Taxation (Cross-border Trade) Bill

Christine Jardine Excerpts

2nd reading: House of Commons
Monday 8th January 2018 Commons Chamber

[Tom Brake]

We will wait and see whether I have got the logic back to front. I suggest to the hon. Gentleman, however, that the idea that it is possible to have on one hand a completely seamless border and on the other hand a United Kingdom that is outside the European Union does not work. There must be one of two solutions. The first, relating to where that border sits, would be very unpopular with members of the Democratic Unionist party, while the second goes against everything that the party in power is advocating. I do not think that there is a simple solution, and that is why I think that the issue has been kicked down the road. I suppose people are hoping that, perhaps as a result of phase 2 of the negotiations, there will be a miracle solution that will make possible a frictionless, seamless border between Ireland and Northern Ireland, but given that no one has identified it so far in the 18 months or so that have elapsed since the referendum, I am not confident that anyone will come up with it in the time that remains.

I believe that the Bill is unnecessary and, indeed, highly damaging. It was required only because the Government have set themselves against the solution that is our staying in the customs union. The hon. Member for Gloucester (Richard Graham) tried to highlight the differences between Labour Front Benchers and some of his hon. Friends, which is easy enough to do, but he could equally have chosen to highlight the differences on the Tory Benches. At least one Tory Member, the right hon. Member for Broxtowe (Anna Soubry), considers the solution that the Government are trying to identify in all their fudges and workarounds to be staying in the customs union, and I agree with her. If there are differences of opinion, they exist on both sides of the House, not just between Labour Front and Back Benchers.

We will oppose the Bill’s Second Reading, not for—I was going to say mealy-mouthed reasons, but that might be unfair. I do not know the hon. Member for Bootle (Peter Dowd) terribly well, but I have no reason to believe that he is, in fact, mealy-mouthed. I must say, however, that Labour Members are trying to sit on the fence for as long as is physically possible, in spite of repeated interventions from their own side. At some point, they will have to jump in one direction or the other. It must be getting very uncomfortable for them, sitting on that fence. The longer they sit on it, the sharper and more uncomfortable for their backsides it will become. At some point, they are going to have to jump. I hope that they will jump in the direction that they are being encouraged to do by some of their Back Benchers and by the Liberal Democrats, the Scottish National party, Plaid Cymru and the Green party—namely, in favour of staying in the customs union and the single market long term, not just as a means of massaging support over the next few months but in the long-term interests of the United Kingdom.

As I have said, I do not want to describe Labour Front Benchers as mealy-mouthed, but there is clearly some difficulty with the position that the Labour party is trying to adopt, and I would like some clarity on this. Labour Members say that they are interested in preserving jobs, for instance, and I wonder what work they have done to assess the impact of a substantial number of job losses in the transport industry. A lot of goods are transported from the Republic of Ireland to Dover through Northern Ireland and the United Kingdom. Those involved are thinking of simply cutting out the rather complicated business of crossing the UK border altogether and instead shipping the stuff straight from Ireland to, say, Cherbourg. That would result in the loss of many jobs in Britain along the way.

We have heard many references to the VAT change, which could affect between 100,000 and 150,000 businesses. Concern was expressed earlier that some larger businesses can be quite aggressive towards small suppliers, but a lot of the businesses affected will be small businesses that suddenly find themselves in difficulties with their cash flow. I wonder what analysis the Government have carried out on that. I am afraid that, as in so many areas relating to Brexit, the answer is that there has been no impact analysis and that the Government are simply proceeding with these changes.

One of the key claims by the leave campaign was that leaving the EU was about cutting red tape. I would love the Minister to confirm that the measures in the Bill will cut red tape for businesses, but frankly I cannot see how businesses will benefit from a reduction in red tape in any shape or form as a result of this legislation. Instead, businesses that are not subject to red tape at the moment will have to take on red tape that they have never previously had to deal with. The Minister must at least try to address that point, given that one of the main claims made by leave campaigners was that leaving the EU would cut red tape for businesses.

We could talk at length about the delegated powers, as we have done on many other Bills relating to Brexit, but there is no point in rehearsing the arguments that have been made on those Bills, because the Government are clearly intent on taking advantage of the situation and cutting Parliament out of the loop as much as possible.

