Leaving the EU: Timber Industry

Chris Davies Excerpts

Wednesday 31st October 2018 Westminster Hall

[Martin Whitfield]

This is certainly an opportunity for the industry to review itself. It is important to note that the timber industry is neither for nor against Brexit. What it seeks is clarity and a way of moving forward, both through increased home-grown production and through facilitating the import and export of wood, which will continue to be a requirement. Interestingly, in 2016 we were the second largest net importer of wood products; only China has a higher net import ratio. We rely heavily on wood and timber from across the EU and from across the world.

This debate takes place under exceptional circumstances. On 29 March, we will leave the European Union. We have had almost two years of negotiations with the EU about the terms of our withdrawal. Admittedly, we are not quite 95% of the way through this period, but the gap for the Prime Minister to secure a workable deal with Europe is closing. The protracted negotiation period has left several key industries, including timber, in the lurch—or out on a branch—over the impact of Brexit.

The sector contributes more than £10 billion a year to the UK economy and has a workforce of more than 200,000. There are profound questions about the nature of our withdrawal and its impact, particularly on the small and medium-sized businesses that make up a substantial part of the industry. As well as being of great national worth, the timber industry supports jobs in my constituency, which has BSW Timber, Windymains Timber and Alba Trees. In East Lothian, we take the acorn to the oak and then cut it up for the use of others.

I am here to express the industry’s concerns about the terms of our withdrawal from Europe and to make a personal case for continued membership of the customs union and the single market after we leave. The technicalities of our withdrawal can appear confusing, but the way in which timber currently enters the UK market from Europe is remarkably simple and has been developed through work across the EU—within the timber industry as much as by the Government. When timber enters the UK from the EU, it clears the ports immediately, with no need for customs checks to be carried out. The materials are then instantly available to be used or sold.

Leaving the customs union threatens the efficiency and simplicity of our current arrangements. The real-terms impact of a poor deal or no deal would mean timber arriving in Britain from Europe and sitting in customs checks for weeks on end. Indeed, the timber industry in the Republic of Ireland is so concerned about that possibility that it has written to its members with advice on it. This is the reality for companies importing timber from outwith the EU, particularly from North America, and it gives a worrying glimpse of the potential post-Brexit future that our timber industry faces. The time that it will take for businesses, most often small and medium-sized enterprises, to not only get hold of timber but store it before selling is of great concern.

I feel I might be wasting the Minister’s time if I asked for his support for a deal to keep us in both the customs union and the single market, so I will be a little more generous with my two questions. Will the Government commit to ensuring that, after we leave the EU, timber imports will continue to clear customs in the same manner? Will they assure the industry that there will be no up-front costs after we leave the EU, particularly for SMEs that trade with EU countries?

Let me turn to the house building strategy. The timber industry provides the frames and parts for virtually all our houses. In East Lothian, there is a commitment to 10,000 new homes in the near future, and the requirement for wood frames for roofing and joists will be exceptional. Our future relationship with the EU will go hand in hand with our current house building strategy, so I want to explore the impact of our withdrawal on the construction of new homes.

We have an unprecedented housing crisis across the UK, and nowhere more so than in Scotland. I accept that, in my constituency, the responsibility for increasing home ownership and eradicating homelessness rests with the Scottish Government, but the desire to achieve those ends is felt across the whole United Kingdom. At least 150,000 households are on waiting lists for homes in Scotland, while just a quarter of people under the age of 34 own their own home, which is down from just under half in 1999. This is a challenge that the Scottish Government are failing to meet.

These simple figures foreshadow an impending crisis in the supply of raw materials, notably timber, after we leave the EU. Some 60% of wood imports come from Europe, but for the timber that we need to manufacture homes, the figure stands at 90%. It is simply not feasible for the UK to become self-sufficient in timber production by next year or even by the end of any transition period that has been discussed. Of course, a move to greater self-sufficiency would be admirable, but there are questions about climate and about the quality of wood grown for purposes ranging from pulping to open joists in houses.

[Chris Davies (Brecon and Radnorshire) (Con)]

I thank the hon. Gentleman for securing this debate. I do not share his concerns about Britain leaving the EU; I feel that the forestry sector, the timber sector and indeed all sectors will have a very good future after we leave in March. However, does he agree that, although trees planted today will not be ready for next year, the British Government are woefully behind on the tree-planting targets that we need for future years? Forestry and timber is an ongoing industry, not something that will stop tomorrow.

