill; it would tie the Minister’s hands. If we are to adopt world-leading sustainable fishery management practice, it is important that Ministers and decision makers are able to take the best scientific advice without having to come back to Parliament to change quotas and reallocate bass stocks from 30% recreational to 37% recreational, for example. That clearly would not work. They have to have that power, but that is why it is important that we put a duty in the Bill for Ministers to set sustainability targets.

The point about resource sharing is more about achieving an optimal economic and societal return for the stock. I find it very sad that protected species such as the grey mullet that we see swimming around harbours in the UK have very little commercial value, yet at times of spawning aggregations we see entire year classes of those stocks totally netted, flooding the market and getting less than £2 a kilo. This is a slow-growing species: a grey mullet takes anything from 10 to 12 years to achieve a size that makes it a useful recreational angling target. It is a very poor use of that resource. As a good business calculation, which is the better use of that stock? Would reserving more of it for recreation give us more jobs for the UK economy—more bites for our buck, if you like? That is something that good fishery management practice would seek to achieve. It will not be achieved by legislation as such, but it could be assisted by a power and duty for fishery Ministers.

[Alan Brown]

That is a complication, because trying to get a legislative framework that gives that certainty—

[The Chair]

Order. We are strictly limited by time and it is now 11.25 am, so I fear I have to call this evidence session to an end. The Committee will meet again at 2 pm. The Committee Room will be locked in the meantime, so hon. Members may leave their papers here if they wish. I thank the witnesses very much indeed for their useful evidence.

11:25

The Chair adjourned the Committee without Question put (Standing Order No. 88).

Adjourned till this day at Two o’clock.

Courts and Tribunals (Judiciary and Functions of Staff) Bill [ Lords ] (First sitting)

Committee Debate: 1st sitting: House of Commons
Tuesday 4th December 2018 Public Bill Committees

The Committee consisted of the following Members:

Chairs: Mr Adrian Bailey, †Sir Henry Bellingham

† Antoniazzi, Tonia (Gower) (Lab)

† Bowie, Andrew (West Aberdeenshire and Kincardine) (Con)

† Chalk, Alex (Cheltenham) (Con)

† Fletcher, Colleen (Coventry North East) (Lab)

† Frazer, Lucy (Parliamentary Under-Secretary of State for Justice)

† Green, Chris (Bolton West) (Con)

† Heaton-Jones, Peter (North Devon) (Con)

† Hussain, Imran (Bradford East) (Lab)

† Knight, Julian (Solihull) (Con)

† Milling, Amanda (Cannock Chase) (Con)

† Moore, Damien (Southport) (Con)

† Phillips, Jess (Birmingham, Yardley) (Lab)

† Qureshi, Yasmin (Bolton South East) (Lab)

† Reeves, Ellie (Lewisham West and Penge) (Lab)

† Russell-Moyle, Lloyd (Brighton, Kemptown) (Lab/Co-op)

† Slaughter, Andy (Hammersmith) (Lab)

† Wood, Mike (Dudley South) (Con)

Mike Everett, Anwen Rees, Committee Clerks

† attended the Committee

Public Bill Committee

Tuesday 4 December 2018

[Sir Henry Bellingham in the Chair]

Courts and Tribunals (Judiciary and Functions of Staff) Bill [Lords]

09:25

[The Chair]

Before we begin, I will make a few preliminary points. Please switch all electronic devices to silent. Tea and coffee are not allowed during sittings. Today we will consider the programme motion, which was agreed by the programming sub-committee yesterday. We will then consider the motion to enable the reporting of written evidence for publication. In view of the limited time available, I hope that we can take those matters without too much debate.

Ordered,

That—

(1) the Committee shall (in addition to its first meeting at 9.25 am on Tuesday 4 December) meet—

(a) at 2.00 pm on Tuesday 4 December;

(b) at 11.30 am and 2.00 pm on Thursday 6 December;

(2) the proceedings shall be taken in the following order: Clauses 1 to 3; the Schedule; Clause 4; new Clauses; new Schedules; remaining proceedings on the Bill;

(3) the proceedings shall (so far as not previously concluded) be brought to a conclusion at 5.00 pm on Thursday 6 December. —(Lucy Frazer.)

Ordered,

That, subject to the discretion of the Chair, any written evidence received by the Committee shall be reported to the House for publication.—(Lucy Frazer.)

[The Chair]

We will begin line-by-line consideration of the Bill. The selection list, which shows how the selected amendments have been grouped for debate, is available in the room. Amendments grouped together are generally on the same issue, or similar issues. Decisions on amendments will not take place in the order in which they are debated, but in the order in which they appear on the amendment paper. The selection list shows the order of debate; decisions on each amendment are taken when we come to the clause that the amendment affects. I will use my discretion to decide whether to allow a separate stand part debate on individual clauses and schedules following the debates on the relevant amendments.

Clause 1

Deployment of judges

Question proposed, That the clause stand part of the Bill.

[The Parliamentary Under-Secretary of State for Justice (Lucy Frazer)]

It is a pleasure to serve under your chairmanship, Sir Henry.

A key element of our reforms in relation to courts is ensuring that we have a justice system that works better for everyone, which includes making the best use of our judges’ experience, expertise and time. I should make it clear that the deployment of judges is a matter for the judiciary, and the Lord Chief Justice and the Senior President of Tribunals already have far-reaching powers to ensure that the right judges are deployed on the right cases, taking account of changes in case loads of different jurisdictions. However, there are five areas in which clause 1 would amend current legislation to increase that flexibility to deploy judges where they are needed.

The first change is about the temporary appointment of deputy judges to the High Court. The Lord Chief Justice already has a statutory power to appoint a person meeting the eligibility criteria as a judge of the High Court if their appointment is urgent, temporary and there are no other reasonable steps that could be taken to fill the gap. Those temporarily appointed judges are ordinarily existing, serving judges who have been appointed to a judicial office via the independent Judicial Appointments Commission process. Current legislation allows those appointments to facilitate business in the High Court or Crown court only. Clause 1(1) would widen that so that the person appointed could sit in any court or tribunal on which an ordinarily appointed deputy judge of the High Court could be deployed, such as the county court, the family court, the first-tier tribunal and the upper tribunal.

The second change in clause 1 relates to the upper tribunal. The Tribunals, Courts and Enforcement Act 2007 sets out which judges are judges of the upper tribunal and may therefore hear cases there. The definition comprises a number of different types of judge, such as circuit or district judges, but does not currently include recorders. As fee-paid judges, recorders have equivalent powers to circuit judges, and may sit in the Crown court or the High Court with appropriate authorisation. Allowing recorders to sit in the upper tribunal would allow the judiciary to make more use of recorders’ experience, expertise and skill, and would provide greater flexibility to meet business need.

The third change in clause 1 relates to chamber presidents in the first-tier tribunal and the upper tribunal. Currently, there is a restriction that prevents someone from presiding over more than one chamber of the first-tier tribunal or of the upper tribunal. Subsection (4) would allow a chamber president to be appointed to more than one chamber in the same tribunal. That would enable the Senior President of Tribunals to use the existing and future complement of chamber presidents to provide continuous leadership across all chambers without having to recruit and appoint a new chamber president immediately if there were a vacancy.

The fourth change in the clause relates to senior judges of employment tribunals. Currently, there are restrictions on where senior judges of employment tribunals may be deployed. The Bill will enable the presidents of employment tribunals for England, Wales and Scotland to sit in the Employment Appeal Tribunal, which will provide additional capacity for experienced judges to hear appeals. The Bill will also enable leadership judges— the presidents and vice-presidents of the employment tribunal Scotland, and regional employment judges of the employment tribunals—to hear cases in the first- tier tribunal and the upper tribunal, making more use of their experience and skill where needed.

The final part of the clause relates to flexible deployment with respect to arbitration. The Arbitration Act 1996 currently provides for certain judges of the High Court to sit as judge-arbitrators. That allows cases falling within the relevant jurisdiction of the High Court to be resolved via arbitration with the Lord Chief Justice’s permission. The clause extends the range of High Court judges who can sit as judge-arbitrators, and would also allow the Lord Chief Justice to delegate his functions in agreeing that judges can be appointed as judge-arbitrators. That will allow, for example, judges in the chancery division of the High Court, which has seen a growth in demand for arbitration in recent years, to resolve cases in that way. Those provisions, taken together, will contribute towards a modern and responsive justice system.

[Yasmin Qureshi (Bolton South East) (Lab)]

It is a pleasure to serve under your chairmanship, Sir Henry. While we accept the necessity for the clause, we have some concerns, which we hope the Government will take on board.

We accept that there are practical arguments for expanding the flexible deployment of judges, including temporary judges appointed outside the usual Judicial Appointment Commission selection process, to a wider pool of courts and tribunals. The appointment of temporary judges as a principle, however, should be approached with caution. It is important to view flexible deployment generally through the prism of the Government’s wider reforms and cuts, and plans for savings on judicial salaries.

We are concerned about that being used regularly as opposed to on an occasional basis. [Interruption.] Sorry, the Minister was looking very confused. We are concerned about the potential for a trend of too much reliance on temporary judges. The provisions should be used only to deal with urgent matters in the case of a shortage of judges, and the deployment of judges across different sectors should not become the de facto position.

Clearly, one of the things that the Government have not mentioned is what training provisions will be provided for judges moving out of their normal area of activity. If a Crown court judge is transferred to a tribunal, for example, what kind of training would they receive to deal with issues unique to the tribunal system—for example, on issues of disability, reasonable adaption for the purpose of disability legislation, and what could be considered discriminatory under equality legislation. Those are key issues unique to employment tribunals. We want to know and ensure that there are training provisions for that.

As a consequence of the clause, civil judges might come into the criminal courts and Crown courts. What training will be provided for them to deal with specific issues that are unique to the criminal court, such as admissions of previous convictions, which can sometimes be brought in against defendants, and go against the normal rules? What about issues of disclosure? If a failure to disclose material information is ruled inadmissible, it can cause the whole case to collapse. Those are some of the things that are unique to particular courts. I have used the example of the Crown court and the employment tribunals to demonstrate that there are things that are unique to those courts. While we will not oppose the clause, we ask the Government to provide some assurance that the Lord Chief Justice and the Lord Chancellor will make proper financial provision for those judges to update their skills and to receive professional training when they go into a different area of judicial function.

[Lucy Frazer]

I am grateful to the hon. Lady for making some important points. She can rest assured that the temporary appointments are temporary, and they can be made only if they are urgent and temporary and if no other reasonable steps can be taken to fill the gaps. I can also assure her about training: where judges are asked to sit in a new jurisdiction, further induction will be provided in line with the directions of the senior judiciary. The Judicial College is in charge of training, and it will continue to train our judges. Judges will also attend continuation training for all jurisdictions in which they sit.

Question put and agreed to.

Clause 1 accordingly ordered to stand part of the Bill.

Clause 2

Alteration of judicial titles

Question proposed, That the clause stand part of the Bill.

[Lucy Frazer]

No amendments have been tabled to the clause and no issues at all were raised in the other place, or on Second Reading in this place.

In summary, the clause is part of our reform to modernise our courts to ensure that court users know who is hearing the case, and what sort of case the matter is about. The clause therefore provides for amendment of judicial titles to reflect a change in the name of the court in which those judges sit. It also ensures that the title of that office and similar offices can be changed through secondary legislation in the future.

Subsections (1) and (2) change the title of chief bankruptcy registrar to chief insolvency and companies court judge. That reflects the change in the name of the other judges of this court and of the court itself. In 2017, the name of the court dealing with bankruptcy matters was changed to the insolvency and companies court to better reflect its work. Earlier this year, the titles of the more senior judges in that court were changed to reflect the change in the name of the court. The Bill therefore changes the title of the office of the senior judge to bring it in line with other judges of the court.

Subsection (3) enables the judicial titles of other senior masters and district judges of the senior courts to be changed in future by secondary, not primary, legislation, should it be necessary to do so. Changes of title may be required, for example, because of organisational changes in the courts and tribunals. The clause will correct an anomaly that prevents some judicial titles from being amended by ministerial order. Such judicial measures, while relatively modest, will contribute towards a more modern justice system.

[Yasmin Qureshi]

The clause seems to be a sensible one, so the Opposition have tabled no amendments to it.

[The Chair]

I am pleased to hear that.

Question put and agreed to.

Clause 2 accordingly ordered to stand part of the Bill.

Clause 3

Authorised court and tribunal staff: legal advice and judicial functions

[Yasmin Qureshi]

I beg to move amendment 2, in clause 3, page 3, line 24, leave out subsection 3 and insert—

“(3) A statutory instrument containing regulations under this section may not be made unless a draft of the instrument has been laid before Parliament and approved by a resolution of each House.”

This amendment would require that where statutory instruments delegating judicial functions to authorised persons are brought they would be subject to the affirmative procedure.

[Yasmin Qureshi]

We tabled the amendment because the existing drafting of the clause appears to allow the delegation of judicial functions to authorised persons without going through an affirmative process—that is, without using secondary legislation. As the Bill stands, that would be done automatically. Bearing in mind that we have expressed concern about the whole system of the authorised person being delegated judicial functions, we believe that that should be done, if it comes to that, by means of a statutory instrument so that Parliament has a chance to discuss it. We would be able to make observations and it would not go through on the nod.

The issue of delegating judicial functions to authorised persons is important to us. At the moment, the Bill does not talk about who such people will be, what their qualifications are, what they will do, or what subjects and issues they can deal with. As the Bill is drafted and from what Ministers have said, the procedure committee is expected to make all those decisions. We do not accept that that should be the case. There are real issues that need to be determined through parliamentary discussion. These measures should be introduced through statutory instruments and not just be decided by the procedure committee as envisaged in the Bill. The procedure committee should listen to our concerns. We want more parliamentary scrutiny of this part of the legislation, through a statutory instrument.

[Lucy Frazer]

I am grateful to the hon. Member for Bolton South East for raising the issue and giving me the opportunity to respond, so I can satisfy her that her concerns are unfounded, I hope.

The power in clause 3(2) seems to have caused considerable confusion here and in the other place, so it might be helpful for me to explain how it works. That power does not permit the delegation of judicial functions to authorised persons—that is a matter for the procedure rules made by the independent rule committees. The power in clause 3(2) could not make such changes because it is a narrow power that is very clearly restricted to consequential, transitional, transitory or saving provisions—a concept that is well understood with many precedents. Those terms are construed strictly by the courts.

The power in clause 3(2) is needed because the procedure rules cannot be used to make all the necessary amendments to other secondary legislation—we will use regulations made under the clause to do that. The power is needed principally to amend references in secondary legislation from “justices’ clerk”, a post abolished by the Bill, to “authorised officer”. So far, we have identified more than 200 references in more than 60 pieces of secondary legislation that would need amendment, and there may be more.

The Government do not intend to use this power to amend primary legislation. Lord Keen gave an undertaking to that effect on Report in the other place. Therefore, there is no express provision for such amendments in clause 3. To accept this amendment would set an unhelpful precedent and would mean that valuable parliamentary time would have to be set aside to debate minor and consequential changes to secondary legislation. In a busy parliamentary Session, that would delay implementation of the provisions in the Bill. I hope that the hon. Lady is reassured and feels able to withdraw the amendment.

[Yasmin Qureshi]

Although I hear what the Minister says, we are not reassured and we will push the amendment to a vote.

Question put, That the amendment be made.

Division 1

Ayes: 8

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Labour: 8

Noes: 9

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Conservative: 9

Clause 3 ordered to stand part of the Bill.

09:42

Schedule

Authorised court and tribunal staff: legal advice and judicial functions

[Yasmin Qureshi]

I beg to move amendment 3, in the schedule, page 6, line 36, at end insert—

“(aa) is a qualified solicitor, barrister or chartered legal executive with more than three years’ experience post-qualification, and”.

This amendment would stipulate that the minimum legal qualifications for authorised persons should be three years’ experience post-qualification.

[The Chair]

With this it will be convenient to discuss the following:

Amendment 4, in the schedule, page 8, line 31, at end insert—

“() is a qualified solicitor, barrister or chartered legal executive with more than three years’ experience post-qualification, and”.

See explanatory statement to Amendment 3.

Amendment 5, in the schedule, page 11, line 12, at end insert

“and if they are a qualified solicitor, barrister or chartered legal executive with more than three years’ experience post-qualification”.

See explanatory statement to Amendment 3.

[Yasmin Qureshi]

As I have indicated to the Clerk, we will be dividing the Committee on these amendments.

Clause 3 delegates judicial functions to authorised staff, and we are concerned about that. Although we accept that there are some occasions where people other than judges can make decisions on cases, such as on simple procedural issues, including time extensions or requests for adjournments, if authorised people are to be given more than those powers, they must be of a certain calibre. The Bill gives no information on who these people will be, and that worries us, because it would appear that allowing jobs carried out by judges to be done by others, who are not qualified, is another attempt to cut costs and save money. If the Bill said that the authorised people were to be qualified lawyers, barristers or solicitors, or legal executives with three years’ experience or more, as in the amendments, we would be much more reassured about this part of the Bill.

[Ellie Reeves (Lewisham West and Penge) (Lab)]

Does my hon. Friend agree that even what might, on the face of it, be a straightforward case management conference could involve complex tactical or substantive issues? Giving such decisions to someone who is not legally qualified could have a massive impact on access to justice.

[Yasmin Qureshi]

My hon. Friend makes an excellent point. We know that more and more people are now representing themselves in court because of cuts to legal aid. If those making decisions—those may appear to be administrative but may be quite crucial to these people—are not legally qualified and trained, errors are more likely to occur, because we now have so many people representing themselves who are not familiar with court processes or the courts. That is on top of the fact that so many courts are now being closed, and a lot of the work is being done off-site by means of technological improvements. Many cases used to be disposed of in a physical court building, and there would be judges, lawyers and people who could assist and give advice and information. Now, with so much being done outside of court buildings and from call centres, there is even less help available.

I will give an example. When I was prosecuting, defending or in court, someone would sometimes turn up who had no legal representation. They would be really worried about what was going on. I and many of my colleagues would give informal advice; it was not legal advice, but we could point them in the right direction—we could suggest things they could try. There was somebody to give them advice or assistance; the court clerks or staff in the court were also able to direct people informally. However, with fewer and fewer people going to court, more and more things being done online, and more and more stuff being carried out in call centres, where someone does not know who they are speaking to or what qualifications or level of experience they have, it is even more important to ensure we have this safeguard.

It is okay to have laws, but if we have no mechanism to enforce them, or to ensure that they are done properly, justice is not served. Therefore, the complete lack of information in the Bill about who the authorised people will be, and even about what work they will do, is completely wrong. That is why we feel strongly about it, as we mentioned on Second Reading in the House of Commons, and in the other place. To date, the Government have taken no notice of that.

We also have to recognise that some of the authorised people will be employed directly by Her Majesty’s courts and tribunals, which raises questions about accountability and independence. They may be more subject to pressures because of administration. Again, therefore, we need something to show that the people who will do these things are qualified.

Qualified barristers, solicitors and lawyers, even when they work in the courts system, have an appropriate professional body with codes of conduct they have to abide by. If they do not abide by those codes of conduct, they could be struck off from their practice. However, if the people who carry out the work are not legally qualified, such as administrative staff or clerical officers, they will not have to think about their independent professional bodies. In fact, they will probably be more subject to pressures of administration to speed things up. If somebody asks for an adjournment, staff might say no; if somebody wants certain documents to be disclosed, they will say that that cannot be done, because they will be under pressure to speed things up and deal with cases quickly. They will not be as concerned as a barrister, a solicitor or a chartered executive about what their professional bodies will say.

We also do not know what kind of functions these people will be given. As my hon. Friend mentioned, something that seems straightforward could actually be quite complicated. I refer to disclosure issues in civil cases, as well as in the criminal courts. Disclosure is an important part of a case proceeding properly. Someone may well ask for certain information, and the person at the other end will say, “No, you don’t need it,” but we do not know. Because they do not have the legal expertise and knowledge, there is a greater chance of errors occurring and things happening that perhaps would not happen if a legally qualified person were exercising those powers.

The Government’s approach is that all these issues can be dealt with by the procedure rule committees, which are made up of judges and other practitioners. They are also under pressure and financial constraints, however, so they would also have to look at pressures and so on, and they might not be able to do things as independently as we might ask.

[Alex Chalk (Cheltenham) (Con)]

The hon. Lady is, of course, making important points, but we can have a degree of confidence that the judges who head up the committees, who have shown themselves to be scrupulously and fiercely independent, would continue to behave in exactly that way. Does she not agree?

[Yasmin Qureshi]

I have, of course, the utmost regard and respect for our judiciary, but I believe that, in the procedure committees, financial constraints and pressures sometime come into play in trying to speed things up through the courts system. The ethos is that a case should be dealt with very quickly—there is nothing wrong with that—and that there should be minimal interactions between lawyers in the court process. When the procedure committees make certain rules, such as defining who the authorised person is, what is wrong with Parliament saying that the starting point should be that those authorised persons must have been legally qualified for at least three years?

It is also important that we have an idea about what kind of things the authorised persons can do. Procedure committees can make rules, but they may be constrained by trying to get things through quickly. There may be things that they think that authorised persons can do, but, in fact, they should not, because they are not judicial. I do not see what is wrong with us, as Parliament, saying, “Look, this is the bare minimum that the procedure committees should be thinking about.” Then they can add to it.

[Alex Chalk]

I am grateful to the hon. Lady for giving way a second time. May I respectfully press her a little on this? On the one hand, she says that she has enormous respect for the procedure rule committees, the judges and the highly qualified people who occupy these positions, and that they would always act in a way that is consistent with justice. On the other hand, she says that, actually, they will not, because they will ensure that a desire to avoid delays trumps justice. She cannot have it both ways. If she trusts the judges, she needs to come out and say that she trusts them to act in the way that they have, in time-honoured tradition, which is by putting justice first.

[Yasmin Qureshi]

My observations relate to when judges are dealing with an individual case. Of course, we know that they are independent, but when someone becomes part of an administrative body, a procedure committee or an arm of the state—I mean that in a loose way, not in terms of a formal relationship—sometimes the criteria that they look at are different from when they are dealing with an individual case presented before them.

I will give an example, albeit not one that relates to judges. The Crown Prosecution Service, an organisation for which I worked for a number of years—I still have friends who work in it, even though I left years ago—has had different people serve as Director of Public Prosecutions. However, prosecutors who have been there for a long time say that, bar perhaps two DPPs who were really concerned about ensuring that the department was fully financially resourced, and who actually fought hard for it to get resources, the other DPPs did not make that sort of effort. People do act for administrative purposes.

The reality is that senior people at the top of organisations, when they are doing administration and are running institutions, look at things such as money and financial administration, try to save as much money as possible, and try to push things along as quickly as possible, because that looks good in their statistics. Because of that, we would say that what we are asking for is not too weighty. We have tabled very reasonable amendments. The people who will make some of these enormous decisions should be legally qualified and—we will come on to this later—we should consider what kind of things they can actually do. I do not think there is anything wrong with giving a steer to procedure committees. They can deal with some of the other rules, but we should have some basic minimum standards.

[Lucy Frazer]

I, too, propose to deal with amendments 3, 4 and 5 together, as they all relate to minimum qualifications for authorised staff. Amendments 3 and 4 require that any staff member who gives legal advice to lay justices or judges of the family court be legally qualified and have more than three years’ experience post qualification. Amendment 5 makes the same requirement of any staff carrying out judicial functions.

The staff who currently give legal advice in the magistrates court and the family courts are justices’ clerks and assistant clerks. Assistant clerks, who are also known as legal advisers, currently provide the overwhelming majority of legal advice on a day-to-day basis. To be an assistant clerk at the moment one must be a barrister in England and Wales or a solicitor of the senior courts of England and Wales, have passed the necessary exams for either of those professions, or have qualified as a legal adviser under historical rules that were in place prior to 1999.

10:00

Those requirements are set out in regulations made by the Lord Chancellor, and have been since 1979. We propose no lessening of this bar, and no substantive change to the approach for determining qualifications. Under the Bill, the qualifications required for staff to be authorised to provide legal advice to magistrates and family court judges will therefore continue to be specified by the Lord Chancellor in regulations, which must now be made with the agreement of the Lord Chief Justice.

The Government believe that maintaining this approach—putting qualifications in regulations as opposed to primary legislation—is right. It is proportionate and allows flexibility for the future. For example, one key change we have made in the draft regulations we published alongside the Bill is to include among those who can give legal advice fellows of the Chartered Institute of Legal Executives or those who have passed the necessary examinations to be a CILEX fellow. That is a progressive move, which is supported by the professions and the judiciary, and the kind of change that it would take far longer to make in the future should an alternative route to legal qualification emerge if we have to amend primary legislation instead of secondary legislation.

On amendment 5, staff can already exercise judicial functions in almost every jurisdiction except the Crown court. The range of functions that they can carry out varies enormously, from legally qualified legal advisers in the county court, setting aside default judgments, to non-legally qualified caseworkers in the lower tribunals, dealing with postponement requests and issuing strike-out warnings.

The Bill allows the relevant procedure committees to set the requirements relating to the necessary qualifications or experience of these staff in the future, depending on the functions they permit staff to carry out. Both the judicial functions and the accompanying qualifications requirements will be set out in procedure rules, which are made by way of secondary legislation and therefore subject to parliamentary scrutiny.

These committees are judicially led and independent of Government, and include representatives of the legal profession, as well as court and tribunal users, among their membership. They are best placed to assess the appropriate level of qualification or experience for authorised staff in the light of the functions they choose to allow such staff to exercise.

[Jess Phillips (Birmingham, Yardley) (Lab)]

The Minister is explaining who will get to decide whether we are flexible on this in the future, bit what I do not hear—what I do not hear in any of this Bill—is how we make sure that these changes mean improvements for the people who use these courts. While the judiciary and the people carrying out these functions certainly seem to have a voice in the changes being proposed, in terms of the changes I would like to see in the family courts, the voices of those people using the courts are nowhere in this Bill.

[Lucy Frazer]

That is a very important point. We serve the people through justice and the court system. The people who come to the courts to get justice are the people my Department is serving. In all our reform programme, we have a user-centred focus and consistently engage with users to improve our services. All the forms we have recently produced were produced with insight from users, which is why we have an extremely high satisfaction rate for the reforms we are making.

The hon. Member for Birmingham, Yardley makes an important and valid point, and I can tell her how users will benefit from this. She will have been in the House when questions were put to me about delays in the court system and about the time it is taking for certain hearings to come before the courts. We want to ensure that there are as few delays as possible and that justice is not only fair but speedily dispensed. These changes will allow functions to be operated by the appropriate people, and will enable us to get more swift, easy and quick justice for those who use our courts.

[Andy Slaughter (Hammersmith) (Lab)]

I am sure the Minister is sincere in her intention. My experience is that there is increasing delay. Part of that is caused by inexperience, perhaps because of the use of lay magistrates as opposed to district judges, who do not take command of the issue and do not timetable matters correctly. I am concerned about any decline in the level of experience. This is perhaps a question not of legal qualification but of experience in being able to manage and seize control of cases. I would rather see the greater control and scrutiny that the amendments would introduce.

[Lucy Frazer]

I am sorry if the hon. Gentleman has not experienced the appropriate level of judicial engagement or appropriate judgments in courts. I recently went to the family court in London, and I have been to courts across the country, and I have spoken to magistrates who operate in the family courts. The expertise and dedication I see is commendable. We can stand still, do nothing and just let our courts operate in the way they are operating, or we can sit back and reflect on how we can improve our court system. We are trying to do the latter through the Bill. We are trying to improve people’s experience of the courts, recognising that funds and resources are not unlimited and that we need to use them as well as we can. On listing, my Department is looking at a listing programme to ensure that lists operate as effectively as possible.

It is simply not necessary for all authorised staff exercising judicial functions to possess legal qualifications. The qualifications and experience staff need will depend on the nature of the work they carry out. Legal qualifications of the level that would be required by amendment 5 not only are far too high for the routine and straightforward case preparation tasks that we anticipate many authorised staff may carry out, but may not be the most relevant qualifications for staff in different jurisdictions. For example, it is more helpful for a registrar in the tax tribunal to be a tax professional by background than to be a legal professional. Where powers currently exist, rule committees already determine the qualifications staff need to exercise particular functions, and that works well. Such committees can focus qualification and experience requirements on what is most relevant to the work that those staff carry out.

Amendments 3, 4 and 5 would all set the bar for qualification prohibitively high and rule out a large proportion of Her Majesty’s Courts and Tribunals Service staff from giving legal advice or exercising judicial functions, even though they may have been doing either or both for a number of years.

[Alex Chalk]

Will the Minister be kind enough to address the issue of the approach we can expect judges to take in rule committees? It is my experience that they show themselves in court to be scrupulously fair and focused on justice. Does she agree that there is no reason to think they would abandon those principles when they sit out of court on a rule committee to make these important judgments?

[Lucy Frazer]

My hon. Friend makes an extremely valuable point. Rule committees are made up of members of the judiciary and legal professionals, who take their roles incredibly seriously. Lord Thomas said on Second Reading in the other place that

“it is important to stress the degree of control inherent in the Bill by the use of the rule committee. I was a member of and chaired…the Criminal Procedure Rule Committee, which I can assure you is a highly representative body with many representatives of the legal profession.”—[Official Report, House of Lords, 20 June 2018; Vol. 791, c. 2039.]

It is important to note his experience of sitting on and chairing a rule committee. I actually sat on an insolvency rule committee when I was at the Bar, and I do not think anyone mentioned costs. We were concerned with ensuring that the procedures we used in court day in, day out worked well, and that they worked well for our clients, too.

A loss of expertise would render the provisions in clause 3 and the schedule unworkable. I should add that a member of staff will not be able to give legal advice or exercise judicial functions until they have been authorised to do so by the Lord Chief Justice or their nominee, or by the Senior President of Tribunals or their delegate. Authorisations are therefore ultimately the responsibility of the judiciary, who will not authorise staff unless satisfied of their competence.

The Government’s position is consistent with the approach taken over many decades and is supported by both current and former members of the senior judiciary. Lord Neuberger, former President of the Supreme Court, said that the amendments place

“a potential straitjacket on the ability to appoint the appropriate people to make appropriate decisions.”

He went further, reflecting that there

“will be many decisions”

for which the level of experience set out in the amendments

“would be appropriate, but there will be others where less experience would be adequate for the decision-making.”—[Official Report, House of Lords, 10 July 2018; Vol. 792, c. 882.]

I want to reassure hon. Members that we have listened to the concerns expressed here and in the other place about linking the qualifications of staff to the judicial functions that authorised staff may carry out. That is why we added further safeguards to the Bill in the other place by restricting the functions that staff will be able to exercise. In the light of that, Lord Marks of Henley-on-Thames said:

“we are not persuaded that it is necessary for the authorised person exercising the remaining powers—some of which are trivial, some minor and some of more substance—to be a qualified lawyer or one of particular experience.”—[Official Report, House of Lords, 16 October 2018; Vol. 793, c. 414.]

Before I close, I would like to respond to a number of the points made by the hon. Member for Bolton South East in putting forward her amendments. She has mentioned for the second time in her submissions cost-cutting. What we are doing in the Bill is trying to achieve a position whereby judges are deployed in the most effective way to bring justice to the people whom they serve. We are trying to ensure that jobs are appropriate for those who carry them out, and that they have the appropriate qualifications. The hon. Lady suggested that only barristers, solicitors and judges—that is, people who are legally qualified—understand justice. That is self-evidently wrong. A large part of our criminal justice system is the justice dispensed by magistrates, who are volunteers and are extremely able. As I have said, many people are already carrying out the functions, and carrying them out well, in courts and tribunals across the country.

The hon. Lady mentioned court closures. Of course, this is not a debate about court closures; it is a debate about who carries out functions in the courts that operate. She also suggested that call centres are having a detrimental impact on justice. Our call centres are actually improving justice, because, as can be seen from the take-up rate, people are speaking to someone who can answer their concerns much more speedily. The satisfaction of people ringing up is improved as the pick-up time is improved, because it is now dedicated people picking up the phone, rather than people in courts, who have a large number of things to do.

I hope that the hon. Lady feels able to withdraw the amendment, based on the explanations that I have put forward.

[Yasmin Qureshi]

I thank the Minister for her response, but our position remains the same, and we ask for a vote on the amendment.

Question put, That the amendment be made.

Division 2

Ayes: 8

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Labour: 8

Noes: 9

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Conservative: 9

[Yasmin Qureshi]

I beg to move amendment 6, in the schedule, page 11, line 32, leave out subsection 67C and insert—

“67C Right to judicial reconsideration of decision made by an authorised person

A party to any decision made by an authorised person in the execution of the person’s duty as an authorised person exercising a relevant judicial function, by virtue of section 67B(1), may apply in writing, within 14 days of the service of the order, to have the decision reconsidered by a judge of the relevant court within 14 days from the date of application.”

This amendment would grant people subject to a decision made under delegated powers to a statutory right to judicial reconsideration.

[The Chair]

With this it will be convenient to discuss the following:

Amendment 7, in the schedule, page 19, line 21, at end insert—

“(7A) A party to any decision made by an authorised person in the execution of the person’s duty as an authorised person exercising functions of a tribunal, by virtue of this subsection, may apply in writing, within 14 days of the service of the order, to have the decision reconsidered by a judge of the relevant tribunal within 14 days from the date of the application.”

This amendment would require the Tribunal Procedure Rules to set out a procedure for applying for judicial reconsideration. It is consequential on Amendment 6.

Amendment 8, in the schedule, page 11, line 40, at end insert—

“(2A) In reaching its decision under sub-paragraph 2 above, the authority must consider whether the function is capable of having a material impact on the substantive rights of the parties.”

This amendment would require any Procedure Rules Committee making rules about the functions to which a reconsideration right would apply to consider whether the substantive rights of the parties will be materially affected.

Amendment 9, in the schedule, page 19, line 39, at end insert—

“(2A) In reaching its decision the Committee must consider whether the function is capable of having a material impact on the substantive rights of the parties.”

This amendment would require any Procedure Rules Committee making rules about the functions to which a reconsideration right would apply to consider whether the substantive rights of the parties will be materially affected.

10:14

[Yasmin Qureshi]

Amendments 6 and 7 have been tabled to ensure that there is a safeguard for claimants who do not accept a decision made by authorised persons. There should be a right to a statutory reconsideration, and the claimant should be able to apply in writing, within 14 days of the service of order, to have a particular decision reconsidered by a judge of the relevant court. They are strengthening provisions. As we do not know who authorised persons will be or what delegated functions will be given to them, we believe that if claimants disagree with important decisions, they should have a statutory right to reconsideration. The Bill makes no reference to that.

Amendments 8 and 9 relate to the issue of material impact. When a decision is being made on whether there a should be a reconsideration within 14 days, we ask that there be consideration of whether the function could have a material impact on the substantive rights of the parties. That means that we accept and acknowledge that one should not be able to ask for reconsideration simply because one disagrees with the decision of the authorised person; one must have a cogent reason. There must be proper grounds for requesting a reconsideration. We would define and decide what is an appropriate reason for asking for a reconsideration by assessing the limb of material impact on the substantive rights on the parties, which I think speaks for itself. That relates to decisions made by authorised persons that are material and important to the claimant, who should be able to ask for a reconsideration of that decision.

We suggest that the application in writing should be sent within 14 days of the decision, but it could be 21 days if the Government wished to change that. We think that 14 days is the minimum period that should be allowed for the reconsideration application to be made. The Government’s intention is to leave the procedure committee to decide fully what “material impact” means, whether there should even be reconsideration options for claimants, and by what processes that must be done.

We are effectively asking for safeguards for litigants. I will try not to repeat the same points, but it is important to remind the Committee of a point I made earlier, which was that a number of claimants are not legally represented because of cuts to legal aid, both civil and criminal. Many people now go to court without any legal advice, and are basically litigants in person or may have a McKenzie friend. To ensure that decisions are made properly, if there is a material impact on the substantive rights of parties, claimants should be able to ask for a reconsideration of the decision by a legally qualified judge of the court. People will have more confidence that the decision has been made properly, if it is made by a judge.

It should not be left to the procedure committee to decide, in theory, whether to allow reconsideration or to decide, off its own bat, what kind of decisions should be up for reconsideration. We ask that it determine and put into place rules on how reconsideration applications could be done.

Again, those three things are there to enhance the right of the ordinary person going into the court system and to ensure that our judicial system maintains the highest standards, as accepted throughout the whole world. For Parliament not to have democratic oversight of the matter, and not to indicate what the procedure committee should do, is a derogation of our duty to the people of this country. We are effectively looking after their interests. A judgment or decision by an authorised person should be subject to review by a judge. We accept that should not be done gratuitously, or in cases that do not warrant it, but if the decision has an impact on the rights of the person, that should be allowed. We ask the procedure committee to set out a procedure for applying for judicial reconsideration.

[Alex Chalk]

The hon. Lady makes a fair point; I will be interested to hear what the Minister says. How does she propose that an assessment be made about whether the decision truly had a material impact? A decision on whether to grant an adjournment or on whether to allow evidence to be admitted could in certain circumstances have a material impact, but in other circumstances might not. How would she ensure that the procedure to determine that was effective and efficient, and did not clog up the courts?

[Yasmin Qureshi]

We could include the criterion of the impact on someone’s rights. When we look at a case, we can work out whether an adjournment or a particular issue regarding disclosure would have an impact. The legislation should have that as a criterion in determining whether there should be judicial reconsideration. Obviously, we assume that the procedure committee would set out a procedure whereby, when a person writes to the court to ask that something be reconsidered, it goes to a judge, who works out whether this was something that impacted on the person and should therefore be subject to reconsideration. The legislation does not do any of those things.

Although we accept that some administrative functions carried out by judges can be delegated to the “authorised people” defined in the Bill, when a judicial legal function is given to other people, there should be a right to ask for reconsideration of the decision if a litigant is unhappy with it. To avoid anything flimsy, we have helpfully put in the impact aspect, so that reconsiderations are not a matter of course but are limited to appropriate cases. We would leave it to the procedure committee to make rules as to what the procedure would be.

The amendments are perfectly reasonable. The Minister mentioned that some Lords in the other place said that the provisions were okay, but if we look at the Hansard, Lord Marks of Henley-on-Thames, Lord Pannick and others said that they had concerns, not just about the issue of 14 days’ reconsideration, but also in relation to the authorised persons. The Government have put all these things about judicial functions, delegated persons and authorised people into one clause, but concern was expressed in the other place about the need to make the legislation better. Those are my words.

We have gone further than some of the noble Lords in the other place, but we tabled the amendments not for the fun of it, but because we genuinely and sincerely believe that they would ensure that processes were carried out properly, justice was done properly, and properly qualified people would deal with issues. If there are decisions that people are unhappy with, they should have the right to ask for reconsideration within 14 days, if that is appropriate—or 21 days; I would be happy with whatever additional days the Government wished to add.

[Lucy Frazer]

As the hon. Member for Bolton South East has said, amendments 6, 7, 8 and 9 deal with the right of reconsideration of decisions taken by authorised staff in courts and tribunals, and amendments 6 and 7 would enable a party in a case to request that any decision made by an authorised person exercising the functions of a court or tribunal be reconsidered by a judge. It might be appropriate for there to be reconsideration of decisions, but the Government believe that the independent procedure rule committees, composed of jurisdictional experts and experienced practitioners, are best placed to decide if such a right of reconsideration is needed and if so, the form it should take.

The approach taken in the proposed amendments would impose across all jurisdictions the same blanket right of reconsideration with an arbitrary deadline of 14 days. That would not work in practice, especially for those functions that are entirely straightforward case management and preparation duties. Each jurisdiction has its own ways of working, and it is imperative that any mechanism for reviewing decisions is designed with those jurisdictional intricacies in mind.

The rule committees in the civil and tribunals jurisdictions, for example, already have included in their respective rules a specific right to judicial reconsideration for decisions made by authorised persons. The magistrates courts and the family court, however, have their own existing mechanisms for reviewing various decisions, which the amendments would cut across.

Furthermore, the amendments are unworkable. In the magistrates courts, legal advisers issue some 2.5 million local authority summonses every year. If a right of reconsideration, as laid out in the amendments, were imposed on the court, a defendant could apply to the court against the issue of the summons. That would inevitably delay the first hearing and would mean that the matter would need to be referred to a magistrate who would reconsider the decision to issue the summons alongside a legal adviser, and the outcome of that decision would need to be notified to the parties before the case could start. That would build significant delay and cost into the process.

There are already three ways for a defendant to challenge a case in which a summons has been issued in the magistrates courts. They can make an initial argument to the court hearing the case that the summons should not have been issued, contest the substantive application made by the local authority, or apply for a judicial review of the decision to issue the summons. Creating a mandatory right to judicial reconsideration is therefore unnecessary.

I have some sympathy with the intention behind the hon. Lady’s amendments, which is to ensure that the Bill contains adequate safeguards. For that reason, the Government moved amendments on the right of reconsideration that were accepted on Report in the other place. Those require the committees, when making any rules, to allow authorised staff to exercise judicial functions and consider whether the rules should include a right to judicial reconsideration of decisions made by authorised staff exercising those functions. That means the rule committees will have to consider whether each judicial function should be subject to a right to reconsideration. Additionally, the amended Bill requires that if a rule committee decides against the creation of a right of reconsideration, it must inform the Lord Chancellor of its decision and the reasons for the decision.

The measures in the Bill should also be read alongside the existing statutory provisions, which require the committees to consult such persons as they consider appropriate before they make rules. If a rule committee then chose not to include a right of reconsideration in its rules, it would have to notify the Lord Chancellor. The Lord Chancellor could then ask the committee to reconsider its decision, or, if he agreed with it, he could lay the rules in Parliament. We expect that he would set out the committee’s rationale for not including a right of reconsideration in the explanatory memorandum to accompany the statutory instrument. The Bill as amended in the other place therefore ensures much greater transparency in the decision-making process.

10:30

[Alex Chalk]

Those are reassuring words. Will the rule committee have the right to request when, in certain circumstances, an exercise of discretion that might otherwise be innocuous—say, for the sake of argument, granting an adjournment—could lead to a material impact on the rights of an individual, that there could be a right of review in those circumstances? Does the Minister follow? It is important that that flexibility is in place.