If the Government want to proceed in the way that they are doing at the moment, trade remedies will be essential. Members will be aware that trade remedies are currently implemented by the EU, which has more than 100 such measures in place against imports from 25 countries. To what extent does the Minister expect those measures to be replicated? Also, does he believe that it will be possible for the UK, operating alone, to have more effective trade remedies than those currently implemented by the EU with its 28 member states? Again, we need clarity, honesty and accountability. We need to hear from the Minister whether he thinks that the trade remedies available to the United Kingdom on its own will be weaker and less effective than what is currently available to us as a member of the European Union.

I welcome the fact that the Government will legislate to ensure that we can maintain a system of trade preferences for developing countries. I have already referred to the VAT issue and to the impact on red tape. I hope that the Minister can confirm that the Bill will have no red tape implications, although it is hard to see how he could possibly do so. [Interruption.] Would my hon. Friend the Member for Edinburgh West (Christine Jardine) like to intervene on me?

[Christine Jardine (Edinburgh West) (LD)]

indicated dissent.

[Tom Brake]

No. Okay. I thought my hon. Friend was poised to come in with a trenchant point. I am sure that she has one, and that she is saving it up till later.

The Government have brought forward a Bill that is needed simply because they have chosen to adopt one of the more extreme Brexit options open to them: settling for no deal whatsoever or coming out of the customs union. In those circumstances, it is clear that they will need to provide the legislation that is set out in this Bill and that trade remedies will need to be in place. I have put to the Minister some specific questions about whether he can demonstrate that the Bill will not impose an additional red tape burden on businesses and whether the trade remedies that he is advocating in the Bill are likely to be more effective for the United Kingdom than the ones currently available to us through the European Union. With that, I will happily sit down.

[Mr Marcus Fysh (Yeovil) (Con)]

I was hoping this evening that we might begin to get past some of the old arguments and debates over whether to leave the EU that we have been having ad nauseam over the past year and more, but it seems as though some people cannot understand that if we do not leave the single market and the customs union, we simply have not left the EU. It is by virtue of being a member of the EU that we are in the customs union, and we automatically leave it on the day we leave the EU.

The opportunities that are there for this country as a result of leaving the EU simply will not be there if we stay in the single market. The behind-the-border trade reforms that can give advantages to our service industries will not be possible if we do not have control of our own regulation, and being a member of the single market will obviate that entirely. Similarly, on the customs union or, indeed, a customs union, if we leave the control of our customs and trade policies with the EU, everybody would judge that to mean our not having left the EU. What we need, and what I have argued for consistently, is an advanced and modern form of customs co-operation that enables our trade to be as frictionless as possible. There will be frictions, however, and we should not shy away from talking about them. The Bill begins to allow us to have control over all the levers that enable us to put such things into place. This enabling legislation is vital so that we can have the systems that are required for things to operate properly on day one after we leave the EU.

I will certainly support the Bill’s Second Reading, which will give it this House’s support in principle. We have heard quite a lot of discussion about the different policy stances that the Bill will enable us to take up in future, and there will obviously be much more discussion about what our trade policies should be. It is entirely right that that should happen in this House in a constructive and, I hope, cross-party manner, because this is about our futures and those of our children and grandchildren, too.

I want to address a few of the things that have come up this evening. The point about VAT and cash flows is interesting and I have raised it before, and it is worth remembering that the EU is going through its own change process on VAT. It intends to impose a directive that would essentially mean that the country from which a good is being exported will collect the VAT at its own rate rather than have a good exported on a VAT-free basis and then get the receiving country to account for the difference after having collected VAT on receipt. That in itself will change a lot of the cash flows around intra-European trade, and it is worth examining more closely whether it makes sense in that context for us to think about having a system that enables us to collect VAT for each other in the future. I am not necessarily against being party to some sort of arrangement with the EU on VAT to enable that smooth process at the border to continue, but we need to look at it much more closely. I hope Ministers will give some thought to that and inform the House of their thinking.

We have also heard today about rules of origin, and it is right to raise that—I have previously raised rules of origin both in the International Trade Committee and in the Chamber. The hon. Member for Aberdeen North (Kirsty Blackman) made the excellent point that the cumulation of rules of origin is very important in any trade deal. We will have to think about those things anyway, and we absolutely have to think about them in the context of rolling over the trade agreements we already have by virtue of being in the EU. There is a lot of good will on the part of foreign nations that are party to those deals, but rules of origin will definitely have to be addressed in our negotiations with the EU.

