Public Contracts (Amendment) Regulations 2022

Baroness Chapman of Darlington Excerpts

Tuesday 13th December 2022 Grand Committee

[Lord Scriven (LD)]

My Lords, I thank the Minister for presenting this set of regulations in such a clear, concise and understandable way to try to make sense of the existing situation post the situation that she talked about.

These Benches support the thrust of and details in the statutory instrument but I want to ask a couple of questions. First, I am somebody who is not an expert in statutory instruments, but the dates on which the SI is to be made and come into force have three asterisks next to them. Is that normal? When is this statutory instrument intended to come into force?

The second issue is to do with the thresholds and the use of VAT. Some goods are exempt from VAT while some have a VAT level of 5%. The effect of putting in the statutory instrument the figures of £12,000 and £30,000 will be that some contracts, for example in printing, will by default have a slightly different total value than those with a 20% rate of VAT because they are exempt from VAT. Would it not be more sensible to use the figures of £10,000 and £25,000 and include a provision that the threshold for the contract will be at the rate of VAT for the goods and services being procured, rather than having a blanket rule when some goods and services do not have a VAT rate of 20%?

With those questions, as I say, these Benches support the thrust of and reasoning for this statutory instrument.

[Baroness Chapman of Darlington (Lab)]

This is really just about making a change in order to keep things the same. We certainly agree with the decision about NHS trusts and foundation trusts but I have a question about services or goods that are VAT-exempt and the Government’s thinking on them. There also seems to be a delay in this issue coming about and it being rectified. I wonder whether that may has disadvantaged some businesses, particularly small businesses, over that period.

I notice that, when consideration of this instrument was raised in another place, my colleague, Flo Eshalomi, asked specifically why it has taken the Government nearly a year between introducing the new regulatory scheme on 1 January 2021 and attempting to fix this inconsistency. When the Minister responded, he did not answer that at all. I am concerned, as it is troubling that something so straightforward and uncontentious was allowed to drift for so long. What does the Minister make of that? Does she have an assessment of what the impact of that might have been?

[Baroness Bloomfield of Hinton Waldrist (Con)]

I am grateful to all noble Lords who spoke in this short debate. I will answer the noble Baroness, Lady Chapman, first. I do not have a satisfactory response to her question about why this instrument was not laid sooner. We simply laid it as soon as parliamentary time allowed. I recognise that, as that was almost a year, this is not entirely satisfactory.

My noble friend Lady McIntosh asked about farmers. I applaud her commitment to the farming community. I assure her that the principles of non-discrimination still apply to below-threshold contracts. This does not have a bearing on procurement from the farming community, as such. She raised those issues very effectively during the debates on the Procurement Bill; I am sure that they will continue to be discussed as that Bill goes through the other place.

The noble Lord, Lord Scriven, asked about exemptions from VAT and about asterisks. I am told that asterisks are typical and that the SI will come into force in line with the articles in it—basically, as soon as it has been signed.

On the question about VAT from both the noble Baroness, Lady Chapman, and the noble Lord, Lord Scriven, there are two reasons why we use 20% as standard. It aligns the methodology for estimating contract values for the purpose of applying thresholds with GPA parties, such as Japan and the USA, which are not part of the EU and therefore do not have the EU 13% VAT reduction that was agreed in 1987. Also, when contracting authorities are estimating their contract values, the £10,000 threshold will no longer be reduced to £8,333.33, assuming a 20% VAT rate is applied. That is why we are raising the thresholds to £12,000 and £30,000 respectively: it maintains the lower threshold at £10,000 before 20% VAT is added, taking the value to £12,000; and similarly £25,000, before 20% VAT is added, taking the value to £30,000. We are aware that VAT is not always set at £20,000 but it will not be less than this figure, hence why we assume this rate.

In short, as I have said, the instrument makes two brief but important corrections to the regulations governing the below-threshold regime. It will adjust the lower-value procurement thresholds upwards to reduce the burden on contracting authorities and ensure that NHS foundation trusts are placed on an equal footing with NHS trusts in respect of the application of these thresholds. The changes to the lower thresholds will be made under the affirmative procedure using the powers in Section 39 of the Small Business, Enterprise and Employment Act. This regulation-making power permits the Minister for the Cabinet Office or the Secretary of State to

“impose on a contracting authority duties in respect of the exercise of its functions relating to procurement.”

I am grateful for noble Lords’ support for this statutory instrument; I commend it to the Committee.