[Lucy Frazer]

I think that is right. It will be the rule committee that will set out the procedure and requirement for any reconsideration. If it considers what my hon. Friend has mentioned as an appropriate way forward, it could make those determinations.

The noble and learned Lord Thomas, the former Lord Chief Justice said:

“I support what the Government seek to do and urge a substantial degree of caution in respect of the proposal put forward by the noble Baroness”—

that is, Baroness Chakrabarti. He added that the Government’s approach provides the right balance:

“It gives discretion to a body that knows and has a lot of experience, but it contains that degree of explanatory accountability that will make sure that it does not do anything—even if we were to worry that it might—that goes outside a proper and just delegation”.—[Official Report, House of Lords, 16 October 2018; Vol. 793, c. 425-426.]

Amendments 8 and 9 relate to the right of judicial reconsideration and the substantive rights of parties to cases in the courts and tribunals. As I mentioned earlier, the amendments we made to the Bill in the other place now mean that the rule committees will, when making any rules to allow authorised staff to exercise judicial functions, have to consider whether each of those functions should be subject to a right to reconsideration. They would require that, in doing so, the rule committees should also consider whether the function in question would be capable of having a material impact on the substantive rights of the parties.

The amendments appear to have been prompted by concerns about the compatibility of the provisions in clause 3 and the schedule with the rule of law, the independence of the judiciary and article 6 of the European Convention on Human Rights. In the circumstances, the Government believe the amendments are unnecessary. The independent procedure rule committees have for many years been making rules about practice and procedure which impact on court users. In carrying out this public function, they must ensure that the procedure rules are compatible with fundamental rights, including rights under the convention. I note that the overriding objective of the criminal procedure rules, for example, explicitly refers to these rights.

Other safeguards in the Bill will help to ensure compatibility with the right to a fair trial. Most importantly, the Bill provides that all court and tribunal staff who are authorised to exercise judicial functions will now be independent of the Lord Chancellor when doing so, and subject only to the direction of the Lord Chief Justice or their nominee or the Senior President of Tribunals or their delegate.

The Bill also provides, for the first time, protections from legal proceedings and costs in legal proceedings and indemnities for all authorised staff when carrying out judicial functions, which will further safeguard their independence. We have, of course, strengthened these safeguards by limiting the types of functions that authorised staff will be able to exercise, through the Government amendments we made to the Bill on Report in the other place.

I hope I have reassured the Committee and the hon. Member for Bolton South East that there is no issue of compatibility between the measures in the Bill and article 6 rights, the rule of law or the independence of the judiciary. The Bill strikes the right balance between ensuring appropriate safeguards and transparency of decision-making, and leaving the jurisdictional rule committees the discretion to determine the most appropriate mechanism for reviewing decisions by authorised persons. I urge the hon. Member for Bolton South East to withdraw her amendment.

[Yasmin Qureshi]

I thank the Minister for her response, but our position remains the same and I therefore wish to press the amendment to a vote.

Question put, That the amendment be made.

Division 3

Ayes: 8

---

Labour: 8

Noes: 9

---

Conservative: 9

[The Chair]

Amendments 8, 7 and 9, which have just been debated, can be moved formally by the hon. Member for Bolton South East, or she can withdraw them in the light of the last vote.

[Yasmin Qureshi]

I would like to move amendments 8 and 7, but not 9.

Amendment proposed: 8, in the schedule, page 11, line 40, at end insert—

“(2A) In reaching its decision under sub-paragraph 2 above, the authority must consider whether the function is capable of having a material impact on the substantive rights of the parties.”—(Yasmin Qureshi.)

This amendment would require any Procedure Rules Committee making rules about the functions to which a reconsideration right would apply to consider whether the substantive rights of the parties will be materially affected.

Question put, That the amendment be made.

Division 4

Ayes: 8

---

Labour: 8

Noes: 9

---

Conservative: 9

Amendment proposed: 7, in the schedule, page 19, line 21, at end insert—

“(7A) A party to any decision made by an authorised person in the execution of the person’s duty as an authorised person exercising functions of a tribunal, by virtue of this subsection, may apply in writing, within 14 days of the service of the order, to have the decision reconsidered by a judge of the relevant tribunal within 14 days from the date of the application.”—(Yasmin Qureshi.)

This amendment would require the Tribunal Procedure Rules to set out a procedure for applying for judicial reconsideration. It is consequential on Amendment 6.

Question put, That the amendment be made.

Division 5

Ayes: 8

---

Labour: 8

Noes: 9

---

Conservative: 9

Schedule agreed to.

Clause 4

Short title, commencement and extent

[Lucy Frazer]

I beg to move amendment 1, in clause 4, page 4, line 6, leave out subsection (8).

This amendment would remove the privilege amendment inserted by the Lords.

This is a technical and procedural amendment to remove the privilege amendment made on Third Reading in the other place. The privilege amendment recognises that provisions in the Bill may infringe the privilege of the House of Commons with regard to the control of public money, and amendment 1 will leave out subsection (8), ensuring that the imposition of any charge resulting from the Bill is properly approved. In practice, the new powers the Bill will confer and the cost arising from them will be met by the Ministry of Justice.

Amendment 1 agreed to.

Question proposed, That the clause, as amended, stand part of the Bill.

[Lucy Frazer]

Clause 4 is technical in nature but it is important to give proper effect to the measures the Committee has considered. Subsection (1) confirms the short title of the Bill. Subsections (2) and (5) set out the commencement provisions, which will enable speedy and orderly implementation of the measures in it: clause 4 will come into force on the day on which the Bill is passed; clauses 1 and 2 will come into force two months after Royal Assent; and clause 3 and the schedule will come into force on a day to be appointed by the Secretary of State in regulations.

Subsection (4) allows the commencement regulations to make transitional, transitory or savings provision and to appoint different days for different purposes or areas, which will ensure that the rule committees are able to implement the proposals as they best see fit. Subsections (6) and (7) set out the territorial extent. Subject to certain exceptions, the provisions of the Bill extend and apply to England and Wales only. Where the provisions extend beyond England and Wales, this is in relation to tribunals, for which responsibility is currently reserved to Westminster. This is not the moment for debate about devolution matters, but I stress that we have undertaken extensive consultation with the devolved Administrations in preparing the Bill, and they agree with our analysis.

Subsection (8) is the privilege amendment inserted by the House of Lords, with which I have already dealt.

Clause 4, as amended, ordered to stand part of the Bill.

New Clause 1

Review of the delegation of legal advice and judicial functions to authorised staff

“(1) Within the period of three years from the coming into force of this Act, the Lord Chancellor must arrange for a review to be undertaken on the impact of the implementation of the provisions contained within section 3 and the Schedule to this Act.

(2) A report setting out the findings of the review must be laid before both Houses of Parliament.”—(Yasmin Qureshi.)

This amendment would require the impact of the delegation of judicial functions to be reviewed within three years of it coming into force.

Brought up, and read the First time.

[Yasmin Qureshi]

I beg to move, That the clause be read a Second time.

The new clause asks for a review of the impact of the legislation to be carried out within three years of the start of the Act, and that this be laid before both House of Parliament. The reason for that is, as mentioned earlier and in all debates in respect of the Bill, the Opposition have serious concerns about how the Bill will work out and about its impact on our justice system—in particular on litigants who go into court not legally represented, as often happens.

With the Act, there will be a more rapid use and deployment of judges from one sector to another, and we would like the Government to consider how that is working and its impact on our traditional court system. We believe that the functions the authorised people will be given and the issue of reconsideration will have a clear impact on what happens in both our criminal and civil courts.

10:45

I do not want to repeat myself, but I made many points earlier about how more and more cases are being disposed of to the internet or the online system, and about the massive call centres, to which people sometimes cannot even get through. That is unlike the situation in the traditional court system; people are normally able to attend the court and can be given informal voluntary assistance, information, advice, guidance and support. All that is being taken away, because of the use of online technology and not enough courts being there.

The cuts in legal aid, civil and criminal, mean that many people now go completely unrepresented, with no legal advice. They know nothing about the court procedures or the law. I am sure that many Members of Parliament have constituents visit our surgeries who are facing something that we would think was very simple, but is to them a big thing in their life that gets them worried and stressed. It is important that when they go to court, they are dealt with by people with the right expertise and knowledge, so that they can get justice and not be faced with people who perhaps do not have the requisite legal knowledge to assist them, or to make the decision appropriately.

If a decision is taken and somebody wants it to be reconsidered, we want to know what happens in relation to that judgment. How does it affect people? Are there many people asking for reconsideration? The authorised person will do certain tasks that impact on people’s lives tremendously. Although the Bill is short, it makes wide-ranging changes, and it will impact on ordinary people across the country. It is therefore important that the impact of the Bill on our court system and litigants be evaluated. We have said that that should happen after three years, because that is a sensible period of time after which to evaluate how these things work in practice. Once that finding is made by the Ministry of Justice, it should be brought before both Houses of Parliament for debate. This is a sensible new clause to ensure that people’s lives, liberties and rights are safeguarded.

[Lucy Frazer]

As the hon. Lady mentioned, the new clause is about reviewing the impact of the authorised staff provisions within three years of the Bill coming into force.

Reviewing laws is always important. We in the Ministry of Justice do not shy away from that. The question is what the appropriate form of that review is. As the impact assessment for these measures says, we have committed to working with the rules committees and the senior judiciary to monitor the impact of any future assignment of judicial functions and responsibilities to authorised staff. This is particularly important where the Bill enables provisions to be extended to a new jurisdiction; for example, the power of authorised staff to carry out judicial functions will be new to the Crown court. We therefore expect the criminal procedure rule committee to conduct a review of the provisions as it feels appropriate, and to draw on its impartiality and expertise in doing so.

In other jurisdictions, the exercise of judicial functions by staff is already kept under review by the relevant rule committees, by the senior judiciary and by Her Majesty’s Courts and Tribunals Service, where appropriate. For example, the civil procedure rule committee has undertaken a review of a pilot scheme in which a range of functions were delegated to legal advisers in the County Court Money Claims Centre. As a result of that, the committee decided to modify and extend powers. It has also agreed to a further pilot to allow legal advisers in the county court to make unopposed final charging orders. This will run to April 2020 and, again, will be reviewed before a decision is taken to extend it.

Those reviews and this approach to implementation are illustrative of how we expect these measures to be rolled out in the future: incrementally, with the necessary monitoring, and subject to review and evaluation before any further steps are taken. The rule committees are independent of the Government and their membership includes judges, legal professionals and representatives of voluntary organisations. They are best placed not only to make the rules for authorised staff exercising judicial functions, but to conduct the reviews of these measures in the future. I hope that I have provided the hon. Member for Bolton South East with the assurances that she seeks, and that she will withdraw the new clause.

[Yasmin Qureshi]

I thank the Minister for her response, but the Opposition will not withdraw our new clause. I ask that the Question be put.

Question put, That the clause be read a Second time.

Division 6

Ayes: 8

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Labour: 8

Noes: 9

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Conservative: 9

Bill, as amended, to be reported.

10:50

Committee rose.

Fisheries Bill (Second sitting)

Tuesday 4th December 2018 Public Bill Committees

The Committee consisted of the following Members:

Chairs: James Gray, † David Hanson

† Aldous, Peter (Waveney) (Con)

† Brown, Alan (Kilmarnock and Loudoun) (SNP)

† Carmichael, Mr Alistair (Orkney and Shetland) (LD)

† Debbonaire, Thangam (Bristol West) (Lab)

† Duguid, David (Banff and Buchan) (Con)

† Eustice, George (Minister for Agriculture, Fisheries and Food)

† Grant, Bill (Ayr, Carrick and Cumnock) (Con)

† Hill, Mike (Hartlepool) (Lab)

† Hollinrake, Kevin (Thirsk and Malton) (Con)

† Jones, Mr Marcus (Nuneaton) (Con)

† Lefroy, Jeremy (Stafford) (Con)

† Morris, James (Halesowen and Rowley Regis) (Con)

† O'Hara, Brendan (Argyll and Bute) (SNP)

Pennycook, Matthew (Greenwich and Woolwich) (Lab)

† Pollard, Luke (Plymouth, Sutton and Devonport) (Lab/Co-op)

† Smith, Owen (Pontypridd) (Lab)

† Stewart, Iain (Milton Keynes South) (Con)

† Sweeney, Mr Paul (Glasgow North East) (Lab/Co-op)

† Tracey, Craig (North Warwickshire) (Con)

Gail Poulton, Lis Gerhold, Committee Clerks

† attended the Committee

Witnesses

Jerry Percy, Director, New Under Ten Fishermen’s Association

Phil Haslam, Director of Operations, Marine Management Organisation

Dr Tom Appleby, Director, Blue Marine Foundation

Aaron Brown, Fishing for Leave

Public Bill Committee

Tuesday 4 December 2018

(Afternoon)

[David Hanson in the Chair]

Fisheries Bill

Examination of Witness

Jerry Percy gave evidence.

14:00

[The Chair]

In this afternoon’s sitting we will first hear oral evidence from the New Under Ten Fishermen’s Association. Will the witness please introduce himself?

Jerry Percy: Good afternoon. Thank you for inviting me. My name is Jeremy Percy. I am the director of the New Under Ten Fishermen’s Association, the representative body for 80% of the UK fleet, which operates from vessels of less than 10 metres in length.

[The Chair]

I shall hand over to the Minister for the first questions.

[The Minister for Agriculture, Fisheries and Food (George Eustice)]

Q60 This morning we heard in evidence that the principle of relative stability had served the inshore fleet particularly badly because of the data and the absences of data in the ’70s and ’80s when the track record was established. What are the key priorities of the inshore sector as we leave the European Union and set our own domestic policy?

Jerry Percy: We have long argued that relative stability needed to be reviewed, primarily because of the very bad deal that the under-10-metre sector has always had in the UK, not just because of relative stability but because of the way in which quota was allocated back in the ’90s, when we did not have a seat at the table and therefore, despite being nearly 80% of the fleet, ended up with less than 2% of the overall UK quota. Relative stability really does need to change.

Our priorities are, overall, to ensure that the under-10-metre fleet—unquestionably, it has been massively disenfranchised over the past few decades—comes out of it with a significantly increased allocation. We have argued strongly that the current method for allocating quota is unfair and discriminates against the under-10s, and of course the myriad coastal communities they support. I have been in the fishing industry as a fishermen and in other roles off and on for over 40 years, and I have seen the demise of any number of coastal communities, the fleets that they supported and the people who supported them over that period. Our main aim is to ensure that the under-10s specifically get a fair deal come the new horizon.

[George Eustice]

Q On management, we outlined a number of ideas in the White Paper. Some have suggested that we should move away from a Marine Management Organisation-administered under-10-metre pool and towards a producer organisation for the inshore sector. What is your view of such an approach?

Jerry Percy: You will not be surprised to hear that I am very supportive of the idea, having written the initial paper back in 2012. There is absolutely no doubt about that. To put it into perspective, at the moment I gather that the UK has had infraction proceedings served upon it by the European Commission for failure to manage and regulate its producer organisations adequately. I have not seen the detail but I would have thought that the Commission was concerned that, despite the fact that the coastal PO—the producer organisation dedicated to the under-10-metre sector—has had official recognition by the UK Government and by the Commission for over a year, we are still refused the ability to manage the quota of our own members. This is particularly important with the run-up to the landings obligation, where the ability to acquire quota retrospectively will be vital.

With the greatest respect to the Marine Management Organisation, the disparity between the rationale for MMO management of quota and that by the producer organisations, which are very focused on the commercial benefits of their particular members, is huge. This has resulted in this year to date, for example, in only just over 50% of the under-10-metre quota actually being fished, although that is down to a number of issues. One of them is undoubtedly the inflexibility in the Government trying to manage the quota, so I am particularly supportive of the coastal PO.

I fail to understand why the Government have not permitted us to have exactly the same rights—no more; no fewer—as the existing POs. In fact, in your own words, Sir, in a letter earlier this year, you said that as soon as we had the correct infrastructure in place you would like to see us going ahead and doing this sort of management. We have had the infrastructure in place for a considerable amount of time, yet we are still refused the ability to manage for the benefit of our members.

[George Eustice]

Q But do you accept that there could be more than one PO covering the inshore sector?

Jerry Percy: I do not think so.

[George Eustice]

Q You shouldn’t force everyone to join it if they don’t want to.

Jerry Percy: No, there is always a choice about whether you join a producer organisation or not. To be honest, there is absolutely no reason why any under-10 metre vessel even slightly reliant on quota should not join the coastal PO. The membership fee is £1. More importantly, however, membership should give those vessels access to far more flexible and user-oriented management of their quota, rather than the current situation.

[George Eustice]

Q I have two other points that we raised in the White Paper that I want your views on. First, do you think that the under-10-metre category is still the right criteria to use, or should we look at other measures, such as engine capacity or the zone in which they fish, so that there would be a different way of defining the artisanal, small-scale fleet? Secondly, we have obviously had quite a lot of representations about the possibility of moving more to an effort-based regime for the inshore fleet rather than a quota system. What is your view of that?

Jerry Percy: In response to your first question, there is no doubt that the arbitrary under-10/over-10 metre divider has been an unnecessary nuisance, frankly, especially as time has gone on. Yes, 20 or 30 years there was a very significant difference between what was in the ’90s a much more artisanal fleet and today’s under-10 metre boats, which can be 9.99 metres and highly efficient. One of the purposes of developing the coastal PO initiative was that, rather like other examples one might think about in the current climate, you tend not to go to war with people you are trading with, and there has always been a difference of opinion between under-10s and over-10s and their POs.

Losing the 10-metre measure in the fullness of time would be a very positive step forward. Clearly, if you look at the breakdown of the under-10s, which are some thousands of vessels, you see that the vast majority are less than 8 metres in length, and again you can go down. So there is a strong argument for taking any boat up to 6 metres completely out of the quota system, whether or not you replace it with something like effort management. I can speak from experience. While a modern under-10 metre boat has a very significant fishing capacity, far in excess of what it would have been 20 or 30 years ago, it remains the case that boats that are less than 18 feet would really struggle to make any significant impact on stocks.

At the same time, we have said all the way along that although the effort management suggestion is ostensibly a fairer way of allocating access to the resource than quota, with all its issues and problems, we really need to have a proper, full-scale and focused trial before anybody could say unequivocally, “This would be the most effective and efficient way forward.”

[Luke Pollard (Plymouth, Sutton and Devonport) (Lab/Co-op)]

Q A real consensus is emerging around the Bill that there should be more focus on giving more quota—more fishing opportunities—to the smaller boats. The question is about how we do it. From your point of view, what would be the best way within the Bill, and within the powers it contains, to encourage more fishing opportunities to be held by smaller boats, which generally speaking are the least impactful on the environment and contribute more to their coastal communities?

Jerry Percy: There are two main answers to that question. At the moment, despite the claims that we are going to be an independent coastal state and take back control, nearly 50% of the UK’s allocation of quota is held in foreign hands. Now, although a lot of that is the pelagic species, such as mackerel, herring and blue whiting, nevertheless fish quota, whether we like it or not—we do not—has become a commodity and gaining more access and a fairer balance post Brexit, when the Bill comes in, would be a particular opportunity.

There are opportunities. The Government have always been concerned that if you tried to repatriate quota, then you get a whole queue of people lining up for a judicial review, but it was clear from the judicial review in 2012 and from legal advice subsequently that that is entirely practical. In fact, the Faroe Islands has just instigated a similar sort of system. Rather than us arguing that one should rob Peter to pay Paul, it is at heart the allocation system that is at fault. It is based on historical rights.

As I said, I go back far too many years in this business. In the 1990s, the Government said to the over-10-metre vessels, “Go out and fish and record all your catches, and we will take a three-year average and provide you with your fixed quota allocation—your proportion of the overall UK cake.” Not surprisingly—the larger-scale representatives admitted this in the judicial review I mentioned—they did ghost fishing. If you went out and caught 10 tonnes, you might put down 12 or 14 tonnes just to make sure that you had good opportunities. I dare say that if I had been in that position I might have thought the same. The whole thing was predicated on a lie, frankly, and it has gone on ever since. Historical rights are really not an effective method, for any number of reasons.

The answer to your question, which we put forward in our response to the Bill, is that clause 20 effectively takes in article 17 of the common fisheries policy. We suggest that should be amended so that quotas are allocated according to social and environmental criteria and economic benefit for coastal communities. Some 80% of the under-10 metre fleet use passive rather than mobile gear, so their environmental credentials are better, and their economic credentials are certainly more significant. We would take our chances with everybody else, but that would provide a level playing field, irrespective of size of vessel, and your allocation of the resource would be based on environmental, social and economic criteria.

[Luke Pollard]

Q This morning I asked about strengthening the economic link, so if you catch fish under a UK quota you should land at least half of it in a UK port. Can you explain where the under-10 fleet—the small boats—mainly land their fish? Do they land it in UK ports already, or is a sizeable portion landed in foreign countries?

Jerry Percy: No, it is almost exclusively landed into UK ports, although of course a very significant element is then exported to markets in France, where our European neighbours tend to pay far more for it. I think it is relevant to mention at this point that, with all due respect, we must not focus just on the quota issue, although that is vital because the quota has been so unfairly dealt out in the past. A very significant proportion of the under-10-metre fleet relies on non-quota species such as cuttlefish, shellfish, lobster and crab, and they in turn rely on direct export. About 90% gets exported, mainly to France and Spain, so the export market is key.

[Luke Pollard]

Q Finally, I have a question that is not about quotas—it is about marine safety. The Bill talks about our potentially being able to allocate quota that is drawn down from our EU friends in a slightly different manner from the FQA system we have at the moment, and to apply different conditions to that. You mentioned social, economic and environmental criteria potentially being some of those conditions. Marine safety is an issue for many small boats because of the pressures on those boats and the fact that the 10-metre limit has led to lots of dumpy boats with strength rather than stability. Would you give us a sense of the implications for the sector of amendments to the Bill that introduced a requirement for marine safety to be such a condition, to ensure that people who go out to catch our fish are safe, and tell us what the current safety levels are in the sector?

Jerry Percy: Fishing, unfortunately, still carries the record as the most dangerous occupation in the world. I sit here having lost any number of friends and colleagues over the years in pursuit of fish. I do not think having to carry more fish should be a significant safety issue. It is going to be more relevant in terms of the forthcoming landings obligation, under which we can no longer discard any fish so we have to keep it all aboard. There are of course safety issues in that respect.

The Sea Fish Industry Authority monitors and measures, and ensures that vessels are safe to go to sea. We are effectively talking about capsize as a result of overloading, which is actually quite rare. It is perhaps more common in the pelagic fisheries, where a great bulk of fish is landed. For most small-scale fish fleets, I think fishermen and the authorities would ensure that there was no safety issue. Even in my wildest dreams, safety has never come to mind as being an issue if we had significantly more quota. I have never thought, “Oh, I’m going to catch too much fish and put myself at risk.” It does happen—even now, with non-quota species, you never throw it back.

[Luke Pollard]

Q On that point, there seems to be universal agreement that personal locator beacons attached to lifejackets are a good thing, but we know there is a cost to fishermen of buying new lifejackets with PLBs and registering them. Do you think that, if there were a specified improvement on marine safety in the Bill, lifejackets with PLBs could be one area that might make a big improvement in marine safety?

Jerry Percy: Yes. Under the International Labour Organisation’s convention 188, it is now mandatory for fishermen to wear lifejackets unless the owner and/or skipper of the vessel can prove that he has sufficient guards in place to ensure that fishermen do not go over the side.

I still go to sea quite often. I have a personal locator beacon that I bought myself for about £170. It will tell the rescue people where I am in the water anywhere in the world. It is cheap. As far as I understand it, European funding would probably cover it because it is not a mandatory requirement, but surely, in terms of safety, it is a few pounds and it makes all the difference in the world.

[Peter Aldous (Waveney) (Con)]

Q My question is a variation on the Opposition spokesman’s point. It is commonly recognised that the inshore fleet—the under-10s—has had a raw deal as far as access to quota and fishing opportunities is concerned. The Bill is largely based on the assumption that an increase in opportunities, as a result of taking back control of our waters, will give us an uplift that will provide additional fishing opportunities for the inshore fleet. Do you think that goes far enough, or do we need to look at something bolder and more radical in terms of quota allocation or fishing opportunities?

Jerry Percy: Our main concern is that the Bill is predicated on a successful fisheries Brexit, if I may call it that, with a significant windfall of quota. Again, with the greatest respect, that would get the Government out of the hole that successive Governments have painted themselves into—if I may mix my metaphors—in that because there is only so much in the UK pie of quota, they are somewhat hamstrung, in their view, in their ability to reallocate more fairly and effectively. Not surprisingly, we disagree with that version and there is legal argument that they could do so, albeit slowly—that was said by the judge in a judicial review in 2012.

I gave an answer earlier about moving the method of allocation to become genuinely reliant on the social, environmental and economic criteria, but I do say genuinely because the UK Government are also already subject to article 17 of the common fisheries policy, which says something similar about allocating quota on those three criteria. The Government have argued that they meet those criteria. I personally do not think that they even remotely reach them in many respects. If we are going to have a revised method of allocation, we need an undertaking or to ensure that the Bill does what it says on the tin.

[Brendan O'Hara (Argyll and Bute) (SNP)]

Q Thank you for coming along, Mr Percy. We have heard a lot about control of our own waters, but that has to be set against access to markets, particularly for your members. How confident are you that the interests of your members are fully understood and fully protected by what is in the Bill?

Jerry Percy: I do not think it goes far enough in some respects. Again, going back to the common fisheries point, the European maritime funding document says that member states shall produce an action plan for the development of their small-scale fleets. To date, we have not really seen anything to that extent, and there is nothing specific in the Bill in that respect.

Our main concern is that, from a non-quota, shellfish perspective—this is particularly reflected in our members and colleagues in the Scottish Creel Fishermen’s Federation, who asked me to mention it, which I am more than happy to do—the whole business of hundreds, if not well over 1,000, boats around the west coast especially, and the east coast of Scotland to some extent, as well as Wales and the rest of the UK, is based on seamless transport across the channel to our markets in France and Spain. Their main concern, of course, is that if any issues come up in a post-Brexit scenario where we seek to take back control, not only will we get tariffs, which will make a big difference, but what is more, there will be non-tariff barriers in terms of the requirement for veterinary inspections of live shellfish. At the moment, the only two ports with those facilities are Dunkirk and Rotterdam, neither of which we use and neither of which, effectively, is a Channel port. To date, the French have not exactly been quick off the mark in building new facilities in time for next year.

We are equally concerned about the fact that French fishermen, like French farmers, are renowned for taking very direct action should they feel that something has upset them. You will remember that when the French farmers got upset about some aspect of Welsh lamb exports, they actually burned the lorries as they came off the ferry in France. We are very concerned that if we do have an independent coastal state, and so on and so forth, it would kill that transport overnight. We only need a few hours’ delay for it to make all the difference in the world.

[Brendan O'Hara]

Q As the Member for Argyll and Bute, I take on board what you are saying. We are absolutely dependent on speed of access to market. What should we in this Committee be looking at over the next few weeks to ensure that vital shellfish market remains open and there is that speed of delivery from Loch Fyne to Madrid, for example? How do we ensure that that is as seamless as possible, and that we keep those vitally important markets?

Jerry Percy: There has to be a balance in the negotiations, permitting some level of access to our waters—although much less than currently—to ensure that we do not have those non-tariff barriers, and that the facilities, including on the French side, permit us to have that seamless transport and that there are no road blocks in the meantime.

[David Duguid (Banff and Buchan) (Con)]

Q On access to market versus access to waters, I think you mentioned that there would be some exchange of access for quota in any future arrangement. I presume you would agree that it is important that, as an independent coastal state, we have full control of that access so that we can use it as leverage. I hesitate to use the phrase “bargaining chip”, but when we go into future annual negotiations, that has to be the leverage that we have.

Jerry Percy: Absolutely. We should start with a clean sheet: “We are an independent coastal state. That’s that.” We have a clean sheet and nobody has the right of access. Then there will inevitably be negotiations and bargaining, and that balance is going to be extremely difficult, because Mr Macron, the Commission and others have already made clear that they want the status quo to be the basis of any further negotiation. The Government will have their work cut out to try to sort that out.

[David Duguid]

Q Is there anything in this Bill that you think we should focus on, in order to add more power to our elbow in those future negotiations?

Jerry Percy: Our concern about the Bill is that there are a lot of phrases in it like “intend to”, “will consider”, “could include”, “aim to”, or “DEFRA intends to be”. There is not a great deal of certainty about some elements on which we would have liked to have seen more certainty and absolutely unequivocal statements: “We will do this.” The Government have made it clear to date that they want an unequivocally clean sheet start. Whether we actually achieve that, of course, is open to significant debate.

[David Duguid]

Q One more question, if I may. Going back to what you were saying earlier, I think your exact words were along the lines of “Unfortunately, quotas have become a commodity.” With quotas being sellable and buyable, they are an asset, at least. If quotas were to be more fairly distributed among the smaller vessels in future, how would you avoid them just becoming sellable commodities, bought up by others?

Jerry Percy: There are a number of global examples where you can retain quota as a national resource without allowing its sale. There obviously needs to be flexibility in-year to move quota about, to ensure that those people benefit from it. It is not an easy situation to resolve, but there are global examples of what can be done to ensure that almost half of our national resource is not in foreign hands, as has happened here.

[Mike Hill (Hartlepool) (Lab)]

Q I represent Hartlepool, which is one of those coastal communities affected long ago by unfair quotas for under-10s. There is an argument that our industry could be revived if fairer quotas were allocated. In your opinion, how many ports would benefit from an uplift in quotas?

Jerry Percy: It is not just ports; there are harbours, coves, small areas and small coastal communities. It would be dozens, if not hundreds. Going back 40-odd years, I can remember fishing out of Lowestoft as a boy fisherman. There were myriad groups of small boats all the way up and down the coast, all providing a significant benefit to those local communities. They may not show up on an economist’s spreadsheet, but those people are nevertheless paying their mortgage, taking their kids to school and keeping the local infrastructure going. I am not exaggerating; it could certainly be in the hundreds that we could revive and have some level of renaissance. There is no doubt whatever.

[Mike Hill]

Q I get the impression from representatives from the larger fleets that they would oppose quota redistribution. What arguments are there against that?

Jerry Percy: Well, why should they get more? To an extent, it is based on greed. They already have approximately 98% of access to the quota, 50% of which is in foreign hands, and a very significant proportion is in the hands of the five richest families in this country. It has become a fundamental nonsense and is grossly unfair socially, environmentally and economically that nearly 80% of the fleet in the UK has access to only 2% of the quota. The idea or argument that any additional quota should be allocated according to the existing fixed quota allocations frankly is just grossly unfair. There is no sensible economic or social reason why that should be the case.

[The Chair]

Does any other Government Member wish to ask a question?

[Jeremy Lefroy (Stafford) (Con)]

Q Thank you very much, Mr Hanson. I am very interested in what you said about 50% of the quota being in foreign hands. Is there an example, as far as you are aware, of any EU coastal state that makes better use of the common fisheries policy for under-10 metres or smaller boats, or is it just universal that it is dominated by large vessels?

Jerry Percy: You could say that across Europe the scene is dominated by the larger scale vessels. They have more resources, more PR companies and more paid lobbyists; they were at the table when the rules were set, and we were not. It is only in recent times—NUTFA was created in 2006—that we have had actually had a voice, and it takes time to build up. Hopefully with the Fisheries Bill we are now on an equal footing with a seat at the table to ensure that the 80% of the fleet gets a fair deal.

[Mr Alistair Carmichael (Orkney and Shetland) (LD)]

Q Briefly, I want to explore with you how we get from here to there. As you say, there is a case for the redistribution of quota. I am very interested in your thoughts about how you stop quota or other management tools from becoming a tradeable commodity. As you say, some of these interests are big and well resourced. Rich people have good lawyers and a legitimate expectation in their property rights. How do you get to the point where you can change the nature of quota?

Jerry Percy: By negotiation, but our response to the Fisheries Bill was the first step. We are particularly concerned that there is a suggestion within the Bill that an element of the UK’s fishing opportunities should be put up for auction. I struggle to understand the logic in that when the whole thrust is in terms of environmental, social and economic criteria. The Government Minister identified the fact that we need to support and enhance the small-scale fleet for all the very tangible benefits that are there to be taken. I struggle to understand why you would then take a piece and sell it off to what will inevitably be those who already have financial resources. If we are going to have flexibility in the quota, we need to bring in new entrants and we need to make it attractive. The cost of quota is one of those significant areas that keeps out new and young entrants.

[Mr Carmichael]

Q So the idea of auction does not recommend itself to you.

Jerry Percy: Anything but, sir.

[The Chair]

We have 35 seconds if anyone has a one-word question and a one-word answer. Is there anything else you wish to say to the Committee, Mr Percy?

Jerry Percy: Thank you for the inquiry. The Fisheries Bill gives us an opportunity. There are some failings in it, but we seriously look forward to conversations with Government and others in that respect. I am grateful for the opportunity to talk to you.

Examination of Witness

Phil Haslam gave evidence.

14:29

[The Chair]

Good afternoon, Mr Haslam. For the benefit of the Committee, could you introduce yourself and your organisation?

Phil Haslam: Good afternoon. My name is Phil Haslam and I am the operations director of the Marine Management Organisation, which is an arm’s length body of the Department for Environment, Food and Rural Affairs with the competence to deliver marine planning and licensing and, in this context, fisheries management, control and enforcement regulation.

[George Eustice]

Q I am sure that the Committee will have noticed from your biography that you have long experience in the fisheries protection fleet and the Royal Navy, and most recently at the MMO. Before getting on to the work we have done on future enforcement, I wonder whether you could describe to the Committee what the MMO control room in Newcastle does, how we monitor fishing vessels and how many fisheries protection vessels we currently have access to.

Phil Haslam: The mechanism we use to conduct fisheries control and enforcement is risk-based and intelligence-led. The mechanism by which we do that ashore is to have up to 75 warranted officers who can be deployed—routinely, circa 50 are able to be deployed—and we are situated at 14 offices around the coast of England. The MMO regulates only within English waters. That is one element of our business: shore-based inspections of landing, marketplace inspections and the like. The risk-based, intelligence-led description is basically what it says. We understand where risk may arise and we have a level of intelligence that we apply to that, which can make our operations targeted.

At sea, our surveillance is conducted by vessels from the Royal Navy fishery protection squadron, which we contract on an annual basis for a set number of hours. They conduct patrol and inspection routines on our behalf on the direction of the Newcastle fisheries monitoring centre ops room. The way that works operationally is that we direct them to conduct a patrol in a certain area, we direct the outcomes we wish to see, and then it is down to the commanding officer in the vessel to deliver them. On the number of ships that are available to us, both because of budgetary restraint or constraint within the MMO and the availability of Royal Navy vessels, the Royal Navy is this year providing 2,000 hours of patrol time within English waters.

[George Eustice]

Q I understand that at the moment there are three offshore patrol vessels, two of which are normally on duty in English waters. Could you explain what has taken place, as part of your planning over the last year for enforcement after we leave the EU, to get additional offshore patrol vessels from the Royal Navy? What discussions have been had and what work has been done with Border Force on the ability to redeploy some of its assets? Could you explain anything you have done by way of procuring aerial surveillance from, say, the coastguard service?

Phil Haslam: As a result of the referendum and the fact that we will be becoming an independent coastal state and taking back control of our waters in the future, a risk-based analysis has been done of what could happen after that exit moment, and based on that analysis we have identified increased risk across the piece. Our work has driven us to look at our current surveillance levels and to judge what we will need to effectively enforce the integrity of the exclusive economic zone from the fisheries point of view. That has led us to bid for an uplift in surface surveillance and within that to move away from having all our eggs in one basket in relation to the Royal Navy, to come to a mixed economy of providers for both the inshore and the offshore element of the patrol requirement.

We have come up with a greater amount of surface surveillance that we need in the round, and the mechanism to deliver that will of course include the Royal Navy. We have dialogue with Border Force as well, to see what utility there is within its vessel fleet—it is predominantly its cutters. Similarly, the inshore fisheries and conservation authorities, which are the small English-based regional organisations that have a jurisdiction of the nought to 6 miles of inshore fisheries, have a fleet of vessels that we may be able to get some utility out of. Also, we are speaking with colleagues in the devolved Administrations to see what utilities are there. We are trying to get a blended provision of surface surveillance.

Aerial surveillance is a capability that is being reintroduced. The idea is to have routine overflight of our waters so that, should there be vessels that should not be there and are not discernible through remote location devices, we have, basically, a set of eyes in the air that can see them. In terms of monitoring vessels at sea at present, there is a system called the vessels monitoring system, which gives us the position statement of vessels of 12 metres or longer.

[George Eustice]

Q Finally, the Ministry of Defence recently announced that it had delayed the decommissioning of the existing three offshore patrol vessels, and it intends to introduce four new ones, I think. How much difference will having that extra capacity in reserve make, should it be needed?

Phil Haslam: It will make an enormous difference. As you stated earlier, at the moment the fishery protection squadron is relatively constrained in the number of vessels it can put to sea, and that matches our constraint in being able to contract them. Having more vessels available to us to police a very large EEZ gives us that flexibility to deploy ships to the right place at the right time. By keeping the batch one offshore patrol vessels in service for longer and introducing the batch twos incrementally, as they come off the build, there will be a larger hand of cards to be played with.

[George Eustice]

Q I have one other final point. Enforcement is obviously devolved, so what you have described is what is taking place and what is planned for in England. Could you describe how the challenge differs, for instance in Scotland, where we obviously have a large interest? What work do we do with Marine Scotland and its enforcement vessels?

Phil Haslam: Fisheries enforcement is devolved, as you state. The way the Scottish do it is to have three vessels that conduct enforcement up to 330 days a year within their waters. They contract two aircraft as well, to provide oversight. At this moment, they have the kind of surveillance capability and control and enforcement capability that we are building up to.

[Luke Pollard]

Q A moment ago you gave the figure of 2,000 hours of surveillance. Could you give us a sense of how the number of hours that have been deployed for enforcement has changed since 2010?

Phil Haslam: Yes. Royal Navy vessels used to be contracted on a 24-hour-day basis. That was always non-exclusive, so they were not passed to the MMO, where we would have command and control of them; they would conduct our business but always with the risk of higher priority national tasking taking them away. But we did have more of them in 2010, and over time, with reductions in the MMO budget, we have had to roll back the number of hours, or days, we can contract, moving from 24-hour days to 12-hour days and then to nine-hour days.

When I came into this job we were relatively constrained regarding where we could deploy them for that part of the day. The idea of going to hours was to give us the flexibility to deploy them where the need was, rather than where they were shackled. So there has been a reduction, but on the other side of that, with the vessel monitoring system we have an understanding of what is going on in our waters. We have a picture against which we can patrol. So it was risk-based.

[Luke Pollard]

Q The figures I have seen suggest that in 2010 there were 16,000 hours, and now we have 2,000. That trajectory, that path, that reduction of enforcement, at a time when we will probably, based on risk assessments, need to protect and enforce our waters to a greater extent than in the past, concerns me. It seems quite a challenge. What is your assessment of whether we will see more things like the scallop wars, not in French waters but in UK waters, after Brexit? Do you think sufficient resource is provided to ensure that UK waters are kept safe and protected and that our regulations are properly enforced?

Phil Haslam: There is always a risk of tensions unearthing themselves within a fishing thing, but I must say that what we saw with the baie de Seine scallop wars was an expression of discontent based on using fishing vessel rather than on non-compliance with fisheries regulation, which is what the MMO does. There is a risk—that is the risk we have analysed—and against that risk we have built a bid for increased surveillance to meet and mitigate it.

[Luke Pollard]

Q The Batch 2 River class that you are getting as part of the fishery patrol vessels are very capable ships, and not having the Batch ones retired is a good move. That total fleet, though, relies on numbers of people to put them to sea and we know that there is huge pressure within the Royal Navy to provide people. Given your former experience with the Fishery Protection Squadron, could you enlighten us a little bit? Having more hulls is a good thing, but is there a sufficient number of people to man those hulls to ensure that we have the necessary enforcement capacity?

Phil Haslam: We have to be careful. The vessels the Royal Navy deploys to meet any MMO contract that is signed in the future is within its gift. It may be Batch 2s or Batch 1s, but that is the call of the commander of the squadron. In terms of manning the ships, it is similar. If the demand is there and it is required, the Royal Navy, being as innovative as it is, will come up with manning solutions to meet what it needs to do.

[Luke Pollard]

Q Finally, you mentioned the consultation on inshore vessel monitoring systems. It seems to be a good thing to switch from an automatic identification system. Anecdotal evidence suggests that fishermen turn their AIS off if they find fish so as not to alert their friends as to where there is a good catch, but I-VMS does not come with that switch. Is that right? Can you explain what difference that would make to vessel monitoring with regard to enforcement and safety?

Phil Haslam: The automatic information system, which is fitted to vessels of 300 gross tonnage and above is predominantly an anti-collision device. It is to create situational awareness at sea. It is an open-source mechanism by which you can find out information about any given ship, where it is going and what type it is. In fishing, a fisherman’s mark of where he is fishing and what he is getting from it is commercially sensitive and we would not wish to openly display that. I-VMS—the inshore vessel monitoring system—is a similar system to the one on smaller vessels. It gives us a picture of what is going on within the fishery. To conduct a fishery, you need to know what the input is so that you can control the output. That is not something we have at the moment. Also, it covers off that commercial sensitivity. We are not transmitting where a fisherman is. There is a point-to-point transmission of that data, which we will take into a hub so that we have a picture of what is going on in our waters, but that is not widely accessible.

[Jeremy Lefroy]

Q Could you give us a brief insight into the kinds of enforcement actions you have to take now and whether they are likely in future to be different in type or in quantity, or in both?

