Trade and Customs Policy

Lord Leigh of Hurley Excerpts

Tuesday 5th December 2017 Lords Chamber

[Lord Leigh of Hurley (Con)]

My Lords, I also take this opportunity to welcome my noble friend Lady Fairhead to this House and her position. I thank her and congratulate her on arranging this debate—somewhat bravely, under the beady eye of her predecessor. It is a privilege to take part in this debate on a subject so vital to the future of our country.

We have heard today of the importance of our trading relationship with the EU. Indeed, as a bloc it is our most significant trading partner, with some £236 billion of exports in 2016.Why then, many have asked, would we destroy that by leaving the customs union—which we will? To this I say two things, which form the basis of my speech today. The first is that we must reject the premise of the question: we are not seeking to destroy that trade. It is in no one’s interests that we erect trade tariff barriers, so we must all remind ourselves that we start with the building blocks of free movement of goods. We must, as these two papers say, simply make the case to avoid protectionism and maintain low or no tariffs, which, I hope, will lead to mutual gain for us all.

The second is to encourage more dynamic thinking on how we plan our trade policy. In 2020, Europe, including the UK, will represent 10% of the world’s population. By 2050, once you take out the UK, it will be 6.5%. If you take out non-EU European countries, it will be lower still. None the less, getting our relationship right is the subject of today’s debate.

We have a lot to gain and should not be despondent or be put off by the many in this House and elsewhere who are downcast or in despair. Future trade should be easier in many jurisdictions, and the current situation in the EU is not as wonderful as some make out. I am reminded of the observation that my noble friend Lord Bamford, the chairman of JCB, made in this House in a post-Brexit debate. He related that farm tractors must comply with at least 10 individual and different pieces of national road legislation within the EU.

The fifteenth of December is a date etched on everyone’s mind. It is the date when the EU Council will meet to determine whether sufficient progress has been made to go to the second stage. However, it is etched on my mind for another reason, as it is also the date of the economic and financial dialogue between the UK and China—an annual event at which public and private sector organisations meet to agree how to boost co-operation, trade and market access in business and finance. I find it comforting that we are working hard within the UK and outside the EU to secure the most prosperous trading relationships for Britain, and it is auspicious that these two events happen to align.

This is not ideological. It is not to regain an empire but to maximise our ability to trade globally outside the customs union on which we must focus. I do not apologise for considering the UK the centre of my world. My world is in fact mergers and acquisitions. Inbound mergers and acquisitions have also maintained a robust pace. In the 12 months following the EU referendum, international acquisitions into the UK rose by 11%. To date, one major impact of Brexit has been to boost the role of foreign buyers in the UK deal flow, led of course, as it always has been, by the United States.

Returning to options for maximising trading opportunities with the EU, I commend the Government for the recent White Paper on the customs Bill, not least because it makes clear the importance of a two-year implementation period—please note, “implementation”, not “transition”—to give sufficient time for businesses to plan and for Governments to implement the new regime. This should also help UK firms being cut out of supply chains because of the perception of a lack of certainty over future arrangements. However, as a word of warning, I am a member of the Chartered Institute of Taxation, which reports examples of businesses already altering supply chains, as that is the only way at present to plan with any certainty. For example, stock currently sold by the UK to European customers will now be warehoused within the EU to service that market, the stock never reaching the UK, having obviously been sourced from abroad. In that way, firms seek to avoid potential barriers to trade that cannot be predicted accurately at this time.

This White Paper helpfully seeks to build on the existing regimes but paints a picture of the future where the UK has the maximum flexibility—in particular, through secondary legislation. I believe that it hints that this might lead to a different set of rules from those that the EU adopts in the future, although it does not specifically say so. The first option available, of a “highly streamlined customs arrangement”, certainly looks the most attractive—in particular, remaining a member of the common transit convention. Negotiating the mutual recognition of authorised economic operators, known as AEOs, is a must-have for both category (S) for security companies and category (C), which grants customs simplifications. I agree with the noble Viscount, Lord Waverley, that we must pay particular attention to SMEs. I make a plea for SMEs to be offered an “AEO lite”, as many of them, as the noble Viscount said, have never prepared for a customs exit or entry clearance and have never filled out the forms, although these days you do not fill out the forms; you make an entry on a website. Otherwise, many SMEs will struggle for AEO status. When I looked into this, to my surprise I found that only 600 companies in the UK have AEO status—all of them very large organisations.

The new “customs partnership” proposals are radical and could be a very innovative and sensible way forward. My only question, which I appreciate the Minister may not be able to answer now, is: where will disputes be settled? Will it be with our old friend the European Court of Justice? In common with the European Union (Withdrawal) Bill, perhaps I may also ask what happens to disputes arising between now and exit day? It seems logical that these would fall under the “business as usual” UCC rules, but which jurisdiction would oversee such disputes and what rights and remedies would be available?

Incidentally, in the other place Cheryl Gillan has raised the uncomfortable question of disputes pre-exit, many of which arose several years ago and which may now not go to the ECJ but clearly ought to, as these disputes arose under the old regime. The Francovich principle, which is not discussed in these two briefings, urgently needs more thought.

However, I should like reassurance from the Minister on one point in particular: taxation. I note that the important Making Tax Digital project, which involves important changes to submission, record-keeping and VAT reporting, is due to be implemented at almost the very same time as the Article 50 two-year period comes to an end. Your Lordships’ House discussed the issue in the debate on the 2017 Finance Bill. I had the honour of serving on the Economic Affairs Sub-Committee on the Finance Bill, which focused on Making Tax Digital. Can the Minister say whether the indirect tax industry, and indeed HMRC, will be able to cope with such a confluence of change?

However, I stress that there is much to commend in the Government’s attempts to provide certainty. The two-stage approach implied in implementation will help maintain our trading relationships not just with the EU but with all the other countries with which the EU has signed deals. We need continuity for those arrangements too. Can the Minister comment on the engagement with and response from businesses that she has had to date on these important matters of continuity with the EU and the trade deals with third countries? Can she also say whether the mooted implementation arrangements are easing pressures on location decisions in particular?

I commend the recognition in the White Paper that future deals will require proper scrutiny but, given that this is a money Bill, will the Minister confirm that the Government will respond to this White Paper, setting out exactly how these future arrangements will be scrutinised, as we will not discuss them further here?

This debate was in danger of becoming too polarised between, on the one hand, those who would have us stay in the customs union via the EEA—surely a failure to deliver on the democratic nature of Brexit—and, on the other hand, those who would have us too simply walk away with no deal. This debate today has done much to reassure me that there is a middle way and that it is being thought through properly. A middle way that would allow us to leave the customs union yet maintain as frictionless a trading relationship as possible with our friends in the EU is what we need. This White Paper sets a path to get us there but, as well as drafting the necessary legislation, the Government must also communicate—so much of this is about confidence. I look forward to hearing from the Minister how we can reassure UK businesses that matters are in hand.