Taxation (Cross-border Trade) Bill (First sitting)
Kirsty Blackman Excerpts(8 years, 8 months ago)
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Chris Davies
Q
William Bain: It is a very flexible Bill—it has extensive powers to make delegated legislation. It does throw up some other issues that the BRC would like to see resolved during this process. For example, to get as free a flow of goods as possible, we not only need a deal with the EU on customs arrangements, we also need it on things such as transit, security, haulage and particularly VAT.
One of our concerns is that the way the Bill is drafted at the moment throws up some issues about doing business in the future. For example, companies may have to register in every EU member state in which they provide services and in many member states in which they take goods to and from the UK. That is something that we would strongly urge the Committee to look at as the Bill proceeds.
Peter MacSwiney: I will stick to the system issue, if you like. I echo what Anastassia has said. The phrase “free circulation” is still in there. I do not see how that applies. Origins should be the criteria. You said it is a very flexible Bill—it is. Our members have some concerns that it allows HMRC to make it up as it goes along. That is a worry.
I am also concerned about some of the references to electronic systems and to things being delivered by a customs information paper or a public notice. At Heathrow, for instance, public notice 216 applies, which I think was written in the mid ’80s. We have been trying to rewrite it for the last 10 years probably. It suddenly popped up last year having been rewritten with no consultation and did not show any significant changes.
I have a real concern about who will be responsible for determining day-to-day processes such as the presentation of goods, which the Bill mentions—what is that? It cannot be the physical presentation in the post-Brexit world, because there will be too much of it, so the inventory systems have the concept of presentation against an electronic record. Those things really need to be thought out.
Kirsty Blackman (Aberdeen North) (SNP)
Q
William Bain: Yes, that is a huge concern because companies will have a big cash flow hit. The movement of goods within the European Union has been treated as VAT-free up to now. If the UK is treated as a third country afterwards, companies ostensibly will face an up-front cash payment. There are policies—domestic and in terms of the negotiations—that could mitigate that. The Government could introduce a deferment scheme, as is the case in Spain. They could look at other domestic policies to tackle it. More fundamentally, they could look at a form of self-assessment for VAT, which would obviate the need for up-front payments.
Some international solutions could be looked at. As I pointed out earlier, whatever happens domestically, UK companies will still face the burden of having to register for VAT purposes in each member state where they offer services and in most member states where they provide goods. That requires an international solution such as staying in the EU VAT area—even though that might involve treaty change—the establishment of a new common VAT area, or some other strong VAT co-operation. The domestic element and the negotiation element are both required to sort the problem out in the round.
Anastassia Beliakova: VAT and future potential VAT cash flow issues are a serious concern for our members. To echo the points already made, international measures that are not contingent on negotiations could be adopted. Deferment schemes are one. There are already deferment schemes in the UK, but they could be more generous. For instance, they ask businesses to provide bank guarantees, which is yet another cash flow issue for businesses. Some companies can waive it, but only after they have had a clean record of VAT payments for three years, which not all SMEs, for instance, could provide.
Another potential solution is to consider postponed accounting, which in effect is what we already have as members of the EU VAT area. The Government could consider setting out policy that would introduce postponed VAT accounting for imports from all third countries. That would alleviate future concerns in relation to Brexit and simplify existing procedures quite significantly.
Peter MacSwiney: The Joint Customs Consultative Committee has requested a return to postponed accounting; that is not popular with the Treasury, of course.
Kirsty Blackman
Q
William Bain: We are less concerned with the process than with the outcomes. The reality is that we need an operational statute book on 30 March 2019. As I say, some issues not dealt with in the Bill are very relevant to the process of getting goods in and out of the country and to the customs process in the round. We would appreciate some further treatment of those issues, such as haulage permits or what you do with people driving trucks into the country, who need permission to move from Belgium into the UK. Some issues that we think are important in the customs process could be addressed by the Bill.
Peter MacSwiney: The JCCC was keen that the legislation should reflect how business actually works. That was why we requested some input into the primary legislation, which was refused. The problem you have potentially is the interpretation of the law. You have two options: if the law categorically states, “You can do this”, that is fine—but if the law does not categorically state that you cannot do it, can you still do it? Those may sound like very similar points of view, but actually they are not. It depends very much on the interpretation of the authorities as to how much flexibility they will allow trade. There could be a clearer guide on the facilitative, rather than being prescriptive of the letter of the law.
Kirsty Blackman
Q
Anastassia Beliakova: The Bill, as has already been said, is very facilitative of all possible future options. Because none of them seem to have been narrowed down at the moment, it is very difficult for businesses to prepare. There is the working assumption that imports VAT is something that they will have to deal with once we leave the EU VAT area, but again that has not been fully clarified. Hence, with this kind of situation, businesses are still waiting for further clarity.
Gordon Tutt: On a technical level, when it comes to having the legislation and the systems ready, the time period to take on not only the technical changes but the additional volume and participants that may be required is very challenging. We should learn a lesson from the implementation of the UCC, which was introduced without very much thought about how it could be introduced within the timescale; subsequently, the concept of transitional regulation was introduced to allow trade and the member states—the customs authorities—to have time to adopt the changes. Our legislation in the UK perhaps needs to reflect better the ability to introduce transitional elements, where required, in a controlled manner.
Peter MacSwiney: Our concern, on behalf of our customers—predominantly freight forwarders—is that they are only just beginning to realise the extent of the changes. They are also just beginning to wake up to the fact that they are going to have to talk to their customers. From that point of view, I do not think they are particularly prepared at all.
William Bain: We have good lines of engagement with HMRC. We are having a meeting at the BRC with customs and tax experts from our member companies on Thursday, so we welcome that, but clearly there is only so much you can do when you do not know what the trading conditions will be the day after Brexit. We do not have clarity as yet on the transition. That is critical for business, in terms of the investment decisions being made in the first quarter of this year, and it is also about getting enough staff trained up and the IT systems changed and ready. All of those things take time, and getting the earliest possible clarity on as much of the terms of the transition as possible would be welcome—as early as possible.
The Chair
I would love to call Grahame Morris, but I cannot, because he has lost his voice. Anneliese will ask a question for him.
Peter Dowd
Q
Anastassia Beliakova: It would be very difficult to assess, because there are a number of factors. One is just the cost of a customs declaration. That will perhaps be more challenging for a smaller business that is trading ad hoc. If you are a large business trading at big volumes, the cost will be quite marginal for you.
But then there are other considerations. There is the time issue. Are you going to factor in any potential delays? If so, does that mean you have to provide for more warehousing facilities? Does that mean you have to keep an inventory? All those things are very difficult to quantify for a median figure, but they are things we know our members are starting to consider—some quite actively.
William Bain: If you move away from a just-in-time supply and sourcing mechanism, you have to look at stockpiling. That means you have to look at extra warehousing capacity. You have to change IT systems in terms of VAT and customs. All that comes at a cost for businesses, at a time in which we see the pressures in terms of footfall and retail spending.
Peter MacSwiney: As a software supplier, we support about 350 companies in probably 800 locations. We estimate that making the necessary changes, just to roll out our system, is going to cost in excess of £250,000 over the next two years. I do not know whether that is any help to you.
Gordon Tutt: One of the other issues is underwritten by the fact that some of the changes being introduced to the software systems would have been required anyway as part of the requirements to meet the UCC—new data set, new message types, more engagement in terms of electronic transactions. In addition, we are already working on CHIEF replacement, so the costs of that are already borne as part of the decision to replace CHIEF. As high as these costs are for some of the software suppliers and some of the trade sector, some of that cost would have already existed had we decided to remain within the EU.
Kirsty Blackman
Q
Peter MacSwiney: I think there is a structural issue. It is the view, certainly at the airports, that freight is the poor relation where the Border Force is concerned.
Anastassia Beliakova: I would say it is both. It is very difficult to assess within the Border Force how much emphasis is given to goods checks versus checks on people. We have heard from members that it seems as if the focus has definitely shifted over the years. It is therefore an area that would require either a change of focus with more focus to goods, or more people dedicated just on goods checks, from our perspective.
The Financial Secretary to the Treasury (Mel Stride)
Q
Would you describe HMRC’s engagement with yourselves—your own organisation, in the context of the discussions and the issues we have gone over today—as having been good, average or poor? Starting with Gordon.
Gordon Tutt: Very good.
Peter MacSwiney: I endorse that.
Anastassia Beliakova: Very good.
William Bain: Good, but we need answers on what is going to happen.
Jonathan Reynolds
Q
Sue Davies: I want to say at the start that from the perspective of Which? we focus on making sure that we get the best outcome for consumers from Brexit. We took a neutral position on the referendum, and that also applies to trade policy. Our interest in the Bill lies in making sure that it is as explicit as possible, within that, on how consumer interests will be taken into account.
In relation to what is in the Bill and what is dealt with by subsequent legislation, we want to make sure that any changes are limited to technical matters, and that anything with wider policy significance—particularly given the sensitivities of trade issues to some extent—is dealt with openly, so that we can see and weigh up its pros and cons. We feel that some aspects of the Bill need to be strengthened to make the consumer interest more explicit. There is recognition in the Bill, for example, of the need to take into account consumer interest when setting import duties. We also strongly support the inclusion of what is called the economic test in relation to trade remedies, because we want to make sure that we have a thorough understanding before we potentially raise consumer prices in order to support particular industries. There are aspects of the Bill that we think are important, but we also think that there could be greater clarity to make sure we see how the consumer impact will be assessed.
Helen Dennis: On the delegated powers issue: across the board we do have some concerns, more so with the Trade Bill and the process for agreeing future trade deals than are necessarily within this legislation. Here, we do have a lot of delegated powers around setting tariffs, establishing rules of origin. We are thinking about it from the perspective of developing countries, where in some instances there is a high dependency on the UK market and where there are products with tight margins, so changes to tariffs could make or break the livelihoods of producers. If you were to ask for a vote on every single tariff change, that would not be workable, so this is about finding the right balance in terms of moving forward.
It is a question to throw back to parliamentarians: to consider the role that parliamentarians feel they should have around parliamentary scrutiny, consideration of different tariff changes and rules of origin—the things we were discussing earlier. The Government have set out quite an ambitious vision about trade for development, for example in their trade White Paper, in which they want to use trade policies to improve access for developing countries. At the moment, however, we do not see those improvements in this legislation, because the focus is on continuity and maintaining the status quo for now, but we do not want to lose sight of future improvements and future discussions. I would say that actually, as things stand at the moment, there should probably be a process whereby Members of Parliament can call things in or request further scrutiny, but that is part of the wider discussion about trade policy going forward, including how the Houses want to be involved in that and how public consultation is built into it. It is something that needs to be thought about in tandem with the ongoing discussions about the Trade Bill, as well.
Jeremy White: I have a problem with the structure of the Bill, the consequence of which is that parliamentary scrutiny will be excessively difficult. I can illustrate that with this visual aid that I have brought in, which is a handbook that I edit. This is the regulatory framework for customs duties in the Union—the Union Customs Code—and its guidance. The UCC and its implementing provisions are about this wide, very finely typed—about 1,300 pages. The rest—this part here—is the necessary European and national guidance on the matter.
Therefore, when we think about the implementing provisions, of which we have maybe 15 or 20 pages of detail in the Bill, which are meant to be implemented by this, we know that the statutory instruments are going to be an enormous burden. The problem is that the Bill is overly ambitious. It fails to distinguish between those provisions that I will call just charges and the machinery—the regulatory framework. This book does not concern the charges, the tariff schedules, the trade instruments or the preferential agreements. They are in another book, of about the same size. I am not concerned about those, and the Bill would deal with them.
The trouble is that it brings into force the repeal of the UCC, in effect, on exit day. That being so—it is hard-wired into the Bill—its commencement provision requires there to be statutory instruments of this magnitude on exit day. The problem is that since the destruction of the Bill is a recast, they will be recast into other, English language. Such an approach might be appropriate for a no-deal arrangement with the EU, but it creates burdens of cost and risk in respect of any trading activity that follows afterwards, particularly if we have any transition period at all or are subject to obligations under the leaving treaty—I will call it the leaving treaty, but whatever it is—to preserve the regulatory framework of the UCC.
To be realistic, we cannot expect the EU to be in favour of or agree to any kind of regulatory framework that is different from the UCC. The UCC is what they have budgeted for. At the moment, it is in an implementation phase; we will probably come to that in other questions, and the problems of the timetable for its implementation now that, yesterday, the Commission has endorsed a report following the revised road map for the implementation of the UCC, which I could cover later.
The primary point then is that if we have a complete recast on exit day, anybody who is involved in trade, particularly if we have obligations to retain the same effects as the UCC, will have to be looking at both the UCC and the English implementation at the same time for every single piece of endeavour—almost every importation. As I said, the scrutiny will not just be on the basis of whether the legislation achieves its objective with respect to any changes from the UCC; it will also have to look at it on the basis of whether it preserves the effect of the UCC that was intended. That is an enormous burden, and I would say that it makes parliamentary scrutiny unnecessarily and excessively difficult.
Kirsty Blackman
Q
Jeremy White: That is an important point. The CIOT’s report brings out some evidence of some members having already amended their supply chains in order to cope with arrangements, because of the uncertainty. Uncertainty is a burden that trade faces at the moment, and it has to make decisions about it, so you are right. The CIOT has noticed that clients—enterprises that are members—are changing their supply chains because of the uncertainty, so anything that the Bill can do to reduce uncertainty would be good. For example, if the Bill can, by its commencement provisions, instead allow the withdrawal Bill to operate—therefore the UCC is automatically incorporated—and then exercise the powers to modify that application, that will reduce a lot of uncertainty and there will be no need to read this book—the UCC—and the English version. This book has to be read anyway, and this, and there will be a very small amount of variation where we want to improve on the UCC for the United Kingdom.
This is about uncertainty and cost, and what enterprises want to do. Everything can be resolved by law and by allocating resources to the issues, but that just increases cost, besides the parliamentary scrutiny being a burden for Parliament and for those who want to assist it—charities such as the CIOT and so on. Businesses themselves will see this as an issue of cost that it is unnecessary for them to incur.
Kirsty Blackman
Q
Helen Dennis: There is certainly that intention in the legislation, and that is good to see. Certainly, bringing forward a UK preference scheme and guaranteeing in law the duty-free, quota-free access for the least developed countries is all very positive. It takes the best bits of current EU policy and brings them over into UK policy. What we are grappling with at the moment is those countries that do not qualify for that access, which are not LDCs but still have developing country status in some way; they may have an economic partnership agreement or a free trade agreement. We do not yet have absolute clarity and guarantees that their market access will be preserved in the same way. There is definitely a stated intention from Government, but not a guarantee.
I would say we have heard more than we have seen. Obviously, the next six months or so are going to be critical. What we have heard were potential discussions about people changing their sourcing—away from Kenya to Ethiopia, for example—in relation to cut flowers, and discussion about trading routes: things that currently come via other EU countries into the UK, whether that is flowers via the Netherlands or tea or coffee that is processed in Germany. There is lots of complexity around every commodity. I would say that at the moment there has been more hearing than seeing action, but I think the next few months will be crucial.
The challenge of one of the points that we have been trying to make with quite a short submission about this is that because we do not have an absolute guarantee at the moment that the transition of the economic partnership agreements and free trade agreements will occur in March 2019, although we know that the Government are working hard on it, we want to ensure that the preference scheme is able to accommodate additional countries that may not be listed in the schedules at the moment, as a kind of fall-back option in case we cannot transition those free trade agreements and so on over in time. Obviously, we want to avoid the cliff edge for developing countries just as we want to avoid the cliff edge for UK business.