Phil Haslam: The enforcement action we take now is that we enforce the requirements of the common fisheries policy. In a routine inspection, when you board a fishing vessel you check the paperwork. Is the vessel licensed, in the first instance? Does it have quota for its catch? Then you would go into the mechanics of, “What have you caught? How have you caught them? Which area have you caught them in?” Then you do an inspection to see whether what is reflected in the logbook is manifest within the fishing vessel. That is what we do at sea in terms of inspection. It is everything from paperwork, to gear inspection, through to the actual catch. Ashore it is similar: it is about taking data from the logbook and then inspecting to see whether what is being landed matches that, and then goes through to the marketplace as well. All of it is in pursuit of assuring sustainable practice, but also the traceability of fish. That underpins the sustainability.

[Jeremy Lefroy]

Q Would you envisage it to be similar in future or different in the nature or quantity of inspections?

Phil Haslam: I would expect it to be similar in future. We do controlled enforcement now. There may be a requirement to do much more of it in the future, and there may be additional complexity, such as different permissions to be able to access our waters and the like. All of that will just become another thing that we have to understand, inspect and ensure compliance with.

[Jeremy Lefroy]

Q Finally, what percentage of inspections result in you finding that rules have not been complied with?

Phil Haslam: At sea, it can be as much as one in three where you find some level of non-compliant behaviour. Not all of that ends up in a court room. Some of that can be covered off with a verbal re-brief, because it is a genuine misunderstanding. At the other end of the spectrum is known behaviours. That is where we will have prosecution.

[Brendan O'Hara]

Q Following on from what Mr Lefroy was saying, in planning for a no-deal Brexit or a much-changed situation, what analysis has been carried out by your department about the different nature of the increased threat post-Brexit? Based on that, what assessment has been made of how your capability is going to have to grow to meet that increased threat?

Phil Haslam: The project that I am driving has basically considered several options, one of which is no deal. Access would no longer be guaranteed; therefore, a risk that comes off that would be illegal incursion to the EEZ. There are others options where access is permitted and there is non-compliance with the conditions of that access, so something has to be done about that. The other thing is that there could be a risk of non-compliance from home fleet, based on difficulties with the outcome of the negotiations or whatever. However, from a purely regulatory enforcement perspective we have weighed those risks, and that is the way we have built the additional capability.

[Brendan O'Hara]

Q Do you have the capacity, the capability and the funding to meet the worst-case scenario that we have talked about?

Phil Haslam: That is where our judgment has been made, and that is where the bid has gone in. We are building that capability in order to be able to deploy it within the timescales, so by March.

[David Duguid]

Q Still on the subject of fisheries protection, you mentioned airborne surveillance earlier. One of the questions that fishermen in my constituency keep asking is: how does the eye in the sky seeing something wrong—somebody shooting their nets where they should not be shooting their nets, or whatever it is—turn into some kind of enforcement or some kind of actual protection, particularly in the future when there is no automatic equal access to our EEZ?

Phil Haslam: The intent of redeploying aerial surveillance on a more routine basis is to cover off any risk that we do not continue to receive data that we receive now through the vessel monitoring system and the like. We would need a mechanism to build a picture of what was happening in our waters. If it is not derived remotely from a location device on board a vessel, we will have to actively go out and build that picture.

What the aerial surveillance does in the first instance is build situational awareness of what is going on in the water. If, once you have that, you see in among it non-compliant behaviour, it can operate as a queueing platform. Either it can queue in a surface vessel to come and take subsequent action, or you can warrant the air crew so that they can issue lawful orders, whether it be, “You are required to recover your gear and exit our waters,” or whatever it is. That can be passed from the aircraft.

It is not an entire panacea. It cannot stop non-compliant activity, because it is clearly airborne, but it gives you, first and foremost, that picture. It has a very clear deterrent capability, and it can start a compliance regime by queueing.

[Mr Paul Sweeney (Glasgow North East) (Lab/Co-op)]

Q Although it is encouraging that the Royal Navy is making contingency plans with the River class, there is still concern about the differential in policing standards to which foreign vessels will be held relative to domestic vessels. I am just looking at what the planning is for that and at how you address the 80% fall in boardings in the past six years, from 1,400 to 278. That indicates a clear reduction in capability. Would it be helpful if the Bill defined that the Royal Navy has to provide a statutory capability, along with the Scottish Fisheries Protection Agency, to deliver that enforcement in UK waters?

Phil Haslam: Taking the first point, we work, as I said, on a risk-based, intelligence-led basis, so refining where we deploy our assets is based on that outlook. That is how we would deploy it. In terms of the differential between inspection rates of foreign vessels and UK vessels, I think that comes under the same cover. Where we perceive that there is risk and intelligence, we will take action on where it needs to go.

I am sorry, but I missed the second point about including something in the Bill.

[Mr Sweeney]

Q I was asking whether there should be a specific capability defined in the Bill about what our asset should be for fisheries protection.

Phil Haslam: No, because I think it involves over time the introduction of technology that may come downstream. At the moment, the reason we do what we do in the manner that we do it is to get evidential quality, should we need to take compliance activity. We still need inspectors to step on board fishing vessels.

[George Eustice]

Q I want to come back to a couple of points that were raised earlier. Could you tell us what work has been done in terms of personnel to identify people who have recently served in the Fishery Protection Squadron and who, if you needed a surge in capacity, might be able to be deployed again and already have the required training?

Phil Haslam: We have spoken about increased surveillance as part of the package to deliver an enhanced control enforcement capability. People are central to that. In the first instance, we are recruiting additional people into the MMO, so I will go from the cadre of warranted officers I have now to an increased number. That is actively under way. Also, to provide contingency planning, we have looked within the Royal Navy at who is currently qualified to conduct warranted fisheries business and who has recently been qualified. There has to be a cut-off, because obviously you will time out. There is a cadre of people still within the Royal Navy who could, should the need arise, be deployable to carry a warrant and conduct the inspection capability.

[George Eustice]

Q Secondly, in terms of managing access, additional access is sometimes granted in fisheries agreements. We do this in Scotland now; for instance, we allow the Faroes to catch 30% of their mackerel in UK waters. Could you explain how that process works? How does Marine Scotland enforce that process of managing conditional access?

Phil Haslam: Basically, if you allow access to your waters you have to control who is coming in and who goes out. There is quite a sophisticated way of checking in and checking out: a vessel has to declare its catch on entering and its catch on exit. Indeed, the point of exit and point of entry is conditioned as well, so you can establish gates at sea where people have to actively come through, so you can understand who is in your waters at any given time. I know that within Scottish waters quite a dynamic mechanism has to be in place to manage the inflow and outflow of vessels.

[Mr Carmichael]

Q You have a tremendous range of experience. To what extent do you think that non-compliance can be driven in the mismatch between quota and stocks? Let me give you an idea of my thinking. Some 20 years ago I used to make modest sums of money in Banff sheriff court defending constituents of Mr Duguid who had caught their monkfish one side of the 4 degree line when all the quota was on the other, which led to misreporting. That was just a classic mismatch between where the quota was and where the stock was. To what extent do you think that that sort of mismatch drives non-compliance?

Phil Haslam: It provides an opportunity for non-compliance, provided you are minded to do that. I would not want to perceive something adversarial, with the regulator running around trying to catch fishermen out. The way this works best is that the rules work for the industry. We, as an enabling regulator, support them in the pursuit but within the bounds of the regulation. As I understand it, that is what we are working towards—that is rather more of a strategic partnership.

[Mr Carmichael]

Q One proposal that has come from the NFFO is for the establishment of formal advisory councils, so that you would be bringing scientists, conservationists, industry representatives and perhaps even those responsible for enforcement around the table. Do you think that would be effective in terms of delivering a management system that would be less reliant on enforcement?

Phil Haslam: Personally speaking, yes, because anything that increases the dialogue between the cadre of people you have mentioned can only help. This has to be a process of shared understanding and pursuit of common objectives.

[Mr Carmichael]

Q So you get away from that adversarial approach to enforcement?

Phil Haslam: Yes.

[Owen Smith (Pontypridd) (Lab)]

Q Good afternoon, Mr Haslam. You said earlier that the MMO budget has been cut. How much has it been cut by since 2010 in cash or percentage terms? Secondly, related to that, you put in a big bid for an increase in resources in order to deal with a no-deal scenario. How much extra have you asked for and has the Minister indicated that he is going to provide it?

Phil Haslam: The budget reduction since inception has been in the order of 60%, but that is counterweighted by the fact that the MMO can accrue income through services delivered. That has provided a relatively stable, if declining, budget. In terms of the bid for additional capability going forward, a bid has been made and we are just in the process of finessing that.

[Owen Smith]

Q Can you tell us how much more you have asked for?

Phil Haslam: How much more in terms of actual—

[Owen Smith]

Percentage versus current budgets, or in cash terms.

Phil Haslam: It is basically a doubling of the budget at the moment.

[Owen Smith]

Q Has the Minister indicated that might be forthcoming?

Phil Haslam: Support in delivering it, yes. I have not seen any resistance in terms of, “We need this capability.” The scale and volume is the bit, because it is based on judgments of risk, but nobody has said they have any doubt about the operational need.

[Owen Smith]

Q But hitherto, this Government have cut 60% of your funding.

Phil Haslam: Under austerity, in line with all Government spending, there has been a decline.

[The Chair]

We have five minutes left for any further questions from the Government side. If not, Luke Pollard.

[Luke Pollard]

Q I want to pick up on your earlier answer where you described the inshore vessel monitoring system. Will foreign boats fishing in UK waters have a requirement to have IVMS on their boats, so you will be able to track where they are when they are in UK waters?

Phil Haslam: We have the latitude to make that a condition of the permit to enter.

[Luke Pollard]

Q So you have that power currently.

Phil Haslam: That is what we can do as an independent coastal state. Access to our waters will be granted by a permit, and the conditions we put on that permit are for the country to determine, so yes we can.

[Luke Pollard]

Q Just so I understand, you are saying that the UK will have that power in the future. Should that power be set out in the Bill—that this should be a requirement? My concern is that UK boats might have to have IVMS, but foreign boats might not, depending on what option we decide to put in the licence. There should be a level playing field between UK boats and foreign boats in UK waters, so should all boats not have to have IVMS on them?

Phil Haslam: The power in the Bill gives us the ability to regulate who comes into our waters by granting permission. I do not think the conditions of permission need to be explicit in the Bill, but they can be part of that, among other things that we would require any vessel within our waters to comply with.

[Mike Hill]

Q On the point you made about IVMS, would that extend to what I consider to be leisure fishing craft as well?

Phil Haslam: There will be a cut-off of who actually gets fitted with it, because the point is to try to develop a picture of what is the main input into the fishery in terms of effort on vessels out there. There will be some vessels—there will be a line below which we will not need to go. At the moment we are looking to catch—not catch, that is the wrong word—fit IVMS to the active fishing vessels.

[Mike Hill]

To commercial vessels.

Phil Haslam: To commercially active fishing vessels, yes.

[Luke Pollard]

Q The Bill includes provision for the Secretary of State to allocate fishing opportunities based on days at sea, as well as the fixed quota allocation. How does your enforcement action differ when you are looking at a boat using days at sea versus looking at a boat fishing against an FQA?

[The Chair]

Can you answer that question quickly, Mr Haslam, because one other Member wishes to ask a question?

Phil Haslam: Okay. In terms of an effort scheme, we would just need a data flow to track how often that vessel is put to sea, and whether it is in the bounds of the effort that is available. We have effort schemes that we run now.

[Bill Grant (Ayr, Carrick and Cumnock) (Con)]

Q I was also thinking about the licensing of vessels for fishing. Licensing of vessels or permits to fish in our waters may go to vessels not from within the EU 27. I assume that they can come from elsewhere in the globe; we are not confined to permitting vessels simply from Europe. My question is how do we ensure the seaworthiness of those vessels that may or may not receive a permit or licence to operate in our seas?

Phil Haslam: Taking what happens now for a UK vessel or an English vessel, the Maritime and Coastguard Agency issues a certificate of seaworthiness, and that is the first thing we need to see in granting a licence to fish.

[Bill Grant]

Q No matter where that vessel emanates from.

Phil Haslam: We would expect a similar behaviour. If that vessel was applying for a licence to fish in UK waters, one of the checks and balances you would have is asking, “Is it fit to conduct itself at sea? Is it seaworthy?” That would be the first check.

[Bill Grant]

Thank you.

[The Chair]

On behalf of the Committee, Mr Haslam, I thank you for your attendance and your evidence.

Examination of Witness

Dr Tom Appleby gave evidence.

15:00

[The Chair]

We now move on to our sixth witness, from the Blue Marine Foundation. Would you please introduce yourself and your organisation?

Dr Appleby: I am Dr Tom Appleby. I am a non-practising solicitor but I have been in property law for about 20 years. I am also an associate professor of the University of the West of England, and I have been operating in this sphere—ports, marine conservation and fisheries—for about 15 years.

[George Eustice]

Q May I ask for your general impressions of the Bill? Does it do the things that you would expect a domestic fisheries policy to do, or are there other elements that you would like to see included?

Dr Appleby: First off, it has been drafted in short order to deal with the situation that we have. By and large, and given the constraints that the drafters had—you can see that it is drafted in different forms and it does not sit together very well; it is not very beautiful—it does what it says on the tin, but it could be improved. I was looking at some other legislation. The Australian Fisheries Management Act 1991 has 168 sections, the MACA—the Marine and Coastal Access Act 2009—has 325, but this has 43. You can see that more could have gone in here, but there were time constraints on the people who drafted it, and I think that they produced what they could in the timescale.

[George Eustice]

Q Are you happy that clause 1 broadly brings across the marine environment objectives from European legislation?

Dr Appleby: It does. Clause 1 leads you into the devolution minefield. One thing it has to try to deal with in drafting is repatriating legislation on the one hand, and then delegating it around the four nations of the UK on the other. It tries to do that. Given the constraints on the drafters, there are fisheries plans to bring these objectives in.

There are potentially some bits missing. We do not have marine planning in there, which we could possibly put in. Quota could possibly go in there. There could be a method of dealing with quota at that stage, on how, if and when quota comes back, what happens with climate change and fishing opportunities. That could be put into the plans as well.

However, I recognise that the drafters sat there not only having to operate from the UK perspective but also having to take the devolved Administrations with them, which inevitably is slow. The clause could be improved if we had a little more time.

[George Eustice]

Q We obviously have to look at marine planning in the context of the retained EU law coming across and that we have other bits of legislation. Some of those things are already provided for.

The second point I want to raise is on the fixed quota allocation—the FQA units—which has been the basis of quota allocation inside the UK, attached to individual vessels, as you know. We have been explicit in the White Paper, and we take the powers in the Bill to make a break from that, and to say that any additional fishing opportunities that come as we depart from relative stability could be allocated on a different basis. What is your view of the FQA units system?

Dr Appleby: What has happened is that the UK fishery has essentially been, for want of a better word, squatted. We gave it out free to two people, who then sold it and it became propertised. The UK Association of Fish Producer Organisations case held that unused FQA became a property right.

The White Paper talks about quota being a public asset, so we have to make a decision on whether the UK fishery—particularly if we are getting more back; it will be very expensively brought—starts off as a public asset. That means unwinding the FQA system. You can potentially do that under existing powers, or you can do it under some things in the Bill. When you actually look at the auction, I think you have probably constrained yourself a bit too much. If you auction off quota, you are looking at people who have the cash to buy the quota in the first place. A royalty, for instance, is the sort of thing that you would charge—I think we would call it turnover rent in the property sector. That would be a way of charging people and then not having to come up with the cash. Even in the Bill, it only says “may” use an auction. Without constraining yourself, you could expand your powers on what we do with repatriated quota and, indeed, what we do with FQA generally.

We went through some debate when first drafting our amendments. We thought that we needed to put a stop to FQA, but a legal argument will come back the other way that says quota is a property right. We thought, “Well, if you give eight years’ notice, that’s probably sufficient to deal with any compensation that would arise,” but even then, I did not feel comfortable putting that in the Bill, because you reify the situation as soon as you do that. We put it in to start with, then we took it back out again on the basis that there needs to be a proper conversation about what we do with quota. Given the time restraints, we will not be able to do that in the Bill, even with the best will in the world. We can reserve the powers in the Bill to ensure that whatever we decide to do with FQA in the long run is settled, and that we can do some interesting things with it. I think that balance is there if you pull back just slightly on the prescriptive language about what you do with it.

[George Eustice]

Q Do you think a legal power is needed to do that? They passed legislation in the Faroes that effectively put people on notice, and said that after 10 years they would depart from an FQA system. Our view is that the Government could state that intention, at which point the clock would start ticking without the need to have a provision on the face of the Bill.

Dr Appleby: We reallocated quota last time—unused quota—without compensation or additional legislation, so I think we could do that. I think you have to be careful when you do that, because a lot of people borrow money by using their quota as collateral. One the one hand, there are some very rich people sitting on quota—the quota barons we read about—but on the other hand, there are people who use quota to support their running a business. You would need to think about what you will do, but I think you can do that under the current legislation.

What has happened here is that it has been beefed up. We have put some more suggestions forward. There are two things that you could do. You could vest the fishery so that it actually becomes public property. We have done a heck a lot of research at UWE on who owns it, and we reckon it was set up by some sort of implied Crown trust that goes back to the middle ages. One of my PhD students is working on this at the moment.

It would be easier just to state in the Bill that it is a public asset and put it in some sort of trust, and then you would get the kind of things that you would normally expect when disposing of a public asset to the commercial sector. That is the way I would approach it. I appreciate that we did not start there; we started with an open-access resource, which we have tried to deal with through legislation. We are in a transition.

[Luke Pollard]

Q You mention fisheries management and how that is missing from the Bill. In particular, fisheries management and how that fits with marine plans in the Marine and Coastal Access Act 2009 seems to be omitted. Can you just expand on what you think the Bill is missing in fisheries management?

Dr Appleby: I am not sure. In common with previous speakers, I liked the idea of a scientific adviser, which would be a lovely thing to have. Its constitution is probably the same size as the Act, so you can imagine the bunfight about who sits on the advisory panel, whether it is peer reviewed and whether it is devolved. That is a huge conversation to have, and it needs to be had in public. That is something I would like to see. If we had more time, I would like to see that go in the Bill.

There is a mirror piece of legislation, which is the Environmental Principles and Governance Bill. Does that apply to fishing or not? When we leave the EU, we will lose the right to infraction proceedings against recalcitrant UK—all parts of the UK. Should Scotland do something, it is the UK that gets infracted. We will lose that, and we have not quite been able to replace that kind of thing.

Those are just two examples: a good, robust, scientific, forward-looking body that looks at how to make the most of our resources, and some sort of regulatory regime to punish the hindmost, if you want to be quite so curt.

[Luke Pollard]

Q On the dispute resolution mechanism that you are talking about, the Government seem to think that they have the powers to resolve disputes between the devolved administrations and the UK Government at the moment. Is it your view that that is the case, or would an explicit dispute mechanism requirement in the Bill make that easier in the future?

Dr Appleby: I think you can put one in. I would love to, but given the timeframe to which we are working—having this Bill ready for March—it would almost be a wrecking amendment if we tried to put something like that in. You are going into devolution which is an enormously emotive topic, especially at the moment. In terms of the Government’s position of being able to hit the devolved administrations with a stick: it is a devolved matter. I do not think the Government can do that.

When you look at most of the Act, it is consensual and they are consulting one another. That is how it should be, to be honest. The four nations should be able to work together and that is right. At some level we have lost the outside influence that we had. The way everything is drafted is, unfortunately, currently predicated on having a common fisheries policy that kept everything together. I am talking around the subject because were you to put a drafting pen in front of me and say, “Get on and draft that,” it would be incredibly difficult. My sympathies go out to the Government for what they have done.

[Luke Pollard]

Q Finally, one of the areas that seems to be weaker in the Bill than in the common fisheries policy is the area around maximum sustainable yield and the removal of a commitment to achieve it by 2020. Where there are difficulties in achieving maximum sustainable yield by 2020, do you think that the MSY provisions in the Fisheries Bill are sufficiently robust to make sure that we are restoring stock levels in our oceans, especially as climate change seems to be missing as a theme from much of the Bill? Is that something that we could address?

Dr Appleby: What does maximum sustainable yield actually mean? The European Union defines it as something like the highest theoretical equilibrium yield. It says something like that in the basic regulation. You take a basket of theories and you use the highest one. It has been knocked around as a term for a long time. Our rights in our EEZ only go up to maximum sustainable yield and we do not have a right to fish beyond it. We can take the interest off our fish stock outside our territorial waters, but we cannot spend the capital. This is the way to look at it.

To some extent, that is all the rights we have. I have not explicitly looked at that, but my sense on the way this works is that we would be bound by MSY targets anyway. The other thing is that the UK has access to judicial review, whereas trying to review the European Commission is interesting. It is very difficult to get a standing in the European Court of Justice, particularly on maximum sustainable yield. A few years the World Wildlife Fund tried to get access on cod quotas, I think, and they failed. So the European Union is good at giving rules to other people, but not so good at looking after itself. From an environmental charity point of view, we are not so concerned as long as there is something in there that does allow some conversation about moving to the right stocks that produce more fish, more jobs and a better environment. We could get hung up on this if we are not careful.

[Peter Aldous]

Q Tom, you were expressing concern at how a public asset might have inadvertently become a property right, and how that might constrain more radical reforms of the quota system. Could we go back to the court case of 2012-13 when Lord Justice Coulson put down his determination? I have heard some suggestions that the Secretary of State won that case against the POs, because what he was proposing was very reasonable and small-scale, and the POs were acting unreasonably. Is that a view that you would share, or would you say that Coulson allows one to go a step further?

Dr Appleby: An FQA is a possession under the European convention on human rights. There is a distinction. “Quota” is once it is distributed, and FQA units are about your expectation of how much of a share of the UK’s TAC you are going get every year. That was based on the historical landings data, traditionally. He said that unused FQA units could be reallocated without compensation. FQA units are a possession, so the corollary of that is that used FQA units—and most of them are used—would require some sort of compensation payment. I have not been privy to the subsequent legal advice, and I took a sharp intake of breath when he said that at the time. In fact, I went to court to watch some of the court proceedings—it was quite interesting; it was right up my field. It is inherent in the UK that we do not take assets off people without compensation. It is part of our culture—way before the European convention.

There is another point about that redistribution and the immediate way it would have ramifications on how the whole commercial sector is constructed, which you need to be mindful of. Once you put that whole lot into a bag and shake it up, you could design a scheme to reallocate quota, but it would need to be done in a sensible, crafted way.

[Owen Smith]

Q Dr Appleby, you say that MSY is not necessary, and that hardwiring a greater onus on Ministers to adhere to MSY in terms of the allocation of future quotas is not necessarily the way to go. If we had more time—I take what you say about there being limited time—is there a way in which we could hardwire sustainability in respect of future fisheries management into this Bill?

Dr Appleby: That is a good question. There are things that you can do. The Australian legislation, for instance, makes it a legal duty to fish sustainably and according to the plans that they come up with. We could put that in. Our fisheries statements are a bit woolly. I notice that there is a bit in here that says that they do not have to adhere if relevant considerations are taken into account. What is a relevant consideration? I could not find a definition of that.

We have not nailed the Secretary of State to the floor in this Bill, and that could be done. Again, it would have to be done in the context of devolution, so we would have to nail everybody’s feet to the floor around the UK, because we cannot have a situation in which one part of the UK can fish non-sustainably and the other parts cannot. There are things that you can do. There are tweaks and modifications that can be made to harden up that duty.

[Owen Smith]

Q For clarification, you were saying that it is in Australian legislation that there are fisheries policies?

Dr Appleby: Yes, I think that their fisheries plans are statutory.

[Owen Smith]

Q And they are legally binding on Ministers to ensure those things are observed?

Dr Appleby: They have a management board. We are looking at the scientific advisory panel that has been put forward. Those scientific recommendations are binding in some way.

[Owen Smith]

Q I have one separate question. Do you take an environmental view of what the potential benefits might be of preserving certain fisheries or stocks for recreational fishing, as has happened elsewhere?

Dr Appleby: You are looking at a public resource, so how do we make the best of that public resource? Some of that is going to be to the commercial sector and some of it is undoubtedly going to be to the recreational sector. The whole thing is so political because we are trying to carve up this public resource through regulation. Undoubtedly, the recreational sector is an important part of this conversation, too. Historically, although it has recently been included in the common fisheries policy, it has come to the table late.

[George Eustice]

Q I want to come back to this point about some of the environmental criteria and potentially having a hard nib point for MSY, for instance, as a statutory target.

One unique thing about fisheries is that, in or out of the EU, they are subject to annual international fisheries negotiations. Norway, for instance, follows MSY but also follows lots of other scientific metrics that it thinks are superior to those that we use. In such a situation, do you think it is important to keep that flexibility, so that you can actually land an agreement with Norway, the Faroes, Iceland and the EU, or is it preferable to make it unlawful for the UK to reach such an agreement and just have everyone go off on their own and unilaterally set a tax?

Dr Appleby: That is an interesting question; theoretically, we cannot fish beyond MSY, because that is all we have. Under the United Nations convention on the law of the sea, our rights extend to MSY and that is it. You cannot have an agreement on what you do not have.

However, the question is: what is MSY? It comes down to the definition. The Norwegians would probably argue that, by taking a basket of different theories, we achieve MSY, because one stock can be plotted on a graph and another cannot. I am not a fisheries scientist—you would have to ask them—but it seems that you are essentially looking at something like a repairing obligation on a lease. How far can you go with this and do it in a sensible way?

The difficulty with going into, say, MSY or BMSY or all those things, which I have never completely got my head around, is that you define a particular scientific methodology in your Bill. I think that could come back to haunt the draftsman if stock does not behave in a certain way or if you want some sort of flexibility. Again, it is interesting that, coming from a conservation point of view with my Blue hat on, I am not uncomfortable with just leaving it at MSY.

[The Chair]

I have Alistair Carmichael and then Mike Hill, unless anybody else wishes to contribute.

[Mr Carmichael]

Q May I just tease out for a second or two the question of property rights as they pertain to FQA? As I understand your evidence so far, if we were to get to somewhere sensible on this, we would not start from here. Is that a fair comment? I can understand why you would take the idea of eight years and then think no—if I came to you and said I will take your house away in eight years’ time, you would not be very happy about that. At the same time, does the whole idea of quota auction not put beyond any doubt that this is a tradeable commodity?

Dr Appleby: You can write that into the legislation. The Americans, in the Magnuson–Stevens Fishery Conservation and Management Act, just write in that it is not a property right. You can make it terminable, so that it kind of becomes a contractual right.

[Mr Carmichael]

Q But that is what you could do with a blank sheet of paper. We do not have a blank sheet of paper; we have a history here of people borrowing large sums of money on the basis of their then having property rights that they can then offer up as security.

Dr Appleby: One way of dealing with that is to inflate your way out of it, so that you do not punish one individual. You could say that, this year, you are going to topslice 20%.

[Mr Carmichael]

Q So do you think that it would be possible for repatriated quota and existing quota to have different rights?

Dr Appleby: I think you could. We are straying into an area for which you need explicit legal advice, but I see no reason why not. You are not disappointing somebody. The other thing about doing this sort of thing with this sort of asset is that you cannot target one individual and say that you are going to take their quota off them and off they go. That really is compulsory purchase. When you water down the entire pot, it is much harder for somebody to make a claim, particularly if fish stocks start to come back and the inherent value of the asset has not really changed.

The price of quota pings around like anything, depending on how much fish has been landed that month. It is not a very stably priced asset anyway. Again, if in the Act you use robust wording about this, the first thing the courts will look at is the Act and ask what Parliament has said. It comes back to reasonableness, I think.

[Mr Carmichael]

Q You can slice it and dice it any way you like, but in essence you are talking about nationalising a private resource. You compensate for that, do you not?

Dr Appleby: The thing is that it was never privatised properly in the first place. Normal squatter’s rights would be 12 years, but this is based on three years. It is a much shorter timeline that people have a track record for. We did the same thing with the milk quota—that was wound down—and various other farm subsidy payments were wound down, too. This is not a sector where this sort of thing happens.

The duty of the public administrators is to make sure there is no undue shock on the fishing industry by pulling the rug out from everyone, and otherwise to make sure we safeguard what is, at least nominally, a public asset. Elsewhere, in the UK Association of Fish Producer Organisations case, which is a slightly funny case, Justice Cranston says that it is a public resource. There is some force in the intervenor’s point that it is a public resource.

[Mr Carmichael]

Q Just 30 seconds on devolution, because I want to give colleagues some time. Is there not a conflict of interest where the United Kingdom is holding the reins but is parti pris in respect of the English interest as well?

Dr Appleby: That is a very good question. I put my amendments together in two parts. The Secretary of State is doing two roles; I am sitting here with two roles myself, so I appreciate that. One is being the Secretary of State on behalf of the UK—he is a trustee of the UK’s public fishery—and the other one is being English Fisheries Minister. That is why I do not like the way clause 20 is drafted, because I thought you would split the functions. The trouble is that it goes into some very difficult water when we start to look at the different devolution settlements.

[Mike Hill]

Q I have two simple questions. In your opinion, does the Bill provide the requirement for the UK fisheries to be sustainable? Should the Secretary of State provide annual statements on stock levels?

Dr Appleby: I will take the second question first because the second one leads to the first. How can you define “sustainable” if you do not know what the stock levels are? There is a massive absence of science on this. If we get money back in from the fishery, I would like the commissioning of decent science so we can look ahead and plan forward. We seem to be navigating while looking behind us. We need to get better data to manage the stock. We also need to have a conversation about which stock we want to fish. What are the stocks that live best in our waters that we want to feed the country in the 21st century?

[The Chair]

Mr Aldous wants to ask a question and we have just less than a minute left.

[Peter Aldous]

Q The Secretary of State has to consult with Welsh and Scottish Ministers and the Northern Irish on this. Are the English put at a disadvantage?

Dr Appleby: There is an argument. If we were to try to stick an English Fisheries Minister into this Bill, which is kind of where you are going, that is the West Lothian question. I almost feel we should ask the Minister what he feels.

[The Chair]

The Minister will have several hours over the next few weeks to tell us what he thinks. Time is at a premium. On behalf of the Committee, I thank you Dr Appleby and the organisation for your submission. Watch the Bill with interest as it progresses.

Examination of witness

Aaron Brown gave evidence.

15:29

[The Chair]

We now move to our final session of the day, which I remind colleagues must finish at 4 pm. The final witness is Aaron Brown of Fishing for Leave. Could you please introduce yourself as the witness?

Aaron Brown: I am Aaron Brown of Fishing for Leave; thank you to hon. Members for having me along today.

[George Eustice]

Q Thank you very much for joining us. I know you have long been an advocate of an effort-based regime, rather than a quota-based regime or potentially a hybrid model. You will be aware that the White Paper sets out a commitment to pilot that, particularly with the inshore mixed fisheries. Could you just set out what your thoughts are in that respect and why you think an effort-based regime would be better than a quota-based regime?

Aaron Brown: To start with, overall we were very happy with the White Paper. The Bill is somewhat disappointing, because a lot of what was good and gave a lot of hope to people has disappeared, and an effort pilot was one such thing. We have been staunch advocates of that, because over 30 years with increasing regulatory burden we have tried to go up a cul-de-sac and it has not worked. We have had black fish and discards, and now we are on to choke species.

We sat back and said, to use a phrase the Minister likes to coin himself, “What are the first principles of management?”, and that is the ecosystem. You have to work with mother nature. Currently, all the problems, many of which Members have discussed today—whether that is enforcement, science or shares of resources—all stem from the current quota system. What we said is that the only way to manage a dynamic mixed fishery, where you catch a mix of species that fluctuate up and down and it is difficult to determine exact, quantitative, arbitrary figures such as quotas, is to say to vessels, “What is a sustainable level of time that vessels need to catch a sustainable amount of fish from an ecosystem? If in the North sea you can take 200,000 tonnes of biomass, combined, from that ecosystem, how long does it take your fleet collectively to do that?”

That allows vessels to land all catches. It means you see exactly what the fluctuations and dynamism in the marine environment are, which generates accurate science, and you are flowing along with the environment rather than what we are trying to do just now, which is to impose arbitrary theoretical targets and then try to hit them. That has been proved not to work.

Just to finish, before Mr Aldous asks a question, we quickly concluded that effort control alone does not work, and that is what we brought to the Department as a solution that answers most questions. Blunt time at sea, especially in a blunt measurement such as days at sea, does not work. What we have developed is a system where you adopt FQAs, so there is no contention about people losing their investment in that, and turn them into percentages that people should be aiming to catch. It is not an arbitrary weight that you are aiming for; what you are aiming for is a percentage-based mix of what is deemed to be sustainable. If you catch outside that percentage, what happens is that you lose time in compensation.

Therefore, as a vessel is losing time for catching the wrong fish that he is able to land for that time penalty, his effort burden on the environment is coming back. Since the fish that has been landed has almost been time for the crime, scientists know that is a true representation of what is going on. I have worked on this for over two years; we have not asked for it to be dropped out of the sky, as some of the amendments to the Bill seem to be—for an enabling Bill, there are some clauses that seem to be a shopping list for DEFRA. What we are asking for is a trial, because we truly believe that for a unique system anywhere in the world, we have a system here that could get us away from poor science, solve the problem of FQAs and who owns them, and get us towards a far more sustainable fisheries management system.

We implore hon. Members to put in a legislative requirement that a trial across the fleet, not just inshore, is enacted to give us an alternate solution. If it fails, it fails, and if it is proved right, we have lost nothing but gained a lot.

[George Eustice]

Q Just to clarify, there is a different purpose behind a White Paper, which sets out your policy and what you seek to do with the powers, and a Bill that establishes the legal powers you need to deliver your policy. We would not need a specific clause to say, “You must run a trial,” in order to be able to run a trial; the legal powers to run a trial are in the existing clauses of the Bill.

Coming back to the principle, the difficulty with fisheries is that, while you have said effort does not work, nothing quite works on fisheries. That is why it becomes a circular argument. You seem to be arguing for a return to catch composition rules, which themselves became slightly discredited so that people tried to move away from them. The challenge is that an effort regime works best in a mixed fishery where it is harder to segregate out the fish, but a tonnage system works best in, say, the pelagic.

Aaron Brown: Absolutely. We would say for pelagic species, where you are catching an individual bulk species and vessels can reasonably accurately target that, although at times you do get it wrong, a quota system is fine. The problem is that dynamic mixed fishery—the white fish; we include nephrops in that mixed fishery. What we are saying is catch compositions but not arbitrary limits, which, again, is a problem. It has flexibility.

To avoid a race to fish, to avoid giving people a blunt dollop of time and their going off and targeting the highest value species because the economic incentive is there, what you are effectively doing under this system is a buffer scheme, if you like. It is a trading scheme. “Okay, I’ve caught the wrong fish. It’s worth money”. Then, rather than discard it into the sea unrecorded and keep on fishing and killing more of that species while trying to find one you can keep, what you are moving towards is trading overall ceiling of effort for that wrong fish. So it is a compensation scheme, effectively, in which you get the financial benefit of that fish and your men get their pay—we will come on to that with the system that DEFRA proposes for discards—but, overall, your ceiling in the year comes down to meet you.

That would solve the bass problem. You could put in a zero catch composition for bass. Any catches would have a time penalty. Boats could be tied up on the Monday but they would have that bass landed, and the financial benefit of it. It would work for spurdogs. We really believe there is a system here that merits a good look, and proper scrutiny and trial. As we say, we lose nothing if it fails and we gain everything if it succeeds.

[Luke Pollard]

Q Do you think that fish should be a public asset and that that should be defined in the Bill?

Aaron Brown: I think that absolutely, yes. I think there has always been that case. I was very pleased to hear Dr Tom Appleby state that, and many of the other non-governmental organisations have said it, about the idea of privatisation. Even with the FQA system, it says in the paperwork that people get through, that it should not be bartered, sold or bought. It just happens to be that the industry has gone and done it.

Fish always has been a public resource. Various judicial hearings have defined that as well. Indeed, it probably stretches all the way back into Magna Carta, right back through our constitution. At the end of the day, we as fishermen, as the members of the public who catch, are only custodians of what is the nation’s; we look after it and husband it well for current generations and future ones. We would very much like to see a clause put in towards that.

[Luke Pollard]

Q One of the questions asked earlier was about auctioning additional fishing opportunities, and one of the key concerns that Fishing for Leave has raised when we have met has been about how auctioning could favour people who already have a quota, who already have cash, which would not support the small boats, on which there should probably be the greater focus. Do you have any concerns about where auctioning sits?

Aaron Brown: That is one of the main five things that are in the Bill. As I said at the start, one thing that disappointed us more was what was missing from the Bill rather than what was in it. But out of the five things we are deeply concerned about, that auctioning clause is one of them. It runs coach and horses through the principle of it being a public resource. Practically, it will end up in the hands of the highest bidders.

There is no tightening of the economic link in the Fisheries Bill, which is one of the things we really want to see included, so without that, combined with auctioning, you could have massive, multinational, hugely wealthy seafood companies saying, “British fishing is on the up so we’ll come in and wave our cheque book and outbid everyone else.” Even the biggest companies in Britain could not compete with some of those far eastern ones.

If we go down the auctioning route, we have an opportunity to draw a line, as I think the right hon. Member for Orkney and Shetland said, between the current quota resources—how it has been divvied out, not in the way we would have chosen—and this clean slate of what comes back. If we go down the auctioning route, where it is monopolised into the hands of a few big interests, with their financial firepower, it rides coach and horses through the Government’s objective of rebuilding coastal communities and supporting family-based fishing.

[Luke Pollard]

Q You mentioned effort, and you suggested a hybrid scheme between FQAs and days at sea. There are concerns that the Bill gives the Secretary of State powers to allocate fishing opportunities simply on days at sea, without any qualification after that. But the White Paper spoke about there being a series of trials to assess whether days at sea would deliver against the objectives. Do you think that the simple inclusion of days at sea without any qualification that comes afterwards could make that more problematic?

Aaron Brown: One of the amendments we put in was to amend it to hours at sea. It might seem contrary to Members that fishermen would want to tighten what could be perceived as a noose on themselves. That amendment was to get towards what we really need to get towards, which is some kind of catch-per-unit effort system of fisheries management.

Over the years, one of the clauses in the Bill we would like to see amended is right at the start: clause 1. It says that management will “ensure that…activities are”, which suggests that the Government kind of take a hammer and beats down the industry to meet their requirements. We would like to see that reversed so that policy requires management that delivers. In other words, the onus should be on the Government to say, “Okay, here are the objectives we want to meet. How do we move towards that?” We want it changed to hours of soak time at sea, because that is a far more accurate method of delivering catch-per-unit effort. You would be getting accurate data to deliver management that actually achieves objectives rather than just trying to take a hammer to the industry to make it comply.

[Luke Pollard]

Q Finally, we have heard today that the way fishing is conducted in UK waters has changed over many years, with new technologies and greater efficiency in catching fish. There is a new development called electronic pulse-beam fishing, which I have a lot of problems with. Although this level of detail might not be included in a framework Bill such as this one, we received representations—I tend to agree with them—that that practice should be banned. Do you have strong views about where electronic pulse-beam fishing sits within acceptable fishing practices?

Aaron Brown: Absolutely. We feel it should be banned outright immediately. You could put a sub-clause in that says it should be banned until it is proved that it is not responsible for the environmental degradation that has been reported by fishermen all around the southern North sea, where the derogation has happened. I certainly do not think anyone could say that the Dutch, who are primarily responsible for this, have not taken the Michael—that’s the polite word. It started as a derogation against the ban on electric fishing that the European Commission itself got—let us remember that it was a derogation against the EU’s own scientific advice—for a trial of the method. That trial has gone on for 10 years and has 100 boats on it. That is a commercial fishery masquerading as a trial. Even the Dutch now hold their hands up to that. We would like to see that banned.

We would also like to see sandeel fishing banned in the central North sea. For years and years, that has taken away a key component of the food chain—the base of the food chain—for sea birds, fish and obviously fishermen. Neither method—pulse fishing or sandeel fishing—is of benefit to any UK vessels, and with sandeel fishing you have the double dunt that the sandeels are taken for pig feed, so the British bacon industry could see a competitor’s food costs go up.

There would be a massive environmental gain if we banned both practices. That would not affect any British industry. I am actually very surprised that a Government who extol their environmental credentials with plastic cups and wars on wet wipes have not taken the easy win of banning pulse fishing.

[The Chair]

There is considerable interest in asking questions in this session. We have to finish at 4 pm, so can I ask for short questions and shorter answers, please?

[Peter Aldous]

Q I will not comment on pulse fishing, because I agree with you, Mr Brown. I think the Minister said that the Government are happy to look at an effort-based pilot. I am conscious that there was a pilot in the past. What was the outcome of that? What shortcomings were there, and what lessons might we learn for future pilots?

Aaron Brown: That is one of the areas where, when we devised this system, we realised there had been a massive failing. The days at sea scheme was blunt and there was no effective monitoring. Generally, it was with smaller boats in south-east England. I think even the fishermen themselves would hold their hands up and say they really knocked the backside out of the pilot. There was mis-reporting going on—they just went out and kind of went Tonto on it.

We are advocating an hours-based system. You would obviously have vessel monitoring systems. We want to get towards a fully integrated monitoring/management system. Vessels would have sensors, which are not expensive to put on—vessels use a similar technology for gear telemetry and door sensors—and go on any type of fishing gear, to monitor soak time, so you would know the exact time a vessel’s gear was in the water. There would be a stipulation to monitor where vessels were through your inshore VMS or your full-on VMS, and also to fill out electronic logbooks, which are here now. You would get an up-to-date, haul-by-haul update on how much fishing effort was going in. You would know, “That boat towed six hours in this area and he caught x amount of fish for this size of gear. The chap over to the side towed similar gear and caught half the amount of fish.” You would start to know where the abundancies were.

The one main control to go for with a pilot is making sure it is rigorously enforced and it is an hours-based scheme. The other main thing is the catch composition thing. That really is the main control for regulating the industry. Rather than everybody going Tonto, like they did last time, and targeting Dover sole, cod or bass, you would say, “Yes guys, you can catch them and keep them, but be aware that if you do that, your ceiling of hours is going to come clattering down to meet you.”

