Peter Dowd
Main Page: Peter Dowd (Labour - Bootle)Department Debates - View all Peter Dowd's debates with the HM Treasury
(7 years, 6 months ago)
General CommitteesWe now have until 9.55 am for questions to the Minister. Although I may allow the shadow Minister some leeway, I remind hon. Members that questions should be brief. Subject to my discretion, it is open to a Member to ask related supplementary questions.
It is a pleasure to serve under your chairmanship, Mr Davies. I thank the hon. Member for North East Somerset for his presentation and the Minister for soldiering on with a cold or virus.
Reference was made to “Time to decide”. I think that was 23 June last year, actually. That is symptomatic, in that many hon. Members are exercised by the fact that the Government are in assent on this matter and for so long have been all at sea—I think mid-channel might be where they are. Of course, the European Scrutiny Committee showed its exasperation on this matter and wagged its finger at the Government for not being able to debate this in due time to tease out many of these very important issues. However, we are where we are.
I think that in the last Committee of this nature that I was at, I raised the fact that we are now, in the light of the referendum, just going through the motions; I think we are all going through the motions. Before the hon. Member for North East Somerset got up and spoke, I thought, rather quaintly, that some Members do not grasp that, but clearly everybody is now beginning to grasp it.
On a more positive note, we have before us a framework in relation to the operation of a VAT system that simplifies things by reducing bureaucracy and so on. No one can disagree with that, but within a couple of years we will not be a member of the EU. We will not be in the single market, I suspect, or in the customs union and all the other institutions, so the debate that we are having, to some degree or another, will all be pretty obsolete. Unless the Government can push this along in the next two years—so pretty sharpish—it is pretty pointless, but of course by that time we will, I assume, have gained complete sovereignty over our tax affairs. We will not be beholden to the Commission—presumably. We will be able to have whatever VAT rate we want—presumably. We will be able to be as flexible as we want with the rates—presumably. Conservative Members, who wear subsidiarity as an amulet, will even be able to get rid of the descriptive name of the tax and call it something other than VAT. I am sure that Members will have their own monikers and acronyms ready: WOT, the “We’re off” tax, or GOT, the get-out tax. I suspect that it will be the legacy of some Conservative Members to get rid of the last vestige of European colonialism. It will be similar to when the Irish painted their red postboxes green.
Anyway, VAT arrangements will still exist. The bottom line is that we need certain assurances that over the next two years there will not be more loss of tax from the VAT regime as a result of aggressive tax avoidance or evasion, especially given that Her Majesty’s Revenue and Customs’ ready reckoner indicates that a 1% change to the standard rate is worth about £5.7 billion. We really have to keep our eye on that. As we move into this transition, we have to keep our eye on that. We have to put markers down in relation to green tax as well. I am talking about commitments not to put too much tax on green issues. We do not want tax hikes by the back door.
On the tampon tax, my hon. Friend the Member for Dewsbury (Paula Sherriff) and many women’s groups have fought hard to abolish the tax, and we need to push on and get an unambiguous commitment from the Government.
Order. We will have a debate after the questions. I was prepared to give the hon. Gentleman some latitude but I ask him to crack on. I do not want him to use up his debate material during the questions. He might want to save it up for the debate.
I have raised the issues of tax avoidance and the green tax. On the optimism about getting the measure through, do we believe that we will be able to introduce it within the next two years? How long is a piece of string in relation to this matter? I hope that we do not have to hold our breath for too long.
I will make a general point and then respond with a bit more detail on fraud. I could not disagree more with the shadow Minister, although I thank him for his kind words on the state of my voice—I apologise to colleagues. It is certainly not the case that the vote to leave the European Union makes the debate “obsolete” and our participation in and engagement with the agenda pointless. For a start, there are UK businesses that have EU subsidiaries that will continue to be affected by the VAT rules within the EU, so it is important that the rules work well and are subject to sensible reform. The UK has always been a good influence for pragmatic reform in all such regards.
