Value Added Taxation

Kate Green Excerpts

Tuesday 21st February 2017 General Committees

[Jane Ellison]

On Report of the Finance Bill last year, we included provisions to legislate by this spring or by the time that we had left the EU, whichever was legally possible and feasible. We have continued to engage with the Commission at official and ministerial level quite extensively since that debate. We are not likely to be in a position to move this spring, for the reason I spelled out in my comments, but we have given a commitment. We have the same view on this matter in all parts of the House; we want to deal with this long-standing anomaly. I am sure Members of all parties would also support the fact that we are equally committed to abiding by the rules for as long as we are in the club. We will not, and cannot, act outside the rules—that would be counterproductive to a negotiation in good faith—but we have included legislative provisions to move on this matter as soon as we are legally able. The clock is ticking on it. We are not moving towards a distant and unsighted point—we have a sense of the backstop date.

[Kate Green (Stretford and Urmston) (Lab)]

I have two questions. The Minister said a few moments ago that she looked forward to European Union alignment, after we have left, with our own VAT successor system, but that is surely the wrong way round. We will want to look at the opportunities to align our systems with a very large trading bloc sitting on our doorstep. First, to what degree does the Minister accept that the Government will wish to continue down a route of as much harmonisation as possible post-Brexit between our VAT system and whatever is developed in the European Union?

My second question is a prosaic one on behalf of my constituents who are trying to understand how their travel arrangements and holidays in the European Union might be affected after Brexit. Does the Minister envisage it will be possible to reclaim VAT paid in European Union countries as consumers leave the European Union to return from their holidays to this country?

[Jane Ellison]

On the first point, I did not express a specific aspiration about harmonisation. I said there was a clear national interest in continuing to engage with the EU. As I said before, the OECD and the EU are moving broadly in the same direction around VAT systems. There is therefore a wider interest in the UK’s continuing to pursue some of its key objectives around simplification and making the arrangements less burdensome, particularly for smaller businesses. The precise aspects of VAT arrangements are, as with so many things, a matter for the detailed negotiations ahead, once article 50 has been triggered.

It is reasonable to say that we would look to have arrangements in future that allow us to continue to trade easily and successfully with all our major trading partners, of which the EU will be an incredibly important one. It remains the case that it is sensible for us to stay engaged with the debate, but the detail of all of those things once we are outside the EU, including issues around things such as harmonisation, are for the negotiations. We cannot be clear yet, but I assure the Committee that the Government will seek the best deal, obviously. It is clear that, after we have left the EU, VAT will continue to be a major contributor to the Exchequer. In the UK we estimate we will raise £120 billion this year, which is important revenue for the Treasury.

Although the exit from the EU will offer the UK greater flexibility, it is important to manage expectations just a little. Colleagues might be interested to learn that requests for reliefs have already been flooding into the Treasury in anticipation of our leaving the EU—to date, a total of more than £30 billion—so the ready reckoner is already ticking over. Colleagues will have done their mental arithmetic and realised that £30 billion is rather a large proportion of the estimated £120 billion that we hope to raise this year. That is on top of the range of zero and reduced rates that have already been applied, estimated to be slightly less than £45 billion in 2016-17.

The issues around future rates for us outside the EU and all other issues have to be carefully considered, not only in terms of our trading relationship with the EU, but in terms of our domestic policy and economic and budgetary constraints. As with all such things, it is a complicated picture, but we will continue to engage with the debate. It is worth putting on the record that UK officials are not only engaged but making an extremely positive contribution to the wider debates on the technical policy-making areas, and we will continue to do that to good effect.

--- Later in debate ---

[Jane Ellison]

We have taken the House’s instructions very seriously. There was not just the debate on Report last year, to which I responded; this has been a live debate probably for my adult lifetime, and there have certainly been a lot of debates in the House in recent years, so we have been actively pursuing this issue. I recently detailed in a written answer some of the extensive engagement we have had at ministerial level and through letters at official level.

While we are in the EU, both sides continue to be bound by existing rights and obligations, and EU law allows for a reduced rate of not less than 5% to be applied to those products. We apply the lowest reduced rate, but we cannot apply a zero rate until there is an EU legislative change. We continue to push for it and to engage on the issue very actively, but the EU legislation can be initiated only by the Commission, and to date it has not provided the proposal that it was planning to bring forward before the EU membership referendum. We continue to push for the proposal, and we have tried to find ways of accelerating the prospects of a change, but it is likely that it will feature only as part of the VAT rates review that we anticipate will happen towards the end of this year. We will continue to keep the House updated, and no doubt we will return to the issue in the debates on this year’s Finance Bill.

[Kate Green]

Irrespective of Brexit, what is the Minister’s assessment of the likelihood that the European Union and its component member states will be able to develop and introduce a modernised VAT system, as the Commission hopes? What difficulties does she envisage for the other member states in reaching agreement on doing so?