Taxation (Cross-border Trade) Bill (Eighth sitting)
Mel Stride Excerpts(6 years, 3 months ago)
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Jonathan Reynolds
Welcome to the Chair for the final sitting of the Committee, Mrs Main.
As is explained in the explanatory notes, the Bill does not establish the rate of export duty, but the power to do so is contained in it so that it can be introduced subsequently through regulations made by the Treasury. As we discussed when considering amendment 1 to clause 8 during my first speech in Committee, it is vital to pay careful attention to the needs of manufacturers for the future of our economy. The Committee will be pleased to hear that I will not repeat that speech in its entirety, although I am sure colleagues would like to hear parts of it.
The representatives of the manufacturing industry to whom we spoke in our helpful evidence sessions on Tuesday 23 January amply illustrated why such a consultative approach is important, by raising many legitimate considerations to which answers are required. Given the amount of detail in the Bill that is left to secondary legislation, all manufacturers seek is minimal reassurance that their interests will be taken into account. They are not asking for special measures, but pointing out that we are on the cusp of a complex post-Brexit world and that clarity is needed as soon as possible. It has been the Government’s choice not to include that in the Bill, as we have discussed, but we need some middle ground to address the resulting lack of certainty, given how it has inhibited the ability of UK industry to prepare for that future landscape.
As we draw towards the end of the Committee, I am only too aware that we are becoming increasingly committed to the process of adding detail by secondary legislation. That makes it even more important for the vital consultation with manufacturers to be enshrined in the Bill. We will not necessarily seek to press the amendment, but I hope that the Minister, through his comments, can provide reassurance for manufacturers at this stage.
The Financial Secretary to the Treasury (Mel Stride)
It is a pleasure to serve under your chairmanship again, Mrs Main.
The amendment would add the interests of manufacturers to the list of factors the Secretary of State and the Treasury respectively must have regard to when recommending or imposing a rate of export duty. The Government acknowledge the wide-ranging impact that any future imposition of export duty could have on the UK economy and that of our trading partners. We would consider imposing an export duty only in wholly exceptional circumstances. Of course, in practice the Secretary of State and the Treasury would have regard to many factors. The provision requiring the Secretary of State and the Treasury to have regard to productivity, trade, consumer interests and competition is sufficient and broad enough to encapsulate the economic and strategic interests of the whole of the United Kingdom.
Taking into account the interests of manufacturers will often form part of the Secretary of State and Treasury’s duty to consider how export duty will maintain and promote productivity in the UK, but it would be inappropriate to specify an exhaustive list of factors in the Bill. The Government believe that the scrutiny and procedure set out in the Bill are proportionate and enable us to respond quickly to exceptional circumstances to implement an export duty.
Amendment 79 would add the impacts on sustainable development to the list of factors the Secretary of State and Treasury must have regard to when respectively recommending a rate of export duty or considering whether to impose export duty, and the rate of duty applicable. Where relevant and possible, the Government will take into account the impact of export duty on sustainable development. However, it would be inappropriate to specify an exhaustive list in the Bill. Certain factors will be relevant in certain cases, and their importance may change over time.
Amendment 119 would add the public interest to the list of factors the Secretary of State and the Treasury must have regard to when respectively recommending a rate of export duty or considering whether to impose export duty, and the rate that should apply. The provision requiring the Treasury and the Secretary of State to have regard to productivity, trade, consumer interests and competition is sufficient to encapsulate the public interest by considering the economic and strategic interests of the whole of the UK.
Amendments 142 to 145 provide additional factors that the Treasury and Secretary of State must have regard to respectively when considering whether to impose export duty and the rate that should be applied. Clause 39(4) is broad enough to cover the economic and strategic interests of the UK. In particular, I question the necessity of considering food standards, environmental protection and the welfare of animals when setting a tax on goods leaving the United Kingdom. The amendments would not achieve the presumed aim of preserving standards in the UK. Lastly, the interests of producers are intrinsically linked with competition, productivity and the promotion of trade, which are already included in the Bill. I therefore urge hon. Members not to press the amendments.
Kirsty Blackman (Aberdeen North) (SNP)
Thank you for chairing the Committee this afternoon, Mrs Main. I appreciate having the opportunity to speak, and want to speak in favour of all seven amendments in this group.
Amendment 13 is about the Government giving consideration to the interests of manufacturers, which we spoke about at length in relation to import duty. I have previously made the case about the disproportionate or differentiated geographical implications of some of the changes the Government are making and some of the rules that they will have. That is particularly important in relation to manufacturing interests, given that those are mainly in the north of England and in Scotland, rather than further south. I therefore feel that it is relevant to take this consideration into account.
We have received written evidence from organisations about sustainable development. They say that it is important for the Government to consider sustainable development when making decisions about import or export duty—we are obviously talking about export duty in this case—and the Government should do that.
Amendment 119, which appears in my name and that of my hon. Friend the Member for Dunfermline and West Fife, relates to the public interest. I am not sure that I agree with the Minister when he says that consumer interest and the interests of promoting external trade, productivity and competition adequately cover the entirety of public interest. I think that consumer interest is different from public interest in this regard, and a number of our constituents would agree if they came to discuss this issue with us.
Amendment 142 relates to producers. Again, there is a geographical bias towards the north and the more rural parts of the four nations of the United Kingdom. Producers are generally in places that are a bit further away from London, and they have a significant positive benefit on the areas that they are in. People tend to be employed in agricultural produce, for example, in areas where there are few other types of employment, so having regard to the interests of producers is important.
I take the Minister’s point that the clause is about export duty rather than import duty, where food safety regulation may be more relevant. However, it is still relevant that the Government ensure that food safety is high up the agenda, given our conversations about trade deals, chlorinated chicken and the possible erosion of food safety now that the United Kingdom is planning to leave the EU and the food standards that come with it.
Amendment 144 is about environmental protection. Again, it would be a good statement of direction if the Government explicitly included environmental protection in anything that they do, given that America is not looking at implementing the Paris agreement. It is making negative changes that will impact on the future of the world for us, our children and our children’s children. I would not want to see the United Kingdom go down a similar route in the erosion of environmental protection standards, so it is really important that this proposal is included.
Amendment 145 relates to the welfare of animals as sentient beings. Given that we have had discussions in the House about the sentience or otherwise of animals, and it seems that a number of Members across the House are less keen to stress that animals are sentient beings, it is important that we have this written into the Bill.
Although the Minister’s comments were a bit helpful, they could have been more so. It would have been more helpful for the Minister to say, if he were so minded, that those factors will be considered when making the decision. In fact, we have a list of four factors that will be considered, and there is no opportunity for that to be wider. If the Bill said “any other relevant factor”, for example, that would encapsulate them all and the Minister could stand up and say, “We will of course consider the public interest and the interests of food safety and of environmental protections when we are making these decisions.” We would have a level of reassurance that those things will be taken into account.
All the amendments are important. I accept that they are specific to export duty, which is relatively unusual and pretty niche, but to have those things explicitly stated by the Minister in Committee or in the Bill would be incredibly useful, rather than the short list of four factors that does not allow for a wider consideration of the issues.
Mel Stride
I will respond because, as ever, the hon. Lady made some helpful comments.
On taking into account sustainable development and the interests of producers, I refer the hon. Lady to the point that she made herself, which is that the clause does not prohibit any of those matters being taken into account. The point I made earlier was that the Government certainly do not see the need to specifically reference those matters—or, indeed, the many other matters that the Committee and individual parliamentarians may feel are important in this context—in order that we do not have an exhaustive list, but rely on the common sense and good public policy making of the people who make such decisions.
Duties, whether they are import duties or export duties, which are potential though unlikely, are a slightly strange instrument to use in the food safety context. It would be much more appropriate for the Department for Environment, Food and Rural Affairs to look at those issues and use its powers to take action where clear breaches of food safety have occurred or are likely to occur.
Anneliese Dodds (Oxford East) (Lab/Co-op)
It is a pleasure to see you in the chair, Mrs Main. I am grateful to the Minister for those remarks. I want to focus on amendment 79 and press him a bit on sustainable development.
There is an important consideration here, which relates to our discussion earlier about what will happen if the UK leaves the EU without a deal and falls back on World Trade Organisation provisions—something I hope will not happen, but that the Government have not ruled out. The hon. Member for Aberdeen North asked the Under-Secretary of State for International Trade exactly where the powers are to create WTO schedules. I do not know if the Minister has the answer yet—perhaps we will find out later. There is a pertinent issue when it comes to laying those schedules if we have to accede to the WTO as a new member—that is, if we do not conclude a customs and trade arrangement that means we do not need to join separately. A number of the countries that have joined the WTO recently have found it difficult to apply the provisions of the general agreement on tariffs and trade that enable sustainable development, environmental considerations, human health and so on to outweigh having low or non-existent tariffs. When that has been offered to one country, it should therefore be offered to all.
China’s recent dispute about raw materials is a pertinent example. As with all the most recent accessions to the WTO, when China acceded, it was required to submit commitments on export duty that bound it to keep export duty at its current rate or to reduce it in relation to different product lines. If that had been part of the general agreement on tariffs and trade, China would have been able to invoke the WTO’s GATT provisions that say that human health can trump those other considerations, but because there were separate agreements, it was not allowed to invoke environmental considerations.
Kirsty Blackman
I want to follow up on the point about the WTO schedule. I appreciate that the Minister wrote to the Committee about it, but he did not answer the question that was asked, which was: where do the Government have the power to lodge schedules with the WTO? The question was not: where do the Government have the power to implement such schedules? That is the question that he answered; I appreciate that he answered it fully, but it was the wrong question.
As far as I am aware, the UK Government have not legislated to give themselves the power to lodge schedules with the WTO in this Bill, the Trade Bill or the European Union (Withdrawal) Bill. It is not about the implementation of them; it is about the lodging of them. As my colleague on the Labour Front Bench, the hon. Member for Oxford East, mentioned, there are concerns about the impact on sustainable development and such matters. It would be useful if the Minister were to follow up his letter with a further one that answers that question.
Mel Stride
I thank the hon. Members for Aberdeen North and for Oxford East for their contributions. On the issue of sustainable development, I can provide the Committee with reassurance that the Government take that area of policy extremely seriously. As the Committee will know, the UK Government have stated their commitments to the UN sustainable development goals that were agreed in September 2015. A publication released on 14 December 2017 outlined the Government’s response to the UN SDGs and their relevance to individual departmental plans. Trade policy is explicitly referenced in five of those 17 goals.
The hon. Member for Oxford East asked me about the letter regarding WTO scheduling, upon which I believe she may still be waiting.
Mel Stride
Oh, it has been received. I was going to say that if it had not been, she would receive it imminently. I am pleased that my desire has already been put into effect. I would also be very happy to write to the hon. Member for Aberdeen North about the various issues she raised regarding WTO accession.
Anneliese Dodds
I am sorry about the complexity of all the different amendments, but they reflect the Members’ concerns about the Bill as it stands in these particular clauses. I will not speak at length, because many of the issues have already been covered in our previous discussions.
In relation to amendment 14, my hon. Friend the Member for Stalybridge and Hyde has already detailed why we think it would be appropriate to use the expertise and the opportunities for consensus building provided by the Select Committee system in the Bill. I will not go over those arguments again; suffice to say, I hope the Government will consider the arguments that my hon. Friend made, take the opportunity afforded by the Select Committee system and apply it here when it comes to setting export duty and scrutinising the setting of it.
We have covered many of the principles underlying amendments 15 and 16 and new clause 8. Again, we are asking for greater parliamentary scrutiny—this time in the area of export duties. I was thinking about how else I could try to persuade the Government of our arguments, and one issue I decided to focus on was that we have often heard the word “technical” applied to many of these measures. Of course, they are technical when they are about minimal changes to rates, or just alignments between different measures, but we need to appreciate that they can have a significant impact on our constituents, because there are winners and losers when we change the parameters of trade.
Capital is largely mobile, but workers often are not. Academic evidence shows that there can be considerable dislocation when there are changes to trade rules. It may well be the case that, in the past, those matters were often seen as technical, but they have had real-world implications. That is particularly important in our country, where the kind of active labour market measures that might have enabled labour to be more mobile when there are changes to duties that affect working patterns do not exist to the same extent that they do in many countries. Recent research by the Resolution Foundation suggests that people have become less mobile in their jobs, potentially because they do not have that help to alter jobs. It is important to consider these issues carefully when there are not those compensatory measures there for people who might be negatively affected by trade measures that alter the pattern of economic activity in our country.
It is absolutely right and proper that we seek appropriate parliamentary scrutiny of measures that could have a significant impact on the availability of manufacturing jobs, especially in our constituencies. I hope that the Government will bear that in mind. Yes, some of the measures could be described as technical, but they will certainly have impacts on our constituents, and we should all be aware of that while we discuss them.
Mel Stride
Clause 39 enables the UK to establish an export duty if it is considered appropriate to do so. Clause 40 sets the parliamentary procedure for doing so. An export duty is, as the name suggests, a tax on goods leaving the country. I used the term “considered appropriate to do so” quite deliberately. The EU has no standing export duty. Indeed, I believe the last time the EU imposed an export duty was in the late 1990s, in respect of wheat.
However, the revised Union customs code, which came into force only in 2016, maintained the EU’s ability to impose an export duty. The EU decided it still needed to maintain the option to impose one in the future. Therefore, in an implementation period, where the UK may be following the EU’s common external tariff for a limited period of time, we may need to retain the ability to impose an export duty in case the EU chooses to apply one. In the longer term, it is right to maintain at least the option to establish one if the circumstances demand, just as the EU retained that flexibility when it overhauled its customs code. In allowing for an export duty, but not introducing one, these clauses reflect the status quo, except with a stronger role for Parliament in approving any future export duty.
Clause 39 allows for the imposition of a new export duty tax and for replication of any part of the customs regime in part 1 as may be necessary to administer it. In recognition of the exceptional nature of export duties, clause 40 specifies that the first regulations made under clause 39, imposing an export duty, are subject to the affirmative resolution procedure.
Amendment 14 would require the Treasury to consider recommendations about the imposition and rate of export duty made by a relevant Select Committee or contained in a resolution of the House of Commons when considering whether to impose export duty. The Treasury will listen closely to recommendations from a range of interested parties, including relevant Select Committees and Members of the House. In addition, Select Committees already have the power to question Ministers on the policy within their departmental remit. The Treasury will answer any questions from the relevant Select Committees.
The Bill will ensure that the Government can respond quickly to exceptional circumstances and impose an export duty, while still giving the House a vote through the made affirmative procedure. Therefore, the Government believe that it is not necessary to include this additional requirement in the Bill.
New clause 8 and consequential amendments 15 and 16 seek to put in place additional parliamentary processes for the introduction of, and any increase to, the rate of export duty. For indirect tax matters, it is common to have a framework in primary legislation supplemented by secondary legislation. The Bill introduces a comprehensive framework for a new stand-alone customs regime, which will be underpinned by the detailed and technical secondary legislation.
The Bill ensures that the scrutiny procedures applied to the exercise of each power are appropriate and proportionate, taking into account the technicality of the regulations and the frequency with which they are likely to be made. As currently drafted, the House of Commons would have a vote on regulations introducing export duty under the made affirmative procedure. The Government believe that to be appropriate and proportionate.
To sum up, although an export duty should be applied only in exceptional circumstances, it is right that the UK has the ability to impose one if it becomes necessary, including if the EU decides to impose one for a limited period while we may be aligned with the common external tariff.
Mel Stride
Clause 41 will amend sections 1 and 15 of the Value Added Tax Act 1994 so that, on withdrawal from the EU single market, all goods entering the UK will be classified as imports. The clause will also maintain the existing link between the VAT and customs duty on imports.
VAT raised approximately £120 billion last year via 2.2 million VAT-registered traders—about 20% of the Exchequer’s entire tax yield. It is therefore vital that our VAT system continues to operate effectively after EU exit, whatever the outcome. Part 3 of the Bill covers value added tax and consists of three clauses that will be key to maintaining a fully functioning VAT system. The changes ultimately required will, of course, be dependent on the outcome of negotiations. Our intention, as outlined in our White Paper, is to keep VAT processes after our EU exit as close as possible to what they are now.
Under existing EU and UK rules for intra-EU trade in goods for VAT-registered businesses, the VAT on goods coming into the UK from the EU is known as acquisition VAT. Such goods are not subject to routine customs control or customs duty. Clause 41 will make changes key to ensuring that, in the absence of an agreement, goods entering the UK from the EU will continue to be subject to VAT. It will abolish the concept of acquisition for goods that enter the UK from the EU, classifying them as imports instead.
Clause 41 will also replace section 15 of the Value Added Tax Act, which determines when goods are imported for VAT purposes and who is liable for that VAT, with a new section 15. This change merely reflects the fact that the customs rules will be contained in UK rather than EU law. Time of importation and liability for import VAT will still be connected to the equivalent rules for import duty. No other changes will be made as a result of the clause.
Operating in conjunction with schedule 8, clause 41 will ensure that goods coming from the EU will be classified and treated as imports in the same way as goods entering the UK from the rest of the world. The application of import VAT will ensure a level playing field on which EU businesses do not have a competitive advantage over UK businesses.
As the Government outlined in our autumn Budget, VAT-registered businesses currently benefit from postponed accounting for VAT when importing goods from the EU. The Government recognise the importance of such arrangements to business because of the cash flow advantage they provide. We will take that into account when considering potential changes after EU exit and will look at options to mitigate any impact on cash flow.
Clause 42 will make changes that ensure that the status of EU law in relation to VAT is clear. The European Union (Withdrawal) Bill lays out the Government’s general approach to EU legislation post-EU exit. On VAT, we need to take steps to ensure that the regime works effectively once we have left. The clause will result in EU legislation being retained in respect of VAT only where it is sensible to do so. The approach adopted is as we envisaged in the European Union (Withdrawal) Bill.
Clause 42 will disapply EU regulations that relate to VAT, except the VAT implementing regulation. In the main, those other regulations relate to single market reciprocal arrangements such as for exchange of information; depending on the outcome of negotiations, they will be superfluous after EU exit. Removal of EU legislation that is no longer required or is otherwise deficient is anticipated in the European Union (Withdrawal) Bill.
The clause will, however, retain the VAT implementing regulation as a tool to interpret EU-derived law. This is required for ongoing certainty and consistency of interpretation of the Value Added Tax Act, providing certainty to business and the Exchequer. Where appropriate, parts of the VAT implementing regulation can be removed by secondary legislation—for example, parts specific to EU transactions that, subject to negotiations, will not be required when the UK is no longer a member of the EU.
In line with the European Union (Withdrawal) Bill, clause 42 confirms that certain rights and obligations recognised before exit day will continue to apply for VAT, while rights and obligations no longer considered appropriate or relevant for UK VAT, such as those that relate purely to membership of the EU, may be disapplied or modified by regulations. The clause also reinforces that other provisions of the European Union (Withdrawal) Bill will apply, particularly clause 6, on “Interpretation of retained EU law”. VAT law and policy has been developed to a significant extent through European case law, including through application of that case law in the UK courts, so UK legislation and policy are inextricably linked with the case law. The clause reinforces that EU principles and case law on VAT that were determined pre-EU exit will continue to apply when interpreting domestic VAT legislation. For example, it identifies the Halifax and Kittel principles of abuse, which have been instrumental in tackling avoidance and “missing trader” fraud and have protected billions of pounds of revenue.
Amendment 133 seeks to change the parliamentary procedure for the exercise of powers under clause 42 from negative to draft affirmative. The Bill ensures that the scrutiny procedures that apply to the exercise of each power are appropriate and proportionate. The procedures take into account the technicality of the regulations and the frequency with which they are likely to be made.
Clause 42 outlines how EU law relating to VAT will apply post-exit. The powers in clause 42 relate to residual rights, powers and obligations in relation to VAT incorporated by clause 4 of the European Union (Withdrawal) Bill and to the VAT implementing regulation. They are therefore limited to those specific areas. The EU law affected by those provisions reflects the fact that we are currently in the EU. Once we exit, some of it will no longer be relevant or could not be applied in its current format. Given the limited width of the powers in the clause, it is appropriate and proportionate that their exercise should be subject to the negative procedure. The Government therefore urge the Committee to resist amendment 133.
Amendments 83 and 84 seek to limit the duration of the delegated power under clause 42 to the period ending two years after the United Kingdom leaves the European Union. They are two of a number of amendments that would time-limit powers in the Bill. As the Committee is aware, the Bill is drafted to cater for a variety of long-term outcomes from negotiations on our future relationship with the EU. It is essential that we have a fully functioning VAT system on and after EU exit, including during any implementation period. The powers in clause 42 have a part in ensuring that we are able to achieve that. As we do not know the outcome of negotiations with the EU, or exactly when the final outcome will be confirmed, it would not be prudent to time-limit those powers at this stage. I therefore urge the Opposition not to press the amendments.
Clause 43 introduces schedule 8, which makes changes to the Value Added Tax Act 1994 and other consequential changes relating to VAT to take account of the UK’s withdrawal from the EU, should they be needed. The principal VAT directive sets out the framework for the EU’s VAT system. Unlike the EU’s customs regime, there is little directly applicable legislation in the VAT sphere.
The VAT system in the UK is set out in the Value Added Tax Act 1994. The main body of the Act sets out the general rules, and the schedules set out the detail of areas such as the scope of tax reliefs and registration requirements. As is usual in tax law, the Act provides a range of powers for the detailed rules—in particular in relation to the administrative framework of the tax—to be set out in secondary legislation, of which the Value Added Tax Regulations 1995 are an example. That allows us to react quickly to changing circumstances or to threats to tax, or generally to ensure its effective administration and collection. Appropriate parliamentary scrutiny is provided for that secondary legislation. Statutory instruments that deal with the administration of tax are generally subject to the negative procedure, whereas those that make more fundamental changes are generally subject to the affirmative procedure. The changes made by schedule 8 are fully consistent with those principles.
The changes made by schedule 8 remove the many references to EU law and EU-specific rules and processes. In particular, they remove references to “acquisitions” and “dispatches”, which would no longer apply to trade in goods with the EU. Instead, they would become “imports” and “exports”. That requires the removal of numerous sections and schedules of the VAT Act associated with EU trade, and consequential amendments to many others. The VAT Act contains many existing powers, which schedule 8 amends to reflect those changes. Most changes are therefore necessary housekeeping to reflect changes to cross-border trade arising from our exit from the EU and changes in the Bill. They do not affect domestic trade or the underlying principles of the system.
However, there are some areas where, depending on the outcome of negotiations, more fundamental changes may be required. For example, there is a new power in relation to small parcels sent from abroad, to be used in the unlikely event of the contingency scenario. That enables the transfer of the liability to account for import VAT from the UK recipient to the overseas seller, and provides for the necessary administration and compliance framework. There is also a power to govern the VAT treatment of goods entering the UK from another territory in a UK customs union, which would allow for a modified treatment for trade with the EU if that is the result of negotiations.
In addition, there is a new provision that enables HMRC to obtain information from businesses so that it can share that with others, subject to appropriate safeguards, if doing so is part of an international VAT agreement. That would ensure that the UK can give effect to agreements that help combat international avoidance and evasion. That power can be used only if the agreement facilitates the administration, collection or enforcement of UK VAT. That mirrors the power for excise.
Clause 43 and the associated schedule 8 are necessary to maintain the UK’s VAT system, provide certainty for the UK’s cross-border trade and maintain revenue flows as we leave the EU. They also, along with other powers in the Bill, provide the ability to make changes to reflect the outcome of negotiations.
Peter Dowd
Yes, two buttons: control and whatever it is. As I have mentioned, we are not alone in this view, which is shared by the Delegated Powers and Regulatory Reform Committee. The Government ought to respond to our genuine concerns in this matter, and we will persist in asking them until they do respond to our genuine concerns and those of other agencies, bodies, organisations and people.
Mel Stride
I am grateful to the hon. Gentleman for his invitation to do some gymnastics, but I do not think they will be necessary, because his questions are easily answered. He referred to my cut and paste button in respect of “appropriate” and “proportionate” and he is right; there is a cut and paste button for those terms, because they are extremely important. At the heart of this is his cut and paste button, in which he regularly says something along the lines of, “All we are asking for is appropriate scrutiny on these important matters.” So the argument has gone back and forth over every area of the Bill as we have ranged across the various clauses.
Moving on to the hon. Gentleman’s remarks about the House of Lords Delegated Powers and Regulatory Reform Committee and its comments on sunset clauses, and his specific question about why we would have sunset clauses in the context of the European Union (Withdrawal) Bill but they would not be appropriate in the case of this Bill, the answers are clear and require no gymnastics at all. They are that the aims of this Bill are different from those of other Brexit Bills.
For example, while the European Union (Withdrawal) Bill makes provision for day one, with the understanding that further primary legislation will be made to supplement it, this Bill will be required in order to maintain a functioning customs regime, an effective VAT regime—as we are currently discussing in the context of these clauses—and an excise regime on an ongoing basis. There is a fundamental distinction between bringing the EU acquis into UK law and handling that process, which is the principal rationale for the European Union (Withdrawal) Bill, and what is happening on a dynamic, ongoing basis in terms of a customs, VAT and excise regime.
Anneliese Dodds
Can I read from the Minister’s remarks that the European Union (Withdrawal) Bill does not seek to create new institutions in, for example, environmental policy or other areas, which potentially need to be just as flexible in many ways as the taxation and customs system? I am struggling to grasp the essence of the Minister’s distinction here. Maybe he could provide more information.
Mel Stride
I have made the point about the day one situation with the European Union (Withdrawal) Bill and the primary legislation, and so on, that will follow. I will resist the urge to start debating another Bill, other than to repeat the points I have made about this Bill. We are of necessity in the context of customs, customs duties, export duties, import duties, VAT, excise regimes and excise duty. We are dealing with a rapidly changing set of measures going forward. We are in the middle of a complex negotiation, the outcome of which is not clear at this particular moment. That is why in many instances in this Bill where we have had these ongoing repeated debates about whether a stiffer, tougher form of scrutiny is necessary, we feel that a balance has to be struck, which is appropriate and proportionate—to use my cut and paste button again—between the needs of parliamentary scrutiny where it is appropriate, and the ability to get on with the job and ensure that this country is match fit for life outside of the European Union in terms of its imports, exports and trade.
Anneliese Dodds
I am grateful to the Minister for his response. However, we have been informed that the reason why sunset clauses are appropriate in the EU (Withdrawal) Bill and not in this Bill is because this Bill needs a more dynamic system—if I understand the Minister’s comments correctly—whereas that is not necessary in the EU (Withdrawal) Bill. I am still struggling, because if we look at an area such as environmental legislation, we have the institutions that are created, the overall framework and then the calibration within it that would respond to scientific information—levels of pollution, for example. There is also an international context with different treaties. Perhaps this is something we could correspond about another time, but I am struggling to discern the fundamental qualitative difference between this policy area, which apparently cannot be amenable to sunset clauses, and those contained in the EU (Withdrawal) Bill.
Mel Stride
I will be brief, because we are beginning to go around in circles, but I am very happy to discuss any of these matters offline, or to receive a letter from the hon. Lady, on the points she has raised.
Peter Dowd
We will not press the clause to a vote, because we have persistently made this point all the time. I completely accept that it gets pretty tedious, but it gets pretty tedious from this side as well, when we keep on getting told that Parliament cannot have the scrutiny that it constitutionally and rightly deserves. We will come back to this point.
I have to say that other nations and democracies, much younger than this one, are perfectly capable of dealing with such issues, very detailed issues, without this sort of carte blanche approach that the Government seem to take, where they want to block every opportunity for us to scrutinise. They are not even prepared, when things might have calmed down in relation to the processes of exit, to give us the opportunity to check them via a sunset clause and that is deeply regrettable.
Question put and agreed to.
Clause 41 accordingly ordered to stand part of the Bill.
Clauses 42 and 43 ordered to stand part of the Bill.
Schedule 8 agreed to.
Clause 44
Excise duties: postal packets sent from overseas
Question proposed, That the clause stand part of the Bill.
Mel Stride
I thank the hon. Lady for those well-made observations. We certainly want to ensure that whatever transition there is to the new regime for small parcels is handled correctly, for exactly the reasons that she has given. I am very close to that as a Minister; in fact, I will meet Royal Mail next week to discuss exactly those points. I will, of course, be happy to share that information and take any further questions that she might have.
Question put and agreed to.
Clause 44 accordingly ordered to stand part of the Bill.
Clause 45
General regulation making power for excise duty purposes etc
Jonathan Reynolds
I beg to move amendment 85, in clause 45, page 31, line 24, at end insert—
‘(3A) The power to make regulations under this section—
(a) insofar as it is exercised to replicate or apply, with or without modifications, any EU regulations mentioned in section 47(1), ceases to have effect after the end of the period of two years beginning with exit day; and
(b) insofar as it is exercised to make provision of the kind described in subsection (2)(k), ceases to have effect after the end of period of five years beginning with exit day.”
This amendment, together with Amendment 86, limits the duration of certain delegated powers under Clause 45 to periods aligned with other proposed limitations relating to withdrawal from the EU and to customs unions.
Mel Stride
Clause 45 provides powers to make changes to ensure the UK has a fully functioning excise regime after EU exit. The powers mean that the UK will be able to implement a range of negotiated outcomes. They also ensure that, after EU exit, we retain the same ability to legislate for excise that we have now.
EU legislation impacts on a number of areas of the excise regime. One example is the existing holding and movement regime for excise goods, which is based on a framework set up by the European Union. It allows the free movement of goods while ensuring excise duty is collected in the country of consumption. The UK needs the ability to make changes to the excise regime to reflect a range of negotiated or non-negotiated outcomes. The power will also ensure that, after EU exit and the repeal of the European Communities Act 1972, we maintain the same ability to legislate for excise as we have now.
