Taxation (Cross-border Trade) Bill (First sitting)

Anneliese Dodds Excerpts

Tuesday 23rd January 2018 Public Bill Committees

[The Chair]

I would love to call Grahame Morris, but I cannot, because he has lost his voice. Anneliese will ask a question for him.

[Anneliese Dodds (Oxford East) (Lab/Co-op)]

Thank you, Ms Buck. The question that Mr Morris asked me to ask on his behalf is, if anything, even more pertinent after something that Mr Bain said. In the general area of customs—we are talking not only about duties, charges and processes strictly for customs, but about issues to do with migration, security, veterinary checks and haulage—I wondered, on behalf of Mr Morris, whether members of the panel would expand on what changes might be needed there. Are those being taken sufficiently in the round with matters strictly dealt with in the Bill?

William Bain: It is particularly important for food retailers because we deal with perishable items. I will use the anecdote, which is true, that a retailer can put in an order for orange juice. It comes via Zeebrugge and Dover and is on the shelves the following day. Our companies deal with just-in-time supply contracts and sourcing mechanisms. If you put friction into that process, you can introduce a day’s delay. For example, at Tilbury, I understand that if your crate has not arrived by 3 o’clock, it is processed the next day. You have to refrigerate it overnight. Those things add extra costs. They increase the possibility of food waste. They increase the possibility of having gaps on the shelves and products not being there when consumers want to buy them.

Meat products are a particularly huge issue. If we leave the European Union sanitary and phytosanitary rules system, you have to check meat items as they leave the country they are being exported from—let us say from France—and you also have to check them when they arrive in the UK. That will add huge friction into the process, and that is something that the food retail sector in particular has been very critical of. It also affects non-foods.

There are many furniture stores among our membership that import items—flat-packs—from the rest of the EU. If there are long delays at customs, that affects the ability of those goods to get to consumers as well. So non-food and food are concerned about the possibilities of more friction in the system.

Anastassia Beliakova: There are two considerations here: what businesses need to prepare for and what happens at the border. A lot has been said about CDS, which is a critical part of the picture, but that is just one element. We have been trying to draw attention to the fact that origin declaration, which is separate from customs declaration, also needs to be clarified.

When it comes to getting goods through the border—the just-in-time, the ferry coming in and so on—you need several systems working together. You need the customs declaration in place and already authorised. That needs to happen before the truck arrives and rolls off. There needs already to be an interlink with the relevant agencies—whether for food, plant and so on—who have already approved all this. This needs various means of declaration, and several IT systems need to work together and be integrated with the relevant port systems and make sure that there are no further delays. So we think there are some other elements that have not been covered sufficiently in the debate.

Peter MacSwiney: We have some pretty slick systems in place now for traditional freight. We do not really have any port systems in the ro-ro ports. We do not have any space and any procedures that lend themselves to goods being stopped and looked at this side of the channel. I think absolutely it has to work on advance information on a permission to load basis on the other side. Once you have that, the goods would have to roll freely through the ro-ro ports specifically on the basis that they are eligible to be entered into the UK, and the fiscal processes should take place after that. After they have gone through the border, they are accounted for separately.

Gordon Tutt: In terms of the systems we have currently for undertaking customs procedures, we probably have some of the most advanced systems in the world for doing these transactions. We have a lot of advantages over other countries in that we have got integration with our community systems providers in the ports, who can provide advance information. Customs and the Border Force to some extent use that information now. We have advance notification through the various systems internationally.

Where we seem to fail in this country is not with the revenue and the customs systems; it is actually with the other Government Departments. It might surprise you that within the airline arrivals, some of the notifications are still done on paper. That is not because trade and the port and community systems do not have the systems to provide this information—it is purely that those Departments do not have the ability to accept that information electronically. If we are to avoid delaying goods unnecessarily, where we have known, trusted traders bringing goods which present no risk fiscally or from a security point of view, that information should be passed freely to these other Government Departments, thereby avoiding any unnecessary delays.

Peter MacSwiney: The processes at Heathrow and Gatwick—both are run by the same community system provider—are different, and within the specific airports the transit sheds operate different procedures as well, so it absolutely could do with being streamlined.

[Julian Sturdy (York Outer) (Con)]

Q Ms Beliakova, I want to take you back to an earlier comment that you made, and which you put in your written evidence as well. You said that no clarification on the continuity of country of origin declaration is a concern. Could you outline the potential implications of that, as you, or your customers, see it?

Anastassia Beliakova: There are two considerations. The first is ensuring that businesses know that in future they can continue to rely on what they currently use to declare origin. At the British Chambers of Commerce, we facilitated 650,000 shipments through the use of certificates of origin last year. That is worth £22 billion to the UK economy—it is really critical. In the future, we do not know whether the existing means of declaring origin will continue. It is really important that businesses are told that they can.