As my colleague on the International Trade Committee, the hon. Member for Hornchurch and Upminster (Julia Lopez), said earlier, tariff-free quotas are also important in that context, and the EU has to think about that. When it comes to rules of origin, we also have to remember that our supply chains are highly integrated, and it is not as simple as saying that we just cannot trade with the EU anymore. It would also be very damaging for the EU, as having to find suppliers that are not part of our supply chain would create a lot of pressure on EU businesses, and it would create a lot of pressure on the EU to find resource from within its own economies to meet those supply chain needs. That is not something the EU would want.

[Christine Jardine (Edinburgh West) (LD)]

The hon. Gentleman is talking about European suppliers needing to find someone to supply, and about companies in this country needing to use such supplies. Is there not a danger that, particularly in the car industry where companies from other parts of the EU are currently in this country, we will lose viable industries? They will simply go where the supply chain is easier and where they will not be tied up in the red tape proposed in this Bill.

[Mr Fysh]

The hon. Lady is right that, particularly in the car industry, rules of origin are an issue across the world. In the North American Free Trade Agreement, for example, the ability of US and Canadian car manufacturers to integrate their supply chains makes a big difference. Under the Trans-Pacific Partnership, which the Canadians are considering re-entering in a modified form, rules of origin on cars are probably one of the main determining issues. The degree to which local content needs to be demonstrated is a major factor.

Among other things I hope that, through this process, car manufacturers will look at sourcing more UK content in order to raise the proportion sourced in the UK, or indeed in the EU. It is all to play for, and there are lots of different ways of organising it. I would not necessarily say it is impossible or too hard but, yes, it needs to be thought about.

In that context—I have also said this before—the Customs Declaration Service that HMRC is working on has to be flexible enough to change the values that are put into the system. Whether on VAT, import duty or the cumulation of rules of origin, we need to make sure the system is able to be changed flexibly and easily at a later date. If that is not the case, this will be a nightmare and we will have a computer system that fails. I hope HMRC is well aware of that fact and of the need for that flexibility.

We have also heard about trade remedies, and it is right to say that the Trade Remedies Authority needs to be put in place very soon. The sooner it can get on with doing the work of analysing what the competitive position in various of these industries where existing or potential future remedies are going to be needed, the better; that has to be done with a good lead time in order for us to be able to argue at the WTO that we should potentially think about renewing trade remedies or putting new ones in different industries in place.

We also heard a little about lesser duty. It is fair to say that the lesser duty provisions in the WTO agreements are there for a reason: to try to prevent an arbitrary and egregious application of trade remedies. However, we need to make sure that we use our opportunities arising from coming out of the EU to make these arguments for how the global trade system should work in a non-egregious and non-arbitrary way, one where we can have rational dispute resolution mechanisms for our trade.

Having said those things and having said how necessary this Bill is, I must say that I have some concerns about the text, which I would like to discuss with Ministers and think about during the later stages of the Bill. I am concerned about clause 42, which deals with the EU law relating to VAT, and the potential for statutory instruments to be brought forward to alter the rights, remedies and procedures which have been imported by virtue of the European Union (Withdrawal) Bill. Similarly, I would like more clarity on clause 47, which deals with EU law relating to excise duty. We need to think a bit more about it, because it seems to give the Treasury and Treasury Ministers the power to alter fundamental concepts of EU law and the application of it in the future.

We also heard about clause 31, which relates to the potential implementation of a customs union, with fairly draconian Henry VIII powers. Admittedly they are subject to an affirmative procedure in the House of Commons, but it would be worth knowing a bit more about what the intent of this is and exactly how it would operate. Overall, we need to make sure we use this opportunity and this Bill to get a positive new customs co-operation system in place with our EU friends and allies. What we want is a good relationship with the EU, and it does not have to be at the expense of the rest of the world. This is not an either/or situation. I have heard many commentators say that if we are not part of the EU, we cannot do anything with the EU and that all the other deals we might do around the rest of the world cannot replace that. That is a false argument because we are looking to build on what can be as near as possible to our current relationship with the EU, and if we can do that really well and are smart about it, we can make a great success of leaving the EU.