[Alan Brown (Kilmarnock and Loudoun) (SNP)]

Q I think you touched on this topic earlier on; you said you would probably come on to it. Do you have a view on the discard prevention charging scheme that is in the Bill and on how transparent it is and how it would actually work?

Aaron Brown: That is one of the things in the Bill that very much seems to ride coach and horses over the idea that the Bill is just an enabling Bill. Obviously, there is a bit of reticence—okay, you could say, “Understandably so”—to career on towards a different type of management on an effort-based system, yet somehow we have a scheme here that has dropped out of the air, with no prior piloting and no prior consultation, and that has just arrived on the table. We are vehemently against it, because we personally feel—and everybody who has read the Bill, both among our membership and in other organisations, feels—that only an idiot who could not understand the practical implications of such a scheme would propose it.

We feel that the scheme is there to administratively abrogate the failings of the current system. The Government are proposing to take all the repatriated resources and use them as headroom to avoid choke species, whereby, as of 2019, vessels have to cease fishing on the exhaustion of their lowest quota. What will happen is that you will have vessels going to sea. Many hon. Members are from the south-west, as the Minister is, and haddocks are a huge problem there—in the North sea, it is hakes. The Government then say, “We will honour the fish that would choke you or would tie you up. We will give you fish to keep fishing, but so that there is no economic incentive to target that species, you must land it for free.” That scheme effectively creates a giant shuttle service, where boats are going to have to run in and out, in and out of harbour, landing all this fish that they cannot profit from, to allow them to keep fishing.

The first big problem with that scheme is retention of crew. Lads are not going to work to retain—well, just now it is a 40% discard rate, so if they have to retain that 40% for free, you are going to lose your crew very quick. The next problem is that there is no provision in the Bill as to what happens to this fish when it is landed: you cannot turn around and allow processors, hauliers, markets or shore-based people to profit from it, because that would disadvantage the fishermen. Really, the logical question about that clause is, “Are we going into some sort of Soviet system, where the fishing industry is going to work for free for the Government?” It is an ill-thought out thing, and I think it needs taking out of the Bill. It needs to come back once it has been properly tested and run in to see if it actually works, because we see such pitfalls in it, and it does not actually—

[The Chair]

We have to move on, sorry. We have to finish at 4 pm and we may have a Division in the House before then, so we have to be quick on questions, or all Members will not get in. Any further questions, Mr Brown?

[Alan Brown]

Q In terms of perverse incentives and the process of making money out of these fish, you said that they would be landed for free. Could there not be a risk of collusion, with fish being landed and processed so that some of that money is recouped?

Aaron Brown: To some extent, that would be difficult now. It would come back to black fish, which were really stamped out through the vessel monitoring system and designated ports legislation, whereby vessels now have to book in three hours in advance and declare their catch. Effectively, the only way to do it would be coming in and mis-declaring that you did not have those fish—because otherwise you would be declaring them, and the Government would know they were there—and taking them up the road. Obviously at the ceiling, you could say, “Well, the tally was wrong.” There is some degree of openness to abuse.

However, the thing that disappoints us most, where our system works but this one allowing fish to come in does not, is that it does not address the fundamental flaw: arbitrary quotas do not work in mixed fisheries. All that happens is that we are now setting an arbitrary target that we try to hit, and all this scheme does is allow you to make it right up to that target. It does not actually tell you, “Is that more abundance of fish?”

In the south-west with haddock, say, or in the North sea with hake, you could lift the quota up—double it—and the fleet would still catch it. Does that tell you there is a greater abundance of species, or does it basically show that you have given more legislative headroom to bring fish ashore? The only way that scheme would work is if you increased the quota disproportionately high, which no one is going to agree to. Since there would be no economic incentive for the boats to go off and handle all these fish that they are not profiting from, you would see where the fleet came up to and what a natural abundance catch was. That might be 60,000 tonnes, but if you had set the quota at 100,000 tonnes, you would know that there was not that abundance. The scheme, effectively, does not work. It needs taking out.

[Bill Grant]

Q I noted that you were very much against the big boys, or the financially powerful, coming in on an auction system to buy up the quotas or the right to fish. Bearing in mind that skippers with smaller quotas or rights to fish sold them on to those people, what is your alternative to that system? How would you make it fair?

Aaron Brown: The way we want to see it is with the auction clause taken out and a direct replacement put in on what we call the 1 tonne to one boat principle, whereby the resource is seen as a national resource and legislated as such. What happens is that all the repatriated resource that we gain under zonal attachment—anything about that is missing from the Bill—that national pot of resources, gets allocated to all vessels in a sea area fairly, equally. For the west coast of Scotland, where we are both from, about 60,000 tonnes of mackerel could be repatriated—worth about £60 million—and about 100 vessels are left there with the capability to go to that fishery, so what you would turn around to say, therefore, is that each west coast fishing boat in the ICES sea area for that stock gets 600 tonnes. That applies across any stock.

What we would like to see with that is, instead of it just being administrated on a spreadsheet like the non-sector is, which ends up with DEFRA just saying that we get 12 tonnes for 12 months, spread out equally over the months, is that that fish can be held in a PO—not monetarily traded, rented, bought or sold, but held in a PO—as a kind of holding vessel to use it at the best time of year, when that fishery may be on, rather than trying to spread 600 tonnes over 10 months. Also, if you cannot use that resource, it goes back into the national pot. We believe that has a huge degree of simplicity to it, legislatively and operationally. It would provide the flexibility for vessels to use that fish at the best time of year and, obviously, it would allow it to be reabsorbed into the national pool. That is what we would like to see.

[The Chair]

I call Alistair Carmichael. We have nine minutes left, and four Members wish to speak.

[Mr Carmichael]

Q The NFFO and the SFF told us this morning that they wanted to see a commencement date on the face of the Bill, namely 31 December 2020. What advantages would there be to such an amendment?

Aaron Brown: We would agree with that. We have one—it is actually the first one that we have put together ourselves—and we are obviously aiming for 2019. The way that negotiations are going, it will probably end up being 2019—hopefully, if God is merciful. Yes, we would absolutely agree with that. Our big fear is that if there is not a commencement date, the Secretary of State has the powers to kick the can down the road—it depends on what Government is there. We very much agree with a commencement date, preferably 2019, when we actually are a fully independent coastal state.

We have made it clear—I would like to put it on the record—that the transition is an existential threat to the industry: we leave, but we then sign up to re-obey the CFP—we have to obey all EU law—and they can enforce any detrimental legislation that they please, which they have every incentive to do, because under UNCLOS article 62, paragraph 2, if a state cannot catch its own resources, it must give the surplus to its neighbours. The EU has absolutely every incentive—they have even mentioned it in their own studies by the PECH committees, that this could happen—to run a bulldozer over the top of the UK fleet.

We implore Members: fishing cannot be in a transition. Obviously, with the wider deal, the big problem is that the EU says that there must be a future relationship or we are into the backstop, and that future relationship for fisheries will be based on current access and quota. That is not conjecture; the EU has said quite clearly that Gibraltar and fisheries are getting it, in the words of Mr Macron—via my rusty French translation. There is a huge danger of fishing going into that, so as the right hon. Member for Orkney and Shetland said in the Chamber, given the current poor state of the negotiations as they have been conducted, every red line has been breached. If the Government truly had a commitment to fisheries not getting mangled again—bartered a second time—they would not have been in the transition in the first place.

[The Chair]

Thank you. I want to get Members in. I call David Duguid.

[David Duguid]

Q Thank you, Mr Hanson. Mr Brown, there has been a lot of talk today about the ownership of quotas. As Mr Carmichael said earlier, if we were to design this again from scratch, we would not start from where we are. A lot of what you describe sounds like it might work if you were starting from scratch, but I cannot help but feel a bit squeamish about the idea of taking something away from someone who owns something—I am a Conservative; I cannot help myself. I do not see that as being fair. Not only does it in essence involve taking ownership of an asset away from someone, even over time, but how fair do you think it is that the fishermen who benefit, the smaller fishermen who would get a bigger share of the quota, in some previous generations might have benefited financially from selling that quota to the larger fishermen in the first place?

Aaron Brown: I absolutely agree with you. That is why Fishing for Leave has been absolutely explicit right from the start that FQAs as they stand—the current quota and the current FQAs—should not be touched. We agree with you that it opens up a total legal and moral can of worms to turn round and say, “Okay, this shouldn’t have happened, but it has happened, but we’re going to take it off you.” I absolutely agree.

Our solution to preserving the FQAs, while moving to a more equitable system of management for both fisherman and the fish was to convert them into this flexible catch composition entitlement. That is very simple to do. It is legislatively no problem, because all you are doing is saying that your FQA is not an entitlement to a kilogram; it is an entitlement to a percentage. So the resources all come back, and the current resources go into a national pool; that is divided out as time and everybody gets an equal stake of time to reach their potential, but those biggest quota holders, both in the south-west and the north-east, which have heavily invested in FQAs, get the benefit of their investment, because when the fleet’s national average might work out at 5% cod in the North sea, those who have invested heavily in FQAs would get their 30% or 40% or whatever. We think that is a fair way to do it.

[The Chair]

Okay. I call Owen Smith.

[Owen Smith]

Q Are you disappointed that, two and a half years after Brexit, so little seems to be resolved in concrete terms for the future of the fisheries?

Aaron Brown: You have no idea the level of my disappointment.

[Owen Smith]

Q Perhaps you could tell us in a minute. Are you worried that several Cabinet members have warned that transition could go on for as long as four years?

Aaron Brown: Yes, absolutely. That makes it worse. It pours petrol on the bonfire that I have described to you. In the transition, the EU has every incentive to run a bulldozer over the top of us. They can abolish the 12-mile limit; they could fully enforce the discard ban in choke species and, obviously, we would not be able to implement policy to mitigate that, such as suggested in the Bill. They would be able to barter UK resources in international swaps, because we will not be party to international agreements but the EU will be making them on our behalf.

The other thing that is really devastating right round the country is that currently the UK relies on a lot of swaps in the EU, to get in fish that would otherwise probably be ours under a zonal attachment. We will not be able to do that because we will not actually be sitting at the table any more. So we will be trapped in this kind of halfway house, where the EU has every incentive to take a great big stick and beat us with it like a piñata. It is not a position that I think is equitable for the survival of the industry. To be brutally honest, by the time we get round to a new British policy, if we are not shovelled into the backstop, of which there is a high likelihood, there will not be a fleet left to take advantage of anyway.

[Mr Sweeney]

Q Whether it is the smaller under-10 shellfish boats working out of the west coast ports, such as Stornoway or Oban, or the pelagic and white fish fleets running out of the big commercial ports, such as Fraserburgh and Peterhead, what benefit to Scottish ports would there be of introducing an economic link of landing at least 50% of all fish in Scottish ports?

Aaron Brown: I am fully supportive of that. We have gone further and said 60%, and not just for landings. There is a huge benefit from that. Currently just now, the flagship problem that Britain has, after the Factortame case, is that under freedom of establishment and freedom of movement, any EU national could come in and buy up British entitlement. Obviously, with the British fleet struggling with so much loss of its own resources, and regulatory ineptitude, many family fishermen felt compelled to sell. That is huge problem just now as we see on the west coast, in Lochinver. I think it was £30 million of fish went through Lochinver and there was not a single indigenous fishing boat. That needs to be tightened up on. There is a huge benefit, not just to the fisherman and their communities, but also to processors and market share.

Norway’s crowning glory is not actually its fishing fleet. Norway’s crowning glory is its dominance in processing and marketing globally. That is something that Britain could equally compete in with the resource we have got. We would like to see 60% landings into the UK, sold and processed, because otherwise people will just put them on the back of a lorry and run them down the road. We want to see 60% beneficial ownership of any British vessel—that is no different from the other Nordic countries—to avoid foreign nationals or conglomerates buying out the UK fleet.

We would also like to see 60% British crew, but with a five-year or thereabouts dispensation for foreign crew, until we rebuild the future generation back into the industry to replace the one we have lost. The economic link absolutely needs to be there and we implore you to accept that that is an amendment that needs to go in. The Conservatives tried to do it in 1988 with the Merchant Shipping Act. I argue that if it is good enough for Mrs Thatcher, then it should be good enough for this Government as well.

[The Chair]

I think that brings us almost to the end of the session. It is good to hear Mrs Thatcher still being quoted 38 years after she gained office. On behalf of the Committee, thank you, Mr Brown, for your contribution.

Ordered, That further consideration be now adjourned.—(George Eustice.)

15:59

Adjourned till Thursday 6 December at half-past Eleven o’clock.

Written evidence to be reported to the House

FISH01 Angling Trust

FISH02 Greenpeace UK

FISH03 National Federation of Fishermen’s Organisations

Finance (No. 3) Bill (Fifth sitting)

Tuesday 4th December 2018 Public Bill Committees

The Committee consisted of the following Members:

Chairs: †Ms Nadine Dorries, Mr George Howarth

† Afolami, Bim (Hitchin and Harpenden) (Con)

† Badenoch, Mrs Kemi (Saffron Walden) (Con)

† Black, Mhairi (Paisley and Renfrewshire South) (SNP)

† Blackman, Kirsty (Aberdeen North) (SNP)

† Charalambous, Bambos (Enfield, Southgate) (Lab)

† Dodds, Anneliese (Oxford East) (Lab/Co-op)

† Dowd, Peter (Bootle) (Lab)

† Ford, Vicky (Chelmsford) (Con)

† Jenrick, Robert (Exchequer Secretary to the Treasury)

† Keegan, Gillian (Chichester) (Con)

† Lamont, John (Berwickshire, Roxburgh and Selkirk) (Con)

† Lewis, Clive (Norwich South) (Lab)

† Reynolds, Jonathan (Stalybridge and Hyde) (Lab/Co-op)

† Smith, Jeff (Manchester, Withington) (Lab)

† Sobel, Alex (Leeds North West) (Lab/Co-op)

† Stride, Mel (Financial Secretary to the Treasury)

† Syms, Sir Robert (Poole) (Con)

† Whately, Helen (Faversham and Mid Kent) (Con)

† Whittaker, Craig (Lord Commissioner of Her Majesty's Treasury)

Colin Lee, Gail Poulton, Joanna Dodd, Committee Clerks

† attended the Committee

Public Bill Committee

Tuesday 4 December 2018

(Morning)

[Nadine Dorries in the Chair]

Finance (No. 3) Bill

(Except clauses 5, 6, 8, 9 and 10; clause 15 and schedule 3; clause 16 and schedule 4; clause 19; clause 20; clause 22 and schedule 7; clause 23 and schedule 8; clause 38 and schedule 15; clauses 39 and 40; clauses 41 and 42; clauses 46 and 47; clauses 61 and 62 and schedule 18; clauses 68 to 78; clause 83; clause 89; clause 90; any new clauses or new schedules relating to tax thresholds or reliefs, the subject matter of any of clauses 68 to 78, 89 and 90, gaming duty or remote gaming duty, or tax avoidance or evasion)

Clause 32

First-year allowances and first-year tax credits

09:25

[Jonathan Reynolds (Stalybridge and Hyde) (Lab/Co-op)]

I beg to move amendment 73, in clause 32, page 19, line 23, at end insert—

“(6) The Chancellor of the Exchequer must review the likely effect of extending the first-year allowances on energy-saving plant or machinery or environmentally beneficial plant or machinery to 2030 and lay a report of that review before the House of Commons within six months of the passing of this Act.”

This amendment would require the Chancellor of the Exchequer to review the effects of extending first-year allowances to 2030.

[The Chair]

With this it will be convenient to discuss the following:

Amendment 74, in clause 32, page 19, line 23, at end insert—

“(6) The Chancellor of the Exchequer must review the likely cost of extending the first-year allowances on energy-saving plant or machinery or environmentally beneficial plant or machinery to 2022 and lay a report of that review before the House of Commons within six months of the passing of this Act.”

This amendment would require the Chancellor of the Exchequer to review the cost of extending first-year allowances to 2022.

Amendment 75, in clause 32, page 19, line 23, at end insert—

“(6) The Chancellor of the Exchequer must review the effect of ending the first-year allowances on energy-saving plant or machinery or environmentally beneficial plant or machinery and lay a report of that review before the House of Commons within one year of the passing of this Act.

(7) A review under subsection (b) must consider the effect on—

(a) the energy technology sector, and

(b) the water technology sector.”

This amendment would require the Chancellor of the Exchequer to review the impact on the energy and water technology sectors of ending first-year allowances.

Amendment 76, in clause 32, page 19, line 23, at end insert—

“(6) The Chancellor of the Exchequer must review the effect of ending the first-year allowances on energy-saving plant or machinery or environmentally beneficial plant or machinery, on foreign direct investment in the energy technology and water technology sectors and lay a report of that review before the House of Commons within one year of the passing of this Act.”

This amendment would require the Chancellor of the Exchequer to review the impact of ending the first-year allowance on foreign direct investment in the energy and water technology sectors.

Amendment 77, in clause 32, page 19, line 23, at end insert—

“(6) The Chancellor of the Exchequer must review the effect of the provisions in this section on the United Kingdom’s ability to comply with its third, fourth and fifth carbon budgets and lay a report of that review before the House of Commons within six months of the passing of this Act.”

This amendment would require the Chancellor of the Exchequer to review the impact of Clause 32 on the UK’s ability to meet its carbon budgets.

Amendment 78, in clause 32, page 19, line 23, at end insert—

“(6) The Chancellor of the Exchequer must lay before the House of Commons a report on any consultation undertaken on the provisions in this section within two months of the passing of this Act.”

This amendment would require the Chancellor of the Exchequer to report on any consultation undertaken on the provisions in this clause.

Clause stand part.

[Jonathan Reynolds]

It is lovely to see you again in the chair, Ms Dorries, as we reconvene for this Committee’s second week. It is particularly good to see the Minister still here—I am never quite sure at the minute who will turn up on behalf of the Government.

I speak to Opposition amendments 73, 74 and 78 to clause 32, which focuses on first-year allowances and first-year tax credits. This measure would end the first-year allowance for all products on the technology and energy list and on the water technology list. Before I move on to why the Opposition feel strongly that the Government are wrong to end the first-year allowance, it is important to establish the extent of the allowance, its qualifications and the logic behind its introduction.

Enhanced capital allowances legislation was introduced in 2001 to encourage the use of energy-saving plant and machinery, low-emission cars, natural gas and hydrogen refuelling infrastructure, water conservation plant and machinery construction projects and so on. Under the relief, businesses that pay income or corporation tax can claim 100% of the first-year capital allowance on investment in ECA qualifying items. In addition, adoption of ECA qualifying items improve a project’s building research establishment environmental and assessment method—the BREEAM rating—and contribute to an improved energy performance certification rating.

To qualify, the item acquired must qualify as plant and machinery and satisfy the following criteria: it must not be second hand; the expenditure must have occurred after 1 April 2001; and the plant must either be a listed product or meet the energy saving or water conservation criteria specified by the Carbon Trust. Energy-saving technologies are things such as air-to-air energy recovery, automatic monitoring, boilers including biomass, combined heat and power units, compressed air equipment and so on. Water conservation technologies include efficient showers, taps and toilets, energy-efficient washing machines and more.

The Department for Business, Energy and Industrial Strategy describes enhanced capital allowances as different from standard capital allowances. It estimates that enhanced capital allowances are between 5.5 and 12.5 times greater than ordinary capital allowance relief. This accelerated cost saving further shortens the period of time and builds the business case for investment in energy-efficient equipment.

It is clear that this allowance encourages businesses to mitigate their environmental footprint and is designed to help the UK transition to a green and low-carbon economy. It is therefore disappointing that at a time when, as we have already discussed in this Committee, the United Nations Intergovernmental Panel on Climate Change has warned that climate change is at the point of becoming irreversible, the Government would choose to end such an effective relief.

Despite the positive steps that national Governments are taking all over the world to get citizens to recognise and limit their personal carbon footprint, businesses clearly have a role to play, too. We feel that the best way is to incentivise businesses, making it worth their while to use energy-saving and water-conserving technologies through tax relief. Taking away first-year allowances with little notice would only further alienate business at a time when we all need to do what we can to transition our economy to deal with the realities of climate change.

Although in its policy notes the Treasury suggests that small and medium-sized businesses will be shielded and the vast majority will be able to claim relief under the separate annual investment allowance, it concedes that large businesses will face additional costs and some level of disruption. Similarly, the Chancellor has stated that the revenue saved will be used to fund the industrial energy transformation fund. However, details about the fund remain scant, aside from the fact that it will be targeted at smaller businesses and funded through the end of these first-year allowances.

From the Opposition’s perspective, the change appears to be little more than a rebranding exercise designed to take an effective relief—first-year allowances—away and simply redirect that revenue into the Chancellor’s new fund. It is far from the radical industrial strategy that the UK needs to ensure that businesses and citizens are equipped to deal with climate change and the evolving energy market.

In the Budget, the Chancellor announced a consultation on a new business energy efficiency scheme, yet there appears to be little mention of whether businesses were consulted about ending this vital relief. Opposition amendment 78 would therefore require the Chancellor to report on what consultation has taken place.

The Government’s decision to end first-year allowances for energy-saving and water conservation technologies raises a further question about the effectiveness of this relief. Put simply, it is not broken, so the Government need to explain why they are planning to scrap it. That is certainly the sentiment behind Opposition amendments 74 and 73, which would require the Chancellor to undertake a review of the cost of extending the allowance to the end of this Parliament, and to 2030, respectively.

The reality is that the changes made by the Government in clause 32 appear to be revenue-led. They put the short-term priorities of the Treasury ahead of the UK’s long-term obligation to tackle climate change. Rather than empowering businesses to do their part and invest in energy-saving and water conservation technologies, it appears likely to deter them. We cannot see the logic of that. If the Government are sincere in their desire to create a better-targeted and more effective relief, they need to offer the Committee further details about the supposed industrial energy transformation fund to replace first-year allowances. If the Committee is being asked to endorse that change, let us have all the details first.

[The Exchequer Secretary to the Treasury (Robert Jenrick)]

It is a pleasure to serve under your chairmanship, Ms Dorries. After two days in the reassuring embrace of the Financial Secretary to the Treasury, the Committee has a brief interlude.

Clause 32 will make changes to end, from April 2020, first-year allowances for all products on the energy technology list and the water technology list, including the associated first-year tax credit. The environmental first-year allowances aimed to encourage greater take-up of environmentally friendly technology. Capital expenditure by businesses on plant and machinery normally qualifies for tax relief by way of capital allowances. Environmental first-year allowances allow 100% of the cost of an investment in qualifying plant and machinery to be written off against taxable income in the year of investment, providing a cash-flow benefit. The first-year tax credit provides a tax credit for loss-making businesses that invest in qualifying items.

The first-year allowance was introduced in 2001 for products on the energy technology list, and in 2003 for products on the water technology list. However, the allowances have made the tax system more complex, and there is very limited evidence that they have driven greater uptake of such technologies. A report by the Office of Tax Simplification found significant barriers to accessing the allowances, including the administrative burden of making claims. Government analysis suggests that less than 25% of energy managers would increase investment in energy-saving technology because of the allowances, while fewer than 20% of manufacturers report a positive impact on sales.

[Kirsty Blackman (Aberdeen North) (SNP)]

The Minister makes an interesting case, but it is what I would have expected as part of the report required by amendment 75. Will the Government accept the amendment and provide us with the information in report form, rather than having the Minister stand up here and tell us?

[Robert Jenrick]

I will come to the amendment in a moment, but I hope I will be able to reassure the hon. Lady and the hon. Member for Stalybridge and Hyde that we have already given the matter a great deal of thought and spoken to a number of stakeholders in the sector. Our actions are led by precisely the businesses that benefit from the existing reliefs.

For 99% of businesses, all plant and machinery is already eligible for full relief under the annual investment allowance, so the enhanced capital allowances provide no additional incentive. Smaller businesses such as those to which the hon. Gentleman refers have little if any reason to make use of those reliefs. The Government therefore believe that there are better ways to support energy efficiency.

The changes made by clause 32 will end the first-year allowances and the first-year tax credits from April 2020. In answer to the hon. Gentleman’s question about little notice, there is a significant amount of notice, beginning with the Budget this year, and these first-year tax rates not ending until April 2020. That is the point at which the industrial energy transformation fund will be available. Those rates will still be available until then, which will give businesses the time they need to prepare for change. The Government will look to lay secondary legislation in 2019 and update the lists of eligible technology, so that they can still be used and will be updated to include the most efficient technologies in the meantime. There is no sense in which those measures will fall behind with technological change.

To give some extra detail on some of the flaws with the current first-year allowance for energy technology, we found very low levels of awareness, as I have already described. Manufacturers estimate that less than a quarter of their customers are even aware of the scheme, and it provided little additionality. As I have set out, fewer than 25% of energy managers reported that the scheme influenced their investment decisions, and fewer than 20% of manufacturers reported that, if they did use it, it made a positive impact on their sales and businesses.

Many tax advisers reported to us that their clients decided to make claims after they had chosen to invest in efficient technology, so it did not have the impact that we would have hoped. Small companies are much less likely than larger companies to benefit, and 99% of companies would already be able to make such investments under the annual investment allowance. A 2017 survey by the Federation of Small Businesses found that only a quarter of small business owners were even aware of the scheme.

[Kirsty Blackman]

Is the Minister not making the case for more consultation in advance of any tax changes? Clearly, this tax change did not achieve what the Government thought it would. The consultations and information asked for are even more vital if the Government are making mistakes and not achieving what they had hoped.

[Robert Jenrick]

It is pretty clear from the evidence I have just laid out that the current tax reliefs do not work. We are making the changes required to ensure that smaller businesses, through the increased annual investment allowance, will have the allowance they need to make these investments. We will now work closely with other businesses, through the design of the industrial energy transformation fund, and a full consultation on that will be launched at the beginning of next year. We encourage the hon. Lady, businesses and other members of the Committee to take part in that consultation, as we design the successor fund to these reliefs.

The Government remain committed to increasing environmental efficiency, and the savings from ending first-year allowances and tax credits will be used to fund the industrial energy transformation fund. That fund will help businesses with high energy use to cut their energy bills and reduce their carbon emissions, by supporting investment in energy efficiency and other innovative decarbonisation technologies that may become available in the years ahead. Those could include, for example, investment in carbon capture and storage, or fuel-switching technologies. However, decisions on the scheme design, including eligibility and the technologies that will be supported, will be subject to the consultation with industry that I have just described. Establishing the scheme will fulfil our manifesto commitment to establish an energy efficiency scheme for industry, and that has been widely welcomed, including by groups such as EEF, the manufacturers’ organisation; UK Steel and the Energy Intensive Users Group. Since the Budget, I have spoken to a number of heavy users of energy, including car manufacturers, who all welcome this measure.

[Clive Lewis (Norwich South) (Lab)]

Is the Minister aware that some businesses are concerned that the Government are ending one scheme without having another in place? That causes uncertainty for business at a time when they need more certainty than they have had for a long time.

[Robert Jenrick]

I hear that concern, and that was the reason we chose not to end the scheme immediately. The scheme will end in April 2020. Until then it will continue as it does today, and be regularly updated with new technologies. If a company that makes use of it knows of a new technology that it wants to be part of the scheme, it will be possible for that to be added. The scheme will continue exactly as is until April 2020, by which time the new one will be in place. As a result of this year’s Budget, the annual investment allowance will also go up to £1 million, so additional allowances will be available to those businesses.

Amendments 73 and 74 would require the Government to publish a review of the cost of extending first-year allowances to 2030 and 2022. As set out in the policy costings document that we published alongside the Budget, ending the allowances will save £160 million by 2021-22. As we announced in the Budget, savings from ending the allowances will be invested in an industrial energy transformation fund of up to £315 million. Our primary motivation is finding a better way to help businesses be more energy-efficient—not saving money for the Exchequer, as was suggested—and we believe that our approach makes more efficient use of public funds. We anticipate that the average annual cost of extending first-year allowances would remain at around the same level until 2030. The figures are already known and in the public domain, so I urge the Committee to reject amendments 73 and 74 because the information that they request is already available.

Amendments 75 and 76 would require the Government to publish a review of the impact of clause 32 on the energy and water technology sectors. I hope that I have already provided the Committee with an answer to those points, removing the necessity of such reports. As I have set out, there is little evidence that the first-year allowances lead to a greater uptake of environmental technology, so the Government do not believe that such reports would provide any significant additional information. Furthermore, the Government support business investment in other, more efficient and dynamic ways, through the increase in the annual investment allowance and the creation of the industrial energy transformation fund.

[Jonathan Reynolds]

I am listening carefully to the Minister, but if the increase in the annual investment allowance replaces the first-year allowances or mitigates their loss, it seems that there is no fiscal incentive to invest in energy-efficient or climate change-relevant technology. The Opposition believe that we should try to operate the policy as a fiscal instrument to direct investment into the technologies that we need, but I do not see that described in the Minister’s answer.

[Robert Jenrick]

I have described it; that is the rationale for replacing the first-year allowance with the energy transformation fund. Had we chosen simply to remove the allowances and replace them solely with the increase in the annual investment allowance, the hon. Gentleman would be correct: 99% of businesses could proceed broadly as they do today, but they would not have a specific incentive to choose environmental equipment, plant and machinery or energy efficiency measures. However, by coupling the increase in the annual investment allowance with the transformation fund, we hope to shift the dial in favour of technology that helps the environment.

Amendment 77 would require the Government to review the impact of clause 32 on the UK’s ability to meet its carbon budgets. I assure the Committee that there are already robust requirements to report on progress towards the UK’s emissions reduction targets. When the measures in the Budget and the Bill become law, they will become part of that regime.

The Climate Change Act 2008 provides a world-leading governance framework that ensures that progress towards carbon targets is robustly monitored and reported to Parliament. First, the Government are required to prepare and lay before Parliament an annual statement of emissions that sets out the total greenhouse gases emitted to and removed from the atmosphere across the UK, and the steps taken to calculate the net UK carbon account. Secondly, the independent Committee on Climate Change is required to prepare and lay before Parliament an annual report, to which the Government are required to respond, on the Government’s progress towards meeting the UK’s carbon budgets. I would expect the committee to take the changes made by clause 32 into account in their deliberations. Thirdly, the Government are required to prepare and lay before Parliament a statement that sets out performance against each carbon budget period and the 2050 target.

[Clive Lewis]

I thank the Minister for his patience. As I understand it, having requested an analysis from the Minister responsible for carbon budgets on whether the Government were going to take into account the recent evidence from the Intergovernmental Panel on Climate Change on the 1.5° warming, the fourth and fifth carbon budgets do not currently do that. I have been told that there will be no assessment of the 1.5° warming until after 2030 when the fifth carbon budget concludes. Was the Minister aware of that and will he comment on the fact that that could have a severe impact on our ability to be able to achieve the targets?

09:45

[Robert Jenrick]

The IPCC will report in the usual way. It will not necessarily update its methodology, but it will lay before Parliament its usual statement and the Government will have to respond, as they have in every case. The Committee on Climate Change will hold the Government to account for the changes that we make, such as the ones in the Bill. That does not entirely answer the hon. Gentleman’s question on future targets. The mechanisms in place are strong and will ensure monitoring and reporting to Parliament of greenhouse gas emissions and of the Government’s responses. I therefore urge Members to reject amendment 77.

Amendment 78 would require the Government to report on any consultation undertaken on the provisions in clause 32. The Government consult stakeholders on an ongoing basis to inform all their policies. The provisions in clause 32 are no different. This includes, for example, surveys of relevant manufacturers and a call for evidence on helping businesses to improve the way they use energy, which was conducted by the Department for Business, Energy and Industrial Strategy. It would therefore not make sense to report further on the consultation that the Government have already undertaken on first- year allowances. Her Majesty’s Treasury Ministers meet manufacturers regularly, as I have said. I have met automotive manufacturers since the Budget and they welcome the changes.

The legislation was not released in draft because this is a simple abolition and does not constitute a measure that we would consult on normally. The Government stated in the new budget timetable and the tax-making process, which was published last year, that they will generally not consult on straightforward rates, allowances and threshold changes because they do not benefit from that process. I therefore urge Members to reject amendment 78.

The removal of the first-year allowances and associated first-year tax credits will allow the Government more effectively to support businesses to cut their energy bills and reduce carbon emissions. It will enable us to redirect the funds to the industrial energy transformation fund, which has been widely welcomed. I hope Members who are interested will take part in the consultation next year so that we can ensure it meets the requirements of industry and those who care about the environment. I therefore commend this clause to the Committee.

Question put, That the amendment be made.

Division 18

Ayes: 9

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Labour: 7
Scottish National Party: 2

Noes: 10

---

Conservative: 10

Amendment proposed: 75, in clause 32, page 19, line 23, at end insert—

“(6) The Chancellor of the Exchequer must review the effect of ending the first-year allowances on energy-saving plant or machinery or environmentally beneficial plant or machinery and lay a report of that review before the House of Commons within one year of the passing of this Act.

(7) A review under subsection (b) must consider the effect on—

(a) the energy technology sector, and

(b) the water technology sector.”—(Jonathan Reynolds.)

This amendment would require the Chancellor of the Exchequer to review the impact on the energy and water technology sectors of ending first-year allowances.

Question put, That the amendment be made.

Division 19

Ayes: 9

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Labour: 7
Scottish National Party: 2

Noes: 10

---

Conservative: 10

Clause 33

First-year allowance: expenditure on electric vehicle charge points

Question proposed, That the clause stand part of the Bill.

[Robert Jenrick]

After that excellent start, I will continue. Clause 33 extends the life of the first-year allowances for electric vehicle charge points until April 2023. In the UK, the continued use of high-emission vehicles creates pollution and increases health issues. This measure was first introduced on 23 November 2016 to support the transition in the UK to cleaner vehicles with zero or ultra-low emissions. The measure allows businesses that invest in charge points to reduce their taxable profits by 100% of the cost of their investment in the year it is made. That provides accelerated tax relief compared with normal capital allowances, and so encourages greater investment in these assets. The allowance is currently due to expire in April 2019. The clause enables the first-year allowance to continue as part of the Government’s ambition for all new cars and vans to be zero emission by 2040.

[Bim Afolami (Hitchin and Harpenden) (Con)]

Yesterday evening, for some light relief, I was going through emails from constituents. One constituent runs a business that installs electric charging points. Will the Minister illustrate for the Committee how he thinks that business will flourish as a result of these measures?

[Robert Jenrick]

The Government have taken two measures, the first of which was in the last Budget. That created an electric charge point investment fund— £200 million of public investment—which is designed to spur an extra £200 million of private investment. A business such as the one my hon. Friend describes could be part of that. The measure could enable the business to partner with the public sector and gain the capital that it needs to develop, and will be able to take advantage of the allowance and invest early. There are now two opportunities for such a business to take advantage of tax reliefs and public investment in order to grow rapidly and enter the market.

[Peter Dowd (Bootle) (Lab)]

I do not deny the Minister’s point per se. Is there any implication that businesses that have chargers could be subject to a rating revaluation, which would put the cost of their business rate up? Perhaps the Minister could clarify that important point.

[Robert Jenrick]

The hon. Gentleman makes a valid point and I will reply—the powers that be will return to me in a moment.

The changes made by clause 33 will extend the current 100% first-year allowance for expenditure incurred on electric charge point equipment for a further four-year period until April 2023. That will encourage the increased use of electric vehicles by supporting the vital development and installation of charging infrastructure for such vehicles, to which drivers will look when deciding whether to buy them.

[Sir Robert Syms (Poole) (Con)]

Will the Minister give way?

[Robert Jenrick]

Perhaps I could reply to the hon. Member for Bootle before taking a further intervention.

[Peter Dowd]

Providing inspiration arrives.

[Robert Jenrick]

Or not, as the case may be. We will have to write to the hon. Gentleman, I am afraid. He has outfoxed our officials.

[Sir Robert Syms]

Is the funding available to businesses also available to local authorities, because many of them put in charging points, or does that not apply to councils?

[Robert Jenrick]

I understand that this would apply only to private businesses. Other interventions help the public sector, such as the charging infrastructure investment fund, which local authorities can become involved in if they wish to develop infrastructure in their area. There were a number of wider measures in the Government’s Road to Zero strategy, including consulting on changes to the planning system to ensure that new business and residential properties, as well as public sector projects such as new council offices, hospitals and so on, are built with the infrastructure in place to support these vehicles.

The allowance will expire on 31 March 2023 for corporation tax purposes and on 5 April 2023 for income tax purposes. This extension is expected to have a negligible impact on the Exchequer. There are no anticipated costs to Her Majesty’s Revenue and Customs and neither will there be any significant economic impact nor any additional ongoing costs for businesses beyond the investment that will be generated.

In conclusion, this extension will incentivise the use of cleaner vehicles by encouraging companies to invest in electric vehicle charge points, giving confidence to drivers to shift away from current combustion propelled options in the knowledge that the further roll-out of charge points will continue and accelerate in the years ahead, and reduce all the damage to the environment and public health that follows. I commend this clause to the Committee.

[Jonathan Reynolds]

Having just passed clause 32, which ended first-year allowances on the basis they were little known about and ineffective, I cannot help but comment how clause 33 extends the first-year allowance for another technology for four years on the basis it will provide the incentives and drive Government policy in that direction. Forgive me for pointing out that there are mixed messages from Ministers on these clauses.

It is disheartening that this is one of the relatively few mentions of environmental issues in the Finance Bill. We were all at Mansion House in June when the Chancellor gave a speech about how we would lead the way on green finance, yet there have been no legislative measures to follow up on that promise. We still lag behind our European counterparts on things such as mandatory climate disclosure laws or sovereign green bonds, but we should welcome any measures we like the look of when we see them.

Transport is a major source of emissions and we agree that we rapidly need to shift away from fossil fuels towards electricity and renewable sources and, to a certain extent, hydrogen for heavier vehicles. Thankfully, electric vehicles are coming through the system quickly and are expected to move rapidly through their cost curves, getting cheaper and cheaper. I have been hugely impressed by the electric vehicles I have experienced. Some estimates have cost parity for purchasing an electric vehicle as soon as 2022, after which buying an electric vehicle will become cheaper than buying a fossil fuel powered car.

The transition to a decarbonised, clean and smart economy will offer the UK many advantages, particularly considering how tech-savvy and early adopting much of the UK population is. The Nissan LEAF is the most-sold electric vehicle in the world. I say with some local pride, as someone born in Sunderland, that Sunderland has been the sole producer in Europe of the Nissan LEAF, creating over 50,000 vehicles. Of course, electric vehicle and hybrid production in the UK has provided a £3 billion trade surplus.

With a growing list of countries setting a date to ban combustion vehicles and modelling showing strong uptake curves, the global move to electric vehicles will be rapid. The first mover advantage to capture supply chains and jobs in this coming market will be considerable.

[Alex Sobel (Leeds North West) (Lab/Co-op)]

Norway is planning to ban combustion vehicles by 2025—the incentives and the infrastructure in Norway are sufficient for that. We are not planning that until 2040. Does my hon. Friend agree that there is a policy failure not just on this measure but more generally in terms of building our electric vehicle infrastructure?

10:00

[Jonathan Reynolds]

I agree with my hon. Friend, who has taken a major interest in these issues both before and during his parliamentary career. The availability of charge points is the greatest concern when it comes to achieving this shift. My hon. Friend the Member for Manchester, Withington and I were just talking about the local charge points in Greater Manchester, which we have both experienced.

A recent World Wildlife Fund report on accelerating the electric vehicle transition made some predictions about how it might evolve. It said:

“Private charging infrastructure will be in most homes and many workplaces. The opportunity to charge at home rather than relying on public charging infrastructure is an attractive feature of electric vehicles, and we assume that owners who are able to charge at home will do so when convenient (for example overnight). Workplace chargers are also likely to be required; evidence suggests that around 20% of electric vehicles currently make use of workplace charging…In the 2040 scenario, 11 million home chargers and around 2.2 million workplace chargers are needed by 2030.”

That last point is key in relation to the clause.

Electric vehicle charging will be facilitated by a combination of home and workplace charging, running to millions of stations. That is why it is essential to grasp every chance to promote the installation of infrastructure in companies. We support this capital allowance to help achieve that. However, although it is a positive move, it is a drop in the ocean of what needs to be done to encourage the use of cleaner vehicles. More than half of new car registrations last year came from businesses, so ensuring that there is an attractive package to encourage companies that are reliant on cars to use electric vehicles is clearly fundamental to tackling emissions.

Will the Minister elaborate further on how this measure will work for smaller companies? Our concern is that smaller companies, which have vast competing spending priorities, may find it difficult to source the cash they need to build charge points. We would also like to know the Government’s long-term plans for the charging infrastructure investment fund, which has recently changed its grant system for the installation of plug points. Will the Minister elaborate on what the take-up of the programme has been among small businesses? How is the scheme being promoted to ensure the maximum possible take-up?

My hon. Friend the Member for Bootle raised a key issue about business rates. We must aim high to ensure workplace charging infrastructure is as widespread as possible. We should compare how this might evolve with the uptake of solar panels. A change in valuation methodology meant that some institutions had a 400% increase in their business rates after they deployed solar technology. That runs counter to everything we all want to incentivise. Why would we penalise those who lead the charge? In such a generous package of capital allowance for businesses, it is difficult to see why any Government would build a tax disadvantage into the system for users of renewable or climate change-solving technologies. That is not simply our view. That point has been heavily put across by trade associations, including the Solar Trade Association, which launched a fairly scathing attack on Budget 2018.

In conclusion, the extension of the first-year allowance on workplace charging infrastructure is a step in the right direction, but these things cannot operate in isolation. The Government must take serious further action urgently to promote the transition to a greener economy. Although this is a start, I hope the Minister can reassure us of the Government’s ambition to go even further.

[Robert Jenrick]

I hope I can reassure the hon. Gentleman on those points. The first point was about why we would choose to extend this measure at the same time as bringing another to an end. We chose to bring the other one to an end because the evidence was not there to support its continuation. Having given the matter careful analysis, we believed that there was a better way forward.

