Taxation (Cross-border Trade) Bill (First sitting)

Nicholas Dakin Excerpts

Tuesday 23rd January 2018 Public Bill Committees

[Emma Hardy (Kingston upon Hull West and Hessle) (Lab)]

Good morning—it is nice to see you all here. Earlier this week, the director general of the CBI said that the UK should seek to negotiate a comprehensive customs union with the EU. Having listened to all the complications that you have just outlined, would you support that proposal?

William Bain: The BRC is less concerned at this stage with the means of delivering frictionless and tariff-free trade with the EU, but what we do see is the overwhelming priority of the Government to focus on securing that. Our biggest market is the European Union, and it is likely to remain so for many decades to come.

To put it into perspective, our members say that 79% of food imports come from the European Union. That shows the sensitivity of sourcing contracts and supply contracts. For example, some retailers offer ready meals with cheddar from the Republic of Ireland in them, so it is used as an ingredient in products. If we do not get a deal that ensures tariff-free trade with the EU, the tariff on Irish cheddar is 44.5%. On beef from Ireland, it is 38.9%. On Dutch tomatoes, it is nearly 29%. That will have a serious impact on consumers, which is why we have said that, above all, by whatever mechanism they achieve it, the Government should aim for frictionless trade and zero-tariff trade with the European Union. Otherwise, consumers will face a big hit to their living standards.

Anastassia Beliakova: The same principle of having as little friction as possible in future trade with the EU is, of course, very critical for our members. On the specific question of the customs union, we are currently surveying our members—literally as we speak, or at least in the next few days—so, as and when those results are available, I will be very happy to share them with the Committee.

Peter MacSwiney: All the efforts over the last few years have been to remove bureaucracy. SITPRO made it its mission in life to try and simplify trade, and now we are introducing an inhibition to trade in the form of a customs entry. Taking what William said, of course duty plays a part, but even if there is a duty-free element you still have to do a customs entry, and it is hard to see where the benefit of that is. So, I would say that some form of customs union would be useful and beneficial.

Gordon Tutt: From a systems point of view—obviously, we are a vested interest here—the more declarations that are done, the more money for our members. That is why we take a very neutral position on this. But clearly, as my colleagues have said, there are a whole range of issues here, particularly in the movement of goods, which traditionally posed no threat. That goes in both directions—both into the UK and leaving the UK. We need to find a mechanism to allow those goods to move freely, without hindrance and without additional cost to trade.

[Nic Dakin (Scunthorpe) (Lab)]

Q Can I follow up Kirsty Blackman’s question about statutory instruments? Is it helpful or unhelpful to business confidence, including the confidence of your members, that so much of the detail—some people estimate that there will need to be about 1,500 statutory instruments—is left to secondary legislation? Is that helpful or unhelpful to business confidence?

Gordon Tutt: Having experienced some of the European legislation in recent years, particularly the way the UCC was written, I do not see that the current UK proposal is any more onerous than what we have seen coming out of Brussels—in fact, in some ways it is a lot clearer. And we do have the confidence here in the UK; again, I can only speak on behalf of my members. We have a very good rapport with customs and with other Government agencies, in that we can actually discuss the detail and get clear understanding, and intervention where it is necessary. So, I am not unduly concerned with what is being proposed.

Peter MacSwiney: I think of the point we made earlier. As Gordon has just said, the engagement is good but the timescales are not.

William Bain: The key point, Mr Dakin, is that obviously companies want to know what the impact on them and the wider industry will be. Having legislation with an impact assessment is very helpful, in being able to explore the pinch points—whether on customs, VAT or the staffing implications. The retail industry wants to see this legislation as early as possible, and to engage with Government about it. We know that this legislation is not amendable in this House or in the House of Lords, so it is even more important that industry has a very strong engagement with it at the earliest opportunity.

[Nic Dakin]

Q What role could trade associations—as in chambers of commerce—play in facilitating overall custom co-ordination, both with the EU and more broadly? What are the opportunities?

Anastassia Beliakova: We already provide a lot of advice to businesses when it comes to trade. That is due to our role in trade facilitation with certificates of origin, but we also help with any queries that companies have regarding compliance with origin or local regulations in other markets. We also support businesses with any questions regarding taxation.