It is also important from a strategic perspective for the UK Government, when we perhaps enter into new negotiations. If other countries ask for their means of declaring origin to be written into the agreement, that would cause significant compliance issues and would mean that there were far too many complicated rules for businesses to comply with. If there were provision in the legislation for the existing means of declaring origin, there would be a much stronger basis for the UK in future negotiations to make a case for the existing means to continue.

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[Anneliese Dodds]

Q I will be quick and roll two things into one because I see that we are running out of time. We touched on the issue of trusted trader schemes and potential new impediments to that given the need for pre-approval of software. Is there anything else that prevents the further expansion of those trusted trader approaches? Some have suggested that they would be one way of facilitating processes.

Secondly, regarding HMRC capacity, we have obviously seen a big reduction in headcount and changes with all the offices becoming regional hubs. Are there other alterations that you would make to HMRC’s set-up to facilitate the big challenges coming down the road with these new systems?

Gordon Tutt: May I begin by answering the first question? Within the UCC legislation, which is carried over into the new UK legislation, there is a recognition of the role of the authorised economic operator. That is quite important, but it means that there will be potentially hundreds, if not thousands, of UK companies that may wish to become AEOs to gain the benefits once we leave the EU.

The problem is that unless you have a proven record of customs transactions, you cannot apply to become an AEO, so in some ways we are going to disadvantage traders that are probably acting completely in accordance with regulations, are good taxpayers and are honest and trustworthy companies. None of that is taken into consideration. We have had some discussions with HMRC and it is almost as though we might need something like a provisional AEO status so that those companies, which pose no risk, can take on some of the benefits, such as guarantee waivers and being able to operate the self-assessment schemes, where there is no risk either to the Treasury or to the safety and security of the country. That is a key point.

I would add that the provisions of the self-assessment scheme, which are part of the UCC regulations and will be carried over into UK law, can also perhaps provide some answers to some of the problems that we have not successfully been able to find solutions to.

Anastassia Beliakova: On AEO, the issue is actually your second point of HMRC capacity, and the way the process is run in the UK. AEO is an international system. It is recognised by standards at the World Customs Organisation, so there are certain aspects that a country that has this scheme must adhere to.

However, the process of approving companies—just how long that takes, and all those practical aspects—is up to the customs authority of each country to implement. We have heard time and again from our members that that takes far too long. I have an example of a company that had already been approved for AEO but it took 12 months for them to get the reapproval, although they did not have to go through the exact same process again. It should have been much faster.

I have spoken to customs authorities in other countries such as Austria. There, owing to their much more customer-service-focused approach—and, it has to be said, they do have many more customs officers—it takes a company about three months from the start to the very end of the process. Yet they are no less rigorous than we are. We are very stringent in our approach, and if we want to help more companies achieve this status, the practicalities need to be rethought.

William Bain: That is a key issue. AEO status is part of the solution, but it is no silver bullet for the customs issues that companies are likely to face. There are 10 times fewer AEO companies in the UK compared with Germany; penetration among small and medium-sized enterprises is particularly low. There is a lot of work that Government could do to make the process of applying easier but, as was said earlier, there has to be a history of previous customs transactions. I believe it is three years before companies can apply.

The other thing that is necessary in any withdrawal agreement solution is that there should be mutual recognition between the UK and EU AEO systems. The EU has already done that with America, China and some other countries. That is critical.

On HMRC resources, I revert to an earlier point: that Dover and Eurotunnel do not have capacity to conduct SPS—Sanitary and Phytosanitary Certificate—checks. If we end up outside of the EU SPS regime and we have to check fresh meat and plant products coming into the country, there is not the capacity to do that at Dover. You have to find an offsite solution and that will draw further on HMRC resources—to have veterinary staff in position to perform these checks. That will increase the burden on the HMRC budget.

[The Chair]

Emma Hardy has a quick, mini-supplementary, four people want to ask another question, and we have 14 or 13 minutes—just to give you an idea of how to manage the time.

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[The Chair]

Thank you. We will bring you in to questions from now.

[Anneliese Dodds]

Q Many thanks to Mr White for setting out quite a different approach to how the Bill could have been structured. It has been quite salutary for the Committee to hear that. In the comments that you made, Helen Dennis, about the proposed system for least developed countries, you said that you felt that the Government have taken the best bits of the existing approach. Certainly, the exclusion of arms is retained here. There is a question about the extent of conditionality, because in the European system there is conditionality about good governance and environmental sustainability. Could you comment on that? I understand that that is not replicated to the same extent.

