Finance (No. 2) Bill
Peter Dowd ExcerptsWednesday 21st February 2018
(7 years, 11 months ago)
Commons ChamberRead Full debate Finance Act 2018 View all Finance Act 2018 Debates Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Consideration of Bill Amendments as at 21 February 2018 - (21 Feb 2018)
Madam Deputy Speaker (Dame Rosie Winterton)
With this it will be convenient to discuss the following:
New clause 4—Public register of entities paying the bank levy and payments made—
“(1) Schedule 19 to FA 2011 (bank levy) is amended as follows.
(2) After paragraph 81, insert—
“Part 11
Public register of payments
83 (1) It shall be the duty of the Commissioners for Her Majesty’s Revenue and Customs to maintain a public register of groups paying the bank levy and the amounts paid.
(2) In relation to each group, the register shall state whether it is—
(a) a UK banking group,
(b) a building society group,
(c) a foreign banking group, or
(d) a relevant non-banking group.
(3) In relation to each group, the register shall state the amount paid in respect of each chargeable period.
(4) In relation to chargeable periods ending between 28 February 2011 and 31 December 2017, the Commissioners must make public the register no later than 31 October 2018.
(5) In respect of subsequent chargeable periods, the Commissioners must make public the updated register no later than ten months after the end of the chargeable period.””
This new clause requires HMRC to prepare a public register of banks paying the bank levy and the amount they have paid.
New clause 5—Bank levy: Part 1 of Schedule 9: pre-commencement requirements—
“(1) Part 1 of Schedule 9 shall come into force in accordance with the provisions of this section.
(2) No later than 31 October 2020, the Chancellor of the Exchequer shall lay before the House of Commons an account of the effects of the proposed changes in Part 1 of Schedule 9—
(a) on the public revenue,
(b) in reflecting risks to the financial system and the wider UK economy arising from the banking sector, and
(c) in encouraging banks to move away from riskier funding models.
(3) Part 1 of Schedule 9 shall have effect in relation to chargeable periods ending on or after 1 January 2021 if, no earlier than 30 November 2020, the House of Commons comes to a resolution to that effect.”
This new clause requires the Government to provide a separate analysis of the impact of Part 1 of Schedule 9 nearer to the time of proposed implementation in 2021 and to seek the separate agreement of the House of Commons to commencement in the light of that review.
Amendment 1, in schedule 9, page 134, line 2, at end insert—
“34A After paragraph 81 insert—
“Part 10
Review of entities on which the bank levy is charged
82 (1) Within six months of the passing of the Finance Act 2018, the Chancellor of the Exchequer shall undertake a review of the provisions in this Schedule defining which groups are covered by the bank levy.
(2) The review shall consider in particular—
(i) the adequacy of those provisions in applying the bank levy to groups that are—
(a) not a group in paragraph 4(2) and
(b) derive their income from investments in the manner of a group in paragraph 4(2),
(ii) the adequacy of the groups in paragraph 4(2) in charging the bank levy to lending and investment entities,
(iii) the degree to which the groups in paragraph 4(2) reflect lending and investment entities that have entered into contracts with public sector bodies,
(iv) the adequacy of the definition of “investment group” in paragraph 12(9) in reflecting lending and investment entities that have entered into contracts with public sector bodies, and
(v) the revenue effects of changes to include lending and investment entities that have entered into contracts with public sector bodies within groups covered by the levy.
(3) The Chancellor of the Exchequer shall lay a report of the review under this paragraph before the House of Commons as soon as practicable after its completion.””
This amendment requires a review about the appropriate extent of the bank levy in terms of the lending and investment entities which it covers, considering the extent to which it covers PFI finance groups and assessing the revenue effects of such an extension.
Amendment 5, page 134, line 6, leave out from “in” to end of line 7 and insert
“accordance with the provisions of section (bank levy: Part 1 of Schedule 9: pre-commencement requirements)”.
This amendment is consequential on NC5.
Amendment 2, page 134, line 10, at end insert—
“37 The amendments made by paragraph 34A have effect from the day on this Act is passed.”
This amendment is consequential on Amendment 1.
New clause 6—Analysis of effectiveness of provisions of this Act on tax avoidance and evasion—
“(1) The Chancellor of the Exchequer must review the effectiveness of the provisions of this Act in accordance with this section and lay a report of that review before the House of Commons within six months of the passing of this Act.
(2) A review under this section must consider—
(a) the effects of the provisions in reducing levels of artificial tax avoidance,
(b) the effects of the provisions in combating tax evasion, and
(c) estimates of the role of the provisions of this Act in reducing the tax gap in each tax year from 2018 to 2022.”
This new clause requires the Chancellor of the Exchequer to carry out and publish a review of the effectiveness of the provisions of the Bill in tackling artificial tax avoidance and tax evasion, and in reducing the tax gap.
Amendment 3, in schedule 8, page 103, line 41, at end insert—
“21A After section 461 (counter-acting effect of avoidance arrangements) insert—
“Chapter 11
Review
461A Review
(1) Within six months of the passing of the Finance Act 2018, the Chancellor of the Exchequer shall undertake a review of the effects of amending the operation of this Part in relation to the excess profits of PFI companies.
(2) For the purposes of the review under this section, it shall be assumed that the operation of this Part would be amended so as to—
(a) deduct the uncompensated excess profit amount of PFI companies from the aggregate of the interest allowances of the group for periods before the current period so far as they are available in the current period for the purposes of calculating the interest capacity of a worldwide group under section 392 (the interest capacity of a worldwide group for a period of account),
(b) provide that, for groups that contain a PFI company, the uncompensated excess profit amount for a period is equal to the group excess profit amount less the aggregate amount by which the group’s taxable profit has been reduced in prior periods as a result of such provisions,
(c) provide that the group excess profit amount for any period will be the aggregate PFI excess profit amount for each PFI company in the group, and
(d) provide that the PFI excess profit amount for a PFI company for a period will be the amount by which the internal rate of return on shares and related party debt in that company (from inception to the end of the previous accounting period) exceeds the internal rate of return set in the relevant PFI contract or, if no such return was specified, 10%.
(3) For the purposes of this section, “a PFI company” means a company which has entered into a contract with a public sector body under the Private Finance Initiative or the PF2 initiative.
(4) The Chancellor of the Exchequer shall lay a report of the review under this section before the House of Commons as soon as practicable after its completion.”
This amendment requires a review about the effects of making provision to discount the excess profits of a PFI company for the purpose of calculating the aggregate of the interest allowance of worldwide groups in the provisions of Part 10 of the Taxation (International and Other Provisions) Act 2010.
Amendment 4, page 105, line 17, at end insert—
“26A The amendments made by paragraph 21A have effect from the day on this Act is passed.”
This amendment is consequential on Amendment 3.
Peter Dowd
Let me start by reiterating the sentiments that I expressed in Committee when we were debating the bank levy. I said then that it served no one to
“homogenise the people who work in the banking sector as either saints or demons.”—[Official Report, 18 December 2017; Vol. 633, c. 814.]
Such a simplification ignores the complexity of our financial services, the individuals who work in them, and the institutional culture that informs the practices within them. About 2,000 people work in the banking sector in my constituency, particularly in Santander, and many of them are my committed constituents.
Similarly, we cannot ignore the important role that banks play in the smooth functioning of our economy. We should avoid a “one size fits all” approach that lumps all banks together for the purpose of a bank-bashing session. The House should have a grown-up, mature discussion about issues such as the bank levy, the indisputable reasons for its introduction, its effectiveness, and why the Government are now desperate to cut it further. First, however—if I can be indulged slightly—I will say a few words about the political context of today’s debate.
Since we last debated the Government’s proposed changes in the bank levy, there have been several developments. This has continued the long saga of what is now recognised as a divided and directionless Government, and it goes to the heart of the whole question of the Government’s finances. We have seen the resignation of the Prime Minister’s deputy, and a botched Cabinet reshuffle in which the Secretary of State for Health refused to budge, another Secretary of State returned to the Back Benches rather than moving to the Department for Work and Pensions, and the Conservative party headquarters wrongly announced that the Secretary of State for Transport would become the party’s chairman. That goes to the heart of the question of the Government’s competence, which also relates to the bank levy.
During the recent Black and White fundraising dinner, at which the bank levy and our review of it were no doubt discussed, and which was held at the Natural History Museum—evidently live dinosaurs were visiting dead dinosaurs—the Prime Minister, addressing the Jurassic attendees, said:
“we are on a renewed mission to fight and win the battle of ideas and to defeat socialism today”.
How did the Government plan to defeat socialism in our modern age—the age of the fourth industrial revolution and the internet of things? The answer was that they held a raffle. While no doubt discussing the bank levy and issues relating to it, they raffled, at £100 a ticket, an eight-gun, 500-pheasant and partridge shoot donated by a millionaire hedge fund supporter who must know a great deal about the bank levy. That is how the Government will defeat socialism: by slaughtering 500 partridges and pheasants.
To keep Tory MPs’ spirits up, the Chief Whip recently sent them all a letter telling them that their performance in Parliament had been “excellent”, and that
“Remaining united in Parliament is a vital part of ensuring that Jeremy Corbyn remains in opposition”—
I am not sure whether he was trying to convince his colleagues or himself. And so it goes on. It is little wonder that the Secretary of State for Exiting the European Union has suggested that Ministers would have to be locked in a room for any agreement to be reached—that is, if they could all find the same room. I would agree with that suggestion, on the condition that we could throw away the key. Meanwhile, the Treasury has been briefing the press that the spring statement will be scaled back to include no Red Box, no official document, no spending increases and no tax changes—and perhaps no embarrassing U-turns either—as well as, no doubt, an inability, yet again, to talk about the bank levy, what we could do with it, and how we could make progress with it.
Rather than the Government outlining a long-term economic plan, we have yet another Finance Bill engineered for the benefit of the few. There is little in the Bill to tackle our dreadful productivity performance, stuttering growth, high inflation and lack of investment in our infrastructure and people, but if we raised more from the banking levy, we could do something about that. In that context, the Government have come up with the bright idea of offering another tax break to the banks by further limiting the scope of the bank levy. That would ensure that, from 2020, banks will pay the levy only on their UK balance sheets, not their overseas activities.
Our position on the bank levy has been clear: we have consistently argued for a more proportionate levy and pointed out that the levy, which would introduced in 2011, would raise substantially less than Labour’s bankers’ bonus tax. In short, we have always stood against the Government’s divisive austerity fetish.
Chris Philp (Croydon South) (Con)
I must gently point out that the Labour party’s position on the bank levy has been anything but clear. Labour Members opposed the levy when it was first introduced. They then called for it to be retained, and their amendments today propose neither retaining nor abolishing it. As the hon. Gentleman’s party’s position is entirely unclear, perhaps he could take this opportunity to clarify it.
Peter Dowd
We opposed the levy because it was a reduction in the taxes that the banks were paying. I know the hon. Gentleman wants to be generous to people who already have money and very ungenerous to those who do not have money, but he should give considerable thought to that before he makes such interventions, because it does not do his party’s reputation any good, as that sort of approach is mean and miserly.
That was why we voted against the levy during our consideration of the 2011 Finance Bill, which introduced the bank levy along with cuts to corporation tax and tax giveaways for the most well-off—that is the context. It was also why we expressed concern in 2015 about the Government’s cuts to the bank levy and the introduction of the corporation tax surcharge, and it is why we will vote against this measure today. We will support my hon. Friend the Member for Walthamstow (Stella Creasy), who will—I suspect forlornly—call for a review of the effects of making provisions to discount excess profits of a private finance initiative company for the purpose of calculating the aggregate of the interest allowance of worldwide groups under the provisions in part 10 of the Taxation (International and other Provisions) Act 2010. We support that as a step in the right direction to tackle the whole construct and operation of PFI schemes, which was a policy announced last September by my right hon. Friend the Member for Hayes and Harlington (John McDonnell), the shadow Chancellor.