The Chair
We welcome Barbara Scott to the panel. Barbara, would you like to introduce yourself?
Barbara Scott: My apologies for the Metropolitan line this morning. I am the director of Customs Associates. I am an independent customs consultant and have been for many years, advising businesses on importing and exporting, currently for trade outside the Union.
Nic Dakin
Q
Sue Davies: We have the economic significance of affected industries and consumers and the likely impact on affected industries and consumers, which enable a wider public policy consideration. For example, there have been remedies in everything from salmon to solar panels in the past. We have got the likely impact on particular geographical areas, which is about regional aspects, and the likely consequences on the competitive environment. So there is a wider competition check, and that is where it will be important to make sure that the Competition and Markets Authority is consulted.
We think the criteria are right. It is how it is done. At the moment it says, “They can take account of the following so far as relevant,” whereas we think it is really important that there is a transparent impact assessment, so we think the wording there could be clearer about how it is doing that modelling in assessing the impact. We felt that the criteria seemed sensible.
Barbara Scott: What also needs to be in there is perhaps timings. At the moment, when we have trade remedies under the EU legislation, it takes an inordinate amount of time to put them in place. If we can have something in our legislation that is timeframed and more clear, with a shorter timeframe, that will be a big plus.
Kirsty Blackman
Q
Barbara Scott: Currently, we have a bit of a divide between HMRC and Customs and how it operates processes such as economic operators, which Border Force does not come online with. No matter what we do to facilitate authorised economic operators—I detest that term—Border Force will still carry out the same controls whether a trade is authorised or not authorised. That really is something that discourages businesses from actually becoming an AEO.
There is a lot of talk about our not having a high number of AEOs in this country. That is because UK Customs has looked at trade facilitation as far as it can, and was quite facilitative to business before we even had an AEO system. For larger traders, there was a lot of facilitation allowed, whereas perhaps some other EU countries, particularly before the UCC, were not so facilitative and have used that AEO process to be more facilitative, which is why traders in, say, Germany have become authorised and in the UK they have not.
The benefits of AEO currently are very small, which is why I was pleased to see within this Bill that there are opportunities for having different levels of AEO. That could be a particular help to small businesses that cannot get over the extremely high bar that exists at the moment. Something that is smaller—a sort of bronze star for SMEs—might be better than the gold star that a multimillion-pound business can afford to obtain.
Mel Stride
Q
Jeremy White: Technically, I think you would be safe if you amended the commencement provision. At the moment, the way that it operates on exit day is that the repeal in schedule 7 of the taxation Bill automatically repeals the effect of the withdrawal Bill, which would otherwise preserve the UCC as retained EU direct legislation. You would have to effect the taxation commencement provision. That would have to be amended, so that on exit day it no longer immediately repealed the UCC. Then the withdrawal Bill would operate.
Clearly, we would identify some modifications that are required, some deficiencies, and we would have power under regulations, under the withdrawal Bill, to make regulations amending an unnecessary effect or remedying a deficiency. There would also be power under regulations under the taxation Act itself to make regulations. Those regulations would have to be enforced on exit day.
Taxation (Cross-border Trade) Bill (Second sitting)
Kirsty Blackman Excerpts(8 years, 8 months ago)
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Kirsty Blackman (Aberdeen North) (SNP)
Q
Alan Runswick: My specific area of expertise is Her Majesty’s Revenue and Customs, but I do know a little about Border Force, which has suffered cutbacks in staffing over the period. I am also aware that Border Force is the first line, as it were; if you go through a port or airport, you will see Border Force there. I used to work for HM Customs and Excise, actually, but transferred into that. Certainly there are now huge areas of the coastline that do not have any protection, effectively, by the civil service.
The other major concern for us is that Border Force is the first line of defence but its powers are limited; for many things, it then has to contact HMRC staff, which it calls in to take the next step, as it were. The clock is already ticking under the Police and Criminal Evidence Act 1984, once Border Force has made some sort of intervention.
One of the major issues that we are facing now is that HMRC is already under quite considerable pressure because of the staff cuts over the last decade. However, just as Brexit is happening, the Department is planning to shrink back from its current estate into just 13 regional centres and five specialist sites, leaving the majority of the ports and airports very large distances indeed from the nearest HMRC office. The time that it would take to travel—if you are called out, any time of day or night—to assist Border Force in dealing with smuggling, interventions and that kind of thing will clearly be a major issue for delivery of working between HMRC and Border Force.
For example, there will be no HMRC office north of Glasgow and Edinburgh—nothing in Scotland except Glasgow and Edinburgh. There will be no HMRC office in the south-west other than in Bristol, which in fact is hardly the south-west; if any of you know the south-west, you will realise that. There will be no HMRC office along the south coast dealing with this kind of intervention. So HMRC is closing offices in places such as Southampton and so on—indeed it is closing this work on the east coast around the ports of Felixstowe and Harwich, with the closure of the Ipswich office.
So we think that there will be a real struggle to deliver the work that HMRC does with Border Force in that situation. My union believes that HMRC should pause the office closure programme until it is clear what the Government will need HMRC to do in a post-Brexit situation.
Kirsty Blackman
Q
Alan Runswick: First, I need to say that my union does not have a position in principle on whether the country should leave or remain and specifically does not have a position on whether we should remain in the single market or the customs union. We are neutral on those questions. In terms of the impact on jobs, we are concerned about the uncertainty of the position and what the future might hold. Are you talking specifically about jobs in the civil service, or jobs in general across the economy?
Kirsty Blackman
In general.
Alan Runswick: As far as the economy is concerned, I would defer to my colleagues here on that position. The position in the civil service is clearly going to be massively impacted depending on whether Britain remains in the customs union or joins a customs union, or what the terms might be if there is no customs union. That is a huge period of uncertainty as far as we are concerned. The jobs and delivery impact of that from my union’s point of view is that it is impossible to say what would be needed.
At the moment, HMRC are actually making people redundant. As offices close, staff are being laid over and years of experience are being lost, at a time when our chief executive is forecasting that we might need to recruit 3,000 to 5,000 extra people. It is complete madness as far as we are concerned to make experienced staff redundant because they are not in the “right area”, when we might need to recruit people. So there is a jobs impact within HMRC. In terms of the wider economy, I defer to my colleagues from the other trade unions.
Kathleen Walker Shaw: A major concern of a lot of unions involved in manufacturing, as well as the concerns about properly protecting and supporting industries in terms of remedies, is that so many of our industries that export or import components or elements of their production are reliant on just-in-time processes. With many products, the margins are so tight that even the slightest delay or friction in terms of the movement of goods will put us out of competition.
As Alan rightly pointed out, we do not know what the Government’s objectives are in terms of future customs relationships with the EU or beyond. In our conversations with other unions that work on borders or in shipping, we are trying to get a picture of where the lock points are. In terms of policy, we are pushing to guarantee smooth administration and as little friction as we can in terms of the movement of the goods, to preserve the just-in-time production processes that so many industries rely on. That is not just about being competitive—in the food sector for instance, it is about getting food there in a state in which it can be sold. We cannot give fixed numbers because we are dealing with the unknown, but it is important not to underestimate the multi-chain effect of things going wrong and policy not being the right one in terms of border administration.
Some of you may have already seen that some groupings of German and French federations have done assessments of what various types of Brexit might cost. Some of the figures from the German employers federations in terms of the added costs of a not positive Brexit agreement are eye-watering. We wish that we had a little bit more of that investigation going on at Government level as well. We have to know what we are facing. At the moment we are living with the fear of what we know through working at hands-on level with the production structures across a number of industries.
Rosa Crawford: Can I just add a perspective from across the union movement, because obviously the TUC represents a majority of trade unions in the UK? Our position is that any future deal with the EU must protect jobs and must protect rights. We have said that the Government were acting recklessly to take a customs union and single market membership off the table at this early stage in the negotiations. We know that it is important to protect rights and to ensure that UK workers do not fall behind those in the EU. We should have single market membership as an option on the table, because that provides an assurance of rights backed by the European Court of Justice.
Ensuring barrier-free, frictionless trade is a very important part of our position and our statement of intent for any post-Brexit deal. Customs union membership is one way of achieving that, but what we see in the legislation is only the possibility under clause 31 of joining a customs union. The terms are not clear and we would need to see the detail. While we are clear that there are risks in not having a relationship that ensures tariff-free, barrier-free, frictionless trade and great costs associated with adding customs checks, which my colleagues have talked about, we have not seen any detail of what the Government are offering. We need to see that detail to protect jobs and our members’ livelihoods going forward.
The Chair
I am going to call Emma Hardy. I ask witnesses to make their answers a little shorter, because several Members wish to ask questions.
Anneliese Dodds
Q
The question that I wanted to ask was, do you think there might be a role for sunset clauses in relation to some pieces of delegated legislation?
Joel Blackwell: I warmly welcome the House of Lords Delegated Powers and Regulatory Reform Committee report, which took the unusual step of publishing its report on this Bill while it was still in the Commons, as it did with the European Union (Withdrawal) Bill. Usually it waits until its introduction in the Lords. The report raised the issue of sunset clauses, which are very important in terms of the links between making changes to EU law in the European Union (Withdrawal) Bill and doing that through clauses 42, 45, 47 and 51. It makes valid comments on the potential of those powers. The powers are not required to be used in perpetuity, and sunset clauses, such as the ones inserted for clauses 7, 8 and 9, would bring some consistency, and that makes perfect sense. We would support the view of the Delegated Powers Committee on that point.
Kirsty Blackman
Q
Joel Blackwell: The negative procedure is the default procedure for scrutiny of delegated legislation, and in this Bill that represents that fact; the majority are subject to the negative procedure. Again, referring to the Delegated Powers Committee report, we would agree with the clauses they highlight that they think are negative and should be affirmative, particularly the ones that are what we call Henry VIII powers amending primary legislation. That Committee has always said that there needs to be a compelling reason why a negative procedure would be adequate for Henry VIII powers. Reading the delegated powers note, I cannot see a compelling reason; I think they should be made affirmative.
Emma Hardy
Q
Joel Blackwell: Of course. At the moment, the Chair of the Procedure Committee, Charles Walker, has tabled amendments that would introduce a sifting mechanism for clauses 7, 8 and 9 of the European Union (Withdrawal) Bill, which means that for those SIs laden with those powers that are subject to the negative power, a new European statutory instruments Committee—in the House of Commons only at the moment—would have the ability to recommend an upgrade if it thinks it more appropriate that the negative should be subject to the affirmative procedure.
At the moment that is only a recommendation; the Government is not obliged to follow that recommendation, and we have concerns about that. We proposed in September our variation of a sifting committee, which would combine the sifting mechanism with Committee scrutiny. That is in keeping with what we call the strengthened scrutiny procedure, but many others call the super-affirmative procedure: if you see a power in a Bill that you think is extremely wide—particularly if it involves numerous policy areas and Government Departments—you would say, “The affirmative is probably not rigorous enough; we would like a more rigorous procedure than the affirmative.”
You would create what we call a strengthened scrutiny procedure, which is in essence Committee scrutiny work. It is not just sifting; sifting is one element of that super-affirmative, but it potentially involves the ability to table conditional amendments as a Committee, and the Government being obliged to listen to those recommendations. That was the Committee we wanted to see—a Committee with teeth. At the moment, we do not think the amendments tabled by the Chair of the Procedure Committee go very far, and we would like to see more amendments tabled to the Bill, particularly in the Lords, that would give that Committee more bite, in keeping with strengthened scrutiny procedures.
Kirsty Blackman
Q
Joel Blackwell: I think that the Hansard Society would like to see an equivalent Delegated Powers and Regulatory Reform Committee, first off, in the lower House—or some MP in the composition of a Joint Committee or what have you. That would be a good opportunity.
I think that delegated powers notes are extremely useful documents. This one is 174 pages long. There are well over 150 delegated powers in the Bill. Some of the justifications I am struggling with, particularly as regards the use of urgency and non-urgency. I think time is an issue here, particularly if you do not have the backstop of further scrutiny by a Chamber—the second House—that is usually very good at looking at delegated legislation and has taking the lead on it in the past.
When we were doing a similar Bill, which became the Welfare Reform Act 2012, a call by many MPs on the Public Bill Committee at the time was that it would be really useful if they had draft regulations alongside the scrutiny of the Bill. You could do things like that to improve scrutiny of delegated powers but, fundamentally, the lack of representation, the fact that you would have to wait for the Bill to get to the House of Lords for a report to be published, is an issue.
Perhaps one way around that is that the House of Lords Delegated Powers Committee does what it has done for this Bill and the European Union (Withdrawal) Bill, and publishes, as usual practice, the Bill as soon as it enters the House of Commons.
Anneliese Dodds
Q
Joel Blackwell: On the first point, with regards to sub-delegation or tertiary legislation and this use of public notice, the fact that they will not be subject to any parliamentary scrutiny is concerning. We basically reiterate the points made in the Delegated Powers and Regulatory Reform Committee: that if public notices can do the same as regulations they should be subject to parliamentary scrutiny, just as regulations would be. Sub-delegation is an issue for us because there is a lack of parliamentary scrutiny. In some cases it might not be appropriate, but it should still be considered as usual practice, and at the moment it appears not to be.
With regard to the Trade Remedies Authority, the Hansard Society has not really considered that yet. My colleague Brigid has probably, as I speak, just finished on the Trade Bill, so I am happy to write to the Committee about our points on that.
The Chair
Kirsty Blackman, this will probably have to be the last question, depending on how lengthy the answer is.
Kirsty Blackman
Q
Joel Blackwell: I am afraid I am not a lawyer, so I am not particularly comfortable answering that question, but there is an issue with regards to the hierarchy of primary and delegated legislation. As much certainty as possible is a big thing for lawyers.
The Chair
Are there any further questions from the Committee? No. Thank you for your time and services this afternoon, Mr Blackwell.
Examination of Witnesses
Tim Reardon, Robert Windsor and Richard Ballantyne gave evidence.
Kirsty Blackman
Q
Tim Reardon: From our perspective, it would depend on what the nature of the customs union was—whether it provided for goods to move freely between the UK and the EU without any form of declaration, or whether it related only to customs fiscal controls. For example, if the agreement did not also cover animal and plant health standards, you would end up with a significant chunk of the traffic still being controlled. Only stuff that did not contain foods or anything like that would be within the scope of that customs union agreement.
Clearly, if the effect of any agreed union was to replicate the existing arrangements, we would expect no disruption to the movement of goods, but to achieve that it would need to be a very broadly drawn union agreement that extended beyond purely customs fiscal issues.
Richard Ballantyne: I run an association. We are not a political organisation, so we took no side in the referendum. Statements such as, “We think the UK should or should not be in the customs union” are difficult for me to make. What I would say, which is a bit of a cop-out, is that we are looking for a deal that might be able to secure as many of the current benefits that we have through customs union membership as possible. That is a basic, raw point for us. It is all about trade facilitation, so any kind of arrangement that continues the frictionless transport of goods between the EU and the UK is essential. That is felt most at the roll-on, roll-off ferry terminals that we have mentioned.
Robert Windsor: BIFA’s position is always that we should maintain something as close to the present arrangements as possible. That would be a customs union that is as close as we can possibly get.
That is important for two reasons. People tend to focus on import work, but we venture that exports are actually more important. If we can have an agreement that the EU27, as they will be, find acceptable, we feel that that is important. That gets particularly important when you put a truck into France. If you have an accepted agreement, it can pass through other member states. That is one of the things we are concerned about. If you have a shipment going from here to Poland, for instance, it may have to transit two or three member states. We think it is very important to have something that would permit that. My colleagues are absolutely right that it is not just the fiscal stuff; it is all the agreements that are not in it about access to the market, truck regulations and all those sorts of things.
