Taxation (Post-transition Period) Bill

John Redwood 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.

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[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.

--- Later in debate ---

[John Redwood (Wokingham) (Con)]

I have declared my business interests in the Register of Members’ Financial Interests.

The origins of this legislation lie in the negotiations under the previous Prime Minister that introduced the whole idea of a Northern Ireland protocol. I regretted those negotiations very much. I opposed them at the time and did not vote for the deals that my right hon. Friend the Member for Maidenhead (Mrs May) came forward with, because I thought they were designed by the EU as a lever to try to delay, dilute or damage Brexit.

When the current Government asked me to support their version of the withdrawal agreement, I still had considerable reservations about the Northern Ireland protocol. I put those to Ministers, who reassured me and said, “This is only an outline operation in the withdrawal agreement as currently drafted. None of the detail has been done. We will negotiate very strongly. We will get rid of the offensive features that you don’t like.” They said that they shared some of my concerns and that they would come back with something much better. I am always trusting of colleagues, so I said that that was very good to know but that I did not have the same confidence in the EU.

I thought it was unlikely that the EU would want to facilitate that in the way that I and the Government would like. so with some friends, I backed my hon. Friend the Member for Stone (Sir William Cash) in saying that the way through this was to put clause 38 into the European Union (Withdrawal Agreement) Bill. Under that clause, were the EU to act in bad faith and not come up with a workable solution for Northern Ireland and the other problems, we would have asserted UK sovereignty in our version of the treaty, and so in good law we could use clause 38 to legislate in Britain for what we intend to do, overriding the agreement.

It was quite clear from the drafting of that Bill that we wanted that override, and I would not have dreamt of voting for the thing without the override. The Government were saying that they did not think we would need to use it, but we could use if we had to, which is why I was pleased to support them earlier this week in a very modest override. It is entirely legal; it is the assertion of British sovereignty. We need to keep that in reserve, because without seeing all the detail from the Chancellor of the Duchy of Lancaster, I am not satisfied yet that we have a working operation for the Northern Ireland border and the matters that we are discussing today—more precisely, who controls the taxation.

What I do not like about these proposals is that it is extremely difficult for individuals and businesses to have to respond to two legal jurisdictions on tax in the same place, yet we seem to have both an EU VAT system and a UK VAT system. I hope that the UK VAT system will deviate rather more from the EU one and be friendlier, lower and apply to different things, but the more that that happens, the more difficult it will be if we are trying to enforce two different VAT systems in one part of the United Kingdom.

I am also concerned about the enforcement mechanisms. We are led to believe that it will be handled by HMRC, but we are also told that the ultimate authority on the EU part of VAT and excise will be the European Court, and therefore there are likely to be inspectors and invigilators—electronic or in person—interfering in the process within what should be sovereign United Kingdom territory. I hope the Government will think again and push back again.

We need more of the detail that the Chancellor of the Duchy of Lancaster has so far withheld from the House. It may be that he does not yet know it all or that his agreement is high level, in principle, but there are details that we need to know—indeed, details that it would be better to know before we legislate today. For example, the Chancellor of the Duchy of Lancaster says that delay periods for adjustment will be necessary for supermarkets and some meat products and so forth. Does that not require some kind of recognition in this legislation? Does it not mean that these jurisdictions do not kick in during the period of grace that we are told will be available?

We need to have more detail from the Government on what exactly happens at the border. I have always explained to the House and others who are not very interested that VAT and excise take place electronically across the borders at the moment, so we are talking largely about an electronic border. We need to know how this electronic border will be programmed to deal with the competing jurisdictions and competing incidences of taxation, and how the product codes and shipment codes will correctly identify the products by category that will be suborned by the EU jurisdiction as well as, properly, by the UK jurisdiction, which ideally would be handling the whole thing.

We do not have nearly enough time to discuss the fundamentally big issues of principle that the Bill brings before us and we have had precious little time to go into the detail. It is all very sad that this rush job is being done like this, but I hope before the Government finish the debate today they will have done a better job of explaining to someone like me why we need to have this dual jurisdiction; how the EU control is going to be limited; how it is going to operate; how, in the early days, the “transitional arrangements”, which we are told about, are going to apply; and why they are not reflected in the current text of this rather unfortunate piece of legislation.