The bank levy was not the brainchild of a Conservative Government. It was not introduced because the previous Chancellor had been suddenly moved by public outrage about reckless decisions made by some in the banking sector who plunged us into the world’s greatest economic crisis in modern times. That is the context for this issue. The levy was not designed to ensure that banks received enormous and unprecedented bailouts from the taxpayer, such as when the Government purchased £76 billion of shares in RBS and Lloyds. It was instead designed to make banks pay their fair share, and I refer Members to the comments about schedule 9 on pages 83 to 93 of the explanatory notes, where that is laid out clearly and unambiguously.
In fact, the very concept of a bank levy was developed at the G20 summit in Pittsburgh in 2009. It was championed by the previous Labour Government, who subsequently introduced the bankers’ bonus tax. In the austerity Budget of 2011, the coalition Government decided to dump the bankers’ bonus tax and to adopt the bank levy. At that time, Labour made it clear that the levy threshold was far too low when compared with the money that would have been raised if the Government had stuck with Labour’s bonus tax. Ministers folded under pressure from the banks and set the levy at a lower rate of £2.6 billion.
The threshold was established—here we come to the issue of experts and taking expert advice—despite Treasury officials openly acknowledging it to be far too low. Under the original Treasury plans, the levy would have raised £3.9 billion a year, which is nearly £1.3 billion more than the £2.6 billion that has been indicated. But the then Government, lobbied by the privileged few, ensured that the threshold remained low. At 0.078% for short-term liabilities and 0.39% for long-term liabilities, the level that was set was—not to put too fine a point on it—a pretty tasteless joke compared with that of other countries that introduced a similar levy. It was less than a third of the level set in France, substantially smaller than the level in Hungary, which was set at 0.53%, and even lower than that of the United States of America. In 2015, under pressure from some of the Government’s friends in the finance sector, the then Chancellor cut the bank levy rate, and the current occupant of No. 11 has continued on that particular sojourn. In so doing, he has ensured that, by 2020, the UK’s biggest banks will have received a tax giveaway worth a whopping £4.7 billion. That £4.7 billion could been spent on our public services, and notably on children’s services, which have been cut to the bone.
Chris Philp
The hon. Gentleman says that the banking sector has received a whacking tax cut. I will dispute that further in my later comments, but the figures are these: in 2009-10, the banking sector paid £17.3 billion in tax; last year, it paid £27.3 billion. That represents a 58% increase. So, far from having a tax giveaway, the banks are now paying more in taxes than they were six years ago by some margin.
Peter Dowd
That is not surprising: the banks returned to profitability because the taxpayer bankrolled them. That was how they got back into profitability, and they must pay their fair share of taxes as a result. The constituents of every Member of Parliament paid towards that, and when the profits came back in, the taxes went back up. We have helped the banks out, and they have to help our public services out.
The Government claimed that their introduction of the 8% corporation tax surcharge would offset the cuts to the bank levy. If we look at the autumn’s Budget Red Book and the forecasts from the Office for Budget Responsibility, however, we clearly see that the surcharge will not match the fall in the bank levy. According to forecasts, the surcharge is set to increase by £300 million a year, while the receipts that the Exchequer receives from the levy will fall by £1.7 billion a year. That leaves a £1.4 billion gap. That is a fact that is printed in the Government’s Red Book and, as John Adams opined, “facts are stubborn things”.
In 2018, we are still feeling the economic consequences of the actions of the banks. Every day, the Government tell us that there is no money for productive investment and that austerity must continue, yet they have conspired to undermine and limit any remuneration from the banks that caused this sorry state of affairs in the first place. Once again, the Opposition’s ability to amend this Bill has been hamstrung and blocked by the Government’s continued use of arcane parliamentary procedure.
Anna Soubry (Broxtowe) (Con)
The person who said that there was no money left was actually the occupant of the Treasury who left a note for the incoming Conservative-Liberal coalition Government in 2010. The reality is that of course there is money. We raise taxes and we spend them exceptionally wisely as a Conservative Government, particularly on infrastructure which, as the hon. Gentleman must surely agree, is now at record levels. It is just that we are still having to clear up the mess that was left by the last Labour Government.
Peter Dowd
The right hon. Lady can believe what she wants, but who will pay any attention to the Chief Secretary to the Treasury who took over from a Labour Chief Secretary to the Treasury, but was out of that job within two weeks because of issues around his parliamentary expenses? Does she expect us to pay any attention to that whatever? [Interruption.] That was what happened. David Laws—
Peter Dowd
The right hon. Lady can come back later on. This is not a dialogue, as you would no doubt tell me, Madam Deputy Speaker.
We have a timid, feckless and self-obsessed Government who are frightened of their own shadow. They continue to give more money back to the banks, notwithstanding the fact that they keep telling us that the resources coming into the Government are insufficient to support our public services.
We are seeking three things by moving new clause 3. First, we want to require the Government to carry out a review of the bank levy, including of its effectiveness in relation to its stated aims. Secondly, we want to establish the extent of the effect of the 2015 cuts on revenues from the levy. Thirdly, we wish to calculate how much would have been raised if the Government had stuck with Labour’s bankers’ bonus tax. Such a report would put under the microscope for all to see the Government’s malpractice—that is what it amounts to—in cutting frontline services while offering tax giveaways to banks that can more than afford them. It would require the Minister to acknowledge that far more would have been raised under Labour’s bankroll tax and, just as importantly, that the Government’s current bank levy has done little to influence and mitigate the risky banking practices that remain in use in our financial services industry.
Chris Philp
I thank the hon. Gentleman for being generous with his time. He is trying to suggest that the Government have a bad track record on clamping down on avoidance and evasion. The key measure of that is the tax gap, which was 8% under the last Labour Government and has now fallen to 6%—that is the lowest in the world. Will he congratulate the Financial Secretary to the Treasury on that achievement and acknowledge that this Government are doing a better job in this area than the last Labour Government?
Peter Dowd
That does not take international profit shifting into account, as the hon. Gentleman knows. He should consider that.
The figures I have mentioned not only add to the growing hole in our public finances but demonstrate the Government’s complete lack of interest in taking on tax avoiders. I am glad the hon. Gentleman raised the last Labour Government’s record. So what was our record on tax avoidance? It might surprise Conservative Back Benchers to hear that Labour brought in anti-tax avoidance measures in the 1997, 1998, 1999, 2000, 2001, 2002, 2003, 2004, 2005, 2006, 2007, 2008, 2009 and 2010 Budgets. Most notably, in March 2004, the Labour Government introduced a disclosure scheme that required anyone marketing a tax mitigation scheme to give HMRC advance notice, giving the Revenue authorities an opportunity quickly to counter the scheme with new legislation. The Primarolo statement in December 2004 announced that the Government would introduce legislation, with retrospective effect, to counter any future scheme.
Labour’s tax transparency and enforcement programme has outlined 16 measures that the Government could take immediately to crack down on tax avoidance, including holding a public inquiry and publishing a public register of offshore trusts. In that fashion, new clause 6 would require the Government to commission a review of the effectiveness of the Bill’s anti-avoidance provisions and their impact on reducing the tax gap. I am proud of Labour’s measures on tax avoidance, and I am proud to stand here and say that.
Members should ponder this question: how can the Government possibly justify cuts in the banking levy while, on average, 30% of our children—it is even more in some constituencies—live in poverty? That question will not go away, however much the Government want it to.
Chris Philp
As always, it is an enormous pleasure to follow the hon. Member for Bootle (Peter Dowd), whose speeches are always entertaining and occasionally informative. He spent a great deal of time talking about the bank levy and the various new clauses standing in his name on that topic. I wish to start by addressing the central thesis of his comments on the bank levy: his suggestion that banks are not paying their fair share, particularly as two of them received state money from about 2009.
It is a matter of incontrovertible fact that banks, as organisations, are paying more tax proportionately than other kinds of corporates. It is of course right that they do, for the reason that the hon. Gentleman and my right hon. Friend the Member for Broxtowe (Anna Soubry) mentioned: they did receive taxpayer money. They pay this extra money, compared with other businesses, in two ways. The first is through the surplus profit tax of 8%—they pay about a third more corporation tax proportionately than a non-bank corporation does. The second is through the bank levy. Although the bank levy is being reduced, it will remain in force, so banks will continue to pay proportionately more tax than non-bank businesses after the implementation of this Budget. That is a vital point to get across.
The hon. Gentleman also tried to link funding for children’s services to the bank levy. In one of my interventions, I gave some figures on the total amount of tax that banks are paying. We can argue about why they are paying that extra tax. Clearly, it is at least in part due to the surplus profits rate and to the bank levy. It may also, in part, be due to the fact that the banks’ profits have increased. Whatever the cause, the bare fact is that they are paying £7 billion or £8 billion a year more in tax now than they were some time ago. So suggesting that children’s services have been deprived of money as a consequence of changes to bank taxation simply does not bear scrutiny, given that the financial services sector is paying significantly more tax than it was before, whatever the cause of that may be.
Chris Philp
Let me take each of those points in turn. The hon. Gentleman asserts that, had the corporation tax rate remained at 28%, we would now be collecting more than £53 billion. That is an assertion, and not one with which one can agree without contention. For example, because of the lower corporation tax rate, plenty of businesses have made investments that they would not have made otherwise. Several companies had located their corporate headquarters outside the UK—
Chris Philp
Just a moment; let me respond to these two points.
Those companies had located their corporate headquarters outside the UK and so paid corporation tax outside the UK, but in response to the Government’s cutting the rate of tax, they came back onshore and now pay corporation tax here. It does not follow at all that a higher corporation tax rate—28% in the case mentioned by the hon. Member for Stalybridge and Hyde (Jonathan Reynolds)—would lead to a higher tax yield. The direction of travel shows that, as the rate has come down, the amount collected has gone up. I just do not agree with the suggestion that, if the corporation tax rate were 28%, we would be collecting £60 billion or £70 billion.
Chris Philp
A number of points have been raised there. On the point about correlation and causation, of course I understand that they are not the same thing. However, in my remarks about corporation tax reductions, I did point to some of the causal links. The two causal links that I cited were, first, encouraging investment and, secondly, companies choosing to move their domicile—for example, from Switzerland back to the UK. Therefore, there are two causal explanations as to why a reduction in the rate of tax might lead to an increase in the tax yield.
Peter Dowd
The explanatory statement for new clause 3 says:
“This new clause requires the Government to carry out a review of the bank levy, including its effectiveness in relation to its stated aims, the revenue effects of the changes made in 2015 and the comparable effectiveness of the bank payroll tax.”
The stated aim, as set out in the Government’s own document, is as follows:
“Its purpose is to ensure that banks and building societies make a fair contribution, reflecting the risks they pose”.
We are asking for a review. If the hon. Gentleman is so sure of his facts and his case, why not have the review and see who is right in this debate?
Chris Philp
The Government conduct analyses and reviews the whole time. I am not sure whether we need to put the review into primary legislation. As the hon. Gentleman refers to new clauses 3 and 4, which stand in his name, I will turn to them now.
The new clauses call for various reviews and registers. Of course, analysis is important. That analysis, I believe, takes place in the Treasury already—I am sure that the Financial Secretary will comment on that in due course. What is interesting about the new clauses tabled by the Opposition is not so much what is in them, as what is not in them—it is the dog that did not bark, if I can borrow from Sir Arthur Conan Doyle.