Kirsty Blackman
Q
Tim Reardon: It is very much a concern. Dover has by far the biggest number of vehicle units entering and leaving the UK. It is the biggest gateway to the UK— 2.6 million trucks passed across that terminal last year. That compares with, for example, 750,000 between Dublin and Holyhead and Liverpool collectively, or 750,000 across the north channel between Northern Ireland and Great Britain. There are big flows out of the Humber and the Thames, but we tend to use Dover as a shorthand because it is where the problem is. It is the UK’s biggest gateway for roll-on, roll-off freight.
Chris Davies (Brecon and Radnorshire) (Con)
Q
Tim Reardon: Certainly. There is not a straightforward comparison because, by and large, the types of ships that come from our near neighbours are different from those that come from further afield, but in principle a vessel arriving from one of our European neighbours needs nobody’s permission to come here because its movement is free. The port to which it goes does not need to have approval from anybody to handle it, because it falls within the scope of free movement within the European Union. In theory, the ship could pole up anywhere around the coast and do what it wanted to do. In practice, of course, it goes to a place that has facilities to handle it. Just as the ship is free to come and go as it pleases, so the goods and vehicles on board are not subject to control and can drive straight off the ships ramp, through the terminal and out through the dock gate, unless one of the control agencies has intelligence that leads it to want to make an exceptional intervention in that movement.
By contrast, a vessel coming into the UK from outside the European Union can arrive only at a port that has been approved by Her Majesty’s Revenue and Customs to receive traffic from outside the European Union. It is required to tell Revenue and Customs that it is unloading cargo on to the quay, and to tell it what that cargo is. That cargo is then not permitted to leave the confines of the port until Revenue and Customs has given permission for it to go. You have a contrast between essentially a completely free arrangement, as you would have for any domestic traffic—a ferry between Hampshire and the Isle of Wight, for example. Traffic goes, the ship goes, and there is no intervention on it anywhere unless the police have a reason to stop it. Compare that with an international arrival from outside the European Union where every single stage requires somebody’s permission.
The Chair
I call Kirsty Blackman. I am aware the Minister responding to the debate in the Chamber is on his feet, so we may well be interrupted for a vote; it will be up to the Committee to decide whether it wishes to resume with this panel after the vote.
Kirsty Blackman
Q
Richard Ballantyne: Not easily, but some will have slightly more space than others, and they may have facilities down the road that could be turned into use. We hope it does not come to that. We are working with Government to push forward some kind of arrangement that is not conditional on checks that cause such delays. That is not good for freight, or for prices of goods and products, and things that manufacturers use, and things that end up in shops.
Kirsty Blackman
Q
Tim Reardon: We hear a lot of talk about it, but I think on every route that has published its traffic stats for last year the freight volumes have risen from what they were in 2016. First, of course, that is a national success story; it is an indication of economic health. It is great for all the businesses that we all represent, which handle that traffic, but of course it means that the system overall is increasingly full. There is not a great deal of spare capacity cumulatively across the UK.
The issue is more than just space on the terminal. The road network serves two or three main gateway points into and out of the UK. There needs to be a really good-quality landside connection from the terminal, to enable it to flourish; it needs more than just space on the berth. It would be very, very difficult to flick a switch and say, “Actually, the traffic will go somewhere else”.
Richard Ballantyne: Towards the end of last year, there was a new direct service from Zeebrugge to Dublin for roll-on roll-off traffic, and there was a lot of noise about, “Look! That’s a consequence of Brexit”, but when you actually looked into that investment, it was probably made before the referendum. There may be people looking at further direct calls from the Republic of Ireland to continental Europe, but as of yet we have not seen them.
Robert Windsor: Many of my members are multinationals —European-based forwarders. I know that there are discussions about this issue, which is inevitable given the situation, but we have not seen anything move yet, as such. What we are receiving is a lot of inquiries from European-based freight forwarders with no UK base who are inquiring whether they can establish in the UK because they obviously see an opportunity the other way round.
Richard Ballantyne: The warehousing industry is looking at potential new sites because they see that there could be further interruptions to trade flows, where they would need more storage.
Anneliese Dodds
Q
Richard Ballantyne: The British Ports Association is part of the European Sea Ports Organisation, which has a meeting tomorrow on Brexit that I am going to. It includes some of the main UK-facing ports, such as Dublin, Zeebrugge, Calais and beyond. It has been quite difficult. Some of those ports are state-owned, and it is quite difficult for the UK Government to talk with them, although there have been a number of information-type visits looking at customs arrangements as they are and what the operational situation will look like post-Brexit. We have good conversations.
In terms of what is going on with the customs authorities in those countries, it is varied. There is a French customs taskforce—that is an internal taskforce—that I think the ports there are plugged into. I went to see the French ports association to talk about Brexit, and it seemed on top of things, but it is a difficult one. There is a lot of mystery there. Just as the UK Government cannot divulge all the discussions they are having, the ports cannot divulge everything to us. They have to remember that negotiations are being led through the European Commission, so that is the correct avenue.
The Chair
We have quite a few questions, so maybe somebody can come back to you on that point if they need to. Mr Stace, did you wish to come in at this point?
Gareth Stace: There is a lost opportunity in the Bill in terms of looking at what is happening in the EU, which Laura has highlighted, particularly on changes that are taking place at EU-level on how it tackles the lesser duty rule—the UK Government have firmly said, “No, we are not going to follow that; we are going to do something different”—and how it treats non-market economies or economies that subsidise their industries. The Government are saying, “Yeah, we will follow that,” but because the detail is not really there, as Laura said, are they going to follow it to the letter, which would be great, or just broadly in principle? That is that whole thing of everything—I am sure you had already heard that before I arrived.
The problem with this Bill, and also with the Trade Bill, is that the proof will always be in the pudding. The Government can promise anything they like, but more than a third of all tariffs in place affect the steel sector and it hits us hard, therefore, if this system, when it comes out, is not appropriate for what it is trying to do. That is why we, in this primary legislation stage, are putting that in so much detail. Why are we doing that? Because we just do not know whether it will be in the secondary legislation or the guidance. That is not our fault; we have to set out our case in full now, at this stage. If the Government said to us, “Honestly, trust us completely and utterly. It will be in secondary or it will be in guidance, to the letter of what you are asking for,” then great, but at the moment we are sitting here very much in the dark. When we talk about day one from when we leave the EU, is that day one next year or day one in 2021? We do not know. If it is next year, we should be planning right now for doing something very different very soon.
Ian Cranshaw: One of the issues is the fact that these things cannot be rushed. We know that they are very complicated. The trade defence instruments modernisation programme in Europe took more than four years, and that is just in modernising a regime that has been in place for 40 years. One of the important concessions we got out of the EU somehow in the chemical sector, which we refer to as an enabling industry or a foundation industry, was about the importance of raw materials. On raw materials, the EU said, “Okay, if the raw material cost is 17% of the overall product cost, we will take in the raw material cost because we are aware of distortions that take place across many markets.”
We have one UK producer, which is specific in the UK, for which the energy cost is 40% of the total costs of the individual company, so it is hugely important. Its remedy is against Russia and gas coming out of Russia. Russia not only subsidises that industry, but does not observe the same environmental standards as we do. It has had every opportunity to do so, but it does not. There is a wider responsibility at play and that goes back to the comment earlier about it being in everyone’s interest to get this right.
Kirsty Blackman
Q
Gareth Stace: No.
Dr Laura Cohen: No.
Ian Cranshaw: No.
Kirsty Blackman
Q
Gareth Stace: Those remedies might well be challenged, in the sense that anyone can challenge anything, but that does not mean that they should not be rolled over. It is our firm view that the UK Government can roll over all the remedies that are applicable to the UK within World Trade Organisation rules, and we have set that out very clearly to the UK Government.
We have heard lawyers. I gave evidence to the International Trade Committee, and there was a lawyer saying that it could not happen, but when we explained it to her she thought, “Ah yes, actually it could happen.” We need to remember that if they could not roll over from the EU to the UK because the calculations were wrong, because it is just the UK and not the EU, they would also all be invalid in the EU, because they are based on 28 member states and there would be only 27. I think they can easily roll over and will then be reviewed when those cases expire after five years.
Dr Laura Cohen: In our association, we appreciate the way in which the Department for International Trade is going about the consultation at the moment, just checking UK interest. Certainly, we are gathering evidence from our members on tiles and tableware, but the consultation is also forcing us to check the three or four other sectors where we think there could be some UK manufacturing interest. That is particularly in the technical ceramics and refractory areas, which are quite diverse and complex, and we need to take enough time to explore those properly.
Nic Dakin
Q
Dr Laura Cohen: I want to explain that the EU uses a Union interest test as a sanity check, to balance the possible conflicting interests of member states. The wording of the rules around that test are crucial. For example, in the tiles renewal that I just talked about, the Official Journal text says:
“In weighing and balancing the competing interests, the Commission gave special consideration to the need to eliminate the trade distorting effects of injurious dumping and to restore effective competition.”
It is essential, if the UK is doing that sort of test, that such clarity of purpose is in the Bill that you are considering. It is not at present.
I would argue, as my colleagues said earlier, that addressing dumping is always in the long-term consumer interest because it restores a competitive market. We would expect the Competition and Markets Authority to take strong action if UK companies were not playing by the rules. In the absence of international competition laws, strong trade remedies are the best we have. The EU is only one of five countries or areas out of 32 main anti-dumping users in using that type of test. In Brazil and Canada, it is a conditional test used in certain circumstances only.
What is the UK proposing? First, I want to state that the WTO does not require a public interest test. It appears in the Bill as if the UK is proposing something very new to replace the Union test. That seems to run counter to the principle that global free trade cannot mean trade without rules. As some of the previous witnesses said, three opportunities are provided to stop remedies against rule breakers. The text in the Bill suggests the three stages, the first of which is an economic interest test by the TRA. The research commissioned by the Department for International Trade strongly hints that that may contain a cost-benefit analysis and/or an economic model. No other country uses that approach. The USA tried it and stopped. The Union interest test is just a sanity check. Secondly, if the Secretary of State does not like the result by the TRA, he or she may overrule it with their own economic interest test. Finally, that may be overruled again by the Secretary of State’s public interest test. A recent article in The Telegraph—we can provide a link if the Committee wishes—alluded to the implications of a potential UK-China free trade agreement and inward investment being weighed up in such a test. If true, that would be highly alarming.
Those second and third tests are not carried out in the EU. They add a lot of uncertainty to the process, particularly with a very unclear presumption at present in favour of adoption of duties in the Bill text. No wonder some UK manufacturers are scared witless by this. I think you heard similar emotion from the unions. Manufacturers have enough uncertainty around Brexit to cope with, without the fear that if they bring a case, despite dumping and injury being found there will be three chances for that ruling not to be implemented, and they might have all sorts of legal challenge. We heard this morning that the Bill is not even clear if we can do that.
Oral Answers to Questions
Kirsty Blackman Excerpts(8 years, 8 months ago)
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Kirsty Blackman (Aberdeen North) (SNP)
Personal debt is the biggest worry for many people I meet. The figures released by the Institute for Fiscal Studies today show that a third of those on the lowest incomes are in net debt. This debt is persistent; it is a spiral that people get stuck in for years. What are the UK Government doing to improve the financial position of households with the lowest incomes?
Kirsty Blackman
Over a third of people aged under 45 live in households with financial wealth of less than zero. For too many people there is not enough money at the end of each month or each week. From next year individuals earning less than £26,000 in England will pay more income tax than they would if they lived in Scotland; how can the Minister justify that?
Finance (No. 2) Bill (Fifth sitting)
Kirsty Blackman Excerpts(8 years, 8 months ago)
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Kirsty Blackman (Aberdeen North) (SNP)
It is a pleasure to be here. I am continually impressed by the breadth and depth of knowledge displayed by the hon. Member for Oxford East, who has been a brilliant addition to the shadow Front-Bench team; I am pleased to be taking part in so many meetings at which she speaks.
The Minister has written a letter to the Chair, stating:
“I have tabled three minor amendments to clause 35. They replace amendments 3 and 4 already tabled which are withdrawn and make sure the schedule works as intended. They are in response to expert stakeholder feedback. The concern about amendment 3 was that it had unintentionally switched off the onward payment rule”—
which does not sound like a good thing—
“and also that amendment 4 had contained an incorrect cross-reference.”
These have been changed because of expert stakeholder feedback. Given the discussion we had last week, if we had taken evidence from expert stakeholders, the Government might not have had to make those changes at this late stage. The next time we have a Finance Bill, I would appreciate it if the Government considered having that evidence session in advance of the Public Bill Committee stage, not in advance of consideration by Committee of the whole House, as generally we are discussing the less technical matters at that stage. These are incredibly technical matters, and the Government have clearly made a couple of mistakes in their amendments. They might not have done so had we heard the expert evidence and been able to ask questions at that stage. I support the Opposition amendments and urge the Minister to respond to my concerns.
The Chair
I will allow the hon. Lady to make that point, although it is strictly out of order. I am sure that it has been taken.
Mel Stride
The clause removes certain transitional rules that are no longer required for the effective taxation of carried interest charged to capital gains tax. It amends the legislation that introduced the carried interest rules in the Finance (No. 2) Act 2015. The purpose of the rules is to ensure that where carried interest is subject to CGT treatment, CGT is paid on the full economic award.
Investment fund managers are rewarded in a range of ways for their work. One element of reward is straightforward income in the form of a fee, while another involves what is known as carried interest, which is the portion of the fund’s value allocated to the manager in return for their long-term services to the fund. The manager’s reward is therefore dependent on the performance of the fund. If the carried interest relates to short-term investments, it is rightly charged to income tax and national insurance.
The changes made by clause 37 make the tax system fairer by removing a limited exemption from the carried interest rules. That carve-out applied only to transactions before 8 July 2015 where there was a delay in the carried interest being paid out. By removing this exemption, we clarify and strengthen the policy intention. Furthermore, we prevent attempts to reduce unfairly the tax payable in circumstances not intended by the original legislation. To prevent forestalling, this clause, if passed, will have taken effect from 22 November 2017. It will ensure that carried interest is always subject to the higher rates of CGT on the full economic award.
The clause removes a transitional rule that is no longer required and puts the taxation of carried interest beyond doubt. Asset managers should pay the full rate of capital gains tax on their full economic award if it relates to long-term investments, and I therefore ask that this clause stands part of the Bill.
The Chair
Ms Blackman, you may wish to speak to new clause 2, but you understand that you will not, at this stage, move it.
Kirsty Blackman
Thank you, Sir Roger. New clause 2 is designed to enable us to find out more about the previous effects of this transitional arrangement. The changes that the Government are making to ensure that all carried interest is subject to capital gains tax at the higher rate are reasonable, but I am concerned about the transitional arrangement and its effect on the income of the Exchequer. Would it not have been better for the Government to make the initial change in the first place, rather than having a transition period in which they have received less tax and the disparity between the haves and have-nots—those who are receiving carried interest and those who are not receiving carried interest—has continued because of the transitional relief on carried interest from the higher rate of CGT?
It would be good if the Government told us the impact of the transitional relief on the income of the Exchequer, and therefore on the overall tax take. It would be good if they told us the differential between people who received transitional relief, and normal people who do not receive transitional relief and have probably never even heard of carried interest. It would be good if the Government came back with a bit more information.
We are clearly not opposed to these changes, but we are trying to find out more information and make sure that previous decisions on the matter were sensible. If we have an assessment, we can make better tax law. If we are looking at making changes, we can assess whether transitional relief is really necessary or whether we should move to a fairer system straight away, without the two-year period that has been instituted.