The precise arrangements under which we operate outside the EU will be subject, as we all know, to detailed and complex negotiation once article 50 has been triggered, but the EU will remain a major trading partner. We are leaving the EU; we are not leaving Europe. It will be an extremely important commercial relationship. The extent, therefore, to which the direction of travel on EU VAT rules aligns with our own priorities regarding simple and pragmatic regulation that is not burdensome to small businesses is, and will remain, extremely important.
Before we came into the debate, I asked my officials about how we will influence policy once we are outside the EU. The reality is that there are people who are not in the EU now who will influence and have a view about the EU’s VAT proposals. Equally, the OECD does a lot of work in that respect. There is a broad alignment of direction of travel between that organisation and the EU, and to that extent we are an important influence within the OECD. I reject the idea that the debate is obsolete and that our interest ceases once we are outside the EU. It remains the case that we need the rules to function sensibly and in a way that is as unburdensome as possible and addresses fraud, to which I now turn.
No system will be entirely fraud-free, and the concern for the UK and member states more generally about any move to a new system is that any change could introduce a new type of VAT fraud. In all aspects of the tax system, we have to consider where people might look to exploit the gap created by a change. In the UK, the level of VAT fraud attributable to criminal attacks on cross-border trade has fallen from a peak of between £2.5 billion and £3.5 billion in 2005-06 to between £500 million and £1 billion in 2014-15. The Commission has done various studies, and the one from 2013 estimates that such supplies amount to about €184 billion-worth of VAT for the UK alone, in terms of intra-EU supplies. Any change to the VAT rules on intra-EU supplies that would introduce a new type of fraud has, therefore, the potential for huge losses and it is important that we tread carefully. Within any proposal for a definitive VAT system, that will be an area for great scrutiny. We welcome the Commission’s engagement with us and its acceptance that member states will need to work very closely together to explore and evaluate.
I was trying to make a point about the obsolete nature of this debate. Would the Minister agree that there is a big difference between having a debate when a member of the European Union, with access to the single market and so on, and when outside the Union? We have been discussing it for several years; we are moving out and the EU know that, so this debate is to some extent pretty obsolete.
Without rerunning the referendum campaign, those issues were explored. I do not accept the basic premise, for the reasons I have given. Many businesses will continue to trade within the EU and have EU subsidiaries. The EU will remain a hugely significant trading partner and, as with all our trading partnerships around the world, we would look to bring UK influence to bear in a way that would support our own economic goals. There is a mutual benefit in having rules that work for everyone. We will also be a major trading partner for many EU members when we are outside the EU. Those are also important trading relationships. To that extent, there is mutual interest in making sure that we continue to move in a broad direction of travel and that we bring UK influence to bear.
When I was Europe Minister in the Department of Health, my experience was that the UK perspective on regulation, particularly with regard to the burden on business, was always felt to be a pragmatic and valuable contribution. I have no reason to think that that will change afterwards, albeit that relationships are clearly going to be in flux over the coming period of negotiation.
I take the Minister’s point, but the first sentence in the document is:
“This action plan sets out the pathway to the creation of a single EU VAT area.”
That is in the context of the single market. Does the Minister not agree that she is putting her head in the sand in the way that she is continuing to discuss this matter?
I am not sure I can add a great deal more. No, I do not have my head in the sand. I am being practical, as many of us now have to be. As Ministers, many of us are engaged on a day-to-day basis with the practicalities of how we move forward.
To reiterate, when we are outside the EU, it is probably going to remain our most important trading relationship. Therefore, it is vital that we continue to be good EU members while we are in, and that we continue to be engaged, practical and positive once we are out.
Just a final question from me. The Minister also did not answer the question from the hon. Member for Wycombe about the tampon tax. Although the Government have legislated to get rid of the tampon tax, depending on whether we are in or out of the Union, does the Minister believe that we will be able to implement a zero rate on the tampon tax before we leave the Union? What is the real possibility of that happening?
We have taken the House’s instructions very seriously. There was not just the debate on Report last year, to which I responded; this has been a live debate probably for my adult lifetime, and there have certainly been a lot of debates in the House in recent years, so we have been actively pursuing this issue. I recently detailed in a written answer some of the extensive engagement we have had at ministerial level and through letters at official level.