The clause gives the Government a power to make regulations generally for the purposes of excise duty on alcohol, tobacco and fuels. It includes, among other matters, when the excise duty becomes due, who will be liable for excise duty, reliefs and the rules around the holding and movement of excise goods. It also ensures that, after EU exit, the Government have the same ability to legislate for excise as they have now. It does not, however, enable HMRC to set excise duty rates.
The excise regime is largely set out in secondary legislation made under various existing powers. However, we can anticipate that the primary legislation that underpins it may need to be amended. The clause allows any regulations made under this section to amend or repeal primary legislation using secondary legislation. It does not allow secondary legislation to amend or repeal provisions in the Bill.
Any negotiated outcome could include key administrative features such as the collection, control, management and enforcement of excise duties. Changes could also be needed in those areas if there is no negotiated agreement. The goods it could be applied to are alcohol, tobacco and fuels.
On repeal of the 1972 Act, we will retain the legislation made under it, but we will no longer have the power to amend that legislation. Clause 45 will ensure there are no gaps in HMRC’s powers to deliver the necessary changes to the excise regime as a consequence of EU exit. For example, the Government made consequential amendments to primary legislation in the last substantive overhaul of key excise secondary legislation in 2010. They relied on the powers provided for by the 1972 Act, which will not be available in future. The power could also be used to ensure that there are clear arrangements in place so that goods in transit between member states before EU exit are not subjected to additional controls or requirements after EU exit.
The power has, however, been limited in a number of ways. It does not allow any changes to duty rates. Clause 49 ensures that the power is no wider than necessary. It is limited to making provisions in respect of the excise duties on alcohol, tobacco and fuels. Those are the duties most impacted by EU legislation and EU exit. It is important that the Government can act quickly in case of changing circumstances, but it is also vital that Parliament is able to scrutinise the use of these powers. Clause 48 sets out the proposed scrutiny arrangements.
Amendments 85 and 86 seek to limit the duration of the power contained in clause 45 where it is exercised to replicate or apply EU regulations. They also intend to limit the duration of the power to make provision for excise duties in connection with the UK forming a customs union with other customs territories. The Government oppose the amendments. The Bill is drafted to cater for a range of long-term outcomes from negotiations on the future relationship with the EU. We do not yet know the outcome of negotiations with the EU or exactly when the final outcome will be confirmed. It would therefore not be prudent to include a sunsetting clause.
The clause provides the Government with the power to legislate for the excise regime to implement the outcome of negotiations. Just as importantly, it ensures that we can legislate for excise in the future—after exit—with the same flexibility we have now. It is essential that we have a fully functioning excise system on EU exit and the powers contained in the clause are necessary to achieve that.
If the amendments are accepted, after the relevant sunset period the Government’s ability to legislate quickly to respond to changing circumstances and future business processes will be limited. For example, the current excise duty suspension arrangements secure the movement of goods through a number of different countries, potentially over a large geographical area. On leaving the EU, the movement of excise duty suspended goods may be permitted only within the territory of the UK. The clause may allow further simplifications for compliant traders if the risks to revenue are considered to be lower in the United Kingdom.
Amendment 85, relating to subsection (2)(k), refers to clause 31, which allows for arrangements that establish a customs union, as we debated, between the UK and territories outside the UK to be given effect by Order in Council. If the UK forms a customs union with any other customs territory, the Government may need to adapt the excise regime accordingly to ensure that the UK can enforce and maintain the operability of the excise duty regime. For example, if an arrangement is made with any territory where free movement of goods is allowed now or in the future, the UK may wish to ensure that excise duties can be controlled and collected without customs formalities at the border, as is now the case. The requirement to make such arrangements may not be limited to the period following EU negotiations or the implementation period.
Clause 48 sets the procedure for making regulations under clauses 44 to 47. The powers in clauses 44 to 47 are necessary to ensure the alcohol, tobacco and oils excise duty regimes continue to function as required after EU exit. The clause ensures the use of those powers is subject to appropriate scrutiny. It also includes provision to streamline procedures where the new excise powers are combined with some existing powers. That gives the Government the flexibility to make the changes to the excise regime needed after EU withdrawal. A smaller number of statutory instruments will therefore be required and the legislation will remain accessible to users.
Clause 48 sets the procedure for exercising the powers in clauses 44 to 47 and gives further detail to their scope. On procedure, the clause sets out four scenarios in which regulations made using the powers will be subject to the made-affirmative procedure: first, where the changes amend or repeal any Act of Parliament; secondly, where changes extend the descriptions of goods on which excise duty is chargeable; thirdly, where changes extend the cases in which stamping or marking of goods is required; and fourthly, where changes restrict any relief or rebate. In all other cases, the negative procedure applies. That is in line with the existing approach to excise regulation-making powers.
A large number of changes need to be made to excise secondary legislation to maintain a functioning excise regime after exit. The Government plan to use existing powers as well as the new powers in the Bill. Clause 48(7) will streamline procedures to allow existing excise powers and the new powers to be combined in some cases. The streamlining applies only if regulations made under the existing powers would be subject to the negative resolution procedure—not where the affirmative procedure is to be used. Such streamlining gives Government the ability to maintain a functioning excise system after EU withdrawal. It reduces the number of statutory instruments to be laid on the same subject matter, making more efficient use of parliamentary time and limiting fragmented legislation, which is harder for business and its advisers to follow.
In some cases, that will have the effect that some provisions that are currently subject to the negative resolution in the Lords and Commons will be subject to the negative procedure in the Commons only. However, Commons-only scrutiny is in line with the convention that tax legislation is not subject to Lords scrutiny. The majority of excise regulation-making powers created in recent times are similarly subject to Commons scrutiny only. For example: the alcohol wholesaler registration scheme, introduced in 2015; the raw tobacco approval scheme, introduced in 2016; and the remote gaming duty, introduced in 2014. Members can be assured that, if the Government combine powers, they will not do so to make a trivial provision only to remove Lords’ scrutiny and bring this special procedure into play.
Amendments 135 and 136 seek to require that regulations made under clause 47 are subject to the draft affirmative procedure. Clause 47 gives the Government the power to exclude or modify EU rights, powers, liabilities and obligations relating to excise duty that continue to have effect in UK law after exit by operation of clause 4 of the European Union (Withdrawal) Bill. Some of those rights and obligations will no longer be appropriate after exit. Some may need amendments to deal with the outcome of negotiations with the EU. Therefore, this power has a part to play in ensuring that we have a fully functioning excise regime.
The power in clause 47 is targeted and proportionate. It is specific to the areas saved by clause 4 of the European Union (Withdrawal) Bill, and in addition, it may only be exercised in relation to excise duties on alcohol, tobacco and fuel. It is appropriate and proportionate that the power should be subject to the negative procedure and not the affirmative procedure. That reflects the specific nature of the power in the clause and the speed with which regulations may be required.
The Bill ensures that the scrutiny procedures that are applied to the exercise of each power are appropriate and proportionate. They take into account the technicality of the regulations and the frequency with which they are likely to be made.
Clause 48 ensures that the scrutiny procedures that apply to the exercise of the powers in part 4 are appropriate and proportionate. As far as is practical, the procedure that applies to excise regulations made under these powers is in line with the approach to procedures on existing excise powers.
Jonathan Reynolds
There is clearly a fundamental difference of opinion about these clauses. We absolutely support the right and ability of the Government to possess the requisite powers on exit to set the regime that is required. What is in dispute is whether those powers should remain on the statute book for a long time.
It seems entirely reasonable that the Government could come back to legislate for the power that they need in future, rather than giving themselves such a fundamental transfer that changes the balance of power between Parliament and the Government, but we may have to return to that question. Further groups of amendments are on the selection list that cover sunset clauses, so I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 45 ordered to stand part of the Bill.
Clause 46 ordered to stand part of the Bill.
Clause 47
EU law relating to excise duty
Anneliese Dodds
We have already discussed clause 47 to an extent, so I will just offer a couple of brief observations in relation to amendment 134. My reading of clause 47 is that it disapplies the European Union (Withdrawal) Bill provision that EU legislation should be copied into UK law, and empowers the Treasury to make alternative provisions on excise duty.
Some of our witnesses suggested that that could result in an unnecessarily complicated approach, and I do not feel that the Minister explained why the Government will not just retain the EU customs code during the transition period. The Minister has referred to a cut-and-paste approach. Yes, there is a lot of cutting, but then there is some spraying about of some elements and not others. It is perhaps not as well thought through as we might have hoped.
As with many Opposition amendments, amendment 134 asks the Government to include a sunset clause of two years for the application of these measures. We seek to ensure that the empowerment of the Treasury in these provisions is time limited. As my hon. Friend the Member for Stalybridge and Hyde said in relation to the sunset clause he discussed, the measures could be extended by Parliament if that was felt necessary, but having a sunset clause would prevent the inappropriate extension of the powers that the clause grants.
Mel Stride
Clause 47 makes changes that ensure that the status of EU law in relation to excise is clear. The European Union (Withdrawal) Bill lays out the Government’s general approach to EU legislation after EU exit. We need to ensure the consistency and certainty of the existing excise and VAT regimes to ensure that they work effectively after exit.
Excise is an important contributor to national revenue—receipts for 2016-17 were around £48 billion—so it is important that we have clarity on the rules, including the status of EU law in relation to excise. The approach adopted by this clause is consistent with the European Union (Withdrawal) Bill. It results in EU legislation being retained only where it is sensible to do so in respect of excise. There is a similar provision for VAT in clause 42.
Peter Dowd
We want transparency and openness, and that is why we are demanding sunset clauses, unlike the Under-Secretary of State, who would like this House to be as dark as Erebus. We want a sunset clause, and Parliament, the people and the Hansard Society all demand a sunset clause. We insist on sunset clauses and we will persist in insisting on them.
Mel Stride
Clause 51 confers a power on the Treasury or the Secretary of State to make regulations for VAT, customs or excise in consequence of, or otherwise in connection with, the UK’s withdrawal from the EU.
The Bill contains a comprehensive set of provisions to establish a stand-alone customs regime and to ensure that VAT and excise legislation will function as required on EU exit. The Bill does that through a mixture of primary legislation and powers to make subordinate legislation. Together the provisions will allow us to deal with a range of negotiated scenarios, as well as to prepare for a non-negotiated scenario. That will ensure that the UK’s customs, VAT and excise regimes function as required upon EU exit and thereafter.
The UK’s future arrangements for customs, VAT and excise will become completely clear only when negotiations are concluded. We cannot of course be certain what the detailed arrangements to be agreed will be, which is why the power in the clause is drafted as it is and why it is not possible to give an exhaustive list of the situations in which the power may be used. For example, we will need to use it to implement agreements with the EU that might involve alternative provisions to those made in the Bill, such as different amendments to those made to the VAT Act 1994 by schedule 8. Equally, the power will need to be used to address deficiencies similar to those dealt with in clause 7 of the EU (Withdrawal) Bill, to amend existing legislation to ensure that it is consistent with replacement domestic legislation; to legislate for policy decisions made in preparation for, or as a result of, a non-negotiated scenario; to transition existing EU trade remedy measures; or to legislate to deal with unforeseen developments arising from EU exit.
It must be noted that that the power is not an unlimited one: the scope of the power is, first, limited to VAT, customs and excise legislation; and, secondly, to changes that are made in consequence of, or otherwise in connection with, EU exit. As changes potentially required as a consequence of, or in connection with, EU exit may relate to primary legislation, the power extends to amending primary legislation, including the Bill. Given that we need to prepare for or implement a range of outcomes, including those that may differ from those set out in the Bill, it is appropriate that the power permits the Bill itself to be amended.
The affirmative procedure will be required for any use of the power to amend primary legislation in consequence of, or otherwise in connection with, EU exit. Any regulation that makes changes to primary legislation will have to be approved by the House of Commons if it is to have effect beyond the 28-day period starting from the day it is laid. That is unless clause 52 applies, in which case the relevant period extends to 60 days. The clause itself will make no changes but confers a power on the Treasury, or the Secretary of State, to make changes in the future in consequence of, or otherwise in connection with, EU exit.
Amendment 120 seeks to ensure that the power to make regulations under the clause is exercised only when it is necessary to do so. The Government oppose the amendment because it limits their ability to prepare effectively for EU withdrawal. The Bill is drafted to cater for a variety of long-term outcomes from negotiations on the future relationship with the EU.
In that context, the power is necessary to ensure that the UK can deal with a range of possible consequences of, or matters arising in connection with, EU withdrawal, and maintain fully functioning customs, VAT and excise regimes in a range of scenarios. Changing the wording to “necessary” may narrow the power in such a way that the Government cannot prepare effectively for EU withdrawal. That is because some of the uses for the power may be appropriate, but it may be hard or cumbersome to prove that they are necessary. For example, policy decisions may be made in consequence of, or in connection with, EU withdrawal where one option is chosen over others. That is “appropriate”, but it may be said that they are not “necessary”, since one option is not necessary in the sense that other options are available.
Anneliese Dodds
Surely in that case it would be possible to specify that one of the two options will be chosen and that that is a necessary choice between the two. I am struggling to grasp the need to avoid the word “necessary”.
Mel Stride
The point I would make to the hon. Lady is that if we had more than one option, one of them may be appropriate but not necessary, because if we chose that particular option there would necessarily be another option that could be chosen. The essential point is that the word “necessary” is not necessary, but in fact unhelpful—[Interruption.]
Mel Stride
It is difficult to sound exciting or entertaining when discussing a single word.
Mel Stride
There are moments. Amendment 97 inserts a sunset provision disallowing regulations to be made under the clause after 29 March 2021, while also allowing the Secretary of State to alter the date so that the date of sunset relates to the day of the end of a transition period. Amendments 98 and 99 are consequential to amendment 97. The Government oppose the amendments because they too would limit our ability to prepare effectively for EU withdrawal. We do not yet know the outcome of negotiations with the EU. Therefore, it would not be prudent to include a sunsetting clause at this stage.
Kirsty Blackman
I am feeling slightly sorry for you, Mrs Main—having to chair a Committee that erupts into riotous laughter, which is most unusual for a customs Bill Committee. I appreciated the Minister’s speech, but I think he is losing his oomph somewhat—[Hon. Members: “Oh!”]—although I am sure he will find it again.
We are reaching the end of our discussions. I am sure all members of the Committee are quite glad about that, because I am not sure how much more we can discuss sunset clauses. However, I have a few more points to raise about our amendments. Amendment 120 would replace the second “appropriate” in clause 51(1) with the word “necessary”, because otherwise Ministers will be given an incredible level of power to use their own discretion to decide what is appropriate. We have raised concerns before about the level of power that such clauses give Ministers. Changing “appropriate” to “necessary” would allay some of those concerns: it would be a stronger test and would require a stronger case from Ministers. I think that is a reasonable request.
Before I move on to Executive privilege more generally, may I address something the Minister said? When he raised his concerns about having a sunset clause that specified a date of 29 March 2021, he said that the agreement might be made very close to that date. That is incredibly worrying, given that we do not yet have any agreement or any idea what things will look like on exit day. The Government and the EU look likely to push the matter as close to the wire as possible, because it seems that there is an awful lot of distance to travel—particularly since the Government do not actually know what they want. If businesses face the same situation approaching 29 March 2021, after a two-year transition process—if the Minister wants to call it an implementation process, that is absolutely fine—and two years after having gone through a crazy period when they had no idea what was coming round the corner, that will be a major problem for them. It will be a major problem for productivity, as has been mentioned throughout. It is incredibly worrying that, at the end of a two-year transition period, we might still not be clear about exactly how things will look a very short period afterwards.
On what the hon. Member for Stalybridge and Hyde said about the duty to check the powers of the Executive and not to alter the balance, I argue that we actually do need to alter the balance. I find this job incredibly frustrating in a number of ways because of the extreme power of the Executive. In a lot of cases, they do not have to use their parliamentary majority—they do not currently have one—because they have Executive privilege to do a number of things that I do not believe they should have the power to do. In many cases, only Ministers are able to table amendments, programme motions and so on, because the Executive have that power. They also have the power to set the agenda. That means that, for parliamentarians outwith the Government—whether they are on the Government Back Benches or in opposition—things are more difficult.
The current system of Executive privilege is completely unbalanced. It should be shifted towards the Government having to use their parliamentary majority to do things. That would make this a better place. I am shocked that more parliamentarians are not as enraged as I am by that, and that it is not brought up in the House more often. It is not a good way to run a Parliament, and it should be changed.
That is important in relation to the Bill because the absence of sunset clauses gives Ministers powers in perpetuity that I do not believe they should have in perpetuity. In some cases, I do not think they should have them at all; they should have to be adequately scrutinised by Parliament and have to get measures through votes. The absence of sunset clauses gives Ministers powers for ever more, and I do not believe that should happen. It may be that, 10 years down the line, a Minister decides that something relates to the UK leaving the EU and therefore makes what he thinks is an appropriate change. I do not believe that should continue to be possible.
That is particularly important in respect of clause 51. I can see some of the arguments the Government may make about other clauses—they may say the changes they permit are just tinkering with technical regulations in relation to VAT, customs or excise duties—but in this clause Ministers give themselves power to make more fundamental changes. That completely fails the people who voted for Brexit to take back control. The Government say they intend to support that view and to assist people with taking back control, but what they are doing here absolutely will not achieve that aim; it will concentrate power for ever more in the hands of the Executive. The Government need to think carefully about that.
Mel Stride
I thank the hon. Lady for her contribution. I will not rehearse the entertaining conversation we had about “appropriate” and “necessary”, but I understand her points. However, I maintain that there is a logical, lexical complication with—[Interruption.] Yes, I am getting drawn back into the debate again. I do not want to go there.
The second, pertinent point the hon. Lady raised was that the Bill, by not having the sunset clauses that she seeks, conjures up the possibility of us catering for a very late deal. Although it does indeed allow for that eventuality, that is not the same as us suggesting that we expect it to happen. We are balancing the likelihood of a very late deal, which I suggest is extremely low, with the consequences of that happening, which would be significant. In a sense, it is almost analogous to why we insure our house. We do not expect it to go up in flames during our lifetime, but given the consequences of that happening, it is prudent to insure. On that basis, we are applying the same kind of principle in this particular situation.
Kirsty Blackman
Thank you, Mrs Main. Both amendments would change the word “appropriate” to “necessary”. The first amendment relates to the powers that Ministers have over changing statutory instruments. The second also relates to statutory instruments, but in terms of transitional, transitory or saving provisions. We have previously rehearsed why I think “necessary” is a better word to use in these circumstances. The Minister thinks “appropriate” is better, so I imagine he will not need to speak for long in responding to my amendments.
Mel Stride
I will be brief. I am aware—it is one reason why I have been speaking fairly rapidly—that we still have a little to get through, and I do not want to deprive the Opposition of the opportunity to fully scrutinise what remains of the Bill. Clause 54 confers a power on the Treasury or the Secretary of State to make provision in consequence of the Bill. As the hon. Lady might expect, the Government do not feel that the amendments are either appropriate or necessary. On that basis, I hope she will consider withdrawing it.
Kirsty Blackman
I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 54 ordered to stand part of the Bill.
Clause 55
Commencement
Anneliese Dodds
I am grateful for the hon. Lady’s support. Due to the changes to the deployment of HMRC in Scotland, the issue is very relevant to many of her constituents. I am pleased that the Government seem to be moving in the right direction. We have a commitment to more staff, which is positive, and the Minister’s responses to my written questions seem to focus more on additional numbers and less on redeployment, as they did in the concerning responses previously. Surely, given the potentially increased amount of activity that a new customs regime would necessitate, we need to be on stronger ground if we are to avoid a difficult time for British businesses and retaliatory measures from the rest of the EU if it feels that we are not upholding our obligations.
Mel Stride
Amendments 17 and 20 and new clause 9 seek to require HMRC to review its staffing and IT requirements, with the Chancellor to report that to Parliament before commencement. The Government oppose the amendments. It is not appropriate to legislate to require such a review, because HMRC staffing and IT requirements largely depend on the outcome of the negotiations with the EU and the details of the new customs regime, which will be set out in secondary legislation.
I assure the Committee that the Government are preparing for every possible outcome, and the activities required by the amendments are already happening as part of HMRC’s business planning. I am in discussions with HMRC on a regular basis, including with the head of HMRC, on the details of how we will ensure we have the technology in place.
We have had a number of conversations in Committee about the customs declaration service and the challenges of all the additional declarations that that system may yet have to handle, as well as the hon. Lady’s points on personnel. I am aware of the points she made on access to the various ports, given the changes to the structure of offices in the transformation programme that HMRC is undergoing. She is correct that the figure we will be looking at in terms of additional personnel is between 3,000 and 5,000. I suspect it will be nearer the upper limit than the lower limit, but those decisions are imminent. I hope that those reassurances will lead her not to move her new clause and to withdraw the consequential amendments.
Anneliese Dodds
I am grateful to the Minister for those clarifications and commitments, particularly on staffing. It is good to hear that the Government are considering ensuring that there are sufficient human resources. However, as I hopefully made clear in my remarks, I am concerned that, from an international perspective, we will still be under capacity. There may be reasons for that, but I would like the Government to explain them. We seem to be radically below par compared with other comparable nations.
When it comes to IT, the Government have now accepted that there are many challenges, and I understand that the CHIEF—customs handling of important and export freight—system will now be run on for a period. That is sensible, but it would have been good to get that agreement earlier, because not having that assurance before caused business some concern. Obviously, the CDS programme was announced before the European referendum—it has been a long-running process—but it is important that we recognise the additional pressure that that switchover will put on services at the very time a new customs regime might be coming in. I will not press the amendment, but we may move the new clause, as with a number of other new clauses. I am grateful to the Minister for those clarifications, so I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Kirsty Blackman
I will be brief. Jeremy White from the Chartered Institute of Taxation said:
“The only frictionless trade known to man is customs union.”––[Official Report, Taxation (Cross-border Trade) Public Bill Committee, 23 January 2018; c. 28, Q33.]
I wholeheartedly agree. The Scottish National party’s position is and has always been that we should remain in the customs union with the EU. That is the only sensible way of eliminating all barriers to frictionless trade.
The thing about having a free trade agreement that removes tariffs is that tariffs are not the only barriers to trade. They are not the only thing to cause friction at borders and problems for companies and individuals. The non-tariff barrier issues include things like stacking lorries, which we heard about in relation to the issue of roll-on/roll-off; how companies and organisations will make customs declarations; the digitalisation or not of customs declarations; and the standardisation of rules of origin, which is the biggest issue relating to the customs union. Those who are exporting to the EU will have to complete rules of origin documentation, having never had to do it before. If we do not have a shared external tariff, that will happen.
I am absolutely clear that this is a good new clause. We need frictionless trade with the European Union, but I am clear that the only way to achieve that is by being in the customs union.
Mel Stride
Amendments 18 and 21 to clause 55 and new clause 10 seek to require the Treasury to review the likely effects of the Bill on frictionless trade with the EU, and for the Chancellor to report that to Parliament before commencement. I assure the Committee that the Government are committed to providing information on the impact once the outcome of the negotiations is clearer.
We believe that putting those requirements on the face of the Bill is unnecessary. Any changes will be set out in secondary legislation, and Parliament will of course have the ability to consider, scrutinise and decide upon the content of that legislation in the normal way. Furthermore, any review that is carried out before the outcome of the negotiations will necessarily be somewhat speculative.
Peter Dowd
I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Kirsty Blackman
I have significant concerns about the way this clause is going to work, given that the UK Government’s priority in the Border Force has been immigration rather than customs staff. Therefore, there has been an erosion of the customs staff who have got experience and understanding of the frontline. I am not yet convinced. Although the Government are talking about putting extra people into HMRC, I have not heard enough about equivalent extra staff being put into the Border Force so that it can appropriately police things in relation to customs. I have significant concerns about the border experience, and I note that that is not just on the south coast of England. We have borders when things come in on international flights or ports outside the south coast of England. It needs to be taken over the whole geographical spread of the United Kingdom.
Mel Stride
Amendments 19 and 22 to clause 55 and new clause 11 seek to require HMRC to review the likely effects of the Bill on the border experience of importers and exporters, and those engaged in associated economic activities, and the Chancellor to report that to Parliament before commencement of the Bill. The reasons why the Government will resist them are similar to the reasons given for resisting the last group of amendments. It is not appropriate to legislate for such a review, because the experience of businesses at the border will depend on the outcome of the negotiations with the EU, the resulting details of the new customs regime and the resulting changes needed to maintain a fully functioning and legally operable VAT and excise regimes.
To respond to the specific points the hon. Member for Aberdeen North made about the Border Force, it is absolutely vital, as she has suggested, that we have appropriate resource. Of course, that is a Home Office matter and not within the direct remit of HMRC or the immediate scope of the Bill, but I reassure her that we are working across Government and closely with the Home Office to ensure that, whatever occurs in the negotiation and whatever the results for our day one arrangements, we will be ready in terms of both the Border Force and Customs and Excise.
Peter Dowd
The Minister has heard what I have to say. We will not be pressing the amendment, although we will press the new clause. I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Kirsty Blackman
This is the last section on which I will be moving anything. Amendment 102 is a consequential amendment and relates to amendment 103. Amendment 103 requires an impact assessment to take place on the changes of the EU VAT area, as we have rehearsed, and the move from acquisition VAT to import VAT.
I am neither convinced nor clear that the Government have adequately undertaken an assessment of the impact. Some 132,000 new businesses will come into paying import VAT for the first time. I do not know that the Government are aware of how much of an impact that will have on those businesses. I am not yet at the stage where I believe the Government have done enough impact assessments.
I was pleased that the Minister talked earlier about looking sympathetically at having a system of VAT deferral or something of that sort to improve cashflow issues for businesses. I appreciate his saying that and look forward to more details about how that will work, so that businesses can make adequate plans. That is not the only issue that occurs on leaving the EU VAT area. For the other issues mentioned earlier, for example on triangulation simplification where companies would have to register for VAT in more countries, I am again not convinced that the Government have adequately assessed the impact they will have on businesses. They are therefore not in a position to explain that impact to businesses and assist them in mitigating it.
On new clause 13, I appreciate that the Minister has said he is sympathetic to making changes on the VAT deferral scheme, but I intend to press new clause 13 to a vote so that it is written on the Bill and is not just words from the Minister that the Government agree to a VAT deferral scheme. The new clause would ensure that. I do not intend to push amendments 102 and 103 to the vote, but I may seek to return to amendment 103 on Report.
Mel Stride
I will start by addressing new clause 13. The hon. Lady will be aware that the issue of the potential move from acquisition VAT to import VAT and its effect on cash flow for businesses was raised by the Chancellor in the autumn Budget. We are very aware of that, as the Chancellor has indicated.
On Second Reading, from memory, I was intervened on by my right hon. Friend the Member for Loughborough (Nicky Morgan), the Chair of the Treasury Committee, who raised the same issue. Prior to that, I had had a meeting with her to discuss the matter in some detail. I was able to provide her with an assurance on the Floor of the House that was sympathetic—I think that word was used—to the issue. We certainly do not wish for a situation in which we are significantly damaging businesses as a consequence of any changes. Indeed, in this debate I have clarified that, under the terms of section 38 of the Value Added Tax Act 1994, we have the powers to make the kind of changes that my right hon. Friend and I would probably agree are appropriate.
I am grateful to the hon. Lady for not pressing amendments 102 and 103, which seek to prevent the Government legislating for a future outside the EU VAT area before we produce an impact assessment on the effects that leaving the EU will have on imports.
Peter Dowd
I welcome that point. I would speak to the amendment but I will not, given the time. Does the Minister have any indication what the timetable might be for that structure in relation to deferrals, or can he come back to us?
Mel Stride
That question prompts another question: at what point do we reach that matter in the negotiations with the European Union? It is not possible to answer that question because it depends on when we get our deal and where the parameters around VAT, imports and exports are. All those matters land in that negotiation. I reiterate the reassurance that we have the ability and the powers within the VAT Act to act accordingly and we have a firm intention to ensure that we deal with the concern we have all identified.
Kirsty Blackman
I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 55 ordered to stand part of the Bill.
Clause 56 ordered to stand part of the Bill.
New Clause 1
Setting the customs tariff: enhanced parliamentary procedure
“(1) This section applies to—
(a) the first regulations to be made under section 8, and
(b) any other regulations to be made under that section the effect of which is an increase in the amount of import duty payable under the customs tariff in a standard case (within the meaning of that section).
(2) No regulations to which this section applies may be made by the Treasury in exercise of the duty in section 8(1) except in accordance with the steps set out in this section.
(3) The first step is that a Minister of the Crown must lay before the House of Commons a draft of the regulations that it is proposed be made
(4) The second step is that a Minister of the Crown must make a motion for a resolution in the House of Commons setting out, in respect of proposed regulations of which a draft has been laid in accordance with subsection (3)—
(a) the rate of import duty applicable to goods falling within a code given in regulations previously made under section 8 or in the draft of the regulations laid in accordance with subsection (3);
(b) anything of a kind mentioned in section 8(3)(a) or (b) by reference to which the amount of any import duty applicable to any goods is proposed to be determined; and
(c) the meaning of any relevant expression used in the motion.
(5) The third step is that the House of Commons passes a resolution arising from the motion made in the form specified in subsection (4) (whether in the form of that motion or as amended).
(6) The fourth step is that the regulations that may then be made must, in respect of any matters specified in subsection (4)(a) to (c), give effect to the terms of the resolution referred to in subsection (5).”—(Peter Dowd.)
This new clause establishes a system of enhanced parliamentary procedure for regulations setting the customs tariff, with a requirement for the House of Commons to pass an amendable resolution authorising the rate of import duty on particular goods.
Brought up, and read the First time.
Question put, That the clause be read a Second time.
Mel Stride
On a point of order, Mrs Main. Is this an appropriate moment to say a few words to thank the Committee? Perhaps I should begin by thanking you, Mrs Main, and Ms Buck, for the exemplary and impartial way in which you have both chaired our proceedings. I also thank all members of the Committee for the convivial and positive way in which we have conducted our proceedings, occasionally with a little levity creeping in, which is always a nice sign, I think.