Mel Stride
I thank the hon. Member for Aberdeen North for her observations. She says that the principal rationale for a review is to consider whether certain measures might have been brought in earlier and, indeed, whether the original transitional measures should not have been introduced, or should have been done differently. I am not sure that that, in itself, is a strong justification for a review. What matters is that we look closely at how these measures will operate, and I am grateful for her recognition of the fact that our proposed changes are positive in that respect. I assure her that we will closely monitor the operation of the measures and whether any further changes are needed.
Question put and agreed to.
Clause 37 accordingly ordered to stand part of the Bill.
Clause 38
Online marketplaces
Finance (No. 2) Bill (Sixth sitting)
Kirsty Blackman Excerpts(8 years, 8 months ago)
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Kirsty Blackman (Aberdeen North) (SNP)
I thank the Labour Front-Bench spokesman for his support for the retrospective refund. If it is right to allow the VAT refund to be reclaimed now, it was right to do it four years ago when the changes were first made to fire services and the police in Scotland. Now that Scotland’s budget for frontline services has been reduced by £200 million, it is time for the Government to agree to give us back the money that our services have paid.
Finance (No. 2) Bill (Fourth sitting)
Kirsty Blackman ExcerptsThursday 11th January 2018
(8 years, 8 months ago)
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The Financial Secretary to the Treasury (Mel Stride)
The clause freezes the indexation allowance—a relief for inflation—for a company’s chargeable gains for disposals on or after 1 January 2018. It may be useful for the Committee if I set out the background to the clause, although other Members have touched on it, before I turn to amendment 48 and the questions posed by the hon. Member for Glasgow Central.
Removing this outdated allowance supports the UK’s competitive rate of corporation tax by removing a relief that is not available consistently across corporation tax to individuals, as the hon. Member for Bootle pointed out, or in most major comparable economies. In doing so, the Government recognise the importance of being fair and proportionate. As companies may have factored in relief for inflation before the autumn Budget, relief will remain available for inflation before January 2018. However, it will no longer be available from 2018 onwards.
Companies pay tax on the capital gains they make on the disposal of certain assets, such as property. In most circumstances, the capital gain is based on the rise in value of the asset over the period of ownership. Indexation allowance relieves a proportion of that gain from the charge to tax, based on the rise in the retail prices index, during the same period. Companies therefore pay tax only on the gains they make over and above inflation.
The economy and tax system have changed substantially since the allowance was introduced in 1982, when the rate of corporation tax was 52%; inflation in the preceding decade had been in double digits. While I certainly take on board the hon. Gentleman’s point about the current level of inflation owing to the depreciation of the pound and other factors, the Office for Budget Responsibility projects that inflation will peak at 3.1% and tail off towards 2% across the period. While there used to be a rationale for such an allowance, it has become something of an anachronism.
The amount of indexation allowance due is calculated by multiplying the purchase price of the assets by the indexation factor. As I set out, that is currently based on the increase in the retail prices index over the period an asset is owned, from the date it is acquired to the date it is disposed of. Going forward, the allowance will no longer be calculated by reference to the date an asset is sold; instead, it will be calculated by reference to the final month before the relief is removed—in other words, December 2017. That means that, where a company acquired an asset before 2018, relief from inflation will be available from the date the asset was acquired up to December 2017. The indexation allowance will not be available for assets acquired from January 2018 onwards.
I turn to the questions posed by the hon. Member for Glasgow Central. I recognise the points that she makes. While these changes affect corporation tax, they do, in the context of life assurance policies, have potential impacts on individuals and their income net of tax. I do not recognise the large number of 11 million policyholders that she mentioned. I am not sure what the source of that figure was. However, as she requested, I am happy to hear from her, speak to her or have a letter from her on any of the aspects she may have an interest in.
Kirsty Blackman (Aberdeen North) (SNP)
It would be welcome if the Government could offer clarification on the numbers before Report, because that will affect what we do on the clause then.
Mel Stride
That is perfectly reasonable. I am sure my officials are listening carefully, and we will ensure that we give a prompt response to the letter, which we await.
Opposition Members have requested a review of the revenue effects of this change. I am happy to say that the revenue forecast for the measure was confirmed by the OBR at the Budget as £30 million in 2017-18; it will raise £1.77 billion over the scorecard period. As per routine procedure, we will keep the measure under review through communication with affected taxpayer groups. I commend the clause to the Committee.
Finance (No. 2) Bill (Third sitting)
Kirsty Blackman Excerpts(8 years, 8 months ago)
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Kirsty Blackman (Aberdeen North) (SNP)
It is a delight to be in Committee discussing a Finance Bill again, although we seem to be discussing one every week. I hope we can move to a single fiscal event, and that we will have a single fiscal event this year, and not an extra one or two, as we have previously.
On the change to research and development expenditure credit, I completely agree with the comments about the need to encourage our companies to create good research and to develop excellent and innovative products. That need can be clearly shown by the lack of productivity growth in the UK in relatively recent years by comparison with our international comparators. Part of that is because companies have not been able to create or bring forward changes, including in how they run themselves, in order to improve productivity; and part is because the Government have been good at increasing employment, but those jobs are low paid and have low productivity. Increasing research and development is therefore a very positive thing.
As was mentioned by the hon. Member for Liverpool, Walton, the UK leaving the EU comes with an awful lot of added negatives, particularly in the area of research and development. One is to do with universities and their research. A lot of our universities do absolutely excellent research that brings forward products. A number of universities have spin-off companies that have been innovated as a result of research, and they are brilliant places for such research to be developed. A lot of that could not have happened without the level of international collaboration that has been possible. A big concern is that there could be a backward step.
Another thing is that companies will find it more difficult to export to the EU. Although the Government are clear that we will have frictionless borders, a very small number of people believe that. There will instead be more barriers to exports, whether tariff or non-tariff, so companies will struggle to find the profitability and extra cash to put money into research and development that they do now. That is a big concern for the future. Frankly, increasing research and development expenditure credit by 1% will not cut it as the fix, to make that change that we need.
My hon. Friend the Member for Glasgow Central mentioned the issue of ensuring that research and development can be monetised by companies. It is not good enough simply to create an excellent product; that excellent product or innovation needs to be brought to market and exported. Companies in my area have struggled with taking that step. They have got to the stage where they have been able to innovate, but either their intellectual property has been bought or they have not managed to get encouragement from banks to increase their capital. I appreciate what the Minister says about the patient capital review, which is a welcome step because of the funding gap. Companies being able to convert their excellent research into a product that can be sold and exported is a really positive thing.
Companies around Aberdeen in my constituency are involved in the research and development of oil and gas initiatives, particularly in the super-mature basin that we have in the North sea. We are one of the first oil and gas basins to reach the super-mature stage. We have the ability to innovate, and to do research and development that creates products that can be exported around the world when other basins come to that mature stage. It is appreciated that there is a research and development credit, but the Government need to continue to work to support businesses in making the next leap, so that they can take advantage.
Dan Carden
Does the hon. Lady agree that membership of the European Union has fostered a culture of research and development? We have innovation cities and other such initiatives. A 1% increase from 12% to 13% is not enough. We need the Government to show how they will innovate and work with companies to rebalance the economy from south to north when it comes to research and development and other such issues.
Kirsty Blackman
I agree with the hon. Gentleman. We have had many benefits from the EU, and just one of them is the level of innovation. As a result of the level of free movement that we have had, we have been able to get excellent people in to improve our research and development, and to collaborate with places overseas. Our universities, companies and hubs of expertise have been an incredible success story in recent years in terms of the research that they have been able to do. There is a brilliant hub around Edinburgh that is involved in robotics. It is hugely important to take those steps.
The Government need to ensure that they continue to foster that culture. Leaving the EU is a big problem, in terms of us not being able to bring those people here. The Government need to not only increase the research and development expenditure credit by 1%, but make changes so that the UK can be a nation that welcomes scientists and encourages them to come here and make a positive economic contribution, as they already do. We do not want to lose those people.
Alison Thewliss
The point about not losing what we have is absolutely crucial. The Strathclyde Technology and Innovation Centre at the University of Strathclyde in my constituency has had £89 million, including money from the European regional development fund, to set up cutting-edge industries. Anything that loses that or puts it at risk will have a hugely detrimental effect on Glasgow and Scotland’s wider economy.
Kirsty Blackman
I very much agree with my hon. Friend. A lot of these projects have been brought to fruition because of the benefits of EU money. The UK Government have not committed to filling the EU funding gap that there will be, particularly for universities and for the research and development of vital products that UK companies can sell on.
It is welcome that the Government are putting some focus on research and development expenditure. That is a positive thing. However, it is not in any way the end of the story. To simply stand still, the Government need to make significantly more commitments. We would appreciate the Westminster Government being much more positive about the innovation culture. They need to put their money where their mouth is and make sure they fund these things more appropriately.
Peter Dowd (Bootle) (Lab)
Again, it is a pleasure to serve under your stewardship, Mr Owen. I want to speak first to the points made by the hon. Member for Aberdeen North and then go on to my substantive comments on our amendment. It is worth noting what the hon. Lady says about funding research. Bill Gates, who knows a thing or two about research and development, said:
“I believe in innovation and that the way you get innovation is you fund research and you learn the basic facts.”
Are the Government funding research and development sufficiently? The answer, quite simply, is no. Neil Armstrong said:
“Research…is creating new knowledge.”
When set against that, the amount of research and development that the Government are funding, or indeed encouraging, is not creating that much more new knowledge.
Following on from the comments of the hon. Member for Aberdeen North about new clause 4, I am deeply concerned about the level of the Government’s research and development expenditure, particularly once we have left the European Union. The important question is not whether we are in or out—we are moving out; we recognise that—but how we fill that gap.
There is a rightly held concern that as a result of Brexit, the UK risks losing its reputation as a scientific powerhouse. In November, the Chair of the Public Accounts Committee stated that we are “sorely lacking” in leadership from the Government to maintain Britain’s position as a leader in robotics and in research to tackle climate change. She was responding to a National Audit Office report that highlighted that between 2007 and 2013, the UK was a “net recipient” of EU research funding and received more than £7.9 billion. In 2015, the UK Government’s expenditure on research and development was £8.7 billion, so it is almost equal.
The Government will have to make up the funding shortfall once we leave the European Union if the UK is to keep its status as a world leader in research and development.
Mel Stride
Clause 22 amends the definition of tariff receipts that are taxable to ring-fence corporation tax and the supplementary charge. Tariff receipts are income that oil companies receive from third parties for the use of their oil and gas assets. It is common for oil and gas producers to share the use of pipelines, terminals and other facilities, and tariffs are one type of commercial arrangement used in those cases.
The clause clarifies the fact that activities by petroleum licence holders in the UK and on the UK continental shelf that give rise to tariff income are oil extraction activities. That ensures that their treatment is in line with current industry practice. As a result of the change, oil and gas companies will have the certainty they need to continue investing in infrastructure. The change will also ensure that the Government can deliver on the Budget 2016 commitment to expand the investment and cluster area allowances so that they can be activated by tariff receipts. Delivering that commitment will encourage more investment in the strategic infrastructure that is crucial to the longevity of our vital national industry.
The Government introduced the investment and cluster area allowances at Budget 2015, simplifying the system for investors and driving new investment. The allowances replaced the complicated system of bespoke oil and gas field allowances. They give oil and gas companies tax relief by reducing the amount of profit that is taxable to the supplementary charge. The allowances are generated on investment expenditure on UK oil and gas assets and can be activated by income from the oilfield. The allowances therefore reward successful investment in UK oil and gas production.
At Budget 2016 the Government went further, announcing that they would expand the scope of the investment and cluster area allowances so that they could be activated by tariff receipts, in addition to the production income from the field. Including tariff receipts within the scope of the investment and cluster area allowances will encourage infrastructure owners to continue investing in the North sea’s vital infrastructure, for the benefit of third parties and to support the “Maximising Economic Recovery” strategy. Before the Government can deliver that commitment, however, it is essential that the current law is consistent with the objective of the policy.
Following an informal consultation with industry and analysis of the legislation, a degree of ambiguity was found in the current legislation, making it difficult to deliver the expansion as intended. The measure will resolve that ambiguity by clarifying that tariff receipts are treated in line with broad industry practice. The Government’s intention to clarify the legislation has been welcomed by the industry.
The changes made by clause 22 will provide oil and gas companies with the right conditions that they need to continue investing in the industry’s infrastructure. The clause amends the existing definition of tariff receipts to confirm that all tariff income earned by UK licence holders is an oil extraction activity, and therefore in the scope of the oil and gas ring fence tax regime. The clause also confirms that for ring fence corporation tax and supplementary charge purposes, there is no distinction between tariff receipts arising from old oilfields that are subject to petroleum revenue tax and new, non-PRT oilfields.
The UK oil and gas industry makes a significant contribution to the UK economy, supporting more than 300,000 jobs and providing about half our primary energy needs. To date, it has paid about £330 billon in production taxes. By clarifying the tax treatment in law for tariff receipts, whether they are generated from new or old oilfields, the clause will allow the Government to deliver their Budget 2016 commitment. That should encourage investment in the UK continental shelf. I therefore commend the clause to the Committee.
Kirsty Blackman
I congratulate the Minister on getting through that speech, because the subject of oil and gas taxation is incredibly technical and complicated. As the Minister has said, the clarification is welcome. Also incredibly welcome was the promise in the Budget this year to institute the transferable tax history changes that are required, and I appreciate the fact that that has happened. Industry has been calling for that for a while, as I have done quite a number of times in this room and in the main Chamber.
On “Maximising Economic Recovery”, which the Minister mentioned, it is two years since former Prime Minister David Cameron came to Aberdeen and said that an oil and gas ambassador would be appointed, but we still do not have that ambassador. Will the Minister let us know when we are likely to get the ambassador, or has the idea been shelved permanently?
Mel Stride
I thank the hon. Lady for her recognition of the moves that we are making on transferable tax history. I agree that they are important for the sector, particularly given its current state of development. It is important to make sure that we keep the oil industry going in her part of the country. On her question about the oil and gas ambassador, I will make inquiries and come back to her. In terms of industrial strategy, as I mentioned in detail in my opening remarks, her part of the world and the oil and gas sector are extremely important to the Government and will remain so.
Question put and agreed to.
Clause 22 accordingly ordered to stand part of the Bill.
Clause 23
Hybrid and other mismatches
Question proposed, That the clause stand part of the Bill.
Finance (No. 2) Bill (First sitting)
Kirsty Blackman Excerpts(8 years, 8 months ago)
Public Bill CommitteesRead Full debate Read Hansard Text Read Debate Ministerial Extracts
The Chair
Good morning and happy new year to you all. I have a few announcements to make; as there are a number of new Members on the Committee, they will be quite lengthy announcements, but they will set out the procedure for the whole Committee stage.
I remind Members that only water is to be drunk in the Committee Room—no hot drinks. I will pretend that I have not seen the one at the end of the room. That is a strict rule from the Chairman of Ways and Means. Mobile phones and iPads should be switched to silent. There are document boxes behind me, which people may find useful for storing their documents when the Committee is not sitting. I would appreciate it if Members followed those rules, so that I do not have to make many more speeches.
Neither I nor my fellow Chair will call Members to speak to starred amendments—amendments tabled without adequate notice. The notice period is three working days, so amendments should be tabled by the rise of the House on Monday for consideration on Thursday, and by the rise of the House on Thursday for consideration the following Tuesday.
