Value Added Taxation

Kirsty Blackman Excerpts

Tuesday 21st February 2017 General Committees

[Kirsty Blackman (Aberdeen North) (SNP)]

I have a few things to add to our debate. First, I want to talk about the Scottish context, particularly on VAT for police and fire. It has previously been said that there cannot be changes to VAT for police and fire because of European regulations, and that there cannot be a change within what is classed as one member state.

In Scotland, our police and fire services are paying £35 million a year in VAT that we believe we should not be paying. We have made that case on a number of occasions, but the UK Government have refused to make changes to the system, despite allowing both the London Legacy Development Corporation and Highways England a derogation in terms of their VAT, which has not been the case for the Scottish police and fire services. If we are leaving the European Union, which it seems we are, will there be changes in that regard?

The other thing to consider is that if we go forward on the basis of what has been provided today—the document that has been put forward by the EU—there is a suggestion that there will be more flexibility for member states regarding what they can and cannot zero-rate. So if we continue with these regulations, would there be a possibility that the UK Government could more easily zero-rate the police and fire services than they have so far been willing to do? That is a specific point about the Scottish context.

I will also mention sanitary products. Again, this document mentions a couple of options for the future, option 1 and option 2, both of which involve changes around some of the derogations; option 2 in particular involves changes of that kind. We have this historical situation whereby the derogations were created when we first joined the European Union and they make little sense in today’s context. Some things that are luxury products—I consider them to be luxury products—currently have a derogation, and there are some things that I would consider essential products, such as sanitary products, that do not. I am not just talking about products for the absorption of blood but those for the absorption of urine or breast milk, which I have pressed the Minister on previously.

Those products should have a zero rate of VAT, because they are necessary. There are strange contextual issues around products used for the absorption of urine, but a number of people have got to pay VAT on them even though they are absolutely necessary products for them. It is really important that the Government consider this issue as we go forward.

I will put both those things in context. I disagree with the hon. Member for Bootle, who said that this debate is almost irrelevant; the opposite is actually true. What we need to do, as current members of the European Union, is ensure that decisions taken around VAT are as favourable as possible for the UK. We need to go into those negotiations and make our position clear, which is why I am taking the time today to speak about those things that I think are really important, so that the Minister is aware, when he goes into those negotiations, that I think they should be key priorities.

The wider context is that we will be outside the EU and we will have less of a seat at that table than we do currently. The Minister has mentioned the seat that we have around the OECD table, but when it comes to the single EU VAT area the likelihood is that it will take some time to create it and that we will lose our seat at the EU table before it actually comes into force. So we need to make our voice heard as clearly as possible right now, so that future regulations are positive for us.

One of the reasons I think this issue is really important is that if Members look at the top of page 8 of the papers we have been given they will see that the second paragraph says:

“better cooperation with international organisations and non-EU countries over VAT should make it possible to extend the EU system of administrative cooperation to non-EU countries, particularly to ensure effective taxation of e-commerce.”

[Peter Dowd]

I do not understand why people do not get this point, but does the hon. Lady agree that the Commission will not discuss anything in this whole debate about post-Brexit issues with us? It just will not do that. Does she accept that?

[Kirsty Blackman]

In the context of the article 50 negotiations that we will have, I think that the Commission will say to us, “No, we’re not very keen to discuss some of the ongoing future framework.” However, we are currently a member state. We have not yet triggered article 50 and while the article 50 negotiation period is happening, we have two years as an EU member state. The Commission does not have the ability to exclude us from negotiations about how things will develop in the future. So if the Government and the UK fail to do what I am suggesting, there will be a huge issue regarding how the UK gains access to things such as the single market in the future.

[Peter Dowd]

I repeat what I said earlier: this action plan—not a future action plan or one we would like—sets out the pathway to the creation of a single EU VAT area. Does the hon. Lady not understand that we are not going to be in a single EU VAT area?

[Kirsty Blackman]

We will not be in a single EU VAT area because we will not be an EU member state. However, the paragraph that I have just read out says that it should be

“possible to extend the EU system of administrative cooperation to non-EU countries, particularly to ensure effective taxation of e-commerce”,

so we will be involved as a third country. Given the way the EU does trade deals, it will look to ensure that there is as much equivalence and commonality as possible in a number of areas. We therefore need to make the case for the industries, sectors and products that we think are important. Ensuring that our voice is as loud as possible in these negotiations will benefit us as a country.

The likelihood is that the EU will look to include some commonality or equivalence in relation to VAT systems in a post-Brexit deal with the UK. The EU is a much bigger entity than the UK, so we need to think carefully about how the EU is currently structured and what it is currently doing to ensure that it is as favourable as possible for us when we become a third country and try to make a trade deal with it.

[Mr Baker]

I have been listening carefully to what the hon. Lady has said, which has been interesting. What consideration has she given to the need to co-operate on issues such as VAT in a world of global e-commerce that necessarily extends to many nations and millions of people outside the European Union?

[Kirsty Blackman]

That is a really interesting point, which highlights how much sovereignty has to be given away when agreeing a trade deal with another country. As the EU is a major player and a major consumer of our services exports—that is particularly relevant for e-commerce—we probably need to concentrate on agreeing a trade deal with it before thinking about deals with other countries. It is likely that the EU will want to talk about VAT when it makes trade deals with other third countries, too, so having a common relationship with the EU will probably be positive for us when we make deals with third countries.

I very much appreciate the chance to talk in this debate and make our priorities clear. If there is more flexibility over VAT and its devolution once the UK leaves the EU, I will call for the entirety of VAT to be devolved to Scotland. We have mentioned that before. Under the Scotland Act 2016, the top share of VAT is devolved to the Scottish Parliament. Although that is nice, it does not give us flexibility over policy levers, so I would call for further devolution in that situation.