Mel Stride
Yes, Mrs Main, necessary and appropriate levity has been put into our proceedings. I thank all Members for their contributions, as I always say on this occasion, particularly those on our side. When my hon. Friend the Member for York Outer intervened, that was a stellar and special moment. It was a highlight on our side of the Committee.
I thank the Opposition Front-Bench spokesperson, the hon. Member for Bootle, before he disappears into the sunset—probably under the auspices of his own sunset clause. I thank him for his usual good humour. His Henry VIII quote was particularly good, but I am convinced that, as with all the others, he probably just makes them up. I can assure the hon. Member for Aberdeen North I will get my oomph back on Report. My mojo will be in fine form. I thank the hon. Member for Oxford East for the assiduous approach that she has taken to her duties on the Committee and for not mentioning on this occasion the dead dog and the bicycle, for which I am ever so grateful.
I thank the Treasury and HMRC, in particular my officials, Tom Doherty, Matthew Parry, Emily Marsh and Fraser Eccles, for all the support that they have given to me personally, and the other Departments, the Department for International Trade and the Department for Environment, Food and Rural Affairs, that have contributed to the process. I thank our new Minister, the Under-Secretary of State for International Trade, my hon. Friend the Member for Beverley and Holderness, who put in a fabulous performance on his first Committee as a Minister, with great force and great style. I thank the Whips on both sides, who are the unsung heroes. I always thank the Whips because I care about my future and my career.
I thank Hansard and the Doorkeepers. I also extend a heartfelt thank you from the whole Committee to the witnesses who appeared before us—perhaps specifically to Joel Blackwell, who has emerged as the most celebrated witness of our proceedings. I thank them all for having contributed in such a positive way.
Peter Dowd
Further to that point of order, Mrs Main. I thank you and Ms Buck for the eloquence in which you have chaired the meeting, and for your forbearance. I thank the Clerks, Hansard and the Doorkeepers for their sterling work; they have even more forbearance. I thank colleagues who have undertaken scrutiny in a forensic, good-humoured and professional fashion, and that includes the Members on the Government Benches. I also thank all our staff, Sam Goodman, Tom Peters, Sophia Morrell and Jack Jenkins, for their hard work on the Bill.
The whole debate has been pretty commensurate and pretty good. I finish with a couple of things: the Government epitaph will be “Down with sunsets!”; and, finally, “Parting is such sweet sorrow”.
Double Taxation Convention Protocol: Uzbekistan
Mel Stride Excerpts(6 years, 3 months ago)
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The Financial Secretary to the Treasury (Mel Stride)
A protocol to the double taxation convention with Uzbekistan was signed on 24 January 2018. The text of the protocol is available on HM Revenue and Customs’ pages of the gov.uk website and will be deposited in the Libraries of both Houses. The text will be scheduled to a draft Order in Council and laid before the House of Commons in due course.
[HCWS438]
Local Government Finance Act 1998 (Non-Domestic Rating Multipliers) (England) Order 2017
Mel Stride Excerpts(6 years, 3 months ago)
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The Financial Secretary to the Treasury (Mel Stride)
I beg to move,
That the Committee has considered the Local Government Finance Act 1998 (Non-Domestic Rating Multipliers) (England) Order 2017.
It is a pleasure to serve under your chairmanship, Mr Austin. The order changes the annual inflationary increase in the business rates multiplier for the coming financial year from the retail prices index to the consumer prices index, which is lower. The Government have also committed to switching to CPI as an uprating measure in all subsequent years.
The multiplier is effectively the tax rate applied for the calculation of business rates. There are two business rates multipliers: the small business multiplier and the standard multiplier. Historically, these multipliers rose in line with the preceding year’s RPI figure. On that basis, the multipliers were due to increase to reflect the September 2017 RPI figure of 3.9%. Given the high rate of inflation, the Chancellor announced in the autumn 2017 Budget that he would bring the planned switch to consumer prices indexation forward by two years, to April 2018. This decision, which was a key ask from business at the Budget, further reaffirms the Government’s commitment to supporting firms of all sizes to achieve their potential.
The benefit to ratepayers from this change will grow significantly each year because business rates will be uprated by a lower rate of inflation year on year. For example, it is estimated that business rates on the average property could be approximately £1,200 lower in total by 2023. Bringing forward the planned switch will be worth £2.3 billion to businesses over five years—the switch to CPI will be worth £4.1 billion in total by 2023.
The Government recognise that business rates can represent a high fixed cost for firms, so in the 2016 Budget, following a fundamental review of business rates, we announced major reforms and reductions at a cost to the Exchequer of approximately £9 billion over five years. Those reforms included making the 100% small business rate relief permanent and increasing its threshold from April 2017, as a result of which 600,000 of the smallest businesses will not pay business rates again. We also increased the threshold for the standard multiplier from April 2017, taking 250,000 properties out of the higher rate of business rates. As part of the package of reform, we announced that we would switch the annual indexation of business rates from the RPI to the lower CPI. In addition, in the spring 2017 Budget we announced a £435 million package to support businesses that face the steepest increases in bills following the recent revaluation.
The order is the necessary secondary legislation required to effect the change in the inflationary increase for business rates from RPI to CPI. It sets out the new equation for setting the multipliers for the coming financial year so that the September CPI figure of 3% is used instead, meaning that in 2018-19 the small business multiplier will be 48p and the standard multiplier will be 49.3p. The change represents a cut in business rates every year that will benefit all ratepayers and free up cash for businesses. We are committed to fully compensating local authorities for the business rates income that they will lose as a result of this measure, and we will provide the devolved Administrations with funding to enable them to provide similar support if they so wish.
The order is part of a wider package of measures in the autumn 2017 Budget to reduce business rates and improve the fairness of the system. This includes legislating retrospectively to address the so-called staircase tax and reinstating small business rate relief for ratepayers who lost it as a result of a recent Supreme Court ruling. We are continuing the £1,000 business rates discount for pubs with a rateable value of up to £100,000 for one more year. We also announced that we would increase the frequency of property revaluations by the Valuation Office Agency from every five years to every three years after the next revaluation, which is due in 2022. This is to ensure that bills are fairer, more closely reflecting properties’ current rental values. We will consult on the detail of the revaluation policy in the spring and would welcome the views of stakeholders.
The order will change the annual inflationary increase in business rates from the RPI to the CPI in 2018-19, reducing business costs for all ratepayers in England and giving the economy a further boost, and I commend it to the Committee.
Mel Stride
I thank the hon. Member for Oxford East for her contribution and for welcoming the measures, albeit that she did caveat her remarks fairly heavily. She asserted that the Government are not doing enough, but bringing forward the change to the revaluation approach by two years is a £2.3 billion move. The total value of moving from RPI to CPI, including the fact it is being brought forward by two years, is £4.1 billion across the spending period, which is a significant amount of relief for businesses.[Official Report, 20 February 2018,Vol. 636, c. 2MC.]
The hon. Lady asked about delays in revaluations. As she will know, 2022 will see the next revaluation, and we have committed to it being every three years thereafter. To go annually might tip us into being slightly disproportionate. Three years seems to be about the right balance, and the VOA is comfortable with it.
The hon. Lady asked about the number of outstanding appeals. The technical problems we had with the system some months ago have largely been resolved and things are moving strongly in the right direction. I will get back to her with the precise answer to her question.
The hon. Lady raised the reduction in the number of VOA offices. We will be moving to 26 offices in total. As with Her Majesty’s Revenue and Customs offices, the point to register is that the modern way of working of such organisations—bringing together skills and technology —lends itself not to a large number of offices but to a smaller number that are appropriately equipped for the task in hand.
The hon. Lady asked about 100% business rates retention. We are piloting that and it will be an important step towards ensuring a strong connection between the incentives of local authorities on the one hand and the encouragement of business, and benefiting from that encouragement, on the other.
I conclude by saying that the measure is significant— £2.3 billion of additional relief for our businesses—and that, once again, I commend the statutory instrument to the Committee.
Question put and agreed to.
Taxation (Cross-border Trade) Bill (Third sitting)
Mel Stride ExcerptsThursday 25th January 2018
(6 years, 3 months ago)
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The Financial Secretary to the Treasury (Mel Stride)
Good morning, Ms Buck; it is a pleasure to serve under your chairmanship. It is also a pleasure to see some familiar faces on the Opposition Benches as we debate this important Bill.
Clause 1 provides that customs duty is to be charged with reference to the import of goods into the United Kingdom, in accordance with part 1 of this Bill; part 1, of course, deals with import duty. As members of the Committee will be aware, the UK’s current customs duty regime is set out in EU law. That legislation will cease to apply to the United Kingdom following our departure from the EU. This Bill makes provision for the establishment of a UK customs duty regime. The regime established by this Bill seeks as far as possible to replicate the effects of the existing EU provision. The aim of doing so is to ensure that on day one, operators who currently pay EU customs duty will see very little change in the process that is to apply following the establishment of the new UK regime. Clause 1 establishes the new charge to tax and provides that import duty is to be chargeable. Such a provision is a fundamental requirement of any tax regime.
Clause 2 provides the definition of chargeable goods, a term used throughout the provisions relating to import duty. The concept of goods being chargeable is fundamental to any import duty regime and therefore its meaning needs to be set out explicitly on the face of the Bill. As I explained, part 1 of the Bill sets out the UK’s new regime for import duty, which will be needed once we complete the process of withdrawal from the European Union. In doing so, it takes as its starting point the EU legislation, which currently provides the rules for import duty, and replicates them within domestic legislation. The virtue of doing so is that the majority of importers will see no change to the process by which they pay import duty. This principle applies to rules for determining which goods are liable for import duty or, to use the language of clause 2, to the way in which “chargeable goods” are defined.
Clause 2 is relatively straightforward. It sets out the basis upon which customs duty is to be charged. Clearly not all goods are liable for customs duty. The most obvious examples are goods that were made in the United Kingdom and have never left the country, or goods from abroad on which duty has already been paid. Clause 2 therefore uses the concept of domestic goods to define when goods are not to be treated as chargeable for the purposes of customs duty. It sets out that chargeable goods are any goods that are not domestic goods.
Domestic goods are defined in clause 33, and Members will have the opportunity to consider that definition in greater detail later in Committee. In essence, domestic goods are any goods on which no import duty is due, either because any duty has already been paid or because they were manufactured in, or originate in, the United Kingdom.
Clause 2 is straightforward. The concept of goods being chargeable forms a fundamental cornerstone of the UK’s import duty regime. I therefore recommend that both clauses stand part of the Bill.
Question put and agreed to.
Clause 1 accordingly ordered to stand part of the Bill.
Clause 2 ordered to stand part of the Bill.
Clause 3
Obligation to declare goods for a Customs procedure on import
Question proposed, That the clause stand part of the Bill.
The Chair
With this it will be convenient to discuss the following:
That schedule 1 be the First schedule to the Bill.
That schedule 2 be the Second schedule to the Bill.
Mel Stride
Clause 3 does two important things: first, it establishes an obligation to declare goods that are imported into the United Kingdom; and, secondly, it introduces the concept of declaring goods for a specific customs procedure. Those are the basic building blocks of the UK’s new import duty regime.
The need to declare goods for a customs procedure is fundamental to any import duty regime. The procedure for which goods are declared determines when liability to import duty arises. The clause goes on to introduce another fundamental part of a customs regime—the customs procedures for which chargeable goods may be declared.
The purpose of importing goods may be to make them available for use in the UK, in which case they can be declared for a procedure known as free circulation, at which point they incur a charge to import duty. However, it is not always the intention to make goods freely available when they are imported into the United Kingdom. Goods are often brought to the UK for different reasons, such as to put them into customs warehouses for the time being, or to transport them through the UK on the way to another destination outside the country. In situations such as those, a business may declare the goods for a special customs procedure.
Special procedures either defer when a liability to import duty is incurred, or reduce the rate of import duty applicable to goods, provided of course the relevant conditions have been satisfied. Without those procedures, a business would have no option but to declare imported goods for the free circulation procedure and incur any import duty up front.
UK businesses currently rely extensively on special procedures, which together provide reliefs worth hundreds of millions of pounds each month. The provision made by the clause is supplemented by the detailed rules set out in schedules 1 and 2, to which I shall now turn.
Schedule 1 sets out the obligations to present and declare goods to customs on import. Many of the matters covered are of an administrative nature, such as the information that a declaration must contain or the time limits for when it must be made. I am sure that the Committee would not wish me to explain all those matters in detail, but I should highlight one important matter in which I think the Committee will be interested.
Paragraph 3 of the schedule enables Her Majesty’s Revenue and Customs to specify when goods must be declared before they are imported into the UK. That is an important point. Steps might be needed to reduce the risk of disrupting the flow of traffic at locations where goods need to be cleared quickly through customs. An obvious case in point is a port such as Dover, where significant amounts of goods arrive on roll-on roll-off ferries. It would clearly be of great help, in a situation such as that, to require the goods in question to be declared before their arrival at the port. That situation is therefore addressed by the schedule.
Schedule 2 deals with special customs procedures. There are five in all, namely: storage, transit, inward processing, authorised use and temporary admission. I will briefly describe their purpose.
A storage procedure allows imported goods to be stored without incurring liability to import duty. The goods must be kept in an approved facility, such as a customs warehouse or a free zone. There are currently no free zones in the UK, but should an area be so designated, provision may be made under the Bill for its operation.
A transit procedure allows goods to move between two places in the UK without incurring import duty. For example, goods from another country can pass through the UK en route to another destination, or goods within the UK can move from a customs warehouse to a port for re-export without needing to be declared for free circulation.
An inward processing procedure allows goods to be imported into the UK with the purpose of undergoing a qualifying processing activity without incurring a charge to import duty at that point. Once the procedure is discharged, goods may be exported without any import duty being due. Alternatively, a business may decide to declare the processed goods for free circulation in the UK and incur duty at that point.
An authorised use procedure is designed to assist certain industries by allowing a zero or reduced rate of import duty to apply to goods brought to the UK for a specific use. Finally, a temporary admission procedure allows for a relief from import duty for goods that enter the UK temporarily and for a particular reason. For example, that procedure applies when artworks situated overseas are brought to the UK on loan for display in a public gallery.
Taken together, the special procedures I have outlined exist to support trade fluidity and facilitate the movement of goods into the UK. Provision made by and under schedule 2 will allow HMRC to operate these special procedures. The obligation to declare imported goods is essential to an effective customs regime, and an effective customs regime must include special procedures that offer businesses in the UK the simplifications and reliefs that they rely on.
Kirsty Blackman (Aberdeen North) (SNP)
It is a pleasure to serve on the Committee, and to take part in the scrutiny of this important piece of legislation.
The Minister is right to talk about the administrative nature of the clause and its associated schedules. It appears to be the Government’s position that the UK will choose to leave the customs union. We are not yet clear whether they will pursue another form of customs union with the EU, but if they do not, or if they do not manage to get a customs union with the EU, it is likely that significantly more customs declarations will be required because we will not have those coming from the EU.
My concern about the clause arises from Tuesday’s oral evidence sessions, and it would be useful for the Minister to provide an update on that. Various organisations expressed concerns about the resourcing of HMRC and Border Force. Border Force is the first line for many imports, ensuring that customs declarations are made appropriately and that all appropriate processes are followed.
On HMRC, the concern was that no customs officers will be based north of Glasgow or Edinburgh. If goods are coming in to places such as Inverness, it is a three-hour drive for people to get there and look at those goods. What assessment has the Minister made of the extra resourcing that HMRC will need to fulfil the obligations in the clause and the schedules? Reasonable concerns have been expressed by businesses and organisations.
Mel Stride
I welcome the hon. Lady to the Committee and thank her for that initial contribution.
In terms of where the final deal with the European Union lands, whether we have a form of customs union with the remaining 27 members is subject to negotiation. The Government have made it clear that we wish the end point to be the facilitation of trade between ourselves and the remaining 27 members of the customs union. The Bill provides for that end point to be as close as possible to the existing rules and regulations around the Union customs code; that is very much what the Bill seeks to achieve. At the same time, the Bill retains the flexibility to ensure that we can put into effect the necessary and appropriate measures no matter where the deal lands—or, indeed, if there were to be no deal at all with the European Union, as we certainly do not expect.
The hon. Lady raised the important issue of HMRC resourcing. As we move towards our day one scenario—whatever that may finally look like—I assure her that the Government are vigorously engaged not just with issues around HMRC’s human resource requirements, but with other infrastructure requirements, whether for hard infrastructure or information technology systems such as the Customs Declaration Service, which will be important.
To address her particular issue, the head of HMRC has made it clear that his feeling is that we will need between 3,000 and 5,000 additional staff across HMRC to ensure that we cover off, wherever the day one deal lands. For an organisation of well in excess of 50,000 personnel, such an increment in staffing, particularly given that some will be reallocated rather than entirely new recruits, is perfectly manageable.
Anneliese Dodds (Oxford East) (Lab/Co-op)
I am grateful to you for being in the Chair, Ms Buck. If I may, I will question the Minister on his explanation. I am grateful for it, but on Tuesday we learned that after HMRC’s ongoing restructuring programme there will not be a single HMRC hub north of Edinburgh and Glasgow, nor will there be one anywhere along the south coast, including Dover. We heard ample evidence in the witness sessions that that is the busiest and most concerning port from the point of view of customs procedures going wrong. In the light of that evidence, should we reconsider that HMRC reorganisation programme?
Mel Stride
I welcome the hon. Lady to the Committee. She mentions the location of the new HMRC hubs as they are rolled out, and I will make two important points. First, Border Force, which is very much part of the frontline, is in the Home Office’s remit, not HMRC’s. Secondly, proximity to the hubs or otherwise is not critical in determining whether HMRC provides the support that Border Force and other agencies require. The absence of a hub close to a need does not mean that HMRC staff cannot be in proximity to that point; they do not need to be based constantly at any one hub.
Peter Dowd (Bootle) (Lab)
May I pick up on that? I will not repeat what my hon. Friend the Member for Oxford East said, but try to reinforce the seriousness of the evidence witnesses gave on Tuesday. Mr Runswick said:
“HMRC is closing offices in places such as Southampton…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.”––[Official Report, Taxation (Cross-Border Trade) Public Bill Committee, 23 January 2018; c. 37, Q45.]
I want to tease out a little more from the Minister. Does he recognise that argument at all? It seems to be business as usual.
Mel Stride
I welcome the hon. Gentleman to the Committee. He reiterates the point that the hon. Lady just made, so I will spare the Committee a repeat of every element of my answer. However, specifically with relation to the points made in the evidence session by Mr Runswick, the trade unions have been resistant to the changes to HMRC wholesale, right across the piece. Therefore, when it comes to arguments about whether HMRC can be effective in clamping down on avoidance, evasion and non-compliance, bringing in tax yield and so on, the argument has been run that we need a number of offices in multiple locations to do that.
The critical answer is that the very nature of running an efficient tax system and customs regime needs technology, the right skills and the right people. That lends itself to having a concentration of such individuals in hubs, where skills and IT can be developed and brought in to be effective. Without repeating my answer to the hon. Gentleman’s hon. Friend, the Government and HMRC are clear that the configurations of the new hubs will lend themselves to appropriately support the new customs regime.
Kirsty Blackman
Other than the resourcing, which the Minister has fully addressed, I am concerned about the geographical issue. We do not want people to be a number of hours’ drive from the customs officials. Can the Minister give us some comfort that even though there might not be hubs in the area, there will be customs officers based closely and able to respond on a 24-hour basis?
Mel Stride
I can certainly assure the hon. Lady that the situation as it will pertain when we move to the new hubs—we are making some assumptions about what exactly the end point of the negotiations will be—will be sufficient to make sure we have a customs regime that works, that is low friction, and keeps trade moving and raises revenues on the duties that we may or may not apply.
Emma Hardy (Kingston upon Hull West and Hessle) (Lab)
On resourcing, to add to the points already made, I want to double-check this because the first time I saw it I did not believe it was true, but it is. In December you asked for volunteers to be deployed to help plug the gaps in the UK’s Border Force. There had already been an acknowledgment that it did not have the number of people needed and you called for volunteers, which was opposed by Conservative MPs, who said they did not want to see a return to a Dad’s Army protecting the UK. Are you still planning to plug the gap with volunteers or will people be employed?
Mel Stride
I will take the hon. Lady’s references to “you” as not meaning the Chair of this Committee, but me. The issue that she has raised, which ran in the press a few weeks ago, relates to an issue for the Home Office and Border Force, not HMRC. It is outside the immediate scope of this Bill. I know that at least one Minister in the Home Office was able to refute those suggestions, but I will not dwell on that in this Committee.
Nic Dakin (Scunthorpe) (Lab)
The other thing that came out in the evidence was the concern about the loss of experience at a critical time. Is the Minister giving us a strong assurance—I think he is—that there will not be any problems as we move forward? If there are any problems, the Minister and HMRC will be jointly and severally responsible.
Mel Stride
I thank the hon. Member for his very helpful intervention. Of course Ministers have responsibilities for the areas that they oversee. I can assure the hon. Gentleman that I have had discussions with HMRC staff, including the head of HMRC, and we have looked specifically at the right mix of skills and people, so I am confident that we will have the right team in place to meet the challenges ahead.
Question put and agreed to.
Clause 3 accordingly ordered to stand part of the Bill.
Schedules 1 and 2 agreed to.
Clause 4
When liability to import duty incurred
Question proposed, That the clause stand part of the Bill.
Mel Stride
The clause determines when a liability to import duty is incurred. This is a necessary part of establishing a stand-alone customs regime as both businesses and HMRC need to know the point at which any money is due. The clause sets out a framework for determining the point at which liability to import duty is incurred. The general rule for importers wishing to release their goods for free circulation—that is, to discharge all customs obligations—is that the liability is incurred when HMRC accepts their declaration. For example, if a business were importing electronic goods from east Asia and declared the goods for free circulation, the liability for import duty would arise when HMRC accepts that declaration.
Similarly, the general rule when importing something under the temporary admission or authorised use procedures is that liability is incurred when HMRC accepts the declaration, but at a reduced rate. However, to facilitate trade and support businesses, liability can be deferred. In cases where goods are declared for a transit procedure, inward processing or a storage procedure, liability does not occur at the point when HMRC accepts the declaration, although liability may arise at a later date. The clause also makes further provisions governing these situations, including the consequences for liability purposes of the incorrect usage of the special procedures or their breach. The clause makes it clear when liability to import duty is incurred.
Question put and agreed to.
Clause 4 accordingly ordered to stand part of the Bill.
Clause 5
Goods not presented to Customs or Customs declaration not made
Question proposed, That the clause stand part of the Bill.
Mel Stride
Clause 5 deals with cases where goods imported into the UK are either not presented or not declared to HMRC. Where that is the case, it provides for the goods to be liable for forfeiture. It is essential to have rules that cater for situations in which someone fails to meet their obligations when they import goods into the UK. The clause provides such a rule: it makes imported goods liable to forfeiture if they have not been presented or declared to HMRC. That simply mirrors the existing position in EU law that applies in such cases.
The clause also makes it clear that such goods remain liable to import duty at the same time that they are liable to forfeiture. It is essential that appropriate sanctions are in place to deal with failure to meet the requirements of the import duty regime. That is what clause 5 provides in cases where goods are not present or declared to HMRC.
Question put and agreed to.
Clause 5 accordingly ordered to stand part of the Bill.
Clause 6
Person liable to import duty
Question proposed, That the clause stand part of the Bill.
Mel Stride
Clause 6 establishes who is liable to pay any import duty on goods imported into the United Kingdom. It is essential to establish who is obliged to actually pay import duty when it becomes due. The clause establishes the series of rules that do just that.
The rules set out by the clause illustrate a fundamental principle of the import duty regime, namely the link between the making of a customs declaration and the liability to pay an import duty that might be due. In cases where procedures have been followed correctly and the information provided is accurate, the liability for duty falls upon the person named on the declaration, or on whose behalf the goods have been declared. That could be the importer of the goods and/or an agent appointed to act for them. The basic rule is supplemented by other rules that apply in less straightforward circumstances: for instance, in cases where goods are not declared, the liability to pay duty falls on the person who is in possession or control of the goods when they arrive in the UK.
The clause also caters for other situations in which the rules have not been followed. They include cases where someone has provided false information when they make a declaration, or where they have not followed obligations imposed upon them, such as those that are imposed when goods are subject to a special customs procedure. In such cases, a person who has provided false information or who has breached the obligation can be liable for import duty. The clause also makes it clear that where the liability falls to two or more persons, the clause provides that they are jointly and severally liable for the import duty. It is essential to establish who is liable to pay import duty in all circumstances in which such liability arises. That includes making those who provide false information in connection with declarations liable for import duty.
Clause 7 contains no powers, but introduces the clauses in the Bill that will be used to set the amount of import duty applicable. The customs tariff will apply in all cases, but may be amended or adjusted to change the standard rate of duty in certain circumstances. The clauses referred to in this clause ensure that. The customs tariff will set out the rate of duty applicable to imports of goods into the United Kingdom. The tariff is made up of import duty rates for product categories. The standard customs tariff that the UK currently applies as a member of the EU is made up of more than 17,000 tariff lines.
The customs tariff established under clause 8 will contain the duty rates that apply to all imports from every country unless varied by another clause. The following clauses in the Bill enable the variation of the standard rate of import duty. For example, the UK will be able to reduce import duty when goods are imported under a preferential trade agreement, where preferential rates are granted unilaterally to developing countries. Parliament will also be able to reduce duty rates for applying a tariff suspension or relief, such as for items imported for educational, scientific or cultural purposes.
There are also circumstances where we may apply higher duties. For example, additional import duties can be applied when imports are causing injury to UK industry, as long as such additional duties are applied in line with our obligations as a member of the World Trade Organisation.
Clause 7 introduces the provisions under which we will establish our own tariff regime on leaving the EU. I suggest that clauses 6 and 7 stand part of the Bill.
Question put and agreed to.
Clause 6 accordingly ordered to stand part of the Bill.
Clause 7 ordered to stand part of the Bill.
Clause 8
The customs tariff
Kirsty Blackman
I mentioned during Second Reading that the Law Society of Scotland had produced a paper on the Bill, and I offered to provide the Minister with a copy. If he does not yet have one, I am still happy to do that. The paper explains more fully the rationale behind these three amendments.
The amendments are not necessarily about changing the tack of the Bill; they are about making better law and ensuring that the law is clearer. I will quote a short extract from the paper submitted by the Law Society of Scotland. It states that,
“the power under clause 8(1)(a) to classify goods ‘according to their nature, origin or any other factor’ is a very broad one. At the very least, this should be limited to ‘any other relevant factor’ but it would be preferable to limit the scope of this provision by giving an indication of the types of factor which might be appropriate in this context.”
So, in our amendment, we have taken up the “very least” option suggested by the Law Society of Scotland. It seems a bit extreme for the Minister to be able to make changes or decisions on “any” factors, some of which may not be relevant. Adding the word “relevant” would ensure that, under the clause, the Minister was stuck to making changes or decisions in relation to relevant factors. It is simply a small technical change that would tighten up the way the law is written.
Similarly, amendments 105 and 118 are very small technical changes that the Law Society of Scotland suggests would be preferable or useful additions to the clause. It suggests that clause 8(3)(b) say, “the number, weight or volume of the goods or any other measure of their quantity or size.” Again, the aim is just to tighten up the language and ensure that the laws that we are starting off with in this wonderful Brexit Britain are as good and clear as possible and can be interpreted, if they need to be—by a court, for example—in the best possible way. As I said, they are very small technical changes, and I would appreciate it if the Minister would consider them.
Mel Stride
Clause 8 requires the Treasury to establish and maintain a customs tariff. The rates of duties set under this clause will apply to goods from every country, unless varied by another clause. It enables the implementation of a range of tariff options, so that the UK can respond to changes in the global trading environment, both now and in the future.
The UK currently applies duty to imports to the UK under the Union customs code. The standard duty rates of the UK, as a member of the EU, are contained in the common external tariff. When we leave the EU, this Bill will require the Treasury to establish and maintain a customs tariff that will, among other things, specify the rate of import duty applicable to goods. The UK is working with the WTO to establish the UK’s bound tariff schedule. That schedule sets the maximum rate of import duty that a country may apply to imports. The UK can then choose what rate to apply, provided it is at or below the bound rate. Import duty rates specified under this clause must be consistent with those international obligations.
Clause 8 sets out what must be contained in the customs—
The Chair
Order. May I remind the Minister that there will be an opportunity for a general debate on clause 8, but not necessarily at this point? He should be responding specifically to the amendment.
Mel Stride
I am sorry, Ms Buck. I assumed that we were also debating that clause 8 stand part. My apologies. I will turn specifically to the amendments tabled by the hon. Member for Aberdeen North. Although she may see them as clarifying matters, the Government’s view is that they are additional and unnecessary amendments to areas where no further clarification is required.
Kirsty Blackman
Just to be clear, it is not just me who sees them as necessary in terms of clarification; it is the Law Society of Scotland, which, I assume, knows quite a lot about the law, and therefore feels that these are appropriate changes that would be helpful in terms of the actual law.
Mel Stride
I thank the hon. Lady for that intervention and I fully appreciate that she is taking up recommendations made by the Law Society of Scotland, but let me comment on the two fundamental points she has raised.
First, relating to the relevance—that relevant considerations should be taken into account. The relevance of having the word “relevant” in there, prompts the question whether anybody would ever take decisions based on things that were entirely irrelevant, or at least not relevant. If one went down the road suggested by the hon. Lady, the word “relevant” would probably be inserted in multiple places throughout all the legislation that we ever pass in this House. It is understood that rational Ministers and others would take relevant decisions, rather than irrelevant decisions.
