Exiting the European Union (Value Added Tax)

Alistair Carmichael Excerpts

Wednesday 3rd February 2021 Commons Chamber

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

It is a pleasure to follow the right hon. Member for East Antrim (Sammy Wilson) and, indeed, the right hon. Member for Wokingham (John Redwood). I confess that it was a surprise to hear the right hon. Member for Wokingham say that this was not something that he thought he had voted for. That contrasts somewhat sharply with the clarity of his position in recent years, but he can explain that for himself.

The right hon. Member for East Antrim is right that the arrangements bring an extraordinary level of complexity, and they do create that border down the Irish sea, which just months ago we were assured would never be the case. Of course, any objective observer could see that there was always going to have to be a border somewhere. That is what happens when unions start to be broken up—borders are put in. The border either had to be between the north and the south in Ireland or down the Irish sea, or else we could have chosen to remain part of the customs union. That was a political choice that the Government resolutely refused to make and, as a consequence of that political choice, businesses and private individuals now have to face the sheer range of complexities with which we are having to deal today, some of them even retrospectively. I hope that those who find themselves in that position—I will touch on a couple of constituency examples in a second—will bear in mind that this is not just a matter of administrative arrangements; we are dealing here with political choices.

I want to touch first on the VAT retail export scheme, which ended on 1 January. Under previous arrangements, overseas visitors were able to obtain a VAT refund on items that they had bought in Britain to take home with them in their luggage. The loss of that scheme risks seeing the loss of a significant amount of consumer spending in our economy. The scheme contributed literally billions of pounds to the British economy, helped to create thousands of jobs and ensured that the UK was one of the most attractive international shopping destinations globally. Scrapping it, especially in today’s economic climate, is in our view a huge error.

In the past, we have been able to attract high-spending overseas tourists. It has been a highly successful economic strategy, used by every other European country. International shoppers spend upwards of £6 billion annually in the UK. This has kept our cities on an equal footing with international competitors such as Paris, Milan and Madrid. However, by removing this incentive, we will boost our competitors and detract from the UK’s international appeal.

This is not just about London and Heathrow; the impact will be felt across the United Kingdom. According to the Centre for Economics and Business Research, Edinburgh will face an annual loss of £92 million; Manchester an annual loss of £60 million; Liverpool an annual loss of £32 million; and Leeds an annual loss of £18 million. The effect on jobs will be significant. The initial hit will be on retail and tourism, but that will eventually spill over into related sectors such as hospitality and manufacturing.

Tourism industry bodies warn that 70,000 jobs are in immediate jeopardy throughout the UK, while the CEBR estimate was almost double that. This is a huge and unnecessary risk for British workers and businesses. I pay warm tribute to my hon. Friend the Member for Edinburgh West (Christine Jardine), who, as the MP for Edinburgh airport, has been leading the charge on this issue. It is important that we hear from the Government how they intend to address the consequences of the political decisions that they have taken.

Another point I want to bring to the House’s attention comes from constituents who are, by and large, small single-person or very-few-person businesses seeking to export online. I was approached recently by a knitwear exporter. Knitwear, of course, is culturally and economically very important to Shetland for trade. She tells me that the advice that has been given by HMRC is that a one-stop shop will eventually be available, possibly from 1 July, to deal with the issues around the collection of VAT on online sales to the European Union. She has been told that, in the meantime, she has three options. A UK retailer can open an office or agency in one of the EU countries and collect VAT through it. Alternatively, they can choose not to levy the VAT on EU customers. In that case, the customer is levied the VAT by their domestic officials as an import tax before taking delivery of their purchases. That again illustrates the administrative burden that falls on small businesses such as the one run by my constituent. She tells me in an email:

“I predict that this will kill most small businesses trying to export to the EU. The end customer has to cope with a lot of paperwork and stress and most of the time doesn’t understand what’s going on. I’ve already had some irate emails and I suspect I have lost those customers (although they have bought from me 3 or 4 times in the past). Customs officials aren’t up to date on the arrangements. A German customer found out for me yesterday that even if I put shipping cost into the purchase price of the goods and declare ‘free shipping’ on the invoice, the customs officials will estimate the shipping cost and add that to the total on which VAT has to be paid. ‘Free Shipping’ helps sales. The potential customer knows what the final price will be when looking at product page. Customers who don’t complete their purchase at the checkout are most often deterred by the shipping cost that suddenly appears...This is fact,well known, well documented. We need to be able to continue operating with ‘free shipping’ without customs officials in other countries estimating shipping costs and adding that to the total taxable amount.”

That is just one small illustration of the challenges that are now being faced by small businesses the length and breadth of the country that are already struggling to make ends meet as a consequence of the economic challenges thrown up by the pandemic. These problems are only going to get worse. These businesses are fighting hard to compete with other businesses across the European Union that have none of those challenges. When the Minister comes to reply to the debate, what news can he give us about the one-stop shop that HMRC is offering to businesses such as the one run by my constituent? Can he guarantee that it will in fact be set up by 1 July? What else is he going to do to ensure that the administrative consequences of his political decisions and those of the rest of his Government are not left as a tab to be picked up by small businesses across the UK?