Taxation (Post-transition Period) Bill

Jesse Norman Excerpts

2nd reading & 2nd reading: House of Commons
Wednesday 9th December 2020 Commons Chamber

[The Financial Secretary to the Treasury (Jesse Norman)]

I beg to move, That the Bill be now read a Second time.

It is a delight to speak under your chairmanship, Madam Deputy Speaker.

In three weeks’ time, the transition period will end and this country will take its place as a fully sovereign trading nation once more. It is a very important moment in our nation’s history, one that will undoubtedly provide us with great opportunity in the years ahead, but the Government are acutely aware that at this time they also have a great responsibility to provide certainty to people and businesses and to preserve this nation’s unity, and the fundamental purpose of this Bill is to achieve those goals. It seeks to ensure that businesses in every part of the UK can continue to trade smoothly after the end of the transition period, but its particular focus is on businesses based in Northern Ireland or those that work with Northern Ireland companies.

The Government have always been clear that we must deliver on our pledge to provide unfettered access for Northern Ireland’s businesses to the rest of the UK internal market, and we have been equally unstinting in our determination to uphold our commitments to the people of Northern Ireland under the Northern Ireland protocol and to protect the progress made under the Belfast Good Friday agreement. This Bill will help us support those commitments by providing legal certainty for the customs, VAT and excise systems in Northern Ireland after the end of the transition period.

If I may, I will start with the customs elements of the Bill. The House will know that the UK is a single customs territory, with article 4 of the Northern Ireland protocol giving a clear legal commitment to this. However, the protocol also requires a new and unique set of arrangements to be put in place for goods moving from Great Britain to Northern Ireland. Under these arrangements, the only circumstance in which there should be charges on goods moving between Great Britain and Northern Ireland is if those goods are destined for the EU single market or there is a clear and substantial risk that they may be.

[John Redwood (Wokingham) (Con)]

I am grateful to the Minister for giving way in this Second Reading debate before we get to Committee. Will he confirm that under the proposals in this last legislation the European Court of Justice will be the ultimate arbiter of excise and VAT arrangements within Northern Ireland, and that the European Union will be placing staff in our country to supervise this?

[Jesse Norman]

VAT in Northern Ireland will be subject to the EU principal VAT directive, and for that purpose the ECJ will be the judicial body. I cannot comment as to whether or not there will be anything more than staff, except to say that excise processes in Northern Ireland will be carried out by Her Majesty’s Revenue and Customs.

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

The Minister was asked by his right hon. Friend the Member for Wokingham (John Redwood) whether the ECJ would be the ultimate arbiter, and the Minister replied that it would be the judicial authority. Is that the same thing?

[Jesse Norman]

Yes, I was simply paraphrasing the point that my right hon. Friend made.

Under the terms of the protocol, we need to treat goods at risk of such onward movement into the EU differently from those groups that are not at risk. On the specific details of what will be defined as at risk or not at risk, the House will be aware of the EU-UK joint agreement made this week setting out that an agreement has been reached in principle regarding the implementation of the Northern Ireland protocol. In accordance with that statement, the draft texts will now be subject to further consideration in both the EU and the UK. Once that is complete, a joint committee will be convened to adopt them formally. Further details will be set out in due course, and before the end of the year.

[Sir William Cash (Stone) (Con)]

In reply to my right hon. Friend the Member for Wokingham (John Redwood) and the right hon. Member for Orkney and Shetland (Mr Carmichael), the question of jurisdiction was raised, and perhaps it is best to use the right expression, rather than paraphrasing. The fact remains that EU officials will be there for the purposes of enforcing the jurisdiction of the European legal arrangements, which will be enforced subject to the European Court. In those circumstances, will the Minister now accept that actually there is an infringement of sovereignty in that respect? As the “notwithstanding” clauses are being taken out, there is therefore a further complication, and if I may say so respectfully, that is slightly in contradiction of his allegation that we would now take over as a sovereign, fully independent power.

[Jesse Norman]

I thank my hon. Friend for the question. He is right that it is expected that there will be EU officials. The checks will be levied and done by HMRC inspectors, and the system that we are putting in place gives effect to the Northern Ireland protocol, which, as he will recognise, already recognises the balance that is being struck in Northern Ireland between its status under the Union customs code and its status within the UK customs system.

If I may proceed, the Bill will allow the Government to put in place decisions made by the Joint Committee on goods that are not at risk of entering the EU, ensuring that they do not have to pay the EU tariff. However, if I may underline the point, this Bill does not itself seek to specify the classes or categories of goods or movements that are at risk or not at risk. Instead, that will be set out by regulations that the Bill permits us to make once legal texts have been formally adopted. The “at risk” or “not at risk” definitions will also determine whether the UK or EU tariff applies when goods arrive in Northern Ireland from rest-of-the-world countries, again in line with the Northern Ireland protocol.