Secondly, before I go too far down this tongue-twisting route—
Mel Stride
Will the hon. Lady indulge me for a second? Parliament—through secondary legislation and in many cases in this Bill—will have the opportunity to test whether any of these measures are being taken on the basis not only of relevant considerations, but of all sorts of other considerations that will be taken into account as to whether these measures that come forward should proceed.
As to the specific point about the amendment relating to the insertion of the numbers, that clause already refers to reference or consideration being made of the quantity of the goods concerned. I think the meaning of the word “number” is, in that context, subsumed by the meaning of the word “quantity”. The Government have received the opinion that the clause already does that which the hon. Lady would like to see it do, namely ensure that the number of goods is also relevant to the function of that particular clause in the legislation.
Anneliese Dodds
It is just a brief—the Minister may feel, facetious—comment, but in the Help-to-Save regulations that we recently discussed there is reference to sufficient proof of death from a GP being required. The Government apparently felt that the word “sufficient” was necessary in that context, but most people would think it was not necessary if there is proof of death. Therefore, if an expert body such as the Law Society of Scotland feels that a word such as “relevant” is required, perhaps I would take its word for it.
Mel Stride
I am not a legal expert. I obviously appreciate that different words have different meanings in different legal contexts, but from the Government’s point of view, we are satisfied that there is not a requirement to have the word “relevant” inserted. That would be superfluous—to throw in another term—as would be the insertion of the word “number”, for reasons I have given to the hon. Member for Aberdeen North, because it would not affect the functioning or meaning of that clause.
Kirsty Blackman
I am not going to press the Minister on the word “number”, but on the word “relevant”, I think the Minister dug a hole when he was talking about “rational” Chancellors or Ministers in the Treasury. We are looking at ensuring that this regulation is future-proof, ensuring that if a Minister is not as reasonable as the one standing here, we can ensure that they are held to making relevant regulation. The clause states:
“The Treasury must make regulations establishing, and maintaining in force, a system which…classifies goods according to their nature, origin or any other factor”.
The Government are asking for this House to give them a significant level of delegated authority. They are asking for us to trust the Government, or any future Government that come after, in relation to making these regulations. In this case they are asking us to trust the Treasury. I think the Government can understand why there may be a lack of trust at the moment, given that we have been promised things that have not been followed through on. It would not be too much to ask to insert the word “relevant” into that clause, so that in future, if we do not have as rational a Minister as this one, we can ensure that they have to make the regulations on the classification of goods on relevant factors, rather than on ones that may be irrelevant.
Mel Stride
I reiterate that the Government are not in the business of taking irrelevant factors into account when they make decisions. I give that assurance equally in respect of the Opposition and other parties when they are or have been in government.
The hon. Lady also raises the issue of delegated legislation. At the introduction of the tariff, delegated legislation will be in the form of an affirmative statutory instrument that will be fully considered by a Committee, passed or otherwise by it and agreed to or otherwise by the House. A higher level of delegated legislative scrutiny will also apply to every occasion on which a duty is increased, as opposed to decreased. There is provision in the Bill for a higher level of scrutiny for the introduction of the tariff and for elements of its operation thereafter.
Kirsty Blackman
I thank the Minister. I would like to press amendment 104, but not the other two in the group.
Question put, That the amendment be made.
Peter Dowd
It is a pleasure to serve under your stewardship, Mrs Buck. I hope that, as in the sessions on the Finance Bill, we will have a major climbdown—the Minister and other members of the Committee will note that from that Bill.
The SNP amendment 106 would require the Government to have regard to the public interest in considering the rate of customs tariffs on our exit. It would add a public interest test to the four existing conditions that the Bill requires the Treasury to have regard to when deciding to apply customs tariffs to goods entering the United Kingdom. Those existing conditions in the Bill are the interests of consumers, the desirability of promoting external trade, the desirability of promoting productivity in the UK and the extent to which goods are subject to competition.
Members will note that, throughout the passage of the Bill, we have been seeking to ensure parliamentary scrutiny. We will continue to do so. In one of the evidence sessions, we heard from one witness, Kathleen Walker Shaw, the European officer of the GMB union, who said that she spent many evenings drafting her union’s response to the trade White Paper only to find eight hours later that the Bills had been published. I think that it is fair to say that that was not a particularly isolated view in the session.
The Opposition have concerns about the specifics of the SNP amendment, which means we take a slightly different approach. We believe that, in key sections of the Bill, the public interest is being used as a mechanism to widen the powers of the Secretary of State. That is perhaps most pronounced in schedule 4, which empowers the Secretary of State to reject a recommendation of the Trade Remedies Authority based upon a belief that it is not in the public interest. I respect people’s beliefs, but in this forum they have to be based on evidence, and I am not sure that we will get much of that. We have tabled a number of amendments of our own, and I want to dwell on them.
It is incumbent on me to point out that public interest is not defined in the Bill. That leaves a good deal of room for manoeuvre for the Secretary of State to determine the public interest, without appropriate parameters about precisely what it means. Precision is not one of the endearing features of the Bill. We are happy for the Government to have powers to take the public interest into account in certain circumstances, but only on the basis that it is concretely defined in primary legislation. That is yet another lacuna in the Bill, and a stubborn point that will be addressed time and again in these proceedings.
The Minister used the example of national security in the evidence session on Tuesday. That does seem a useful definition of public interest, and we believe that national security should provide an explicit limit to the definition of public interest in the Bill. We know, after all, that the Secretary of State has some novel ideas about what the public interest might be. They are views that ostensibly focus on the needs of the consumer over the producer. However, it has to be said that that is a one-dimensional approach taken by the Government, which was laid bare in the witness session. In response to the Financial Secretary’s question about consumers potentially being disadvantaged compared to producers, Ms Crawford responded:
“Consumers are also workers who are employed in some of these industries, and they will not benefit from having unfair trade practice disadvantage them and the quality of their goods. That is something we must bear in mind.”––[Official Report, Taxation (Cross-border Trade) Public Bill Committee, 23 January 2018; c. 42, Q53.]
That is a more sophisticated definitional approach than the Government’s.
Although we support the efforts of the Scottish National party to introduce checks and balances, we have concerns at this stage. In that regard, we cannot support the amendment. I hope the hon. Member for Aberdeen North will take our statement in good faith.
Mel Stride
We have had a wide-ranging debate on this group of amendments, much of which covers matters that we will come to later in the Bill. I will focus my remarks on the details of the amendments and the clause.
The hon. Member for Scunthorpe rightly pointed out that I said earlier that the Government’s intention was to ensure that we had a minimum of change in the regime, for the obvious reason of providing familiarity and certainty to businesses. That is an important point and it is why clause 8(5) takes precedent from the Treaty on the Functioning of the European Union. It is very much grounded in where we currently are, as opposed to venturing out to pastures new, some of which would be unfortunate or inappropriate, or so the Opposition would have us believe.
The hon. Member for Oxford East mentioned authorised economic operators, which we will come to in clause 22, to make the general point that a number of things do not appear in the Bill, such as our habitats and various other things in existing EU legislation. On AEOs, the Bill introduces powers in clause 22 that will allow us to address exactly those elements when HMRC and the Treasury come to lay regulations as to, for example, what qualifications there might be to become registered as a certified AEO. Those kinds of issues can be picked up at that time and scrutinised further by the House.
The meat of clause 8 is in subsection (5), which states:
“In considering the rate of import duty that ought to apply to any goods in a standard case, the Treasury must have regard to…(a) the interests of consumers in the United Kingdom”
and
“(b) the desirability of maintaining and promoting the external trade of the United Kingdom”.
It is hard to see how that would not have to take into account the manufacturing element and the health of the manufacturing sector. Subsection (5)(c) states that the Treasury must have regard to
“the desirability of maintaining and promoting productivity in the United Kingdom,”
It is very difficult to see how the manufacturing sector, which represents around 10% of the UK economy, could be entirely ignored or in any sense neglected. Subsection (5)(d) states that the Treasury must have regard to
“the extent to which the goods concerned are subject to competition.”
I suggest that manufacturing would be core to any decisions on the setting of duties made in that context.
Subsection (6) states:
“In considering the rate of import duty that ought to apply to any goods in a standard case, the Treasury must also have regard to any recommendation about the rate made to them by the Secretary of State.”
As the Committee will know, the term “Secretary of State” refers to any Secretary of State in any Department, so on concerns relating to sustainable development, the relevant Department—
Kirsty Blackman
Actually, subsection (7) goes on to say that the Secretary of State
“must have regard to the matters set out in subsection (5)(a) to (d)”,
and not to other factors such as sustainable development.
Mel Stride
The hon. Lady has pre-empted my next point. Although subsection (7) does say that, it does not say that the Secretary of State cannot have regard to any other matter—it does not exclude. It would be strange if a Secretary of State was told that they had to have regard to those four aspects when considering an issue and they took that to mean that they could not consider any other aspect. I draw the Committee’s attention to that aspect of the Bill.
On the specific case of sustainable development, we will debate and scrutinise the provisions in the Bill that accommodate setting up our unilateral trade preferences, which are extremely important in the context of sustainable development. On those grounds, I urge the Committee to reject the amendments.
Kirsty Blackman
Specifically on what the Minister has said, it is clear from various evidence we have received that the Government have not chosen simply to replicate things such as the Union customs code. In some places they have chosen to replicate it, but in others they have chosen not to. The concern is that the Government’s judgment has not been great in choosing which parts to replicate and which parts not to replicate. The measure has clearly been drafted in a hurry. From the Minister’s argument in relation to what the Secretary of State would have regard to, it is clear that this section of the legislation has not been particularly well thought through.
Opposition Members are not asking for unreasonable things. Having regard to sustainable development is completely reasonable. If the Minister is clear that that will be looked at anyway, or if the Secretary of State decides to get involved in any decision, it does not cost anything to add that into the Bill. If the Minister is clear that the Government will consider the interests of manufacturers because they are integral, it does not cost anything to add that into the Bill. It would be useful and helpful to businesses and would be a nice sign of confidence in businesses. It would be great for the Government to not just talk about increasing productivity, but to say to manufacturers, “We will support you and ensure that your interests are protected.” If the Minister is clear that such things are going to happen anyway, it would not cost the Government anything and they would lose nothing, but it would ensure that people feel more positively about the Bill.
Mel Stride
I will be brief because the Committee is anxious to make progress and move on to some important clauses. I will not repeat the earlier comments that I made other than the overarching comment, which is that the provisions in the Bill as drawn are very broad and will pick up on the concerns that the hon. Lady has raised.
Jonathan Reynolds
I appreciate the Minister’s response and his words of reassurance, but if he were being fair-minded he would acknowledge that there is still significant uncertainty and concern in UK industry, particularly in the manufacturing sector. As the evidence session showed the other day, there are more known unknowns than anything else in this area, and amendments that seek to mitigate that and provide more reassurance are reasonable and prudent, so we would like to press the amendment to a vote.
Question put, That the amendment be made.
Kirsty Blackman
I have previously complained about the composition of Public Bill Committees, given the UK Government’s gerrymandering so that they can have a majority in Bill Committees despite not having a majority in the House. The change would mean that scrutiny would be done effectively, and not just by Committees with a majority of Government representatives who will win every vote by 10 to nine. The amendment is incredibly important and would ensure effective and appropriate scrutiny, and make for better legislation.
Mel Stride
Amendment 2 would require the Treasury to consider recommendations made by a relevant Select Committee or a resolution of the House of Commons when considering the rate of import duty that ought to apply in the standard case.
The Treasury will listen closely to recommendations from a range of interested parties, including relevant Select Committees and, of course, Members of the House. In addition, Select Committees already have the power to question Ministers on policy within their departmental remit, and the Treasury will answer any questions from relevant Select Committees. Therefore, the Government believe that it is not necessary to include that in the Bill.
Amendment 3 would place the same obligation on the Treasury when considering what provisions to include in regulations related to quotas, such as determining the rate of import duty applicable to goods that are subject to quotas, and amendment 4 would introduce that requirement when making regulations concerning tariff suspensions. For the same reasons that I set out in relation to amendment 2, the Government do not believe that it is necessary to include such provisions in the Bill.
I have one final point in response to the point made by the hon. Member for Aberdeen North about scrutiny and needing provisions in the Bill. This Bill will, of course, have Report stage, which will be an opportunity for scrutiny by a far wider group than a Committee on which the Government might typically have a majority of one. Every Member of the House will have an opportunity to participate in that debate and consideration of further amendments.
Peter Dowd
The amendments seek to ensure that the Treasury must have regard to any Select Committee recommendations or House of Commons resolutions in two circumstances: first, when setting the rate of import duty on a specified good; and secondly, when lowering the rate of import duty on specific goods. Through the amendments, we seek to improve the mechanisms of accountability and ensure that any decision taken by the Treasury on duties and tariffs is taken on the basis of a democratic approach to the management of our economy, with a full and proper place for Parliament and its constituent parts.
We want the UK to have a full and functioning customs system in place when we leave the European Union. The powers transferred in the Bill give the Chancellor, the Secretary of State or others the ability to restructure the entire economy at a few strokes of a pen, without any consultation with those affected by changes to our customs regime. That is deeply concerning for anybody.
Since the Government failed to win a majority at the recent general election, we have seen numerous attempts to centralise power within ministerial portfolios, reducing the role of Parliament and the scrutiny of Government decisions, as has been alluded to on a number of occasions today. The Bill is yet another example of that trend. As the Lords Delegated Powers and Regulatory Reform Committee made clear, the current trend is towards a “massive transfer of power” to the Executive and away from Parliament. Every parliamentarian in this room should be deeply concerned about that because, at the end of the day, we get £75,000 a year to come here and scrutinise the Government and we are not being allowed to. We are therefore seeking to introduce the checks and balances necessary to ensure that a future customs framework and its operation continue to have proper democratic scrutiny and oversight. Stakeholders should be brought into the process.
The amendments would introduce an advisory capacity for Select Committees or the House in the process of determining import duties. That would broaden the number of those who have a democratic role in supporting and informing decision-making. That is what we are here for. Currently, as the Lords Committee made clear, the Bill provides 150 separate powers to make tax law. We are merely suggesting that widening the number of parliamentarians who can influence those decisions is a matter of building a genuinely rigorous democratic process.
Crucially, as hon. Members are aware, Select Committees are made up of Members from across the House. That cross-party approach can only support a proper decision-making process on the important issue of customs tariffs. We hope therefore that Members will consider the benefits of including the expertise of a Committee or the House in general within the vital process of examining evidence and providing independent advice— the Government may not wish to hear that advice, but it should nevertheless be given to them. Ultimately, that can only help to support the work of the Treasury in achieving the best outcome, regardless of party concerned.
It is reasonable in distillation to assert that Mr Blackwell from the Hansard Society said that there is a problem that
“the balance between Parliament and the Executive...has always been on the side of the Executive”––[Official Report, Taxation (Cross-border) Public Bill Committee, 23 January 2018; c. 51, Q71.]
This is a chance to rebalance that. Given the extent of delegation to Ministers set up in this Bill and other Brexit Bills, the role of Parliament is being downgraded. The Government know that; Members in this room know that; consumers know that; and producers know that and the public know that. The Government should think on that. Frankly, they should come clean, have the courage of their convictions, acknowledge it publicly and, in so doing, stop hiding behind what for many people are the vagaries of procedure—negative, affirmative and so on. We ask the Committee to support our amendments today in the interests of democratic scrutiny.
Question put, That the amendment be made.
Taxation (Cross-border Trade) Bill (Fourth sitting)
Mel Stride Excerpts(6 years, 3 months ago)
Public Bill CommitteesRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Peter Dowd (Bootle) (Lab)
It is a pleasure to see you in the Chair, Mrs Main.
The new clause establishes a system of enhanced parliamentary procedure for regulations setting the customs tariff, with a requirement for the House of Commons to pass an amendable resolution authorising the rate of import duty on particular goods. It requires a vote in the House of Commons to authorise the rate of import duty on particular goods through enhanced parliamentary procedure. The details are set out in the new clause—it is indeed quite detailed.
I do not consider asking for normal parliamentary oversight to be a controversial request, as shocking as that might seem to the Government. They have made it clear that this is a money Bill and will therefore avoid proper scrutiny in the House of Lords. I sound like a stuck record, but Parliament’s ability to scrutinise has been a theme since the general election.
That concession highlights a key point, however: this is Parliament’s power of the purse. That convention dates back to Charles II and ensures that taxes cannot be collected without the consent of the Commons. We should be deeply concerned about this Bill getting through because we were not alert to or cognisant of the significant issues that face us. In all the melée of Brexit, the EU (Withdrawal) Bill, this Bill, the Trade Bill and the other Bills that will come through, we must assert our right as parliamentarians to hold the Government to account, particularly when it comes to taxes.
The raising and lowering of tariffs is effectively the taxation of goods coming into the country. It will bring revenue to the Exchequer that will have a significant impact on public finances and departmental budgets, not to mention the economy as a whole. I could push further on the £350 million a week for the NHS, but I will not on this occasion—I know the Minister will be pleased.
Peter Dowd
The Opposition believe that, just as changes to tax are brought in in the form of a money Bill, so should changes to tariffs and customs duty. That is practical, reasonable and very responsible, if I may say so. We are not suggesting that there should be a vote every time that a tariff is raised or lowered; instead we envisage the Government regularly introducing to Parliament a list of changes for Members to scrutinise and vote on.
The alternative to a democratic and open process is the hoarding of power in the Treasury or the Department for International Trade, which alone will set the UK’s future customs tariffs. The workings and logic behind their decisions will be largely unknown, and hidden from the scrutiny of the House. That is the theme of our amendments with regard to the Select Committees. The Minister says that Select Committees will be able to bring the Minister in, question them and have a chat with them, but I am afraid that is not strong enough.
This is the biggest constitutional change we have had for as long as anyone can remember, and it is incumbent on us to ensure that when we have major shifts in power between the Executive and the Commons, we can challenge them. I think a confident Government would acknowledge that. I would not use the word “concede”, but I think a Government, who were confident in their own abilities—
Kirsty Blackman (Aberdeen North) (SNP)
It is a pleasure to be here and to have you in the Chair this afternoon, Mrs Main. We support new clause 1, which has been tabled by the Opposition, and we would be happy to support it if they decide to put it to the vote.
I have concerns about clause 8 because of the deficiencies that we discussed earlier. I hope that, by Report, the Government will have come back to some of the suggestions that the official Opposition and the Scottish National party have made, and given them some level of consideration. Although clause 8 has deficiencies, it is my working assumption that even if we were in a customs union—which would be my preferred option—we would still need to set our tariffs and to lodge those schedules with the World Trade Organisation, so, even in the event of the UK being in a customs union with the EU, I imagine that there would still be a requirement for the Government to have the power to set tariffs.
On that basis, clause 8 is necessary whether or not the Government decide to come out of the customs union or to pursue a customs union. So, although it is deficient, we need to do something. It would be useful if the Minister was to say that he might consider coming back on Report to some of our amendments—even if he said he would consider it, that would be incredibly helpful—but as I said, we will support Labour’s new clause.
Mel Stride
It is a pleasure to serve under your chairmanship, Mrs Main. I thank the hon. Member for Bootle for his remarks. His usual brilliance was enhanced by an unknown quality of being able to summon dramatic music to enhance his comments. He gets better and better, the longer we hear from him.
The hon. Gentleman raised various general points, including the fact that this is, in effect, a Finance Bill and therefore will not be amended in the House of Lords. There are good reasons for that. There is a very, very long tradition for Bills that relate substantially to tax and the rating of charges to be handled in that way—both by this Government and by Labour, when it was in government.
Mel Stride
The Government of course listen to everybody who has an opinion—or, should I say, a relevant opinion; a rational opinion, even—on the matter in hand, and we will continue to do so.
The hon. Member for Bootle raised the obvious and important point that with Brexit in the round, we are looking at a big constitutional change—I think that was the expression he used—which is undoubtedly true. However, he seized on that known fact to suggest that in the narrow case of the change in the duties on specific goods, we should therefore have a highly augmented level of scrutiny. I do not think that the two things are linked. The Bill deals narrowly with duties, and more robust scrutiny is suggested through the affirmative statutory instruments for the first introduction of the tariff and for all duties that are changed in an upward direction afterwards. He stated that there will be a huge change, but the Bill’s purpose is to narrow down that change wherever we can, not least regarding our tariff arrangements.
Peter Dowd
I understand exactly where the Financial Secretary is coming from. Given the level of change and the surety that we must give people that these matters are being carefully and assiduously considered, the parts are in a way greater than the sum. Does he therefore agree that it is important to send a message that Parliament—appropriately, through a proper mechanism, and not through ministerial diktat—should be able to consider these matters in more detail than it can under the mechanisms and frameworks being provided by the Government?
Mel Stride
The hon. Gentleman has eloquently revisited the points that he made in his opening remarks. We have a narrow scope for the tariff’s introduction, with all the thousands and thousands of different categories, duties, goods and so on that will be contained within it. It allows for provision to vary those duties. As I mentioned, we have said that when the tariff and all the duties that are under it are introduced—and indeed, when the duties are increased, or the Government seek to increase them—the affirmative procedure will be in place. Given the narrowness of the scope of the regulations and the fact that enhanced scrutiny will be in place through the affirmative procedure, I hope that the hon. Gentleman feels that that will be enough under the circumstances.
Before I deal with the specifics of clause 8 and the new clause, I will respond to the hon. Member for Aberdeen North. She exhorted me to consider her pleas carefully—how could I possibly not, under those circumstances? I can reassure her. As we were discussing earlier, I had haggis for lunch, with some mashed potato and swede, and I now have the “Braveheart” spirit—although that did not end all that well, did it? However, fortified with that spirit I will do my utmost, as I would in any case, and consider the amendments very carefully. I am sure that the hon. Lady will return to the matters on Report.
Peter Dowd
I will, Mrs Main, and I will come back to the clause later if that is appropriate. I am just trying to support the contention made by the hon. Member for Aberdeen North that stakeholders are crucial to making the measure work. Having tried to set out the context, I am happy to sit down and to come back later to talk about the clause more generally. However, I support the hon. Lady’s contention.
Mel Stride
As the hon. Member for Aberdeen North has said, the amendment seeks to do two things. It would require the Treasury to consult before giving effect to a trade arrangement that has been agreed with another territory or country, and to make regulations in such circumstances.
To take the first of the points, any consultation on regulations made under clause 9 would not be meaningful as the Government would not be in a position to take account of the views received without withdrawing or renegotiating the agreement reached. As set out in the trade White Paper, the Government have committed to engaging stakeholders throughout the process of negotiating new trade arrangements.
On the proposed requirement for the Treasury to make regulations, it goes without saying that the Government are required to meet their international obligations in the trade agreements that they have entered into. The word “may” is used, however, because there might be unforeseen circumstances that make it inappropriate for the Treasury to be obliged to lay regulations. As I say, however, the Government will of course be bound their international obligations.
On that basis, I urge the Committee to reject the amendment.
Kirsty Blackman
I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Question proposed, That the clause stand part of the Bill.
Mel Stride
Clause 9 allows the Treasury to implement preferential trade arrangements on the recommendation of the Secretary of State. That will enable the rate of import duty applied to goods originating from a territory covered by a preferential arrangement to be lower than the standard rate.
The clause ensures that the tariff-related part of any new or existing free trade agreement can be implemented and enables the UK to continue the treatment that the British overseas territories currently receive. The Bill does not give the Government powers to sign such agreements but to implement the tariff parts of them.
The clause is essential to ensuring that the UK can implement any tariff outcome from negotiations with the EU. The Prime Minister has been clear that our aim is to secure a tariff-free trade deal with the EU. As a member of the EU, the UK is part of around 40 free trade agreements with countries and territories outside the European Union. When the UK leaves the EU, the Government are committed to seeking continuity in our trade relationships, including those covered by the EU’s FTAs or other EU preferential arrangements.
Mel Stride
That is a specific question for the Department for International Trade, but think all the indications are that we have been out speaking to many potential trading partners.
Mel Stride
Current trading partners and others. Obviously, as an EU member, we are bound not to enter into any other arrangements prior to our departure, but I am confident that we are having appropriate conversations at this stage of our withdrawal.
In addition, as set out in the trade White Paper, after leaving the EU, the UK will have the opportunity to
“look to forge new and ambitious trade relationships with our partners around the world”.
Clause 9 provides a basis for those aims.
The clause enables the UK to implement preferential import duties on goods originating in territories covered by a preferential arrangement. That will cover arrangements made bilaterally with a Government of another territory. A recent example is the comprehensive economic and trade agreement between the EU and Canada.
The Bill refers to making arrangements to allow preferential rates of import duties to apply before an agreement is ratified. That is common when implementing FTAs and is the case under the comprehensive economic and trade agreement, which has been provisionally adopted but is not yet fully ratified.
The clause will also enable the UK to continue to provide preferential tariff treatment to those British overseas territories, including the British Virgin Islands and the Falkland Islands, that currently receive that access under the EU via the overseas association decision.
As I was looking through new clause 2 during the hon. Member for Bootle remarks, my eagle eye spotted what I think is an error. Although subsection (1)(a) of the new clause would do what is intended—that the first regulations to be made under clause 9 will be subject to the provisions of the new clause—the explanatory statement and the points made in his speech suggest that subsection (1)(b) should relate to instances where there has been a lowering of import duties. In fact, as currently drafted, subsection (1)(b) refers to
“the effect of which is an increase in the amount of import duty”.
I can only imagine that that is a drafting error or has been lifted from new clause 1, which does refer to the increase in import duties. However, I fully understand what the hon. Gentleman intended, and I will deal with new clause 2 on the basis of its intention and of the way in which he describes it in the explanatory statement.
The new clause would put in place an additional parliamentary process for regulations giving preferential import duty arrangements to other countries. As I previously set out, for indirect tax matters, it is common to have framework primary legislation supplemented by secondary legislation. The Bill introduces a comprehensive framework for a new stand-alone customs regime. It ensures that the scrutiny and procedures that apply to the exercise of each power are appropriate and proportionate, taking into account the technicality of the regulations, the frequency with which they are likely to be made and how quickly the law may need to be changed.
Clause 9 allows the Treasury to give effect to the tariff section of trade arrangements once they have been negotiated. It is therefore appropriate and proportionate for the negative procedure to apply. Any delays in implementing preferential duties in trade arrangements could have significant impacts on UK supply chains or exporters who rely on the arrangements. As set out in the trade White Paper the Government are considering how to ensure that the process for negotiating new trade deals is transparent, efficient and effective, and we will ensure that Parliament is engaged throughout.
Anneliese Dodds (Oxford East) (Lab/Co-op)
It is a pleasure to see you in the Chair, Mrs Main. I have a couple of questions for the Minister. I am grateful for his comments. He seemed to suggest that the appropriate time to consider these matters might be at the time of ratification of any preferential trade agreement and that the provisions are merely enabling. How will we be able to scrutinise at that stage? Will we be able to have a developed and involved discussion at that stage? My understanding is that we would not be able to do that.
In his opening remarks—perhaps this is unfair—the Minister referred to the existing preferential trade arrangements that we have with the overseas territories and the EU and those between the EU and other countries, but, as many others have mentioned, we could be concluding new trade arrangements, particularly with the US, and there are all the concomitant problems that that might cause as well as potential opportunities. Have the Government considered whether the scope of the clause could be reduced so that it relates only to areas where we already have preferential trade arrangements?
Mel Stride
There are a couple of important points to make here. This particular clause enables the Government to put into effect the tariff-related elements of an FTA, for example. When it comes to the points that the hon. Lady understandably makes about treaties that we may enter into with other countries or with countries with which we already have existing arrangements that we wish to continue on our departure from the European Union, those kinds of debates and issues do not rest within this clause. As the trade White Paper sets out, they rest with the Government whose duty it is to make sure that we consult during the negotiation of those treaties so that we conclude them in an appropriate manner.
Anneliese Dodds
I find that very helpful because it has clarified that there is not a detailed parliamentary process for us to consider the matters that are covered by the clause. We believe that they will not be scrutinised in an appropriate and thoroughly democratic manner. Also, there will not be much opportunity for parliamentarians to engage with the issues raised by free trade agreements.
Mel Stride
I do not think my response to the hon. Lady earlier suggested that there would not be any parliamentary scrutiny of the provisions in clause 9. Indeed there will be, as she knows. If we are going to change duties or introduce tariffs, such matters will be subject to secondary legislation and statutory instruments in the normal manner.
Anneliese Dodds
I did not say “any”. I said that there would not be scrutiny of the type that is necessary and of an appropriate thoroughness, which would not be of a one-shot nature whereby it is difficult to have the kind of debate that we all think is necessary, given the impact that the provisions could have on major sectors of our industry.
Question put and agreed to.
Clause 9 accordingly ordered to stand part of the Bill.
Clause 10
Preferential rates given unilaterally
Mel Stride
Clause 11 makes provision for the purpose of establishing an independent quota regime for the United Kingdom. The clause specifies the circumstances in which a quota may be established and gives the Treasury the power to make regulations concerning the administration of the quota regime.
A range of tariff and quota regimes currently govern imports into the UK. The EU currently notifies more than 140 tariff rate quotas to the WTO. TRQs allow specified quantities of a product to be imported at a lower or zero tariff rate. They are often used where the introduction of particular products to the domestic market raises specific policy sensitivities, for example in the case of agricultural produce. Depending on the nature of the goods in question, TRQs may be administered in a number of ways, such as on a first come, first served basis, via a licence system or on a traditional/newcomer basis.
Clause 11 establishes the general rule that a quota may be set only if arrangements, such as a free trade agreement, have been made with another territory outside the UK for that purpose, or if the Treasury has determined that it is appropriate that the goods in question be subject to a quota. In addition, clause 11 gives a power to make regulations concerning the administration of the quota, the conditions subject to which the quota has effect, how the amount of the quota is to be determined and conditions of eligibility, including, where appropriate, a requirement that the quota be subject to a licensing system.
