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

Peter Dowd Excerpts

Tuesday 23rd January 2018 Public Bill Committees

[The Chair]

Thank you very much. Can we start with Peter Dowd?

[Peter Dowd (Bootle) (Lab)]

Q This is a broad question in relation to the concerns that your members may have expressed—any of you can pick this up—on the capacity of Her Majesty’s Revenue and Customs and UK Border Force to absorb changes to the customs arrangements.

Anastassia Beliakova: An issue that our members have raised—this was something that we heard from members even before the whole Brexit question arose—is staffing capacity and in particular the ability to help businesses with day-to-day questions that they may have. That is particularly important when businesses apply for various trade facilitations, such as inward processing relief, or for various forms of certification, such as to be an authorised economic operator. There used to be a helpline at HMRC that is no longer available. Businesses would find it helpful if that were reintroduced. Another concern they have raised is that there is an evidenced shortage of staff dedicated to goods checks. That has been ongoing for a number of years, and questions are being asked about whether there is sufficient resource and focus allocated to goods checks and support. Those questions will become much more acute with all the coming changes.

Peter MacSwiney: There are always questions raised about the Customs Declaration Service, which is the replacement for the customs handling of import and export freight programme. I have said many times that I still believe that between CDS and CHIEF, the computer system will have sufficient capacity to handle the declarations. To pick up on Anastassia’s point, to enable goods to move freely through the border post-Brexit we will have to rely on advance information and bulk entries done with some form of simplified procedure. As far as I can see, Border Force is not engaging very much with trade. What it wants the processes to be and what data elements it wants are still unclear. Customs seems to be getting bogged down with the authorisation process. All of that could do with being streamlined.

Gordon Tutt: Our association members have customers who cover a wide range of different trade sectors. One of the common problems we have is getting approvals processed quickly. That is particularly worrying. One of the recent changes that has been mooted is that before a trader can have their approval granted, they will have to have their software contracts in place. Most traders would not want to go to the cost and trouble of organising and paying a software contract if they did not know they would get the approval. It puts the cart before the horse. Having said that, we are expecting to have discussions with HMRC through the Joint Customs Consultative Committee sub-group on how we can best streamline the whole approval process.

William Bain: One of the key things that our members have said to us is that the last big change they were asked to adjust to, which was the introduction of the Union customs code, took companies three years to get ready for. There is good engagement with HMRC, but there is concern about the capacity of the new CDS system to handle perhaps 255 million customs declarations a year, depending on the kind of deal that is or is not negotiated in the next few months.

[Peter Dowd]

Q I have one more question, if I may. What is your satisfaction level, on a level between one and 10, or your confidence that the Government will fully engage prior to making customs-related regulations once the outcome of the Brexit negotiations is clear? How confident are you that the lines of communication are actually in place?

Peter MacSwiney: The lines of communication are in place. I do not think there is enough time to have any real meaningful discussions. I think the original view from the trade was that a five-year transitional period would be a minimum. Even if we get two years, it is difficult to see what we could achieve in that timeframe.

Gordon Tutt: From a technical perspective, we always work on a general rule that it takes two years from the time that we have the full technical specifications to the time we can actually implement. That gives you an idea of where we are at the moment. We are working closely with HMRC’s technical teams on the CDS development. It is not an easy task. We are looking at a replacement to a service and a system that both the Government and the trade are highly dependent on. Clearly, we want to make sure that we get that absolutely right. We believe that Customs has taken some very sensible approaches, but we probably need to further mitigate the risk by enabling CHIEF to continue for a longer period, thereby allowing the transition from the current service to CDS over a longer period of time.

[Chris Davies (Brecon and Radnorshire) (Con)]

Q Would you not agree that the essence of the Bill is as an enabling Bill for when we leave the EU? All the Bill is trying to do is put arrangements in place. Would you not agree that the whole framework and the essence of the Bill is correct in that respect?