I mentioned in an intervention that the Labour party appears to have taken a number of different positions on the bank levy: it voted against it in 2011; it voted against the surplus tax in 2015; and then it stated in public that it wished to leave the bank levy in place, despite having voted against its introduction, which strikes me as rather confused. I was rather hoping that its new clauses and amendments might enlighten us on what its position actually is on the bank levy. This is primary legislation. This is a finance Bill soon to become, I hope, a finance Act. The Opposition had a chance here in this Chamber today to explain to the House and to the country how they think our tax system should work in relation to the bank levy. They could have tabled an amendment, had they chosen to, saying that they wanted to leave the bank levy in place as it was, or they could have tabled an amendment abolishing it altogether, yet they have done neither of those things; they have simply called for analysis. I am disappointed that their plans have not been elucidated.
Chris Philp
However, if I am about to be enlightened, I will of course give way.
Peter Dowd
The hon. Gentleman cannot have it both ways. The Government introduced an arcane procedure, which was first used, I think, by Winston Churchill in 1929, effectively to stop us moving any substantive amendments. Does he not recognise that, whatever we wanted to do, we would not have been able to change things anyway, because the Government were not permitting us to do so?
Chris Philp
I am not sure. This is a moment when my hon. Friend the Member for North East Somerset (Mr Rees-Mogg) is required to advise on such matters. I do not share his expertise in parliamentary procedure. However, the shadow Chief Secretary did not specify in his quite extensive—and, at times, amusing—remarks the official Opposition’s position on the bank levy. There is certainly no parliamentary procedure that prohibited him from doing so, so he could quite easily have chosen to specify his exact view—whether the bank levy should continue as it is, go or do something else—yet he did not do so. I am rather disappointed by the lack of clarity on that point.
The hon. Member for Stalybridge and Hyde said a few moments ago in one of his many interventions that HSBC might contemplate its jurisdiction in the light of Brexit. In fact, HSBC was debating where to domicile itself well before the referendum. If anyone or anything threatens the City of London’s status as a global financial centre, it is not the matters being debated today and it is not Brexit. In fact, it is the right hon. Member for Islington North (Jeremy Corbyn) and the comments he made a day or two ago, which, in the words of one commentator, threatened to turn London into a new version of Pyongyang. That is what he said. It was in the Evening Standard—a newspaper edited by a highly reputable journalist.
PwC has done some analysis of the tax contribution made by the financial services sector, finding that it paid £72.1 billion in taxes last year. That is about 9% of the UK’s total tax take. It is no laughing matter when misguided and populist politicians take a cheap shot at the City to get some headlines. If business is driven away, the implications will be very severe for our tax take and for employment. If we lose the tax revenue generated by the City, the people affected will of course be children and the NHS.
I ask the shadow Chief Secretary to convey gently to his dear leader that comments such as those made a day or two ago are very unhelpful to the City. They endanger jobs and jeopardise the £72 billion of tax that the City pays. Whether it is through fiscal measures or through words, it is a very serious matter when we endanger jobs and the tax revenue from the City that funds about two thirds of the NHS’s budget. In this Bill and in our words, we should protect that tax revenue and those jobs.
Peter Dowd
I am more than happy to convey the hon. Gentleman’s comments to the Leader of the Opposition, although I do not accept them. Will the hon. Gentleman also pass on my comments to the Prime Minister? She is making a mess of Brexit, which is far more dangerous to this country than the comments allegedly made by the Leader of the Opposition.
Chris Philp
There is no allegation; they were said publicly. I will of course convey the hon. Gentleman’s comments in a spirit of reciprocation, but I dispute the remarks about Brexit. We saw fantastic progress before Christmas and are moving on to the next stage. I look forward to the series of speeches by my Cabinet colleagues in the coming days and weeks that I appreciate are on a different topic to the one at hand.
Rachel Maclean
It is a pleasure to follow the hon. Member for Aberdeen North (Kirsty Blackman) and the other contributors.
I will keep my remarks short as many of my points I wish to make have already been made by colleagues. I want to bust the myth that we on the Conservative Benches are friends of nefarious bankers and bad people trying to swindle money out of the honest taxpayer. Nothing could be further from the truth. We on these Benches want a healthy financial system underpinned by banks, and we want those banks to contribute fairly, as they can and must, and as they have been doing under this Government. The facts speak for themselves, as my hon. Friend the Member for Croydon South (Chris Philp) set out.
We have set out a plan to raise an additional £9 billion by 2022—a significant contribution to the Exchequer that will help to fund the public services on which people rely. The banks are making money out of businesses in this country. They need to make a return—they need to contribute fairly—and the Bill will ensure that that happens.
When Labour Members start to attack us and our policies, they need to look at themselves in the mirror. They need to bear in mind the number of times they voted against the introduction of corporation tax and bank levy measures which, as we have seen, have raised money from the banks. Theirs was the party that allowed the Mayfair loophole to develop, so that hedge fund managers were getting away with not paying tax while their cleaners were paying it. I remind the House that it was this Chancellor, in this Budget, who imposed a tax on private jets. Could any measure indicate more strongly that the Conservatives believe in fairness and taxing the proceeds of profit in the right way to fund our public services?
The hon. Member for Bootle (Peter Dowd) said that the banks were not making a fair contribution. I completely disagree with that narrative and that agenda. The banks are making a fair contribution.
Peter Dowd
When I have made statements and I have been wrong, I do not mind people bringing that to my attention, but I did not say that the banks were not making a fair contribution. We were talking about a fairer contribution in the context of the Government’s own definition of what they should be doing. That is the point. The hon. Lady should have a look at the work. She should have a look at the book. She should do her research, and then make an accusation.
Rachel Maclean
I am not making an accusation at all. I apologise if I have misrepresented the hon. Gentleman. I merely wish to make the point that I believe that banks must make a fair contribution, and that the Bill will enable them to do so. Through measures that we have introduced since we have been in government, £160 billion has been raised for the Exchequer.
Peter Dowd
Very little that I have heard from the other side in this debate has convinced me that we should withdraw our new clause—
Peter Dowd
That response from the Minister had complacency running through it like a line through a stick of rock. It contained self-congratulation and a rejection of any suggestion of a review, in any area. Not only have the Government not allowed us to make any significant changes, but they are not even prepared to listen to our asking for reviews, such as that requested by my hon. Friend the Member for Walthamstow (Stella Creasy). It is unacceptable if the Government are not prepared even to go that far, having shackled us this much. That is disgraceful. The Government, in this Parliament, should be ashamed of themselves for shackling the Opposition to this degree. We will push the new clause to a vote.
Question put, That the clause be read a Second time.
Peter Dowd
The only thing I agree with the Minister about is that I too thank everyone who has taken part in the proceedings. The Bill is not up to the challenge. It contains nothing of substance on public services, on the productive investment that we need, on housing, on tax avoidance or on the scandal of private finance investments. It is an insubstantial Bill from an insubstantial Government, with more tax cuts for the richest. I shall sum up by saying that the Tory party is financially bankrupt in Northamptonshire and morally bankrupt in Westminster. That sums up this Bill, and we will vote against it.
Question put, That the Bill be now read the Third time.
Andrey Lugovoy and Dmitri Kovtun Freezing Order 2018
Peter Dowd Excerpts(7 years, 11 months ago)
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Peter Dowd (Bootle) (Lab)
It is a pleasure to serve under your stewardship, Sir Edward.
I thank the Minister for setting out the reasons why the order is before us. We accept and believe that it is an appropriate, commensurate and proportionate response in relation to the specified persons, given the circumstances of the case as set out in the report to which the Minister referred. I am pleased that the Minister has been able to give us further information.
On that basis, we will support the order.
Question put and agreed to.
Taxation (Cross-border Trade) Bill (Seventh sitting)
Peter Dowd Excerpts(8 years ago)
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Peter Dowd (Bootle) (Lab)
I beg to move amendment 6, in clause 31, page 18, line 31, at end insert—
“(3A) Before laying a draft of an Order in Council before the House of Commons in accordance with section 32(10)(a), a Minister of the Crown must lay before the House of Commons a statement about—
(a) the arrangements entered into; and
(b) the Minister’s assessment of the effect of the arrangements on trade relations with other countries and territories.”
This amendment requires a statement to precede a draft of an Order in Council giving effect for the purposes of import duty to a Customs Union with another country or territory.
The Chair
With this it will be convenient to discuss the following:
Amendment 82, in clause 31, page 19, line 10, at end insert—
“(8) No regulations may be made under this section after the end of the period of five years beginning with exit day.
(9) Any Order in Council made under subsection (4) and any regulations made by HMRC Commissioners under subsection (5) shall cease to have effect after the end of the period of six years beginning with exit day.
(10) In this section, ‘exit day’ has the meaning given by section 14(1) (interpretation) of the European Union (Withdrawal) Act 2018 and subsections (2) to (5) of that section apply to the term under this section as they apply to the term in that Act.”
This amendment limits the duration of the delegated power under Clause 31 to the period ending five years after the United Kingdom leaves the European Union and limits the duration of any delegated instruments under the Clause to six years, so that a permanent customs union would require primary legislation.
Clause stand part.
Peter Dowd
It is a pleasure as always to see you in the chair, Ms Buck. I want to speak to Opposition amendments 6 and 82, which seek to amend clause 31. Clause 31 in its current form gives Ministers the powers to create a customs union between the UK and another country, overseas territory or multilateral body, including, for example, the European Union.
There has been much debate in this Committee of the possibility of the UK forming a customs union with the European Union after we leave. It is stating a fact that when the UK leaves the European Union it will also leave the European customs union. However, we have been consistent in our belief that it would be wrong to take the option of the UK forming a customs union with the EU off the table at this early stage of UK negotiations. Therefore, we welcome the Government making specific provision for the option of a customs union in the Bill.
There are a variety of customs unions, and an internal customs union between the UK and its overseas territories and Crown dependencies is far different from a customs union with a single country or a multinational organisation such as the EU. It is a welcome sign that the Government have considered that and ensured that clause 31 is drafted in a way to fit the scenario.
Although the Opposition accept the principle of what the Government are attempting to do, we once again take issue with the concealed manner in which they plan to do it. Under the measures in clause 31, the formation of a customs union would be made through the declaration of an Order in Council, completely cutting out Parliament, in effect, as I understand it—the Minister may wish to clarify that.
We have heard from Ministers on a number of occasions that their action is related to delegated legislation, for example, and that it is always commensurate and proportionate. Setting up a customs union, of whatever construction, without commensurate and proportionate parliamentary involvement is not consistent with the approach that the Government have taken thus far in relation to that commensurate and proportionate principle. It is simply a matter of the Government changing the goalposts capriciously. I completely acknowledge that the Minister may put me right on that.
This appears a rather strange way for the Government to uphold the central theme espoused by those advocating leaving the European Union—of “taking back control.” It confirms one of the central objections that we have made time and time again, and stated throughout this Bill and others, concerning Executive overreach and the centralisation of power. That issue will not go away any time soon. Conservative Members also have concerns about that.
Opposition amendment 6 would instead require a Minister to make a statement to the House of Commons on the establishment of a customs union, outlining the specific details of the customs union and how they were reached, as well as the effects of the new customs arrangements on trade with other countries and territories. I consider that—I think that most people will—to be the minimum level of parliamentary oversight that we should expect, and one that would ensure the Government are accountable to this House.
Several customs unions exist in the world, including the EU customs union, Mercosur and the Caribbean Community. There are more in the pipeline, with negotiations on potential customs unions taking place in the middle east, parts of Africa and between New Zealand and Australia. Under amendment 6 the House will be able to give proper scrutiny to what kind of customs union the Government have in mind. Is that a detail that Parliament need not bother about? Our view is that it is an important fact.