Any power to make regulations that make a quota subject to a licensing system are exercisable by the Secretary of State, and any other power to make regulations under clause 11 is exercisable by the Treasury, having regard to any recommendation made by the Secretary of State. As can be seen, clause 11 does not set specific quotas, but rather seeks to maintain the effect of the general framework by which quotas are set and administered under EU law. Maintaining the framework will help minimise any disruptions to trade as the UK establishes an independent customs regime.
New clause 3 and consequential amendment 11 seek to put in place additional parliamentary procedures for setting the amount of duty applicable to goods subject to a quota. The Bill introduces a comprehensive framework for a new stand-alone customs regime, which will be underpinned by detailed and technical secondary legislation. As I have said in relation to other, similar proposed amendments, the Bill ensures that the scrutiny procedures that apply to the exercise of each power are appropriate and proportionate, taking into account the complexity of the regulations.
Tariff rate quotas are complex and varied in terms of how they arise and how they are administered. Regulations related to tariff rate quotas are lengthy. They will include, among other things, administrative provisions for the opening and management of quotas, conversion factors and details on import licence applications. For the powers under clause 11, the negative procedure will apply, which the Government consider appropriate and proportionate. The procedure provides a sufficient level of parliamentary scrutiny while having regard to the technical and administrative nature of quota regulations.
TRQs are an integral part of the UK’s existing customs regime, particularly for agricultural imports. Clause 11 sets out the necessary provisions to allow us to establish the UK’s quota regime post-EU exit. I therefore commend the clause to the Committee.
Peter Dowd
Our new clause 3 would require the House of Commons to pass an amendable resolution authorising the key provisions of the proposed regulations. It would also require that regulations establishing a licensing or allocation system are subject to the affirmative procedure.
As with the other related new clause we have discussed today, there are four steps set out in our proposed process. First, the Minister lays a statement to the House along with the draft regulation that is proposed to be made. Secondly, the Minister lays a motion setting out the various duties and tariffs that the Government wish to impose. Thirdly, the House would have to pass a resolution on that motion. Finally, the regulations will be made. Amendment 11 is consequential on the above, making a small technical change to clause 32 to accommodate our proposals.
Ultimately, however, we are less concerned with the exact steps for any process for ensuring parliamentary oversight. We just want to see that the Government are acting on the principle that Parliament should have an extended role in scrutinising the changes in this regard. As I have said previously in relation to the other clauses, we seek to guarantee an enhanced parliamentary process. The logic is pretty undisputable. The Government have tabled this Bill as a financial Bill, as I referred to earlier on. In that regard, the House of Lords does not have any capacity to scrutinise it and the Commons does not have the same capacity it usually would. We ask, therefore, that as in all other financial matters a case is presented to the House for a debate and a vote.
It would be a very unfortunate outcome if the Treasury was to acquire powers to alter the rate of taxation without such basic democratic processes. The Government really should think a little longer than this—it is not a short-term matter. It is of course more conceivable that they may be in opposition sooner than they think. They should be looking to construct a fair process for scrutiny, with, in effect, cross-party agreement as to what that would be, in the light of this significant change that we are about to face in one way or another, maybe within the next 12 months or so, possibly a little longer, but the reality is that we are facing change. This House has to face up to the fact that scrutiny processes need looking at, especially with regard to finance.
Mel Stride
The hon. Member for Aberdeen North rightly raises the issues around quotas. First, we have to work out what those quotas will be. We have existing arrangements through the European Union and we are currently in discussions regarding, as she has suggested, how the various quotas should be allocated, whether that be on the basis of consumption, or consumption and other issues that we might consider. The point I would make on that is that this Bill is enabling, in that sense, rather than prescribing or seeking to suggest any particular outcome to those discussions.
In the hon. Lady’s second point she raised an example of 100 tonnes or 100,000 tonnes of beef, and a certain amount coming by way of a quota to the UK, and then circumstances of that changing not to our liking, and asked what we would do in such a situation. That prompts the question as to where the quota itself originated.
Kirsty Blackman
I am sorry; I was obviously not particularly clear when I was making that case. I was suggesting that this was why third countries are upset about how the division might work, because 90 plus 10 is not the same as 100 in a bigger area, because they cannot just redistribute that in the event of a market collapse in the UK, because the 10 is for the UK and they cannot just send that to the EU, because the quota for the EU is now only 90.
Mel Stride
I think I have the gist of the point. In terms of the overarching point about what one would do if the arrangements come to be seen, in the way they are measured, as being inappropriate, that prompts the question where the quotas originate in the first place. If it is in the schedule of concessions at the WTO, I guess we would have to revisit that aspect of it. If it comes from provisions within a free trade agreement, I guess we would attempt to renegotiate that aspect, or perhaps trigger some provisions within that agreement to resolve the issue at hand. If it was a so-called autonomous quota in which we had decided to implement a quota regime or quotas at the request of a third country, I imagine that we would be able to reverse or change that in some way through secondary legislation as well, depending on the precise nature of that agreement.
Mel Stride
I am grateful to the hon. Gentleman for reasserting his arguments, but our arguments remain as I set out in my earlier remarks.
Question put and agreed to.
Clause 11 accordingly ordered to stand part of the Bill.
Clause 12
Tariff suspension
Peter Dowd
I beg to move amendment 5, in clause 12, page 8, line 40, at end insert—
“(6) No regulations may be made under this section unless a draft has been laid before and approved by a resolution of the House of Commons.”
This amendment requires regulations under Clause 12 to be subject to the affirmative procedure.
Peter Dowd
I understand that, Mrs Main. Amendment 5 is another amendment pertinent to the clause, in that it continues to wish to hold the Government to account. That is not just the view of the Opposition, but of the House of Lords Delegated Powers and Regulatory Reform Committee, which I have referred to before. It says that the Bill involves a “massive transfer of power” that gives Ministers over 150 powers to make tax law for individuals and businesses. Those laws will run to thousands upon thousands of pages, with little opportunity for us to scrutinise them. The Treasury’s delegated powers memorandum alone, which sets out in detail all those law-making powers, runs to 174 pages.
The Fairtrade Foundation has raised concerns over the use of delegated powers in the Bill around the setting of tariffs and the establishment of rules of origin. That relates to developing countries—we touched on them earlier—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.
The Hansard Society also rightly pointed out in its evidence that unless the Government can give a compelling reason, all Henry VIII powers should be subject to the affirmative procedure, which the Delegated Powers and Regulatory Reform Committee is also in full agreement with. Mr Blackwell from the Hansard Society does not see any evidence in the delegated powers memorandum that justifies the Government avoiding an affirmative procedure. Nor does the Hansard Society understand the Government’s justification and distinction between the use of urgent and non-urgent powers.
I will continue to repeat that this House is entitled to scrutinise the Government appropriately and as much as it wants within the confines of procedures. I wish that the Government would listen not only to the Opposition but to virtually every organisation out there who tells them that in these times of significant change, the Government should open their arms to scrutiny and challenge and not shut the door in our faces.
Mel Stride
Clause 12 provides for an exception to the application of the standard rate of duty as set under clause 8. It allows some or all of the import duty that would otherwise be charged on specified goods to be waived for a specified period of time. The primary purpose of a tariff suspension is to facilitate domestic production by ensuring that businesses have access to the supplies that they need. A similar exception to the application of the standard rate of duty exists under the Union customs code. A suspension could be introduced on the Government’s own initiative, or after a request for one: for example, from a business.
Suspensions are usually applied to certain types of goods. Any goods that will be subject to a suspension will be specified by regulations. For example, under the current arrangements suspensions are generally granted only where the good is a raw material or unfinished product, which will be used by UK manufacturers; where no competing domestic product exists; and where the goods covered by the suspension are subject to a significant amount of duty. In other words, the suspension would have a material benefit for UK industry.
A suspension of duty would apply for a given period of time that could be extended. Where a continuation of a suspension implies a lasting need to import a certain product at a reduced or zero rate, the Government would look to reduce the standard rate of duty. To be consistent with WTO rules, a suspension on any given good must be granted equally to every country and supplier. Regulations made pursuant to the clause will be subject to the negative procedure.
Amendment 5 and consequential amendment 9 to clause 32 change the proposed parliamentary procedure for regulations relating to tariff suspensions from the negative procedure to the draft affirmative procedure. The Government believe that the scrutiny procedures that apply to the exercise of each power in the Bill are appropriate and proportionate, taking into account the length and technical complexity of the regulations and the frequency with which they are likely to be made.
For tariff suspensions, the negative procedure is both appropriate and proportionate. The power in clause 12 only permits the standard rate of import duty to be temporarily lowered and could not be used to increase the rate. Delays in implementation of suspensions owing to the use of the draft affirmative procedure would only be to the detriment of UK manufacturers.
I will provide an example that might be pertinent to our debate. The suspensions are likely to be numerous and detailed. For example, in the last round of EU suspensions, a UK business successfully applied for a tariff suspension on a specific type of gearbox with a hydraulic torque converter, with at least eight gears and an engine torque of 300 newton metres or more. It is the kind of gearbox I might have in my Rolls-Royce car, perhaps. It is not clear that such a level of detail would benefit from a greater level of parliamentary debate, despite the fact that we have debated Rolls-Royces, and by extension gearboxes, to some degree in this debate today.
In short, the clause is a crucial part of the overall import duty regime, allowing the Government to take action to support manufacturers in the United Kingdom. I therefore move that the clause stand part of the Bill.
Peter Dowd
Given the time, I will spare the Committee further scrutiny. I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 12 ordered to stand part of the Bill.
Ordered, That further consideration be now adjourned. —(David Rutley.)
Taxation (Cross-border Trade) Bill (First sitting)
Mel Stride Excerpts(6 years, 3 months ago)
Public Bill CommitteesRead Full debate Read Hansard Text Read Debate Ministerial Extracts
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.
Mel Stride
That is more than one word—you can tell who the former politician is. My final question has clearly been identified. Naturally, there are many challenges and uncertainties out there. Some come from the sheer fact that we have decided to leave the EU and the short time frame, for example, for decisions. Many of the issues we have described come out of the negotiations and the uncertainty about where we may land in that respect.
However, what the Bill is doing and the focus of this Committee is to make sure that we are as close as we can be to existing arrangements and, secondly, that we have the flexibility to be nimble enough to move and adjust our configuration to accommodate wherever we land on day one. Very quick answers down the line: in essence, in broad terms, do you think the Bill is about right?
Gordon Tutt: Yes, I do.
Peter MacSwiney: I think it probably is, but it needs to focus on implementation and people must have the attitude that they are using it to facilitate trade and not to inhibit it.
Anastassia Beliakova: Yes, but more clarity on policy is needed, particularly on VAT.
William Bain: We would advise that it also deals with the other issues we have spoken about today which affect the flow of goods in and out of the UK.
The Chair
I also thank the witnesses very much for their attendance. We will now close the session and move on to the next panel.
Examination of Witnesses
Sue Davies, Jeremy White, Barbara Scott and Helen Dennis gave evidence.
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.
Mel Stride
Q
Jeremy White: At the moment, I think it is schedule 7 of the Bill that itself does the business to repeal the effect of the withdrawal Bill.
Mel Stride
Q
Jeremy White: That is right. If you had a qualified commencement provision, so that schedule 7 did not take effect straightaway but had to have a commencement provision, so instead of Royal Assent you had a commencement provision, you would still have the flexibility, if sadly it became appropriate, in a no-deal situation, immediately to bring this into effect. That would be possible.
Someone is still going to have to do the work. As Barbara outlined, someone in HMRC and the Treasury will have to do the work for all of these scenarios for the regulatory framework. Even if they wanted to have a recast, now is not a good time.
To pick up for a second or two on the preference agreements on replication, everything there that will be done will have to be proved. There will have to be proofs of origin. We have got a serious problem outlined, because of the Commission’s adoption yesterday of the road map to put back the information systems, which could have included common databases, as we have in other free trade agreements, particularly with China and Switzerland, that that computer system would not be available in the EU until 2025. In the earlier session you were told that a transition to 2025 is better, even legally technically for getting what we want by way of free trade agreements being replicated and being frictionless. If they are not replicated and not frictionless, then we have to be back to all of the paper certificates. We know that we will have to on the anti-dumping—we will have to employ our own police force to investigate in other countries; we will need reciprocal agreements. At the moment we benefit from the Community policing. There will be no police force—no OLAF. That is a serious problem we face on implementation in this area.
Mel Stride
Q
Jeremy White: You could allow schedule 7, part 1 to take effect. That would repeal the UCC and you could have an affirmative instrument that applied it; yes. You could use that structure.
Mel Stride
Q
Jeremy White: Except for the fact that the affirmative instrument, the SI, would have to repeal those parts of the Bill that make specific provision already. The trouble is that it is not just repealing the UCC. There are 33 pages of provision in the Bill that would have to be repealed by the affirmative statutory instrument, which will be messy. It could work, but it is better to amend the commencement provision, I would say, so that part 1 and schedule 7 do not commence as they do now.
The Chair
Order. We have now come to the end of the allotted time for the Committee. I thank all four of the witnesses very much for their attendance.
Taxation (Cross-border Trade) Bill (Second sitting)
Mel Stride Excerpts(6 years, 3 months ago)
Public Bill CommitteesRead Full debate Read Hansard Text Read Debate Ministerial Extracts
The Financial Secretary to the Treasury (Mel Stride)
Q
Kathleen Walker Shaw: My union is of a school that believes that, in terms of remedies, we should be looking to a much broader assessment of what is taken into consideration, so we have welcomed the recent movement at the European level on trade defence measures and consideration of environmental and social issues. That is a bit of progress. We would have liked more of that progress. What we do not want to see is a narrowing of trade defence instruments that cut out the scope for that. Guaranteeing consumers good prices is one thing, but keeping the quality of good manufacturing in the UK is something very close to home for our members—obviously not just of our union, but all colleagues here. It is an issue of getting that balance.
The EU trade defence mechanisms and its anti-dumping rules are still within the WTO rules. For us to be going bargain basement on WTO is perhaps not the safest bet for dealing with a post-Brexit economy. We would like to see robust trade remedies that protect our industries from unfair competition, rather than working on the margins of the risk of putting good, competitive industries in the UK out of business.
Mel Stride
Q
Kathleen Walker Shaw: It goes back to the point that it is very difficult to assess that accurately.
Mel Stride
Q
Kathleen Walker Shaw: Our great concern with the Bill in its current form is that the provisions are not there to guarantee that. As our colleagues have said, the resources in terms of Government trade experts are not there to guide us through. For the best part of more than 15 years, we have not dealt with trade. You will need the resources to get those injury claims accurately assessed, and we have no confidence that the provisions are there in the Bill to guarantee that.
Rosa Crawford: I think this links with the issue of who is making the assessment. We have a concern about the parallel Bill to the one we are considering here: the Trade Bill, which sets out the provisions to create the Trade Remedies Authority. There is nothing in that Bill that indicates who will be on that authority. For trade unions, it is important that we have equal representation of trade unions and employer representatives, because we are directly involved in those sectors and we believe that trade remedies should be assessed using the insights of those directly affected in those sectors. It is unfortunate that from the Trade Bill we do not have confidence that we will have that representation, but we hope that we will see it developing in the legislation.
If trade unions were asked honestly to assess the lesser duty rule—if we had that discussion and we were genuinely taken into the process—that would be a very different conversation. At the moment, through this Bill we are being given a compulsory lesser duty rule without having seen any evidence that suggests that we need it and it is desirable. I would flip it round and say, why do we need the lesser duty rule and how are trade unions involved in the assessment of its effectiveness? Consumers are also workers who are employed in some of these industries, and they will not benefit from having unfair trade practice disadvantage them and the quality of their goods. That is something we must bear in mind.
Mel Stride
Q
Rosa Crawford: I refer to the specific case about solar panels, and I am happy to provide more information. The trade remedies alliance has done additional research that we can supply to the Committee, so there is evidence that we can supply that it has not been effective.
Nic Dakin (Scunthorpe) (Lab)
Q
Ben Richards: Not that I am aware of, and I think that what happened with that steel crisis is one of the reasons our members do not have confidence in what is in the Bill at the moment. Even with the reservations that we have about the way EU trade remedies worked, as Kathleen spoke about, the EU was trying to deal with that situation. Unfortunately, our members felt that it was their own Government who were holding back the process of imposing sufficient remedies at a European level to deal with the situation of Chinese steel dumping.
Nic Dakin
Q
Joel Blackwell: It is a good question. Referring back to Ms Blackman’s question, I think all Henry VIII powers should be subject to the affirmative procedure unless the Government give a compelling reason, and we do not think that that has happened in the Delegated Powers Committee note. The six Henry VIII powers contained in this Bill are not as wide as clauses 7, 8 and 9 of the European Union (Withdrawal) Bill or the clauses we have seen in the Legislative and Regulatory Reform Act 2006 and the Public Bodies Act 2011. They are constrained merely by the fact that this Bill is focusing particularly on taxation, border trade, customs arrangements and what-have-you. So I think, in keeping with the views of the Delegated Powers Committee, that the affirmative procedure would be sufficient in this context.
However, parliamentarians, particularly in the House of Commons, have made it clear over the last few months that there are issues with the scrutiny of delegated legislation—more so than they have since we have been doing our research. In particular, there seems to be a view that they would like to have more meaningful and effective oversight over Brexit SIs. The sifting committee was intended to be part of that, but at the moment the sifting committee will only look at clauses 7,8 and 9 of the European Union (Withdrawal) Bill and will not touch the other Brexit-related Bills. If it is still the view of the House of Commons that they would like to look at all Brexit-related SIs then you could, for example, insert into Standing Orders that the new European statutory instruments Committee looks at clauses 42, 45, 47 and 51 of this Bill if it so wishes.
Mel Stride
Q
Joel Blackwell: A Member of either House who wants to pray against or seek to annul a negative instrument has to do so within a 40-day period. That is one of the restrictions: you have to do it within 40 days, otherwise you have the situation that arose with the personal independence payment regulations and the student fees regulations. The Opposition wanted to debate those regulations but the 40-day period had ended, so they used Opposition day debates in another Session. They had to hold the debates on “revoke” motions, and there was the issue of whether those would be statutorily binding if the Government were defeated. It turned out that the Government did not vote at that point. So there is that limit.
We think the negative procedure is fundamentally flawed, because in order to debate a negative SI, an MP has to use an early-day motion, for which no fixed time is allocated. That means that whether a negative instrument is debated is purely in the hands of the Government. We would like to see that changed. In “Taking Back Control”, we proposed that a new sift and scrutiny committee should be created, and that that power should be given to that committee. You would have to tweak Standing Orders to ensure that the debate was heard, but that is our view.
Mel Stride
Q
Joel Blackwell: Yes, absolutely. The negative procedure plays an important role. There is legislation that is extremely technical and almost administrative in nature, for which the negative procedure is appropriate. In our view, the scrutiny procedures in the Commons—not in the Lords—are inadequate. Our position is not that the negative procedure should not exist, but that something needs to be done to improve MPs’ ability to debate those SIs.
Peter Dowd
Q
Joel Blackwell: I do not think I would agree in those terms. There are serious constitutional issues raised by the withdrawal Bill and the related Brexit Bills. This is not the first time that the Government have used Henry VIII powers. This is not the first time, nor will it be the last time, that we see framework legislation, or skeleton legislation. In all honesty, the use of delegated legislation is unavoidable in legislating for Brexit. Framework legislation is probably unavoidable for Bills that deal with issues such as welfare and indirect tax law, particularly if they are subject to change and involve highly complex and technical detail. The key is parliamentary oversight of that.
There are numerous ways that you can constrain powers in Bills. We have seen some attempts to do that in the House of Commons, and no doubt we will see that happen in the House of Lords with the European Union (Withdrawal) Bill. Fundamentally, though, although you can try to tightly define powers or to insert a list of actions that you are not able to use SIs for, you are ultimately going to have to confront the inadequate procedures for scrutinising negative and affirmative instruments in the House of Commons; otherwise, it will not matter. If you really want to take back control and have meaningful and effective oversight of delegated legislation, you have to focus on improving the negative and affirmative procedures in the House of Commons.
Peter Dowd
Q
Joel Blackwell: The fact that it is usually not subject to any parliamentary scrutiny is of concern to us.
Mel Stride
Q
Joel Blackwell: It is a good point. Specifically on this Bill, it is the fact that it says it can do what regulations could do and that would be an issue. In terms of guidance codes of practice, they are laid before Parliament and that is not the case for this Bill. You would not necessarily have to clog up the system with things that are extremely administrative in nature, but there is the fact that Parliament is delegating a legislative power to the Government and if you can do what is done in regulations, it would make sense that they should be subject to the same level of parliamentary scrutiny as those regulations.
The Chair
Kirsty Blackman, this will probably have to be the last question, depending on how lengthy the answer is.
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.
Mel Stride
Q
Can I just go into the area of the lesser duty rule in a little more detail? To the extent that the lesser duty rule functions as proposed, and it does provide remedy for injury caused through dumping to those producers who have been affected, why would you want to go further than that in terms of a potential remedy? Why would you want to go beyond that particular threshold? The argument from consumer groups is that that will then start disproportionately to damage consumers and those businesses that use those imports within their own production processes.
Dr Laura Cohen: I am going to let Gareth answer first. Then I will come back and refer to what the unions were talking about; I have some evidence from the alliance.
Gareth Stace: It seems that we are constraining ourselves in the UK when we do not need to. One of the aims of Brexit was to strip things away, make things more simple and have fewer people employed working on these things; much of what we have seen in both Bills seems to add layer upon layer that is probably not needed. The lesser duty rule is used quite a lot in various different regimes, but it is not used in the US at all. We want to create strong links with the US in terms of trade, so that seems a bit odd.
We could say yes, but I could not tell you that if we did not have the lesser duty rule, we would have seen less dumping in recent years. The lesser duty rule has not meant that new cases did not stop dumping. The point I would like to make is this: we are always told that the lesser duty rule ensures that the consumer is not ripped off—that prices do not rise significantly because tariffs are imposed at too high a rate.
I have an example. In the hot rolled coil case recently—hot rolled flat is used for car bodies and washing bodies, but I am using the example of the car—the injury margin was 17.5% and the dumping margin was 29%. That is a difference of 11%. So the 17.5% was applied, not the 29%. If we think of a luxury car that cost €45,000, because this is a European example, if the lesser duty rule was not applied in this case, it would increase the value of the €45,000 car by €16. We are not suddenly going to see runaway costs and the poor old consumer having to pay lots and lots more. We are going to have a robust system that ensures that we have free liberalised trade continuing as a safety valve. In that case, it increases the cost by €16 on €45,000.
Mel Stride
Q
Gareth Stace: One of the things that we were talking about right from the beginning of this process was that calculating the dumping margin is a really easy process. It can be done fairly quickly. It does not need a lot of people to do it and does not need a lot of work from industry and the Government. Calculating the injury margin does. It is a bit of a black box—you do not know what is going to come out of it—whereas the dumping margin is very transparent.
We said right from the beginning that if you have a clean sheet of paper, why not just go for the easiest and quickest system, so that you could get provisional measures in place very quickly? In the US, they get them in in 45 days, whereas in Europe until very recently, it has been after nine months. There is a really good opportunity to do that. I am not sitting here saying that we have to have 29%, not 17.5%—the point is that it is not a huge difference.
If the Trade Remedies Authority did the dumping calculation and then said, “Well, actually, it is 29%; we think it could probably be effective at perhaps a bit less,” it has the flexibility to do that—you would have the economic interest test and the public interest test to weigh that up—rather than having a fixed system that says, “I do not care what the dumping margin is; we are going to ignore it and are only going to go for the injury margin.”
The Chair
Mr Cranshaw wants to come in at this point. I have five or six other people who want to ask questions. I ask Committee members to make their questions as condensed as possible, but still factual. I call Mr Cranshaw.
Ian Cranshaw: The chemicals sector exports a massive proportion of our product. We are an import-export business, so free trade is something that we have always encouraged. We are free traders: 60% of our product goes to the EU, 75% of raw materials come in—it is products that cross borders multiple times, and integrated supply chains. We do want that. Sorry, I had not actually got to my point. Can I come back on that?
Dr Laura Cohen: I want to support what Gareth said. These are subjective and time-consuming calculations. As we heard from the unions, these will require stipulating what profits industries should make. They can only underestimate injury because they do not cover, for example, whether there is a general subsidy in the country that is doing the dumping.
It is not compulsory in the WTO: only nine out of 32 main anti-dumping—AD—users have them. Australia and, imminently, the EU will have conditional use. The UK has no such provision and is not even thinking about pasting it into the Bill. Out of 32 main AD users, only three—the EU, the Eurasian Economic Commission and Brazil—have both a public interest test and a lesser duty rule. The EU is moving to a conditional lesser duty rule, and Brazil has a conditional public interest test. Why does the UK want to be such an outlier?
Mel Stride
Q
Gareth Stace: Picking up on Laura’s earlier points about the economic interest test and public interest test, at the moment there are six tests. Six! You only need two: an economic interest test that a TRA does, which the Secretary of State looks at and takes note of; and, I agree, you need a public interest test at the end, because there may be those extraordinary circumstances where it is or is not in the public interest to apply or not apply tariffs. But we only need two, not six—not five economic interest tests and one public interest test. That would speed up the process.
The Chair
I am going to Anneliese Dodds next. We must finish at 5 o’clock and I am conscious that there are several people wanting to get in.
Oral Answers to Questions
Mel Stride Excerpts(6 years, 3 months ago)
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Mr Ranil Jayawardena (North East Hampshire) (Con)
The Financial Secretary to the Treasury (Mel Stride)
I congratulate my hon. Friend on all the hard work that he has put in to promote marriage and civil partnerships, and all the benefits thereof to families and wider society. I assure him that the design of the marriage allowance is such that it will indeed continue to rise as we raise the personal allowance, as we did in the recent Budget.
Mr Jayawardena
Given the £48 billion of costs to the Exchequer from family breakdown, will my hon. Friend meet me and a delegation to discuss how we can further strengthen marriage through the tax system and help people to keep more of what they earn?
Mel Stride
My hon. Friend is pushing in a direction in which we have already travelled. In the last Budget, we made provision for ensuring that those who have been married or in a civil partnership and have a deceased partner are able to claim the marriage allowance and backdate that claim some four years. I will, of course, be happy to meet him and his colleagues to discuss this matter further.
Royston Smith (Southampton, Itchen) (Con)
Mr Jacob Rees-Mogg (North East Somerset) (Con)
The Financial Secretary to the Treasury (Mel Stride)
My hon. Friend will know that the inheritance tax exemption for donations to political parties does not exist for donations to referendum campaigns. However, my right hon. Friend the Chancellor and I have discussed the issues that my hon. Friend has raised in previous weeks, and we are sympathetic to looking carefully at how the law may be changed for future referendum campaigns.
Mr Rees-Mogg
In the past nine years, there have been 23 retroactive tax changes where there has been unfairness, error or unduly onerous taxation. When the law was drafted in 1994, there was no idea that there would be a succession of referendums. It is deeply unfair that people who have contributed to the alternative vote referendum, the referendum in Scotland and the Brexit referendum may find very large tax bills winging their way towards them, not least as Her Majesty’s Government spent £8 million of taxpayers’ money willy-nilly in the Brexit referendum.
Mel Stride
As a matter of principle, it is not the position of Her Majesty’s Treasury to apply tax changes retrospectively but, as I have indicated, my right hon. Friend the Chancellor and I will be looking carefully at the issues that my hon. Friend has raised.
Mr Iain Duncan Smith (Chingford and Woodford Green) (Con)
Pursuant to that question, may I add one further caveat, given that Her Majesty’s Revenue and Customs is beginning to look at all the other referendums that have taken place? Will it take into consideration those organisations that are not charities or political parties, but which do public good? They are beginning to be concerned that HMRC will pursue individuals who have made donations to them. Will my right hon. Friend take looking at that under his wing as well?
Mel Stride
My right hon. Friend raises an interesting point. He might like to make specific representations to me on the matters he has raised. Indeed, if he wishes to meet me to discuss them, I would be very happy to do so.
John Howell (Henley) (Con)
Nigel Mills (Amber Valley) (Con)
The Financial Secretary to the Treasury (Mel Stride)
The Government have an outstanding record on clamping down on tax avoidance, evasion and non-compliance. We have brought in and protected £160 billion since 2010, and no less than £8 billion in 2016-17 alone, from the UK’s largest companies. Currently at 6%, the tax gap is one of the lowest in the world, and lower than any year during the last Labour Government.
Nigel Mills
Does the Minister agree that an international approach is needed to really tackle tax evasion by big multinational companies? Will he therefore say whether the interesting ideas on which he has consulted since the Budget have found favour in his discussions with the OECD and may be adopted on a more international basis?
Mel Stride
As my hon. Friend will know, we are right at the forefront of the OECD’s base erosion and profit shifting project, and of the common reporting standards that are being rolled out at the moment. We have taken further measures in the Budget to consult on the taxation of digitally based companies, particularly in respect of withholding tax on royalties going to zero-tax or low-tax jurisdictions. That consultation will report back in February, and we will take an appropriate decision thereafter.
Emma Reynolds (Wolverhampton North East) (Lab)
It is embarrassing for the Government that Carillion’s chairman is an adviser to the Prime Minister on corporate responsibility. Given the level of salaries and bonuses awarded to senior management at Carillion, as well as improving the response to corporate tax evasion what will the Government do to ensure better corporate governance in UK companies?
Mel Stride
I say gently to the hon. Lady that she needs to check her facts, because the current head of Carillion is not an adviser to the Prime Minister. There was an appointment earlier that was terminated some months ago. As to her general points about corporate governance, this country has among the most robust corporate governance in the world, which is something this Government will continue.