In relation to the so-called “notwithstanding” clauses, as part of yesterday’s EU-UK joint statement, the Government have agreed not to introduce these provisions into this Bill, and we have also committed to remove the three “notwithstanding” clauses from the United Kingdom Internal Market Bill.

[Sir William Cash]

Will my right hon. Friend give way?

[Jesse Norman]

I suspect we are going to go around this many times, but I am happy to give way again.

[Sir William Cash]

Could I simply say to my right hon. Friend that this does raise a question? I am not going to go into it in an intervention on him, but I will in my speech. I believe that those provisions may well be needed, because we do not know the outcome of the negotiations yet. I will leave it at that for the moment. We do not know, but we have been told that the clauses are going to come out. The question of whether they should have been put in is a separate question, which I dealt with yesterday.

[Jesse Norman]

I am not quite sure where that was heading, but we have the Bill in front of us and the Government have made it clear that the so-called “notwithstanding” clauses will not be introduced.

The legislation follows from commitments made in the Government’s Command Paper on the implementation of the protocol, which was published in May. The Bill will ensure that EU goods moving into Northern Ireland remain free from customs duties or processes. Although we recognise and are addressing the challenges relating to the movement of goods from Great Britain to Northern Ireland, we should not lose sight of the benefits to Northern Ireland of having continuing access to the EU market.

In addition, this legislation will ensure that the UK customs regime applies to goods moved from Northern Ireland to Great Britain if they do not qualify for unfettered access. The Bill will also introduce anti-avoidance rules to prevent goods from being rerouted through Northern Ireland to avoid UK customs duties or associated obligations, and its measures will ensure that customs enforcement and penalties, along with review and appeal processes, are in place in relation to duty and that they continue to work alongside EU legislation in Northern Ireland and can be applied, where required, to movements of goods between Northern Ireland and Great Britain.

[Stephen Farry (North Down) (Alliance)]

I welcome the thrust of the Bill. We have heard a lot about the anti-avoidance approach in recent months, but we have never seen any detail as to how it will work. This is a critical issue, particularly for the agrifood sector, to make sure that inferior product is not coming into Northern Ireland and taking advantage of the protocol, and there is the risk of organised crime in Ireland as well. When will we see detail on exactly how it will look?

[Jesse Norman]

As the hon. Gentleman will know, goods that are, as it were, normally circulating in Northern Ireland will be open to go into Great Britain from the beginning. There will be some goods that, over time, will be designated as non-qualifying goods for these purposes, and HMRC has well established practices for identifying, discussing and targeting those, as may be necessary, and will be applying them to prevent avoidance and to keep the market honest.

As I have said, the Bill will ensure that the UK customs regime applies to goods moving from Northern Ireland to Great Britain if they do not qualify for unfettered access. These anti-avoidance rules will prevent goods from being rerouted through Northern Ireland to avoid UK customs duties or associated obligations, and its measures will ensure that customs enforcement and penalties, along with review and appeal processes, continue to work alongside EU legislation in Northern Ireland and can be applied, where required, to movements of goods between Northern Ireland and Great Britain.

The Bill also amends and modifies certain provisions in relation to VAT and excise for Northern Ireland.

[Mr Toby Perkins (Chesterfield) (Lab)]

In many of these debates over the past four years, the Government have referred to “frictionless trade” between the mainland and Northern Ireland. The Government now say that they want VAT accounting treatment for goods moving between Great Britain and Northern Ireland to remain “as close as possible” to the current approach. Will the Minister confirm whether we have now accepted that frictionless trade is not possible? Can he tell us a little more about what “as close as possible” actually means for businesses in Northern Ireland that are looking forward to 1 January with some trepidation?

[Jesse Norman]

I thank the hon. Gentleman for his question and, yes, the legal basis on which VAT is charged will change. I will spare him the details of the difference between import VAT and acquisition VAT, but it will change. The experience of those who pay VAT will be very similar, if not identical, to the system we have in place at the moment. HMRC and the Government have identified flexibilities, which allow that to be put in place. Of course, there will continue to be the normal processes of enforcement that one would expect to see from HMRC in order to make sure that VAT is properly paid in the usual way.

[John Redwood]

These are urgent and important issues. We heard earlier from the Chancellor of the Duchy of Lancaster that there are various delays to the full implementation of trade arrangements into and out of Northern Ireland as a result of his negotiations. Will they be incorporated into this legislation, and do they provide a brake on the immediate introduction of these complex double-taxation arrangements?