We hear from our members that they want to know what they should be preparing for. At the moment, the kind of guidance that we can provide is not prescriptive. It is more, “These are the various areas that you could consider”. One of them, of course, is VAT; another is origin declaration; and a third one is various rules of origin and existing trade agreements that the UK has by its membership of the EU. But because businesses don’t know what they don’t know, and we are working between assuming that everything will continue as it is and anticipating further changes, we would like to work even more closely with HMRC and Government more widely to provide support as and when changes become clear.

Peter MacSwiney: The current infrastructure is good. The Joint Customs Consultative Committee and the sub-groups are a decent forum. We are all members of one or more of those groups, and that works pretty well. I would like to see more engagement from the Border Force with the end user. It seems to be more focused on intergovernmental negotiations and discussions, rather than coming out to the wider trade.

Gordon Tutt: Most trade associations attending the JCCC are also, through either their own trade associations or affiliate trade associations, part of the trade contact group that discusses arrangements with TAXUD—the taxation and customs union directorate-general—for customs legislation in the EU. We are working closely with our European trade associations to try to ensure that there is a commonality in approach, to avoid unnecessary disruption to trade both from the UK and from the EU.

William Bain: The practical benefit is the experience across different industries and sectors in dealing with the movement of goods and services and being able to identify the potential difficulties with compliance.

One further point on the movement of goods is that at the moment there are 30 separate Government agencies that deal with this process. We are not expecting the Government to rationalise those or shuffle them in some way, but we would urge that the level of integration and co-operation between them should increase as we move towards Brexit day and, if there is a transitional period, any expiry of it, because dealing with 30 separate agencies is onerous for business.

--- Later in debate ---

[The Chair]

We have a little over 10 minutes to go and three people to ask any further questions.

[Nic Dakin]

Q In sectors like steel that operate pretty much in a free market without tariffs, trade defence instruments are very important in ensuring fair trade. What do you think about the UK’s proposed system of public and economic interest tests? How do they compare with elsewhere? To me, at first glance, they seem more cumbersome than what is already there, and therefore there might be higher risk, but I am interested in your views.

Sue Davies: We think it absolutely critical that we have the economic interest test. We completely recognise that there will be cases where we need to consider whether we put remedies in place, but it is really important that when the decision is made to do that, there has also been a full assessment of what the impact would be ultimately on the end consumers. As some of the products or sectors that have involved remedies up to now have often been inputs or intermediaries into other sectors, which will then feed through to consumers, we need to ensure that we are looking at what the short-term impacts could be while also thinking longer term. We were really pleased to see the economic impact test referred to. We think it could be more explicit about the public interest side and the need for a consumer impact assessment, but otherwise we could be going down an unnecessarily protectionist route that could have consequences we are not sure about, because remedies can remain in place for quite a while.

Correspondingly, I appreciate that you are not considering the Trade Bill, but we think that the composition of the Trade Remedies Authority, which will be included in the Trade Bill, and the way that it operates, are also critical, so that we ensure it is transparent and includes consumer interest—for example, consumer representation on its board—so that when it is looking at the need for remedies we all understand exactly how it has traded off those different interests. But we think it would be simplistic and potentially damaging to consumers if we do not have the test in the Bill.

[Nic Dakin]

Q There are four tests here—four different checks. That seems to me to be potentially over-checking. There needs to be a test, but do there need to be four tests?

Sue Davies: We have the economic significance of affected industries and consumers and the likely impact on affected industries and consumers, which enable a wider public policy consideration. For example, there have been remedies in everything from salmon to solar panels in the past. We have got the likely impact on particular geographical areas, which is about regional aspects, and the likely consequences on the competitive environment. So there is a wider competition check, and that is where it will be important to make sure that the Competition and Markets Authority is consulted.

We think the criteria are right. It is how it is done. At the moment it says, “They can take account of the following so far as relevant,” whereas we think it is really important that there is a transparent impact assessment, so we think the wording there could be clearer about how it is doing that modelling in assessing the impact. We felt that the criteria seemed sensible.

Barbara Scott: What also needs to be in there is perhaps timings. At the moment, when we have trade remedies under the EU legislation, it takes an inordinate amount of time to put them in place. If we can have something in our legislation that is timeframed and more clear, with a shorter timeframe, that will be a big plus.

[Kirsty Blackman]

Q My question is specifically for Barbara Scott on the issue of HMRC resourcing. Is the authorised economic operator system working as it should, and will it work post Brexit? Is there enough focus within Border Force on customs issues, or does that need to change as well?

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.