Stephen Kinnock (Aberavon) (Lab)
Sir Hugo Swire (East Devon) (Con)
The Financial Secretary to the Treasury (Mel Stride)
I certainly agree with my right hon. Friend’s assertion of the importance of our heritage, which was recognised when last year the Department for Digital, Culture, Media and Sport gave grants of more than £140 million in that respect. On VAT relief for repairs to historic buildings, the situation that currently pertains to EU regulations is that if we were to make changes or reductions, we would have to apply them to all buildings in the UK, at onerous cost, but that is something we can look into as and when we leave the EU.
Paula Sherriff (Dewsbury) (Lab)
Mel Stride
As the hon. Lady will know, we have committed to zero-rate tampons at the earliest opportunity. The fact that we are not doing that at the moment is due to our membership of the EU. She will also know that we are providing to women’s charities an amount equivalent to what we raise through taxing tampons.
Nigel Huddleston (Mid Worcestershire) (Con)
The Chancellor will be aware that Government debt per household is around £65,000. Another name for that debt is deferred taxation. Does the Chancellor agree that the best way to increase tax revenue and reduce our debt is to grow the economy, which is exactly what we are doing?
Stephen Timms (East Ham) (Lab)
Mel Stride
As the right hon. Gentleman will know, the Late, Missing and Incorrect initiative is there to drive up the accuracy of the real-time information as it passes between employers and HMRC. As he stresses, it is important to ensuring that universal credit is rolled out effectively. On his specific question about statistics, we believe that the level is around 5% or 6% across those three areas. We are continuously driving down those figures, particularly in response to the post-implementation review.
Jeremy Lefroy (Stafford) (Con)
The European Free Trade Association, of which the UK was a founder member, would provide an excellent framework from within which to exercise a deep and special partnership with the EU. Would Her Majesty’s Government consider that as a sound way forward?
Finance (No. 2) Bill (Fifth sitting)
Mel Stride Excerpts(6 years, 3 months ago)
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The Chair
With this it will be convenient to discuss the following:
Clause 31 stand part.
New clause 13—Review of effectiveness of limit to double taxation relief—
“(1) No later than 31 March 2019, the Chancellor of the Exchequer must review the effects of the limit to double taxation relief made by section 30.
(2) The review under this section must consider—
(a) the effects of the change on annual revenue, and—
(b) the size and type of companies benefiting from the relief and the impact of the changes on them.
(3) The Chancellor of the Exchequer must lay before the House of Commons the report of the review under this section as soon as practicable after its completion.”
This new clause provides for a review of the new limit for double taxation relief available to companies for foreign tax paid on income of a foreign permanent establishment.
The Financial Secretary to the Treasury (Mel Stride)
Good morning, Sir Roger. As ever, it is a great pleasure to serve under your chairmanship.
Clauses 30 and 31 will ensure that companies operating overseas cannot benefit from tax relief twice for the same loss. Many UK companies operate overseas through branches. To prevent double taxation on the profits of those branches—tax payable both in the UK and overseas—rules exist that provide relief in the UK for foreign tax paid. However, we are aware that some companies with foreign branches set losses incurred by those branches against the profits of other overseas group companies, rather than against the future profits of the branch. As a result, foreign tax is paid on future branch profits without taking into account past losses. That foreign tax is then used to claim double tax relief against UK tax on the branch profits.
Relieving foreign losses in that way creates an unfair outcome for the UK Exchequer. UK companies effectively get tax relief twice in the UK—once as a deduction from their taxable UK profits for the loss, and again by way of double tax relief. Clause 30 will address that by restricting double tax relief when the losses of an overseas branch have been used to relieve foreign tax paid by other overseas group companies. The clause will stop companies exploiting the UK’s double tax relief system to disadvantage unfairly the UK Exchequer. The measure will apply only to future claims for double tax relief. However, to be effective and protect significant revenues, it will apply where losses have already been relieved against the profits of other group companies.
The Opposition’s new clause 13 calls for a statutory review of the impact of that restriction of double tax relief. I think it would be useful, in response, to review the processes and track record of Her Majesty’s Revenue and Customs in this area. First, the costings of the measure were prepared by HMRC’s central analytical team, which specialises in quantifying the impact of changes to tax legislation. Secondly, HMRC has significant experience in amending tax legislation to restrict opportunities for companies unfairly to reduce the tax they pay. For example, an amendment to the double taxation relief for loan relationships income in the 2014 Finance Act successfully protected tax revenue. Thirdly, HMRC regularly carries out reviews of tax legislation to ensure that it continues to meet its objectives, and the assessment of tax receipts is an important part of those reviews. The Opposition’s proposed review would not add to that analysis, and it is therefore unnecessary.
Clause 31 will amend the targeted anti-avoidance rule, which protects against certain ways of artificially creating or increasing a double tax relief claim. At present, the obligation to apply the TAAR lies with HMRC, not with the taxpayer. That puts HMRC at a disadvantage. In some cases, HMRC does not have sufficient information to identify, within the relevant statutory time limit, whether the TAAR is applicable. To address that, we are updating the double taxation relief TAAR to align it with more recent TAARs. The clause will remove the requirement for HMRC to give notice that the TAAR is being applied. Instead, the onus will be on the taxpayer to consider, during their self-assessment, whether the TAAR is applicable. We are also slightly extending the scope of the TAAR to ensure that it applies to double taxation relief schemes that involve transactions across a group.
Clauses 30 and 31 will ensure that companies pay a fair amount of tax in the UK and will protect significant tax revenue. I therefore urge the Committee to support them.
Anneliese Dodds (Oxford East) (Lab/Co-op)
It is good to be here under your chairmanship, Sir Roger. I appreciate the Minister’s explanation of clauses 30 and 31, but the Opposition request a review of their effectiveness in deterring the inappropriate use of double taxation relief, particularly as they relate both to funds received by the Exchequer and to the companies potentially affected by them.
Colleagues will be aware that, as the Minister said, double taxation arrangements have been under discussion for an extremely long time—effectively since the beginning of globalisation, if we take that term as referring to the proliferation of multinational companies. The international finance conference in Brussels in 1920 raised the need to consider the impact of double taxation on firms, and from 1923 to 1927 some of the first agreements to avoid double taxation came into force. Such agreements have been under continual discussion in more recent years within the OECD, as have been provisions to prevent the contrary: double non-taxation, which we are discussing today.
The extent of double non-taxation is believed by many commentators to be extremely significant, which is part of the reason why the Opposition are not convinced by claims that the tax gap has recently reduced; that tax gap does not include international profit shifting, such as that obtained by manipulating double taxation rules. That is why Labour’s tax transparency and enforcement programme offers a series of measures to deal with profit shifting.
The measures under discussion follow on from attempts made in the 2009 Finance Bill to clarify measures in the Finance Act 2005 that examine double taxation relief specifically for banks. That Act limited credit for foreign tax paid on trade receipts of a bank to no more than the corporation tax arising on the relevant part of the trade profits. Changes were made after the Act to prevent income being artificially diverted to non-banking companies in bank groups. That loophole, which was being exploited, was shut down by ensuring that the restriction applied to all relevant receipts going across a group. Such profit shifting was therefore prevented. The clauses under discussion will offer a similar tightening for non-bank companies, as well as other alterations and restrictions on the use of double taxation relief.
The Opposition are asking for a review for a variety of reasons. First, it would be helpful to understand from the banking sector’s experience whether the new rules are likely to have a positive effect, and what the magnitude of that effect is anticipated to be. Secondly, alternative approaches are available, and it would be helpful to assess the Government’s approach against those. In particular, I understand that the US has adopted a different approach to limiting the benefits of relief from double taxation. The UK’s approach, which I accept is in common with the OECD’s, is to focus the dissuasion from using an appropriate double taxation relief on the transaction and its nature. By contrast, the US approach relates to those entities that can benefit from favourable tax treatment; it focuses on the entity, rather than the transaction. As I discovered when looking at the debates on the 2003 agreement between the UK and the US on double taxation and non-taxation, the two approaches have to come together when we have a treaty with the US on tax matters. It would be helpful to know whether the Government have considered the apparently more restrictive approach adopted by the US.
It would also be helpful to know more about the removal of the counteraction notice specified in the clauses. Colleagues may remember—though they probably have more important things to think about—that in the discussion on hybrid mismatches, I asked whether a counteraction notice was still required. I do not recall receiving a totally clear answer, although the Minister offered many other helpful clarifications. Clause 31 removes the requirement to give a notice to trigger the double taxation relief targeted anti-avoidance rule, as the Minister mentioned. That seems to follow an approach of amending provisions to remove such notices when the measures concerned are otherwise under review, as part of a wholesale approach to reviewing the measures. The explanatory notes state that the approach follows that adopted under new TAARs, but it is not clear that there has been a more holistic investigation by the Government of this issue. It would be interesting for us to know whether the Government plan to review the existing use of any remaining requirements for counteraction notices in the area of international profit shifting.
The Minister can correct me if I am wrong, but the principle seems to have been accepted that such counteraction notices are no longer necessary before HMRC is able to act, at least in relation to this kind of international artificial profit shifting. He gave us quite a strong rationale for that when he indicated the problems with having to issue a notice when time limits can be relatively tight: it could impact on HMRC’s ability to take appropriate action against those engaging in international profit shifting.
It would be useful to know whether there is a broader review of the use of counteraction notices in this regard, but as I said, we are also calling for a review of the effectiveness or otherwise of the measures in deterring the manipulation of double taxation relief, and of whether the measures will deal with the international profit shifting that existing practices seem to be promoting.
Mel Stride
I thank the hon. Lady for her characteristically thorough dissection of the clause. She gave us something of a history lesson about double taxation agreements going back to the 1920s, before we came into the era of the OECD and more recent activities.
This is not directly relevant to the clause, but the hon. Lady mentioned the tax gap and the veracity or otherwise of the figure for it. The figure is produced by HMRC on an annual basis and audited by the National Audit Office. It is a statistic described by the International Monetary Fund as one of the most robust of its kind in the world. We are very proud of the fact that we have, at 6%, one of the lowest tax gaps in our history.
Interestingly, the hon. Lady introduced the subject of the movement of losses out of branches overseas by way of a discussion of the profits under the banking arrangements, and the shifting from banking to non-banking entities as an approach to avoiding tax. That approach, which certain corporations have taken to avoid tax, is long-established and lies at the heart of the measures that we, the OECD and others have been pursuing to clamp down on avoidance.
This measure is very important. As I described, overseas entities with branches are able to move losses into other overseas entities and claim a tax benefit there, but equally gain a double tax benefit with the UK authorities by way of double tax relief and the impact of the losses on profits that would otherwise fall to corporation tax. We do not believe that the review that new clause 13 calls for is necessary, largely for the reasons I gave in my opening remarks, and in particular because we keep all these measures under review. Indeed, the measures are a product of a review of earlier approaches to clamping down on avoidance, evasion and non-compliance.
The hon. Lady raised several questions that I will attempt to address. The first was whether we had considered the US model and focusing more on entities, which is an interesting point. I would be interested to take any representation from her, and to look at that in more detail with my officials. I do not have a comprehensive answer to her point at the moment, but my door is open for us to look at that in greater detail.
The hon. Lady also mentioned the operation of counteraction notices. As she recognised, the main thrust of the changes to the TAAR is to ensure we do not end up in a situation in which one might reasonably expect HMRC not to understand that something untoward was going on, and in which, by the time it came to the activity, it was out of time. That is the critical point. Once again, if there are further issues of a more detailed or granular nature that the hon. Lady would like to raise with me, I would be very happy indeed to have a look at those. On that basis, I hope we can accept the clause.
Question put and agreed to.
Clause 30 accordingly ordered to stand part of the Bill.
Clause 31 ordered to stand part of the Bill.
Clause 32
Double taxation arrangements specified by Order in Council
Anneliese Dodds
I beg to move amendment 54, in clause 32, page 23, line 37, at end insert—
“(2A) After section 6 of TIOPA 2010 (the effect given by section 2 to double taxation arrangements), insert—
“6A Review of changes made by section 32 of Finance Act 2018
(1) Within twelve months of the passing of the Finance Act 2018, the Chancellor of the Exchequer must review the effects of the changes made by section 32 of that Act on the operation of double taxation arrangements.
(2) The review under this section must consider in particular—
(a) the extent to which those changes facilitate UK law giving effect to the Multilateral Instrument in a way which coheres with the principles of Policy Coherence for Development;
(b) the extent to which those changes facilitate UK law giving effect to the Multilateral Instrument in a way which coheres with the UN Model Tax Treaty;
(c) the effect of those changes on the number of disputes decided by arbitration;
(d) the counterparties in each such case;
(e) the outcome in each such case; and
(f) the effects of those changes on the public revenue of the United Kingdom.
(3) The Chancellor of the Exchequer must lay before the House of Commons the report of the review under this section as soon as practicable after its completion.
(4) In this section—
“the Multilateral Instrument” means the Multilateral Treaty to Implement Tax Treaty related Measures to Prevent Base Erosion and Profit Shifting;
“the principles of Policy Coherence and Development” are to be interpreted in the light of relevant publications of the Organisation of Economic and Development Cooperation and of the 2011 Busan Partnership for Effective Development Cooperation, the UN Millennium Declaration and the 2010 UN Millennium Development Goals Summit; and
“the UN Model Tax Treaty” means the United Nations Model Double Taxation Convention between Developed and Developing Countries published in 2011.””
Anneliese Dodds
This is about the arrangements for the incorporation of the multilateral instrument, if I am correct.
Anneliese Dodds
I am looking forward to more detailed explanations on this part of the Bill, because they are enormously important. Our amendment 54 requests a review of the operation of the provisions enabling the MLI’s implementation in the UK, and especially of the extent to which it promotes the principles of policy coherence for development, and the outcomes that would have been produced had the UN’s model tax treaty been used instead.
The MLI is, in many ways, a milestone for international tax law. Rather than being an amending protocol of the type we might have seen before in wholesale changes to international treaties, the MLI provides an instrument to swiftly and consistently implement a range of standards in taxation in existing treaties. It also provides the means, through the OECD, of monitoring its implementation—and, potentially, mechanisms for the future adaptations of treaties; it is important that we consider those, and I will come back to them.
Given that those bodies looking to engage in “treaty shopping” and their advisers are often highly sophisticated international actors that will readily search out new loopholes, the design of the MLI, which makes possible future alterations and provisions to deal with new tax challenges, is surely to be welcomed. I understand that the UK was one of the first 26 signatories to the MLI. There are now 69—more have probably signed since I looked that up. I understand that a UK Treasury official chaired the OECD working group that determined many of its provisions.
The MLI includes six articles to address treaty abuse. Many of them are already in accordance with the UK’s approach to international tax matters. One element of the MLI that seems particularly propitious is the principal purposes test,
“a subjective test based on an assessment of the intentions behind a transaction or arrangement”,
intended to rule out the obtaining of any benefits from a treaty if those benefits are not in accordance with the object and purpose of that treaty. That amounts to a general power, which could be useful for many countries encountering abuse.
In that connection, however, it is surely necessary for tax authorities to be sufficiently staffed, both overall and in terms of expertise, to make any accusation under these powers stick in court, not least if that court is a private international one, which the UK appears to have committed itself to by accepting multilateral binding arbitration. It would be helpful to hear from the Minister whether he feels that Her Majesty’s Revenue and Customs and the Treasury possess sufficient staff with sufficient knowledge of and expertise on international arbitration for our country to be able to defend its interests adequately, should the need arise. As well as measures concerning treaty abuse, the MLI also introduces uniform approaches —or rather, approaches that should be uniform in their outcomes, if not in specific details—to dispute resolution, permanent establishment and hybrid mismatches.
While in many respects there are very positive elements of the MLI, other elements might raise concerns. I will focus the rest of my remarks on those, and will be interested to hear the Minister’s response. First, the UK appears, in its adoption of the MLI, to have ruled in using mandatory binding arbitration where mutual agreement procedures have failed to produce an acceptable outcome within two to three years. Following the discussion last week of the use of mandatory binding arbitration in the UK’s new tax treaty with Lesotho, it was interesting to find, when I was reading the UK’s MLI position paper last night, that we already have mandatory binding arbitration in 18 of our tax treaties, including those concluded with Algeria, Armenia, Albania, Kosovo and Tajikistan, as well as a number concluded with higher-income countries. The UK appears to apply the principle already in relation to developing countries, but it strikes me that we have not had much discussion of that in the House.
Mel Stride
Clause 32 makes changes to ensure that full effect can be given to the multilateral convention to implement tax treaty-related measures to prevent base erosion and profit shifting, and the UK signed the MLI on 7 June 2017. Double taxation agreements are bilateral agreements between the UK and other countries that aim to ensure that profits income and gains are taxed only once. They help to develop the UK’s economic relationships with other countries, and other countries’ economic relationship with the United Kingdom. DTAs provide certainty for businesses operating across borders, and enhance co-operation in tax matters, supporting the growth of a more global economy.
The OECD/G20 base erosion and profit shifting project—BEPS—recommended a number of changes to DTAs. Those included minimum standards on preventing tax avoidance through the abuse of tax treaties, and improving the resolution of tax disputes. To enable those important improvements to DTAs to be made as soon as possible, more than 100 jurisdictions, in a group chaired by the United Kingdom, drew up the multilateral instrument. The group adopted the text of the MLI in November 2016. It has now been signed—to update the hon. Member for Oxford East—by more than 70 countries, which is the latest information I have.
To implement improvements to the UK DTAs, the MLI must be given effect in our domestic law. This measure ensures that the existing powers for giving effect to DTAs in UK law, which have previously been used only to give effect to bilateral arrangements, can also be used to give full effect to the MLI.
The hon. Lady made a very sensible point about parliamentary scrutiny of the MLI. The measure simply ensures that we have the appropriate powers to bring the MLI into force in UK law. However, that would be by a draft affirmative statutory instrument. After the Bill has become an Act, Parliament will have time to scrutinise the MLI.
The existing powers give effect to arrangements made with foreign territories with a view to affording relief from double taxation. Concerns have been raised in some quarters that an agreement that operates primarily to restrict relief is not made with a view to affording relief from double taxation. Doubts have also been expressed about whether the existing power is sufficiently clear that agreements can delegate functions to the public authorities of the territories.
The Government are not persuaded by these concerns but wish to put the matter beyond doubt. The clause ensures that the improvements made by the MLI can, subject to the views of Parliament, be implemented quickly and with certainty. The changes made by clause 32 will clarify that the existing power for giving effect to international tax agreements covers any arrangements modifying the effect of existing arrangements. It also clarifies that the provisions of arrangements can delegate functions to public authorities and signatories—HMRC in the case of the United Kingdom.
Turning to the two Opposition amendments, I reiterate that the changes made by clause 32 merely clarify the existing power for giving effect to international tax agreements, thereby ensuring that Parliament can, if it chooses, give full effect to the MLI—an objective that I hope Opposition Members will join me in supporting. The Government’s intention is to lay the draft Order in Council to which the MLI will be scheduled as soon as possible, but clearly after the passage of the Bill, at which point Members will have the opportunity to debate the MLI in full, as I have said.
None the less, I will take this opportunity to respond to some of the specific points raised by the hon. Member for Oxford East. First, on the suggestion that the multilateral instrument should be given effect in a way that complies with the principles of policy coherence and the UN model treaty, the text of the MLI has already been negotiated and agreed with more than 100 countries, including a significant number of developing countries, which were able to input into its development. It is therefore not possible for the Government to make changes unilaterally—an approach that some might have been suggesting.
However, it is true that the text contains certain options and permits states to make reservations against certain provisions. Following consultation with business and NGOs, the Government propose to use this flexibility to adopt all the provisions contained in the MLI that were deemed by those negotiating the text to be particularly important for preventing base erosion and profit shifting—the minimum standards. This includes provisions combating the abuse of tax treaties. We believe that this approach of bearing down on international tax avoidance will help global economic development for both the United Kingdom and developing countries, in line with the principles of policy coherence.
Secondly, to respond to the hon. Lady’s concern about the Government’s proposal to adopt the mandatory binding arbitration provision for resolving double tax disputes contained in the MLI, the Government believe that arbitration is important for ensuring that double tax disputes are resolved. Mandatory arbitration benefits tax authorities and taxpayers alike by creating greater tax certainty and preventing double taxation. This is beneficial for all cross-border transactions. However, it should be noted that the MLI will amend the UK’s bilateral DTAs to include arbitration only where our treaty partners have also chosen to adopt the arbitration provision—an important point in the context of the hon. Lady’s remarks. There can be no suggestion that any country has been forced into its adoption.
Thirdly, in response to the request for a costing, given a process by which the multilateral instrument will come into effect at different times in different states, it would be very difficult to quantify the effects of changes in public revenue that arise from the implementation of the MLI more generally. It is very difficult to provide sensible estimates of the revenue effects of our tax treaties. Concluding a tax treaty is not a zero-sum game, and possible short-term revenue effects are augmented and balanced in the longer term by increased activities, as companies and others respond to the more favourable business climate that tax treaties provide. However, those effects are hard to quantify and successive Governments have never attempted that. Finally, retrospective effect is necessary to ensure that the provision does not create uncertainty in relation to pre-existing international agreements.
Anneliese Dodds
I am grateful to the Minister for those enormously helpful clarifications. I was particularly pleased to hear his commitment to ensuring that the draft affirmative statutory instrument will be tabled in the House and that we will have a proper chance to debate it. As part of that discussion, I would urge him to ensure that additional information is provided on the Government’s reasoning around adopting a number of the provisions that are within the OECD but not the UN approach.
I fully accept that the OECD approach is supported by a large number of countries; that is absolutely right. None the less, as the Minister himself stated, there are then choices to be made by signatories to the MLI about how to interpret different elements. Those choices can make that approach either more like the UN’s or more like traditionally the OECD’s.
As the Minister said, mandatory binding arbitration is an approach that countries can decide to adopt or otherwise. It was positive to hear that that will be adopted only when both countries, as signatories to a double tax treaty, wish to adopt it. I am interested to know, first, on what basis we have already chosen to adopt mandatory binding arbitration or otherwise. I would again point to the inconsistency between the tax treaty agreed last week on Lesotho, and that which was proposed, albeit not yet discussed, around Kyrgyzstan, which seem to have very different approaches to mandatory binding arbitration. Why is there that difference?
Secondly, it would be helpful for us to assess the claim that mandatory binding arbitration promotes certainty and the ability to tax appropriately for all countries if we saw what some of the outcomes from existing cases subject to mandatory binding arbitration have been, particularly for our country’s ability to retain the revenue that is its due. I have not yet seen that kind of consolidated examination of outcomes from mandatory binding arbitration, and it would be very useful for us to have that in relation to our country and the impacts on our ability to collect revenue, and for developing countries as well. We need that before we can assess whether we want to adopt this in a more wholesale manner. The Minister is absolutely correct to say that we already have it in operation—I mentioned that before—but we need to have more detail.
One final point—I am sorry, but I managed to miss this in my previous remarks—is that it would be helpful for us to understand what transatlantic discussions the UK has been having with the US around the adoption of the MLI. It has not yet adopted the MLI and, sadly, some elements within the US have resisted the OECD’s action in this area—a lot of the time for totally unnecessary, politicised reasons—but it would be useful to know whether the US is likely to adopt this approach. That is because when we talk about double taxation, much of the time we will be talking about multinational companies that have the US as their host country or source country, and when those companies then conduct operations in the UK we need to be able to know that we can protect revenue from them.
Mel Stride
On the hon. Lady’s point around the different models—the OECD and the UN models—a number of countries have signed up to the MLI, and implicit in those discussions will be the kinds of issues that she has touched on, but it might be of interest to her that the Government do expect the UN to update them on the treaty in the light of what has been agreed within the MLI, which clearly we will be keeping a close eye on.
I said earlier that I did not have an answer to the hon. Lady’s specific question, but I now do—through a form of divine inspiration known as the officials of Her Majesty’s Treasury. Saudi Arabia is indeed not a signatory to the MLI initiative, but we hope that it will be signing in future, at which point we would intend that our treaty be amended accordingly to accommodate that.
On the hon. Lady’s point about mandatory binding arbitration, one of the points that I should have made earlier is in the context of how fair or otherwise this is on the countries with which we enter into those particular arrangements. Once arbitration is entered into, two arbitrators are appointed—one by each country—so this is not a stacked jury in any sense, and it will be for them, impartially and properly, through the normal processes, to come to their conclusions.
The issue of transparency and the disclosure of the outcomes of arbitrations really falls within the area of tax confidentiality. Inevitably, within those arrangements where companies, and indeed eventually individuals, are involved, it is important that we maintain the rigorous tradition that we have in our country of complete impartiality when it comes to HMRC, our tax affairs, investigations, arbitrations and so on.
The hon. Lady asked specific questions about US policy, which is probably a stretch too far for me to reach on this occasion, but if she has specific questions that relate to UK Treasury interaction with the US as an overseas tax authority, I would be happy to consider any representations that she would like to make.
Anneliese Dodds
I am grateful to the Minister for those clarifications. He rightly said that it is very important that HMRC conducts its affairs in a manner that is impartial between taxpayers and that is fair. That is absolutely right. However, we are surely not talking about anything that would threaten that impartiality when we talk about more transparency; we are not talking about the decisions themselves being altered, but rather the transparency around decisions that are taken. That would not affect the process leading up to those decisions being taken.
If there were concerns about this somehow negatively affecting taxpayers, I am sure that there could be some way of anonymising the results from different arbitration situations. However, I genuinely think it would be helpful for us, whatever side of the House we are on, to see more information about the use of that mechanism, because it can make a significant difference for taxpayers and, indeed, for our revenue.
Finally, on the difference between OECD and UN processes, it is absolutely right that some developing countries were involved in the OECD’s development of its approach. However, they were only observers—as we know, the OECD is a club of generally rich countries. Those developing country members were consultees, not full members. I look forward to seeing exactly that development of the UN model in the light of the OECD’s approach. Developing countries have full status in UN discussions, which they lack within the OECD process.
Question put, That the amendment be made.
The Chair
With this it will be convenient to discuss the following:
Amendment 62, in schedule 10, page 142, line 40, at end insert
“87Q Review of taxation of capital payments received from a settlement
(1) Within six months of the passing of the Finance Act 2018, the Chancellor of the Exchequer must review the effects of the changes to this Chapter made by Schedule 10 to that Act.
(2) The review under this section must consider the effects of those changes on—
(a) the taxation regime for settlements, and
(b) anti-avoidance measures for settlements.
(3) The Chancellor of the Exchequer must lay before the House of Commons the report of the review under this section as soon as practicable after its completion.”
This amendment requires the Chancellor of the Exchequer to review the effects of changes to TCGA 1992 made by the Bill in relation to the taxation of capital payments received from a settlement.
Amendment 63, in schedule 10, page 142, line 40, at end insert
“87Q Public register of capital payments received from settlements
(1) The Chancellor of the Exchequer must by regulations establish a register of capital payments received from settlements to which this Chapter applies within 12 months of the passing of the Finance Act 2018.
(2) A register established under subsection (1) shall record in relation to capital payments—
(a) the recipient beneficiary;
(b) the settlor; and
(c) the trustees of the settlement from which the capital payment is received.
(3) That part of the register containing information in paragraph (c) shall be made available to the public.”
(1A) In section 98(1), after “87”, insert “, 87Q”.”
This amendment creates an obligation for the Chancellor of the Exchequer to create a public register of trust beneficiaries, settlors, and trustees. It also amends section 98(1) of TCGA 1992 to expand, to include new section 87Q, the existing power for HMRC to require any person to provide information as they think necessary to fulfil certain sections of that Act.
Government amendments 2, 51 and 52, 5 to 27, 53, and 28 to 32.
That schedule 10 be the Tenth schedule to the Bill.
Mel Stride
Would it be appropriate for Opposition Members to speak to their amendment?
The Chair
The short answer is no, because the clause stand part debate is the lead item on the agenda.
Mel Stride
I should have known that you were several steps ahead of me, Sir Roger. I totally understand and will therefore speak to the clause.
Clause 35 seeks to safeguard the integrity of our tax system by ensuring that it is not possible for an individual with an offshore trust to avoid paying UK tax on payments from that trust. The UK already has extensive anti-avoidance legislation in place to prevent individuals who hold offshore trusts from being able to avoid paying income tax or capital gains tax on the gains from those settlements. The UK’s far-reaching anti-avoidance rules mean that a UK-domiciled individual who sets up an offshore trust will pay tax on income and gains in that trust as they arise if they have any entitlement to the trust income or the underlying assets. That means that using an offshore trust does not deliver any tax advantage for most people living in the United Kingdom.
However, there are a small number of people who set up or benefit from an offshore trust, where tax is not due on income and gains as they arise in the trust; instead, tax is charged when moneys or benefits are taken from the trust. Typically these people are foreign domiciliaries—often referred to as non-doms—although there will be certain circumstances in which UK domiciles pay tax only when moneys or benefits are withdrawn, such as when the individual who set up the trust has died.
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
May I echo the generous observations made by the hon. Member for Aberdeen North about the hon. Member for Oxford East, who is extremely thorough, well-read and well-versed in the matters we discuss in Committee, adding a great deal to the quality of the debate and the scrutiny of the Bill.
I was pleased that the hon. Member for Oxford East welcomed the tightening that we are introducing on this aspect of anti-avoidance. She stated that she would like to see more of it, if that is necessary, and referred to the ICAEW’s comments in that respect. We must always bear in mind that there is inevitably a certain capacity within Government to set out legislation wherever we come across further improvements that could be made or loopholes that could be tightened up, but there is an army of creative, knowledgeable and determined individuals who set out to undo what we put in place, so all Governments will probably always be in the business of tracking down and closing loopholes as they become evident. I can assure her that the Treasury and I intend to be vigorous in stamping out tax avoidance and evasion. It is entirely unfair on those who rightly pay their fair share of tax, it is damaging to our public services, and we will not tolerate it.