Gordon Tutt: First, yes, you are right—it is an enabling Bill. It is very good that much of it is already contained in the Union customs code, so it actually provides a really good basis for future UK legislation. It also avoids an awful lot of new requirements on trade, particularly on our side of the systems, because it adopts much of the concepts of the technology and the data that are already maintained in the UCC legislation.

Anastassia Beliakova: To add to that, yes, of course it is an enabling Bill. We and our members welcome the fact that it aims to replicate the UCC as much as possible because, as has already been mentioned, a lot of effort and time have been put into adhering to the new aspects of the Union customs code. However, what we have noticed is that some elements of the code have not been addressed in the Bill.

For instance on origin, the means of defining origin have been set out. However, origin declaration has not been mentioned. That is just as important, if not more so in some aspects, than rules of origin, when it comes to international trade. There are various means in which businesses now declare origin. Sometimes it is through sub-certification; sometimes it is through certificates of origin. We published a paper last week—there are copies available for the Committee—that shows that businesses are worried about compliance issues after Brexit. They want to know that there will be certainty going forward and support for them with that. We would view it as quite important to have at least one clause in primary legislation ensuring continuity in the means of origin declaration, which is further elaborated in secondary legislation.

--- Later in debate ---

[Mike Hill (Hartlepool) (Lab)]

Q You have already answered the question I was going to ask; I represent the port town of Hartlepool. A quick question: do you have an estimate of how many retail businesses will be drawn into customs arrangements for the first time?

Anastassia Beliakova: I believe the figure has been cited as being 130,000 businesses who are dealing with customs declarations for the first time—that is, those estimated to be currently trading just with the EU. Of course, there will be businesses of different sizes. If you are a very large business, you will be working directly with the new system’s CDS and then you need time to integrate into that. If you are a smaller business, you are dependent on the provisions that your intermediaries, your freight forwarders, have put in place. A whole host of businesses will be affected that depend on a number of different bodies and Government putting the right measures in place with sufficient notice.

[Peter Dowd]

Q Just a very quick one. There are quite wide-ranging issues here today. How about the actual hard costs for your various organisations and the companies you represent of the introduction of the new processes, new liaison arrangements and new engagement processes?

Anastassia Beliakova: It would be very difficult to assess, because there are a number of factors. One is just the cost of a customs declaration. That will perhaps be more challenging for a smaller business that is trading ad hoc. If you are a large business trading at big volumes, the cost will be quite marginal for you.

But then there are other considerations. There is the time issue. Are you going to factor in any potential delays? If so, does that mean you have to provide for more warehousing facilities? Does that mean you have to keep an inventory? All those things are very difficult to quantify for a median figure, but they are things we know our members are starting to consider—some quite actively.

William Bain: If you move away from a just-in-time supply and sourcing mechanism, you have to look at stockpiling. That means you have to look at extra warehousing capacity. You have to change IT systems in terms of VAT and customs. All that comes at a cost for businesses, at a time in which we see the pressures in terms of footfall and retail spending.

Peter MacSwiney: As a software supplier, we support about 350 companies in probably 800 locations. We estimate that making the necessary changes, just to roll out our system, is going to cost in excess of £250,000 over the next two years. I do not know whether that is any help to you.

Gordon Tutt: One of the other issues is underwritten by the fact that some of the changes being introduced to the software systems would have been required anyway as part of the requirements to meet the UCC—new data set, new message types, more engagement in terms of electronic transactions. In addition, we are already working on CHIEF replacement, so the costs of that are already borne as part of the decision to replace CHIEF. As high as these costs are for some of the software suppliers and some of the trade sector, some of that cost would have already existed had we decided to remain within the EU.

[Kirsty Blackman]

Q Customs and immigration forces were put together in the Border Force. Given the Government’s political priority around immigration, do you feel that there is a resourcing issue with customs staff or do you feel that it is a structural issue and that decoupling customs and immigration would fix that?

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.