If the Government intend to keep the option of forming a future customs union with the European Union on the table, as clause 31 makes possible, they must consider the variety of needs of UK businesses, manufacturers and stakeholders. Customs unions are ordinarily designed to address trade in goods. However, the new UK-EU relationship will also need to deliver trade in services, cross-border Government procurement and, possibly, regulatory equivalence, as well as a host of other issues that others may want to comment on. I have made that point previously.
The debate on the UK’s future trading relationship remains controversial. The Secretary of State continues to shroud the progress of future deals in a veil of secrecy, under issues to do with commercial sensitivity, except when, as today, we are told there will be £9 billion of trade with China. The Government pick and choose what to tell us. We have consistently opposed such a level of secrecy, and we believe that Parliament should have the right to give proper scrutiny to future trade agreements and customs arrangements.
Amendment 6 would therefore ensure an open process, and a level of transparency around the negotiation and establishment of a customs union; it would ensure that the negotiation and implementation would be subject to parliamentary scrutiny. The amendment would also allow Members of the House, who bring diverse experience— a vast range of experience in many situations—and who represent a variety of key sectors and stakeholders, to debate an issue that is very important.
The Government would also be required under the amendment to consider the impact of the establishment of a customs union on trade with other territories and countries. That is an important factor, particularly given that, currently, the UK’s membership of the EU customs union means it is unable to enter into trade agreements outside the EU. Part of the issue is that we have seen what happens when Governments do not consider the impact of entering a customs union on trade with other countries.
We need only go back to the time when we first entered what was then the European Economic Community. We failed to take account of the impact on trade with Commonwealth countries, which then accounted for 20% of all imports and exports. The result was unhappy and damaging, with Commonwealth countries losing out. The Labour Prime Minister had to renegotiate better terms that ensured that trade with Commonwealth countries could continue. There is a history, and we need to make sure we get things right, as best we can. Parliament’s role is to tease those issues out, especially given the seriousness of this.
Amendment 6 is intended to prevent a scenario such as I have outlined by requiring Ministers to make clear to the House and other trading nations the possible impact of forming a customs union—internally or with another country or a multinational organisation—on trade.
Amendment 82 would limit the period for which a customs union agreed by the Government through delegated legislation could be in force. It would set the period at six years, after which the Government would have to introduce primary legislation if they wanted to extend the customs union. The amendment would be an important part of guaranteeing that Parliament, not the Executive, would have the final say in any customs union that was established. It would constrain and limit Ministers’ power and ensure that the long-term establishment of a customs union would receive the proper parliamentary scrutiny that such a move deserves.
Under clause 31, delegated powers could be used to bring the UK into a permanent customs union without a vote in the House of Commons. In that scenario, Members would not be able to assess the benefits of that customs union before the Government entered into it. There would also be no recourse to a reversal of the decision if it proved costly to the UK—other than through primary legislation, presumably, so let us do that first. Just as the Opposition have forced and required the Government to concede a vote to the House on the final deal reached in the negotiations between the UK and the European Union, amendment 82 would require the Government to put the formation of a future customs union to a vote.
There is of course a difference between a temporary customs union and a permanent one, and amendment 82 makes that distinction. While we accept that the Government may need the powers in clause 31 to put in place temporary measures as part of a transitional process, more permanent changes should receive proper parliamentary oversight and sanctions. We believe six years to be time enough for the House to consider the net benefits or costs of a customs union, be that an internal customs union with overseas territories and Crown dependencies, or a customs union with another country or a large, multinational organisation such as the EU. Six years would prove enough time for Members to assess whether that customs union protects UK manufacturers, supports UK businesses and works in the interest of the country.
As the Minister has stated many times, the Bill is a framework Bill. Clause 31 sets out framework powers that will give Ministers the ability to introduce regulations for the creation of a customs union. Our opposition to this matter is clear: while we welcome the Government including these powers in the Bill, as I said earlier, amendments 6 and 82 would guarantee that Parliament has the final say.
Mel Stride
Clause 31 caters for a situation in the future in which the UK has made an agreement with an overseas country or territory to enter into an arrangement to establish a customs union. The clause allows such a customs union to have effect for the purposes of import duty. It also allows HMRC to make regulations that might prove necessary to ensure that a customs union functions effectively.
As I previously set out, the Bill caters for a range of possible outcomes after the UK has left the EU. There are various circumstances in which the Government might wish to establish a customs union with a country or territory overseas, and to have that union apply for import duty purposes. One instance might be to establish a customs union with a Crown dependency—namely Jersey, Guernsey and the Isle of Man.
The clause caters for any international arrangements such as this that establishes a new customs union. The clause does not provide the power to enter into an international agreement; such an agreement does not require a specific statutory basis. Instead, it simply allows the UK’s customs regime to reflect such an agreement by providing the means necessary to implement it. Once an agreement has been reached, an Order in Council will be required before it can take effect for import duty. That order can itself be made—this is a critical response to the remarks of the hon. Member for Bootle—only if it has first been approved, in draft, by the House of Commons under the draft affirmative resolution procedure. I am sure the Committee agrees that that will afford a high level of parliamentary scrutiny for each stage of the process.
It is likely that further provisions will be needed to make an international agreement effective for import duty purposes. The most obvious instance would be to ensure that import duty is not charged on the movement of goods between the UK and the overseas country or territory. For that reason, the clause allows HMRC to make any necessary changes in regulations.
Amendment 82 seeks to add a restriction to that process in two ways. First, it would limit the ability of HMRC to make regulations to five years from exit day. Secondly, it would make any Order in Council cease to have effect six years after exit day. Both of those positions are misguided. I am sure that I do not need to remind the Committee that establishing a new customs union with an overseas territory or country is likely to be a long-term process, not least because of the need to ensure that it reflects the UK’s new international trading relationship once we have left the European Union. It would therefore be wrong to limit the ability to adapt the UK’s legislation to a period of five years following exit.
More importantly, it would be rather perverse to make any customs union simply cease to have an effect on domestic law after a six-year period. As I explained, the level of parliamentary scrutiny that would apply to such a union is very high, requiring both an Order in Council and the draft affirmative procedure in Parliament, as well as all the potential debates and votes that may occur around the negotiations that led to that customs union arrangement in the first place.
There is therefore no case for time-limiting an agreement in the way proposed by the amendment. Indeed, it could make it far more difficult, if not impossible, to reach any agreement if our overseas partners were aware that such an agreement would no longer function effectively at a future point because of limitations on powers in our domestic legislation. I therefore urge the Committee to reject amendment 82.
Peter Dowd
We will not press amendment 6 to a vote, but we will no doubt tease the issue out a little more in due course. Again, I am not completely reassured by the Minister’s statement in relation to affirmative resolutions. I do not accept that the process is as rigorous as he has implied throughout.
The other aspect is that, if Parliament will have to do huge amounts of work, we had better make sure that we get everything right and get the ducks set up in a row. The idea that the Government’s proposal and mechanism for authorising are commensurate and proportionate is, in my opinion, far off the mark. It is a very important area, and Parliament should have significantly more of a say in it.
This issue will clearly not be resolved today, any more than many other things will be, but it is really important. We will not push the amendment to a vote today, but there is no doubt that we will, in due course, come back to this issue and the whole question of parliamentary scrutiny, particularly in relation to this sort of matter. I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 31 ordered to stand part of the Bill.
Clause 32
Regulations etc
Kirsty Blackman
I beg to move amendment 89, in clause 32, page 19, line 18, at end insert—
“(c) regulations under paragraph 4(2), 9(3) or 14(4) of Schedule 4.”
This amendment provides for regulations made under certain provisions of Schedule 4 (regarding dumping of goods or foreign subsidies causing injury to UK industry) to be subject to the made affirmative procedure rather than the negative procedure.
Mel Stride
New clause 12 and its consequential amendments propose a process by which Parliament scrutinises and approves secondary legislation. The hon. Member for Aberdeen North referred to the process as the super-affirmative resolution procedure. I commend her on her creativity, but I must urge the Committee to reject what has been proposed.
As I understand the super-affirmative resolution procedure, it would initially require the laying in draft of any regulations, alongside an explanatory document and a declaration to which the new procedure would apply. It would also entail the appointment of a House of Commons Committee, which would initially have the power to recommend that more onerous procedures should apply to the draft regulations than those currently provided by the Bill. At the same time, those more onerous procedures would apply automatically to certain regulations, as set out in the amendments. The Committee would have the power to recommend that any draft regulations were rejected before they could be approved by the Commons under the affirmative procedure.
The powers of that Committee would be fairly wide, but at the same time, its remit would be relatively modest, only relating to the trade remedies provisions and regulations under clause 42 which deals with amendments regarding how EU law applies to VAT. I have already explained why it is entirely right that regulations for the trade remedies framework should be subject to the negative procedure. Clause 42, along with other provisions in the Bill, is necessary to ensure that the UK has a fully functioning VAT system once we leave the European Union. As there is limited direct EU legislation relating to VAT, the power in clause 42 is therefore equally limited. Given that limited scope, it is only right that its exercise should be subject to the negative procedure.
No case has been made that the existing and well-understood parliamentary procedures for making regulations are inadequate. To establish an entirely new procedure would mark a major precedent in Parliament and I cannot see any reason for doing so. That is particularly true in the case of limited regulation-making powers, which are the subject of the amendments.
Peter Dowd
Does the Minister not accept that this might be unprecedented, but so is leaving the European Union and all the institutions associated with it and all the mechanisms that go with it? That is unprecedented, so we need to have unprecedented parliamentary scrutiny of that unprecedented move.
Mel Stride
The word “unprecedented” could be applied to almost everything that happens in the future; it is always different to that which occurred in the past. I think it might be stretching Parliament’s patience if on every occasion we came across something unprecedented, we conjured up some unprecedented way of dealing with it. I really do not want to re-rehearse all my arguments on the relative merits, proportionality, appropriateness and so on of the various approaches that we take on those matters. To conclude, we believe that the various new parliamentary processes proposed would hamper the UK’s ability to respond swiftly to future developments and to provide an important but proportionate safety net to UK industry in a timely fashion.
Amendments 94 and 95 seek to retain the effect of direct EU legislation. Amendment 94 would do that by retaining EU regulations on VAT that will be brought into UK law as a result of the European Union (Withdrawal) Bill. According to the explanatory statement accompanying the amendment, that is so the EU legislation in the area will continue to have effect during the implementation period. Amendment 95 seeks to limit the power to exclude certain provisions of the VAT-implementing regulations.
The Bill enables the Government to respond to a range of outcomes. By way of background, the Value Added Tax Act 1994 and subordinate legislation already implements the majority of EU law on VAT, including the VAT directive. The 1994 Act as amended by the Bill will continue to apply post-EU exit. Few EU regulations apply to VAT and in the main those relate to single market reciprocal arrangements such as exchange of information. In the absence of an agreement, those will simply have no application—we would not want them to be incorporated into UK law for obvious reasons—which is why they are disapplied by clause 42(1). Removal of EU legislation that is no longer required or otherwise deficient is anticipated in the withdrawal Bill.
At this stage I will deal with the specific point made by the hon. Member for Aberdeen North about VAT, and how it operates now and might operate once we have left the European Union. She has raised issues that will certainly be very important—it is not the first time that she has raised such issues—to how businesses interact with what will then be the remaining EU27. I made it clear on Second Reading that we will look sympathetically and appropriately at the particular issue of the change from acquisition VAT to import VAT, including the change in timing of VAT payments with its effect on a large number of businesses as they trade with the European Union in future.