We are still at a very early stage in the process. It is too early to assess the precise impact of this measure. We know that the total number of electric charge point connections has increased from more than 13,000 in November 2017 to more than 18,000 in October 2018—a 38% increase. Clearly, we would like that to accelerate even further, because that is still a small number across the whole of the country. We believe, anecdotally, that the measure is working and that it has been welcomed by the industry, but it is too early to assess that precisely. We are placing an extension in the Bill to ensure it can continue and to give certainty to the market. We will review this measure in time, as we have done with other measures, to determine its effectiveness. If it is not working correctly, we will take action accordingly.

The hon. Gentleman asked why the Budget did not do more for the environment. Of course, I contest that. The Budget did set out a wide range of measures to help the environment, from the new plastics tax, which will be consulted on and legislated on in the next Finance Bill—we hope it will be one of the world’s first plastic packaging taxes—to the measures already set out in the Finance Bill, such as this one and the vehicle excise duty measure on taxis, which we brought into effect a year early, and which has ensured that cities such as London and Manchester are seeing a great increase in low emission taxis.

We have already spoken about the industrial energy transformation fund, which we hope will put heavy users of energy on a more sustainable path. These things build on recent announcements, whether it is the industrial strategy and its commitment to the environment and to clean growth, or the Road to Zero strategy with respect to electric vehicles. Across Government, we are taking a wide range of measures to support the environment and to help businesses and individuals to cut their energy bills and lower carbon emissions.

The hon. Gentleman asked about the electric vehicle charging infrastructure fund. This was announced at the Budget last year, and we have now progressed the fund. We are in the final stages of selecting a fund manager, and once they are appointed we expect the fund to be formally launched and to start investing in early 2019. I hope to be able to give the hon. Gentleman and others more information on that very shortly so that businesses that wish to participate in it can start to access that £200 million and we can increase public and private investment in charging infrastructure very rapidly.

Small businesses, which the hon. Gentleman raised, will be able to claim under the annual investment allowances, which we have debated on a number of occasions. As I have said before, 99% of businesses will be able to claim under the annual investment allowances, which is a considerable increase as a result of the Budget and will help businesses that want to invest in this area.

On solar, the feed-in tariff scheme has supported over 800,000 small-scale installations, generating enough electricity to power 2 million homes. The scheme has helped to drive down the cost of renewable electricity, including small-scale solar photovoltaic. We therefore think it is right to protect consumers and to review the incentives as costs begin to fall. The Government—and indeed the Government before us—have made significant interventions in this area. With those reassurances, I hope the hon. Gentleman will support the clause.

Question put and agreed to.

Clause 33 accordingly ordered to stand part of the Bill.

Clause 34

Qualifying expenditure: buildings, structures and land

[Jonathan Reynolds]

I beg to move amendment 79, in clause 34, page 19, line 38, at end insert—

“(4) The Chancellor of the Exchequer must lay before the House of Commons a report on any consultation undertaken on the provisions in this section within two months of the passing of this Act.”

This amendment would require the Chancellor of the Exchequer to report on any consultation undertaken on the provisions in this clause.

[The Chair]

With this it will be convenient to discuss the following:

Clause stand part.

New clause 2—Review of changes to capital allowances—

“(1) The Chancellor of the Exchequer must review the effect of the changes to capital allowances in sections 29 to 34 and Schedule 12 in each part of the United Kingdom and each region of England and lay a report of that review before the House of Commons within six months of the passing of this Act.

(2) A review under this section must consider the effects of the changes on—

(a) business investment,

(b) employment, and

(c) productivity.

(3) The review must also estimate the effects on the changes if—

(a) the UK leaves the European Union without a negotiated withdrawal agreement

(b) the UK leaves the European Union following a negotiated withdrawal agreement, and remains in the single market and customs union, or

(c) the UK leaves the European Union following a negotiated withdrawal agreement, and does not remain in the single market and customs union.

(4) In this section—

‘parts of the United Kingdom’ means—

(a) England,

(b) Scotland,

(c) Wales, and

(d) Northern Ireland;

‘regions of England’ has the same meaning as that used by the Office for National Statistics.”

New clause 5—Aggregate effect of changes to corporation tax and capital allowances—

“The Chancellor of the Exchequer must, within one year of the passing of this Act, lay before the House of Commons an analysis of the effect of the changes to corporation tax and capital allowances made under sections 25 to 28 and 29 to 34 of this Act.”

This new clause would require the Chancellor of the Exchequer to review the aggregate effect of the changes to corporation tax and capital allowances made under this Act.

[Jonathan Reynolds]

I regret to inform the Committee that we are reaching the end of the section of the Bill relating to capital allowances.

The capital allowances regime clearly requires a holistic review by the Government. We all agree that we want to make the UK a competitive and attractive place for businesses. As we contemplate our departure from the EU, that requirement has never been more pressing. Yet, these measures all come at a cost. The annual investment allowance increase will cost £1.24 billion in its first three years. By 2023-24, the buildings and construction expenditure allowance will cost over half a billion pounds. They need an assessment in the round so we can aggregate these reliefs against the corporation tax reductions and see what the package really looks like, what the economic justification is for these changes, and whether that money should be reprioritised elsewhere.

With the UK becoming such an outlier among other developed countries in relation to corporation tax, with an eventual rate of corporation tax well below the average of OECD countries, we need to ensure that our overall package of measures is properly targeted. That is why Labour is moving new clause 5, which would oblige the Government to present an analysis in a year’s time of the full effect of these changes and the corporation tax alterations. We need to understand what this package looks like in the round, whether it is providing value for money, and what the real cost is to the taxpayer in aggregate. Only then can we make a judgment on whether this is the right and appropriate way to spend the money, when the UK has so many other priorities after eight difficult years of austerity.

That is why I urge Members to vote for new clause 5, which would obligate the Government to publish a review in a year’s time. By then, we will be in a position to see how these allowances have been taken up, as well as to make some initial judgments on Britain’s business investment landscape post our exit from the European Union.

Clause 34 will amend the Capital Allowances Act 2001 to clarify that land alterations qualify for capital allowances where plant or machinery is installed that qualifies for the same allowances. It helps to clarify the qualifications in place for businesses that seek to carry out such work. The Opposition have no particular objection to ending the mismatch, but this is another tidying-up measure. Will the Minister provide some insight on whether any further such measures are to come? How was the inconsistency brought to the Government’s attention? Is there any estimate of the cost associated with this measure? There should be greater transparency and understanding of exactly where such a measure has come from. If there has been pressure from a particular sector, that needs to be clear. Opposition amendment 79 calls for the Government to present to the House a report on any consultation undertaken on these provisions. I call on Members to vote for this amendment to provide proper transparency on process to the House, so that the cost and benefit can be properly scrutinised and we can assess the motivations for bringing about this change.

[Kirsty Blackman]

It is a pleasure to speak in this Committee and to serve under your chairpersonship, Ms Dorries. I want to focus my comments on new clause 2, but if the Labour party presses amendment 79 or new clause 5 to a vote, we will support it. What we are trying to do in new clause 2 is not dissimilar from what Labour is trying to do in new clause 5—we are just going about it in slightly different ways. Putting the two new clauses together would make a lot of sense, to encompass what we are both trying to achieve.

New clause 2 looks at clauses 29 to 34 and schedule 12 to the Bill and provides for a review of the changes to capital allowances. It asks for a number of reviews and for us to measure against a number of outcomes that we hope the Government will seek through any changes they make to capital allowances or through having a capital allowances system in the first place.

The first review is of business investment. What changes do the Government expect for business investment as a result of all the changes made to capital allowances? Any tax system tries to do three things: disincentivise undesirable behaviour, incentivise desirable behaviour and get money for the Exchequer. It is important to consider whether the legislation does any of those things in the way we would hope. Business investment is key; surely, the point of capital allowances is to incentivise good business investment. Therefore, it is reasonable that the Government come back and explain to us the potential changes they expect to business investment resulting from their legislative changes.

The second review is of employment. That is important; the Government are never off their high horse about the level of employment they say we have. If they hope the changes will make a difference to employment levels, they should tell us how much change they expect so that we can measure their performance against whether that has been achieved. We just heard that the previous tax allowances put in place for first-year allowances did not have the desired effect, and the Government have to change them. Therefore, it would be useful to know what the Government expect to happen to the number of employed people as a result of their changes. We can measure the Government against that and say whether the measure has failed or has achieved what they intended to achieve.

10:14

The third review relates to productivity. The Government have struggled to increase productivity rates, which are not increasing nearly as fast as we hoped they would. Part of that is because companies are not making the appropriate investment—who can blame them, given that Brexit is on the horizon and they face economic uncertainty? If we want to increase productivity, we need to incentivise work; in manufacturing industries, for example, we need to incentivise the high-value products that are being created. It would be helpful if the Government came back to us and explained what they hope to achieve through the changes to capital allowances. I hope that they seek an increase in productivity, because our productivity is pretty poor compared with similar economies.

New clause 2 asks the Government to estimate the effects on the changes as a result of Brexit. Next week may bring us a little more clarity about where things might go with Brexit—or at least rule out some of the options, leaving slightly fewer scenarios on the table. However, we are very close to Brexit, and companies do not know under which rules they will be expected to operate. We therefore ask the Government to consider their changes to capital allowances in the light of Brexit in a no-deal scenario,

“if…the UK leaves the European Union without a negotiated withdrawal agreement”,

but also

“if…the UK leaves the European Union following a negotiated withdrawal agreement, and remains in the single market and customs union, or…the UK leaves the European Union following a negotiated withdrawal agreement, and does not remain in the single market and customs union.”

The Scottish National party’s position is that we should remain in the EU. That is what the people of Scotland voted for and what would be best for the economy of the whole UK and its jobs, productivity, business and investment. It is really important that the Government provide us with an economic analysis of what will happen with Brexit, but they also need to consider their policy changes in the light of the Brexit options.

For the avoidance of doubt, the SNP’s second preference is to remain in the single market and the customs union. Our last preference is no deal—a very bad scenario that the Government should do everything possible to avoid. However, the deal that has been presented to us is wholly inadequate. We need to remain in the single market and the customs union to ensure that we continue to have a successful economy.

To look at the issue in the round, we ask for analysis to be done for each country of the UK—England, Wales, Scotland and Northern Ireland—and for each region of England, so that we know the differential impact on each. The published cross-Whitehall analysis that explained the consequences of Brexit on each region was very illuminating, particularly with respect to north of England issues. The north of England is one of the places that could see the biggest productivity gains, because of its excellent levels of manufacturing, but if that part of the economy is the most drastically hit by Brexit, it will create real problems for the UK Government. Without increases in productivity feeding through into the economy, we will all be poorer.

[Vicky Ford (Chelmsford) (Con)]

I would like to drill down a little on the point about the customs union. As I read the withdrawal agreement and the future framework, the Government have negotiated single market access that is tariff-free and quota-free and that carries no rules of origin checks. Effectively, the benefits of the customs union are in that package. What more does the hon. Lady want?

[Kirsty Blackman]

The other day, I was talking about the benefits of being in the customs union to a trade expert, who explained to me in quite simple—but incredibly useful—terms the difference between being in a customs union and not being in one. Within a customs union, the starting point is the assumption that the appropriate tariff has already been paid on every good, whereas outside the customs union the assumption is that that has to be proved. Even without rules of origin checks, we would be starting from a different point of view. However, I am not clear that the withdrawal agreement has agreed that there will not be rules of origin checks. I do not understand how the UK Government can say in their financial analysis paper that they will have a free trade agreement with China but no rules of origin checks for goods travelling between the UK and the EU.

[Vicky Ford]

The Government negotiating team have offered briefings on this deal to every Member of the House from every party. Establishing the answer to those rules of origin—

[The Chair]

Order. That has nothing to do with what we are discussing today.

[Kirsty Blackman]

I was just looking to wind up—[Laughter.] That is not entirely what I meant.

We are seeking more information from the Government about what they intend to achieve. It is incredibly important to do this in the context of Brexit, and it is incredibly important that companies know what the Government are trying to achieve, so that they are aware of what they are being incentivised or disincentivised to do and what the Government’s changes to capital allowances are trying to encourage them to do. If more information could be provided to us and the general public, that would be hugely appreciated. I hope that we can vote on this new clause when we come to the votes at the end.

[The Financial Secretary to the Treasury (Mel Stride)]

It is a pleasure to serve under your chairmanship, Ms Dorries. I thank the hon. Members for Stalybridge and Hyde and for Aberdeen North for their contributions, and I will endeavour to pick up the various points that have been made.

Since 1994, capital allowances have not been available for most buildings and structures, including aqueducts, bridges, canals, roads and tunnels. It has been long understood by HMRC—and by taxpayers—that nobody can claim plant and machinery allowances where the expenditure relates to an excluded structure or building. Specifically, nobody can claim capital allowances for expenditure on altering land for the purpose of installing an asset that is excluded from allowances. Expenditure on buildings and structures is excluded in this way by sections 21 and 22 of the Capital Allowances Act 2001.

To answer one of the specific points raised by the hon. Member for Stalybridge and Hyde, doubt has been cast on that principle by a recent tribunal decision, which HMRC is appealing against. The purpose of the clause is to ensure that the law remains clear and that plant and machinery allowances can be claimed only in relation to alterations of land to install qualifying assets. The clause clarifies the legislation to provide certainty going forward and to protect the Exchequer from potential spurious and windfall claims for historical expenditure.

The clause should be read alongside the introduction of a new structures and buildings allowance, which in time will become a very substantial relief that fills a significant gap in our capital allowances system. Taxpayers who alter land for the purpose of installing a structure or building should claim this new allowance—we covered it when debating clause 29—and should not claim the plant and machinery allowance.

As I have said, the clause clarifies that expenditure on land alterations cannot qualify for capital allowances unless it relates to the installation of qualifying plant and machinery. No expenditure on structures or buildings, as defined in sections 21 and 22 of the Capital Allowances Act 2001, will be counted as plant. This will apply to all capital allowance claims made from 29 October 2018 onwards, but not to claims already in the system—to do otherwise would be unfair. However, as this does nothing more than restore the commonly held interpretation of the law, we do not consider it to disadvantage any company that has already incurred expenditure. If we did not make this amendment, there is a strong probability that some businesses might make spurious or windfall claims, as there is no time limit for making a capital allowances claim.

Amendment 79 seeks a legislative commitment by the Government to report on any consultations that are undertaken on this measure. However, the measure addresses a potential source of ambiguity in the capital allowances legislation and protects revenue that we need for our vital public services. That needs to be done quickly to maintain a level playing field and to provide certainty for businesses incurring expenditure in this area. The Government’s view is that this measure is not best supported by consultation, which would delay this change. In any case, it restores the interpretation of the law that HMRC and taxpayers commonly understood before the recent tribunal case.

New clause 2 aims to commit the Government to report on the impact of the capital allowances changes in the Bill, including under a number of different EU withdrawal scenarios, as well as on the impact on different parts of the United Kingdom. The Office for Budget Responsibility has provided its independent view of the impact of these policies, in particular on business investment, in its “Economic and fiscal outlook” report, in the box titled “The economic effects of policy measures”. When available, HMRC will publish updated statistics on capital allowances claimed, split by asset type and by industry. Data on capital allowances claimed are based on where companies are registered rather than where the activity itself takes place. Requiring businesses to provide the more detailed information that this report would require about the precise location of their expenditure would represent a significant new administrative burden.

On the impact of the policies in different EU exit scenarios, the capital allowances package in the Bill is intended to boost business investment in all scenarios. The Government have already laid before Parliament a written ministerial statement under the title “Exiting the European Union: publications”, representing cross-Whitehall economic analysis on the long-term impacts of an EU exit on the UK economy, its sectors, nations and regions and the public finances. The document is available on gov.uk and from the Printed Paper Office. Committee members will be aware that I also answered an urgent question at length on this very matter.

New clause 5 is intended to commit the Government to assess the aggregate effects of the changes to corporation tax and capital allowances made under the Bill. However, that information is already largely set out in the public domain. The independent Office for Budget Responsibility certifies the Exchequer impact of all the measures in the Bill, set out in table 2.1 and table 2.2 of Budget 2018. When they are announced, the OBR will also provide its independent view of the impact of these policies on business investment in its “Economic and fiscal outlook” report, in the box titled “The economic effects of policy measures”.

Finally, every year HMRC will publish updated statistics breaking down corporation tax paid and capital allowances claimed. For those reasons, I urge the Committee to reject the amendment and new clauses, and I

commend the clause to the Committee.

[Jonathan Reynolds]

We would like to press amendment 79 to a vote.

Question put, That the amendment be made.

Division 20

Ayes: 9

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Labour: 7
Scottish National Party: 2

Noes: 10

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Conservative: 10

Clause 34 ordered to stand part of the Bill.

Clause 35

Changes to accounting standards etc

Question proposed, That the clause stand part of the Bill.

[The Chair]

With this it will be convenient to discuss that schedule 13 be the Thirteenth schedule to the Bill.

[Mel Stride]

Clause 35 and schedule 13 amend various parts of tax legislation to ensure that, despite changes to the treatment of leases in accounting standards, the legislation continues to operate as intended and does not give rise to unfair outcomes.

The long funding lease regime, the corporate interest restriction rules, and certain other tax rules require taxpayers to distinguish between operating and finance leases in order to determine their tax treatment. The tax legislation has relied on accounting standards to make that distinction, but changes to the international accounting standards mean that from 1 January 2019 companies that lease assets will cease to distinguish between operating and finance leases in their accounts.

That change will affect companies that prepare their accounts using international accounting standards and the UK accounting framework financial reporting standard 101, but not the alternative UK accounting framework FRS 102. It is therefore necessary for us to amend the tax legislation to ensure that it continues to operate as intended, and that companies do not face different tax outcomes depending on the accounting standards that they use.

The clause will mean that for tax purposes lessees will be required to continue to distinguish between operating and finance leases, even where that distinction is no longer required for accounting purposes. That will maintain the status quo and avoid unfair outcomes. Additionally, the changes to the treatment of leases in the accounting standards may lead to large tax adjustments on transition. To ensure that those adjustments do not lead to unfair outcomes or an excessive administrative burden, the adjustments will be spread over the weighted average length of all leases held by a company following the adoption of the new accounting standard.

The clause will ensure that, despite changes to the treatment of leases in some accounting standards, tax regimes that rely on those accounting standards continue to operate as intended. I therefore commend the clause and schedule 13 to the Committee.

Question put and agreed to.

Clause 35 accordingly ordered to stand part of the Bill.

Schedule 13 agreed to.

Clause 36

Oil activities: transferable tax history

10:30

Question proposed, That the clause stand part of the Bill.

[The Chair]

With this it will be convenient to discuss the following:

Amendment 84, in schedule 14, page 260, line 15, leave out sub-paragraph (d).

The provision as drafted allows companies to transfer TTH worth double the value of anticipated decommissioning costs. This reduces the incentive for companies towards efficiencies in decommissioning costs and paves the way for decommissioning-related tax repayments far bigger than the companies are currently acknowledging. This amendment removes that provision.

Amendment 81, in schedule 14, page 261, line 29, at end insert—

“(aa) assessing the impact on employment, skills and the Exchequer from the asset’s production life and planned decommissioning phase, and”

Amendment 89, in schedule 14, page 261, line 42, at end insert—

“(d) includes an assessment of the impact on the Exchequer from the amount spent on directly employed and contracted staff by the seller over the production life of the asset to date; and the impact on the Exchequer from the buyer’s plans for employed and contracted staff up to and including the decommissioning stage.”

This amendment requires a decommissioning security agreement to include an assessment of the impact on the Exchequer from the amount spent on staff, in order for that agreement to be qualifying for the purposes of this Schedule.

Amendment 85, in schedule 14, page 268, line 40, at end insert—

“(aa) the amount spent by the purchaser in post-acquisition periods on new capital investment, major maintenance work, retraining of redundant staff, initiatives to reduce methane emissions or initiatives to introduce carbon-capture techniques into the operations in relation to the relevant TTH assets (‘post-acquisition qualifying investment’)”.

This amendment, and amendments 86 and 87 incentivize capital investment by new purchasers in job creation and emissions reductions. Combined, the amendments limit the TTH which may be claimed to an amount equal to such investment.

Amendment 86, in schedule 14, page 269, line 3 at end insert—

“(c) the amount by which total post-acquisition qualifying investment exceeded the higher of excess decommissioning expenditure and the total TTH amount as calculated for the first activation period under paragraph 35.”

See explanatory statement for Amendment 85.

Amendment 87, in schedule 14, page 269, line 40, at end insert—

“(c) provided that the total activated TTH amount may never exceed the purchaser’s post-acquisition qualifying investment for the relevant TTH assets or TTH oil fields.”

See explanatory statement for Amendment 85.

That schedule 14 be the Fourteenth schedule to the Bill.

Clause 37 stand part.

[Robert Jenrick]

Clause 36 and schedule 14 introduce a transferable tax history—TTH, as it has become known—mechanism, and clause 37 amends the petroleum revenue tax rules for retained decommissioning costs. Both measures will apply to oil and gas companies operating on the UK continental shelf, and to transactions that receive approval from the Oil and Gas Authority or relevant regulator on or after 1 November 2018.

These measures are designed to encourage investment in late-life oil and gas assets that are approaching the point of decommissioning, prolonging the life of the basin and sustaining jobs across the UK, but in particular in north-east Scotland. Decommissioning costs are generally incurred at the end of a field’s productive life, when taxable profits are not being generated. To provide tax relief for those costs, oil and gas companies within the UK’s ring fence tax regime can carry them back against taxable profits generated since 2002. That prevents decommissioning from being performed early for tax purposes, thereby helping to achieve the Government’s goal of maximising economic recovery of oil and gas.

When a new entrant without a history of taxable profits acquires an old field, there is a risk that the decommissioning costs of the field will exceed the taxable profits generated by the new owner, preventing effective tax relief via the traditional carry-back mechanism and leaving the buyer in a worse position than the seller would have been in. That can make old fields unattractive to new entrants and deter much-needed investment in this important industry. That is a growing problem in an ageing basin, but one that we now believe can be resolved by our innovative TTH measure.

The change to the PRT rules addresses the increasingly common scenario of a seller retaining some or all of a decommissioning liability after selling a field. The PRT system currently requires the seller to remain on the relevant production licence to receive tax relief for any retained costs. However, doing so often requires complex tax structuring that serves no particular purpose other than to protect the seller’s tax position.

The changes made by these measures will create the right environment for much-needed new investment in our older fields. They will introduce a TTH mechanism that provides new investors with the certainty that they require about the tax relief they will receive for decommissioning costs. That will allow new deals to proceed, injecting new energy into a basin that still has 10 billion to 20 billion barrels of oil remaining. Initial feedback from the industry has been extremely positive—this change is already well received internationally and is helping new deals to continue.

TTH will allow companies selling oil and gas fields to transfer some of their tax payment history to the buyers of those fields. The buyers will then be able to set the costs of decommissioning the field against the TTH to generate a repayment. It should be noted that that should not be an extra cost to the Exchequer, as the repayment only replaces what would otherwise have been made by the seller. It will level the playing field between sellers and buyers of oil and gas fields, encouraging investment by providing new entrants with certainty on the tax relief available for their decommissioning costs. The new investment into the basin as a result of TTH is expected to increase tax receipts from the sector by £75 million over the scorecard period.

The clause also makes changes to enable petroleum revenue tax relief when a seller retains a decommissioning liability. A tax deduction will now become available to the buyer where the seller subsequently incurs decommissioning expenditure or where the seller contributes to the buyer’s decommissioning costs. That will simplify the way that older oilfields can be sold to new investors and help to prolong their productive lives. Before turning to the amendments, I thank all hon. Members, including the hon. Member for Aberdeen North, who participated in the discussions that led to this important measure, which we believe will help the community around Aberdeen in particular, but also those across the country.

Amendments 81 and 89 seek to amend the definition of a decommissioning security agreement within the TTH legislation in schedule 14. Decommissioning security agreements are specific commercial agreements that provide assurance to partners in a field for which funds will be available for decommissioning. The proposed changes to the definition would make the decommissioning security agreement required for a TTH election incompatible with the industry standard decommissioning security agreement, which, in our opinion, would make TTH elections impracticable and unworkable for the vast majority of our oil and gas fields, which rely on the well-established and respected industry standard agreement. TTH has been carefully designed to leverage estimates of decommissioning costs, which are already used in decommissioning security agreements, taking note of the history of the agreements. The agreements are confidential and, as one might imagine, highly commercially sensitive and are typically shared only between the joint venture partners and HMRC, in accordance with taxpayer confidentiality.

[Kirsty Blackman]

Will the Minister tell us a little bit about the process that the Government went through in creating the Bill, and the work done between the Government and industry to ensure that the legislation works?

[Robert Jenrick]

Yes, I will turn to that. As the hon. Lady knows—she participated in and attended at least one meeting I held in Aberdeen with the Oil and Gas Authority and stakeholders—we have carried out a great deal of careful consideration and consultation with the industry, because TTH will succeed only if it works for both the buyers and the sellers. Our sole objective is not to raise revenue for the Exchequer but to extend the life of the basin and to create jobs and investment for an important part of the United Kingdom.

The new investment encouraged by TTH will prolong the life of the basin, which has 10 billion to 20 billion more barrels left, helping to protect the hundreds of thousands of jobs I have already mentioned. We believe that the amendments would introduce counterproductive additional requirements and inhibit the use of TTH. I urge the Committee to reject them. They may be well intentioned, but they would be contrary to the objective of the measure.

Amendment 84 would limit the maximum amount of tax history that a seller can transfer under a TTH election. The TTH legislation currently caps the maximum amount of tax history that can be transferred under a TTH election to double the decommissioning cost estimate agreed for a decommissioning security agreement. Decommissioning costs are inherently uncertain and can increase significantly for reasons outside the control of the operator and for reasons that were unknown at the time of the sale. For that reason, they are typically subject to a very large range of accuracy. For fields still years away from decommissioning, the range often includes a 100% cost increase. TTH has been designed to be compatible with this regularly accepted range of estimates and to ensure that the buyer cannot end up in a worse position than the seller.

[Kirsty Blackman]

I agree with the Minister’s point about fluctuations. Does he agree that the cost of hiring boats has fluctuated massively over the past five years? If we had looked at this in 2010, we could not have predicted the fluctuations in just that small but nevertheless incredibly expensive area for oil and gas companies.

[Robert Jenrick]

The hon. Lady speaks from her deep knowledge of this area. It is absolutely right that some costs have fallen, particularly since the fall in the oil price, which has driven significant efficiencies in the sector, but other costs are rising. New technologies are coming on board. Taking on a project that entails such uncertainty while being tied to a single estimate of decommissioning costs, without a wide range as we have allowed in the measure, would be a major disincentive for a buyer coming in to one of these projects.

Let me address the concern inherent in the amendments about disincentivising cost-reduction, or that the measure, in providing such a wide field, would make it unlikely for buyers to try to reduce the cost and therefore would gain higher tax relief as a result. I think the buyer will retain a strong incentive to minimise total costs, as they will be liable for meeting the remainder of the decommissioning costs. The amendment is therefore unnecessarily restrictive and would harm TTH.

Amendments 85, 86 and 87 and schedule 14 would change the TTH activation mechanism to restrict decommissioning tax relief on a field, so that it could not exceed the level of new capital investment made by a purchaser. Decommissioning costs generally occur at the end of a field’s life, when its reserves are exhausted and new capital investment will not result in further economic recovery of oil or gas reserves. For many purchasers it would therefore not be practical to make significant capital investment during the decommissioning process.

Furthermore, requiring the purchaser to match what can be very high decommissioning costs with an equal level of new capital investment could easily bankrupt many of the smaller operators that we want to take part in the industry. The best way to ensure that we get new investment into the industry, to protect jobs and create new ones, and to maximise economic recovery of our natural resources, is to have an effective TTH mechanism. That is exactly what we believe we have achieved, as a result of the deep consultation that we have conducted with industry, which I will explain in a moment. The amendments would make TTH completely unattractive and ineffective. I therefore urge the Committee to reject them.

In answer to the hon. Member for Aberdeen North, I will briefly summarise the steps that we have taken to consult with the industry since TTH was announced at Budget 2017. Even prior to Budget 2017, the topic had been discussed with stakeholders for some time. We have built on numerous discussions held between July and December 2016, by issuing at the time of the Budget a discussion paper on tax issues affecting late-life oil and gas assets. We received 28 detailed responses and then held an expert panel, working with the industry to design the measure. I myself held two meetings in Aberdeen this year with the Oil and Gas Authority and stakeholders. Draft legislation was published over the summer on L-day, for technical consultation with the industry. We received further feedback as a result and much of that has been incorporated into the final legislation. Although there are always ways to take the measure further, we believe we have reached a point where the industry is satisfied and welcomes the steps we have taken.

[Peter Dowd]

Trade unions have argued that more conditions need to be attached to TTH to bring it in line with OGA and maximising economic recovery objectives, and for broader commercial behaviours, which should include minimum compliance with UK employment law—workers being paid and employers paying tax and national insurance. Did that form any part of the discussions with the industry and stakeholders?

[Robert Jenrick]

I do not think we spoke specifically with trade unions but we did speak with a wide range of industry stakeholders. To return to TTH, its purpose is not to give an incentive to industry that it would not ordinarily have. The owner or operator of one of those fields would already be able to take advantage of those tax reliefs to set aside decommissioning costs, but they would be difficult to sell on to a new operator. This measure will make it much easier for new entrants to enter the market, for fields to continue or be developed further, and for jobs to be created that would not ordinarily be created. We believe that this is a win-win for all involved: for the Exchequer, which will make modest additional receipts as a result, for industry, and for all those employed in north-east Scotland—I see the hon. Member for Aberdeen North nodding. I believe this measure will be widely welcomed and well received by all stakeholders in the industry.

The best way to get new investment into our industry is, as I described, to protect jobs and maximise the economic recovery, and we believe that we have reached that point with this measure. The Government take their environmental responsibilities seriously, as we described when debating the previous clause. We have legally binding commitments to reduce greenhouse gas emissions under the Climate Change Act 2008 and the system of carbon budgets it sets out, as well as the Paris agreement that we ratified in November 2016. Nothing in this measure takes away from our efforts elsewhere, but we want the UK oil and gas industry to continue to thrive. It has been through a difficult period following a significant reduction in the price of oil, and that price has fallen once more since the Budget. That industry makes an important contribution to the UK economy, supports more than 280,000 jobs, and provides around half our primary energy needs. To date, it has paid around £330 billion in production taxes. By introducing these changes for late-life oil and gas assets, we hope to encourage new investment in the UK continental shelf, and I commend the clause to the House.

10:46

[Clive Lewis]

It is a pleasure to serve under your chairmanship, Ms Dorries. I look forward to speaking on behalf of the Opposition, and I draw attention to my entry in the Register of Members’ Financial Interests. I am particularly pleased to speak to our amendments to the clauses and schedule that relate to transferable tax history, and I hope that the Minister will answer some questions on the proposed measures.

As the Minister outlined, the clause creates a mechanism for companies that are buying equity in UK oil and gas fields to acquire the tax histories of the selling companies and use them to reduce the future decommissioning costs of those fields. The Government’s intent, as we understand it, is to extend production from late-life oil and gas fields in the UK by encouraging their purchase from companies that are no longer willing to extract from them by companies that are. The Government seek to achieve that by overcoming what they believe is a barrier to sales—namely the concern that new companies will not make enough profit from the field to pay for future decommissioning costs. Transferable tax history will allow the buying company to draw on the taxes paid by the previous owners to claim the maximum tax relief possible for decommissioning.

The Opposition believe there are a number of fundamental flaws to the proposals. Transferable tax history is fiscally irresponsible. It expands the very tax breaks that put the Exchequer on the hook for exorbitant future decommissioning liabilities, which the Government have set aside no money to pay for. It creates perverse incentives, providing a windfall for companies exiting the North sea, and it fails to ensure a long-term commitment from incoming buyers on workers’ rights, capital investment and emissions reductions for the benefit of the UK. It also totally disregards the UK’s role in avoiding catastrophic climate change, and does nothing to address the urgent need for a just transition to a low-carbon economy.

With that in mind, amendments 81 to 89 seek to ensure that no transfers are approved that increase taxpayer liability for decommissioning tax-related rebates. They would also limit TTH transfers to current estimates for decommissioning costs, thus ensuring that transferable tax history does not spiral and is no higher than estimated for current reliefs. The Bill currently allows companies to transfer tax history that is worth double the value of anticipated decommissioning costs. The UK taxpayer is already committed to footing the bill for a staggering £24 billion of the estimated £64 billion decommissioning costs in the coming decades, despite the massive profits made by oil and gas companies from the North sea. Do the Government expect the £24 billion decommissioning bill to double to £48 billion over the life cycle of TTH? The UK cannot keep spending revenues that it knows it will have to pay back and that are derived from oil we cannot afford to burn, yet TTH doubles down on those policy failures. If that is not addressed now by ring-fencing a portion of oil revenue to prepare for those costs, our fiscal and environmental future will become hostage to oil revenues.

The most staggering thing about this measure, which perhaps the Minister will confirm, is that the Government have set aside no decommissioning fund to deal with the consequences of these promises. As it stands, our share of decommissioning costs is completely unfunded, and a consequence of short-term priorities and incentivising investment decisions that have been taken regardless of long-term fiscal planning and environmental exigencies. Will the Minister explain the long-term fiscal strategy for dealing with those costs when they inevitably land on the taxpayer in the not-too-distant future?

The Government’s arguments appear to rest on the assumption that additional decommissioning tax rebates will be compensated for by higher revenues from oil and gas fields, generated by increased investment and production by buyers. There is, however, an alarming lack of evidence to support that assumption, and detailed modelling of the long-term impact on decommissioning costs is conspicuously absent. Indeed, it could be argued that TTH reduces the incentives for the buying companies to increase production and generate more revenues, so have the Government considered the potential implications of that? It is perhaps unsurprising that the Government have provided no data on how much additional decommissioning rebate the Treasury might give away due to TTH, and neither have they undertaken any analysis of what would happen in a future scenario in which the oil price changes. Will the Minister commit to conducting such analysis and present the results to the House?

In our view, the measure reduces the incentive for companies to move towards efficiencies and decommissioning costs, and paves the way for decommissioning-related tax repayments that are far bigger than those companies are acknowledging. The clause is representative of the Finance Bill as a whole: it fails to deliver for the people of this country who are so desperately in need of investment in our public services, and instead it favours tax cuts for the wealthiest corporations, with the taxpayer left vulnerable to huge potential payouts. Our amendment would remove that provision and ensure that runaway decommissioning costs will not become a taxpayer risk.

Moving on, amendments 81, 85 and 86 seek to incentivise capital investment by new purchasers in job creation and emissions reductions—two crucial things that the Bill does not address. Exacerbating the problem is the fact that no clear plan has been set out by Government in the Bill to ensure a commitment to continued investment and employment from incoming buyers. Will the Minister tell us what plans he will put in place to ensure job security? Will he consider making TTH transfers conditional on maintaining employment levels? Similarly, will the Government consider limiting TTH claims to incoming companies’ investment in infrastructure, maintenance, retraining and methane reduction?

The irony of TTH becomes clear when looking at that last point. The stated aim of TTH is to prolong the life of North sea assets, yet it has the potential to do the opposite, reducing incentives for incoming companies fully to develop late-life fields. Currently, a new entrant to the North sea would have to ensure several years of production to generate sufficient taxable profits fully to carry back decommissioning losses. TTH removes that incentive. Rather than ensuring sufficient production, should the oil price dip, a company can simply claim against transfer tax history.

Far from ensuring stable future investment, the irony is that TTH has the potential to subsidise the cost of an early exit should the oil market turn against the companies, thereby making UK jobs in that industry more, not less, vulnerable to market conditions. Amendments 81, 85 and 86 limit the TTH history that may be claimed to an amount equal to such investment, ensuring that the measure will not result in increased future liabilities for the Exchequer. They will also act as a starting point for addressing issues of job security and the environment, which I will come on to in more detail.

Amendment 89 builds on ideas that the Committee has already discussed, and extends them to a decommissioning security agreement. It would require such an agreement to include an assessment of the impact on the Exchequer of the amount spent on staff in order for the agreement to qualify under the schedule. The amendment seeks to encourage transparency and accountability between the seller and the buying company, ensuring that the cost of staff, and expectations for staff retention levels, are made clear, and I look forward to hearing the Minister’s response.

There are a number of additional questions about the clause. The first expands on the issue of workers’ rights. Although the Government may argue that transferable tax history is a way of protecting jobs by extending the life of those assets, research by Oil Change International, Platform and Unite, which represent those workers, found that major North sea tax cuts over the last 40 years have not led to higher employment, and neither did tax rises reduce employment. Will the Minister say what the net flow of revenue has been between the Treasury and North sea oil and gas companies over the last three years? It seems clear that those companies have used the raft of recent tax cuts not to create new jobs—160,000 have gone in the last three years—but to enrich their shareholders.

How can the Government ensure that TTH will work in the interests of workers employed on those assets? No clauses in the Bill provide safeguards for workers’ jobs and workplace rights—it seems that the benefits of TTH will go to the private owners of oil and gas companies, and that the clause has been drafted in their interests alone. We argue that it is the Government’s responsibility to promote the stability of jobs in the region, and to ensure they are protected once smaller businesses take over the running of those sites. Will the Minister commit to conduct an analysis of the stability and security of those jobs, including the impact of the provisions, and to share that with the House?

Secondly, there is a huge concern about the environmental consequences of TTH and the encouragement of further exploitation of oil and gas in the North sea. The Government have yet properly to explain how the proposed policy fits with the UK’s commitment to the Paris climate agreement. Despite the continued claim that the UK is a global leader in taking action to meet those targets, the Government’s policies continue to fall far short of their green rhetoric. Climate science states clearly that to avoid global warming of more than 1.5°, at least 80% of known oil and gas reserves must stay in the ground. Every nation bears some degree of responsibility for leaving a portion of its fossil fuel reserves untouched.

Rather than assessing purely commercial viability, we should also assess how much remaining oil and gas in the UK can be exploited within the confines of the Paris climate agreement. It would therefore be helpful to know if and how the Government intend to assess the compatibility of TTH with that agreement. Do the Government have a view on how much of the UK’s remaining 7.5 million barrels of discovered undeveloped oil and gas resources can be equitably developed if we are to play our part in meeting the Paris goals?

Ultimately, this issue ties into the Government’s wider policy of maximum economic recovery, by which they have committed to extracting as much oil and gas as is commercially viable. Recent reforms, such as tax reduction and the decommissioning relief deed, as well as the proposal before us, are designed to make ageing marginal fields attractive to investment, even if that means reducing the per-barrel tax take or subsidising decommissioning costs to improve corporate returns. That approach is wholly inappropriate in a climate-constrained world, and it is entirely inconsistent with the Paris agreement, which requires not only a moratorium on new exploration, but the winding down of a substantial portion of current projects. In short, we need sustainable economic recovery, with Paris-compatible maximum-production targets, and a strategy to determine which combination of oil fields can most safely, efficiently and equitably exhaust the UK’s quota.

[Kirsty Blackman]

To clarify, is the Labour party position now no longer to maximise economic recovery?

[Clive Lewis]

I sat on the Bill Committee for the setting up of the OGA three years ago, and we put forward amendments for sustainable economic recovery. I recall that the Scottish National party and the Conservative party favoured maximum economic recovery. That was a difference of opinion between the two sides back then.

Thirdly and finally, there are huge risks for the taxpayer. Those risks are acknowledged by the Office for Budget Responsibility, which concluded:

“The underlying tax base is volatile and the behavioural response to these relatively complex tax changes is uncertain. We have assigned this measure a ‘high’ uncertainty rating.”

Ultimately, the policy is based on a gamble on the future oil price. Independent expert research commissioned by Global Witness states that there could be a loss of over £3 billion in tax revenue for the Exchequer over 10 years, as compared with the tax take if TTH is not introduced.

Transferable tax history has an impact on the results of investment decisions only when oil prices are relatively low. When the prices are above $50 a barrel, the impact of and need for transferable tax history is less, or even nil, since the higher prices tend to mean higher taxable income to the acquirer, who would generate enough new taxable income on their own to cover decommissioning costs.

Transferable tax history effectively provides acquirers with a hedge against lower oil prices. It jeopardizes future tax returns to incentivise investment in fields that are likely to be less efficient and with lower yields, without any consideration of climate limits or guarantees on jobs. Why is the Exchequer willing to push that cost on to the taxpayer, rather than on to the multinational companies that make vast profits from production every year and are seemingly unwilling to share them with their own workers?

11:00

At some point, decommissioning-related tax breaks will exceed revenue from the dwindling field production, wiping out the remaining tax revenues available from the North sea. In 2011-12, the Government collected £11 billion in taxes from the North sea. Current figures from the Office for Budget Responsibility project that it will be £1.2 billion this fiscal year. At what point do the Government expect the UK to reach the tipping point?

Historically, Conservative Governments decided to privatise our oil and gas industries, and the tax take from North sea oil was funnelled into tax cuts skewed to the wealthiest. We now have no say in how the profits are used, or how and when the oil and gas industry structures are to be decommissioned. By contrast Norway, for example, created a sovereign wealth fund—the Government Pension Fund Global—built off the surplus revenues of the Norwegian oil and gas sector. Transferable tax history continues with the opposite approach, by which Conservative Governments give huge tax cuts to the biggest corporations and encourage the exploitation of our natural resources, with no guaranteed long-term benefit to society as a whole. It tells us everything we need to know about that policy that the richest man in Britain, Sir Jim Ratcliffe, is currently holding exclusive talks with US oil major ConocoPhillips on acquiring assets in the North sea, and will benefit from those tax breaks, despite his majority stake in Britain’s biggest privately owned company, INEOS.

The assumption underpinning TTH appears to be that deals for late-life assets will not happen without financial support, and companies will abandon the fields early rather than accept what they consider a low bid. Most other countries permit oil production on a use-it-or-lose-it basis. If a company is unwilling to develop a UK oil field fully, would the UK not be better to block early abandonment or re-award the permit to someone prepared to invest in the continued production, rather than bribing them with public money?

The Government have many questions to answer, starting with those mentioned today, to reassure us that transferable tax history is a justifiable risk for our economy and our environment. I hope the Minister can provide some answers.