The hon. Member for Oxford East raised various concerns about the non-doms regime, some of which reprised our debates on the previous Finance Bill. She might not be satisfied with the current arrangements pertaining to the taxation of non-domiciled individuals, but they are tighter than was the case under previous Labour Governments, when the remittance basis came in. She referred to the different bases on which different people are taxed—that was certainly a feature under the Labour Government. As we have argued many times, we have to make a balance between having a robust regime that is fair to the taxpayer and making sure that the investment that certain individuals bring to this country is not unduly jeopardised.
The hon. Member for Oxford East asked specifically what discussions we may have been having with the Crown dependencies and overseas territories—recognising, as she does, the advances we have made on access to information about companies and their affairs, which is real-time access for HMRC. We have of course been at the forefront of the common reporting standards regime. She asked specifically about trusts. From the UK’s tax perspective, the trusts that are relevant are those that have a UK tax interest associated with them. We have already brought into law provisions that set up exactly that register, which is accessible by HMRC. There is a duty on those trusts where such an interest is a part of the operation of the trusts for them to be disclosed in that manner. She asked what actions might be taken to simplify the taxation of trusts and referred to the ICAEW’s points on that. She might be aware that there is an ongoing consultation, the results of which will be published later this year. I am certainly happy to keep her informed as that progresses.
The hon. Member for Aberdeen North did indeed go slightly beyond the scope of the Bill, so perhaps I might be allowed similar latitude in responding to the important points she raised. She is right that amendment 3, as originally drafted, would have switched off the elements of the Bill that clamped down on the onward gifting of moneys and capital from trusts, and I fully accept that that was an unfortunate error. She contends that it is just the kind of error that might have been spotted earlier had we had an evidence session as part of the Finance Bill process. However, that error shows how these highly granular, technical, line-by-line issues, by their very nature, are probably best handled not in a broad Committee evidence session, but through consultation on the draft legislation. Particularly as we move to a single fiscal event, where we will have a more measured build-up to Finance Bills, the Treasury’s aim will be to ensure that we get as much of the Bill in draft out there, so that organisations, accountants and others can pore over these clauses line by line. On the general point about evidence sessions, as we have discussed before, it would be for the usual channels to agree those. I am sure that she will be making those representations to her Whips’ offices.
Question put and agreed to.
Clause 35 accordingly ordered to stand part of the Bill.
Amendment proposed: 62, in schedule 10, page 142, line 40, at end insert—
“87Q Review of taxation of capital payments received from a settlement
(1) Within six months of the passing of the Finance Act 2018, the Chancellor of the Exchequer must review the effects of the changes to this Chapter made by Schedule 10 to that Act.
(2) The review under this section must consider the effects of those changes on—
(a) the taxation regime for settlements, and
(b) anti-avoidance measures for settlements.
(3) The Chancellor of the Exchequer must lay before the House of Commons the report of the review under this section as soon as practicable after its completion.”—(Anneliese Dodds.)
This amendment requires the Chancellor of the Exchequer to review the effects of changes to TCGA 1992 made by the Bill in relation to the taxation of capital payments received from a settlement.
Question put, That the amendment be made.
The Chair
With this it will be convenient to take new clause 14—Fixed rate deduction for expenditure on vehicles: review of change to eligibility—
“(1) Within twelve months after the passing of this Act, the Chancellor of the Exchequer must review the effects of the amendments made by section 36 allowing unincorporated property businesses to use flat rates for mileage when calculating allowable deductions for vehicle expenditure for income tax.
(2) The review under this section must consider—
(a) the revenue effects of the change made, and
(b) the effect of the change on rates of car usage in unincorporated property businesses.
(3) The Chancellor of the Exchequer must lay before the House of Commons the report of the review under this section as soon as practicable after its completion.” —(Peter Dowd.)
This new clause provides for a review into the effects on revenue and on car use of allowing unincorporated property businesses to use flat rates, commonly referred to as mileage rates, when calculating allowed deductions for income tax.
Mel Stride
Clause 36 makes changes to ensure that unincorporated property businesses have the option to use mileage rates to calculate their allowable deductions for motoring expenses. Trading businesses have been able to use mileage rates since 2013. That gives individuals the choice to use fixed rates per business mile to calculate their allowable deductions for motoring expenses, instead of deducting actual running costs and claiming capital allowances. However, that simpler option has not been available to landlords.
The changes made by clause 36 address that, giving more than 2.3 million property businesses the option to use mileage rates to calculate their allowable deductions for motoring expenses, and providing administrative savings to approximately 1.8 million property businesses. Mileage rates are also available to landlords using the cash basis, bringing further simplicity to that group’s tax affairs.
Extending mileage rates to property businesses is one of the most effective steps that we can take to simplify the tax system for landlords, and it is a change that stakeholders asked for during a recent consultation. The clause, legislating for the measure announced in the autumn Budget 2017, applies from April 2017, so landlords can benefit immediately.
The new clause tabled by Opposition Members asks for the Government to review the effects of the change on tax revenue and on rates of car usage by property businesses. I appreciate the Opposition’s desire to test and examine the impacts of policy changes, but in this instance there would be little for a review to study. The policy cost, certified by the Office for Budget Responsibility, is negligible for every year of the forecast. Mileage rates are designed to reflect average costs for those who use a vehicle, so the measure is a tax simplification, not a tax reduction. We would not expect any significant difference in how many property businesses use a car, either.
Landlords will take decisions based on the practicalities of running their business. The tax difference would not be significant enough for us to expect any increase or decrease in the number using a car. As identified in the tax information impact note, because the same flat mileage rate is applied for all cars, that may provide some incentive for businesses to use smaller, more efficient cars with lower operating costs. This measure will simplify the tax system further for many landlords, and I commend the clause to the Committee.
Anneliese Dodds
Thank you, Sir Roger, and I will aim to keep my remarks brief. This measure was requested by stakeholders during consultations in autumn 2016, particularly on the use of the cash basis in general. As the Minister said, it appears to offer more consistency for different groups of taxpayers, particularly self-employed traders and employees, and unincorporated property businesses. None the less, Labour Members are requesting a review of the measure because we think it important to have more information about its potential revenue effects. The Minister has said that the change is largely to the basis of calculation, but if we are talking about a shift to mileage rates rather than the value of the business technology used in the first place—the car—that could be significant for the amount of tax levied, and it would be helpful to have more information on that.
We know that public services and revenues are under a huge amount of pressure, but we do not have a clear view of the overall impact of reliefs on Government revenue. That point came up in our discussions last week, and a number of my colleagues rightly intervened on it. It would be helpful to have more information about that, and about whether there could be unintended consequences. Such consequences would affect self-employed traders and employees who use mileage rates—it is not just a matter for landlords who might be covered by the new provisions—and it would be helpful to know whether, for example, there has been any consideration of trying to reduce car use in general. Some of the small one-man, one-woman bands who might be covered by the measure could be landlords of a small number of properties in a small geographical area. The Government should consider how to enable people not to use a car in the first place, and it would be helpful to hear their thinking on that.
I fondly remember how, when I was a student, my landlord used to cycle around with his dog—sadly now deceased—in the basket of his bike, and that was how he got around his properties. [Interruption.] The landlord is still going, as I understand it; only the dog is deceased.
Anneliese Dodds
The bike, I think, is still going as well. I still see my previous landlord cycling between his properties, and perhaps we should aim to promote that model, particularly when we are talking about small concerns. I am not belittling the transport requirements of larger landlords or those with properties that are geographically spread out, but it would be helpful to consider such measures. It would also be useful to know whether a thorough analysis has been made of the administrative burdens that the measure might create. The Minister alluded to that, but more information would be helpful.
May we have an indication of the extent to which the Government will try to prevent abuse in this area? I am aware that that already applies to the use of this basis by self-employed traders and employees, but during the Minister’s remarks I was reminded of debates about the business use of private jets, which came up in discussions on the Paradise papers. I have talked to the Isle of Man’s representatives about this. They maintain that activities have generally been above board, and that they are sorting out activities that have not been. We all remember the video of Lewis Hamilton enjoying his new private jet, which, in theory, was just for business use. It appears that appropriate safeguards had not been put in place to make sure that the jet was just for private use.
How are we ensuring that, in these kind of cases and more generally, cars are used overwhelmingly for business use? I believe it is a question of whether they are predominantly for business use. We are talking about small landlords, so it could be quite difficult to make that distinction. It is about how we prevent abuse while protecting the interests of small business.
Mel Stride
I thank the hon. Member for Oxford East for her observations, particularly the curious incident of the dead dog and the bike, which I think might end up being one of the most memorable statements in the passage of the Bill.
The hon. Lady eloquently alluded to the impact of such measures on the size or type of vehicles used to carry out the business activities that we are discussing. I point to my earlier remark that, if a fixed rate per mile can be claimed, there is an incentive to use a less expensive means of transport, be it a bicycle or a less polluting vehicle, while claiming the mileage. A useful dynamic, in terms of her interest in this area, is built into the system.
As I have pointed out, the measure is a simplification, not a tax reduction. That is a pertinent point when it comes to a review of behavioural change, because it does not change the overall weight of the tax burden on this group. As I have set out, the Office for Budget Responsibility has stated that the fiscal impact of the measure will be negligible—meaning that the impact will not exceed £5 million in any year—in every year of the scorecard period, albeit that 1.8 million businesses are affected by it.
The hon. Lady asked how we will know if people are abusing the system by claiming mileage allowances for a use other than business use, or for travel that has not occurred. That problem is implicit in any arrangement of this nature, in which expenses are claimed as a tax deduction. HMRC has become more and more sophisticated in how it looks at tax returns—that is clearly how such information would be provided—and it uses technology to look for patterns and abnormalities. It sometimes looks at whole subsets of taxpayers that have a greater propensity to do certain things, and it therefore investigates members of those groups more rigorously. That would be part of the approach.
Overall, I do not think it is necessary to have a review, particularly given the negligible impact of the change. On the grounds of proportionality, I ask the hon. Lady to consider withdrawing the new clause.
The Chair
The new clause cannot be withdrawn at this stage, because it has not been moved. It will be moved later, as I have indicated.
Question put and agreed to.
Clause 36 accordingly ordered to stand part of the Bill.
Clause 37
Carried interest
Question proposed, That the clause stand part of the Bill.
The Chair
With this it will be convenient to discuss new clause 2—Review of the impact of the removal of the transitional taxation arrangements for carried interest—
‘(1) Within two months of Royal Assent to this Act, the Commissioners for Her Majesty’s Revenue and Customs shall complete a review of the impact of the removal of transitional taxation arrangements for sums to which sections 43 and 45 of the Finance (No. 2) Act 2015 apply.
(2) The Chancellor of the Exchequer shall lay the report of this review before the House of Commons.”
This new clause would require HMRC to carry out a review of the impact of removing transitional tax arrangements for sums to which sections 43 and 45 of the Finance (No. 2) Act 2015 apply.
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.
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)
Mel Stride Excerpts(6 years, 3 months ago)
Public Bill CommitteesRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Alison Thewliss (Glasgow Central) (SNP)
I do not a have tremendous amount to add to what the hon. Member for Bootle laid out, but I want to highlight the written evidence submitted by the Institute of Chartered Accountants in England and Wales regarding VAT and online marketplaces.
The institute is concerned that as well as this change proposed by the Government, there may be subsequent change, perhaps—if we are still subject to the European Union—with the principal VAT directive taking effect in 2021. What is the Government’s view of that directive? Do they think there is any chance that we will be in some transitional period, or that UK businesses will be under that directive? It is not clear at the moment.
The chartered accountants are asking for the UK to seek
“a derogation to implement these proposals from an earlier date than currently permitted under EU law.”
That will not be necessary if the UK has left and we are not subject to EU law, but the institute believes that the EU directive would give consistency to both UK and EU businesses and that there would be no double taxation risk in it.
To highlight some of the things that the hon. Member for Bootle mentioned, I am sympathetic to the Government view that this is a difficult area for enforcement. The online world is constantly changing and there are always new ways for businesses to get around their obligations. It might be useful to have a wider review, perhaps once we leave the EU, because in many areas there seems to be a way around for businesses not to pay their VAT—they pop up, do something else, and change and change, so perhaps there should be regulation of the marketplaces to a greater degree, for companies such as eBay and Amazon, to make sure that that is done. Perhaps we should get that VAT automatically at the point of sale, so that we do not have to go through companies in a longer and more protracted way. We know when goods are being delivered; they go to someone’s house, to an address, so for the most part we can trace where they are going. Perhaps there are other ways we can enforce VAT collection. At the moment it seems like an easy thing to get around and a difficult thing for Her Majesty’s Revenue and Customs to chase. If we want to ensure that we get the maximum VAT take, we have to look at different ways and try to get around the technology in a smarter way than we perhaps have been doing up to now.
The Financial Secretary to the Treasury (Mel Stride)
It is a pleasure to serve again under your chairmanship, Mr Owen.
The clause strengthens existing powers to make online marketplaces accountable for VAT evaded through their platforms. The growth and development of the online retail market mean that the average UK consumer can now buy a vast range of goods at very competitive prices, and have them delivered rapidly by sellers based all over the world. E-commerce plays an important part in the UK economy, but it also provides opportunities for abuse of the VAT system.
Businesses that sell goods to UK consumers via online marketplaces do not always pay the correct VAT to HMRC. When those businesses do not charge VAT correctly on their goods, they unfairly undercut the honest majority of businesses that comply with our VAT rules—that point was made by the hon. Member for High Peak. The businesses that do not charge VAT correctly abuse the trust of UK customers and deprive the Government of significant revenue.
At Budget 2016, the Government announced a package of measures to tackle online VAT fraud. That included a new joint and several liability provision giving HMRC the power to hold online marketplaces responsible for the future unpaid VAT of non-compliant overseas businesses that HMRC identifies operating on the marketplaces. It also included a fulfilment house due diligence scheme which opens for registration in April 2018 and will provide HMRC with an audit trail to track goods that UK-based warehouses are storing for overseas traders. The new package extends HMRC’s existing powers for tackling online VAT fraud. Taken together, the packages of Budget 2016 and autumn Budget 2017 are expected to raise just under £1 billion by 2023.
The clause strengthens HMRC’s existing joint and several liability powers and introduces a new requirement for online marketplaces to display valid VAT numbers on their platforms. Although online VAT fraud is not restricted to overseas businesses, the clause will ensure that joint and several liability rules cover all non-compliant businesses, including United Kingdom ones. It also strengthens the existing joint and several liability rules for overseas businesses and will enable HMRC to hold online marketplaces jointly and severally liable for the unpaid VAT of an overseas online seller from the point when the online marketplace knew or should have known that the overseas seller should be registered for VAT in the UK but was not.
At this point, I will turn to some of the specific points raised by hon. Members this morning. The hon. Member for Bootle was concerned about whether the measures are strong enough, although my hon. Friend the Member for Ochil and South Perthshire rightly pointed to the sittings of the Public Accounts Committee, in which the complexity and difficulties of this area have been highlighted.
Under the current arrangements, HMRC has received about 25,000 applications to register for VAT from non-EU-based online retailers. The VAT liability reported by such businesses has increased from £6 million in 2015 to £27 million in 2016, and we expect that to continue to rise. HMRC has issued more than 1,000 joint and several liability notices to online marketplaces resulting in the removal of non-compliant sellers. It has also issued assessments against online overseas traders for unpaid VAT amounting to more than £43 million, with a further £71 million in the pipeline. That covers at least some of the questions posed by the hon. Member for Bootle.
The hon. Gentleman also raised the issue of HMRC resourcing. We have provided HMRC with an additional £2 billion since 2010, which is part of the reason why it has been so successful in bringing in additional revenues by clamping down on avoidance, evasion and non-compliance. A further £170 million came through the recent Budget, which will raise more than £4 billion across the scorecard period. He also mentioned the issue of people and office closures. We have previously discussed how HMRC’s operations are now far more technology-driven and intelligence-led, and that kind of approach lends itself to the more centralised, high-tech, highly skilled operation that underpins much of the success that we are having today.
The hon. Member for Glasgow Central asked about VAT directives. I think—I am interpreting her remarks; she can correct me if I am wrong—that she might be referring to VAT arrangements between the EU and the UK. There is acquisition VAT, as opposed to import VAT, which applies to businesses importing from non-EU countries. The customs Bill going through Parliament at the moment will effect a change from acquisition VAT to import VAT. It will, of course, be down to the negotiation where exactly we land in terms of the arrangements that pertain after our exit from the European Union, but I assure her that HMRC will consider carefully the impact of where we land to ensure that we continue to make progress on online VAT fraud. She suggested a review after we have left the European Union of the measures and the operation of online platforms. We can certainly consider that for the future. I am sure that we will come back to the issue many times in the years ahead.
Finally, the clause requires online marketplaces to ensure that VAT numbers are valid and displayed on websites when they are provided by the seller. The requirement will be supported by regulatory penalty. Taken together, the changes will make it more difficult for non-compliant online businesses to trade in the UK, and will enable HMRC to tackle them more easily.
I welcome the opportunity to speak to the amendments tabled by the hon. Members for Oxford East and for Bootle. At this stage, I should say that something rather extraordinary and slightly worrying has occurred: the Government have decided that we are content to accept one of the amendments. After all the constant chipping away at us, one amendment has got through. I would not get too excited—it is slightly technical—but we are grateful to the Opposition for their scrutiny of the Bill and for tabling this amendment. The Government agree with amendment 56 and will therefore specify that it is section 69(1) of the Value Added Tax Act 1994 being amended.
Amendment 57 would increase the penalty for online marketplaces that fail to display a valid VAT number when provided with one. The current penalties refer to daily amounts and are entirely consistent with the penalties awarded for similar offences. In contrast, the proposed amendment could result in a marketplace receiving a penalty of up to £1.5 million for failing to display a valid VAT number for a single online sale. We believe that a sanction such as that would be unreasonable.
Amendment 58 would limit the time available for an online marketplace to ensure the compliance or removal of a non-compliant seller to 10 days after receipt of a joint and several liability notice. It would also require HMRC to issue a JSL notice in every case where VAT revenue would be protected or enhanced. Such an amendment would restrict HMRC’s ability in handling non-compliance on a case-by-case basis. It is also somewhat unfair, denying an online marketplace a sufficient opportunity to tackle non-compliance by sellers on its platforms before being held jointly and severally liable.
Similarly, amendment 59 would reduce the period in which an online marketplace must ensure compliance or removal of an overseas seller, from the point of view that it knew or should have known that a particular seller should be registered for UK VAT but is not. The amendment would reduce the period allowed from 60 days to 10 days. That would not allow enough time for an online marketplace acting in good faith to assist an overseas seller in becoming registered for UK VAT without still incurring joint and several liability. I commend the clause to the Committee.
Peter Dowd (Bootle) (Lab)
I am deeply grateful to the Government for accepting an amendment that specifies the subsection of section 69 of the Value Added Tax Act 1994 that will be amended by clause 38(2). It is very significant and a major climb-down by the Government. [Laughter.] May there be many more of them, Mr Owen. It is a delight to see you in the Chair.
I am not wholly convinced by the Minister’s protestations about the huge amounts involved and the latitude that the Government appear to give to people who, when they set up businesses, know the environment that they are operating in. These are intelligent people, entrepreneurs. They know exactly what they are doing so they should be aware, as much as they can be, of what the rules are when they get into the game, so to speak. That lots of these people are naive and not really sure what is going to happen and what the processes, the procedures and the rules are, is not the most convincing argument I have heard from the Minister.
The message that we have to send to people who wish to set up businesses is, “You will get a welcoming environment. We welcome entrepreneurs. We welcome you being part of our business society and our business communities. But you have to play by the rules, and if you don’t, your business may face sanctions.” That is the message that we want to sell, especially in the light of the fact that we are moving out of the European Union. There are huge amounts of uncertainty in the economy, so we just want to let people know that if they do come into that environment, they will have to be careful to play by the rules.
I do not think that our proposals, particularly in amendment 57, are especially onerous. The amount of money—cash—that companies will make will be quite significant; they just have to be clear that they play by the rules. So despite the Minister’s silver tongue, we will press amendment 57 to a vote, to make a point.
Amendment 56 agreed to.
The Chair
With this it will be convenient to discuss new clause 1—Review of retrospective VAT refunds for the Scottish Fire and Rescue Service and the Scottish Police Authority—
‘(1) Within one month of this Act receiving Royal Assent, the Chancellor of the Exchequer shall commission a review of the potential consequences of allowing the Scottish Fire and Rescue Service and the Scottish Police Authority to claim VAT refunds under section 33 of VATA 1994 retrospective to the date of their establishment.
(2) The review shall consider—
(a) the administrative consequences of allowing retrospective claims, and
(b) the impact on revenue of allowing retrospective claims.
(3) The Chancellor of the Exchequer shall lay the report of this review before the House of Commons within six months of this Act receiving Royal Assent.’
This new clause would require the Chancellor of the Exchequer to commission a review into what the potential consequences of allowing the Scottish Fire and Rescue Service and the Scottish Police Authority to make retrospective claims for VAT refunds would be.
Mel Stride
The clause makes a number of changes to section 33 of the VAT Act 1994, which allows certain bodies to recover normally irrecoverable VAT. First and foremost, the clause fulfils the commitment made in autumn Budget 2017 to legislate to provide VAT refunds to Police Scotland and the Scottish Fire and Rescue Service.
The Committee will be aware that in 2012, the Scottish Government chose to restructure Scottish police and fire services to create national bodies. At the time, the Scottish Government understood that those bodies would not be entitled to VAT refunds as they were no longer locally funded. They none the less continued with the change on the basis that VAT costs would be outweighed by potential savings.
A number of representations have been made to the Government on the issue and the Government have listened carefully to the concerns expressed. I am pleased that the provisions in clause 39 will enable the Scottish services to fully recover VAT, in effect providing £40 million additional financial support each year.
The clause also makes minor changes to the legislative basis by which combined authorities and English and Welsh fire authorities receive VAT refunds. Those bodies are currently eligible for VAT refunds but each authority is added to section 33 individually by statutory instrument, which takes up parliamentary time. The clause removes the need for statutory instruments and ensures that English and Welsh fire authorities are automatically entitled to VAT refunds. It does not substantially affect the VAT treatment of combined authorities or English and Welsh fire authorities. It simply removes an unnecessary administrative barrier, freeing up parliamentary time by allowing authorities to access refunds automatically.
Finally, I will touch on the VAT treatment of police services in Northern Ireland. Northern Irish police services have always had the right to reclaim VAT refunds and it is absolutely right that that is the case. However, it is a complex area of VAT law and the Government have decided to clarify the legislation to put the matter beyond doubt. The clause therefore makes explicit the right of the Northern Irish policing bodies to receive VAT refunds.
The clause makes a number of changes to the treatment of public bodies in the VAT Act, as well as making procedural amendments. It delivers on the Chancellor’s Budget announcement on Scottish police and fire services, providing VAT refunds worth around £40 million a year to support the delivery of frontline services. I therefore commend the clause to the Committee.
Alison Thewliss
We support the U-turn by the UK Government to allow VAT to be reclaimed by Police Scotland and the Scottish Fire and Rescue Service. I should declare that I was a councillor on the board of Strathclyde fire and rescue when this was being discussed; I know the matter well and know the issues that the Minister referred to. There was a great deal of correspondence at that time from Scottish Government Ministers to the UK Government, requesting that the change be made, so it is with some incredulity that we hear, “Oh wait; all of a sudden we have just realised, yes, we are going to fix it now”—now, rather than several years earlier.
It seems logical that if the argument stands today and it stood in the Budget, then it stood all along, so the Government should do right by the Scottish Fire and Rescue Service and Police Scotland and refund the VAT that we are due. Given that those services’ funding was pushed on to the Scottish Government via the UK Government’s austerity agenda, they very much need that money.
Mel Stride
The hon. Member for Glasgow Central asked: why now? Why has this not been done before? I guess, as with all policy decisions taken in politics, there was a balance to be struck between resources available, the lobbying that occurred and the input of competing interests. Without going too far into this point, I think it is fair to say that since 2015, the lobbying became fairly intense. That is not to deny in any way that there was fairly intensive lobbying prior to 2015. The decision was taken in the round at the time of the Budget, when all the competing uses for the UK Exchequer’s funds were balanced up. The question, “Why now, rather than at any particular time in the past?” could be applied to almost any tax change. It is a fairly generic point, in that sense.
The hon. Member for Bootle was firm, as was the hon. Member for Aberdeen North, on the perceived unfairness of the original decision. I remind Members that the original decision was taken by the Scottish Government in the knowledge that restructuring their services in this way would have a particular impact on the ability to claim relief for VAT.
Alison Thewliss
Will the Minister acknowledge that the original decision by the UK Government not to allow VAT relief was also part of that process?
Mel Stride
I was not party to the discussions that occurred at that time. The simple fact is that when the Scottish Government took the decision to restructure, they knew what the consequences would be; that is the critical point. There was no question of the UK Government having been vague or imprecise on that point; we made the consequences very clear to them at that point.
The hon. Member for Glasgow Central suggested that the measures in the clause relating to VAT exemptions for other authorities in England and Wales were somehow linked to this, and forced our hand on the decision about VAT relief for the Scottish fire and rescue service. There is no link; that can be seen from what the two different elements of the clause do. Unlike the provisions on Scotland, the measures on English and Welsh authorities do not extend VAT relief where it is not otherwise available; they are simply to do with the mechanics of how authorities benefit from that relief, and absolve Parliament from having to take the time to agree each and every instance through a statutory instrument.
As a matter of principle, the Treasury would not normally look at bringing in taxes retrospectively. We should be thankful that we have now resolved this issue. I hope that as the years roll by, this will fade into the background, and we will reach a point when we can all feel that we are in a good position regarding VAT and Scottish fire and rescue.
Question put and agreed to.
Clause 39 accordingly ordered to stand part of the Bill.
Clause 42
Landfill tax: disposals not made at landfill sites, etc
Question proposed, That the clause stand part of the Bill.
The Chair
With this it will be convenient to discuss the following:
That schedule 12 be the Twelfth schedule to the Bill.
New clause 15—Landfill Tax disposals: review of changes to disposals within charge—
‘(1) The Chancellor of the Exchequer must commission a review of the changes to disposals for which Landfill Tax is chargeable within three months of the passing of this Act.
(2) The review under this section must consider—
(a) the effect on revenue of the changes,
(b) the impact on the volume of disposals at—
(i) sites with an environmental disposal permit, and
(ii) sites without an environmental disposal permit, and
(c) the impact of the changes on the prevalence of illegal disposal sites.
(3) The Chancellor of the Exchequer must lay before the House of Commons the report of the review under this section within twelve months of the passing of this Act.”
This new clause would require the Chancellor of the Exchequer to commission and lay before the House of Commons a report into the effects of the changes to disposals for which Landfill Tax is chargeable on tax revenue and on the volume of disposals and the prevalence of illegal landfill sites.
Mel Stride
Clause 42 and schedule 12 extend the scope of landfill tax to disposals made at sites without an environmental permit, in order to prevent rogue operators from profiting by avoiding landfill tax. The clause also brings clarity to what material is taxable at sites that do have a permit. Landfill tax was introduced on 1 October 1996 to discourage the disposal of waste to landfill, and encourage more sustainable ways of managing waste. Since the introduction of the tax in the UK, landfilling has gone down by more than 60%. Illegal waste sites are a blight on local communities and can cause serious environmental damage. Although the Environment Agency can impose fines and criminal sanctions on operators of illegal sites, they are outside the scope of the tax. With no landfill tax to pay, rogue operators can undercut legitimate operators and make significant profits.
The Environmental Services Association estimates that waste crime costs the English economy over £600 million annually, with up to £200 million of tax being avoided. At the spring Budget in 2017, the Government announced a consultation on whether to extend the scope of landfill tax to illegal waste sites. Following strong support from industry, the Government confirmed their intention to legislate to extend the scope of landfill tax to illegal waste sites from 1 April 2018. Alongside this, in response to broad industry support in the consultation announced at Budget 2016, the Government are amending the definition of a taxable disposal. That follows a 2008 Court of Appeal ruling that some material received at a landfill site and put to certain uses is not waste, and therefore not taxable. That has created uncertainty about what constitutes a taxable disposal and has led to increased complexity for operators.
The changes being made by this clause will make all persons who are responsible for disposals at illegal waste sites, across the supply chain, jointly and severally liable for the tax. They may also be liable for a penalty of up to 100% of the tax, and in the most severe cases, HMRC will be able to prosecute those involved. In order to address the primary concern raised by stakeholders during the consultation, safeguards have been put in place to ensure that any genuinely innocent parties will not be liable for the tax. The clause will give industry certainty about what constitutes a taxable disposal. Currently, material is considered to be waste if certain criteria apply. The changes made by this clause will remove the waste criteria; instead, all material disposed of at a landfill site will be treated as taxable waste unless it is specifically covered by an exception.
To simplify the system further, we are also removing the requirement to notify HMRC of restoration activities undertaken at a landfill site. These changes will support the legitimate waste management industry by simplifying the tax system and providing clarity for landfill operators.
Let me turn briefly to new clause 15, tabled by Opposition Members. This would require the Government to commission a review of these changes within three months of the passing of this Act. A full assessment of the impacts of this measure was published in September 2017. At that time, the Government assessed that the measure would increase the cost of the illegal disposal of waste at unauthorised sites and incentivise the disposal of waste at legal—and more environmentally friendly—waste management operations. Following this, the Office for Budget Responsibility published an assessment of the revenue impact of the changes; £145 million is expected over the five years following implementation. Those impacts were assessed with the full support of the waste industry, and after further contributions from the Environment Agency.
Information about landfill tax revenues and the volume of disposals is publically available. HMRC publishes its landfill tax receipts twice yearly. The Environment Agency publishes additional information annually about disposals at permitted sites and the number of illegal waste sites in England. As such, the Government’s view is that the proposed review is unnecessary. I therefore commend the clause to the Committee.