The note to amendment 94 refers to ensuring that EU legislation continues to have effect during an implementation period, but it may not be necessary to switch our provision on until after a transitional period or at all. Alternatively, EU regulations disapplied under clause 42(1) could be reinstated by the power in clause 51, which we will come to. What is ultimately required will depend on the outcome of the negotiations. However, we anticipate that the rules in an implementation period will be broadly reflective of the existing ones.
Amendments 89 and 90 seek to change the parliamentary process for some of the regulation-making powers provided in parts 1 and 3 of the Bill and their related schedules. For indirect taxation measures, it is common to have a framework in primary legislation supplemented by secondary legislation. The Bill establishes a comprehensive framework for a new standalone customs regime that will be underpinned by detailed and technical secondary legislation.
The trade remedies framework contains a great deal of such technical detail and the secondary legislation made under the Bill will comply with WTO rules, which is why we propose that the regulations are subject to the negative procedure. With that I ask Opposition Members to consider withdrawing their amendment, or at least the Committee to resist them.
Anneliese Dodds
I will respond briefly, if I may, to the Minister’s comments. I do not want to get into a semantic discussion about precisely what the speaker from the Hansard Society did or did not say. Ultimately, he was trying to preserve the independence of the Hansard Society. Therefore, when he was being pushed about the Bill more globally, he resisted. I can understand that, because he wished to protect the independence of the Hansard Society, but to my memory, he did not comment directly on the proposals that have been put forward by the Opposition. I do remember him commenting directly, for example, on the cumbersome and difficult nature of the negative procedure and the fact that it operates through early-day motions and all those kinds of things. I cannot remember him specifically saying that he felt that the suggestions being put forward by the Opposition were incorrect. He resisted being pulled towards a global assessment of the Bill, but I can understand why he did that, given his need to retain independence.
Peter Dowd
I can remind my hon. Friend of what Mr Blackwell said. In relation to the 150 delegated powers, he said:
“Some of the justifications I am struggling with, particularly as regards the use of urgency and non-urgency. I think time is an issue here, particularly if you do not have the backstop of further scrutiny by a Chamber—the second House—that is usually very good at looking at delegated legislation”.—[Official Report, Taxation (Cross-border Trade) Public Bill Committee, 23 January 2018; c. 53, Q77.]
He was absolutely clear and unambiguous that this really was not a way to do matters of this nature.
Kirsty Blackman
It has been an interesting debate, and I am glad to have had the opportunity to start it. I really do appreciate some of the clarification that has been given by the Minister, particularly around moving from acquisition to import VAT. As I said earlier, I do not want to press any of these amendments, because I would like to return to them at Report stage. I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Taxation (Cross-border Trade) Bill (Eighth sitting)
Peter Dowd Excerpts(8 years ago)
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Anneliese Dodds
I am grateful to the Minister for his commitment to respond to any questions that are levelled by Select Committees in this area. That is a positive commitment. It is an area that we will keep an eye on, but after the discussion we have just had, I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 39 ordered to stand part of the Bill.
Peter Dowd (Bootle) (Lab)
On a point of order, Mrs Main. I indicated earlier that I wanted to speak on amendments 142 to 145 to clause 39, on animal welfare and sentience. I have tried to get in, but if the opportunity has passed, so be it. We may therefore have to pursue it on Report. I want the Committee to recognise that I did wish to speak and did indicate that.
The Chair
I am sorry, but we have moved on.
Clause 40 ordered to stand part of the Bill.
Clause 41
Abolition of acquisition VAT and extension of import VAT
Question proposed, That the clause stand part of the Bill.
Peter Dowd
I hope the Minister does it with more feeling next time. That was a whip through the clauses, but I will read them. The fact that any of us have any sentience at all is wonderful. I also notice that the Minister’s cut and paste button in relation to appropriate and proportionate has been in overdrive again.
This area of our future relationship with the European Union has been the subject of much public debate, because, like much of the Bill, part 3 is conditional upon the outcome of the Government’s Brexit negotiations, which appeared to take a further turn for the worse this week. This section of the Bill provides a framework for a new VAT arrangement between the UK and EU member states, to be enacted should we need to do so. Clause 41 makes no provision for the abolition of acquisitions, as far as I can gather, as a taxable event for goods entering the UK from member states and, in the absence of a negotiated agreement, goods would be subject to import VAT.
Amendment 133 seeks to add the affirmative procedure to secondary regulations under clause 42. The clause sets out that the automatic conversion of EU law into UK law following exit from the European Union does not apply in matters relating to VAT. It also provides the Treasury with the power to exclude or modify any other EU rights, powers, liabilities, restrictions, remedies and procedures by statutory instrument, currently subject to the negative procedure. The amendment would ensure that the modification or exclusion of EU rights, powers, procedures and so on would be subject to affirmative resolution.
It is a fact that when we leave the European Union, we will leave the EU VAT area, and therefore we cannot be subject to the rules governing it, at least until further negotiations have taken place. That is why we have not chosen to table amendments to clause 41, which as I have outlined, sets out the major legal changes necessary to exit from the European Union, but have instead sought to ensure that any further regulations necessary are subject to the proper scrutiny—appropriate and proportionate proper scrutiny.
I would like the Committee to once again note that the amendment is in line with the recommendations made by the Delegated Powers and Regulatory Reform Committee, which explicitly called for the powers to be made affirmative, as we are seeking to do. The report says:
“Clause 42(2) contains a wide power for the Treasury to amend VAT law which is retained EU law under clause 4 of the current European Union (Withdrawal) Bill...Regulations under these powers are subject to annulment in pursuance of a resolution of the House of Commons. Given the importance and scope of the powers in clauses 42 and 47, we do not consider that the regulations should only ever be subject to the negative procedure.”
I again appeal to members of the Committee to heed the advice of the Delegated Powers Committee and support our amendment to introduce proper parliamentary scrutiny to regulations made under clause 42.
Amendments 83 and 84 relate to clause 42. They seek to add what are commonly known as sunset clauses to the provisions in clause 42 and would limit the duration of the delegated powers to the period ending two years after the United Kingdom leaves the European Union, which we think is appropriate and proportionate in the circumstances.
As was pointed out by the Delegated Powers and Regulatory Reform Committee, the Government’s own White Paper, “Legislating for the United Kingdom’s withdrawal from the European Union”, acknowledged the importance of time-limiting delegated powers where powers are not needed in perpetuity, so there seems to be a little bit of flip-flopping on that one from the Government. Indeed, clauses 7 to 9 of the European Union (Withdrawal) Bill contain important time limits on the use of delegated powers. There are no corresponding sunset clauses on the use of delegated powers in this Bill—there seems to be a bit of a pick-and-mix approach to scrutiny. Despite the Treasury’s delegated powers memorandum acknowledging that the Bill has been drafted to cater for various contingencies that might never materialise—for example, if the UK left the EU without a negotiated agreement—we must have these scrutiny powers in place to keep checks on that one.
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.
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.
Kirsty Blackman
I am not trying to wrong-foot the Minister, but I just want to make a brief statement in relation to postal packets from overseas. I have mentioned the issue in previous debates. I genuinely think that it will affect individuals living our constituencies across the four nations of the UK. People will be shocked when they see the changes coming in relation to excise duty. It is incumbent on the Government, when HMRC make the relevant regulations, that they are as widely publicised as possible, and that if possible, some transitional arrangement should be put in place on costs. If people suddenly find that their postal packets are subject to an incredible charge to which they were previously not subject, they will be pretty upset, and rightly so.
Whatever HMRC does on the issue, we ask the Minister to ensure that there is adequate publicity and that any charges put in place are proportionate and not excessive, because people will be incredibly upset and negatively affected.
Peter Dowd
It is important that we deal with the question raised by the amendment regarding sunset clauses. The Government originally did not want any of the sunset clauses in the European Union (Withdrawal) Bill, but they were required or forced—people can call it what they will—by hon. Members from across the parties to put in sunset clauses. We were told at the time that the inclusion of a sunset clause in that Bill would result in the end of civilisation as we know it. Of course, someone threw a bucket of water over the Government, and they freshened up and realised that they were not going to get away with not having sunset clauses.
The Government have persisted in Committee—they might be doing the same with the Trade Bill—to argue against sunset clauses. They would have us believe that sunset clauses are some foreign or alien concept in parliamentary democracies. Well, they are not. There were even sunset clauses in the nuclear deal with Iran. Sunset clauses exist in all sorts of legislation, including treaties—and we have some 3,000 treaties. They exist right across the piece in legislation. Indeed, the coalition Government, when introducing the Enterprise and Regulatory Reform Act 2013, basically insisted on sunset clauses to reduce the legislative burden. When it suits the Government to have a sunset clause, they will have a sunset clause; in fact, they introduced an Act to have sunset clauses. They are now telling us that sunset clauses are outrageous, and will somehow mess up the whole VAT regime.
Other countries have sunset clauses. For example, sunset clauses in Texas mean that, after 10 or 12 years, some agencies will cease to exist unless they can prove their appropriateness, consistency and status. They have to go through that process. Even organisations have sunset clauses applied to them and they have to show how relevant they are.
The Prevention of Terrorism Act 2005 had a sunset clause. In the past, sunset clauses have been applied to the effectiveness of legislation, and yet we are now being told today that they are somehow outrageous and that the whole Government will grind to a halt if we have them.
Some Canadian legislation—in fact, a whole range of Canadian legislation—has an automatic five-year sunset clause. The Canadians manage perfectly well with sunset clauses. The question is: are this Government so fearful of a sunset clause, so fearful of challenge and so fearful of scrutiny, particularly in relation to this amendment, that they do not want sunset clauses?
There are even sunset clauses in Australia, and they seem to manage. Australia has general sunset clauses; they are not even specific. They have sunset clauses for whole swathes of legislation and they manage perfectly well. South Korea also has sunset clauses. Perhaps that is why it has such a booming economy—because the sunset clauses mean that, time after time, they test and challenge. The only sunset clause in North Korea, no doubt, is the sunset on democracy. We do not want that; we want sunset clauses for the powers this Government have taken for themselves.
Jonathan Reynolds
My hon. Friend is making a fantastic speech about the applicability of sunset clauses around the world. Again, however, we have to get back to this point: if the Government still need these powers after the sunset clause is done and the powers no longer exist, they simply have to come back to Parliament. It is not the case that they do not have the power to deal with things; a strong, united Government, with a parliamentary majority, would quite easily be able to come back and put on the statute book anything they needed. That argument simply has not been addressed by the Government.
The Chair
Order. Before I call Mr Peter Dowd, I will say that we are all immensely interested in South Korea, Texas, Australia and all the other places he has listed, but could he get back to this particular amendment?
Peter Dowd
I was trying to show that in this case there is a requirement for a sunset clause. It is absolutely crucial that we have sunset clauses and I am trying to show—I know that you will appreciate this, Mrs Main—that they are capable of being delivered.
Peter Dowd
That is spot on. We have raised that issue time after time. Having sunset clauses and taking control back is a sign of a confident Government who are strong and stable and know their direction of travel. That is why I am sure that every Government Member of the Committee will support the amendment’s specific proposal for a sunset clause.
The Parliamentary Under-Secretary of State for International Trade (Graham Stuart)
I just want to pay tribute to the hon. Gentleman and to the Labour party, because Labour does not just talk about sunset clauses; it actually works on them. And it is noticeable, frankly, that with real momentum behind sunset clauses, moderate leaders, councillors and moderate MPs are being hounded out. That is a true sunset clause.
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
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.
Peter Dowd
I beg to move amendment 18, in clause 55, page 38, line 15, leave out
“on the day on which this Act is passed”
and insert
“when the condition in section (Pre-commencement review: effects on frictionless trade with European Union) is met”.