[Martin Whitfield]

The hon. Gentleman is right. If we look back to the planting of the great forest, done all those decades—nay, centuries, ago—with the intention of providing this country with the raw materials it was perceived it needed at the time, and we look at the, frankly, very poor forestry planting record of the recent past, we can see that we are in a desperate situation that needs to be addressed. The tree nurseries in East Lothian grow their plants for about 18 months, until they are large enough to plant out without too much protection. We are then still looking at 20 years before there is usable wood. It would need 60 years for that wood to be of use in house building and for ornate furnishings. What we choose to do today will not be of any benefit to us, but will be of benefit to our children and grandchildren—to those who come after us. It is that foresight that is needed by Governments and politicians, in order to make the correct decisions.

[Chris Davies]

Does the hon. Gentleman agree with me that commercial forestry—the planting of softwoods—should not be seen as a crime in the countryside? The industries that we are talking about rely on softwoods, not necessarily hardwoods, which would not mature for 100 years.

[Martin Whitfield]

Absolutely. A diversity in timber planting is essential for the surrounding ecology and for the intended subsequent use of the trees. What is needed is a diverse plan that recognises the differences that are needed in the future. I commend the ambitions north or south of the border on revitalising house building in Britain, but any housing strategy must factor the strength of timber imports into that.

I turn to what is called “the tax and revenue bombshell” in the timber industry. There is a long-term vision for house building, which is vulnerable to any flawed Brexit deal that the Prime Minister may come back with. The current VAT payment system that timber companies are signatories to when importing from Europe is critical for the cash flow of small and medium-sized businesses. The system allows companies to spread the payment of VAT on EU imports, so that goods are sold before they have to pay. In the August no deal papers, that issue was recognised and confidence was given to the timber industry that, in the appalling situation of a no deal Brexit, they would be in a better position with regard to VAT than potentially under any deal.

The Timber Trade Federation is clear that the impact of the VAT bill would fall directly on to small business owners, operating on tight margins, who are the most vulnerable to this change. Will the Minister confirm that the Government will ensure that the existing VAT payments system for imports from the EU will remain in place in case of a deal? Alternatively, will the Government commit to establishing a new system that maintains the same benefits?

The immediate impact to consumers of the scheme collapsing would be massive additional costs on building materials, leading to increased costs for basic building work. Piling more money on the base cost of building new homes will not ease the financial burden of encouraging new homeowners. I hope the Government heed the industry’s call and look to fix this issue.

I turn finally to standards. Any industry of this size, which operates with trade heading in either direction, requires a regulatory environment that is fit for purpose—an environment that is strong but that is also standardised. Membership of the EU has created a standardised model that has effectively reduced individual national standards within Europe from 160,000 in 1980 to 20,000 today. That simplification has acted as a passport to trade and minimises the financial barriers that imported goods face. Crucially, standards exist not just to benefit those sitting in boardrooms, but to provide a firewall for consumers across the country. They build consumer trust and they ensure customer safety. One sector-specific issue within the timber industry is the assurance that products are both sustainable and secure.

Leaving Europe will limit our influence over the standards. Does the Minister agree that we should continue to prohibit the importing and use of illegally harvested timber from outwith the EU, and that we should retain the assurance and ensure that our current consistent and simplified approach to EU regulation will continue after March 2019?

There are a number of exciting opportunities present within the timber industry. It is a sector that is spread across every constituency. It provides jobs and investment. It provides training in serious skills shortages in the UK economy. Steps are being taken to seek apprenticeships that will take people from the very start of planting all the way through to the building site to see how the wooden frames are turned into houses, and to the housing factories, where ready-made houses are produced to be assembled on site. That is a massive commitment from the timber industry; it realises that the commitment to future skills is crucial in order for it to maximise opportunities. It would like the same enthusiasm, excitement and out-of-the-box thinking from the Government, to ensure that this industry can continue.

A reckless Brexit deal could affect up to 10 million cubic metres of timber, which we import every year. I hope the Minister agrees that, if the Prime Minister is serious about her personal mission to solve the housing crisis, she must start by scrapping the Chequers deal and broker an improved deal that ensures the timber industry can clear customs freely, considers the VAT question and addresses the question of the house building strategy, so that this hugely important UK industry can be at the root, trunk and branch of our future.