Peter Dowd
The clause amends the Finance Act 1996 to include disposals at sites without an environmental tax disposal permit within the charge to landfill tax.
I would like to declare an interest. My hon. Friend the Member for Liverpool, Walton, will appreciate this; it is not to do with landfill tax, but it is important to give some context. We have a huge dock complex in my constituency. On several occasions in the past couple of years, the scrap metal kept there has gone up in flames, and it has taken days and huge amounts of public resource to get the fire under control. We have had many discussions with the organisations concerned, although that is not landfill. A fire at an illegal waste transfer centre in Hawthorne Road—in a residential area—took a week to put out. There were huge plumes of smoke for weeks on end. [Interruption.] That is probably the fire chief now, telling me there is another fire. I hope not. The issue of waste disposal, landfill, and the whole area relating to waste is very important.
The landfill tax was brought in nearly 20 years ago to act as a disincentive to landfilling material, encourage the use of recycled material and incentivise recycling more broadly. The tax is due on material disposed of at landfill sites in England, Wales and Northern Ireland that have an environmental permit or licence for waste disposal.
HMRC collects the tax from the permitted operators of landfill sites based on the weight and type of material landfilled. There are two rates of tax: a standard rate of £86 a tonne, and a lower rate of £2.70 for the least polluting material. The Department for Environment, Food and Rural Affairs and the national environmental protection agencies are responsible for the regulation and enforcement of environmental policy.
I could talk for another hour or two on the issue as it relates to my constituency, but on this occasion, I will spare everybody. Although HMRC is responsible for the administration and collection of the landfill tax, and there are a range of civil and criminal powers to address tax evasion and non-compliance, the question is whether HMRC gets on and does that.
Over the past 20 years of the tax, landfilling has come down by almost 60%, which is a positive achievement for society, but we cannot continue to produce this volume of goods made of materials that vastly outlast the use of the goods. That was the subject of an item on Radio 4 this morning, featuring the chief executive of Iceland. What we are doing is leading to huge accumulations of waste across the land, and the pollution of our ocean, as the recent BBC documentary “Blue Planet” demonstrated so powerfully. It is therefore positive that the Government are extending this disincentive to those operating illegally, to ensure that where enforcement is weak, a further layer of disincentive is put in place.
The Government’s consultation set out the logic of that extension, using the examples of three people who were fined by environmental agencies for illegally dumping 6,000 tonnes of waste. Under the law, they can be fined only through environmental protection levies, which in this case amounted to £170,000. However, if further legislation had been put in place to extend the territories that could be included under the landfill tax, that fine could have been as much as £500,000, plus a penalty of 100% of the tax and interest.
The landfill tax gap—the difference between what is collected and the estimates of what it should be—is £150 million, not including the waste dumped at illegal sites. There is clearly much more to be done to address this problem. Strangely, however, the Government’s impact assessment does not include information on Exchequer impacts of this extended tax. Fortunately, the OBR is here to help, with a prediction that tackling waste crime will raise £30 million in the first year. That will rise to roughly £45 million a year after. Will the Minister explain why the OBR believes that this measure will recoup only a third of the revenue that the Government estimate is missing? I am sure he will have the figures available, even if not today. As far as I can see, it does not seem a particularly good return on investment.
Peter Dowd
Fine. The point I am trying to make is that landfill capacity across the UK has decreased from thousands of sites, with only about 50 sites predicted to be in operation by 2020. Although we have talked about the period of time that our proposed reviews should cover, it is crucial that this one takes place not once, but regularly. The issue is serious, as I have set out.
Crucially, regional capacity also varies greatly, and the Government are not tackling that. This review will help us to identify the differences in a systematic way. For example, Kent is likely to have no landfill sites at all by 2021, according to SUEZ, which suggests that the Department for Environment, Food and Rural Affairs does not have the resources to look at its concerns. Perhaps if the tax was sent in the right direction, the Department would have the capacity. Although it is not his Department, I ask the Financial Secretary what contingency planning DEFRA has put in place in case the record on recycling worsens. It is important that the suggestion of a review is taken into account.
This proposal extends charges to illegal landfill. Illegal landfill will only increase if we begin to produce more waste than our capacity can handle. How does the Minister plan to deal with excess waste that surpasses our current capacity? He may want to pass that question on to one of his hon. Friends. Under the Prime Minister’s plan, by of which year will the UK end the use of landfill completely? How are we going to keep tabs on that, and what systematic process will we use? If we use the same methodology that the Chancellor used to get the deficit down, we will all be pushing up daisies by the time it is sorted. We hope that the clause will ensure that landfill waste falls, across both permitted and illegal sites, but the Government seem to be unable to tell us exactly how much landfill will be diverted into ecologically sound management as a result. Perhaps the Minister can enlighten us about those projections.
That is why we have tabled a new clause that is designed to establish how much revenue this measure will generate, as well as to measure the behavioural impact that it sets out to achieve. Our suggested review would look at the impact of extending landfill tax on the volume of disposals at both permitted and illegal sites. Alongside that, we believe it is important to measure the impact on the prevalence of illegal sites, as well as the amount of waste disposed at them. Everybody on the Committee recognises the importance of consigning landfill to the dustbin of history. To do so would deliver unquantifiable ecological effects and would, we hope, form part of a new respect shown by our society for the environment on which we rely.
Extending taxation to illegal sites will deliver a reduction in landfill, and it can therefore only be a good thing. I commend the Financial Secretary for introducing this measure. It is all the more important that the Government monitor and assess the impact of the measure, as well as investing revenue to ensure that it is enforced. We hope that all Members present today will support our review, in the name of good governance, to ensure that the UK continues to take steps towards no longer producing damaging and unnecessary landfill.
Mel Stride
I thank the hon. Member for Bootle for commending us for introducing this measure. Many of his remarks were fairly wide-ranging, and I think he recognised that some of them—for example, those concerning the amount of landfill that we have available and what our plans for it might be—related to other Departments. I hope that he will indulge me when I say that on those issues, it might be better for him to go direct to the Departments concerned.
Peter Dowd
I take your exhortation to keep things as tight as possible, Mr Owen, but there are occasions—I have asked the Minister about this—on which Departments really ought to work closely together to ensure that we have the balance right. That is difficult sometimes when we are doing something specific and technical. Nevertheless, I am sure he will agree that it is important to be able to bring other factors into the equation and get a proper bigger picture.
The Chair
I am grateful. Before the Minister proceeds, as both hon. Members have agreed that this is outside the remit of the Bill, I ask them both to confine their remarks to the Bill.
Mel Stride
Thank you for your guidance, Mr Owen. This is predominantly a tax Bill, and I will endeavour to stick to matters relating to that aspect of our considerations. However, there is much that the hon. Gentleman and I can agree on. We agree that we certainly need to cut down on the amount of disposable items out there; he gave some shocking examples of where the situation had got completely out of hand and of the damage to the environment.
The hon. Gentleman spent some time speaking about the landfill tax gap and how much tax we might be forgoing because we do not currently tax illegal sites. By definition, given that illegal sites do not fall to the charge of landfill tax, they are not included in the figures for tax forgone, because there is no mechanism by which they can be taxed. The whole purpose of the clause is to bring them into the scope of taxation. He asked how much the measure is expected to raise once we have brought those illegal sites into the scope of the tax, and the answer is £145 billion over the scorecard period.
The hon. Gentleman asked a number of questions about resourcing and HMRC. At Budget, we announced that we would provide funding for additional HMRC staff to enforce the measure. We have also announced that we are investing an additional £30 million in the Environment Agency in England, to enable the agency to tackle the illegal waste sites as well as the misdescription of waste and illegal exports. With that, I commend the clause to the Committee.
Question put and agreed to.
Clause 42 accordingly ordered to stand part of the Bill.
Schedule 12 agreed to.
Clause 43
Air passenger duty: rates of duty from 1 April 2019
Question proposed, That the clause stand part of the Bill.
The Chair
With this it will be convenient to consider new clause 16—Review of changes to rates of air passenger duty—
“(1) No later than 31 March 2019, the Chancellor of the Exchequer must review the effects of the changes made by section 43 to rates of air passenger duty set out in Chapter 4 of Part 1 of FA 1994.
(2) The review under this section must consider—
(a) the effect on airplane usage as a result of the changes to air passenger duty rates, and
(b) the effectiveness of the changes to air passenger duty on reducing carbon emissions and meeting carbon emissions targets.
(3) The Chancellor of the Exchequer must lay before the House of Commons the report of the review under this section as soon as practicable after its completion.”
This new clause provides for a review of the effects of the changes to air passenger duty rates on airplane usage and carbon emissions.
Mel Stride
Clause 43 sets air passenger duty rates for the tax year 2019-20. All short-haul rates and the long-haul economy rate will remain frozen at the 2018-19 level. Only those flying long haul in business or first class, or by private jet, will pay more. The changes will ensure that the aviation sector continues to contribute to general taxation while also providing a freeze for more than 95% of all passengers.
Air passenger duty is a per-passenger tax levied on airlines. With no tax on aviation fuel or VAT on international or domestic flights, APD ensures that the aviation sector plays its part in general taxation, raising £3.1 billion a year. The aviation sector continues to perform strongly. The UK has the third largest aviation network in the world, and passenger numbers at UK airports have been strong: in fact, growth has exceeded 15% in the previous five years.
Anneliese Dodds (Oxford East) (Lab/Co-op)
It is a pleasure to be speaking with you in the Chair, Mr Owen. I thank the Minister for his clarifying comments. We on the Labour Benches still wish to have the review proposed in new clause 16. The review would, exactly as described by the Minister, examine the impact of the APD changes on the usage of aeroplanes and their emissions.
On one hand, it is helpful that we are shifting towards greater predictability for air operators and consumers around air passenger duty. It seems appropriate that we have the lag so that we can discuss and determine future rates, rather than having short-term change, but we would like a much stronger indication of the direction of Government thinking in relation to the tax.
The Minister offered the same argument for air passenger duty, to a word, as the one we were given in the previous Finance Bill discussion:
“With no tax on aviation fuel or VAT on international and domestic flights, APD ensures that the aviation sector plays its part in contributing towards general taxation, raising £3.1 billion per annum.”––[Official Report, Finance Public Bill Committee, 24 October 2017; c. 111.]
In our discussions in Committee on APD changes in the previous Finance Bill, we went on to talk about the potential environmental impact. I note that at that stage, the Minister said:
“Like all taxes, it will also change behaviour to some degree, and to the extent that it makes flying a little bit more expensive, it could be expected to have the effect of diminishing demand for air travel. The lower rates for economy, which takes up more space on aircraft than first class, assist in ensuring that flights are as full as they can be.”––[Official Report, Finance Public Bill Committee, 24 October 2017; c. 114.]
We would find it very helpful to have a review. I take on board the Minister’s point about regular information about the operation of APD, but what we do not have at the moment, to my knowledge—if I am wrong, the Minister can set me right—is an indication of the relative merits of this approach against potential others.
A number of transport economists and environmentalists have looked at the impact of levying duty on entire planes, rather than on individuals. The thought was that that would somehow lead to more incentives for more efficient use of space. I take on board the differential rates for private jets and small planes as against larger planes, which tend to be fuller during economy use, but it would be helpful to know whether there will be more impetus towards more intensive use of planes that are already in the air but all of whose seats are perhaps not being used. For the Opposition, that would be part of the stronger analysis of the impact of the duty, compared with other approaches. It would be part of the more general review that we feel we need on the overall impact of environmental taxes and reliefs, so that we can be sure that they are targeted as well as they can be for both economic and environmental purposes.
There are a couple of other issues on which we need clarification. We had a debate on the first during proceedings on the previous Finance Bill. My hon. Friend the Member for Luton North (Kelvin Hopkins) and others raised the matter when they talked about the extent of consultation on existing measures. There are higher rates for long haul in the proposals, as in the existing APD regime, but many Britons have no choice but to travel long haul if their family is in the Caribbean, the Indian subcontinent and so on. The Minister at the time made a commitment to write to my hon. Friend on the extent of consultation with groups of people who might be particularly affected. It would be helpful to have on the record the thoughts of the Minister in Committee on that issue, especially because, in many ways, short-haul flights are a lot easier for people to avoid than long-haul ones, because they can adopt other forms of transport instead. Any indications about that would be useful.
It would also be helpful to have an indication of the Government’s thinking about the extent to which they will be able to protect, or otherwise, revenue from APD. Arguably, we are seeing a race to the bottom on the duty. In previous Finance Bill Committees, we have discussed the new system in Scotland—the air departure tax. Clause 43 increases the band B multiplier in Northern Ireland. From the way in which it is written, I assume that that is happening in the absence of the Stormont arrangements coming back into play and giving the Northern Ireland Assembly control, so we are talking about an increase until the Assembly can make a determination.
Generally, however, the direction of travel appears to be downward, and it would be helpful to know the Treasury’s long-term thinking. We have a lot of pressure from airports, particularly those near Scotland, about whether they can protect their business given the potential reductions in the duty in Scotland. My hon. Friend the Member for Newcastle upon Tyne North (Catherine McKinnell) has made that point in the House.
Furthermore, we need consideration of the issue, given the discussion we had in the Chamber only a couple of hours ago, when a Minister—I appreciate that it was not the one in Committee, who is well apprised of all the issues relating to air passenger duty—seemed to indicate that we might change the extent to which we levy duty on incoming flights to the UK, departing from the existing practice under EU rules. That might be a possibility, but it would naturally have an impact on revenues. It would be helpful, again, if the Government indicated how the revenue—the £3.1 billion to which the Minister referred—will be protected.
Mel Stride
I need not repeat my earlier remarks about the reviews we already carry out, and I reiterate the point that the new clause, as worded, would implement a review of the possible impact of the taxation we are considering before such taxation had come into effect, which as an exercise is possibly not that valuable. Of course, we always keep all taxes under review. The hon. Lady talked about seeking beneficial behavioural change through mechanisms other than APD, for example. I am happy to receive any representations that she might make in that vein.
The hon. Lady mentioned her colleague, the hon. Member for Luton North, and the impact of APD on passengers who require a long-haul flight to visit relatives. I will certainly get back to her on that when I return to the Treasury. She also mentioned competition between different airports following the devolution of APD. Scotland will in due course bring in its own form of ADT. She also referred to the Northern Ireland situation. It will be for each of those tax jurisdictions to start to take whatever measures they think are appropriate to ensure that their particular airports and passengers are not disadvantaged. I suspect that, as with competing tax rates, the dynamics will probably be for those tax rates to come down, as a result of the competitive effect or the fact that there is a devolved Government. I commend the clause to the Committee.
Question put and agreed to.
Clause 43 accordingly ordered to stand part of the Bill.
Clause 44
VED: rates for light passenger vehicles, light goods vehicles, motorcycles etc
Question proposed, That the clause stand part of the Bill.
Anneliese Dodds
The Opposition have received a submission that it is worth asking a question about. It is about the specific case of taxis that are zero-emission capable. As I understand it, they will be exempt from the VED supplement from 1 April 2019, but not until then. There is the complication that taxis are classified as passenger cars because they are built to carry passengers, rather than as commercial vehicles, although in practice they are not really operating as commercial vehicles, which means that at the moment they are subject to the VED standard rates.
As those of us who have done any casework on this will know, taxi drivers need to purchase their car for a long period and there are complicated financing arrangements. In many areas we are keen to promote zero-emission taxis, or taxis that will be capable of transferring to zero or low-emission bases in future. It would be helpful to hear from the Minister whether some further calibration could be done on this measure, so as not to choke off the development of zero-emission capable taxis. I thought the submission was quite interesting in that regard.
Mel Stride
I thank the hon. Lady for her question about taxis. We will publish a consultation this spring, which will clarify who will and will not be eligible for the exemption and address the issues she has raised.
Question put and agreed to.
Clause 44 accordingly ordered to stand part of the Bill.
Clause 45
Tobacco products duty: rates
Question proposed, That the clause stand part of the Bill.
The Chair
With this it will be convenient to discuss the following:
New clause 17—Review of changes to rates of duty on tobacco products—
“(1) Within twelve months of the passing of this Act, the Chancellor of the Exchequer must review the effects of the changes made by section 45 to rates of excise duty on tobacco products and the Minimum Excise Tax on cigarettes.
(2) The review under this section must consider—
(a) the effect of the changes on smoking cessation, and
(b) the effect on revenue of the changes in each financial year until 2027-28.
(3) The Chancellor of the Exchequer must lay before the House of Commons the report of the review under this section as soon as practicable after its completion.”
This new clause provides for a review of the effect of changes to duty on tobacco products on smoking cessation and on revenue for each financial year until 2027-28.
Mel Stride
Clause 45 implements changes announced at the autumn Budget 2017 concerning tobacco duty rates. The duty charged on all tobacco products will rise in line with the tobacco duty escalator, with an additional 1% rise for hand-rolled tobacco. Smoking rates in the UK are falling, but they are still too high. Just under 16% of adults are now smokers. We have ambitious plans to reduce that still further, as set out by the Department of Health and Social Care in its tobacco control plan, which includes a commitment to continue the policy of maintaining high duty rates for tobacco products in order to improve public health.
The UK now has comprehensive tobacco control legislation that is the envy of the world, but smoking is still the single largest cause of preventable illness and premature death in the UK—it accounts for around 100,000 deaths per year and kills about half of all long-term users. According to Action on Smoking and Health, smoking costs society almost £14 billion a year in England, including £2 billion in costs to the NHS for treating diseases caused by smoking.
In the autumn Budget, my right hon. Friend the Chancellor of the Exchequer announced that the Government are committed to maintaining the tobacco duty escalator until the end of this Parliament. The clause therefore specifies that the duty charged on all tobacco products will rise by 2% above RPI—retail prices index—inflation. In addition, duty on hand-rolled tobacco will rise by an additional 1% this year.
Anneliese Dodds
Labour said that we would prioritise having a special programme focused on young smokers. The point I am trying to make is that the Minister said this was part of a suite of measures, but he only mentioned public health information campaigns in addition, from what I can remember—I will check Hansard to see whether that is correct. The evidence strongly suggests that if we just increase duty, as we are doing now, without that suite of extra measures, we are not going to see the number of people stopping smoking that we really need. We have also seen cuts in trading services, which potentially is enabling more young people to access cigarettes than should be the case. For all those reasons, we urge the Government to review the effectiveness of this measure on overall smoking cessation rates, and we will continue to push for that review.
Mel Stride
The hon. Lady raised the issue of the potential substitution effect in individuals trying to avoid the priced-in tax on cigarettes by purchasing illegal cigarettes, which might increase the amount of illegal trade. I can tell her that tacking illicit tobacco is a key priority for the Government. Since 2000 the UK has adopted a strategic approach, with a wide range of policy and operational responses, in collaboration with other enforcement agencies in the UK and overseas. That effort has achieved a long-term reducing trend in the illicit tobacco market, despite duty rates increasing substantially over the same period. The percentage tax gap for cigarettes was reduced from 22% to 15% and for hand-rolling tobacco from 61% to 28%, so there appears to be some evidence that the substitution effect, or the increase in illicit tobacco coming into the country, is not quite as sensitive to some of the tax rises as one might instinctively imagine.
The hon. Lady asked what other measures the Government are engaged in to try to reduce smoking. As I have said, we are committed to reducing the prevalence of smoking through our tobacco control delivery plan 2017 to 2022, which also provides the framework for robust and ongoing policy evaluation. The plan sets out ambitious objectives to reduce smoking prevalence, including reducing the number of 15-year-olds who regularly smoke from 8% to 3% or less, reducing smoking among adults in England from 15.5% to 12% or less, reducing the inequality gap in smoking prevalence between those in routine and manual occupations and the general population—that touches on her point about the potentially regressive nature of tobacco tax—and reducing the prevalence of smoking in pregnancy from 10.5% to 6% or less.
We will of course continue to keep those measures under constant review. In fact, tobacco and smoking is one of the areas of public policy on which Governments of all colours have placed particular emphasis. There is a huge amount of scrutiny in that area and we will continue in that vein.
Question put and agreed to.
Clause 45 accordingly ordered to stand part of the Bill.
Clause 46
Power to enter premises and inspect goods
Peter Dowd
I beg to move amendment 60, in clause 46, page 40, line 18, at end insert—
“(9A) The powers under subsections (1) to (6) of this section are not available in any case where—
(a) information has been provided on oath by an officer in accordance with section 161A(1) of the Customs and Excise Management Act 1979 (power to enter premises: search warrant) and a justice of the peace has not issued a warrant in consequence, or
(b) an officer could reasonably have been expected to seek a warrant in accordance with the provisions of that section of that Act.”
This amendment provides that the powers to enter premises and search goods may not be exercised in cases where a warrant to search premises in relation to goods subject to forfeiture has been sought and refused or where such a warrant could reasonably be sought.
Mel Stride
I thank the hon. Gentleman for his contribution and observations. Clause 46, as he pointed out, extends HMRC’s existing powers, allowing it to examine goods thoroughly away from ports, airports and other approved places that are under customs control. The power is expected to be exercised mainly in situations in which goods have been mis-declared at import and thus the correct amount of duty has not been paid.
Under their current legislative powers, HMRC officers working inland and post clearance are not permitted to examine and take account of customs goods; that includes opening, marking, weighing, loading and unloading them. Under section 24 of the Finance Act 1994, a customs officer has the power to enter the premises of a business that contains goods subject to customs duty, and to inspect those goods. That means that if there is reasonable cause to think that there has been a violation of customs law, an officer is only allowed to pick up and inspect goods visible at those premises. Today, HMRC officers often investigate sophisticated frauds involving customs goods, the majority of which are at inland premises and not within the confines of approved places such as ports and airports. It is therefore essential that officers are empowered not only to enter and inspect, but to examine and take account of goods.
The changes made by clause 46 will extend officers’ powers to examine goods thoroughly post clearance, inland, where a customs offence is suspected. The power covers all customs offences, but current operational experience suggests it will be largely used where goods have been mis-declared at import. The clause will enable officers to examine and take account of goods found on premises. It will allow the officer to mark, move, open or unpack goods or containers, or require a relevant person to provide assistance that is reasonable for the purpose of examining the goods. As the search power is for the purpose of searching containers, boxes and so on and not the premises, a warrant is not needed.
Amendment 60 seeks to deny HMRC those powers in cases where a search warrant has been sought and refused, or where a warrant could reasonably be sought. The purpose of entry under section 24 will be to carry out compliance checks, which will include examining goods to ensure they comply with any paperwork. That cannot be done effectively under the current power, because it only allows the inspection of goods.
Section 24 is not—and is not intended to be—a substitute for seeking a warrant. A warrant will be used when there is a need to enter and search a building or place where there are reasonable grounds to suspect the presence of forfeitable goods. A warrant also grants the power to force open doors and windows and open any obstruction. Unlike section 24, warrants can be used outside of business hours. If a warrant to enter and search a building or place was required and refused, the amendment could not be used to gain access.
We are amending these customs powers to ensure they work effectively, not as a means of unduly expanding customs power. At the moment, officers can merely pick up goods that are immediately visible to them, but on some occasions that is not enough. For example, to ensure that the contents of a box correspond to the relevant paperwork, it is necessary to be able to look inside the box and examine the goods. Under section 24, all visits are strictly regulated. They must be carried out during business hours, and most visits will be pre-booked, routine compliance visits. Officers currently receive training in how to conduct visits, which includes the legal basis and powers available to them. In addition, stringent rules, safeguards and guidance place limitations on an officer’s powers, ensuring that they are used proportionately and only where necessary. That will be updated when the measure is introduced.
The measure will extend the powers available to officers when visiting premises where there are customs goods. It will allow them to take account and examine goods thoroughly, making operational duties more effective. I therefore commend the clause to the Committee.
Peter Dowd
We take the Minister’s reassurances and explanation at face value. I am sure he will appreciate that, from that our side, the civil liberties issues are absolutely crucial. We will not be pressing the amendment to a vote but, given the civil liberties issues, we will be keeping a very close watch on the matter. I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 46 ordered to stand part of the Bill.
Clause 47 ordered to stand part of the Bill.
Clause 48
CO2 emissions figures etc
Mel Stride
Clause 48 confirms that for vehicle excise duty and company car tax purposes, the data for a car’s CO2 emissions will continue to be based on the new European driving cycle, or NEDC. As the hon. Gentleman says, NEDC, which is the current testing methodology for producing definitive car emissions values, is being replaced by a new lab test, known as the worldwide harmonised light vehicles test procedure, or WLTP, which is designed to be more representative of normal driving behaviour. For example, it contains more accelerating/decelerating and includes variable-speed driving. At the autumn Budget, it was announced that the Government will transition the tax system to using these improved readings from April 2020. The announcement was made now to give notice to drivers and the industry.
The Government will discuss with the industry next year whether the current CO2 band thresholds in VED and CCT are appropriate. In the interim, this clause clarifies that vehicle taxes will continue to use NEDC values until April 2020. The hon. Member for Bootle asked why we could not use the real-world driving emissions test in the interim. It is used as a complement to lab tests, to check whether cars produce similar emission values on the road as in the laboratory. We could not use the RDE as the primary basis for saving tax bands, because that is not how these tests work; they would not allow us to compare two cars on a like-for-like basis. The changes made by the clause will ensure that drivers’ tax rates are unaffected for vehicle excise duty, company car tax and fuel benefit charges.
Let me turn to amendment 61, which proposes that the Chancellor review the appropriateness of the NEDC regime prior to the clause commencing, and the effects of the change to the WLTP on the Government’s targets for reducing carbon dioxide emissions and on revenue.
I appreciate that Opposition Members want to ensure that the Government continually review the appropriateness of their policies for reducing carbon emissions. However, delaying the commencement of the clause to review the appropriateness of NEDC would be inappropriate, as it would mean that the Driver and Vehicle Licensing Agency and HMRC would not have clarity about which emissions figures they should use to set tax rates for vehicles. For clarity, I reiterate that NEDC is the established methodology for calculating CO2 values.
Clause 48 is designed to clarify the law. Since September, manufacturers seeking type approvals for new cars have been required to show two different CO2 readings for their vehicles—one produced under the new WLTP test and another consistent with the current NEDC test. We cannot use both numbers for tax purposes. Therefore, to avoid confusion, the clause makes it clear that the DVLA and HMRC will continue to assign tax bands using the current NEDC procedure.
The Government will transition the tax system to the new WLTP test from April 2020. That transition period gives the Government time to consider, in consultation with industry, what the effects of the new system will be and whether the band thresholds remain appropriate in the context of recorded WLTP results. We are actively discussing that topic with industry, and we will announce our decisions at the Budget in the usual way. On that basis, I believe that the amendment is unnecessary, and I ask the hon. Member for Bootle to withdraw it.
Peter Dowd
Again, I appreciate what the Minister has said about keeping this under review, and about the 2020 date. We will keep looking closely at this issue, but on that basis, I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 48 ordered to stand part of the Bill.
Clauses 49 and 50 ordered to stand part of the Bill.
Mel Stride
As is traditional on such occasions, I will say a few words about the Committee. I thank everybody who has participated in what has been a full and robust debate at every stage. I particularly thank the Opposition Front Benchers for their contributions and the good humour and levity that has been on display at various points in our proceedings.
I thank the hon. Member for Bootle for his frequent biblical and literary allusions, his classical quotations—a few of which I actually understood, but they were impressive none the less. We concede on this side that there were no Marxist mumblings, for which we were very grateful. At one point, he compared the Labour party to John the Baptist, but then accepted that that did not end very well. We were grateful for his contributions.
I thank the hon. Member for Oxford East for her forensic examination of all issues. It is agreed by popular acclaim, and by Members on both sides of the Committee, that that was impressive to say the least. When serving with her on a particularly memorable Statutory Instrument Committee, I was horrified to discover that she had digested in microscopic detail not only the treaty that we were discussing, but its forerunner as well, and she was able to draw on that experience in our exchanges.
I thank the hon. Member for Aberdeen North, who is not in her place, for her thoughtful contributions and the gentle but firm and persistent way in which she pursued the points that mattered to her.
It is fair to say that we have spent much time together—especially today, what with Treasury questions and the Committee. We have statutory instruments to look forward to, and we will also be engaged in considering the customs Bill. I hope that we do not forget sharing these golden moments. When we retire and Parliament disappears into the dim distance, perhaps we will have some kind of revival band and go out on the road to share our highlights of these occasions with the general public, like a band of ancient rockers who just keep going. Of course, the highlight of all highlights will be the story about the dead dog and the bicycle, which will never fade from our memories.
More seriously, Mr Owen, I thank you and Sir Roger very much for having chaired the Committee with such good humour, patience and impartiality; of course, we take that for granted. I thank the Whips as well. Having served as a Whip, I know how hard they work. They do not often receive much glory, but we are grateful to them for having kept things running so smoothly that the Committee is finishing early.
I thank Back Benchers on both sides of the room for their contributions—some were very good contributions, and there was a wealth of contributions from Members on our side of the Committee—which were gratefully received. I thank the Committee Clerks, Hansard and the Doorkeepers for their good service. I also thank all those who provided evidence to the Committee earlier on.
Almost last but certainly not least, I thank my officials at HMRC and at the Treasury: Dom Curran, Rachel Crade, Harry Pearse, George Houghton and Hugo Popplewell from my private office, all of whom have served and looked after me with great efforts, and to great effect. Finally, I thank parliamentary counsel, with whom I have struggled on this third Finance Bill of the last 12 months. Until we meet again, Mr Owen, thank you very much.
Peter Dowd
I would like to mirror everything that the Minister has said. It is not goodbye but au revoir, as far as I can gather. I thank you, Mr Owen, all Members who have participated, the Minister for his assiduous answers to questions—some of which I never asked—and all my colleagues. I also want to thank my staff and my colleagues’ staff, who have worked hard behind the scenes, while we have taken the credit.