This amendment is consequential on NC10.
The Chair
With this it will be convenient to discuss the following:
Amendment 21, in clause 55, page 38, leave out line 23 and insert—
“(1A) Section (Pre-commencement review: effects on frictionless trade with European Union) and this Part come into force on the day on which this Act is passed.”
This amendment is consequential on NC10.
New clause 10—Pre-commencement review: effects on frictionless trade with European Union—
“(1) The condition in this section is met when—
(a) the Treasury has carried out a review in accordance with the provisions of this section, and
(b) the Chancellor of the Exchequer has laid a report of that review before the House of Commons.
(2) The review by the Treasury under this section must consider the likely effects of implementation of the provisions of this Act on the prospects for frictionless trade with the European Union after the United Kingdom’s withdrawal from the European Union.
(3) The review must consider separately the matters specified under subsection (2) in relation to—
(a) circumstances in which there is no withdrawal agreement with the European Union (within the meaning of section 9 of the European Union (Withdrawal) Act 2018),
(b) any implementation or transitional period after the United Kingdom’s withdrawal from the European Union, and
(c) the period subsequent to that specified in paragraph (b).
(4) The review shall have regard to information provided by the Secretary of State about the likely outcome of negotiations between the United Kingdom Government and the European Union.”
This new clause requires the Treasury to provide an assessment of the effects of implementation of the Bill on the prospects for frictionless trade staffing and IT requirements for implementing the provisions of the Bill, and the prospects of those requirements being met prior to commencement of the main provisions of the Bill.
Peter Dowd
The proposals seek to provide commencement for various provisions in the Bill under parts 1 to 5. New clause 10 seeks to require the Treasury to carry out a pre-commencement review considering the likely effects of the implementation of the provisions of the Bill on the prospects for frictionless trade within the EU after the United Kingdom’s withdrawal from the EU.
The review should also consider circumstances in which there is no agreement with the EU and an implementation or transitional period after the UK’s withdrawal. It would also have regard to information provided by the Secretary of State about the likely outcome of negotiations between the UK and the EU. As the explanatory statement that accompanies the new clause makes clear, we seek to ensure that the Treasury makes a proper assessment of the impact of the implementation of the Bill on staffing and IT requirements in the context of maximising frictionless trade across the UK border.
In evidence to the Committee, the Public and Commercial Services Union commented on staffing, which the new clause seeks to ensure is properly addressed, as my hon. Friend the Member for Oxford East also indicated. Since 2006, the number of HMRC staff has roughly halved, from more than 100,000 staff members to 56,000, and the proposed office closures suggest that more might be on the way. It is not just PCS that is concerned. Anastassia Beliakova said:
“Another concern…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.”––[Official Report, Taxation (Cross-border Trade) Public Bill Committee, 23 January 2018; c. 4, Q1.]
At the end of the day, it is incumbent on the Government to hear what we have to say and act before it is too late to enable frictionless trade, which is one of their primary concerns.
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.
Peter Dowd
I beg to move amendment 19, in clause 55, page 38, line 15, leave out
“on the day on which this Act is passed”
and insert
“when the condition in section (Pre-commencement review: effects on border experience) is met”.
This amendment is consequential on NC11.
The Chair
With this it will be convenient to discuss the following:
Amendment 22, in clause 55, page 38, leave out line 23 and insert—
“(1A) Section (Pre-commencement review: effects on border experience)and this Part come into force on the day on which this Act is passed.”
This amendment is consequential on NC11.
New clause 11—Pre-commencement review: effects on border experience—
“(1) The condition in this section is met when—
(a) HMRC Commissioners have carried out a review in accordance with the provisions of this section, and
(b) the Chancellor of the Exchequer has laid a report of that review before the House of Commons.
(2) The review by the Commissioners under this section must consider the likely effects of implementation of the provisions of this Act on the border experience of importers and exporters and those engaged in associated economic activities.
(3) The review must consider separately likely effects on the border experience of those importing goods from or exporting goods to the European Union.
(4) The review must consider the matters specified under subsection (3) in relation to—
(a) circumstances in which there is no withdrawal agreement with the European Union (within the meaning of section 9 of the European Union (Withdrawal) Act 2018),
(b) any implementation or transitional period after the United Kingdom’s withdrawal from the European Union, and
(c) the period subsequent to that specified in paragraph (b).
(5) The review shall have regard to information provided by the Secretary of State about the likely outcome of negotiations between the United Kingdom Government and the European Union.”
This new clause requires HMRC to provide an assessment of the effects of implementation of the Bill on the border experience of importers and exporters and those engaged in associated economic activities, with particular reference to trade with the European Union, prior to commencement of the main provisions of the Bill.
Peter Dowd
The amendment seeks to oblige HMRC commissioners to carry out a pre-commencement review of the effect on the border experience. The Chancellor of the Exchequer will then be mandated to lay a report of that review before the House.
The reasoning behind new clause 11 is simple: we are facing a shift of enormous magnitude, which demands a corresponding change in our approach to how we practically handle the processing of customs at the border. The change comes at the same time as existing resource challenges to HMRC. We are concerned and will continue to be so about the issue of provision to the appropriate authorities. I have made that point to the Minister time and again, and I hope he listens to what we are saying, even at this late stage.
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
I beg to move amendment 102, in clause 55, page 38, line 17, after “(2)”, insert “and (2A)”.
This amendment paves the way for amendment 103.
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.
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”.
Kirsty Blackman
Further to that point of order, Mrs Main. In addition to the other thanks, I think this has been a very good debate and we have spoken in a lot of detail about a huge variety of issues, because the Bill covers a number of different things. The amount of knowledge expressed in the room has been a good display of what Parliament can do when it is doing something in the right way.
In particular, I say a huge amount of thanks to the Clerks, who have been absolutely invaluable in their support to me. I could not have done this without them—they have been fantastic, so I thank them so much.
Taxation (Cross-border Trade) Bill (Third sitting)
Peter Dowd ExcerptsThursday 25th January 2018
(8 years ago)
Public Bill CommitteesRead Full debate Taxation (Cross-border Trade) Act 2018 View all Taxation (Cross-border Trade) Act 2018 Debates Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 25 January 2018 - (25 Jan 2018)
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.
Anneliese Dodds
I shall speak to amendment 78, which has already been referred to. To be clear, we already have a list in the Bill of different considerations that ought to apply when calculating the rate of import duty for goods in a standard case, which includes,
“the interests of consumers…maintaining and promoting the external trade…maintaining and promoting productivity…the extent to which the goods concerned are subject to competition.”
That is why we suggest that we should have a holistic look at other matters that should be considered.
That is particularly important when it comes to the calculation of import duties with a view to environmental sustainability. When the current chief co-ordinator at the World Trade Organisation, Christiane Kraus, was at the World Bank, she spelled out reasons why environmental considerations might be relevant to the setting of trade parameters, in the absence of other mechanisms for promoting global environmental common goods. We may well be entering a period where it is very difficult to get international agreements on environmental matters, not least because of the direction of the American Administration, so it seems sensible to retain the possibility of so-called eco-tariffs in the Bill.
In addition, even inside the EU’s customs regime, there is evidence of illegal waste trading. Revelations from the Environmental Investigations Agency concerning the toxic trade in cathode ray tubes from the UK to Nigeria and Ghana make for very disturbing reading.
It is absolutely appropriate that we refer to sustainable development in relation to import duties, and to refer to it in this clause would rectify the fact that there is no mention in the rest of the Bill—I was very surprised by this—of the many factors relating to sustainable development that are otherwise covered by the EU customs regime. There is no mention of the environment, aside from the competitive environment; of forestry, aside from in relation to trading stamp schemes; or of chemicals, waste or wildlife. That is a significant departure from the EU customs regime.
The EU’s rules around authorised economic operators indicate that, for a company to become a member of that scheme, it needs to show that it does not have a record of serious infringements, including infringements against environmental legislation. EU legislation is clear that that status can be suspended if there is a threat to public safety, the protection of public health or the environment.
Many other areas in the customs regime that reference or have cross-connections with accompanying EU legislation are not picked up in the Bill. EU forest law enforcement, governance and trade—FLEGT—covers a licensing scheme for timber. That is relevant to import duty costs, because the importer is liable for the cost of the verification of any licences and of the translation of any paperwork related to its enforcement. Illegal, unreported and unregulated fishing is strictly controlled through EU regulation. Trans-boundary shipments of waste must comply with the 2006 EU waste shipment regulation.
The CITES treaty applies to wildlife, so we would still be covered by that when we leave the EU, but the EU goes further—that is incorporated in the overall customs regime. For example, there are regulations about documentation and labelling and a longer list of species upon which import controls are applied for the EU compared with under CITES. Finally, when it comes to measures about trade in environmentally-damaging chemicals, we have EU-level quotas on ozone-depleting substances and carbon-producing F-gases, and a notification procedure for other potentially dangerous chemicals.
I accept that in all those areas we could be asking for lots of different amendments to try to rectify some of these problems—I am sure Members will try—but having that environmental sustainability criterion for assessing import duties in the Bill, and placing it near the start, will raise its profile, which the Government sadly seem not to have considered at all when putting the Bill together. That is worrying given the prominence of these matters within the EU’s existing customs regime.
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—
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)
Peter Dowd Excerpts(8 years ago)
Public Bill CommitteesRead Full debate Read Hansard Text Read Debate Ministerial Extracts
The Chair
With this it will be convenient to discuss the following:
Amendment 7, in clause 32, page 19, line 14, leave out subsections (2) to (4).
This amendment is consequential on NC1.
Amendment 8, in clause 32, page 19, line 31, leave out
‘other than regulations to which subsection (2) applies’.
This amendment is consequential on NC1.
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).
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.
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.
The Financial Secretary to the Treasury (Mel Stride)
Thank you for not mentioning it.
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—
Peter Dowd
I refuse to use the phrase “strong and stable”, but if the Government had confidence in their policies, they would not shy away, in any way, from the proposals that we have set out. I am interested to hear what the Minister says about them. In the oral evidence sessions, several witnesses expressed concern, and were reluctant to agree that the lines of communication between businesses, between organisations, between agencies and so on were conducive to getting a proper hearing. I think Members most probably got that message from the witnesses. Communication lines are there, but in a sense no one is at home; that is certainly the perception that I got.
Customs tariffs will be unamendable and unchangeable except, in effect, at the whims of the Chancellor and a Trade Secretary. It may well be that those individual Ministers are very open to dialogue and persuasion, and are in listening mode. Then again, they might not be, and this Parliament has always challenged the whim of whoever might be in power. [Interruption.]
The Chair
Order. I am sure the hon. Member for York Outer (Julian Sturdy) knows where the off switch is. Perhaps he would like to find it?
Peter Dowd
The Government have done precisely the same thing in relation to scrutiny—they have turned it off.
As I said, we cannot allow this to be left to the whims of a Minister, because as has been suggested in the last day or two, the amount of Ministers coming and going has been vast, and it is causing a certain amount of dissonance in the operation of Government from what I can gather, and from what the report says. So, we cannot have a system that is at the whim of this dissonance, so to speak, in two or three years’ time—whichever party is in power.
Ultimately, this comes back to the phrase by James Otis, which must have been quoted millions of times in the House in the three or four centuries since it was spoken: “No taxation without representation”, because that leads to tyranny.
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
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.
Kirsty Blackman
I beg to move amendment 107, in clause 9, page 6, line 24, leave out “may make regulations” and insert
“must make regulations following consultation with relevant stakeholders”.
This amendment requires the Treasury to consult relevant stakeholders before making regulations giving effect to an arrangement for a preferential tariff.