Not everyone is familiar with Committee procedures, so let me explain them briefly. The Committee will be asked first to consider the programme motion. The Minister will move that motion, and we will then consider the amendments to it. There is a strict time limit of 30 minutes for that. We will proceed to a motion on written evidence and then begin line-by-line consideration of the Bill.
The selection list for today’s sitting is available at the end of the room. Amendments selected for debate have been grouped. Grouped amendments generally relate to the same or similar issues. The Member who tabled the lead amendment in a group will be asked to speak first. Other Members will then be free to catch my eye and speak to the amendments in that group only. A Member may speak more than once, depending on the subjects under discussion. At the end of debate on a group of amendments, I will call the Member who moved the lead amendment to speak again. They will need to indicate before they sit down whether they wish to withdraw that amendment or seek a decision on it. If any Member wishes to press an amendment in that group to a Division, they will need to let me know. I will work on the assumption that the Government wish the Committee to reach a decision on all Government amendments—we will nod at each other, Minister.
Please note that decisions on amendments will be taken not in the order on the selection list—the order in which they are debated—but in the order in which they appear on the amendment paper. Decisions on new clauses will therefore be taken after the conclusion of line-by-line consideration of the Bill. Where a group includes the words “clause stand part”, Members may make any remarks they wish to make on the content of the clause during the debate, and there will be no separate debate on the question that the clause stand part of the Bill. Where those words are not included on the selection list, Sir Roger and I will use our discretion in deciding whether to allow a separate stand part debate on individual clauses and schedules. Clause stand part debates begin with the Chair proposing the question that the clause stand part of the Bill; there is no need for a Minister or another Member to move that the clause stand part of the Bill.
As I indicated, I will first call the Minister to move the programme motion, as agreed by the Programming Sub-Committee, formally. I will then call Kirsty Blackman to move amendment (a). There will be a single debate on the selected amendments.
Motion made, and Question proposed,
That—
(1) the Committee shall (in addition to its first meeting at 9.25 am on Tuesday 9 January) meet—
(a) at 2.00 pm on Tuesday 9 January;
(b) at 11.30 am and 2.00 pm on Thursday 11 January;
(c) at 9.25 am and 2.00 pm on Tuesday 16 January;
(d) at 11.30 am and 2.00 pm on Thursday 18 January;
(2) the proceedings shall be taken in the following order: Clauses 1 to 7; Clauses 9 to 11; Schedule 1; Clause 12; Schedule 2; Clause 13; Schedule 3; Clauses 14 to 16; Schedule 4; Clause 17; Schedule 5; Clause 18; Schedule 6; Clauses 19 to 23; Schedule 7; Clause 24; Schedule 8; Clauses 25 to 32; Clauses 34 and 35; Schedule 10; Clauses 36 to 39; Clause 42; Schedule 12; Clauses 43 to 50; new Clauses; new Schedules; remaining proceedings on the Bill;
(3) the proceedings shall (so far as not previously concluded) be brought to a conclusion at 5.00 pm on Thursday 18 January.—(Mel Stride.)
The Chair
With this it will be convenient to consider the following: Date Time Witnesses Thursday 11th January Until no later than 12.15 pm HM Treasury; HM Revenue and Customs Thursday 11th January Until no later than 1.00 pm The Office for Budget Responsibility Thursday 11th January Until no later than 3.30 pm The Institute for Fiscal Studies Thursday 11th January Until no later than 5.00 pm The Chartered Institute of Taxation”
Amendment (b), in line 7, at end insert—
“(1A) The Committee shall hear oral evidence in accordance with the following Table—
Amendment (c), in line 15, at end insert—
“(4) The Committee recommends that the programme order of the House [11 December 2017] should be amended in paragraph 7 by substituting ‘25 January’ for ‘18 January’.”
Kirsty Blackman
I appreciate the chance to speak, Mr Owen, and I thank you for being our Chairperson.
Last year, the Chartered Institute of Taxation, the Institute for Government and the Institute for Fiscal Studies produced the “Better Budgets” report about the parliamentary process for dealing with the Budget. They raised a number of concerns, some of which have already been dealt with by the Chancellor, such as the fact that there are two fiscal events a year; he has moved to having one fiscal event a year, which is welcome.
The beginning of the report summary says:
“During conversations with people across the tax system, from officials and experts through to practitioners and representative groups, we have heard that the exceptional processes around tax policy making—in particular, secrecy, more limited scrutiny and challenge, and the power of the Treasury—have led to an ever-lengthening tax code, beset by a series of problems: confusion for taxpayers, poor implementation, political reversals and constrained options.”
Some of those are issues with the Budget, but others are issues with the Finance Bill process. One of the report’s key suggestions, which I have been pursuing in this House, and will continue to, even if I do not win today, is about the fact that the Finance Bill Committee does not take evidence. We have been told that that is due to lack of time, and that scrutiny of the Finance Bill needs to be curtailed and completed in a very short period. However, measures in the Finance Bill are very technical, and we have a short time in Committee. If we added just one extra day, we could take evidence.
The “Better Budgets” report said:
“The lack of stages in the House of Lords should mean that the Finance Bill is subject to particularly intense scrutiny in the House of Commons. But the reverse tends to be true”.
It also said:
“debate on the Finance Bill could be improved by using some of the committee sessions to take oral evidence”.
The three programme motion amendments that I have tabled allow us to do that. The Bill has already been in Committee of the whole House. I think it is reasonable, after Committee of the whole House, to take evidence on the generally more technical measures debated in Public Bill Committee.
The three amendments that my hon. Friend the Member for Glasgow Central and I tabled suggest that this Thursday we take evidence from the Treasury, Her Majesty’s Revenue and Customs, the Office for Budget Responsibility, the Institute for Fiscal Studies and the Chartered Institute of Taxation. All those organisations will know more about tax, and probably about the impact of the measures, than most of us in this room. Obviously, the Minister will have briefings, and a whole team who can explain the issues to him, but we need to hear from those organisations and to be able to question their representatives. I have been frustrated in the past when asking the Minister questions during debates on the Finance Bill. Perhaps I have had a bit of an answer towards the end of his speech—the Minister is quite good at attempting to give answers—but that is too late. If we had had that conversation with many other people at the beginning, we would all have been in a much better position. That would have meant much better scrutiny.
Alison Thewliss (Glasgow Central) (SNP)
My hon. Friend makes a very good point on the need for evidence. Some of the written evidence submitted to the Committee —it was made available very late, I must say; it came yesterday at around 4 pm, which gives us very little time to read a huge amount of evidence—suggested that there are things that need to be changed and that people would like to see tweaked. However, without having oral evidence and being able to interrogate people for it, it is very difficult to weigh up the evidence in the context of the Bill.
Kirsty Blackman
I would go so far as to bet that all Committee members have not read all the written evidence that has been provided. I bet that they have not had time, given that the customs Bill is running at the same time, and the majority of us who are Front-Benching for that Bill are also Front-Benching for today’s Bill.
The timescale is not working. If we were to allow evidence sessions this Thursday, and then allowed the Public Bill Committee stage to stretch slightly—I am not sure it would even end up stretching as far as 18 January, because we could have a number of sittings before then—that would be a really positive change for the Committee. We would all be better informed, and it would be a good step for scrutiny and transparency, which the Government and the ministerial code suggest that we should have.
Peter Dowd (Bootle) (Lab)
It is a pleasure, as ever, to serve under your chairmanship, Mr Owen. I have sympathy with the Scottish National party on their amendment to the programme motion, which would require the Government to ensure that there was an evidence sitting this week. This is my third Finance Bill since becoming shadow Chief Secretary to the Treasury, and I have made the point on each one that we should have evidence sittings. The argument might be made, “We have had three Bills; what’s the point?” However, there is a pretty compelling argument that having had three Finance Bills is all the more reason to not just pause for breath but catch up, and get some people in to give evidence. The point is well made, and it was also part of the context for the debate in the House yesterday.
This is not simply an event; it is part of a process. Most of the traditions or protocols that we follow in the House have a perfectly rational basis, but there are occasions—I think this is one, in the light of the three Finance Bills this year—when we might want at the very least to step back from them. Every other piece of legislation that passes through the House gets its day in court, so to speak, as regards giving evidence, and of course the complex changes made to UK tax laws and systems have far-reaching consequences for everyone and for the economy.
It is important that when matters are incredibly complex—and, let us be frank, many of the matters in question are complex—we should be able to tease out issues with experts. It is not that I do not believe the Financial Secretary to the Treasury and everything that he tells us; I do, implicitly. However, I am sure that he would like us to test his assertions, and we might want to do that with other people—and with other experts.
Several provisions in the Bill, and in previous Finance Bills, rewrite earlier measures and close loopholes. It is important for us to tease out those things, too. Why are we where we are, and what could we have done differently? Possibly we could not have done anything differently, but I am sure that if there had been evidence sittings for previous Finance Bills, the experts offering testimony might have pointed out to the Government technical pitfalls in some of the measures they wanted to introduce.
The amendment is in the spirit of attempting to move things on; it is not a wrecking proposal. I acknowledge that we will not win the debate, but it is important to state the need to push for evidence sittings. I do not think that I am alone in that view. Not only does the SNP take it, but so do many outside the House: the Institute for Fiscal Studies, the Institute for Government and the Chartered Institute of Taxation made a similar case in the report “Better Budgets: making tax policy better”, published in April 2016. Its authors pointed out that Finance Bills could be improved by oral evidence sittings, with little disturbance to the parliamentary timetable. I am sure that the Opposition would be more than happy to discuss parliamentary timetable issues with the Government.
The Financial Secretary to the Treasury (Mel Stride)
It is a pleasure to serve under your chairmanship, Mr Owen. I look forward to vigorous debate on the Bill, today and in the sittings that will follow, as we take the Bill through the normal process.
The amendments from the hon. Member for Aberdeen South—
Mel Stride
North; how could I get that wrong? The amendments would introduce a day for oral evidence sessions, and would extend the period over which we debated the Bill in Committee. I understand why the hon. Lady tabled them, but I am afraid that the Government will resist them, for several reasons, not least because there was a Programming Sub-Committee, at which at least Labour party Members were present, in which we discussed the programme motion, and it was agreed unanimously.
Kirsty Blackman
The Government changed the rules because they do not have a majority, so Scottish National party Members no longer have places on Programming Sub-Committees. We were therefore not able to make our case. We opposed that rule change, partly because we want to be on Programming Sub-Committees. If we had had the opportunity to make our case earlier, we would have done so.
Mel Stride
I thank the hon. Lady for her intervention. That is partly why I welcome her having the opportunity to have this debate today, as I said earlier. Let me start with the comment that the hon. Member for Bootle made about the Chair of the Treasury Committee. He urged me to engage with her on this matter, and of course I will do precisely as he asks.
Notwithstanding the fact that we had the opportunity in the Programming Sub-Committee to agree the programme motion or otherwise, several measures already give us a very high level of scrutiny of Finance Bills. We brought in a Government framework in 2010, under which, in a typical cycle, a Budget is followed by policy consultations, and much of the legislation that is to follow is then published in draft. In fact, around 60% of the Bill that we are looking at has been out there for consultation as draft legislation, despite the fact that this has been a rather unique cycle; the hon. Member for Bootle pointed out that this was his third Finance Bill.
These Bills have a very high level of scrutiny. We are moving to the new single fiscal event in the coming year; we will then have even more time to scrutinise Bills, because there will be more breathing space in that process, and obviously we will not have the interruption that we had last year.
Kirsty Blackman
I thank the Minister for his response. He did not give a reason not to take evidence; he gave the reason why he thinks the status quo is okay. I still have not heard anybody say why evidence would be a bad thing. The Government have previously said that timescales would be an issue, but they are not. As we have a single fiscal event, putting an extra week—an extra day, actually—on to the Finance Bill Committee would not be a problem. Having evidence sessions would be better for the Committee and for the rotating Back Benchers on the Committee—we have people here who have not sat on a Finance Bill before. As I said previously, having an evidence session after the Committee of the whole House is not a problem, because generally we discuss the more technical parts of the Bill after that. What the Minister said about 60% means that 40% of the Bill has not been consulted on.
Mel Stride
I need to clarify that point. I said that 60% of the draft legislation was out there and was therefore consulted on. That certainly does not mean that 40% of the Bill was not consulted on, albeit that the legislation was not out there in draft.
Kirsty Blackman
In a number of places in the written evidence, various organisations said, “This was not consulted on in draft; we would have suggested these changes, if it had been.” The Committee is losing out because it does not take evidence. It would be better if it did. I do not understand why the Government are scared to take evidence.
Peter Dowd
Does the hon. Lady agree that it is important to understand the position that Parliament is in? The Government do not have an overall majority, notwithstanding the arrangement with the Democratic Unionist party. Their position has changed. Given that, and given that the Government have taken control of the Committees, again notwithstanding the fact that they do not have the majority as a party, the question of scrutiny has changed a little.
Kirsty Blackman
Absolutely. An added dimension is that because the Government do not have a majority, and because all the Brexit legislation is going through, there is an incredibly heavy legislative timetable with an incredible number of incredibly technical pieces of legislation. Therefore, it would be better for Members to have the opportunity to inform themselves. I do not think this is about increasing external organisations’ scrutiny, because, as the Minister said, there are a number of opportunities to do that. This is about giving Members the opportunity better to inform themselves and ask questions of those incredibly knowledgeable organisations so that we can make better decisions about tax law, and so that the Treasury does not create tax law that is not good and that it has to go back and fix a couple of years later. It would be better for everybody if members of the Committee were more informed and therefore able to take better decisions and make better laws.
Question put, That the amendment be made.
Mel Stride
Clause 5 maintains the starting rate limit for savings income at its current level of £5,000 for 2018-19. As members of the Committee will be aware, the starting rate for savings applies to the taxable savings income of individuals with low earned incomes. The Government made significant changes to the starting rate for savings in 2015, lowering the rate from 10% to 0%, as well as extending the band to which it applies from £2,800 to £5,000. This welcome reform has done much to support savers on low incomes by reducing the tax they pay on the income they receive from their savings. Since then, savers have been further supported by the introduction of the personal savings allowance, which offers up to £1,000 of tax-free savings income.
The changes made by clause 5 will maintain the starting rate limit for savings at its current level of £5,000 for 2018-19 tax year. This change is being made to reflect the significant reforms made to support savers over the last couple of years, in addition to the substantial increases in the personal allowance. Most notably, in April 2016, the Government introduced the personal savings allowance, which will remove 18 million taxpayers from paying tax on their savings income in 2018-19. In April 2017, the annual individual savings account allowance increased by the largest ever amount, to £20,000.
Kirsty Blackman
It is admirable that the Government are making changes to make it easier for people to save. Would the Minster let us know how many people have begun saving as a result, and how much saving has increased for families? If there are now so many people who are employed, and so many who are using the personal allowance, surely they have loads of extra cash that they are now saving?
Mel Stride
Clause 6 makes changes to allow marriage allowance to be claimed and backdated on behalf of deceased spouses and civil partners. Marriage allowance was introduced in 2015. It allows individuals to transfer 10% of their personal allowance to a spouse or civil partner if they are a basic rate taxpayer. Marriage allowance can currently be claimed and backdated by up to four years if taxpayers meet the qualifying condition. Currently, taxpayers cannot claim after a partner is deceased, even if they may have qualified in the current or previous years since its introduction.
I have heard representations from the Low Incomes Tax Reform Group highlighting the fact that it is unfair that this financial support is not available for people going through a period of considerable distress that accompanies the death of a partner. The changes made by clause 6 will put marriage allowance on a footing with other tax reliefs, where claims can be made by a personal representative after death on behalf of the deceased.