--- Later in debate ---

[David Rutley]

That is a good question, and I will come on to it—we will not duck it.

As the hon. Member for East Lothian said, we are the second-largest importer of timber behind China— 82% of our wood production uses imported wood. Increased import costs caused by currency fluctuation or regulatory barriers could therefore pose a challenge to the timber trade, but there is capacity in the UK to increase our use of our own forestry resource. There is a real opportunity for import substitution, which over time will help to mitigate any rise in import costs or increase in tariff barriers and will help bring more of the UK’s woodlands under active, sustainable management. That is something we all want to see.

[Chris Davies]

Will the Minister tell us what schemes will be put in place to ensure that native woodlands are managed properly and that that timber goes into the firewood sector, while commercial soft wood is targeted at the building sector?

[David Rutley]

We have a number of schemes in place, and the Agriculture Bill will introduce environmental land management systems, which will help us to promote the production of different wood types. I can meet my hon. Friend after the debate to discuss that question in more detail.

There are clear opportunities ahead, which are good commercially and make sense, given our wider ambition to increase woodland coverage and meet our carbon targets. The hon. Member for East Lothian mentioned Scotframe. The issues he raised are matters for the Scottish Government, but I am keen to discuss new timber-based construction with business, and the 25-year environment plan commitment to use more domestic timber in construction points to where we want to go. Using our timber in construction will help us create what some people call a conveyor belt of carbon sequestration here at home, helping us to meet not only the housing targets that the hon. Gentleman outlined but our long-term objectives under the Paris agreement.

Our new environmental land management system will focus public money on the provision of public goods, and put forestry and agriculture on an equal footing. Trees and woodlands provide multiple capital benefits, including carbon sequestration, soil quality preservation and reduced water run-off. There is clearly more work to be done, but that exiting development will help to address some of the hon. Gentleman’s concerns.

The hon. Gentleman also raised concerns about VAT. The Government are committed to keep the VAT regime as similar as possible to what we have now. If there is no deal, we will introduce postponed accounting for goods imported into the UK. That was stated in the technical notice entitled “VAT for business if there’s no Brexit deal”, and a written answer from 8 October gives more detail about that. If the hon. Gentleman has more concerns, I will gladly discuss them, but the Government have set out clearly that that is our aim.

The hon. Gentleman also made some important points about EU readiness. We are preparing for any eventuality, but our primary aim is to secure a deal. In our planning for the unlikely scenario of a no deal, we are working to ensure that timber importers face as little inconvenience and as few additional costs as possible in the event that they need to conduct extra due diligence at the borders. Current due diligence checks on imports from outside the EU will remain the same, so in a no-deal scenario a large number of importers will not notice any increased costs. Although we recognise there will be some additional costs for businesses that import from EU countries—I will talk more about that in a minute—we will give them support and advice to ensure the costs are minimised as far as possible. A number of technical notices have been published in the public domain to provide such information, reduce the grey areas that businesses are working with, and give them greater clarity.

--- Later in debate ---

[David Rutley]

I welcome that opportunity. It would be good to meet the APPG and Confor, which provides its secretariat services, to discuss these issues in more detail. I am a new Minister in this area, and it would be a pleasure to do that.

[Chris Davies]

As chairman of the APPG on forestry, may I ask whether we could have a joint meeting with the Minister?

[David Rutley]

My goodness—that sounds like an incredibly good idea. Joined-up thinking! I like the sound of that. I will gladly arrange that meeting.

The hon. Member for East Lothian talked about illegally harvested timber. We will ensure that there is a successor arrangement in a no-deal scenario, and are creating a UK forest law enforcement, governance and trade system.

I think all hon. Members recognise that UK forestry and timber processing is a growth sector, and that the value of our forests is on the increase—not just commercially, but in terms of natural capital. Market conditions are good, which gives us the opportunity to increase British wood production. Although the UK’s exit from the EU may pose challenges for the forestry and timber-processing industries, we are working flat out to ensure that those issues are mitigated. We want to create more opportunities for the production of domestic timber. That will fit neatly with the commercial opportunities and what we are trying to do with our 25-year environment plan and our clean growth strategy. I know that is important to the hon. Gentleman and to others who participated in the debate. I thank him for securing this important debate, and I assure him that achieving those objectives is very important to me in my new ministerial role.

Question put and agreed to.