[Jesse Norman]

I have no doubt that the Chancellor of the Duchy of Lancaster will be updating the House over time as the different provisions he has negotiated come into force but, from our point of view, the position remains as stated, that is to say that VAT will become chargeable by a slightly different legal means, but in substantially the same way in Northern Ireland as it is at the moment. The mechanisms we have put in place are designed to ensure that, as far as possible, VAT will be accounted for in the same way as it is today.

Existing rules in relation to movements of goods between Northern Ireland in the EU, including the rules relating to acquisitions and distance selling, will continue to apply. Goods entering Great Britain from Northern Ireland will be subject to VAT as though they were imports under the relevant UK legislation. Similarly, goods entering Northern Ireland from Great Britain will also be subject to VAT as though they were imports and relevant EU or UK legislation will apply, but let me add that the Government are adopting an approach that minimises any changes for goods moving between Northern Ireland and Great Britain.

[Stephen Flynn (Aberdeen South) (SNP)]

On a point of order, Mr Deputy Speaker, can you clarify whether Members in the Chamber should be socially distancing by staying on the seats that have ticks on them?

[Mr Deputy Speaker (Mr Nigel Evans)]

Yes, that is what the ticks are there for. I hope that all Members will abide by them so that we can have safe social distancing. Thank you very much.

[Jesse Norman]

In addition, the Bill amends current legislation for excise duty to be charged when certain goods, such as alcohol and tobacco, are moved from Great Britain to Northern Ireland. The changes are necessary to ensure that there is a fully functioning VAT and excise regime in place in relation to Northern Ireland at the end of the transition period.

In line with the protocol, Northern Ireland will maintain alignment with existing EU excise rules. That means a change to excise duty is required when goods are moved to Northern Ireland from Great Britain, but the Government are adopting an approach using flexibilities and EU rules that minimises changes for excise goods moving between Great Britain and Northern Ireland.

A small number of other taxation measures also need to be in place before the end of the transition period. The Bill introduces a new system for collecting VAT on cross-border goods. That includes moving VAT collection on certain imported goods away from the border and involving operators of online marketplaces in the collection of VAT at the point of sale.

In addition, measures in the Bill will remove the VAT relief on imported low-value items so that VAT will be due on all consignments, irrespective of their value. The relief has been the subject of long-standing abuse and removing it will build on Government efforts to level the playing field for UK businesses still further by protecting high streets from VAT-free imports. Together, the changes will improve the effectiveness of VAT collection on imported goods, tackle non-compliance and protect the flow of goods at the border.

[Kevin Hollinrake (Thirsk and Malton) (Con)]

I very much support the measures that the Minister is talking about. Why is the measure just for low-value goods? There will be other goods where a similar loophole applies, such as watches or jewellery that have a value above £135. Is this not an opportunity to close that loophole as well?

[Jesse Norman]

I thank my hon. Friend for his question, and I will take that under review. We have put in place a set of measures designed to tidy up the position that particularly arises in relation to the Northern Ireland protocol, as he will be aware, and the end of the transition period, and that has meant a change to low-value consignment relief and the changes I have described. I am grateful to him for his contribution and suggestion.

The Bill also includes provision for an increase in the rate of duty on aviation gasoline, which will apply across the UK. Otherwise known as avgas, the fuel is a form of leaded petrol predominantly used in leisure flying. The change made by clause 6 of the Bill will increase the avgas rate by half of a penny to 38.2p a litre from 1 January next year. By way of explanation, the Northern Ireland protocol requires that Northern Ireland continues to comply with the EU’s energy taxation directive following the end of the transition period. It sets a minimum level of duty in euros on unleaded petrol used for propulsion. After some careful consideration, the Government have chosen to apply the change to the whole of the UK to ensure consistency between Great Britain and Northern Ireland, avoid burdens on business and reduce compliance risks for HMRC.

The Bill also includes a clause to ensure HMRC has access to the same or similar tools to prevent insurance premium tax evasion as it does at present, regardless of whether an insurer is based in an EU member state. Overseas insurers are liable to pay insurance premium tax when they supply general insurance for UK-located risks. Occasionally, overseas insurers do not pay the insurance premium tax they owe, so it is important that HMRC has access to tools that deter and tackle that form of evasion. Up to now, it has been using EU provisions to prevent evasion by insurers based in EU member states.

Separately, HMRC can issue liability notices in cases involving insurers based in any country outside the EU with which the UK does not have a mutual assistance agreement. Given that the EU provisions expire at the end of the transition period, this clause will enable HMRC to issue liability notices in evasion cases involving insurers based in any country with which the UK does not have a mutual assistance agreement, including EU member states.