[Kirsty Blackman]

It is not often that I will be found in Committee agreeing with clauses in any Government Bill—least of all in a Finance Bill. However, on clauses 36 and 37, I agree with the provisions on transferable tax history and thank the Government for including them.

I first raised the issue of transferable tax history on the record in March 2016 in Westminster Hall. The debate was led by the hon. Member for Waveney (Peter Aldous), the chair of the all-party parliamentary group on the offshore oil and gas industry. It is an active all-party group and does a huge amount of lobbying of the Government. I am sure the Chancellor is sick of hearing from us about things to make the industry more effective and maximise economic recovery, as we have been discussing. We have regularly proposed transferable tax history since we first discovered that the industry was concerned.

I will give a little background on the importance of transferable tax history and the reasons why we have called for it. There are smaller oil and gas fields around the central ones. The decommissioning of the central oil and gas field results in secondary oil and gas fields, and the smaller pools around the site, no longer being accessible without the building of significant new infrastructure. It is therefore important that, whenever the Oil and Gas Authority takes decisions about which assets can and should be decommissioned at a given time, it does so in the full knowledge of the knock-on impact. We need to ensure that we continue to have access, for example, to the small pools that are not economically viable now but are likely to be once the technology has improved. Decisions about decommissioning must be taken with full knowledge of the knock-on impacts.

The other thing that must be taken into account with decommissioning is the effect that removing assets might have on future carbon capture and storage plans. It is incredibly important that some pipelines are kept in place for the carbon capture and storage systems that are currently in train to be viable. That is another thing the Oil and Gas Authority must consider when it decides whether a field is ready for decommissioning.

One recent issue is that big operators that own a huge number of oil and gas fields, some of which are reaching the end of their economic life, must put in enhanced oil recovery mechanisms to get the rest of the oil out, which means working at higher pressures and temperatures. Big companies that have a huge number of operations in the North sea and around the world will not want to put in the necessary effort to maximise the recovery from the asset. It will think, “Actually, we are not fussed about this asset. Potentially we should just decommission it.”

[Clive Lewis]

When the deliberations were taking place with the Government, was any consideration given to climate change, the Paris agreement and the sustainable level of oil extraction? Was the fact that we will need to leave a substantial amount of oil in the ground— 80% by some estimates—to ensure we play our part in tackling climate change and remaining within the Intergovernmental Panel on Climate Change targets taken into account?

[Kirsty Blackman]

The SNP position and the Government position is to maximise economic recovery. Oil extraction does not have a particular impact on carbon levels. It is not about oil extraction; it is about what is done with it afterwards. Carbon capture and storage, for example, has a major impact on reducing the emissions that are produced when oil and gas are used. We have been pushing very hard on carbon capture and storage. If the extracted oil is made into tarmac or plastic products, it would not cause the emissions that would be caused if it is put into a car or turned into heating oil.

The Government have taken steps on electric vehicles and the Scottish Government are doing incredible things to promote them. They are increasing insulation in houses, because domestic heating is a significant contributor to climate change. A lot is being done in this space, and it has been recognised that Scotland has the most ambitious climate change targets in the world.

All of our oil and gas fields will be decommissioned at some point. That is how this works. It was always going to be a time-limited industry, because eventually the oil and gas that can be recovered economically will run out. Once an oil and gas field is decommissioned, there will be no jobs associated with it anymore, and there will be none of the anciliary services, so it reduces the amount of employment. A new player may come into the market and want to take on a field that is not a major asset for a big oil and gas company—it would rather decommission the field because it has had enough of it and cannot be bothered with it anymore. Transferring the asset on to the new company means that, however much technology it uses, jobs will be associated with the asset—there will be no jobs if it is decommissioned. We will still get the decommissioning spend and the jobs associated with decommissioning—we will just get it later. The continuing jobs on the asset will be a good thing.

Vision 2035 is the Oil and Gas Authority’s vision, which has been picked up by the industry. It is still not talked about enough, particularly by parliamentarians. We are doing our best to raise its profile, but more hon. Members could do more. Vision 2035 is about what we want the oil and gas industry to look like in 2035. Hon. Members will understand that it is hugely important for the north-east of Scotland because of the significant percentage of jobs supported by the oil and gas industry, but it is important throughout the UK. A huge number of companies throughout England provide widgets—I tend to call goods widgets—that are used in oil and gas. If we do not have a successful North sea operation, those widgets will not be bought or used in the north.

Vision 2035 is about anchoring the supply chain. It is about a system where, once there is no viable oil and gas left in the North sea, we can continue to have oil and gas jobs anchored in the north-east of Scotland and throughout the UK. The only way we can do that is if we support the industry now and support the jobs that there are now. The Oil and Gas Authority states that the North sea and the UK continental shelf are seen as a gold standard. If a technology is trialled and works in the North sea, other countries will be happy to roll out that technology if it suits their sea conditions, because they know it has been tested in one of the most rigorous regimes and by some of the best people—they will know that the technology works.

For us to continue to have a viable oil and gas industry and a viable anchored supply chain, we need to ensure that we continue to be at the forefront of any technological changes. What we are doing on enhanced oil recovery is genuinely world leading. There are few fields in the world that are at the supermature stage of the North sea, so we are doing some of the most amazing things with technology. We can see by the increase in productivity in the North sea that technological advances have been made. If the companies making the widgets that improve production continue to be anchored here in the UK, we will be able to export those technologies and the services that sit alongside them around the world even when there is no recoverable oil and gas in the North sea.

Many of the companies that I have spoken to in Aberdeen and Aberdeenshire are providing widgets and, yes, they are exporting them, but they are also exporting the people power and the services that go with them through ongoing maintenance contracts, which are a big revenue stream for the region. It is important that we do not talk only about the amount of money oil and gas generates for the Exchequer through petroleum revenue tax and the money that comes in because oil and gas comes out of the ground. We should also talk about the wider impact on the economy, which can be felt particularly in the north-east of Scotland.

When the oil price went down, we had a massive issue with house prices and redundancies in the north-east of Scotland. Very real change took place not just in those jobs directly involved with operating assets in the North sea, but in those jobs working in supermarkets in Aberdeen or in hotels. We saw the knock-on impact on the economy. It is important for the entire economy that we pursue Vision 2035.

As I have said previously, and I think the Minister covered this, this has been a good example of the UK Government and industry working together. I particularly thank Mike Tholen and Romina Mele-Cornish from Oil & Gas UK, who worked incredibly hard on this. Romina had a particularly difficult time trying to explain transferable tax history to a room full of MPs and managed to get there eventually, but that was not an easy task because it is quite complicated. If people do not understand particularly how decommissioning liabilities work, we have to explain that first before explaining why TTH makes a big difference, which I think it really does.

Regarding the amendments tabled by the Labour party, there is a suggestion that companies will try to inflate the cost of decommissioning or will be disincentivised from reducing the cost of decommissioning as a result of TTH. I do not believe for a second that that is the case; the point the Minister made in relation to the increase and potential fluctuation in decommissioning costs is well made, but the other thing is that companies do not want to have to spend that money. They want decommissioning not to cost a huge amount of money. I am clear that when decommissioning is done, it must be done right, and the Oil and Gas Authority must be on top of that. I am not in favour of companies being able to drive down costs to the very furthest reaches. I want them to drive down costs, but I want the decommissioning to be done properly and at the right time.

11:15

I have an issue with the Labour party’s amendments. The Government are trying to level the playing field between new entrants and those already operating in the North sea. The amendments seek to create a two-tier system whereby new entrants to the industry will be required to have different conditions around jobs and capital investment, but the big oil companies that already operate a large number of assets in the North sea will not be asked to make the changes that the Labour party will ask new entrants to make. It concerns me that that would create a two-tier system.

I would be interested to see an assessment of how many jobs would be lost. I am concerned that the Labour party is giving up on the north-east of Scotland. As I said, a huge number of jobs are supported by this.

[Clive Lewis]

Given the fact that this could see a doubling in the current estimate of reliefs to about £48 billion—I know there is uncertainty about what that could be, but the legislation here is for that potential for TTH to double the current estimate of £24 billion to £48 billion—can I be cheeky and ask the SNP this? If they did achieve independence, would they carry on with this policy as a sovereign Government and bear the costs associated with it?

[Kirsty Blackman]

In the event of independence, as was laid out in our White Paper, “Scotland’s Future”, the Scottish and UK Governments will have a negotiation about what will happen to decommissioning tax reliefs. We will do what we can to maximise economic harmony in the North sea and create jobs for the long term. It is incredibly important that those jobs are kept in the UK. The jobs could simply relocate if the Government do not take action. They could do more to support the supply chain, which has been squeezed by the cuts that the bigger operators have had to make because of the reduction in the oil price. The Government could do more to ensure that the supply chain companies are provided with the support that they need. The Oil & Gas Technology Centre is doing a very good job in that regard.

Access to finance is incredibly important so that companies can begin to support and monetise the technology that they have created. They have incredible reserves of intellectual property, some of which have not had the chance to be developed. I would rather not see the IP sold on to somebody else. I would rather the Government supported such development.

All the oilfields will need to be decommissioned eventually, but we want the jobs to be kept for the longer term. We are making a case for the maximum economic recovery to be made from the fields. It is important to note that once a field is decommissioned, there are no longer any jobs associated with that field. If we can prolong the life of that asset, we prolong a situation whereby jobs and therefore money for the Exchequer are secured. That is incredibly important for the north-east of Scotland. I will not support the Labour party’s amendments; I will choose to abstain. However, I will support the Government’s clause in relation to TTH. I thank them for taking action, although I would rather they had taken it sooner.

[Sir Robert Syms]

In my lifetime, the greatest British success story has been the development of North sea oil. As the Minister set out very clearly, billions of pounds of taxation have been generated. Under successive Governments we have had a tax regime that has been balanced against the risk of the investment that companies have had to take. It is therefore perfectly sensible at this stage of the maturity of the oilfields to use tax policy to ensure that the oilfields continue longer and continue to create jobs and to support, as the hon. Member for Aberdeen North said, the worldwide oil services sector based in Aberdeen.

I thank the Minister for what he is doing, which is perfectly sensible. It will generate more tax revenue. I hope we will oppose the amendments because they would make an intended simplification of the tax system more complicated. At the end of the day, we want people to continue to pump oil in the North sea and keep the jobs rolling. The Government’s policy supports that.

[Robert Jenrick]

In the few minutes that remain, I wish to thank the hon. Member for Aberdeen North for her comments and her helpful exposition of the purposes of this policy, which is to create jobs and wealth for the whole country, and particularly for the area that she represents. We would be concerned, as the hon. Lady said, if we created a two-tier system where new entrants—predominantly smaller and often innovative businesses that want to enter the market—had to live up to higher standards than the predominantly larger and more established businesses that they are trying to take on. As she has done, I thank some of the stakeholders who have helped us to develop this policy, including Oil & Gas UK, which has been excellent throughout the preparation of this measure.

Rather like my hon. Friend the Member for Poole, I am surprised by the Labour party’s position in this area. There has been a broad, cross-party consensus throughout my lifetime that North sea oil and gas are of benefit to the United Kingdom and an important asset to the country. Political risk will deter new investment into that field, if international companies that would like to invest in the North sea oil and gas sector believe that the Opposition in the United Kingdom are likely to increase their taxes, make those taxes more complex and disincentivise future investment.

[Clive Lewis]

We would like to put on the record that we are not giving up on North sea oil. Rather, we have an appreciation for the climate emergency that is taking place, and we ask for a reassessment of how we can sustainably recover those assets. That is all we are asking for.

[The Chair]

Mr Lewis, this is an intervention, not a speech.

[Clive Lewis]

Our amendments are simply about not exposing the Treasury to the vast costs that these companies could unload on to the Treasury and the taxpayer. The Bill contains no protection for the taxpayer in that regard.

[Robert Jenrick]

I will briefly answer some of those points. There has been a misunderstanding about the cost of the policy to the Exchequer. We believe, as is set out quite clearly, that over the scorecard period the measure will raise £65 million of revenue for the Exchequer. Because of the nature of the oil and gas industry and oil price fluctuations, that is a difficult assessment to make. However, we see no evidence for the more outlandish estimates in the press of a £3 billion cost to the Exchequer. Neither did the independent OBR, which checked our figures in relation to the measure and agreed that £65 million was an appropriate estimate over the forecast period. We believe that the measure is fiscally responsible because no additional tax relief will be due until the field is decommissioned. That will enable more fields to be developed, and decommissioning costs will be as they always were.

We see no evidence that the measure will disincentivise efficiency savings and productivity increases. As the hon. Member for Aberdeen North said, there is a great incentive on all parties to reduce the cost of decommissioning. The industry has signed up with Government to a target of reducing the costs of decommissioning by 35%. We would like them to go even further in the years ahead, and there is a lot of work going on to achieve that. We believe that the United Kingdom, particularly the area around Aberdeen, could be a world centre for decommissioning, and we are investing in facilities and training in that regard. We would like to work on that with the industry, because we see it as creating knowledge, new technology and jobs, which would then be exported to other fields around the world.

[Kirsty Blackman]

I am really pleased to hear the Government make that commitment in relation to the world centre for decommissioning. We are talking about one of the first oil and gas fields to decommission on a mass scale. It is important that the lessons that we learn from that are used to improve and export the technology.

[Robert Jenrick]

I think I have answered those points. There was a misunderstanding about decommissioning security agreements, which I hope I have answered. Decommissioning security agreements are confidential and commercially sensitive documents. Amendment 89 would not achieve the aim that the hon. Member for Norwich South set out, because such agreements will not be in the public domain. The documents will be received by HMRC, and decommissioning costs are regulated by the Offshore Petroleum Regulator for Environment and Decommissioning.

11:25

The Chair adjourned the Committee without Question put (Standing Order No. 88).

Adjourned till this day at Two o’clock.

Finance (No. 3) Bill (Sixth sitting)

Tuesday 4th December 2018 Public Bill Committees

The Committee consisted of the following Members:

Chairs: †Ms Nadine Dorries, Mr George Howarth

† Afolami, Bim (Hitchin and Harpenden) (Con)

† Badenoch, Mrs Kemi (Saffron Walden) (Con)

† Black, Mhairi (Paisley and Renfrewshire South) (SNP)

† Blackman, Kirsty (Aberdeen North) (SNP)

† Charalambous, Bambos (Enfield, Southgate) (Lab)

† Dodds, Anneliese (Oxford East) (Lab/Co-op)

† Dowd, Peter (Bootle) (Lab)

† Ford, Vicky (Chelmsford) (Con)

† Jenrick, Robert (Exchequer Secretary to the Treasury)

† Keegan, Gillian (Chichester) (Con)

† Lamont, John (Berwickshire, Roxburgh and Selkirk) (Con)

† Lewis, Clive (Norwich South) (Lab)

† Reynolds, Jonathan (Stalybridge and Hyde) (Lab/Co-op)

† Smith, Jeff (Manchester, Withington) (Lab)

† Sobel, Alex (Leeds North West) (Lab/Co-op)

† Stride, Mel (Financial Secretary to the Treasury)

† Syms, Sir Robert (Poole) (Con)

† Whately, Helen (Faversham and Mid Kent) (Con)

† Whittaker, Craig (Lord Commissioner of Her Majesty's Treasury)

Colin Lee, Gail Poulton, Joanna Dodd, Committee Clerks

† attended the Committee

Public Bill Committee

Tuesday 4 December 2018

(Afternoon)

[Ms Nadine Dorries in the Chair]

Finance (No. 3) Bill

(Except clauses 5, 6, 8, 9 and 10; clause 15 and schedule 3; clause 16 and schedule 4; clause 19; clause 20; clause 22 and schedule 7; clause 23 and schedule 8; clause 38 and schedule 15; clauses 39 and 40; clauses 41 and 42; clauses 46 and 47; clauses 61 and 62 and schedule 18; clauses 68 to 78; clause 83; clause 89; clause 90; any new clauses or new schedules relating to tax thresholds or reliefs, the subject matter of any of clauses 68 to 78, 89 and 90, gaming duty or remote gaming duty, or tax avoidance or evasion)

Clause 36

Oil activities: transferable tax history

14:00

Question (this day) again proposed, That the clause stand part of the Bill.

[The Chair]

I remind the Committee that with this we are discussing the following:

Amendment 84, in schedule 14, page 260, line 15, leave out sub-paragraph (d).

The provision as drafted allows companies to transfer TTH worth double the value of anticipated decommissioning costs. This reduces the incentive for companies towards efficiencies in decommissioning costs and paves the way for decommissioning-related tax repayments far bigger than the companies are currently acknowledging. This amendment removes that provision.

Amendment 81, in schedule 14, page 261, line 29, at end insert—

“(aa) assessing the impact on employment, skills and the Exchequer from the asset’s production life and planned decommissioning phase, and”

Amendment 89, in schedule 14, page 261, line 42, at end insert—

“(d) includes an assessment of the impact on the Exchequer from the amount spent on directly employed and contracted staff by the seller over the production life of the asset to date; and the impact on the Exchequer from the buyer’s plans for employed and contracted staff up to and including the decommissioning stage.”

This amendment requires a decommissioning security agreement to include an assessment of the impact on the Exchequer from the amount spent on staff, in order for that agreement to be qualifying for the purposes of this Schedule.

Amendment 85, in schedule 14, page 268, line 40, at end insert—

“(aa) the amount spent by the purchaser in post-acquisition periods on new capital investment, major maintenance work, retraining of redundant staff, initiatives to reduce methane emissions or initiatives to introduce carbon-capture techniques into the operations in relation to the relevant TTH assets (‘post-acquisition qualifying investment’)”.

This amendment, and amendments 86 and 87 incentivize capital investment by new purchasers in job creation and emissions reductions. Combined, the amendments limit the TTH which may be claimed to an amount equal to such investment.

Amendment 86, in schedule 14, page 269, line 3 at end insert—

“(c) the amount by which total post-acquisition qualifying investment exceeded the higher of excess decommissioning expenditure and the total TTH amount as calculated for the first activation period under paragraph 35.”

See explanatory statement for Amendment 85.

Amendment 87, in schedule 14, page 269, line 40, at end insert—

“(c) provided that the total activated TTH amount may never exceed the purchaser’s post-acquisition qualifying investment for the relevant TTH assets or TTH oil fields.”

See explanatory statement for Amendment 85.

That schedule 14 be the Fourteenth schedule to the Bill.

Clause 37 stand part.

[The Exchequer Secretary to the Treasury (Robert Jenrick)]

If I may, I will conclude the remarks I was making earlier—[Hon. Members: “Hear, hear!”]—to widespread acclamation. Clause 36 will establish transferable tax history, which is widely supported across the industry and will help to protect and increase the number of jobs in the oil and gas sector in the whole of the United Kingdom and, in particular, in north-east Scotland. We see this as a great step forward for this important national asset. We believe that it is fiscally responsible, as was certified by the Office for Budget Responsibility. It will bring in revenues to the Exchequer of £65 million, and reports to the contrary are misguided.

[Clive Lewis (Norwich South) (Lab)]

Given that we know that the decommissioning costs could come to around £24 billion and that there is provision in the Bill to double that to £48 billion—I asked this question in my opening remarks, but I will ask it again—what money has the Treasury put aside specifically to cover these costs for future Governments, a little bit further into the future?

[Robert Jenrick]

Decommissioning costs will be covered by future Governments over the course of decades to come. We estimate that the costs will run into something in the region of £24 billion, as the hon. Gentleman says, although, as I said in my remarks earlier, we are working closely with the industry to bring down those costs. We hope the UK will become a world-leading market for decommissioning and that we will see at least a 35% reduction in those costs over time. The measure before us will help the situation by increasing revenues to the Exchequer, which could be set against future decommissioning costs if required.

[Clive Lewis]

We have said that the costs could be up to £48 billion—no insignificant sum of money. If we do not ring-fence some of the petroleum revenues to pay for this, it will fall entirely on future Governments further down the line, and nothing is being done now to prepare for that. That is a lot of money that could hit a future Government and a future Exchequer in goodness knows what economic conditions.

[Robert Jenrick]

The hon. Gentleman is arguing that we should ring-fence revenues from the oil and gas sector, whether through petroleum revenue taxation, the supplementary charge or whatever it might be in the future. That is not what we have done in the past. It is a peculiar argument to make when opposing the transferable tax history measure, which will increase revenue to the Exchequer, extend the life of a number of fields and make decommissioning easier and more affordable in the future. With that, I commend clause 36 to the Committee and ask hon. Members to reject the amendments.

Question put and agreed to.

Clause 36 accordingly ordered to stand part of the Bill.

Schedule 14

Oil activities: transferable tax history

Amendment proposed: 84, in schedule 14, page 260, line 15, leave out sub-paragraph (d).—(Clive Lewis.)

The provision as drafted allows companies to transfer TTH worth double the value of anticipated decommissioning costs. This reduces the incentive for companies towards efficiencies in decommissioning costs and paves the way for decommissioning-related tax repayments far bigger than the companies are currently acknowledging. This amendment removes that provision.

Question put, That the amendment be made.

Division 21

Ayes: 7

---

Labour: 7

Noes: 10

---

Conservative: 10

Amendment proposed: 81, in schedule 14, page 261, line 29, at end insert—

“(aa) assessing the impact on employment, skills and the Exchequer from the asset’s production life and planned decommissioning phase, and”.—(Clive Lewis.)

Question put, That the amendment be made.

Division 22

Ayes: 7

---

Labour: 7

Noes: 10

---

Conservative: 10

Amendment proposed: 89, in schedule 14, page 261, line 42, at end insert—

“(d) includes an assessment of the impact on the Exchequer from the amount spent on directly employed and contracted staff by the seller over the production life of the asset to date; and the impact on the Exchequer from the buyer’s plans for employed and contracted staff up to and including the decommissioning stage.”—(Clive Lewis.)

This amendment requires a decommissioning security agreement to include an assessment of the impact on the Exchequer from the amount spent on staff, in order for that agreement to be qualifying for the purposes of this Schedule.

Question put, That the amendment be made.

Division 23

Ayes: 7

---

Labour: 7

Noes: 10

---

Conservative: 10

Schedule 14 agreed to.

Clause 37 ordered to stand part of the Bill.

Clause 43

Higher rates of tax for additional dwellings etc

Question proposed, That the clause stand part of the Bill.

[The Chair]

With this it will be convenient to discuss the following:

New clause 10—Review of higher rate of tax for additional dwellings—

“(1) The Chancellor of the Exchequer shall commission a review on the revenue effects of the amendments to FA 2003 made in section 43.

(2) A report of the review under subsection (1) must be laid before the House of Commons before 29 October 2019.”

This new clause requires a review of the revenue effects of the provisions in clause 43, and for that review to report within 1 year of that clause becoming effective.

New clause 11—Annual statement on effects of provisions of section 43—

“(1) The Chancellor of the Exchequer must make an annual statement to the House of Commons detailing how the provisions in section 43 have affected instances in which land transaction returns are amended to take account of subsequent disposal of the main residence.

(2) The statement must specify—

(a) the number of such instances, and

(b) such information as the Commissioners hold as to the characteristics (including income) of those concerned.

(3) The first such statement under subsection (1) must be made before 29 October 2019, and each subsequent statement must be within twelve months of the previous statement.”

This new clause requires an annual statement on how the provisions in section 43 have impacted the number of back claims of HRAD.

New clause 12—Review of higher rate of tax for additional dwellings—

“(1) The Chancellor of the Exchequer shall commission a review on how the provisions of section 43 have affected residential property prices.

(2) A report of the review under subsection (1) must be laid before the House of Commons before 29 October 2019.”

This new clause requires a review on how the provisions in clause 43 have affected house prices, and for that review to report within 1 year of that clause becoming effective.

[The Financial Secretary to the Treasury (Mel Stride)]

Clause 43 makes changes to ensure that the stamp duty land tax higher rates for additional dwellings rules are easier to understand and more transparent. In April 2016, the Government introduced additional rates of SDLT for those purchasing additional residential property such as second homes and buy-to-let properties. The rates are 3 percentage points above the rates of SDLT ordinarily payable and are part of the Government’s commitment to support first-time buyers. The changes reflect feedback from the public and industry specialists about the key areas where the rules on the higher rates have proved challenging or do not work as well as they could.

In general, purchasers buying their first property, replacing a main residence or buying an additional property worth less than £40,000 will not be subject to the higher rates. Someone buying their new home before they sell their old home, however, must pay the higher rates up front but can claim a refund when they sell their old home within three years of buying their new home. When the old home is sold more than 12 months after the purchase of the new property, individuals are required to reclaim the higher rates within three months of the sale of the old property. The first change introduced by the clause will increase that period to 12 months, giving taxpayers a longer period within which to reclaim the higher rates. The change will apply to all disposals of a previous main residence from 29 October 2018.

The second change addresses the term “major interest” in relation to the higher rates of stamp duty land tax, where some stakeholders have suggested that existing legislation is unclear. The higher rates of stamp duty land tax are intended to apply when someone buys or already owns a major interest in a dwelling. “Major interest” is used to ensure that the higher rates for additional dwellings apply only to meaningful purchases of residential property and not to minor interests—for example, a right of way or a right to light. This change confirms, in line with the Government’s existing treatment, that an undivided share in land constitutes a major interest for the purposes of the higher rates. That also takes effect from 29 October 2018.

New clause 10 seeks to commission a review on the revenue effects of the amendments to the Finance Act 2003 made by clause 43. It would require the Chancellor of the Exchequer to make an annual statement to the House on those who have made a reclaim for the higher rates. The new clause is not necessary; as is stated in the tax information and impact note published at the 2018 Budget, these changes are expected to have a negligible impact on the Exchequer, so a review on the revenue effects is not required. Her Majesty’s Revenue and Customs already publishes annual and quarterly statistics setting out transactions subject to the higher rates of SDLT on additional properties and the transactions, volumes and values reclaimed.

New clause 12 seeks to require a review of the effect of clause 43 on residential property prices. Clause 43 simply increases the time from disposal for people to make a claim to 12 months and confirms existing practice on the definition of “major interest”. Neither change is expected to have an impact on house prices and such a report would not be of benefit to Parliament. I therefore urge the Committee to reject the new clauses.

The changes in the clause will help to ensure that the rules on the higher rates of stamp duty land tax are easier to understand and more transparent. I commend the clause to the Committee.

[Sir Robert Syms (Poole) (Con)]

I am glad I caught my right hon. Friend just as he was coming to his peroration. I have a constituent who had a home in Malaysia, where he was working. He moved back to Poole to retire and bought a flat. He was charged the higher rate of stamp duty because the flat was classified as a second home because he still owned a home in Malaysia. When I wrote to the Treasury, it said that that was because having a second home in Malaysia had an impact on the British housing market, which I did not think was a very convincing answer.

Does this rule apply worldwide if one owns a home outside the UK? In effect, if someone has a holiday home outside the UK, they get charged higher stamp duty when they buy a house in the UK. If they sell their house in Malaysia, Spain or France within three years, do they then get a reduced rate of stamp duty land tax? As an aside, it seems bonkers that we are charging people a higher rate on the basis that they have a home halfway round the world, but that is the world we seem to live in.

[Mel Stride]

The central point is that if someone is UK tax resident, their income is taxed, albeit that some of it may occur in other jurisdictions and perhaps be subject to double taxation arrangements between that jurisdiction and our jurisdiction. None the less, my hon. Friend’s assumption is correct that if someone has a property overseas, it is effectively counted as if it were a domestic property in the context of this clause. The easements that the clause introduces in terms of greater time to put in an application for a rebate at the higher rate apply equally whether one of the properties is overseas or here in the United Kingdom.

[Anneliese Dodds (Oxford East) (Lab/Co-op)]

As the Minister explained, the clause would change the parameters for claiming a refund on the additional dwelling SDLT by quadrupling the time that claimants have to reclaim the funds, potentially for up to a whole year after they have sold their old home, if that is later than a year after the filing date for the SDLT date for the new home—so the second parameter stays the same, if that makes sense. It is quite a complex change to understand.

The “major interest” provision is also tightened to make it clearer that a major interest in a dwelling includes an undivided share in a dwelling for the purpose of the higher rates for additional dwellings. I understand that the Government have suggested that the extended time period is necessary to enable those who might find it difficult to claim to do so—for example, those who are elderly or vulnerable due to serious illness.

In principle, the changes do not water down the Government’s initial stated commitment to charge additional SDLT for those owning additional properties, provided they are held on to for more than three years and provided that they fall outside the multiple dwellings category, which I will come back to in a moment. None the less, given that the changes appear to be focused on the context for the provision of additional dwellings, as against continuously occupied single dwellings, we feel it is necessary to subject their effectiveness to review, in order to ensure that they do not water down the initial measure in any way. That is what new clauses 10, 11 and 12 ask for.

14:15

New clause 11 asks for a review of the impact of these measures on the number of back claims of higher rates for additional dwellings, which I will call HRAD. Relatedly, new clause 10 asks for a review of the revenue effects of this new approach to exemption from HRAD. The reviews are surely desirable in a context where as many as nine out of every 10 additional property owners are in the top half of the wealth distribution, as was discovered by the Resolution Foundation, and where the proportion of adults owning multiple properties has risen substantially in recent years.

In contrast, as I am sure the Committee will be aware, home ownership has fallen precipitously among young people, with the chances of a young adult on a middle income being a homeowner having fallen by more than a half over the last 20 years, according to the Institute for Fiscal Studies. The number of people under the age of 45 who own their own home has fallen by 1 million since 2010. Of course, the number of new homes for social rent has fallen by 80% since 2010. We really need to understand the effectiveness or otherwise of the existing additional dwelling charge and whether or not these measures would reduce it.

It is also important to review these measures to consider their impact in relation to other tax-focused interventions that the Government are or are not making to enable sufficient access to continuously occupied singular dwellings, especially in hotspots for holiday and other additional homes. In this connection, it would be helpful if the Minister explained how this measure squares with the continuation, as I understand it, of multiple dwellings relief, which the Conservatives introduced in 2016, and which has received some press comments due to its use by certain individuals whom I am sure the Committee will be aware of. I will not add to their embarrassment here. The multiple dwellings relief enables not just a removal of the additional dwellings charge, but an actual reduction in the stamp duty charge, where a transaction or a number of linked transactions include freehold or leasehold interests in more than one dwelling.

The multiple dwellings relief is rather complicated to explain, but essentially it enables multiple simultaneous purchases to be counted separately for the purposes of stamp duty, albeit with a 1% floor. It treats them as if they were individual purchases, which means that the overall purchaser is tax-benefited, because if they were paying for all those properties in one block, they would trigger higher rates of stamp duty than just the individual rates.

For example, if five houses are bought for £1 million overall, that gives us £200,000 per house. The amount of SDLT payable on £200,000 is £1,500, which, multiplied by five, is £7,500. That is what would have been paid under the scheme, although there is a 1% floor, so overall the amount of tax would be £10,000. If tax had been paid on the £1 million overall, it would have been much more substantial, because it would be shifted into a higher rate of stamp duty. It is peculiar that we seem to have—unless I have missed some announcement from the Government—a continuation of that tax relief for multiple homes, yet an additional charge for just having one additional home. I have to say, I found the discussion raised by the hon. Member for Poole very interesting. I wonder how many people who are in the situation that he described are aware of the situation.

[Sir Robert Syms]

I suspect that there are a lot of people with holiday homes abroad who do not realise that when they buy a property, they have to pay a higher rate of stamp duty land tax.

[Anneliese Dodds]

I am very grateful for that intervention. Furthermore, presumably it would be relatively difficult for the Exchequer to assure itself that that additional purchase had happened. This seems like quite a bureaucratic system, but I am sure the Minister can explain to us exactly how it works and how it is ensured that it is processed properly.

It would also be helpful to consider the measures in relation to the actions advocated by Labour, including enabling local authorities to treble council tax on empty properties after they have been empty for a year. Although the Government have shifted a little in this area recently, councils unfortunately still have to wait 10 years—an incredibly long time—before they can levy that level of premium.

We also need to consider the impact of these measures on house prices, which, as the Minister intimated, is demanded by new clause 12. There is a desperate need for action to level the playing field for those seeking housing for their families to live in continuously, as against those seeking a holiday home. Here again, the Opposition seek to place a surcharge on second homes that are used as holiday homes, based on council tax banding, which could raise £560 million a year to help tackle homelessness, as well as helping to level the playing field between those who can afford additional homes and those trying to take their first step on to the housing ladder. We surely need to understand the impact of the clause in relation to other potential measures.

Finally, while I have the chance, I inform the Minister that when one uses a particularly well-known search engine to try to find the very exciting HMRC stamp tax manual, it unfortunately finds the versions from 2010 initially, rather than more up-to-date versions. That surely needs to be ironed out.

[The Chair]

Mr Syms, do you want to speak?

[Sir Robert Syms]

No.

[Mel Stride]

I am sure that my hon. Friend will be tempted to speak by the time I have finished my remarks.

The hon. Member for Oxford East raised several points. She sought an assurance that we are not watering down the measure. I can certainly give that assurance. For example, the three-year window will be the same for people to reclaim the higher rate where a property is not sold before a new property is purchased, albeit that we are giving people more time to apply for that rebate. The essence of the measure remains very much the same.

The hon. Lady pointed out that home ownership is falling, particularly among young people. The Government are heavily engaged on that and have brought in various measures, as she will know, not least in the stamp duty area, with the stamp duty relief for first-time buyers. None the less, the statistic that she quoted of there being 1 million fewer homeowners under 45 than in 2010 is certainly something that we seek to address. I reassure her that, since the higher rates have been introduced, more than 650,000 people have bought their first home, and first-time buyers make up an increased share of the mortgaged housing market. That is what the underlying measure that we are debating is really all about: supporting first-time buyers and first-time home ownership.

The hon. Lady also raised multiple dwellings relief and gave a clear exposition of how it works by way of her example of the £1 million and the five properties. The way she described it was entirely accurate. In other words, there is a disaggregation, and then the appropriate level of stamp duty is applied to each one of those properties at, in her example, the £200,000 level. However, it is also the case that each one of those properties in her example would attract the additional stamp duty charge in a situation in which more than one property is, of necessity, owned by the same purchaser.

The hon. Lady’s final point was about the potential impact of these measures on house prices. I go back to my earlier remarks that this a change in the timing by which individuals are required to make reclaims at the higher rate; it is not a change to the window of opportunity for doing so. As I set out, that in itself is not expected to change house prices.

Question put and agreed to.

Clause 43 accordingly ordered to stand part of the Bill.

Clause 44

Exemption for financial institutions in resolution

Question proposed, That the clause stand part of the Bill.

[The Chair]

With this it will be convenient to discuss the following:

Amendment 90, in clause 48, page 32, line 39, at end insert—

“85B Review of possible register

(1) Within three months of the passing of the Finance Act 2019, the Chancellor of the Exchequer shall review the viability of establishing a public register on the use of the exemption from stamp duty established under section 85A.

(2) A report of the review under this section shall be laid before the House of Commons as soon as practicable after its completion.”.

This amendment would require the Chancellor of the Exchequer to review the viability of a public register of financial institutions in resolution benefitting from the exemption from stamp duty for certain financial transactions.

Clause 48 stand part.

[Mel Stride]

Clauses 44 and 48 will simplify and strengthen the current financial institution resolution regime by introducing an automatic exemption from stamp taxes on shares for public bodies and creditors whose interests are converted into shares, and stamp duty land tax—SDLT—for certain transfers of land arising from the exercise of resolution powers.

Under the Banking Act 2009, the Government have the power to exempt from stamp taxes on shares and SDLT transfers of property, in the form of shares or land that arise from an exercise of resolution powers. However, the current legislation requires the Government to pass secondary legislation exempting a defined set of transfers. This introduces potential timing challenges and creates additional complexity when resolving a failing financial institution.

The changes made by clause 48 avoid that by specifying exempt transfers in primary legislation. The stamp taxes on shares exemption will be limited to transfers of shares to a bridge entity or a public body that holds the shares temporarily while the institution is being resolved, and to the transfer of shares in exchange for temporary certificates issued to creditors that demonstrate their entitlement to the shares. The exemption does not cover the private sale and transfers of shares in a failing institution to a private sector purchaser, where stamp taxes on shares will be charged as usual.

Similarly, the changes made by clause 44 specify SDLT transfers in primary legislation. This exemption will be limited to transfers of land to a bridge entity or public body that holds the land temporarily while the institution is being resolved. The exemption does not cover the private sale and transfer of land of a failing institution to a private sector purchaser, where SDLT will be charged as usual.

The changes will simplify and strengthen the process of resolving a failed institution. In the event that a creditor is found to be worse off as a result of resolution action, when compared with an ordinary insolvency, they are entitled to compensation, which would be paid by the Treasury. The changes will protect taxpayers by reducing the risk of the Government having to compensate creditors in order to prevent the “no creditor worse off” principle being violated. They were announced in the autumn Budget 2017 and the draft legislation was subject to consultation. Officials from the Treasury and HMRC have worked closely with officials from the Bank of England to develop the legislation.

Turning to the amendments that have been tabled, amendment 90 seeks a review, within three months of the enactment of the Bill, of the viability of establishing a public register on the use of the exemption from stamp duty—something that I have already raised—and would require a report of the review to be laid before the House of Commons soon after its completion. The clauses do not create any tax exemptions for failing institutions themselves. The exemption would apply to creditors of failing financial institutions who see their debt holdings bailed in for equity, to ensure that affected creditors are not penalised inadvertently. The exemption also applies to the Bank of England, which may, in certain circumstances, need to take temporary ownership of a failing institution’s assets, in order to protect financial stability.

The clauses will strengthen and add transparency to the resolution process by providing further clarity for affected creditors and the taxpayer. The register would impose an additional and unnecessary burden on the Bank of England and provide no great benefit to the public. By creating an exemption from stamp taxes on shares and SDLT for certain transfers arising from the use of resolution powers, the Government are simplifying and strengthening the UK’s resolution regime, and I therefore commend the clauses to the Committee.

[Anneliese Dodds]

I am grateful to the Minister for his explanation. As he intimated, clause 44 ensures that SDLT is not charged on transfers of land following the exercise of certain resolution powers under the special resolution regime. It is paralleled by clause 48 for stamp duty. As he has intimated, our amendment 90 would require the Government to produce a review and potentially introduce a register of financial institutions in resolution that might benefit from the exemptions for SDLT and stamp duty for certain financial transactions resulting from the measure.

We are asking for such a review to have a clearer understanding of which firms might be relieved of SDLT and stamp duty in this manner. This is without prejudice to the function of the clauses, which we understand and support. In other words, we support the concept that the Bank of England should be able to use its resolution stabilisation powers to manage failing financial institutions in an orderly manner and should as part of that, where required, be able to transfer property, potentially including land held by that body, to a temporary holding entity appointed by the Bank of England or to a temporary public body. In that context, we agree that it does not make sense for SDLT or stamp duty to be paid. We are willing not to press our amendment, because of the general acknowledgment of the importance of the measure.

14:34

However, I have a question about clauses 44 and 48. The explanatory notes state that they will reduce

“the need for specific regulations to be made under section 74 of the Banking Act 2009 to provide an exemption from a SDLT charge on each exercise of certain resolution stabilisation powers under the Banking Act 2009.”

Obviously, the same applies to stamp duty. In their words, this

“will strengthen and simplify the process of resolving a failing financial institution and help to uphold the ‘no creditor worse off’ principle by ensuring an exemption from SDLT”—

or stamp duty—

“is available at the time of resolution announcement.”

That appears to imply that it would have been possible to create measures as amendments to the Banking Act to achieve that end through regulation. I wonder why it is implied that specific banking regulations are viewed as too onerous to create, whereas amendments to the Finance Act 2003, which established the current English SDLT and stamp duty system, are somehow simpler to enact. I am frequently informed by businesses and individuals, as I am sure many of us are, that they balk at the length and complexity of tax law, yet here we are adding to it when an alternative mechanism could perhaps have been found. In that connection, it would be helpful to know whether the Office of Tax Simplification was happy with the measure.

The Minister referred to the fact that the clause was transferring the tax treatment into primary legislation, seeming to suggest that putting measures in place through primary legislation was preferable to putting them in place via regulation. I dare to say that I hope the Minister will have discussions with his colleagues, who seem intent on avoiding the use of primary legislation when it comes to, for example, the UK’s withdrawal process, and in whom we often see not even a willingness to use the affirmative procedure for secondary instruments, let alone primary legislation.

[Mel Stride]

Taking up the points made by the hon. Member for Oxford East, I will begin with her final point about why we have approached this by way of primary legislation rather than relying on existing powers to make regulations. At the heart of that is our ability to act quickly in the circumstances of the resolution powers being brought into effect, to ensure that everything goes smoothly and we do not end up in a situation where compensation might be due, where it could be shown that the measures we had taken had not been as effective as they might otherwise have been under a normal insolvency process. That is why relying on a general position in primary legislation would be preferable to a number of exercises of secondary powers.

The question of why we have made changes to the Finance Act 2003 rather than the Banking Act, and the associated question that the hon. Lady asked about whether the Office of Tax Simplification was content with our approach, are highly technical and certainly not questions to which I have a ready answer, I am afraid. I undertake to the Committee to go away and ensure that I write to the hon. Lady with a full explanation on both those points.

Question put and agreed to.

Clause 44 accordingly ordered to stand part of the Bill.

Clause 45

Changes to periods for delivering returns and paying tax

[Anneliese Dodds]

I beg to move amendment 95, in clause 45, page 29, line 19, at end insert—

“(11) The Chancellor of the Exchequer must lay before the House of Commons a report on any consultation undertaken on the provisions in this section.

(12) A report of the review under subsection (9) must be laid before the House of Commons within two months of the passing of this Act.”

This amendment would require the Chancellor of the Exchequer to report on any consultation undertaken on the provisions in Clause 45.

[The Chair]

With this it will be convenient to discuss the following:

Clause stand part.

New clause 13—Equality impact analysis of provisions of section 45—

‘(1) The Chancellor of the Exchequer must review the equality impact of the provisions in section 45 in accordance with this section and lay a report of that review before the House of Commons within six months of the passing of this Act.