As a result, bereaved partners can now claim on behalf of their spouse or civil partner in the current year and any previous years where they were eligible, up to a maximum of four years. That will enable of thousands of extra people to claim the marriage allowance, worth £230 this year in tax relief, or up to £662 if backdated to its introduction. That will have a negligible cost to the Exchequer.
New clause 3 would include a review in six months’ time of the effects of the costs of the extension of the marriage allowance made by clause 6. It is the Government’s view that there is no need for a formal review of these changes. First, the new clause asks for a review of costs. As I have said, clause 6 is forecast to have a negligible cost, a judgment with which the independent Office for Budget Responsibility was content. Her Majesty’s Revenue and Customs also publishes the Exchequer cost of the main tax reliefs, including the marriage allowance, on an annual basis. The House will be able to examine the overall change in costs at that time.
Secondly, the new clause calls for a review of the effects of these changes. As the Committee would expect, we keep the effectiveness of the marriage allowance under review. Indeed, the clause was developed in response to concerns raised by the Low Income Tax Reform Group, a sign that the Government are willing to listen when concerns are raised. After six months, it will be too soon to tell how effective the policy has been, so a formal review would be a disproportionate response. I therefore urge the Committee to resist the new clause.
A total of 2.6 million couples have successfully applied for the marriage allowance and thousands more apply each week. That is a tax cut worth more than £400 million to couples on lower incomes. The changes being made by clause 6 mean that thousands more will be able to claim, recognising that bereaved partners going through extremely distressing times deserve all the support that they can get. I therefore commend the clause to the Committee.
Kirsty Blackman
The Scottish National party has a long-documented opposition to the married couples allowance, with which we have disagreed for a long time. The change the Minister suggests makes it slightly better and gets rid of one of our concerns, but it remains a tax relief that overwhelmingly benefits men. It remains a tax relief that leaves abused women out in the cold. Because they have to hand over part of the personal allowance, it is difficult for them to go back to work in some circumstances.
It remains a change that benefits only traditional nuclear families, whether people are in a civil partnership or are a heterosexual couple. Only those couples who choose to live together as married benefit. When the measure was first introduced, it was made clear that couples with children were less likely to benefit, because of the working structure that tends to exist with those couples. Apparently, only 15% of those who benefit from the scheme are women; it may even be less.
This issue has been raised by the Women’s Budget Group as one that creates further gender disparity in a society where we are trying to reduce the gender pay gap and make matters better by trying to create a situation where women can more easily go back to work and earn a reasonable amount of money.
The married couples allowance is incredibly flawed. Although this change makes it slightly better, it still has a huge number of problems. We will continue to support new clause 3 and press Government to get rid of the married couples allowance.
Taxation (Cross-border Trade) Bill
Kirsty Blackman ExcerptsMonday 8th January 2018
(8 years, 8 months ago)
Commons ChamberRead Full debate Taxation (Cross-border Trade) Act 2018 View all Taxation (Cross-border Trade) Act 2018 Debates Read Hansard Text Read Debate Ministerial Extracts
Kirsty Blackman (Aberdeen North) (SNP)
On the subject of the negotiations that the UK is having with countries with which it currently has free trade arrangements because it is part of the EU, and on the rules of origin issue, what discussions has the Minister had about cumulation and about whether the EU will accept UK-EU cumulation, or whether we will be required to have parts made only in the UK?
Mel Stride
As the hon. Lady will probably know, those are matters of ongoing discussion within the Department for International Trade, but this Bill and the Trade Bill, which will have its Second Reading tomorrow, are about ensuring that country-of-origin issues can be determined by ourselves under our own laws, rather than having to depend upon on those of the European Union.
Kirsty Blackman (Aberdeen North) (SNP)
I am grateful for the opportunity to speak on the Taxation (Cross-border Trade) Bill, which I will call the customs Bill for ease during my speech. I am particularly delighted that we are considering it at the same time as the Finance Bill—that is excellent. I am not sure whether Hansard can capture my sarcasm there.
Is the Minister as concerned as I am about the issues that so many different organisations have raised? Perhaps the Minister and the teams in Her Majesty’s Revenue and Customs have been meeting the organisations that are raising concerns, but I do not think that they have been listening. Part of the problem for me is the wide range of organisations that are raising a wide range of issues. As many hon. Members have said, they include UK Steel, the Manufacturing Trade Remedies Alliance, the British Ceramic Confederation, the GMB and the TUC, but also the British Chambers of Commerce, the British Retail Consortium and the Law Society of Scotland. All those organisations have raised issues, which are not all specifically about trade remedies. There are therefore several problems with the Bill, not just with one aspect but across the measure.
The Bill has 166 pages and creates so many delegated authorities that the Government have had to produce an 174-page document detailing them. The majority relate to the negative procedure, though some relate to the affirmative procedure. In four instances, the UK Government create Henry VIII powers—the power to amend or repeal an Act of Parliament—which are particularly concerning. We have consistently raised concerns about Henry VIII powers, and we will continue to do that. The Chartered Institute of Taxation said:
“The Bill will, we understand, have the powers to amend primary legislation using secondary legislation; raising similar concerns around delegated powers as with the EU (Withdrawal) Bill.”
UK Steel said that
“key aspects of the UK’s trade legislation will evade proper parliamentary scrutiny”.
It is a major concern when UK Steel, a trade body that represents important manufacturers, makes such comments.
The number of organisations that are raising concerns is worrying for Members, as is the fact that so much of the Bill will dodge proper parliamentary scrutiny. Those who supported Brexit as a means to strengthen parliamentary sovereignty are being incredibly badly served yet again by the UK Government. Sovereignty for the Government is very different from sovereignty for Parliament. I urge the Minister to read the Law Society of Scotland briefing on the Bill. It suggests several amendments, and much of its concern is about the lack of requirement for Ministers to consult when making secondary legislation.
Stephen Kerr (Stirling) (Con)
The hon. Lady has mentioned at least twice the Law Society of Scotland briefing document, which I have in my hand. It is a very useful and positive contribution to informing Members of all parties about the Bill. I will quote from it so that we are all clear about the context. In its general remarks, the Law Society of Scotland says:
“We recognise the necessity for this Bill”.
That conclusively states that the Bill is a necessity. Does the hon. Lady accept that?
Kirsty Blackman
Because the UK Government decided that we are leaving the customs union and we will therefore need our own customs procedures, it is sensible, given that it was an entirely EU competence, for the UK to create its own customs framework. However, if the UK Government had done what we suggested and remained part of the customs union, the Bill would not be necessary. Although the Law Society of Scotland says that the Bill is necessary because of the decisions of the UK Government, it raises several concerns. I ask the Minister to read the briefing, which suggests a number of amendments, particularly on consultation.
Hannah Bardell (Livingston) (SNP)
Further to the point made by the hon. Member for Stirling (Stephen Kerr), has my hon. Friend seen the briefing from the Manufacturing Trade Remedies Alliance? It says:
“These proposals are much weaker than we have in the EU (and also weaker than those of most other Trading Nations). Weaker remedies cost jobs.”
Just because we have legislation—and bad legislation—it does not make what is happening a good thing.
Kirsty Blackman
I absolutely agree with my hon. Friend, who speaks for us on international trade. She is right about trade remedies and I will come on to that specific point later.
Although the Bill is general, it is also wide ranging. I want to consider some of the issues relating to HMRC that the Minister mentioned earlier. The new CDS software is set to replace CHIEF—customs handling of import and export freight—the current system, in 12 short months. The Public Accounts Committee report in November stated:
“It would be catastrophic if HMRC’s new customs system, the Customs Declaration System (CDS), is not ready in time and if there is no viable fall-back option.”
It expects the number of customs declarations that HMRC must process each year to increase fivefold. Every time I and other hon. Members have questioned the Minister about this, he has been particularly blasé and unflustered about the tight timetable. The PAC also said that HMRC’s timetable is incredibly tight, given the amount of work still to do. HMRC will only know by July 2018 whether the system works as intended—I am surprised that HMRC will only know by July 2018, but the Minister thinks it will all be fine—which is only one month before the first traders start to use it, and gives very little time to take remedial action if anything goes wrong.
It is vital for our exporting businesses that the customs software works. We have consistently raised concerns about this and we will continue to do so. I appreciate that the Minister is nodding, but we will keep the pressure on to ensure that it happens.
Hannah Bardell
My hon. Friend is making an excellent speech. How much faith does she have in the Government and the implementation of the software programme, given the disaster they are having with the change programme and the closure of HMRC offices?
Kirsty Blackman
UK businesses have several questions about the capacity of HMRC to deal with the volume of customs declarations, and many businesses will have to make customs declarations for the first time. Businesses are already concerned about the loss of the HMRC hotline that they could previously access. One business contacted HMRC with a query and received a reply seven months later. Seven months is not an appropriate timescale. If HMRC cannot respond to complaints and questions timeously now, how will it do so in the future after a fivefold increase in the need for customs declarations?
In a post-Brexit scenario, businesses will—in an incredibly short timescale and whether we have a trade deal or not—have to come to terms with new customs software. They will also have to come to terms with a new system of customs duties, ways to export and other massive changes. That means an incredible amount of uncertainty. When drafting the Bill, the Government could have been clearer about how the new customs system would work, therefore getting rid of a level of uncertainty. I know that they do not yet have a trade deal, but if they had been able to implement the software earlier or be clearer about how the processes will work, it would have been better for businesses.
Broadly speaking, businesses have been in favour of the replication of the Union customs code in the future. I mentioned the issue of rules of origin, and the Minister also referred to it earlier. There is a major problem with those rules. The Minister said that they should be determined by the UK Government in negotiation. As a side note, the current UCC, at 61.3, contains options for declaring origin. That does not appear to have been replicated in the primary legislation, and the British Chambers of Commerce, on behalf of its members, want to see certainty for the future on that matter.
Major problems are brewing on rules of origin, especially the duration of any transition agreement that the UK Government strike. At the very least, the Government need to negotiate interim free trade agreements with countries that the EU currently has FTAs with. Many of those trade deals allow UK companies to export because of the recognition of cumulation with EU content. For example, the trade deal that the EU has with South Korea, for example, says that
“a car will be originating in the EU if no more than 45% of the value of the inputs have been imported from outside Korea or the EU to manufacture it.”
So if the UK—in this brilliant scenario with its amazing negotiating team—manages to convince Korea, at least temporarily, to replicate the trade deal that it has with the EU, changing all references to “EU” to “UK”, for example, that will be all well and good, but it will not solve the issue of cumulation for many of our businesses. Take for example a widget that is created in the UK. It may have many parts from other EU countries. It may have 60% EU content, which it needs in order to be exported to South Korea. However, it may not have 60% UK content. Under the previous rules of origin system that we had as part of the EU, that worked fine and the widget could be exported to Korea. But if Korea says that it wants the widget to have 60% UK content, it will be a major issue for businesses which will no longer be able to export those widgets.
Eddie Hughes (Walsall North) (Con)
I am afraid that I am not very familiar with our trade level with South Korea. I wonder whether the hon. Lady has picked a particularly obscure example to demonstrate her point, rather than looking at the countries we will do substantial trade with in the future. I hope that I will be able to get some more information on that point.
Kirsty Blackman
I picked South Korea and car manufacturing because the percentage is particularly high. However, many other areas of trade and exports have percentage requirements. Because we have not needed rules of origin for products from the UK—we have been able to add all the EU content—it has not been a consideration for businesses. They have been able to export if they can prove that a certain percentage is from the EU. It is an issue not only for the trade deal with Korea, but for all sorts of trade deals that the UK has because it is part of the EU. The concern is not that we will not be able to do new trading, but that our current trading will become a major issue as of March 2019, if we do not get the appropriate rollover and grandfathering in place.
Joanna Cherry (Edinburgh South West) (SNP)
Perhaps my hon. Friend will join me in correcting the hon. Member for Walsall North (Eddie Hughes), as South Korea is very important for Scottish trade. As a result of the EU-negotiated deal, whisky goes to South Korea on a 0% tariff. The former chief executive of the Scottish Whisky Association has expressed the view that without the heft of the EU, Scottish whisky—the UK’s biggest export—would not have had the benefit of that deal.
Kirsty Blackman
I appreciate that information.
There are so many technical issues that will have a major impact on jobs and manufacturing in UK. When I have asked the Government about this, the answers I received were pretty fluffy. I have asked about cumulation—mainly outside the Chamber—as it is a major issue that the UK Government have not taken seriously enough. It has been raised especially by the Society of Motor Manufacturers and Traders. If hon. Members look at how many times cumulation has been mentioned in the Chamber, they will find that it is very few.
Vicky Ford
I thank the hon. Lady for mentioning the incredibly important matter of cumulation. It is by cumulation that a British car that has components from other parts of Europe manages to be sold to third countries under existing agreements. My recollection is that the Minister said that the Department for International Trade would look to continue having agreement on cumulation, and that the Bill will give it the legal tools to continue such negotiations. Does the hon. Lady agree that the Bill is necessary as an enabling package to allow us to have a customs relationship with Europe and other parts of the world in the future?
Kirsty Blackman
I think that we should remain in the customs union and the single market, because then we would not have any of these issues. I appreciate that the Minister says that the Government are looking at this, but I am trying to make it clear how important this matter is, and I hope that I have been able to do that in my discussion of cumulation.
Richard Graham
The hon. and learned Member for Edinburgh South West (Joanna Cherry) raised the importance of the EU FTA deal with South Korea—indeed, it adds some £2 billion to our exports every year—but the interesting question is why the EU has been able to make free trade agreements only with South Korea and Vietnam. What about the rest of Asia? Does the SNP believe that sufficient progress has been made in expanding our trade, especially in Scottish whisky, across the whole of Asia, or could the process perhaps have been done more energetically and dynamically by Britain making its own free trade deals?
Kirsty Blackman
There are EU FTAs with many countries and we trade through them. Because the EU has such a large market, it is able to strike much better free trade agreements than the UK Government will be able to strike for their much smaller market. That is just the reality.
On the capacity of HMRC, I also want to talk about the issue of authorised economic operators, which was mentioned a lot in the customs White Paper. Relying on the AEO system causes a bit of a problem, as the UK is just not that good at either promoting or administering it. Some of the rules applied by HMRC are nearly impossible for many of the smaller operators to meet, such as the requirement we have heard about that the person who is in charge of customs in organisations has three years of customs experience. Some of our businesses have been trading exclusively with the EU, so they cannot meet that requirement very easily. HMRC must look at this as a matter of priority, and particularly consider the situation in Austria, where it takes less than three months for an initial AEO application to go through. Germany has increased the number of authorised economic operators incredibly successfully. The UK Government could benefit from looking at those countries when they consider making changes. It is not about making the regime slacker and enabling more people to jump through the hoops for AEOs; it is about making the process of applying for and getting AEO certification more accessible and streamlined. I know the UK Government have had representations on this matter, and I urge Ministers to consider them and act as soon as they can. We need to get the system in place as soon as possible so that companies can register and receive the certification to become AEOs in advance of the exit date.
As we heard earlier, there is also an HMRC capacity and streamlining problem in the area of VAT. That was also raised in the media recently in the context of the British Retail Consortium’s concerns. The changes to the VAT regime could create major cash-flow problems for businesses, and they might have to restructure or take on burdensome new cash-flow loans. The BRC says that there is no impact assessment produced by the Treasury about the costs of these measures in terms of additional compliance burdens for business, nor about what the costs of HMRC collecting and refunding these upfront costs would be. It seems that there is a real problem and that the required VAT changes have been pretty badly thought through.