To explain the reasoning behind our amendment I need to mention a couple of things in the clause. It is headed, “Preferential rates: arrangements with countries or territories outside UK” and the explanatory note explains more about those:
“This clause broadly covers any arrangements, international agreements or memoranda of understanding”.
Therefore it relates to whenever there is a move away from a most favoured nation tariff into a free trade agreement, or some other form of preferential tariff rate.
This short amendment would make two changes to the Government’s intentions around the clause. First, it would leave out “may make regulations” and insert “must make regulations”. In subsection (1), the Bill states that,
“the Treasury may make regulations to give effect to the provision made by the arrangements”.
If there has been an international agreement, surely the Treasury must make regulations, because that would be sensible. That is the first change we suggest.
The second change we suggest is on consultation. It is clear that there has not been the right level of consultation. The Government have said that if they are varying the rate of import duty downwards rather than upwards, there should be a less rigorous procedure, but if the rate of import duty is varied downwards, that may have a greater effect on our local producers and manufacturers. The amendment asks for there to be “consultation with relevant stakeholders” in advance of not just international agreements, but any of these changes.
When the Government are deciding to make international regulations, it would be useful if they first consulted the House using the existing processes. I understand that most Governments across the world make trade regulations with the authority of the House, rather than simply by the authority of the Executive. In the absence of those kinds of changes, which are outside the scope of the Bill, we are asking for the Government to definitely make the regulations—if they are bound by an international treaty or agreement, it would be sensible to do so—but to consult with relevant stakeholders. We want to put that duty of consultation on the Government.
Peter Dowd
The points that the hon. Lady makes hit the nail on the head in relation to engaging with those who will be affected by the legislation. I fully understand where she is coming from.
The clause allows the Government to introduce through regulations a lower preferential rate of duty applying to goods originating from specific territories. It also covers a broad range of situations, including arrangements between the UK and a British overseas territory, free trade agreements negotiated with Britain and other countries, and a possible customs arrangement with a large economic regional organisation such as the European Union. Preferential trade agreements comprise a variety of arrangements that favour member parties over non-members by extending tariff and non-tariff preferences. PTAs, particularly free trade agreements, have proliferated in recent years. In the post-war period, the EU has developed the largest network of PTAs in the world. The explanatory notes state:
“The ability to use a preferential rate under an arrangement may be subject to any conditions specified in the arrangement, including…quotas, rules of origin or safeguard measures.”
Given that context, it is important that stakeholders are taken into account, as the hon. Lady says. There could be a wide range of stakeholders, and the proposal suggested by the Minister did not go far enough. He almost seemed to suggest that everybody is included, but everybody is not included if the Secretary of State does not want to include them. The clause presents another example of the litany of delegated powers found throughout the Bill. The Treasury takes immense powers without proper consultation right across the board.
Clause 9 is beyond vague when it comes to explaining what consideration the Treasury will make when introducing regulations that will pave the way for offering preferential rates. The clause leaves a range of questions unanswered, particularly around the test that the Treasury will put in place before preferential rates can be included.
I am sure that all members of the Committee agree that reciprocal preferential rates are the foundation of free trade agreements. Again, that goes to the heart of who is to be consulted on this one, and the clause gives a free hand to introduce regulations that will create preferential rates and seem to open the door to the Treasury to—
The Chair
Order. This is a narrow debate on amendment 107. There will be a debate on clause stand part later. I ask the hon. Gentleman to confine his remarks to the amendment proposed.
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.
The Chair
With this it will be convenient to consider:
New clause 2—Preferential rates under arrangements: enhanced parliamentary procedure—
(1) This section applies to—
(a) the first regulations to be made under section 9 in respect of a country or territory outside the United Kingdom, and
(b) any other regulations under that section the effect of which is an increase in the amount of import duty applicable to any goods set by any regulations to which paragraph (a) applies.
(2) No regulations to which this section applies may be made by the Treasury in exercise of the power in section 9(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) a statement of the terms of the arrangements made with the government of the country or territory outside the United Kingdom; and
(b) 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)(b), the rate of import duty applicable to goods, or any description of goods, originating from the country or territory.
(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), give effect to the terms of the resolution referred to in subsection (5).
This new clause establishes a system of enhanced parliamentary procedure for regulations setting lower import duties as a result of an arrangement made with the government of another country or territory, with a requirement for the House of Commons to pass an amendable resolution authorising the rate of import duty on particular goods.
Peter Dowd
My new clause 2 would require a vote in the House on regulations that lower import duties as a result of an arrangement between the Government and another country. I will wrap that up with speaking to the clause in general, with your permission, Mrs Main.
The powers the Government have given themselves under the Bill to offer preferential rates to other countries through free trade agreements, and with no regard to the House of Commons, should concern us all. I will return time after time to the theme of parliamentary accountability. The lowering of import duties, if done carelessly and without consultation of key industries, can have disastrous economic consequences that can destroy whole sectors and cost jobs and livelihoods. The Government have made it clear that this is a money Bill, as I said earlier, and will therefore not be subject to further scrutiny.
In that regard, the raising and lowering of tariffs are in effect the taxation of goods coming into the country. As far as I am concerned, it is crucial that we maintain frictionless negotiation of free trade agreements, instead of risking the scenario that I am afraid the Bill will almost inevitably enable or provide for. It appears that the powers outlined in the clause, as in other clauses, comprise a huge accretion of power to the Treasury, which will give it a hegemony in Parliament, notwithstanding the issue of negative or affirmative resolutions. Ministers will be left to their own devices to introduce regulations where they see fit, with no parliamentary oversight of any significance, and no requirement to consult industry or the relevant stakeholders that the changes will affect. Similarly, there is no inkling about what considerations or conditions the Treasury will agree to when it comes to entering into preferential rate agreements, particularly whether industries will be protected by the use of quotas or rules of origin.
Peter Dowd
My hon. Friend makes a very important point. There is a danger that we are walking into this with a bit of a fuzz around us. We just do not know the impact this will have on us. If the Government do not get it right, as in spot-on, it is potentially very dangerous for our industries. That is why we are concerned, which is another of our themes in relation to the Bill: one is about democratic accountability, and the other is about how the Bill will protect our vital industries, from manufacturing right the way through the whole ream.
The scenario I referred to earlier is far from absurd and reflects the reality that, when it comes to negotiating and signing free trade agreements, there are always winners and losers, particularly when negotiating with countries that are larger both in population and economic size.
The free trade agreement negotiated between Australia and the United States in 2004 was negotiated in a relatively quick period, and it was so bad that officials refused to recommend it to the Australian Parliament. John Howard, the then Prime Minister, was forced into signing it by President George W. Bush, who essentially reminded him of the close security collaboration between the two countries. After signing, John Howard was often and repeatedly chided by political opponents who would shout, “Where’s the beef?”—a reference to the failure of the free trade agreement to stimulate beef exports for Australia.
We do not want to be in that situation. The UK could easily find itself in a similar scenario whereby we will offer preferential rates to the USA or China, with little in return. In November, we had Wilbur Ross, the US Commerce Secretary, saying that the UK retaining EU regulations on chemicals, genetically modified crops and food safety would represent “landmines” for a potential deal. The Secretary of State for International Trade is reported to have given him private assurances that this would not be a problem.
Stakeholders could find themselves shut out of the process. The Opposition’s concerns are not scaremongering, particularly when we have a Secretary of State who has already made it clear that he supports a race to the bottom, with cheaper consumer goods and weaker regulations and standards. Again, our witnesses spoke about how it is not consumer against producer—the two are almost interchangeable. If we look at the trade remedies outlined in the Bill, we see the Government have ensured there is a clear economic interest test for the Treasury to follow that does not consider the interests of UK manufacturers or key industries, which is unique among most World Trade Organisation countries.
If this Bill and the Trade Bill remain unamended, the Treasury will have to take the advice only of the Secretary of State in that regard, but it will receive a recommendation from a Trade Remedies Authority that will be appointed by the Secretary of State and no doubt made up only of people he trusts—that does not mean that anyone else does—unless its composition is amended in the Trade Bill. We saw that only yesterday, with a vote in the House of Commons in relation to the Electoral Commission. Parliament is entitled to express a view on such appointments, but in this case I do not think we will get that capacity. It certainly does not seem to be in the Bill. Key stakeholders will therefore bear the brunt of any changes to tariffs and again effectively be shut out of the process.
Those key stakeholders will be at the mercy of a Secretary of State who appears to be desperately attempting to negotiate free trade agreements at any cost and potentially to pay a price that most of us would not be prepared to pay. If hon. Members do not have the ability to challenge it, the Treasury will also have a free hand to introduce regulations that will set the framework for the lowering of tariffs which, if we are not careful, will change the UK economy as we know it. I exhort the Committee to think carefully on the proposals in the Bill and to take into account what we say in our new clause.
Graham Stuart
I thank the hon. Lady for her passionate espousal of a number of interesting issues. I will respond as best I can, but my three weeks in this post probably does not match her many years of expertise.
As highlighted, clause 10 and schedule 3 ensure that the UK can operate a unilateral trade preference scheme when the UK leaves the EU, supporting our long-standing commitment to support developing countries. The group of least-developed countries, as set out in schedule 3, are among the poorest in the world. As I said, providing nil-rate import duty access to goods from those countries helps them to reduce poverty through trade and is part of the UN’s sustainable development goals. Clause 10 enshrines that in UK law, ensuring that the commitment will be maintained in future. The clause is not prescriptive about the level of import duty for other eligible developing countries—they are listed in part 3 of schedule 3—that are not designated as least developed. However, as I have mentioned and as the Government set out in the trade White Paper, the Government’s policy intention is to ensure continuity at the point of exiting the EU by replicating the market access of all countries currently part of the EU’s generalised scheme of preferences.
I take on board the fact that the hon. Lady talked about being more ambitious. We have said that, as a Government, we wish to be more ambitious, but we need to bring into place in this country continuity from the existing system and give assurance and confidence that we are not opening up. If we open up the issues more widely, we will create uncertainty as to what we will continue—we may be strengthening in some areas; we might weaken in others. I therefore ask the hon. Lady to accept that I need to think and talk to her over time about some of the issues that she has raised. We do want to be more ambitious in the future, but for now, we believe that the right thing to do is to have continuity with the existing system and bring that as effectively as we can into UK law.
The amendment proposes that changes to schedule 3 be done by the affirmative procedure. As I have mentioned, eligible developing countries will be determined with regard to the classification by the World Bank or UN. The Government need to be able to react promptly to a country’s change in economic circumstances. Similarly, the power to specify the meaning of the term “arms and ammunition” is intended to allow the preference scheme to adopt the same nomenclature enabled through clause 8 for the customs tariff, which will itself be constrained by international nomenclature.
As I said, our intention is closely to replicate the EU’s preference scheme, including the GSP-plus tier. That is the enhanced tier of preferences available for economically vulnerable countries that ratify the international conventions I have mentioned. We expect beneficiary countries to continue to respect the conditions in GSP-plus, including meeting those international obligations. Those conditions will be set out in secondary legislation, as clause 10(2)(b) allows.
The question is asked why we would give preference to Cambodia even though land disputes have occurred following the EU’s everything-but-arms access. A key objective of the UK is building the UK’s prosperity by increasing exports and investment and promoting sustainable global growth. Greater prosperity leads to greater stability. We are aware that the Government of Cambodia have taken steps to improve their issue of economic land concessions, such as introducing a compensation process. Furthermore, the Ministry of Environment cancelled more than 20% of all economic land concessions. For now, therefore, we continue to work through the EU’s GSP monitoring system, and we seek to bring the existing system into UK law.