(2) A review under this section must consider—

(a) the impact of those provisions on households at different levels of income,

(b) the impact of those provisions on people with protected characteristics (within the meaning of the Equality Act 2010),

(c) the impact of those provisions on the Treasury’s compliance with the public sector equality duty under section 149 of the Equality Act 2010, and

(d) the impact of those provisions on equality in different relevant parts of the United Kingdom and different regions of England.

(3) In this section—

“relevant parts of the United Kingdom” means—

(a) England, and

(b) Northern Ireland;

“regions of England” has the same meaning as that used by the Office for National Statistics.’

This new clause requires the Chancellor of the Exchequer to carry out and publish a review of the effects of Clause 45 on equality in relation to households with different levels of income, people with protected characteristics, the Treasury’s public sector equality duty and on a regional basis.

[Anneliese Dodds]

I am grateful to be serving on this Committee with you in the Chair, Ms Dorries; I do not think I have said that before, and I apologise for that.

This clause reduces the time limit that purchasers have to file an SDLT return and pay the tax due from 30 days after the effective date of the transaction to 14 days. It applies to transactions to purchase land in England and Northern Ireland with an effective date on or after 1 March 2019. Of course, since 2015 there has been a separate land and buildings transaction tax in Scotland, and since earlier this year there has also been a different regime in Wales, where the relevant tax is the land transaction tax.

SDLT was introduced—we were just referring to the relevant Act—in 2003, replacing stamp duty on land transactions. Data from SDLT returns are used by a variety of actors, after being submitted to the Valuation Office Agency, to carry out activities such as valuations for the purposes of council tax and business rates.

This clause obviously has some similarities with clause 14, to the extent that it requires a faster turnaround for the payment of a tax, but clearly in this case it is payment of SDLT rather than capital gains tax. Many of the concerns expressed in relation to that change also apply in this case. They include the question whether taxpayers and, above all, their agents are likely to be sufficiently aware of the new deadline. As a result, with amendment 95, we are asking the Chancellor of the Exchequer to

“lay before the House of Commons a report on any consultation undertaken on the provisions in this section.”

It appears that many taxpayers—some 85% of them, according to HMRC’s figures—already submit their return in line with the proposed new timetable. However, the remaining 15% may have reasons for failing to submit so quickly and those surely should be examined before we embark on this halving of the deadline. Indeed, there appeared to be significant concern among respondents to the consultation about the proposed reduction to the filing and payment window. The consultation response stated:

“Many felt it would be manageable for straightforward transactions—for example most purchases of residential property. Many envisaged difficulties for more complex transactions where the property purchased is subject to leases. Although only a small proportion of reportable transactions are likely to be affected, they amount to approximately 50,000 transactions every year.”

That is clearly a very large number, and those transactions may be particularly concentrated in their effects among certain segments of the population. It is for that reason that new clause 13 would require a full impact assessment of the measure to be undertaken and to consider its impact on people with protected characteristics, people with different incomes and people living in different regions.

I note in the consultation document that, at least at the time of the consultation, there was no HMRC facility for filing and paying SDLT simultaneously. It would be helpful to understand from the Minister whether that facility is coming, as it would surely make the system more efficient.

I was also surprised to see in the consultation document that more than 40% of the returns submitted on paper included errors. That is an incredibly high rate. It would be helpful to know what has been done to deal with that problem, as that system clearly cannot be helping either the taxpayer who has—presumably inadvertently, most of the time—made the error or the HMRC officer who has to try to rectify it. The very high usage of cheques, which need to be accompanied by the correct 11-figure unique taxpayer reference number, also seems almost designed to create an inefficient and error-ridden system.

It was stated in the consultation document that the shorter timescale would be accompanied by a number of other measures to improve the effectiveness of SDLT filing, but it is unclear to me whether and when those new measures are coming into place. One such measure would be requiring all agents to file online, which does seem sensible, but I was intrigued to see in the consultation document the claim that online filing may not be

“reasonably practicable…because of remoteness of location, or on grounds such as religious beliefs.”

It would be helpful if there were more joined-up thinking across Government. For example, it is very difficult for claimants of universal credit to receive it without using the online system. Surely more of them are likely to be affected by living remotely than professional agents involved in property transactions. It would also be useful if the Minister could clarify why religious faith might impact on an individual’s ability to use the internet and why that might be the case for those filing returns for stamp duty and not for those attempting, for example, to claim universal credit.

It was stated in the Government’s response to the consultation that they would look to potentially introduce electronic payment at the same time as the reduction of the reporting period to 14 days, so can the Minister please inform us whether electronic payment will indeed be available when this measure comes into play?

[Mel Stride]

Clause 45 makes changes to improve the SDLT filing and payment process. In answer to the hon. Lady’s question about whether we will provide facilities on the site to pay simultaneously, we do not have plans to do so. That is because the online service cannot be combined with Bacs and CHAPS services at present.

The hon. Lady made a more general point about the mistakes that are made in filing. As she knows, we consulted on the information being sought as part of the process, and we will be applying various simplifications as a consequence, most notably around complex commercial lease arrangements. The information that we have hitherto sought in that respect will now no longer be sought. That simplification, and others, should be beneficial in cutting down the mistakes that the hon. Lady referred to.

Currently, the purchaser of land, or the purchaser’s agent, must make a stamp duty land tax return and pay tax due within 30 days of the effective date of the transaction—usually the completion date. The changes made by clause 45 will reduce the time allowed to make an SDLT return and pay the tax due from 30 days after the effective date of transaction to 14 days. That is in line with other initiatives in recent years that bring tax reporting and payment closer to the date of the transaction. The hon. Lady referred, I think, to clause 14 on capital gains tax, where a similar approach has been taken. This is in line with these other initiatives.

The measure will not change liabilities for the purchaser, but will lead to tax being paid earlier. The change applies to purchases of land situated in England and Northern Ireland where the effective date of the transaction is on or after 1 March 2019. This change will directly affect approximately 20,000 businesses, mainly agents, such as licensed conveyancers and solicitors. Each year, this will directly affect fewer than 500 individuals who file their own SDLT returns without using an agent. However, the impact on administrative burdens for businesses is expected to be negligible.

The Government announced the change at autumn statement 2015 and consulted on it, as the hon. Lady described, in 2016. The Government confirmed at autumn Budget 2017 that it would come into effect on 1 March. To help purchasers and agents to comply with the new time limit, HMRC has worked with key representative bodies to agree simplifications to the SDLT return, for example, by reducing the amount of information required. These improvements will be in place when the new time limit begins. The measure will result in a yield of £60 million in 2018-19—the year of implementation—and a small ongoing yield in future years.

Amendment 95 would require a report on any consultation undertaken on the provisions in this section.

[Bambos Charalambous (Enfield, Southgate) (Lab)]

What steps has HMRC put in place to make sure that the 20,000 businesses that are going to be affected are properly informed of the change, and know that it is coming?

[Mel Stride]

HMRC will, as a matter of course, issue guidance on all major tax changes, and that will be available online. As part of the consultation, as I have outlined, a number of these organisations were consulted in detail, not just about the measures but to make sure that those businesses are ready and appropriately informed.

The amendment is not necessary. I can give the Committee the information it requires now, because it is already in the public domain. The Government published a document on 20 March 2017 in response to the consultation that we published in the autumn of 2016, and we published draft legislation in July 2018 for technical consultation. HMRC also held meetings with stakeholders, which included representative bodies from the property and conveyancing industries. Their views on the information required in the return are reflected in the changes being made to make compliance with the new time limit easier.

New clause 13 would require a review of the equality impact of clause 45. The new clause is not necessary either, because the Government set out in the tax information and impact note published on this change in July 2018. It is not anticipated that there will be any impact on groups with protected characteristics. Clause 45 does not change anyone’s SDLT liability; it just brings a requirement to file a return and pay the tax closer to the date of the transaction. For that reason, direct impacts on different types of households will be negligible, and the type of analysis required by the amendment would not be meaningful.

Regarding other regions of the UK, Land and Property Services in Northern Ireland—an agency of the Department of Finance of the Northern Ireland Executive—was consulted and is content with the measures. The changes will improve the SDLT filing and payment process, and I commend the clause to the Committee.

[Anneliese Dodds]

I am grateful to the Minister for his comments. However, I am sure the whole Committee is looking to the Government to ensure that the payment and reporting systems can be calibrated as soon as possible. Surely, the very high rate of error is a terrible waste of taxpayers’ and, indeed, HMRC’s time. I hope he prioritises sorting that out and having the relevant discussions with the Bacs and CHAPS systems so it can be dealt with.

14:45

I underline yet again the contrast, which I note the Minister did not mention, between the Government’s apparent concern with the digital divide when it comes to those who have sufficient resources to purchase a home and are liable for stamp duty, and their concern when it comes to those with very low incomes who try to access social security. None the less, in the light of the Minister’s remarks, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 45 ordered to stand part of the Bill.

Clause 48 ordered to stand part of the Bill.

Clause 49

Stamp duty and SDRT: exemptions for share incentive plans

[Anneliese Dodds]

I beg to move amendment 91, in clause 49, page 33, line 2, at end insert—

“(c) after subsection (4) insert—

‘(5) Within three months of the passing of the Finance Act 2019, the Chancellor of the Exchequer shall review the revenue effects if—

(a) the provision of section 49(2) of that Act had not been made, and

(b) the exemption under subsection (3) of this section did not apply to a Schedule 2 SIP that was not approved between the coming into force of the relevant provisions of the Finance Act 2014 and the passing of the Finance Act 2019.

(6) A report of the review under this subsection (5) section shall be laid before the House of Commons as soon as practicable after its completion.’”

This amendment would require the Chancellor of the Exchequer to review the revenue effects if the tax exemption under section 95 of the Finance Act 2001 had not applied to self-certified share incentive plans.

[The Chair]

With this it will be convenient to discuss clause stand part.

[Anneliese Dodds]

The clause makes a minor change to ensure that existing stamp duty relief continues to apply to both non-approved and approved share incentive plans. Our amendment 91 calls for a review of the revenue effects of that measure compared with the status quo, under which only approved plans are covered. The amendment is intended to give us a better handle on the overall cost of SIPs and how that relates to their benefits.

As I am sure Committee members know, SIPs have been tax advantaged since 2001, when stamp duty and what was then stamp duty reserve tax—it is now SDLT—were removed from the transfer of shares in a SIP from trustees to an employee. The requirement for approval was removed in 2014, but the appropriate corrections to legislation were not made. I note that the changes in the clause are required purely because of errors of omission back then, which perhaps highlights some of the issues the Committee has discussed.

SIPs avoid many of the problems with other share incentive plans, not least by being provided to all employees rather than only to a subset. We have seen how share plans have been manipulated when they have been provided only to the top management of companies. SIPs avoid that. Although so-called free shares can be linked to the achievement of performance targets, they cannot be allocated individually. They can be provided only to a particular business unit or to the whole company, so they cannot be manipulated by, for example, very top management.

Some categories of shares can be removed from employees who leave the firm through either voluntary resignation or dismissal within three years of their joining the SIP. That and the stake that SIPs create for employees in their company are viewed by some commentators as positive aspects of the plans. In addition, there is a considerable cost saving for firms of up to £138 for every £1,000 invested in SIPs by their employees. We must acknowledge, however, that the people who gain most from such schemes are those who are already in a higher-rate tax band, who by my calculation gain around an additional third of the tax they would otherwise pay, compared with a basic rate taxpayer.

In addition, SIPs have complex interactions with the social security system. I want to ask the Minister for clarification in that respect. Information provided to SIP holders states clearly that a small number of people may be affected by the fact that, because of their salary sacrifice—I suppose in practical terms that is what this is—for their SIP, they will not have paid enough national insurance contributions to qualify for particular benefits. However, it is unclear whether contributions to a SIP are treated differently for tax and social security purposes.

Some claimants of tax credits have received mixed messages about whether contributions to SIPs should be added back on to their gross pay for the purpose of informing the Department for Work and Pensions about their income. Individuals do not have to declare their SIP contributions for the purpose of income tax, or at least those contributions generally are not chargeable to income tax. There is a peculiar and potentially unfair difference there.

That is compounded by the fact that tax becomes payable on some of the different types of shares within a SIP if an individual sells them within five years—for example, if they have to switch jobs. Some individuals have said that that is almost a form of double taxation for people who claim social security. They suggest it is a bit of an anomaly, and I can see why. For people affected in this way, they would be better off buying their firm’s shares at market prices rather than taking part in a SIP in the first place. That is the situation with tax credits, but I cannot find any information anywhere about the treatment of these schemes for those claiming universal credit.

I looked at the IR177 document “share incentive plans and your entitlement to benefits” but that was produced in January 2011, and there seems to have been no amendment of it since then. There does not seem to have been any amendment to the SIP manual relating to universal credit either, or at least not since November 2015. Having gone through all the iterations of the manual, I did not wish to waste any more time searching for a potentially non-existent needle in a haystack.

Will the Minister clarify whether contributions to SIPs are counted as income for the purposes of calculating working tax credit or universal credit? If so, will the Department be looking at this issue? Might it be trying to devise a different approach, given that individuals will be affected by the counting of those shares as income if they leave a SIP scheme early? People on low incomes may well have to switch jobs more regularly than others do, so it would be helpful if he looked into that. Perhaps he knows the answer already. If not, will he write to us? Some people would find that enormously helpful.

[Mel Stride]

On the hon. Lady’s specific question about the interaction of SIP contributions and the reporting of income, and the further interaction with working tax credits and universal credit, I do not know the answer, and I do not think my officials can immediately answer it. I will have a closer look at that and write to her, as she requests.

Clause 49 makes a minor correcting amendment to section 95 of the Finance Act 2001 concerning stamp duty and stamp duty reserve tax exemptions for SIPs. Stamp duty and stamp duty reserve tax exemptions for SIPs were introduced in the Finance Act 2001. Until 2014, share incentive plans had to be approved by HMRC before an employer could operate them. These were referred to as approved share incentive plans. The Finance Act 2014 removed the requirement for HMRC to approve share incentive plans and replaced it with a self-certification process. All references to approved share incentive plans should have been removed from legislation, but a change to section 95 of the Finance Act 2001 was omitted. The clause changes the wording of section 95 of the Finance Act 2001 to ensure that it is consistent with other provisions of the share incentive plans code. No taxpayers should have incurred stamp duty on self-certified SIPs since the rule changed in 2014, and this provision confirms and clarifies the position. No changes are made to the existing exemptions available for share incentive plans.

Amendment 91 would require a review of the revenue effects if the stamp duty exemptions for SIPs had not applied to self-certified share incentive plans from 2014. This provision is a minor technical change that brings the wording of the legislation back in line with its application. There will be no revenue impact as a result of the correction. SIPs offer a combination of tax incentives to employers, and estimates for the cost of the stamp duty exemptions for SIPs are not available. The clause makes a minor correcting amendment to exemptions for share incentive plans, and I commend it to the Committee.

[Anneliese Dodds]

I am willing to withdraw amendment 91, given the Minister’s clarification, and I am grateful for his willingness to write to me about the issue that I raised. I make the general point that it is important that we consider these interactions between the social security system and the taxation system. It is particularly important for people on low incomes that we always bear that in mind. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 49 ordered to stand part of the Bill.

Clause 50

Duty of customers to account for tax on supplies

[Jonathan Reynolds (Stalybridge and Hyde) (Lab/Co-op)]

I beg to move amendment 92, in clause 50, page 33, line 11, at end insert—

“(9B) An order made under subsection (9) for the purposes of subsection (9A) must be accompanied by a statement by the Treasury of the expected impact of that order on—

(a) the number of traders who are expected to benefit from the reduction of a burden, and

(b) the supply chain in respect of the description of goods or services.”.

This amendment would require an order made under the new provision of Clause 50 to be accompanied by an impact statement.

[The Chair]

With this it will be convenient to discuss clause stand part.

[Jonathan Reynolds]

We now turn to the part of the Bill that addresses value added tax, which is always a much-anticipated part of a Finance Bill. There is a lot to look forward to. Clause 50 relates to the duty of customers to account for VAT on supplies. It is designed to give the Government the flexibility to mend some items of anti-fraud legislation so that there does not end up being an undue burden on small businesses. It works in conjunction with an order of the Value Added Tax Act 1994, specifically section 55A, which aims to prevent so-called missing trader fraud.

I will provide some context about the ongoing challenges presented by VAT. These appear to fall into two categories, which I believe overlap: fraud, and the complications that administering and reporting VAT poses for businesses. Tackling those challenges is impossible if they are considered to be mutually exclusive. Fraud continues to be a major issue for the Exchequer in collecting the level of VAT that is owed, and VAT fraud costs the UK at least £1 billion a year.

That was discussed at length in last year’s Finance Bill Committee, in October 2017, when the Government introduced a clause to place new obligations on fulfilment houses to help to tackle VAT fraud, which has, understandably, worsened with the rise of online sellers that obtain goods through third-party sellers based abroad. As my hon. Friend the Member for Bootle said at the time:

“Many small businesses find themselves outcompeted and outpriced by overseas traders, which not only have lower operating costs but artificially lower their prices by failing to pay VAT on the goods they sell to UK consumers through fulfilment houses based here.”––[Official Report, Finance Public Bill Committee, 24 October 2017; c. 117.]

That is something that we will all recognise.

My hon. Friend further highlighted that we will all have received casework from small businesses

“that found themselves severely disadvantaged when filling out their VAT returns when they were unable to obtain VAT receipts from either their overseas supplier or the fulfilment business in question. In one case, the reason for the problem was simple: there were no VAT receipts because the seller had not charged VAT, unbeknownst to that particular British business. The online fulfilment house involved simply washed its hands of the matter and blamed a third-party seller that it supposedly has no control or influence over.”––[Official Report, Finance Public Bill Committee, 24 October 2017; c. 117.]

That flags just one of the multiple VAT issues that small businesses face. The Opposition believe that they need more support in getting to grips with the tax if we are ever to close the VAT gap. The situation has been worsened by the Government’s disaster-stricken attempts to transition to “Making tax digital”, which have thankfully been delayed to next year to give businesses some chance to adapt.

HMRC believes that there is a £3.5 billion VAT gap resulting from mistakes made by businesses when they submit VAT returns. Tax professionals, via the Chartered Institute of Taxation, said in written evidence to the Treasury Committee’s VAT inquiry earlier this year that HMRC must improve its VAT guidance and show a greater willingness to provide rulings where businesses want certainty over VAT treatment. It also echoed the Opposition’s repeated warnings over the diminishing resources and capacity of HMRC, which has been subject to a series of cuts resulting in staff reductions and office closures. That was admirably highlighted by my hon. Friend the Member for Oxford East in her summer tour of HMRC office closures, which was well received across the country. I should say that the cuts were not well received, but the attention that she was able to bring to them was.

The Chartered Institute of Taxation makes six recommendations to help address the VAT gap, which it estimates at a shocking £12.6 billion. I will focus on just one today, which is its request that the Government resist the temptation to

“introduce widespread changes that are disruptive to the majority of compliant businesses”.

That is tied to concerns around the clause, despite what appear to be quite laudable intentions behind it. The clause relates to so-called missing trader fraud. It is a huge problem, and not only in the UK; it is perpetrated across the EU in several different ways. Europol estimates that the cost to the EU is about €60 billion. Fraud is carried out in supply chains, sometimes by organised criminal gangs. They take advantage of the VAT exemption across borders, charge VAT in the UK when the product is sold on and subsequently disappear without relaying it to the Exchequer. As referred to earlier, section 55A of the Value Added Tax Act 1994 helps to prevent that by making the customer, rather than the supplier, responsible for declaring the VAT on certain goods and services, thus taking the benefit of VAT away from the seller.

15:00

From October 2019, construction services and works on existing buildings will be added to that list of goods and services, given the prevalence of missing trader fraud in the sector. This is where it gets slightly more complicated, unfortunately, so I will refer to the Chartered Institute of Taxation’s helpful advice on the matter, which says that subsection (3) of section 55A states that

“the value of any ‘relevant supplies’ purchased by the customer over £1,000 must be aggregated along with its turnover from its own business supplies for the purposes of the VAT registration threshold test (currently £85k of taxable supplies in a rolling 12 month period). Note that when construction and building works supplies are included in s.55A, the Order amends the default position so that the £1,000 small value supplies limit will not apply…Clause 50 creates a power for the Treasury to modify the position on the inclusion of ‘relevant supplies’…in the turnover test for the VAT registration threshold...In effect this means that a decision can be made on whether the customer may exclude relevant supplies from the turnover test. The aim of the measure is to prevent the anti-fraud provision from unintentionally pushing a small business over the VAT threshold.”

The order that it works with in tandem extends the reverse charge mechanism. Again, the Chartered Institute of Taxation’s helpful explainer says:

“The reverse charge in this sector applies for business to business transactions where the supply is subject to a positive VAT rate, the customer is registered for UK VAT and is required to report through the Construction Industry Scheme…There is a nil threshold on sales, meaning all qualifying transactions are impacted.”

As we understand it, we see the logic in the clause. Construction businesses may get drawn into declaring VAT in ways that are deemed unnecessary. However, we would caution against adding any further complexity for businesses, given the warnings I mentioned earlier. Therefore, it needs to be backed up by proper guidance and advice through an adequately staffed and resourced HMRC.

Even as someone who used to work in corporate law, I found sifting through the changes to articulate them to the Committee quite a challenge. It would be a big ask for someone to try to do that while running a business day to day. Stakeholders have also raised the issue of complexity in the practical application, which particularly applies to making sure that those in the chain know where they are in it, especially where that relates to an end user for tax purposes, so it is clear who is responsible for VAT accounting.

Equally, we must be careful that making the changes does not have any impact on local supply chains, which is why we have tabled amendment 92, which would oblige the Government to publish the impact on traders who are expected to benefit from the reduction of the burden, as well as the supply chain, which comes into scope. That will enable us to quickly identify if an undue administrative burden is having an impact on supply chains in turn.

My second question concerns how heavily the development and enforcement of such VAT rules are dependent on co-operation from the European Union. I would be grateful if the Minister elaborated on how the plans to clamp down on missing trader fraud are evolving in the light of our expected departure from the EU. Surely our departure from the customs union will prompt some sort of dramatic rethink.

Many hon. Members present are veterans of the Bill Committee on the Taxation (Cross-border Trade) Act 2018. In my view, VAT was one of the most complex issues that we dealt with there—the hon. Member for Aberdeen South is nodding. I would appreciate further information from the Minister about what consultation the Government have entered into about the measure, what feedback was provided, and how concerns about the administrative burden on construction and building works businesses will be addressed.

We would also like to highlight that the making tax digital implementation date for some businesses has been pushed back to October 2019, which will clash with the introduction of new mechanisms to integrate the changes. Has sufficient thought been given to how the burden can be eased for those affected?

Finally, I urge hon. Members to vote for amendment 92, which would empower us and give us the information we need to help small businesses to cope better with VAT collection.

[Kirsty Blackman (Aberdeen North) (SNP)]

First, the hon. Member for Aberdeen South (Ross Thomson) and I are two very different people. He is a lot taller, has dark hair and is a Conservative Member of Parliament. Lots of people have made this mistake over time. He also has very different views from mine on Brexit.

To follow up on some of the issues raised, I am comfortable supporting the Opposition amendment; it makes sense to ask for this information. A couple of matters were raised during the debate. It is important that reasonable VAT guidance is given to organisations. As we have previously discussed in Committee, people can only pay the correct tax if they understand how the tax system works. If they do not have the appropriate guidance, it is difficult for them to ensure that they pay the right VAT.

It is clear that the Government and HMRC are falling short in the information that they communicate to the companies and organisations that are expected to jump through these hoops. It would be useful if the Government looked at that and ensured that they improve the information they are providing to companies and organisations, so that they can better understand their liabilities and how to comply with them.

Lastly, in relation to discussions around the Taxation (Cross-border Trade) Act 2018, the hon. Member for Stalybridge and Hyde mentioned the changes from making tax digital and the impact of that on companies that are finding it more difficult to navigate the system. Another possible impact, depending on what happens with any withdrawal agreement, is that move from acquisition VAT to import VAT, which would also have a significant impact on companies, because they would have to pay significantly more money to allow them to do things differently.

I was pleased that the Government moved on that point after sustained pressure on them through the passage of the Taxation (Cross-border Trade) Bill. I appreciate that they agreed to put in place a deferment scheme in the event of no deal; that is positive. However, we do not yet know what the deal will look like. Could we have more commitment from the Government about smoothing that path, if there is to be change from acquisition to import VAT?

Obviously I would rather there was no change and we all stayed in a customs and VAT union, with common VAT as the preferred option. If there is to be any change, will the Government reassure us that companies that will be provided with as much support as they can, in order to make that change without the cash-flow impact suggested by organisations such as the British Retail Consortium?

[Mel Stride]

Before I get into more general points on the clause, I will turn to some specific issues raised by Members, starting with the hon. Member for Aberdeen North. I entirely take her points about the distinction between her and my hon. Friend the Member for Aberdeen South. The differences are quite stark in all respects, though I am not sure to whose benefit that is.

The hon. Lady is entirely right to suggest that we need good guidance on these issues. I should point out that a primary focus of the proposed change is to ensure that we do not, under the existing arrangements, have a number of construction companies falling due to VAT and going over the threshold. That does bring unwanted complexity for those who would not otherwise be in that situation. It is worth bearing in mind that the reason behind the measure is trying to avoid drawing ever more businesses in that sector into the VAT regime.

The hon. Lady also reminded us of the discussions that we had at length on the Taxation (Cross-border Trade) Bill, when most of us were all together.

[Peter Dowd (Bootle) (Lab)]

Happy days.

[Mel Stride]

Happy days. I thank the hon. Member for Aberdeen North for her positive comments about the position that the Government have taken on acquisition VAT as opposed to import VAT, and extending that—at great cost to the Exchequer, of course—to all external trading arrangements, whether with the EU27, as they will become, or the rest of the world.

It is worth making a general comment on the VAT gap, which featured prominently in the contribution from the hon. Member for Stalybridge and Hyde. That gap has fallen from 12.5% under his party in 2005-06 to 8.9% on the latest figures. That is a pretty significant drop in relative terms across that period. Clause 50 amends the anti-avoidance provisions in section 55A(3) of the Value Added Tax Act 1994, which will enable effective implementation in October 2019 of the VAT reverse charge to combat missing trader fraud in construction sector supply chains. As announced at autumn Budget 2017, the Government are introducing a VAT reverse charge for specified construction services, which is due to come into effect from 1 October 2019.

This measure will help to tackle the problem of organised criminal gangs fraudulently creating or taking over companies in the sector to steal VAT and income tax, known as missing trader fraud. Under reverse charge accounting treatment, the customer, if VAT registered, is responsible for settling VAT with HMRC. As a result, suppliers cannot get the tax due and hence cannot steal it. However, there is currently an anti-avoidance provision in the primary legislation for VAT reverse charges, which requires businesses that purchase supplies subject to a VAT reverse charge to include those purchases as part of their turnover for VAT registration purposes.

Reverse charges apply only to supplies to other VAT-registered businesses. Therefore, this provision was designed to prevent fraudsters from avoiding reverse charges, especially on mobile phones, by instead charging VAT to small unregistered businesses before going missing. The current anti-avoidance provision has the effect of making unregistered businesses purchasing supplies covered by the reverse charge registrable for VAT sooner.

The construction sector has many businesses legitimately trading close to, but below, the VAT threshold. The current anti-avoidance provision could therefore push some legitimate small businesses over the VAT threshold and increase the burdens placed upon them. Clause 50 will amend the VAT Act to allow future VAT reverse charge statutory instruments, including one for the construction sector, to waive this anti-avoidance provision. That means that unregistered businesses will not have to add purchases of construction supplies subject to the reverse charge to their turnover for the purposes of VAT registration, thereby limiting the impact of the reverse charge on small businesses.

Disabling this provision in the construction sector will not have an impact on the effectiveness of the reverse charge, because builders are unlikely to be involved in the sort of supply chains that feature in large-scale missing trader fraud in construction. However, the Government do not wish to remove the provision in its entirety, as it may be beneficial for other sectors subject to missing trader fraud.

Amendment 92 would require that, whenever the Treasury makes use of the Government’s proposed new power to disapply the anti-avoidance provisions in section 55A(3) of the VAT Act, it would also publish a statement setting out the number of traders expected to benefit from being relieved of the burden to register for VAT as a result, and the impact of the VAT reverse charge and the disapplication of the anti-avoidance provisions on the supply chain in the sector that they target. The Government have closely considered the amendment, but ultimately deem it unnecessary. Whenever a Treasury order is made to require the use of a VAT reverse charge in a particular sector, HMRC publishes a tax information and impact note as a matter of course. This note will highlight the scale of the reverse charge’s expected impact in terms of numbers of traders who will be affected and whether the anti-avoidance provisions will apply, and outline how the changes will help to disrupt fraudulent supply chains operating in that sector. This publication is more than sufficient for the purposes sought by amendment 92. I urge the Committee to reject the amendment, and I commend clause 50 to the Committee.

Question put, That the amendment be made.

Division 24

Ayes: 9

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Labour: 7
Scottish National Party: 2

Noes: 10

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Conservative: 10

Clause 50 ordered to stand part of the Bill.

Clause 51

Treatment of vouchers

Question proposed, That the clause stand part of the Bill.

[The Chair]

With this it will be convenient to discuss the following:

That schedule 16 be the Sixteenth schedule to the Bill.

New clause 8—Review of Schedule 16 provisions on voucher circulation and distribution—

“(1) The Chancellor of the Exchequer must commission a review of the expected impact of the provisions of Schedule 16 on the circulation and distribution of vouchers in—

(a) the United Kingdom, and

(b) the European Union.

(2) A report of the review under subsection (1) must be laid before the House of Commons within 3 months of the passing of this Act.”

This new clause requires a review of how the provisions in Schedule 16 affect voucher circulation and distribution.

New clause 9—Review of potential divergence of VAT treatment of vouchers—

“(1) The Chancellor of the Exchequer shall commission a review that will consider the potential public revenue, and other impacts, if domestic law regarding the VAT treatment of vouchers were to diverge from European Union law.

(2) A report of the review under subsection (1) must be laid before the House of Commons within 3 months of the passing of this Act.”

The provisions of Schedule 16 transpose Council Directive (EU) 2016/1065. This new clause requires a review of the revenue effects of diverging from EU law on the VAT treatment of vouchers.

15:19

[Mel Stride]

Clause 51 and schedule 16 make changes to ensure that we can properly collect VAT when purchases are made using vouchers. It amends the Value Added Tax Act 1994, introducing new section 51B, 51C and 51D and new schedule 10B. These clarify the VAT rules for postage stamps and set out new rules for the VAT treatment of vouchers issued after 1 January 2019.

Members of the Committee will be familiar with tokens—for example, those used in the purchase of books—but the world of vouchers has expanded significantly in recent years. The UK vouchers market is now estimated to be worth about £6 billion a year. As well as the traditional use of vouchers as Christmas presents, vouchers now play a large part in business promotion programmes and staff incentive schemes, which rely heavily on complex distribution systems using electronic, plastic and internet-based products, as well as the traditional paper voucher. Some businesses issue and redeem their own vouchers, whereas others issue vouchers to be redeemed by others. VAT law has been slow to adapt to these changes. This new law modernises the rules and introduces a simpler system.

[Anneliese Dodds]

The Minister is extolling the virtues of vouchers and noting how innovative many of the company schemes that use them are, but why are the Government still committed to removing individuals’ capacity to benefit from childcare vouchers?

[Mel Stride]

I think that issue may be outside the scope of the clause, tempted though I am to be drawn into the issue of childcare and vouchers. The hon. Lady will have noted the delay that we implemented in that respect, to make the transition that little bit easier for some of those who might have been impacted.

The clause transposes new EU law, which we pressed the European Commission to introduce, to help combat tax avoidance. The new law has to be in place by 1 January 2019 and the Provisional Collection of Taxes Act 1968 will give the measure effect until Royal Assent of this Finance Bill.

From a VAT perspective, vouchers are unexpectedly complex. That is because, for one payment, a buyer gets two things: a voucher and an underlying good or service. Without special rules, we risk taxing twice: once for the voucher and a second time for the underlying supply. Gift vouchers could be used to buy products with different VAT rates. It is therefore often difficult to apply VAT at the time the gift voucher is bought. Furthermore, gift vouchers are now often sold at a discount to the face value, via distributors to businesses, which give them away for free in business promotion or staff incentive schemes. It is then not always clear to the shop accepting the voucher exactly what has been paid.

Finally, trading vouchers across borders resulted in problems of double and non-taxation, as different countries have different rules. The changes made by clause 51 and new schedule 16 will standardise these rules. First, the legislation specifies the type of voucher covered. Quite a few things nowadays look similar to vouchers, but are not recognised as vouchers under the VAT system—for example, the type of card many of us store money on to go on holiday or give to our children. We are not talking about vouchers that are totally free from when they are issued to when they are used to buy something, such as discount vouchers found in magazines or toothpaste money-off tokens.

The legislation identifies two distinct types of voucher and sets out specific VAT treatments for each. If we know what the voucher can buy and where, that can be charged at the point of issue and at any subsequent transfer of a voucher through its distribution network. If these details are not known at the time of issue, because it is a general gift voucher, we must wait until it is used to be able to apply the correct VAT. Therefore, the law identifies single-purpose vouchers, such as a traditional CD token that can be used only to buy CDs, which are limited to specific products, and multi-purpose vouchers, such as a WHSmith gift voucher, which can be used to buy many things,.

To avoid charging VAT twice, single-purpose vouchers are subject to VAT throughout distribution, but no VAT is charged on redemption. In contrast, multi-purpose vouchers are VAT-free through distribution, but are subject to VAT at redemption. For the multi-purpose voucher, the redeemer—the shop—must account for VAT. If they know the amount paid for the voucher, they should account for the VAT on that value. If they do not know the amount paid, they should account for VAT on the face value of the voucher.

Because the activities of any distributor of multi-purpose vouchers are disregarded for VAT purposes, there will be certain restrictions on the extent to which they can reclaim VAT incurred on related costs. I hope that the Committee is following this very closely, because it is an extremely important series of elaborations on how these vouchers work. HM Treasury and HMRC have consulted with the relevant businesses represented, and HMRC will be clear in guidance on how the rules will work.

The two new clauses would require two reviews by the Government within three months of the passing of the Act. New clause 8 concerns the impact of the provisions on the circulation and distribution of vouchers in the UK and the EU. New clause 9 concerns potential revenue and other impacts that could arise if UK law were to diverge from EU law.

Collecting VAT when vouchers are used is always complex, and it will inevitably take some time for the new rules to bed in. Throughout the negotiations about the changes in the underlying EU law, the Government were in regular contact with the UK businesses affected by the changes, and it was generally felt that this option was the best of the various options identified. Officials have worked hard with businesses to ensure as smooth a transition as possible, and HMRC has offered to be pragmatic as businesses get to grips with the new system.

I can reassure the Committee that the Government will continue to monitor the effects of the change and other developments in this area, including impacts on revenues. With regard to divergence from EU law, it is far too early to consider such impacts, given that we do not yet know the future agreement with the EU and what it will look like in respect of the VAT system more generally. However, I stress to the Committee that a key advantage of this measure is to ensure a level playing field across the EU, so that UK businesses are not disadvantaged by different rules in other EU member states, which they would need to understand and which could result in double taxation or—in terms of Exchequer impact—no taxation at all. I therefore ask the Committee to reject the new clauses, and I commend the clause and schedule 16.

[Jonathan Reynolds]

I begin with a word of apology to the hon. Member for Aberdeen North for mixing up my Aberdeen constituencies. I can only say to her that in a former Parliament a former Member for Aberdeen South and I were both shadow Energy Ministers, and that at some level I must be missing him and I cannot bring him back. However, that is no excuse for mixing up the two parts of Aberdeen.

Clause 51 relates to gift vouchers and the transposition of an EU Council directive clarifying the consistency of treatment of vouchers. I thought that this was more interesting than it sounded in the explanatory notes; the Minister has done a very good job on that. As he said, this Christmas, when people are out shopping, not many of our fellow citizens will understand that vouchers pose a challenge to HM Treasury in charging VAT, because when a customer buys a voucher, should we charge the VAT on that, or should we charge it when they spend the voucher?

As the Minister said, the discrepancy is further complicated because there will be some stores that sell gift vouchers that then offer zero-rated VAT items, such as children’s clothes. I understand that there have been mismatches in the way that different member states have approached these questions, and that this situation has potentially led to double taxation or no taxation at all across borders. That is the background to the introduction of the EU vouchers directive agreed in June 2017.

The Minister outlined the new regime of single-purpose vouchers and multi-purpose vouchers; I do not think that anyone wants me to repeat that. However, it makes sense that there is clarity on vouchers, finally, and that the risk of there being either double taxation or intra-EU taxation is avoided.

However, professional bodies have raised a number of issues, which I would appreciate some further detail from the Minister on. It is my understanding that there is still no new guidance available from HMRC on this measure, even though implementation is from 1 January 2019. As I mentioned in relation to the previous clause, VAT is a complex and time-consuming area for businesses, so they need as much advice and notice about it as possible. The timing of this implementation, in January, will also coincide with one of the peak times of the year for voucher redemption—hopefully, all of us will get a voucher for Christmas—and that could create a further burden. Gift vouchers are an important part of revenue for UK businesses.

This is a very challenging time for the high street, so the Opposition are mindful that we do not want to create any additional administrative barriers for smaller shops as they develop their businesses. As the Chartered Institute of Taxation has highlighted, shops will need to be able to identify the date of purchase for vouchers, to assess whether they need to declare VAT, given that the rules will be changing. It is surely important, therefore, that they receive as much support as possible from HMRC through the process and receive as much guidance as they can. Those technical details are a concern, and I would appreciate further context from the Minister on how they might be mitigated.

Clause 51 also raises a wider issue, given that it relates to the transposing of EU laws into the UK and our future compliance with EU VAT regulations. Historically, it has not been possible for the UK to fully diverge from the EU on setting rates for VAT. VAT revenues to the Exchequer are a crucial part of the UK’s tax landscape, and we need to know how crashing out without a deal or abruptly pulling out of the customs union will affect how we set VAT rates in future. That is why Labour has tabled new clauses 8 and 9, in relation to schedule 16, which is associated with this clause. New clause 8 would oblige the Government to

“commission a review of the expected impact of the provisions of Schedule 16 on the circulation and distribution of vouchers in—

(a) the United Kingdom, and

(b) the European Union.”

Vouchers are an important part of business for UK retailers. As we leave the EU, questions should be raised about whether this decision on compliance will still work best for both sides, as it has been drafted on the basis that the UK is a member of the customs union. Given that circumstances will change quite dramatically in future, we must be mindful of how this will impact on ongoing changes.

Subsequently, new clause 9 mandates the Government to produce a review of the potential divergence from EU policy of the VAT treatment of gift vouchers, so that we can properly assess its implications. Supporting our high street in today’s challenging environment is a priority for all of us. I therefore urge Members to vote for our new clauses, to make sure that we create the best possible taxation framework for vouchers and help our retailers to succeed.

[Mel Stride]

I will be brief, but will hopefully answer the questions that the hon. Member for Stalybridge and Hyde has posed. First, as regards guidance, these measures were consulted on widely with UK businesses and stakeholders, and HMRC has recently shared draft guidance with stakeholders for comment. HMRC’s guidance was published yesterday, so that is now in the public domain. Of course, if the hon. Gentleman has any particular observations on that, I would be happy to take representations from him. The Government have also given businesses advance notice of the changes. A consultation document was published last December, HM Treasury and HMRC have been in constant discussion with businesses, and we published the draft legislation last July on L-day, with an impact assessment last month.

My final point relates to the hon. Gentleman’s comments about future VAT arrangements in the context of our departure from the EU. Of course, at this stage, we do not know exactly what those will look like. However, the Government have made a general statement that we are seeking to have arrangements that are broadly in line, so that we do not have very dramatic changes when we depart from the European Union.

Question put and agreed to.

Clause 51 accordingly ordered to stand part of the Bill.

Schedule 16 agreed to.

Clause 52

Groups: eligibility

Question proposed, That the clause stand part of the Bill.

[The Chair]

With this it will be convenient to discuss the following:

Amendment 93, in schedule 17, page 305, line 28, at end insert—

“Part 3

Review

“16 (1) The Chancellor of the Exchequer shall commission a review on the impact of the provisions in this Schedule on the number of individuals and businesses entering into VAT groups.

(2) A report of the review under sub-paragraph (1) must be laid before the House of Commons before 1 April 2020.”

This amendment requires a review of the impact of this measure on the number of individuals and businesses entering into VAT groupings for the purpose of tax planning, and for that review to report by the end of the tax year 2019-20.

Amendment 94, in schedule 17, page 305, line 28, at end insert—

“Part 3

Review

“16 (1) The Chancellor of the Exchequer shall commission a review on the potential revenue changes if domestic law were to diverge from European Union law in relation to VAT groups.

(2) A report of the review under sub-paragraph (1) must be laid before the House of Commons within 3 months of the passing of this Act.”

This amendment requires a review on the potential revenue changes if domestic law were to diverge from European Union law in relation to VAT groups.

That schedule 17 be the Seventeenth schedule to the Bill.

[Mel Stride]

Clause 52 makes changes to the Value Added Tax Act 1994 to allow certain non-corporate entities such as partnerships and individuals to join a VAT group. VAT grouping is an important VAT accounting simplification for UK businesses. It allows companies within the same corporate group to operate under one VAT registration and submit a single VAT return. Members of a VAT group can share goods and services with each other without the need to account for VAT. This helps businesses operate effectively and saves time and resource, for both businesses and HMRC.

Clause 52 will simplify VAT accounting arrangements for many UK businesses and ensure that the UK’s VAT grouping rules operate effectively. It is up to the UK Government to determine how VAT grouping rules operate, to ensure that they work effectively for UK businesses. They must adhere to EU VAT principles when doing so. Following a judgment of the Court of Justice of the European Union in 2016, HMRC held a consultation to determine which entities should be eligible to join VAT groups. HMRC listened carefully to the representations made during this consultation and held detailed discussions with VAT expert stakeholder groups to ensure that the changes to VAT grouping rules work for businesses and HMRC, including publishing draft legislation in July this year.