I also want to raise the issue of virtual free trade zones. The Bill contemplates only physical free trade zones, but a virtual zone would allow businesses along the supply chain to benefit from simplifications and facilitations without having to incur the time and expense of individual applications, such as with inward processing relief. The British Chambers of Commerce has requested that the Treasury consider the possibility of including virtual free trade zones in its powers relating to designated free zones.
In the context of HMRC, I also want to mention import VAT on gifts from the EU, which I have spoken about before. Folk will be shocked when they get a bill because they have received a gift worth more than £39 from somebody in the EU. Such a system currently applies if people get a gift from elsewhere in the world, but the Government are suggesting that it should also apply in the case of goods from the EU. That is a major concern, because as there has been free movement and people have been able to live in other European countries, it is perfectly feasible that an awful lot of people will have family members in other EU countries and therefore will be likely to receive gifts of a value of over £39. I want to make it absolutely clear that if and when people start getting those bills, they will be totally caused by Brexit, leaving the customs union, and the proposed changes to VAT.
Trade remedies have been mentioned, particularly by Labour Members. Some of the evidence about the matter that the International Trade Committee received last year was concerning. The EU currently has anti-dumping and countervailing measures that would normally be expected to still be in place after Brexit day, such as a five-year measure that was put in place two years ago, meaning that it will have about two years to run at the time we leave the EU. Bernardine Adkins of the law firm Gowling WLG told the Committee that
“it won’t be possible to grandfather the measures, otherwise you will face problems with the World Trade Organization.”
If she is right, we have a pretty significant problem, especially because the call for evidence the Government issued at the end of November seems to suggest they do not know which trade remedies are relevant to UK companies. If the UK Government have to create a trade remedies agency, get it up and running, and furnish it with details that have not been provided in this Bill—how to conduct investigations, how subsidies are to be defined, how to assess if a UK industry has been injured, how to define a UK industry, and how to calculate the level of duties and guarantees needed to rectify the injury caused—and if they have do all that before putting in place even the trade remedies that currently exist, we have another problem.
UK Steel has been particularly vociferous in its criticism of this aspect of the Bill. It says that the chief and overriding concern is that schedules 4 and 5 to the Bill, concerning anti-dumping and anti-subsidy measures respectively, contain very little detail. It goes on to point out that for many of our major trading partners, including the EU and US, such issues are covered by primary legislation. The UK Government have chosen to deal with this through not primary legislation, but secondary legislation. That is yet another concern that we have about the Bill. The Bill does not even have the level of detail of the WTO agreements, so if the Government had included those, the Bill would have been substantially better.
The lesser duty rule is also a significant issue, as the UK Government are looking to go in that direction at a time when the EU is looking to move away from it. This is a concern for us, and for UK manufacturers and jobs in particular.
I and my party have general concerns about the loss of the customs union and the single market. We also have very specific concerns, which echo the views of businesses, about aspects of this Bill. A Fraser of Allander Institute report last year said that 134,000 jobs in Scotland are supported by trade with the EU, and Brexit threatens to cost our economy in Scotland £11 billion a year by 2030 and to result in many fewer jobs. The OECD highlighted in June last year:
“In case Brexit gets reversed by political decision…the positive impact on growth would be significant.”
There are major issues about tariffs if we leave the single market. The EU average tariff on imports from outside the EU was 5.2% in 2014. The average tariff on food was 15%. Skimmed milk exported into the EU from outside the single market attracts a tariff of 74%. If our organisations get hit by these tariffs when they are exporting—if we end up outside the EU single market and customs union as part of a no-deal scenario —we will not just have the problems I have mentioned about issues with the Bill, trade remedies and how HMRC will cope with all this. All these things are an incredible problem. Would it not be better and easier, and would it not be in the economic interests of everyone in this country, if the UK Government were to say, “Actually, we are going to stay in the single market and the customs union”?
Julia Lopez (Hornchurch and Upminster) (Con)
If we are to deliver Brexit, the UK needs to leave the customs union and establish its own customs regime. Without doing so, the UK will be precluded from striking its own free trade deals and left open to certain judgments from the European Court of Justice. I fear that those who believe we can honour the referendum result while staying in the single market or customs union are simply wishing to deliver Brexit in name only.
The Bill is widely drafted in order not to prejudice the eventual outcome of any deal we strike with the EU. It instead ensures that the UK can respond to its new status, whatever the circumstances in March 2019. That could include a no deal scenario—something that would represent a wasted opportunity of historic proportions on the EU’s part. Our Government have already made it clear that the UK wants to maintain free, frictionless trade with the EU and that they wish to maintain continuity with EU law at this stage on customs, excise and VAT to give businesses certainty.
There would be no need for chaos at customs or increased tariffs if our standalone regime could be linked closely to the EU’s, potentially in a new customs partnership. The question is whether the EU has the capacity to recognise its own interests and, more crucially, the interests of the people it governs. Until 2008’s financial crisis, global trade had been growing at up to twice the rate of global output for decades. Ever since, trade has slowed to be in line with, or sometimes below, growth in the global economy and political upheaval has followed.
As a founding World Trade Organisation member, the UK has long been a passionate advocate for liberalised trade. It is time to regain that leadership role and push back against the superficial allure of protectionism. The Bill sets the scene for that. While it introduces the potential for levying tariffs, giving us the tools to protect against dumping, it also allows us to adopt a unilateral trade preference scheme for developing countries to ensure trade further replaces aid as the primary poverty alleviation tool.
The Bill also aims to manage the flow of goods at our ports. Over the summer, I visited London Gateway, a state-of-the-art port in Essex with modern HMRC and Department for Environment, Food and Rural Affairs facilities and spare capacity. A logistical hub is being developed to deliver goods directly to London and the south-east rather than via midlands distribution centres. German grocer Lidl has already taken space there. The competition from nearby ports such as Tilbury, with its vast Amazon fulfilment centre, keeps freight costs low and ties into the Government’s ambitions to unlock the entire Thames Gateway with a new river crossing and more homes. This plan and these efficiencies strip out cost to retailers, helping to offset any potential increase in tariffs. Our customs systems are already highly efficient, but the Bill sets up an authorised economic operator scheme to indicate the fulfilment by exporters and importers of recognised compliance standards and makes provision for HMRC-approved warehouse operators. These measures should fast-track shipments. We now need to identify the sectors most exposed to any new cost and resource HMRC appropriately, which is what the Government are doing.
In my capacity as a member of the International Trade Select Committee, I would like to say something about tariff-free quotas. As an EU member, the UK is party to over 60 free trade agreements that permit our trading partners to export a certain volume of goods to the EU tariff-free. Along with the Trade Bill, this Bill provides the foundation for the continuation of these deals after Brexit. We hope that this grandfathering process will be straightforward, but our trading partners may use the opportunity to renegotiate terms, and rules of origin might add complexity to existing trade. Rules of origin define where a product was made and help to determine the application of quotas, preferential tariffs and trade remedies.
At present, the UK can export to the EU with no restrictions on the value of imported intermediates from third countries, and this will likely change once we are out of the customs union. Origin is generally conferred based on where a good was obtained or manufactured or where the last substantial transformation took place. Cumulation of origin allows for greater flexibility when using raw or semi-manufactured materials from certain third countries. Currently, as an EU member state, the UK benefits from the pan- Euro-Mediterranean cumulation zone.
Cumulative rules of origin may prove hard to negotiate, requiring trilateral discussion between the UK, the EU and the third country concerned. None the less, the UK’s departure from existing free trade agreements is not challenge-free for the EU either. Those FTAs were negotiated on the basis of access to an EU economy that included a UK market, which, in 2015, amounted to 17.5 % of the EU’s GDP, and which contains some of its most voracious consumers. If we withdraw that market from the FTA, there will inevitably be an impact on its functioning, if not on its legal character. The EU plans to remove the equivalent of the UK’s market share from the duty-free quotas that it offers its trading partners. Otherwise, EU domestic producers will have to compete with a greater inflow of tariff-free foreign goods. FTA partners, however, are understandably very unhappy at the prospect of a substantial reduction in their tariff-free quotas.
If the EU can think imaginatively and flexibly about a customs link to the UK economy, with potential agreement on rules of origin at least for a transition period, the potential problems of both sides can be addressed. The EU’s default arrangements relating to rules of origin are relatively liberal, and processes already exist for exporters to self-certify origins. Agreeing on those processes, and ensuring that businesses sign up to them now, should be a priority.
Kirsty Blackman
May I pursue the issue of tariff-rate quotas? Is it not the case that, even if countries receive the same amount in total—if they were previously able to distribute 100 tonnes of goods, and in future they could distribute 70 to the EU and 30 to the UK—they might challenge that on the basis that if the UK market collapses, they will not be able to transfer that amount to another country, as they currently can?
Julia Lopez
My point is that any issues relating to tariff-rate quotas will affect not just the UK but the EU, and it is therefore in the EU’s interests to try to reach an accommodation with the UK.
I welcome the Bill, which is about preparedness and which, given its wide drafting, allows for any negotiated outcome. I hope that it sets us up for a new chapter in our long history as a proud, global trading nation.
Jonathan Edwards (Carmarthen East and Dinefwr) (PC)
Ga’i ddymuno blwyddyn newydd dda i chi—may I wish you a happy new year, Mr Speaker?
I wish to confine my remarks to three key points. First, I wish to add my voice to those calling for our continued membership of the largest trading bloc in the world. Secondly, I wish to outline the concerns from Welsh ports, which would face immediate challenges to their existing position as a result of changes to our customs arrangements. Thirdly, the weakness of this Bill’s ability to protect our vital industries will form the final part of my speech, and we have heard many interesting contributions on that point already.
As promised, I wish first to reiterate to the British Government the illogicality of, and harm they will cause by, ripping us out of the customs union. A student of GCSE economics could explain the foundations of international trade as laid out by David Ricardo. His theory of comparative advantage is not complex to grasp. By specialising in particular industries, combined with free international trade, all nations will see positive results. The premise is simple: rather than creating a range of mediocre products, the highly specialised industries of each nation produce better goods, which are then traded internationally, satisfying domestic demand for the products made in other nations. Whether we agree that this commercial international order should be our goal or not, it has underpinned our economic approach to trade for centuries.
International marketplaces have moved on from Ricardo’s time. Instead of cloth and wine, the modern economy trades aeroplane wings, specialised steel products and microchips. To account for this complexity, policy makers have created institutions to manage commerce.
The European customs union is the greatest example of one such institution. By removing physical and financial barriers to trade, it has created the largest, richest, most powerful network of free-trading states in the world. As a result of our membership of the customs union, Welsh businesses can trade on a completely unfettered basis within the bloc, gaining access to 600 million consumers.
As a trading bloc, the EU customs union also applies a common external tariff on entering the bloc, and we should remind ourselves of the extra costs that will hit our exporters if we are no longer members and have no agreement on future tariffs. Carmarthenshire is known for its agricultural produce, so it is worth putting it on the record that the tariff for animal products can be more than 138%, with an average of 20%; the maximum tariff on dairy products can be as much as 134%, with an average of 45%.
I could also point to other major employers in Carmarthenshire who manufacture component parts for export and will obviously follow the upcoming negotiations with great interest. We should not be under any illusion: if it becomes burdensome, financially or through regulation, for those companies to move their goods, they will relocate. Our membership of the single market and the customs union has been invaluable in securing valuable foreign direct investment in areas such as my home communities in the Amman valley.
Before I am accused of scaremongering, today’s shambolic reshuffle was trailed in the press over the weekend as a reorganisation to prepare for a no-deal scenario. The 27 members of the EU are not the only ones with whom we will lose our existing free-trade arrangements. Sixty-seven countries have agreements with EU customs union members which must be grandfathered, although there continues to be some dispute about whether that is possible. The issue will be discussed in greater detail tomorrow when we deliberate on the Trade Bill.
By pulling my nation out of the European customs union in search of some false free-trade, low-tariff Brexit nirvana, the British Government risk the jobs and wages of my constituents. The Minister will undoubtedly claim that this is the will of the people. We can of course engage in a tit-for-tat argument over whether that is the case. However, that denies him the opportunity to outline the purported benefits of the British Government’s approach. For that reason, I ask him the following: if certainty is his aim, and the status quo is certainty, why is rolling the dice on more than half our imports and exports a good idea? Why is he gambling away my constituents’ jobs and wages? Why is he pulling us out of the customs union at all?
I also implore Labour Front Benchers to come to their senses. The constructive ambiguity of the Labour party’s Brexit position may offer marginal electoral advantage, but it provides the silver platter on which the Tories can serve up an extreme and damaging Brexit. Rather than playing hokey cokey with the single market and customs union, I ask Opposition Members to join us and take a clear stand to say we are better off in these great European economic institutions. Let there be no mistake: the Tories can deliver their current policy of an extreme Brexit only because the position of the Labour leadership is to leave the single market and the customs union after the transition phase.
Kirsty Blackman
Does my colleague agree that Opposition Front Benchers are not supporting a jobs-first Brexit? If they wanted a jobs-first Brexit, they would keep us in the single market and the customs union.
Jonathan Edwards
I am grateful for the intervention, and am aware that during the debate many honourable colleagues on the Labour Back Benches have made that exact point and implored Front Benchers to change their position. Some very interesting reports are coming out of the parliamentary Labour party meeting this evening.
Before the recess, the tangible and immediate chaos created by pulling us out of the customs union was vividly illustrated. The Prime Minister’s attempts to conclude phase 1 of the negotiations were almost scuppered by the issue of customs borders on the island of Ireland. Others will be able to expound with greater invested passion why no such border should exist. However, I would like to raise my concerns about the sea border that my nation shares with Ireland and thus the EU.
Wales and its ports are intimately linked with Ireland. Holyhead, Fishguard, and Pembroke Dock are vital trading links between Wales and the Republic of Ireland. Holyhead is the UK’s second largest port. In excess of 400,000 trucks pass through it every year. A hard maritime border between Wales and the Republic of Ireland will inevitably hit Holyhead hard, and I ask Ministers to read the excellent article of 4 January by my former university lecturer, Professor Richard Wyn Jones, on this specific issue facing Holyhead and his native isle of Ynys Môn, or Anglesey. In Holyhead there is simply no space in or around the port for the kind of infrastructure that will be required to process the number of lorries and trailers that currently pass through it. A hard border in Holyhead can yield only chaos. The same problems apply to Pembroke Dock and Fishguard.
The inevitable consequence of physical constraints in and around the ports is that freight will need to find ways to bypass Holyhead and Wales, especially if there is a soft border between the British state and the European Union in Northern Ireland. Without trade arrangements that mirror the outcomes of what we already have, Welsh ports will be in danger of becoming uncompetitive. With the intention of pulling us out of the customs union, the Bill and the actions of the Minister make it clear to the people of Holyhead that the Government consider their livelihoods to be dispensable.
Finally, I would like to highlight the concerns of an industry central to and symbolic of the Welsh economy—the steel sector. Primarily its concerns centre on trade defence provisions. These are found in clauses 13 and 14 and schedules 4 and 5. I am sure the Minister will have seen last week’s letter in the Financial Times from almost a dozen industry and union representatives highlighting the fact that these clauses
“set up a lighter-touch approach to illegal dumping by China and others than in the remaining EU and any other major economy.”