I have an additional question about the distorted economies. We have very little detail about how distorted economies will be dealt with in the Bill. Do you have any comments on that, given that there are severe human rights concerns in many of those economies about certain elements of production, including modern slavery?

Helen Dennis: You are right to say that the three tiers of the EU preference scheme are not cited in the legislation. At the moment, in the Generalised Scheme of Preferences, there is Everything But Arms duty-free and quota-free access for the least developed countries, and there is broad GSP and something called GSP-plus, which countries can access if they have ratified certain human rights agreements and conventions. That highlights that the Bill is being kept incredibly loose. We have had discussions with officials at the Department for International Trade about this, and the stated intention is probably to cut and paste the preference scheme.

At one point, I thought that there would probably be some wider discussions about the shape of the preference scheme: whether we would go for one tier, two tiers or three tiers, whether we wanted to roll over the human rights conditionality, and more. I do not know whether it is to do with the time, resources and everything that needs to be done in the next year, but the preference seems to be, essentially, to cut and paste for now, and to look at those improvements later. You are right to say that that is not in the legislation, so the detail of rules of origin and the different tiers of a preference scheme are just more issues that the Secretary of State would bring forward in regulations. It was implied in the first question whether that is satisfactory. Do members want to have a say in shaping a preference scheme and on whether there should be human rights conditionality? That is an important question that needs considering.

On your second question about distorted economies, there probably are divergent opinions—certainly in civil society and non-governmental organisations—about the use of trade agreements and tools to enforce human rights obligations. Obviously, everyone wants to see that, but trade is quite a blunt tool for doing that. Its application at EU level is still fairly recent, so there probably is not enough evidence yet to see whether the GSP-plus has the desired effect. I am not an expert, but I know that after the Rana Plaza tragedy in Bangladesh, the United States was able to use trade policy to move forward some of those conversations about labour conditions and rights in Bangladesh. There are ways in which trade policy can be used for those discussions, but whether they are applied as conditions in trade agreements is a question for discussion.

[Chris Davies]

Q May I go back to Mr White’s response? I would have thought that you would be very happy with what the Government have come up with, because you may be able to produce yet another volume of your book. You have certainly given the first volume great marketing—many points to you for that. The previous panel seemed, in general, to approve of the Bill. They liked its flexibility and agreed that it is an enabling Bill. They are the ones whose members will have to implement it. You, as a lawyer, do not seem as happy with it. Forgive me for saying this, but every lawyer I have encountered in an evidence session since we decided to trigger article 50 has seemed very dismissive and upset about the way we are going forward. Is this lawyer-speak, or is it something that will cause problems for the Bill?

Jeremy White: Good lawyers—and even good editors—work only for their clients, not for themselves. Barbara is a colleague of mine, and you should ask her that question, too. We are interested only in making sure that the Bill is fit for purpose. Our charity is made up of lawyers and consultants, and we all agree that although the Bill is not designed to do something bad, it tries to do too much. We applaud its ambition and, to a point, its flexibility, but let me make a couple of pleas for special items.

On the replacement of VAT on acquisitions being dealt with in a VAT return, we see flexibility in the Bill and in the announcements of HMRC and the Treasury. That can be replaced by postponed accounting of import VAT. That kind of flexibility is good. When we look at the flexibility that we would like to see in respect of some of the special procedures and information systems, we think, “Yes, that will be good.” In particular, guarantee waivers—taking a different view from the EU on guarantees—are a good thing. The Bill would give us that structure, and we applaud that.

Our problem is with the cost that would follow, both in terms of parliamentary scrutiny and for the trade, if we commenced a UK recast. Having to look at both the UK recast and the Community law would create an unnecessary cost. As I said, we are not concerned about parts of the current law such as tariff schedules and trade instruments, which we know will have to be recast. Each paragraph of the Chartered Institute of Taxation report is quite dense—a number of people were fighting to get their arguments in, and some of it is a bit too dense—but one talks about international obligations. We do not want the flexibility of a UK approach that is inconsistent with our international obligations, because that would just lead to more cost. Although we might, in individual cases, obtain a result that we liked based on a simple reading of the English recast, it might be incompatible with either a Community obligation or an international obligation, and we would end up with everything having to be reversed on appeal and the whole enterprise being more expensive.

The problem with an unnecessary recast is that it would produce an amount of uncertainty. It is that, not the flexibility, that we object to. If I put my own hat on, you are right that I would never be able to retire, because, instead of being paid once for reading this version, I would have to be paid twice—once for reading this version and once for reading the English recast—in any case I was involved in.