Finally, the Bill introduces new powers that will enable HMRC to raise tax charges under the controlled foreign companies legislation for the period from 1 January 2013 to 31 December 2018. This is a technical provision that will deal efficiently with the legacy state aid decision relating to the period before the UK left the European Union.

This Bill will give people and businesses throughout the UK certainty about the arrangements that will apply from 1 January next year. It will play a part in further safeguarding the unity and integrity of this country, both in the months ahead and long into the future. I commend the Bill to the House.

[Mr Deputy Speaker (Mr Nigel Evans)]

Before I call Anneliese Dodds, let me say that the wind-ups will begin at 5 o’clock at the latest, and that 13 Members wish to speak and are all here. We therefore know that there will definitely be 13 Members speaking, so colleagues should really be thinking about speeches lasting for six minutes. Even if I do not put the clock on, it would be really useful if everybody shows at least some discipline on that, so that everybody can get a fair crack of the whip.

--- Later in debate ---

[Anneliese Dodds]

I am pleased that the hon. Gentleman mentions that situation, because it has been referred to by those who favoured the Government’s approach previously. However, I gently state to him that if he is referring in particular to provisions against tax avoidance—the example of a general anti-avoidance rule—then, sadly, I believe he is mistaken. In that case, that commitment and the ability to apply such rules was actually a fundamental principle agreed to by this country as part of a multilateral agreement that it concluded with the OECD, so I fear that that example is not as telling as he may wish it to be.

With just three weeks to go until the end of the transition period, the Government published late yesterday afternoon the 116-page Bill that we are discussing now, setting out detailed new rules for tax and customs duties. Members of this House have been given less than 24 hours to scrutinise a major piece of post-Brexit legislation that will impact businesses and individuals across the country, especially in Northern Ireland. Many of the clauses in the Bill, particularly those covering customs and excise duties, require the Treasury to make regulations that will set out the actual detail of its proposals at a later date, so even with the publication of the Bill, businesses and individuals still do not have the information they need to prepare for the end of the transition period.

Earlier today, the Chancellor of the Duchy of Lancaster said there would be “further clarity” forthcoming on these matters, but again without saying when. In fact, the Minister talked a few moments ago about those details coming in due course. His letter to Members spoke about the fact that there would be information on this later; “in the coming days” was the formulation at that time. How can he really expect businesses to plan on that basis—on the never-never up to 1 January?

This last-minute approach was not necessary. It is no use pointing to the complexity of the ongoing negotiations. We know that this Bill could have been published a long time ago because the Government have been floating a Finance Bill for months, so why yet another last- minute scramble? My right hon. Friend the Member for Wolverhampton South East (Mr McFadden) set it out very clearly: because the Conservatives had a not-so-cunning plan to use this Bill as negotiations reached a critical point by threatening to override the withdrawal agreement. At a time when we are seeking to negotiate new trading relationships across the international community, and when the Government are trying to project an image of global Britain to the world, this tactic certainly sent a clear message, albeit not the message the Government intended.

It is welcome that the Government finally saw sense yesterday, although we have already seen damage being done. Both in relation to the provisions in the Bill and more generally, the time is running out to ready our country for the challenges ahead. The Public Accounts Committee was clear last week that:

“Government is not doing enough to ensure businesses and citizens will be ready for the end of the transition period”.

It expressed concern at reports from industry bodies that the Government had not provided the key information needed for businesses to prepare. Indeed, the Committee indicated that more than a third of small and medium-sized enterprises still believed that the transition period would be extended.

The Cabinet Office has admitted that it is well behind in recruiting the customs agents desperately needed for 1 January, despite more than £80 million having been spent so far. Yet again, earlier today, the Chancellor of the Duchy of Lancaster refused to specify exactly how many additional customs agents had been recruited. Overall, £4.4 billion has been spent by the Government on preparations for Brexit and the end of the transition period, yet we are still not ready.

[Jesse Norman]

I am terribly grateful to the hon. Lady for giving way. She has criticised the Government for spending £80 million in support of traders and a facilitated approach to the border. Could she tell us whether she thinks that number is too large or too small?

[Anneliese Dodds]

With enormous respect to the Minister, the problem with his Government’s approach is the fact that they do not indicate what they have got with that spending. As I said, £4.4 billion has been spent on preparedness for Brexit and for the end of the transition period, and the £80 million that he refers to, but there is no indication from the Government of how many additional customs officers we have received as a result of that spending. I hoped that he was intervening on me to provide an indication of the additional workforce that has been recruited. It is a matter of regret that he was unable to do so.