In the lead-up to the referendum, the exact opposite was promised by the leave side. In an ITV Cymru debate I took part in, Mr Nathan Gill from UKIP, speaking on behalf of the leave side, promised that a British Government freed from the shackles of Brussels would be able to impose prohibitive anti-dumping duties on China. I am sure that that clear promise influenced votes in some communities in south Wales. When he uttered those words, we know the British Government were selling the Welsh steel sector down the river. In March 2016, the British Government blocked attempts to strengthen EU trade defences against imports of cheap Chinese steel that devastated Port Talbot steelworks and took it to the brink of collapse—as we heard from the hon. Member for Aberavon (Stephen Kinnock) earlier. Yet again, it seems that the Government have little concern for steelworkers, preferring to seek dodgy deals with Trump’s America and cosying up to Beijing to protecting Welsh jobs and wages.
Fundamentally, the Bill would be wholly unnecessary, and its deficiencies of no concern, if the policy of the British Government followed the sensible path of remaining a member of the European customs union. For this reason and other reasons I have outlined, my Plaid Cymru colleagues and I will refuse to give the Bill a Second Reading and will vote against it tonight.
Finance (No. 2) Bill
Kirsty Blackman ExcerptsTuesday 19th December 2017
(8 years, 9 months ago)
Commons ChamberRead Full debate Finance Act 2018 View all Finance Act 2018 Debates Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Committee of the whole House Amendments as at 19 December 2017 - (19 Dec 2017)
Jim McMahon
I believe it comes down to priorities. If the Government were determined to do something about this, having the evidence base would be of great benefit to them. They do not want to do anything about it, so the evidence base is a hindrance because the Opposition can use it to attack the Government about the fact that progress just is not being made. That is the real reason why the Government are not making progress, and why they are determined not to support the new clauses. It would be far better for the country if the Government were to step up, to be honest and to recognise that the country has some really ingrained challenges that we need to face. Understanding the scale of the challenge from day one is important in making sure that we get into a better position.
My challenge is this: why not? If the Government believe that they are doing the right thing, and that by virtue of their second female Prime Minister they are the party of gender equality and the champions of all that is equal, now is the time to prove it. Members have two choices: they can go through one or other of the voting Lobbies. Perhaps they have a third choice, which is to stay away completely. They can get behind the new clauses and support our request for the data set, which will inform decisions; they can shirk responsibility entirely and stay away from both voting Lobbies; or they can keep their heads down and maintain their own position on the Government Benches, and vote against new clause 6 because it happens to have come from the Opposition. I would say that that is not putting the interests of the country first.
Kirsty Blackman (Aberdeen North) (SNP)
I would like to start by correcting an omission that I made yesterday. I should have said that our thoughts are with the Chairman of Ways and Means and his family at this time. It sounds like a really horrendous thing for a family to go through, particularly at Christmas time.
I thank the shadow Minister, the hon. Member for Brent Central (Dawn Butler), not just for tabling new clause 6, but for the way in which she engaged with us in advance of the debate. I appreciate the time that she took to speak to us about the new clause so that we could discuss how it looked. I think it is absolutely brilliant; it is one of the best new clauses that we have seen when considering a Finance Bill, and I have tabled a few in my time. I want to speak in favour of the new clause and state our support for it.
I will start by covering why we need the new clause. Although there has been a bit of discussion, we have not talked about what it means in its widest sense. Subsection (2) talks about
“the impact of those provisions on households at different levels of income”,
as well as on protected characteristics, the public sector equality duty and
“equality in different parts of the UK and different regions of England.”
A lot of the debate today has focused on women, which is completely reasonable, but the new clause captures several other things that could have been more fully discussed.
Why do we need an assessment of the impact on various groups, particularly those mentioned in new clause 6? We need it because people in the protected groups or at the lower end of the income spectrum have been disproportionately hit by the actions of this UK Government, as can be seen in a number of ways. It can be seen in the fact that we have young people in jobs on zero-hours contracts. We have those jobs, and the Government say it is wonderful to have so many people in employment, but despite that, we are not seeing an increase in household disposable income because people are not receiving the wages they should receive for such employment. They are in precarious jobs and they are not receiving enough money, and the benefits freeze has been a major added factor. It means that people are earning even less, because the benefits freeze has hit them doubly.
The Government have caused another issue by reducing disability payments. The UN has said that the UK has not done enough to ensure that the UN convention on the rights of persons with disabilities is being met, and no Government in any developed country or nation should seek to be in such a position. We have not had a proper assessment of the impact on disabled people of the changes that this UK Government have made.
The UK Government have also not taken seriously their responsibility to young people in society. We have a living wage that people cannot live on: it is not calculated as something that people can live on; it is a pretendy living wage put forward by the Government. It is not applicable to people younger than 25. Therefore, we have a living wage that people cannot actually live on, but the Government somehow think that the labour of people under 25 is worth less than that of those over 25, even though they may be in exactly the same job and should therefore be earning the same amount.
As has been pretty widely covered, the Budget and successive policies of this UK Government have a disproportionate impact on single parents, the majority of whom are women. We see a disproportionate number of them coming through the doors at our surgeries. Do you know what, Mr Owen? It is absolutely and totally ridiculous that we are seeing a rise in rickets in this country. We are seeing people who cannot afford to eat or to give their children nutritious food because of the decisions of this UK Government.
Drew Hendry (Inverness, Nairn, Badenoch and Strathspey) (SNP)
Does my hon. Friend agree it is a scandal that many children will be getting food and presents this Christmas only through the actions of food banks and charities, such as Moray Firth Radio’s Cash for Kids in my constituency? That should not be allowed to happen. With universal credit, this is happening far too often across the nations of the UK.
Kirsty Blackman
I absolutely agree. This year—in 2017—my office has referred 35 people to food banks, and we have gone to the food bank on five occasions on behalf of constituents who have come through the door and told us that they have not eaten for a number of days. This is supposed to be a country that cares for people who are just about managing, but it is failing them. The people who go to food banks nowadays are working. They are not earning enough money from their jobs to feed their families, so they are having to go to food banks.
We have seen this Government attack people who have protected characteristics, but we have not seen any impact assessments because the Government do not want to admit what they are doing. We have seen attacks on the WASPI women, who, despite having worked all their lives, are being asked to wait even longer for their pensions. We have seen changes with the rape clause and the two-child policy, meaning that women should not have more than two children and, if they conceive as a result of rape, they must write that down on a form and say so explicitly. Why should they have to relive that just to please this Government? We have seen increasing household debt—that has been raised as an issue by the Bank of England—and decreasing household savings. We have seen young women unable to go to school because they cannot afford tampons and towels to provide themselves with a basic level of human dignity.
Another change that has not been talked about hugely in this place is the attack on a group of people with protected characteristics. A massive and increasing number of people come to my surgery because they have no recourse to public funds. It is a particular issue with those fleeing domestic violence, the majority of whom are women. The UK Government have determined that they should have access to public funds for only six weeks if they are from outside the EEA, and not at all if they are from inside the EEA. If they have been living on a joint income with their partner and are fleeing domestic violence, they have no protection from the UK Government because they are giving them no recourse to public funds. That is an attack on a group of people with protected characteristics, and we should no longer tolerate that.
The hon. Members for Oldham West and Royton (Jim McMahon) and for Brent Central (Dawn Butler) mentioned what local authorities have to do in relation to impact assessments. I was a local councillor for eight years before being elected to this place. When we produced budgetary measures, or anything we were going to do in the city that would have an impact on communities, we had to produce an impact assessment specifying how it would affect people with those protected characteristics. If a local authority making decisions for the third largest city in Scotland has to do that, why are the UK Government making decisions that affect every man, woman and child across these islands without producing an impact assessment? Is it because they are ashamed of what they are doing and unwilling to be honest with the people?
In Scotland we are looking at having a progressive taxation system. We are lifting the pay freeze and next year we will be the fairest taxed part of the United Kingdom. [Interruption.] The hon. Member for Beverley and Holderness (Graham Stuart) says that we will be the highest taxed part. Some 70% of taxpayers in Scotland will pay no more tax next year than they do this year. Only the highest earners will be paying moderately more. [Interruption.] No one earning less than £33,000 next year will pay any more income tax than they would in England.
Chris Stephens
Is it not a bit rich for some Government Members to try to shout down my hon. Friend, complaining about people on high incomes paying a bit more tax but saying nothing about disabled individuals losing £30 a week in benefits?
Kirsty Blackman
Absolutely. If Government Members cared about what they were doing to disabled people, they would produce the impact assessments that are being requested today, and they would be honest about the changes they have made and how the heaviest impact has been on the most vulnerable in society.
There are folk who have been left behind by this Government. There are folk who have been failed by the safety net. Those are the people we see—I am sure that Government Members see them, too—walking into our surgeries on a regular basis. They say, “I have worked hard all my life, but I still cannot afford to feed myself and my family.” People who have worked every day for years now find that their state pension is being pushed back as a result of this Government’s policies. People find themselves homeless because they have made one or perhaps two bad decisions in their lifetime, which is far fewer than those of us who have bought a safety net and have support structures in place are able to make.
We need a culture change. The conversations we have had in this Chamber are along the same lines as those that have been had in the context of the #metoo hashtag. Women have come forward with #metoo to say that they have been sexually harassed, sexually assaulted or even raped, and people have replied, “We don’t believe you,” “It can’t be that bad,” or “You’re trying to make a big thing of this.” What the SNP and the Opposition are trying to do in this debate is to highlight the fact that these disadvantaged groups are being actively disadvantaged by the UK Government’s policies. We are asking the UK Government to produce the impact assessments, because if they deny that that is the case, they should not be scared of producing them.
Kirsty Blackman
The discussion that we had earlier today and that we are having now in relation to tax avoidance really goes to the heart of the question: what kind of country do the Government want to be in charge of. It was clear from the earlier debate that the Government do not want to be in charge of a country that is open and upfront about tax changes and the impacts that they will have. They also have issues with tax avoidance and evasion and with the choices that they make. Their choices are very much not the ones that Scottish National party Members would make, nor indeed, I think, ones that Labour would make.
On the issue of the tax gap in particular, the UK Government took the decision that it was more important to have immigration officers who were concerned with ensuring that the “wrong sort of people” did not get into the country than it was to have customs officers. We have ended up in a situation where there are very few customs inspections, which is a major contributor to our tax gap. We are talking about tax avoidance and tax evasion and about going forward into a situation in which we will need to make many more customs checks, when the UK Government have got rid of most of the people who know what they are talking about in relation to customs. We have a major problem that needs to be solved if we are to fix those issues.
A Transparency International report mentioned 766 UK companies that had avoided tax. A quarter of those companies are still active in the United Kingdom. The UK Government do not seem to have taken any action to ensure that they cannot dodge tax in the way that they have. Among the actions that we have been talking about is protection for whistleblowers. We continue to call for whistleblowers to be better protected. It is really important for people to feel that they can come forward safely and that they can uncover major problems that exist at the heart of some organisations that operate within this country, and at the heart of some schemes that operate within these islands. If the UK Government produced stronger guidance and stronger protection for whistleblowers, it would allow and encourage more people to come forward.
On the issues around the general anti-avoidance rule and the complexity of the tax code, we have been consistent in our criticism of how complex the tax code is. Someone posted a picture recently of the new version of the UK tax code that had just appeared: the thing was almost as tall as me. An absolutely huge number of bits of paper are required to make up the tax code. Is it any wonder that there are unintended loopholes that people can exploit? If the tax code was much simpler, if there were fewer tax reliefs and if the UK Government chose instead to give money to people rather than a tax relief, it would make things slightly better.
Bill Grant (Ayr, Carrick and Cumnock) (Con)
The hon. Lady suggested that there is a confusion in the tax codes. It is only in recent days that the Scottish SNP Government have introduced a raft of new bands for tax and indeed increased tax. I find that anomaly quite strange.
Kirsty Blackman
It is not actually a raft of new tax bands. As far as I know, it is one more band in the tax system with slightly different numbers for the pennies. But that is only in relation to income tax. Some 70% of people will pay less tax and 55% will pay less tax than they would in England. Does the hon. Gentleman believe, therefore, that the English system is taxing people unfairly compared to the Scottish system?
Mel Stride
I thank the hon. Lady for indulging me. She says that 70% of Scottish taxpayers will pay less tax, but will she accept the fact that that is largely due to the changes made by the UK Government in raising the personal allowance?
Kirsty Blackman
The Scottish Government’s new starter rate of 19%, rather than 20%, for the first £2,000 that people earn is really positive. It is an incredibly progressive taxation measure, and it is something that the UK Government cannot claim; it is something that the Scottish Government are doing.
Martin Docherty-Hughes (West Dunbartonshire) (SNP)
If Conservative Members wish to debate the progressive taxation system introduced by the Scottish Government, maybe they should stand for the Scottish Parliament.
Kirsty Blackman
I thank my hon. Friend for his comments. I do, however, want to say one more thing on the Scottish tax system, so I hope he will indulge me.
The Scottish tax system is progressive. It is making a difference by ensuring that people who earn under £24,000 pay less tax. That is a positive measure and a good way forward. If members of the UK Government have concerns about the Scottish Parliament’s choices on tax, perhaps it would be better for them to support an increase in the block grant. They could also tell us whether they would cut the money that is going to be made up from the Scottish Government’s tax changes from education, local authorities or the health service.
I will bring the Committee back to tax avoidance. I am sorry, Sir Roger, for testing your patience slightly. The Scottish National party has been consistent in its criticism of Scottish limited partnerships. My former colleague, Roger Mullin, was like a dog with a bone; he would not let go of this matter. That was to his credit because the UK Government decided to make changes to the SLP regime as they recognised that it is massively used for tax avoidance and dodging. There was a review of SLPs, but we are yet to see changes as a result. Will the Minister let us know at least the timeline for making those changes in order to ensure that SLPs are no longer used as a tax-dodging mechanism? This is an important change that really needs to be made, preferably sooner rather than later.
Talking about the UK Government not working as they should regarding tax avoidance and evasion, the Panama papers and the Paradise papers have both been published in my time as an MP. It is very clear that the tax system—not just the global tax system, but even the system in the UK—is failing. It is allowing people and organisations to dodge tax. It is all well and good to talk about overseas trusts. In fact, this frustrates me a huge amount because the Government try to give the impression that overseas trusts are used by organisations such as rural churches in order to fix their roofs. It is not the case that they are used by organisations like that; they are used by people who are trying to dodge tax. We need the hardest possible line on that.
We cannot see the United Kingdom turn into a low-tax, deregulated tax haven. If the UK Government are deciding what kind of country they want the United Kingdom to be, they should not choose one that involves deregulation. With Brexit, they have the opportunity to put their stamp on the future, but I am incredibly concerned about the way that it will go. In bringing back control, some of the reins that have perhaps been put on the UK Government will be taken off and they will be free, for example, to take away the working time directive, and to make changes to our world-class social security system, fair society and good business practices. That is incredibly concerning.
We have called before, and we will not stop calling, for powers to deal with tax avoidance and evasion to be devolved to the Scottish Parliament. We believe that we would do a better job because we could not really do a worse one. We would put forward a fair and moral tax system and a general anti-avoidance rule in order to discourage people from dodging tax, and we would ensure that our tax gap was way smaller than the UK Government’s.
Mel Stride
This Government are committed to bearing down on tax avoidance, evasion and non-compliance like no other Government in history. While I have enormous respect for the hon. Member for Oxford East (Anneliese Dodds), the shadow Minister, and I respect the spirited nature of her attack on our record, I am afraid she is misguided.
We have a strong record. We have brought in and protected £160 billion of potentially avoided tax since 2010 as a result of over 100 measures that we have brought in. We have, as we have heard in the debate, one of the lowest tax gaps in the entire world, at just 6%. Contrary to some of the suggestions from those on the Labour Benches, that is a robust and firm figure; it is described by the IMF as one of the most robust in the world. It is, indeed, produced by HMRC, but it is produced to strict guidelines set out by the Office for National Statistics.