--- Later in debate ---

[Chris Davies]

We will leave it there. Thank you very much.

[Peter Dowd]

Q Welcome, Ms Scott. As you said, your business has repeatedly asked for the new legislation to replicate as far as possible the current customs regulations, and you were disappointed to find that that is not the case. You also said that the Bill looks like an “antiquated” piece of legislation, rather than a modern law for a modern and forward-thinking new customs administration. Would you like to put a bit of meat on the bones of that?

Barbara Scott: Sure. I presume that Jeremey has already mentioned the fact that the new draft Bill moves away from the Union customs code. We had been told that the Union customs code would be the way forward for UK legislation, so we were surprised to see the new draft Bill presented in this way. If it is to be changed—personally, I do not see how we can change something in such a short period, given that the Union customs code took 10 years to put in place—how can we present something new that is a strong and proper piece of legislation? We will not be able to do that in the time available, which is all the more reason for picking up the Union customs code and tweaking it.

If we are going to change things, why produce something that to me looks like going back to the legislation that we had? Perhaps those drafting the Bill started by looking at legislation before the Union customs code, or even the Community customs code, because a lot of the wording is not modern. Perhaps that is the way that this has always been done, but it seems to me that we could at least use plain English that people understand, and present it in a clearer way. The wording of the Union customs code is sometimes a bit odd, but it is written in clear English that most traders and non-lawyers can understand. If we are to change this legislation, it would have been nice to have seen something a lot more fitting for today. A totally new customs regime is coming in, and if it is to be different, this would have been an opportunity to make it a shining star for Britain.

[Peter Dowd]

Q Mr White, paragraphs 3.4 and 3.5 of evidence from the Chartered Institute of Taxation state that

“new UK legislation is needed to create a separate UK Customs regime.”

I think everyone acknowledges that.

“However, we believe the Government’s approach, of providing Ministers with exceptional (yet apparently permanent) powers to create a Customs regime from scratch, with minimum parliamentary involvement or scrutiny, in a very short space of time, is unnecessary.”

Why? What is wrong with that? The Financial Secretary is a very reasonable person, and I am sure that nobody would want to pull the wool over anybody’s eyes. What is the problem with that idea?

Jeremy White: Parliamentary scrutiny will be excessively difficult. That is the problem. We are talking about how to get this amount of material recast and properly analysed, with time to debate anomalies, difficulties, or even the uncertainty of it all. There are risks to the Revenue as well, besides business cost. The Revenue might think that it has a proper charge, but the problem with customs machinery as something that is modified or recast is that often the customs debts themselves result from a time when goods were on duty suspension. That is where customs duties are in two parts. First, there is a charge in the thing, in rem, on importation, and then the goods are on duty suspension until there is a charge, in persona, against a person who is then liable for the debt.

In the time between those two events, the goods are subject to all this regulatory machinery. Uncertain or defective provisions that could be subject to litigation will affect the Revenue itself. We will say what we think the legislation is—it will have its explanatory notes and its public notices—but once you have let it go, it is up to the judges to decide what it means, and traders and advisers might come up with a clever, nuanced interpretation of the Bill and statutory instruments that was completely outside your intention. So avoid that uncertainty, that litigation and that cost simply by allowing the withdrawal Bill to incorporate the UCC—as we thought it would—and then enact just the sensible few amendments or modifications that are necessary of the UCC. As I say, I am arguing only for that, not for the whole body of the customs legislation, some of which it is probably best to recast, subject to compliance with EU and international obligations.

[Peter Dowd]

Q You have said:

“The explanatory notes to the Bill state that the new standalone regime will be ‘largely based on EU law’ and that it is intended that the customs regime ‘will continue to operate in much the same way as it does today’.”

I want to tease out a little more on that. Do you think that aspiration will be delivered by the Bill?

Jeremy White: Not with its current commencement provision, no.