While we are in the EU, both sides continue to be bound by existing rights and obligations, and EU law allows for a reduced rate of not less than 5% to be applied to those products. We apply the lowest reduced rate, but we cannot apply a zero rate until there is an EU legislative change. We continue to push for it and to engage on the issue very actively, but the EU legislation can be initiated only by the Commission, and to date it has not provided the proposal that it was planning to bring forward before the EU membership referendum. We continue to push for the proposal, and we have tried to find ways of accelerating the prospects of a change, but it is likely that it will feature only as part of the VAT rates review that we anticipate will happen towards the end of this year. We will continue to keep the House updated, and no doubt we will return to the issue in the debates on this year’s Finance Bill.
I have a few things to add to our debate. First, I want to talk about the Scottish context, particularly on VAT for police and fire. It has previously been said that there cannot be changes to VAT for police and fire because of European regulations, and that there cannot be a change within what is classed as one member state.
In Scotland, our police and fire services are paying £35 million a year in VAT that we believe we should not be paying. We have made that case on a number of occasions, but the UK Government have refused to make changes to the system, despite allowing both the London Legacy Development Corporation and Highways England a derogation in terms of their VAT, which has not been the case for the Scottish police and fire services. If we are leaving the European Union, which it seems we are, will there be changes in that regard?
The other thing to consider is that if we go forward on the basis of what has been provided today—the document that has been put forward by the EU—there is a suggestion that there will be more flexibility for member states regarding what they can and cannot zero-rate. So if we continue with these regulations, would there be a possibility that the UK Government could more easily zero-rate the police and fire services than they have so far been willing to do? That is a specific point about the Scottish context.
I will also mention sanitary products. Again, this document mentions a couple of options for the future, option 1 and option 2, both of which involve changes around some of the derogations; option 2 in particular involves changes of that kind. We have this historical situation whereby the derogations were created when we first joined the European Union and they make little sense in today’s context. Some things that are luxury products—I consider them to be luxury products—currently have a derogation, and there are some things that I would consider essential products, such as sanitary products, that do not. I am not just talking about products for the absorption of blood but those for the absorption of urine or breast milk, which I have pressed the Minister on previously.
Those products should have a zero rate of VAT, because they are necessary. There are strange contextual issues around products used for the absorption of urine, but a number of people have got to pay VAT on them even though they are absolutely necessary products for them. It is really important that the Government consider this issue as we go forward.
I will put both those things in context. I disagree with the hon. Member for Bootle, who said that this debate is almost irrelevant; the opposite is actually true. What we need to do, as current members of the European Union, is ensure that decisions taken around VAT are as favourable as possible for the UK. We need to go into those negotiations and make our position clear, which is why I am taking the time today to speak about those things that I think are really important, so that the Minister is aware, when he goes into those negotiations, that I think they should be key priorities.
The wider context is that we will be outside the EU and we will have less of a seat at that table than we do currently. The Minister has mentioned the seat that we have around the OECD table, but when it comes to the single EU VAT area the likelihood is that it will take some time to create it and that we will lose our seat at the EU table before it actually comes into force. So we need to make our voice heard as clearly as possible right now, so that future regulations are positive for us.
One of the reasons I think this issue is really important is that if Members look at the top of page 8 of the papers we have been given they will see that the second paragraph says:
“better cooperation with international organisations and non-EU countries over VAT should make it possible to extend the EU system of administrative cooperation to non-EU countries, particularly to ensure effective taxation of e-commerce.”
I do not understand why people do not get this point, but does the hon. Lady agree that the Commission will not discuss anything in this whole debate about post-Brexit issues with us? It just will not do that. Does she accept that?
In the context of the article 50 negotiations that we will have, I think that the Commission will say to us, “No, we’re not very keen to discuss some of the ongoing future framework.” However, we are currently a member state. We have not yet triggered article 50 and while the article 50 negotiation period is happening, we have two years as an EU member state. The Commission does not have the ability to exclude us from negotiations about how things will develop in the future. So if the Government and the UK fail to do what I am suggesting, there will be a huge issue regarding how the UK gains access to things such as the single market in the future.