The changes made by the clause will help reduce VAT accounting burdens for many businesses. Under current rules, only corporate bodies can join a VAT group. We will amend the Value Added Tax Act 1994 to allow non-corporate entities such as partnerships or sole traders to join a VAT group, where those entities control all other members of the VAT group. Although these changes will bring administrative benefits for businesses, it is important that the rules are not misused, so we will update existing anti-avoidance rules via a statutory instrument to ensure that no taxpayers use VAT grouping to avoid VAT. The changes made by the clause are expected to have a negligible impact on the Exchequer.

Amendments 93 and 94 would require the Chancellor to commission a review on the impact of these changes to individuals and businesses and a further review on the UK tax revenue impact of any future divergence from EU VAT grouping rules. The Government do not intend to accept these amendments. The VAT grouping changes have been made following extensive consultations by HMRC. HMRC’s response to the consultation was published in December 2017.

With respect to a review of the UK tax revenue impact of any future divergence from EU VAT grouping rules, it is worth noting that although the UK must follow EU VAT law principles, the UK Government already have the ability to tailor UK VAT grouping rules to our own specifications. If any future changes are made to UK VAT grouping rules, they will of course receive parliamentary scrutiny at that time. I do not consider, therefore, that either of the proposed reviews is required.

15:31

[Jonathan Reynolds]

I will speak briefly to clause 52, schedule 7 and our related amendments. As the explanatory notes say, UK VAT grouping already allows for two or more bodies corporate, such as limited companies or limited liability partnerships, to register collectively as a VAT group if they are both established in the UK and under common control. Their VAT return is considered as one and, therefore, supplies between the individual subsidiaries are disregarded for tax purposes.

However, a judgment from the European Court of Justice in September 2015 on a case relating to a shipping company widened this definition beyond bodies corporate. After consultation, this has been extended to a wider definition, including non-corporate entities such as partnerships and individuals that have a business establishment in the UK and control a body corporate.

We are awaiting further guidance from HMRC in relation to non-corporate entities, which we are told by the Government will be published after Royal Assent. Outstanding issues remain that the guidance will urgently need to address. The Chartered Institute of Taxation, which has been helpful in providing briefings on the VAT-related issues in the Bill today, has outlined a number of these questions already. We need to know whether partnerships could have partners that were both UK and non-UK resident, and whether a partnership that had UK business premises with entirely non-resident partners would be eligible. How would the ongoing challenge of the physical presence test be monitored and policed? That is especially pertinent given HMRC’s constrained resources.

Equally, it is important to understand how ongoing eligibility for partnership will be assessed. Questions that need to be answered include whether there should be an annual declaration or tick box on the VAT return to encourage regular self-assessment. Will VAT groupings be cross-referenced with partnership or sole trader tax returns within that group to ensure accuracy? Another issue raised by the Chartered Institute of Taxation is whether partnership and sole trader tax registration details should be used to tag and monitor which partnerships or sole traders were within a VAT group, both for HMRC administration and for taxpayers’ reference when dealing with such entities and checking VAT registrations.

The Government’s 2017 consultation document stated:

“The government recognises that any widening of grouping will come with a revenue cost unless it excludes businesses that make exempt supplies. This is not something that the government is planning to do, so any potential change must be assessed to fully understand the effect on UK revenue.”

I appreciate that the Minister’s comments appeared to contradict that, but that also appears to be contradicted by the wording in the consultation document last year.

The consultation also says:

“Whilst we agree that there may be implications with joint and several liability for certain entities, the government has no immediate plans to make any changes to joint and several liability rules.”

Can the Minister confirm that both statements still apply 12 months later, and that there is no intention to change joint and several liability rules now or widen grouping in a way that impacts on revenue?

Ensuring compliance and that revenue is fully collected must be our priority. It is noted that, in the 2017 consultation, the majority of respondents agreed with HMRC’s view that an entity could be excluded to prevent evasion, avoidance and abusive practices. However, given the large VAT gap in the UK, the Opposition believe we must be vigilant to any potential opportunities that arise that can be exploited with regard to VAT treatment by incentivising individuals or businesses to enter into groups for tax purposes when they might not otherwise have done so. That is why Labour has tabled amendment 93; I encourage Committee members to vote for it. It mandates the Government to commission a review on the impact of provisions made on the number of individuals entering into VAT groups for the purposes of tax planning by the end of the tax year 2019-20. That will help us to identify quickly whether a distorting effect has been created by the legislation.

The second, wider issue in relation to the clause and schedule is how our own changes in VAT legislation will be impacted by our departure from the EU. Amendment 94 would require a review of the potential revenue changes if domestic law were to diverge from EU law in relation to VAT groups. As we outlined when discussing clause 51, we must take stock of the full impact as the Government propose our departure from the customs union. That will have a huge bearing on how we collect VAT, and potentially VAT revenues, if we choose to deploy flexibility in what we do and do not accept. This measure is no exception and for the purposes of scrutiny it is critical that we have a full understanding of its impact on the UK.

[Kirsty Blackman]

It is not our position that the UK should leave the common VAT area, but we support both Labour amendments, because it is sensible that we have more information about all these provisions, so that the House can take better-informed decisions.

[Jonathan Reynolds]

I am extremely grateful for the hon. Lady’s intervention and entirely agree with it.

On the access of financial services to the single market once we leave the EU, under the terms of what the Government have negotiated—that single market access will almost certainly be denied unless the equivalence provisions prove adequate, although most people expect them not to be—the Government’s advice to firms in the UK is to set up subsidiaries in the EU. It was reported to me in meetings yesterday in the City that there is concern that when those subsidiaries are created, the connected UK entities will not be able to enter VAT groups in the UK, which would therefore trigger a substantial tax liability in order for firms to comply with the Government’s own advice on market access to the EU. The Minister may not be able to answer that now, but I want to put it on the record.

I call on all Committee members to support both amendments today so that we can get a clear and full picture of the wider impact of the measures on the future VAT policy approach outside the EU and on closing our own VAT gap here in the UK.

[Mel Stride]

The hon. Gentleman raised a large number of questions, most of them very specific and quite technical, not least around the treatment of UK resident individuals in the context of VAT grouping, as opposed to non-residents in a similar situation, where perhaps a business has—my terminology—a permanent establishment here, but is run by non-residents. He also made various points about the administration of VAT groups. I will write to him about those issues and the other points he raised in that part of his contribution. He asked a specific question about whether we are updating joint and several liability rules for these changes. The answer is that we are not. HMRC will continue to monitor the rules, of course, to ensure that they work effectively for UK businesses.

The final point that the hon. Gentleman raised related to our future relationship with the European Union. His specific question, as I understand it, was about compliance with the financial services arrangements that might be in place once we have left the European Union: if, as a consequence of that, a UK financial services business had a subsidiary or another operation within the EU27 as opposed to here, would that prohibit that particular operation from participating in a VAT group with the UK domicile concern? I have absolutely no idea what the answer to that is, but I did at least understand his question and I am happy to look into it and get back to him.

Question put and agreed to.

Clause 52 accordingly ordered to stand part of the Bill.

Schedule 17

VAT groups: eligibility

Amendment proposed: 93, page 305, line 28, at end insert—

Part 3

Review

16 (1) The Chancellor of the Exchequer shall commission a review on the impact of the provisions in this Schedule on the number of individuals and businesses entering into VAT groups.

(2) A report of the review under sub-paragraph (1) must be laid before the House of Commons before 1 April 2020”. —(Jonathan Reynolds.)

This amendment requires a review of the impact of this measure on the number of individuals and businesses entering into VAT groupings for the purpose of tax planning, and for that review to report by the end of the tax year 2019-20.

Division 25

Ayes: 9

---

Labour: 7
Scottish National Party: 2

Noes: 10

---

Conservative: 10

Amendment proposed: 94, page 305, line 28, at end insert—

Part 3

Review

16 (1) The Chancellor of the Exchequer shall commission a review on the potential revenue changes if domestic law were to diverge from European Union law in relation to VAT groups.

(2) A report of the review under sub-paragraph (1) must be laid before the House of Commons within 3 months of the passing of this Act.” —(Jonathan Reynolds.)

This amendment requires a review on the potential revenue changes if domestic law were to diverge from European Union law in relation to VAT groups.

Division 26

Ayes: 9

---

Labour: 7
Scottish National Party: 2

Noes: 10

---

Conservative: 10

Schedule 17 agreed to.

Clause 53

Rates of duty on cider, wine and made-wine

[Peter Dowd (Bootle) (Lab)]

I beg to move amendment 96, in clause 53, page 34, line 14, at end insert—

“(5) The Chancellor of the Exchequer must review the revenue effects of the changes made to the Alcoholic Liquor Duties Act 1979 by this section and lay a report of that review before the House of Commons within six months of the passing of this Act.”

This amendment would require the Chancellor of the Exchequer to review the revenue impact of the revised rates on cider and wine.

[The Chair]

With this it will be convenient to discuss the following:

Amendment 103, in clause 53, page 34, line 14, at end insert—

“(5) The Chancellor of the Exchequer must review the expected effects on public health of the changes made to the Alcoholic Liquor Duties Act 1979 by this section and lay a report of that review before the House of Commons within one year of the passing of this Act.”

This amendment would require the Chancellor of the Exchequer to review the impact of the revised rates on cider and wine on public health.

Amendment 97, in clause 54, page 36, line 12, at end insert—

“(5) The Chancellor of the Exchequer must review the effect on the cider industry of the changes made to the Alcoholic Liquor Duties Act 1979 by this section and lay a report of that review before the House of Commons within six months of the passing of this Act.”

This amendment would require the Chancellor of the Exchequer to review the impact of Clause 54 on the cider industry.

Amendment 98, in clause 54, page 36, line 12, at end insert—

“(5) The Chancellor of the Exchequer must review the expected effects on public health of the changes made to the Alcoholic Liquor Duties Act 1979 by this section and lay a report of that review before the House of Commons within one year of the passing of this Act.”

This amendment would require the Chancellor of the Exchequer to review the impact of Clause 54 on public health.

Amendment 99, in clause 54, page 36, line 12, at end insert—

“‘(5) The Chancellor of the Exchequer must review the expected effects in each part of the United Kingdom and each region of England of the changes made to the Alcoholic Liquor Duties Act 1979 by this section and lay a report of that review before the House of Commons within one year of the passing of this Act.

(6) In this section—

“part of the United Kingdom” means

(a) England,

(b) Scotland,

(c) Wales, and

(d) Northern Ireland;

“regions of England” has the same meaning as that used by the Office for National Statistics.”

This amendment would require the Chancellor of the Exchequer to review the impact of Clause 54 on different parts of the United Kingdom and regions of England.

Clause stand part.

[Peter Dowd]

I am delighted to see you in the Chair, Ms Dorries. Clause 53 provides for an increase in line with inflation based on the retail prices index in the rates of excise duty charged on all wine and made-wine with a strength at or below 22% alcohol by volume—ABV—and sparkling cider and perry exceeding 5.5% ABV but less than 8.5% ABV. The changes will come into effect on and after 1 February 2019. As we approach Christmas, we felt it was important to scrutinise this measure closely: poring over the matter, one might say. The Government have ensured that enjoying a nice glass of rouge by the fireside over a game of charades—they know a lot about charades—will cost a little bit more. Never fear though, we have tabled a number of amendments to clause 53, which I will address in turn.

It is important to note the context of the rates. Duties on alcoholic drinks are forecast to raise £11.5 billion this year, split between beer and cider at £3.7 billion; wine duties, £4.3 billion; and spirit duties, £3.5 billion. The House of Commons Library provides us with a potted history of recent developments on the matter of excise duty, an area of strong interest to the great British public.

15:45

In his spring statement—the Budget—the Chancellor announced that excise duties for alcohol would be increased in line with inflation with effect from 13 March. Provision to set duty rates was made by the Finance Act 2017 and introduced before the general election of happy memory. In addition, the Government launched a consultation on options for reform, to ensure that duty rates better corresponded to alcoholic strength, specifically a new duty rate band to target cheap, high-strength white ciders, and a new lower-strength still wine band to encourage the production and consumption of lower-strength wines.

In the autumn Budget, the Chancellor confirmed that the Government would introduce a higher-rate duty on white ciders from 2019, while duty rates on alcohol would be frozen. Freezing duties is estimated to cost between £225 million and £240 million a year from 2018-19, with provision to set the new duty rate band on white cider included in the Finance Bill introduced after the autumn, “later this year”, as quoted.

That new provision for white cider is presumably contained in clause 54, although we have some queries, which I will come on to. I would first like to note the Government’s use of RPI in this instance. It would appear that the Government apply different inflationary indices to policies, depending on which would provide them with either the most income or with the least expenditure.

There is a question of transparency. We have seen that with students forced to take loans indexed using RPI, saddling them with significant debt. I suspect that makes the loan book more attractive. Meanwhile, RPI was scrapped in favour of the lower consumer prices index for the indexing of public sector pensions, meaning our public sector workers are £12,000 worse off when they retire.

Will the Minister set out exactly why RPI was chosen as the appropriate index in this instance? The Office for National Statistics recently described RPI as “a very poor measure”, yet the Government still apply it to all revenue-raising policies, which is strange. Perhaps the Government will add a cross-departmental review of inflationary indexation to the very long list of reviews that make up much of their domestic policy agenda. No wonder they do not want to take any of our reviews; I suspect they have enough of their own to be getting on with.

For now, we should fully imbibe the implications of amendment 96 and make a sober judgment on whether the Government have taken the correct approach to this issue. The amendment would require the Chancellor of the Exchequer to review the revenue impact of the raised rates on cider and wine. I have looked closely at the policy papers for the Bill and, once again, could find no indication of the revenue that the Government hope to raise from the RPI-indexed inflationary increase. Perhaps the Financial Secretary would inform me about that; he might have a little bit more divine inspiration, as I move on. It could be that the Government are worried about how the press might treat such a figure. Again, it is a matter of transparency. We have been forced to raise the issue numerous times in our debates on the Bill; there is a total lack of information [Interruption.] I am not that boring, am I? Give me a break. It is okay; it is better than the barracking I usually get.

I have referred to the “Better Budgets” report from the Institute for Government and the Chartered Institute of Taxation, which makes clear the need for more information provided in good time. Once again, we are being asked to spend hours and hours in Committee scrutinising the barest sets of facts, with no hope of meaningful amendment. That is why we have tabled an amendment calling for a review, making a wholly uncontroversial request for costings of the higher duties that have been introduced. Sadly, the Government no longer seem to be capable of providing that basic information, so I ask again: will the Minister provide us with costings for this measure, or commit to our review?

I will refer, if I may, to amendment 103, which I think we will debate in due course. That amendment, tabled by the Scottish National party, would

“require the Chancellor of the Exchequer to review the impact of the revised rates on cider and wine on public health.”

That is a very important matter, and we would support it; we have tabled a similar amendment. In December 2016, Public Health England published a report on the public health effects of alcohol consumption in the United Kingdom. That study found that

“Alcohol is now more affordable and people are drinking more than they did in the past. Between 1980 and 2008, there was a 42% increase in the sale of alcohol. Despite recent declines in sales, as a nation we are still drinking too much, with over 1 million hospital admissions relating to alcohol annually.

The economic burden of health, social and economic alcohol-related harm is substantial, with estimates placing the annual cost to be between 1.3% and 2.7% of annual GDP. Alcohol related deaths affect predominantly young and middle aged people; as a result alcohol is a leading cause of years of working life lost”

in this country. Professor Kevin Fenton, National Director for Health and Wellbeing at Public Health England, has said:

“The harm alcohol causes is much wider than just on the individual drinker. Excessive alcohol consumption can harm children, wreck families, impact on workplace colleagues and can be a burden and drain on the NHS and economy. It hits poor communities the hardest.”

In fact, my hon. Friend the Member for Sefton Central (Bill Esterson) has on many occasions raised the issue of the damaging and tragic effects of alcohol on children in the womb through foetal alcohol syndrome. The report goes on to say:

“Since 2008, there has been a drop in total alcohol consumption but there has not been a corresponding drop in the level of related harms. The evidence review makes clear that alcohol-harm disproportionately affects the poorest communities, even though on average they drink no more than more affluent groups.”

Other findings suggest that

“most adults in England drink alcohol—more than 10 million people are drinking at levels that increase the risk of harming their health;5% of the heaviest drinkers account for one third of all alcohol consumed; alcohol is the leading cause of death among 15 to 49 year olds and heavy alcohol use has been identified as a cause of more than 200 health conditions; alcohol caused more years of life lost to the workforce than from the 10 most common cancers combined—in 2015 there were 167,000 years of working life lost; the evidence strongly supports a range of policies that are effective at reducing harm to public health while at the same time reducing health inequalities—reducing the affordability of alcohol is the cost effective way of reducing alcohol harm”.

That evidence has to be considered in the context of the Government’s long-standing policy of alcohol duty cuts and freezes. The House of Commons Library describes that in some detail, which I will not go into, but it is well worth having a look at the report. Those cuts, it is worth noting, come at some expense during a time of austerity, and we cannot ignore the fact that they could further contribute to the concerning picture set out in the report by Public Health England. The Economic Secretary indicated that there was a requirement for evidence, but the evidence in this regard is resounding: a public health approach to alcohol duties will not only raise revenue for the Exchequer, but reduce the harm caused by alcohol in our society.

[Bambos Charalambous]

My hon. Friend is making an excellent and, shall I say, spirited speech. Does he agree that the Government have totally ignored the health effects of alcohol consumption in the way they have implemented alcohol duties?

[Peter Dowd]

It leads me to believe that the Government have not paid enough attention. That is why we want to have a look at it in the round and why we want a review. Let us see the evidence. If the evidence indicates my hon. Friend’s contention, as I think it will, we would need to do something.

Unfortunately, despite the move to begin to increase duties on wine and cider as set out in clauses 53 and 54, it seems that the Government’s policy on wider alcohol duties reflects continuation rather than a break with the last eight years. Will the Minister confirm that it remains the Government’s policy to increase only those alcohol duties included in the clause and to freeze all those not included? That being the case, does it not seem that the attempt in clause 54 to increase the price of mid-strength cider is a mere sticking plaster on the Government’s wider policy of ignoring the harm to the public’s health caused by cheap alcohol? In other words, when it comes to applying this approach across all duties, it seems that they bottled it. Could it be that they choose to grab a quick Budget headline once a year instead of taking an evidence-based approach to alcohol harm like that adopted by the last Labour Government?

I question the logic of creating an additional rate of duty to ciders up to only 7.5% alcohol by volume. A cursory look at the white cider market suggests that many of the products that the Government seek to make more expensive are currently listed at exactly 7.5% ABV, which is the upper band of the new duty applied by the clause. Clearly, while those ciders would be covered by the new band of duty, it would take only an additional spoonfull of sugar, as the saying goes, to push them up to 7.6% ABV, which is currently covered by the higher rate of duty that is applied to so-called high-strength ciders. Would it not have been a better approach for the Government simply to reduce the lower band of excise applied to higher-strength ciders to ensure that that duty instead applied from 6.9% ABV all the way up to 8.8% ABV? Will the Minister expand on what logic has been pursued by the Government and whether it might incentivise the industry to take more decisive action to reduce the strength of their white ciders or begin to diversify their products?

Amendment 97 would require the Chancellor of the Exchequer to review the impact of clause 54 on the cider industry. The point is to see how far the Government have tried to work with industry to develop and implement a more public health-oriented approach to their products while minimising the impact such an approach has on the industry.

[Anneliese Dodds]

Is my hon. Friend aware that there used to be a differential regime for small-scale cider producers, whose product was often of far greater quality than the kinds that are often linked to alcohol overuse? That no longer exists, partly because of changes at EU level. Surely we need to know more from the Government about what they are doing to support that part of the industry as well as clamp down on the production of very high-volume, high-alcohol product.

[Peter Dowd]

My hon. Friend makes a pertinent point and I am sure the Minister was listening. What have the Government done to work with producers to transition to less harmful products while protecting jobs and livelihoods? That could provide an opportunity for the industry to move into other cider products—perhaps those not so reliant on glucose and corn syrup and using the cheaper pomace, all of which presumably add to the negative health effects. I hope the Minister will speak to the work that the Government are getting on with in that regard.

16:00

Amendment 98 would require the Government to review the public health effects of clause 54. I have spoken about the links between alcohol and public health in relation to amendment 103. Amendment 98 seeks to look at the measures set out in clause 54 in the context of the Government’s wider policies on alcohol. Is it enough to simply address mid-strength ciders while continuing to freeze wider alcohol duties? Will this have much of an impact in the context of the Government’s wider policies? That is what we hope to winkle out through this amendment and it will be an important exercise for the Government to undertake. If they are committed to developing policy based on evidence, I do not see why they would not wish to undertake such a review. It can only help to provide a clear picture.

I will not be here on Thursday, so I will not have much of an opportunity to quote Cicero. He identifies that drunkenness on wine, like disease, must be curbed. He also said—I think he was referring to the Ministers—that the wise mind is always devoid of vice and never swells up. That will be their epitaph if they listen to me today.

Finally, amendment 99 looks at the regional impacts of the new duty. We know the cider industry in the UK is concentrated in certain regions—west country scrumpy, for example, Buckinghamshire and Herefordshire, the Welsh seidr and even the Channel Islands, which have had a cider tradition stretching back to the middle ages. In fact, the Minister in those days may have been drinking that sort of Channel Islands cider. What work has the Treasury done to assess the impact of changes to excise duty on production in those regions? That is important and another element of regional economies and regional disparities. Challenging the prevalence of white ciders may have a positive effect on some regional manufacturers while others may suffer as a result. It is important to understand the changes if we are to continue to support British cider producers across the areas I have mentioned and beyond. [Interruption.] Again, I am having bad luck with people moving out of their chairs. It is a trend.

[Mel Stride]

In 10 minutes you will be on your own.

[Peter Dowd]

As long as that? Ten minutes? My word.

I should point out that, under a more active Government—one not simply going through the motions—these measures would already have been taken into account, acted upon and been on offer for proper scrutiny during this debate. Nevertheless, I hope the Minister will see the benefits of the review as set out in our amendment and agree that it is worth while—or that Members will choose to support amendment 98 to see that it is implemented. That brings our amendment on this particular matter to a close. Cheers.

[Kirsty Blackman]

I rise to speak to amendment 103 in my name and that of my hon. Friend the Member for Paisley and Renfrewshire South, but I would also like to speak a little more widely about the clause and the Labour amendments. First, I would like to ask the Minister a question about the post duty point dilution, which was in the Red Book. Hopefully, he can answer or get inspiration during the course of the debate. The changes do not appear to be in the legislation, so it would be useful if the Minister could explain when the legislative changes to post duty point dilution will take effect. I understand that the hope is that it will be put into legislation to be enacted in April 2020, but it would be useful if we could have an idea of the legislative process to ensure that those changes are made. I have been lobbied heavily on this by one of my constituents. I know it is important to a lot of people and that the Government have to their credit committed to making changes in the autumn Budget 2017.

Returning to our earlier discussion, I am not clear what the Government are trying to do with the changes to alcohol taxation. Are they trying to incentivise good behaviour; are they trying to disincentivise bad behaviour; or are they trying to generate revenue for the Exchequer? It is important for the Government to clarify that and accept the Labour amendment on the revenue impact on the Exchequer and on public health. That would make a big difference, because we would be clear about the Government’s intentions and what the Government expect to achieve.

On public health, people who want to get drunk quickly often drink high-strength ciders. It is important the changes focus on people who are not drinking for pleasure in the main, but who are drinking to get as drunk as they possible can. Those are the alcohol deaths we are trying to combat in Scotland with the new minimum unit pricing we introduced, which is a clear and well-intentioned public health change. Minimum unit pricing is all about making sure that high-strength alcohols that can be bought very cheaply are increased in price, so that people cannot get hold of them as easily. We predict that we will see a reduction in alcohol deaths as a result of the changes to legislation in Scotland.

What do the Government expect will be the impact of their legislation, particularly the extreme impact on people who are dying from alcohol misuse? What numbers do they expect to see as a result of the changes? If the Government accept Labour’s amendments, it would be useful if the review included the number of people whom they expect to save so that we can measure them against that.

Lastly, it is important that the Government tax this stuff and increase the tax rates as inflation increases. We want the Government to take a step back and have a holistic look at the entire system and explain why they are taxing things in the way that they are, rather than tweak and bodge and make changes year on year, as often happens in this place, so that we end up with something that is unwieldy and does not fulfil the intentions of the Bill in the first place, let alone the intentions of the world as we see it. Will the Minister provide answers?

[Sir Robert Syms]

The Government have sensible policies on this. We debated an amendment earlier today about securing jobs in the North sea when there are relatively few jobs on oil rigs. The hospitality industry is one of the biggest employers in the United Kingdom. It is also very important for the tourist industry. The Government have been constantly keeping taxes under review to see what gets a reasonable amount of income and what is fair for consumers.

We also have to understand that we have been through a difficult economic period and incomes have not risen as much as one would like. One of the disadvantages of putting up some of these prices is that it will affect not middle class people, but some of those on the lowest incomes who have every right to enjoy a drink. I therefore think that the Government policy is perfectly sensible.

[Kirsty Blackman]

I agree that the hospitality industry is incredibly important, particularly to tourism. However, the oil and gas industry supports 135,000 jobs and is also very important to the livelihoods it supports.

[Sir Robert Syms]

I am sure it is, but I suspect the hospitality industry is 10 times that. The other factor about the drinks industry generally is that it is very regionally diverse, with the scotch industry in Scotland, and wine, cider and beer producers. We all have representations from the owners of breweries, which employ people and are sometimes very important parts of the local economy. We have all had representations from people who run public houses, which are also central to the community. One of the worst things that has happened over the past few decades is the number of public houses that have closed, which has had a material impact on many people and communities. This is a matter of balance, and the Government may be wrong or they may be right, but I think they are more likely to be right because their approach is more likely to secure jobs in the hospitality and brewing industries, and to achieve a proper balance so that people can enjoy a meal or a drink out.

There is a serious alcohol issue, but the producers of wine and beer label things very clearly to show the strength of alcohol. There is a strong “Drinkaware” campaign, so it is not difficult for people to find out the impact of alcohol, but we know there is a hard core of heavy drinkers, many of whom use A&Es and ambulances. It costs about half a million pounds a year to keep an ambulance on the road, and many of them are disproportionately used by people who abuse alcohol. The focus, if there is any focus, ought to be on addiction services and trying to intervene with those who abuse alcohol rather than on the vast majority of people who enjoy a drink.

The hon. Member for Bootle, in his amusing speech—we will miss him on Thursday when he is no doubt raising a cheer to Cicero in whatever he is doing—noted that the industry contributes substantially to the Treasury. Some of those billions of pounds have to go to the NHS because of drinking, but the industry also generates a lot of money for good causes and things that the Government need to provide.

This is a matter of balance, and I think the Government have it right. There may come a time when prices have to go up. If incomes start to rise more substantially—we hope that will be a factor in a few years and that there is evidence that pay is picking up a bit—it may be time to review the taxes, but I think the Government have got this one right.

[Robert Jenrick]

I gather there may be a vote in a few moments’ time, but I will begin by addressing, in no particular order some of the points that have been raised by the hon. Member for Aberdeen North. We are interested in the Scottish and indeed the Welsh Government’s actions on minimum unit pricing. It is fair to say that the jury is still out on whether that has been effective, but we will be watching with interest, as will the Department of Health and Social Care and Public Health England, and that will inform the decisions we take at future Budgets.

The hon. Lady asked about post duty point dilution. This is an issue that she has rightly highlighted, and a number of the producers who are likely to be affected by this and who are based in the UK will no doubt be asking the question she has asked. We intend to give this further consideration and lay draft legislation on L-day next year, in the early summer of 2019, with a view to legislating on it in the autumn Budget 2019 and its coming into force from April 2020. While I have spoken to some of the small number of British producers who will be affected and I note their concerns, this is a question of fundamental fairness in the duty system.

[Kirsty Blackman]

Perhaps I did not express myself very well. My constituents are lobbying for the change to be made; they are not lobbying against the change being made. I was asking when this would come in, because they are hoping for it to come in.

[Robert Jenrick]

It is coming in as swiftly as possible, although because of the impact on the small number of British manufacturers, we have given them some time at least—until April 2020—to make any adjustments they might need to.

My hon. Friend the Member for Poole advanced what has been our approach to this issue—a nuanced one that helps those on low incomes to enjoy a drink, particularly at Christmas time. We are concerned, as he is, about supporting the British pub industry. As he says, the number of pubs has declined significantly. It is still declining, although it has stabilised somewhat in the last year or so. We are taking a number of actions, including freezing duties where appropriate, to help to support them.

My hon. Friend also made the point that the drink industry has a significant regional element to it, whether that is the Scottish whisky industry, which is very important to particular regions of Scotland where large numbers of distilleries are clustered in small areas, such as Moray or the areas around Aberdeen, or the cider industry in Herefordshire—where I grew up—and throughout the west country and Wales, which as we have heard has a particular resonance and supports local jobs. We have taken a nuanced approach, but where there are particular interventions that we feel we need to make, as with white cider, we have made them and will continue to make more in the future if that is required.

I now turn to the questions raised by the hon. Member for Bootle in his entertaining speech. I hope, Ms Dorries, that you did not have to reach for a stiff drink in the middle of it, although you might do by the time I have finished. [Laughter.] Well, we are about to talk about the retail prices index and the consumer prices index.

16:15

The Government have historically used RPI. We have committed to moving away from it, but we want to do so in a considered and coherent way, as it has a number of impacts elsewhere on the public finances, including on gilts and pensions. Those impacts need to be considered carefully. We do that on a case-by-case basis as we make decisions in Budgets. I will come to the amount that is likely to be raised in a moment, but had we made the decision to freeze wine, that would have cost the Exchequer about £150 million a year, so these are significant sums.

I will come in a moment to a more detailed explanation of what information is in the public domain. The hon. Gentleman asked me specifically, and a great deal of information in this area is published. Through Her Majesty’s Revenue and Customs we publish quarterly revenue receipts for each of the alcohol duty categories. At both the Budget and the spring statement, the Office for Budget Responsibility forecasts for the rest of the financial year. There is no shortage of information in the public domain in this area. I appreciate that that is not always the case, but I do not think that this area requires further reviews or information.

The hon. Gentleman asked about alcohol-related harms, which we all care about. We want to take a nuanced view. Just because we have, on occasion, frozen some of the duty categories—in this Budget, we have done it for beer, spirits and cider, although not for wine —that does not mean that we are oblivious to those concerns. That area is led primarily by Public Health England and the Department of Health and Social Care. We listen to them very carefully, and they contribute to our thinking as we approach every Budget.

As the Minister responsible for these areas, I met a range of stakeholders in advance of the Budget—not just those who produce alcohols, but those who campaign and are interested in alcohol-related harms, and I did the same for tobacco, for example, where there are, of course, similar concerns. We take those concerns on board, and I believe that the Home Office and the Department of Health and Social Care are currently taking evidence on, and will publish next year, a new alcohol harms strategy, which the hon. Gentleman or other Members might like to take part in.

With respect to the hon. Gentleman’s question about why we chose not to reduce the band for high-strength cider, we wanted to encourage, as I think he does, reformulation through a gradient of duty. It therefore seemed sensible not to tax 6.9% the same as 8.5%, but to create an incentive for producers to reduce through a series of different duty bands. That decision was taken as a result of careful consideration and engagement with the craft cider industry, which he and other hon. Members have mentioned, such as those producers in Somerset and Herefordshire I met to listen to their concerns. We wanted to limit the degree to which they would be adversely affected by the actions of larger producers of white cider. I think we all agree that it is unfortunate that, in the course of taking action against producers of white cider, which carries health concerns, we may inadvertently bring into the same rules those who produce craft ciders, which we all enjoy in pubs, which have a particular importance to certain regions of the country and which employ people in the west country and so on.

As we have heard already, the clauses make changes to alcohol duty rates from 1 February 2019. It was announced in the Budget that the duty on beer, spirits and most ciders would be frozen this year. The duty rates on most wine and higher-strength sparkling cider will rise by inflation to generate funds to pay for vital public services. As we have heard, this industry contributes a great deal to the cost of public services. The clauses also set the new duty rate for mid-strength cider.

With those changes, we continue to support the pub industry, which we believe plays an incredibly important part in British cultural life. I think that view is shared across the House—during the Parliaments in which I have been in the House, it has been a cross-party matter. The British Beer and Pub Association estimates that approximately 30 million adults visit a pub at least once a year, which clearly shows the significant role pubs play in our lives and our communities.

Pubs are important community assets that promote responsible drinking and provide a place for people to socialise, tackling a whole range of other issues, such as loneliness. We therefore took the decision in the Budget to take further action to support the pub industry. Even today, as pubs continue to diversify with products such as food and gin, approximately half of all pub sales are of beer. It continues to play an essential part in pub revenue, so the Government have frozen the duty on a pint of beer, following on from the freeze in beer duty in our autumn Budget 2017. As a result of our action to support pubs, the price of a typical pint of beer is now 14p lower than it would otherwise have been since the beer duty escalator ended in 2013.

I think the hon. Member for Bootle asked whether we have a policy to freeze duties on beer, or on any other category, in the future. The answer is no. The Treasury considers each duty on its own merits as we approach every Budget. There is no suggestion that the freezes in duties on beer, spirits or cider will necessarily continue in future Budgets, but they will be considered on their own merits. As we approach each Budget, those individual decisions will be determined by the arguments that we have already heard about the cost of living, the importance to regional economies and the protection of pubs and other community assets, as well as public health.

The Budget also froze the duty on spirits. As we have already heard, the Scotch whisky industry is one of the great British success stories. Scotch whisky exports were worth more than £4 billion to the British economy in 2017, accounting for around 20% of food and drink exports in the same year. [Interruption.] I am not quite sure what that sound was—a different type of spirit? [Hon. Members: “Cicero.”] It could be the ghost of Cicero rearing his ugly head again, rather than heading straight to Bootle.

The freeze on spirits duty means that the average tax on a typical bottle of Scotch is now £1.54 lower than it would otherwise have been since the spirits duty escalator ended in 2014. Freezes on spirits duty are instrumental in encouraging investment in the sector. We have listened carefully to the stakeholders who campaigned for many months leading up to the Budget and who made the important point that the Scotch whisky industry is essential to the Scottish economy on a range of levels, from employment, innovation and exports to Scotch whisky tourism, which alone is now worth £500 million a year. The freeze on spirits duty will help elsewhere, too, including through support for British gin—a continuing success story that the Government are happy to back, with production and exports breaking records every year and forecast to continue doing so in the near future.

The Budget also announced that the duty on most ciders would be frozen, meaning that a typical pint of cider is now 2p cheaper than it would otherwise have been since the cider duty escalator ended in 2014. As well as offering support to pubs, the freeze goes a long way to supporting the rural economies that we have spoken about. The decision to freeze was also influenced by a desire to support craft cider producers, who would otherwise be inadvertently affected by changes elsewhere, as I have described. Duties on sparkling cider will increase by RPI in line with inflation. [Interruption.]

16:24

Sitting suspended for Divisions in the House.

17:01

On resuming—

[The Chair]

Mr Jenrick, did you want to finish your point?

[Robert Jenrick]

No, I am happy to proceed.

[Peter Dowd]

I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Amendment proposed: 103, in clause 53, page 34, line 14, at end insert—

“(5) The Chancellor of the Exchequer must review the expected effects on public health of the changes made to the Alcoholic Liquor Duties Act 1979 by this section and lay a report of that review before the House of Commons within one year of the passing of this Act.”—(Kirsty Blackman.)

This amendment would require the Chancellor of the Exchequer to review the impact of the revised rates on cider and wine on public health.

Question put, That the amendment be made.

Question negatived.

Clause 53 ordered to stand part of the Bill.

Clause 54 ordered to stand part of the Bill.

Clause 55

Rates

[Peter Dowd]

I beg to move amendment 100, in clause 55, page 36, line 30, at end insert—

“(4) The Chancellor of the Exchequer must review the revenue effects of the changes made to the Tobacco Products Duty Act 1979 by this section and lay a report of that review before the House of Commons within six months of the passing of this Act.”

This amendment would require the Chancellor of the Exchequer to review the revenue impact of the changes to the rates of excise duty on tobacco products.

[The Chair]

With this it will be convenient to discuss clause stand part.

[Peter Dowd]

If hon. Members consult the Treasury’s Red Book published with the Budget, they will see that tobacco duties account for £9.2 billion of revenue. That relates to amendments 100, 101 and 102. It would therefore be accurate to describe tobacco duties as one of the Treasury’s most important revenue streams, as few taxes have consistently contributed such a level of revenue to the Exchequer, but there will be a fall. The fall in the expected receipts from tobacco duties raises questions about their long-term viability as a stable source of revenue for the Exchequer.

What is often overlooked in this discussion is where the revenue raised from increasing tobacco duty actually comes from, particularly given that smoking is no longer as socially acceptable or widespread as it once was. In 2016, those with an annual income of less than £10,000 were almost twice as likely to smoke as those with an annual income of £40,000 or more.

To return to the Treasury forecasts for tobacco duties, it is clear that tax receipts will inevitably fall victim to the success of smoking cessation programmes and the shifting demographics of those who smoke. Smoking prevalence is highest among younger adults: almost 20% of 16 to 34-year-olds smoke, compared with less than 11% of those aged 60 and over. However, younger adults report lower levels of daily consumption. The House of Commons Library found that the prevalence of cigarette smoking tends to be higher in the north of England. For instance, almost 18% of those in Yorkshire and the Humber were smokers, compared with about 14% in the south-west. That regional variation is quite clear and apparent.

Data on NHS stop smoking services in England shows that between April and December 2016, more than 200,000 people set a date to quit smoking and 50% reported successfully quitting at a formal follow-up. Those statistics clearly show that an increasing number of people are quitting smoking, which will inevitably affect the revenue that the Exchequer receives from tobacco duties. It looks as if the changes in clause 55 will exacerbate that, as cost is one of the greatest influences on people to give up smoking, besides health. The Tobacco Manufacturers Association has long complained that the UK’s rates of tobacco taxation are higher than those of any other European country. It is therefore hard to see how much bandwidth the Government have for raising further taxes.

The Opposition welcome the fact that fewer people smoke today than even 20 years ago, but it is clear that the Treasury and Ministers need to begin to consider the long-term viability of tobacco duties, and an alternative source of revenue to replace the £9 billion a year they represent. We are concerned that without forward planning, the Treasury will not be equipped to handle the fall in tobacco receipts and will instead be forced to borrow money or, more likely, to pursue further austerity and cut public services that we rely on. We hope that the Minister will take our request seriously and support the Opposition’s proposal for a review, as well as considering the long-term stability of tobacco duties.

The Opposition amendments to clause 56 would introduce a new excise on tobacco for heating, more commonly known as tobacco for vaping.

[The Chair]

Order. That is a separate debate, so the hon. Gentleman needs to move on to the substance of his amendment.

[Peter Dowd]

Okay, Ms Dorries. In relation to amendment 102, we would require the Government to undertake a review of clause 56 and its impact on public health.

[The Chair]

Order. Clause 56—

[Peter Dowd]

I accept the point that you are making, Ms Dorries. I have moved the amendment and laid out our overall position on tobacco revenues, and on that basis I shall not take up the Committee’s time further.

[Robert Jenrick]

Clause 55 implements changes announced in the Budget concerning tobacco duty rates. My right hon. Friend the Chancellor announced that the Government will increase tobacco duty in line with the escalator. The clause therefore specifies that the duty charged on all tobacco products will rise by 2% above RPI inflation. In addition, duty on hand-rolling tobacco will rise by an additional 1% to bring it to a total of 3% above RPI inflation this year.

The clause specifies with respect to the minimum excise tax—the minimum amount of duty to be paid on a pack of cigarettes—that the specific duty component will rise in line with cigarette duty. It also sets the rate for the new category of tobacco product, tobacco for heating, at the same rate applicable to hand-rolling tobacco. The new tobacco duty rates will be treated as taking effect from 6 pm on the day they were announced, 29 October, with the exception of the rate for tobacco for heating, which will take effect on 1 July 2019.

We recognise the potential interactions between duty rates and the illicit market. The Government have to be careful not to raise rates too far and fast, as that might exacerbate the illicit market. We included an important measure at the time of the Budget: the creation of a UK-wide anti-illicit trade group, bringing in law enforcement and representatives from the devolved Assemblies, and building on the good work done by the Scottish Government. We hope that that will mean we can take forward and intensify our efforts to tackle the illicit trade.

Amendment 100 would place a statutory requirement on the Chancellor to review the revenue effects of changes to tobacco duty, as we have just heard from the hon. Member for Bootle. The Chancellor assesses the impacts of all potential changes in the Budget considerations every year. The tax information and impact note published alongside the Budget announcement sets out the Government’s assessment of the expected impacts. Detail on the revenue impacts is set out in the policy costings document, which is also published alongside the Budget. Both include the expected revenue impact to 2023-24.

In addition, HMRC publishes a quarterly bulletin covering all excise duty receipts. The information that the amendment calls for will already be in the public domain for Members to scrutinise. It is not an area that requires further reviews and information, as there is no shortage of information in the public domain.

I take the hon. Gentleman’s point that, with the use of cigarettes declining, this is an area where we would expect revenues to fall in the years ahead. That is, of course, something that we take into account as we review duty rates for each fiscal event, with our two objectives, which I hope hon. Members will support: the primary objective is to protect public health, but the secondary one is to raise revenue to support vital public services.

I hope that I have reassured the Committee, and I ask that amendment 100 be withdrawn.

[Peter Dowd]

I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 55 ordered to stand part of the Bill.

Clause 56 ordered to stand part of the Bill.

Ordered, That further consideration be now adjourned. —(Craig Whittaker.)

17:12

Adjourned till Thursday 6 December at half-past Eleven o’clock.

Written evidence reported to the House

FB01b Association of Taxation Technicians (clauses 79 and 80: Time limits for assessments, etc)

FB02d Chartered Institute of Taxation (clauses 50 to 52 – VAT)