[Peter Dowd]

Q Finally from me, in relation to the appeals process, you identify in paragraph 6.1 of your evidence:

“We are concerned that taxpayers’ rights in relation to an effective appeals process are retained. This Bill could be”—

you do not say “will be”—

“a backwards step in relation to an effective appeals process, because it affords such wide discretion to HMRC. We wish to see the adoption of clear unambiguous legal requirements for customs matters, which minimise commissioners’ discretion.”

Could you tease that out a bit more? That is in paragraph 6.1 of the Chartered Institute of Taxation’s evidence.

Jeremy White: A thorn in the flesh of the people who contributed to that section was clause 23, and in particular where certain results—particularly approvals—are treated as never having been granted if HMRC considers that approval would not have been granted if a deficiency was known at the time it was granted. That is just one example. There are a number of parts of the Bill where this construction is used whereby one authority—an administrative authority, a parliamentary authority or a Minister—considers that kind of discretion.

Yes, that is a useful construction in English for granting a power to make an instrument, but when it comes to affecting a trader’s relationship and whether they can be in business or not because they have got an authorisation, it should then be subject to the ordinary appeal to the simple, low-cost traders’ tribunal that we have learned to admire. All of the other authorisation-type decisions that HMRC could make are subject to appeal, and they are preserved properly by the Bill. The trouble is the Bill then adds in a few more, using a construction such as “considers” and “discretions”. It is bad enough now that sometimes we have to tell a client, “Sorry, you’re going to have to pay the money to go to the High Court and challenge the Ministers or HMRC on the basis of judicial review,” which is very expensive, discourages litigation and often discourages people from obtaining a remedy for their dispute.

This should not be controversial. It should be, “Yes. That is the right thing to do.” If we were able to add to a shopping list, we would say, “Can we please have all of the current disputes going on in the High Court in customs matters dealt with in a tribunal as well, please?” but that may be asking too much. If the scope of the Bill is wide enough for that and you could amend it to get that in, that would be good. We should not really have customs issues going to the High Court at all. They should all be dealt with in the first-tier tribunal tax chamber.

[Mark Menzies (Fylde) (Con)]

Q I would like to return to the point made by Helen Dennis on fair trade. Do you agree that it is very important that the Government have a wide remit within the scope of the Bill? Some of the current rules regarding EU regulations and tariffs are detrimental to fair trade. I will cite one example. Colombian coffee producers export low-value green coffee into the EU for the value to be added, usually in Germany and in some cases in Italy. Massive value is added here in the EU to the benefit of German manufacturers and large German brands, which therefore has huge detriment to the coffee producers back in Colombia. That is one example. There are many. Having a wide scope in the Bill will give the Government, in the fullness of time, the ability to make sure that free trade arrangements work as consumers in this country think they work, as opposed to how the EU has currently drawn them up.

Helen Dennis: A lot has been said about value addition and its potential post-Brexit. Our view is probably that the tariffs are not the key issue here. We already have duty-free, quota-free access for the least developed countries. If we take a country such as Colombia, or a GSP-plus country such as Bolivia, it is able to access the market with roasted coffee as well, duty free, but as I said before, with the free trade agreements, they may not all transition over necessarily. The biggest issue in terms of trade policy and development continues to be subsidy rather than EU tariffs. There are other issues, such as rules of origin or just getting the investment in roasting and processing facilities, that are more of an obstacle to moving into that kind of value-added activity.

Having said that, there is still scope for improving the tariffs. That goes back to the point about how we and the Government do that. Do we say that the Secretary of State has that power and authority, every three years or so, to revise the preference scheme to extend product coverage and potentially country coverage, and so on? Is that a conversation that happens through regulations under delegated powers, or is it something that a Committee of the House or another grouping, or Parliament in its entirety, would want to discuss, debate and have a vote on? There are lots of issues to unpack. I would certainly agree with the premise of your question, but some of the detail on that particular issue around coffee roasting does not impact as many countries as is sometimes talked about.