I repeat what I said earlier: this action plan—not a future action plan or one we would like—sets out the pathway to the creation of a single EU VAT area. Does the hon. Lady not understand that we are not going to be in a single EU VAT area?
We will not be in a single EU VAT area because we will not be an EU member state. However, the paragraph that I have just read out says that it should be
“possible to extend the EU system of administrative cooperation to non-EU countries, particularly to ensure effective taxation of e-commerce”,
so we will be involved as a third country. Given the way the EU does trade deals, it will look to ensure that there is as much equivalence and commonality as possible in a number of areas. We therefore need to make the case for the industries, sectors and products that we think are important. Ensuring that our voice is as loud as possible in these negotiations will benefit us as a country.
The likelihood is that the EU will look to include some commonality or equivalence in relation to VAT systems in a post-Brexit deal with the UK. The EU is a much bigger entity than the UK, so we need to think carefully about how the EU is currently structured and what it is currently doing to ensure that it is as favourable as possible for us when we become a third country and try to make a trade deal with it.
I thank hon. Members for their contributions. I particularly thank the hon. Member for Aberdeen North, who spoke for the Scottish National party, for her wide-ranging contribution. I note that she made a bid with regard to police and fire services to add to the Treasury’s £30 billion and counting of VAT bids. We have explored the issue of the VAT incurred as a result of the changed arrangements, so she will be familiar with the point that I am going to make. That issue was in the business case for the changed arrangements. The Scottish Government were warned repeatedly that that would be the result of the way that they restructured emergency services, so it is surprising that the SNP keeps raising the issue as if the change was somehow imposed from the outside. The Scottish Government were alerted at the time. Our position on that remains unchanged, but as I said, I will add it to the list of things for which people want to see relief, along with the others that she mentioned.
I agree with the hon. Lady more—I think we both perhaps disagree slightly with the shadow spokesman for the Labour party—on her point that it remains very much in our interests to continue to engage with this debate. I will not speculate or second-guess the outcome of our Government’s negotiations or where the EU Commission is going on this, but there is a mutual interest in smooth and competitive trading arrangements. European markets account for around half the UK’s overall trade and foreign investments; around 3.5 million jobs. We will therefore continue to engage extremely actively and constructively while we are in the EU. However, it remains the case that even once we are outside it, the EU VAT system is influential. It is in our interests to ensure, to the extent that we can, that it is aligned with OECD and other international work, to take up the point made by my hon. Friend the Member for Wycombe that this debate is wider than the EU.
We will remain engaged and there is mutual benefit, not just because of businesses that have EU subsidiaries. Because of the cross-border nature of trade, there is mutual advantage in making sure that arrangements make sense, both within and without the EU. I reject the counsel of despair from the Opposition Front Bench that there is no point in doing this—there is every point.
I am surprised the Minister has taken that view. It is a complete distortion. We are talking in the context of the document before us. This debate is specifically in relation to the document before us. It has taken years to get to this position. We are only two years from leaving the EU, and the idea that this has to do with post-Brexit negotiations is complete and utter tosh. Does the Minister agree that there is a difference between trying to saddle us, in relation to post-negotiation deals, with this and trying to deal with this specific issue? The two are completely different and the Minister should know that.
The Minister does know that, but the point I am making is that we are obviously in the EU until we are not. It continues to be in our interest to influence debate. I think I have engaged very directly with the shadow Minister’s point. The point I have been trying to make is that this is a broader challenge than just within the EU. The international direction of travel on VAT remains important. The extent to which, for example, better co-operation is enshrined within new systems will provide better information on which we can help to shape policies around supplies across borders.
The OECD is already looking at ways to improve international co-operation, so there is every reason to continue to engage with this agenda. It is nonsense to say that it is irrelevant, even though we will be outside the EU in due course. The extent to which we have a degree of alignment in objectives and that direction of travel between the EU and other major trading blocs, and international trading and economic organisations such as the OECD remains fundamentally important because they have at their heart the desire to find some key principles around which we can all agree that will facilitate trade, less fraud and lower burdens on business across the piece.
I end where I began by saying that this is an important issue on which we will continue to engage while we are in the EU, and continue to influence in a number of different ways once we are outside it.
Question put and agreed to.