Peter Dowd
I rise to speak to the Opposition’s new clause 4 and will also touch on schedule 3, if I may. We do want to require a vote in the House of Commons on the giving of preferential rates unilaterally to developing countries—I do not mean in relation to amendment 80, but in future. We can all agree that the Government have a responsibility to ensure that our trade policy works for everyone, including the poorest in society, and how tariffs are set has an important bearing on that.
The Minister was very clear and comprehensive about the Government’s direction of travel. I welcome him to his position—as a former Whip, he has come out of the darkness into the light—but I also agree that the current Government Whip, the hon. Member for Macclesfield, is much better.
Kirsty Blackman
I thank the hon. Gentleman for that clarification. I appreciate that his knowledge of sugar is better than mine.
On quotas in particular, the situation is that the UK and the EU Commission have now decided how to divide the quotas and the amount that is lodged as a schedule with the WTO. However, in September 2017, Uruguay, Canada, Thailand, Argentina, Brazil, New Zealand and the US wrote a letter to say that they contested the way in which the UK and the Commission had decided to divide up the quotas, and that they had a concern about the decision taken. I can understand that concern.
For example, let us say that beef is coming into the UK and the EU. If we have a collapse in the beef market in one of those places, the beef cannot simply be redistributed to other countries. That is particularly so in the case of the UK. If the UK ends up with a tenth of the EU’s quota for beef, and the quota allows for 100 tonnes of beef, 10 tonnes of that are a quota allocated to the UK. If something strange happens in the UK, everyone decides that they do not want beef burgers or steaks any more and the market collapses, the country exporting the beef to the UK cannot just send it to another country, because the UK schedule will be the UK schedule alone.
I can therefore understand why countries are unhappy with how that division is working and why they have come back to say that they do not think it is a technical rectification. That is a serious thing in the WTO, because if the change of quota is not a technical rectification but a modification of the schedule, it needs to go through more of a process in order to be agreed.
My big concern is that none of that seems to be in this legislation. None of the way in which the UK Government will be dealing with the WTO on quotas or defending itself against challenges brought to the WTO seems to be in the Bill. While I am on the subject, to throw the cat among the pigeons, I have not seen anything in the European Union (Withdrawal) Bill, in this Bill or in the Trade Bill that gives the UK Government the power to lodge schedules with the WTO. I hope the UK Government have not missed that and it is written somewhere in one of the pieces of legislation, because it would be rather unfortunate if the UK Government were, post-Brexit, unable to lodge schedules with the WTO or to have its most favoured nation tariffs lodged with the WTO.
I hope that that power is in one of the pieces of legislation—I am happy for the Minister to come back to me and mention it afterwards—because clearly we want to be in a situation in which, post-Brexit, the UK continues to be a functioning country and is able to have tariffs, not just preferential ones but most favoured nation ones as well. Generally, I have concerns about the provisions on quotas because I am not sure that they adequately fulfil all the things that the UK will need to do on quotas.
I have thrown an awful lot of things at the Minister—not literally, I hasten to add for anyone reading this later—and I am happy for some of them to be dealt with at a future sitting. My concern, however, is that because we are leaving the EU and doing so in a short period of time, so legislation has been hastily drafted, some things might be missing. If that is indeed missing, that would be amusing because it is pretty fundamental going forward. I will appreciate the Minister’s providing some clarification, if he can, on the clause.
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.
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.
The Chair
With this it will be convenient to discuss the following:
Clause 12 stand part.
Amendment 9, in clause 32, page 19, line 32, after “regulations” insert “under section 12 and”.
This amendment is consequential on Amendment 5.
Peter Dowd
I am pleased that the Minister is getting the drift of our line after several hours—[Interruption.]—I hear the Minister saying “with much repetition” from a sedentary position, but I do not think it is as repetitive as the Government’s refusal to give Parliament scrutiny. It is a persistent “No, no, no” from the Government, and that is dangerous. I do not say that as a Labour Member per se; I say that as a democrat. It is crucial that Government Members recognise that. I am sure some of them do, because these things come back to bite Members when they are in a different position. I exhort them to listen to what we say—no matter how often I say it.
The Chair
Order. I suggest that the hon. Gentleman’s comments should be pertinent to the part of the Bill that he is discussing, rather than a reiteration of points that have already been made.
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)
Peter Dowd Excerpts(8 years ago)
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Peter Dowd (Bootle) (Lab)
Q
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
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
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.
Mike Hill (Hartlepool) (Lab)
Q
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
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
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.
Peter Dowd
Q
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
“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
“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
“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
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.
Taxation (Cross-border Trade) Bill (Second sitting)
Peter Dowd Excerpts(8 years ago)
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The Chair
Thank you very much for that. If the gentlemen—or ladies—are finding this room warm and they would like to remove their jackets, they should feel free to do so. I call Peter Dowd.
Peter Dowd (Bootle) (Lab)
Q
Ben Richards: Our view is that, particularly in the scenario we will move into after Brexit, having an effective trade remedies regime for the UK is vital to protecting our manufacturing industries and the members we represent in those industries.
One of the major problems we have with the Bill is that, because so much of the crucial detail is being put into regulations, it is hard to assess properly at this stage whether it gives adequate protections. Certainly, from reading the Bill as it is now, our view as Unite is that it does not appear to give even the same protections as we currently enjoy in the EU regime, and we want to see a stronger trade remedies regime introduced in the UK in future.
Kathleen Walker Shaw: I work for the GMB, which has a number of members across a number of manufacturing sectors. I have to say that when I read the proposals in the Bill, I was extremely alarmed by how weak the remedies were in terms of anti-dumping cases. This is a complex area of trade law, and we know from the European experience, where there is a very robust system, that you cannot take your eye off the ball when you are pursuing those cases. They are very data, document and resource-heavy cases to bring forward.
I just feel that the provisions in the Bill do not fulfil the promise we were given that British jobs, British industry and the British economy would thrive post-Brexit. I feel that huge risks would be taken with our ability to protect and promote British industry and British jobs if the proposals were not amended.
Rosa Crawford: If I could add some specific concerns that we have, there is a compulsory lesser-duty rule in the Bill, which would mean that anti-dumping measures were not adequate. There is ample evidence that the lesser-duty rule is not efficient. Indeed, at EU level, the rules have been reformed to take away compulsory use of the lesser-duty rule, yet it is in the Bill, which would not provide adequate protection against dumping. There is also an economic interest test and a public interest test in the Bill. Those would allow the Secretary of State to veto recommendations by the trade remedies authority that trade remedies should be applied. We regard that as an overreach of the Secretary of State’s power that will not lead to an effective trade remedies mechanism being established.
Also, building on what Ben from Unite was saying, we are seeing a whole area of trade remedies in the Bill left to secondary legislation. China, a non-market economy, has clearly been one of the worst offenders in the last few years and has affected steel and other sectors in which we have significant numbers of members. There has been a real negative impact on jobs, and there is nothing in the primary legislation about how they will be dealt with. Again, for that we would need to see there being an effective trade remedies mechanism post-Brexit.
Peter Dowd
Q
Ben Richards: One of the things that we have been doing, as Unite, with the GMB, the TUC and our sister union, Community, is working very closely with employer organisations from a number of key sectors, in forming the Manufacturing Trade Remedies Alliance. That is in industries such as paper, steel, chemicals, tyres and in a number of other industries as well.
What is clear in our experience, certainly from Unite members, is that we have just gone through the steel crisis, which immediately threw up a crucial or fundamental issue for the UK’s manufacturing industries, but it feeds into many other areas. Our members in the paper industry are particularly concerned. There are also the rubber tyre and ceramics industries as well as many others, which are represented not only by Unite but by the GMB, Community and many other TUC unions.
Jonathan Reynolds (Stalybridge and Hyde) (Lab/Co-op)
Q
My worry on the public and economic tests is that, even in something like the steel crisis, there were people arguing for the benefits of very cheap steel coming into UK for construction and so forth. If those tests are not drafted correctly, frankly, we do not have any trade remedies at all. If we are going to have them in the Bill, how can we draft them to ensure that they are robust and fair? Who should be involved in the Trade Remedies Authority to ensure that that is the case?
Ben Richards: We need an opportunity to have that debate, which we will not have at all with the Bill as it is currently drafted. It will simply be written into secondary legislation—we will not have that ability. We have four or five minutes left to have a discussion about how it should be drawn up. It would take us another couple of hours. That is what we want, as a trade union movement: an involvement in these discussions and debates.
We have huge concerns about the way in which the appointments are being made to the Trade Remedies Authority. In effect, in the way that the Bill is currently written, we are not seeing one economic interest test but three. To give you a one-sentence answer about how it should be is very difficult: we want to engage in that debate. We want to have a role in that process in the future to ensure that our members are confident that those decisions are being taken with their interests in mind.
Kathleen Walker Shaw: On the Trade Remedies Authority, its structure is very important. We would like to see it set up in line with the Health and Safety Commission, where we have three employers, three trade unions and three other interests. I am a bit concerned that we are limiting that to nine, because I have a strong concern that devolved Administrations need to be involved in that process as well.
I would also like to see the Bill developed to give a role for parliamentary scrutiny—for the TRA to be liaising with structures within wider parliamentary scrutiny—on the European economic area IT, and on the decisions of the TRA, and to remove the power of the Secretary of State to veto a decision of the collective scrutiny of Parliament and the TRA on remedies. In that way, we might be some way to getting to the bottom of a justified and effective remedy.
Peter Dowd
Q
Kathleen Walker Shaw: You are picking at a wound there. I was the poor person that drafted our response to the trade White Paper. I spent a lot of evenings doing that and I was more than a little concerned when I submitted that paper—less than eight hours later, the Bills were published. For people who take policy and their engagement with Government and Parliament very seriously, it was difficult not to feel the contempt with which that response that I spent hours sweating over to place before Parliament was received.
Consultation over the trade and customs Bills is vital because the Government have to get this right. There is no margin for getting this wrong. The future of Brexit hangs on these two bills: trade and the taxation cross-border. That is what our success or failure post-Brexit will hang on. I am very nervous about it, but I am more nervous about the fact that the Government are pretending that they are consulting us and they are not. We are very serious people and we want to be taken seriously. We want to help you to get the trade Bill and the cross-border trade Bill right, but we can do that only if we are a serious part of the process.
We have been engaging, but we have not been listened to. It is not enough for the Government to say, “We have consulted”, because if you miss off, “But we haven’t listened to a word you’ve said”, the quality and the integrity of that consultation is brought into severe question. It will not stop us from being delighted at being invited to come and have these conversations with you—we are not making this up, particularly Alan, who works for HMRC.
Alan Runswick: On delivery, my union wrote to Jon Thompson, the chief executive of HMRC, immediately after the referendum result to say that it was a game changer, that he needed to pause the office closure programme, stop making people redundant and evaluate this new situation. We have not even mentioned, and we will not get to, the issue of import VAT for business and for delivery. As well as customs duties, there will be a big increase in import VAT transactions. They will need to be processed, and staff will need to run a compliance regime under the new situation, to counter evasion and avoidance.
We also feel that we have not been properly consulted. We have been trying to engage the Department in serious talks about delivery, how staff can be recruited and trained and how we can retain the existing skills. We most definitely feel that we have not had those serious discussions about how HMRC can be made fit for purpose in the new Brexit position.
The Chair
There are no further questions from Members, so I thank the witnesses for their evidence this afternoon.
Examination of Witness
Joel Blackwell gave evidence.
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: I am not sure it is a significant shift; the problem has always been that the balance between Parliament and the Executive in the control of delegated legislation has always been on the side of the Executive. We have always argued, and have argued in this report, that you need to redress that balance, and part of that would be to improve the scrutiny procedures that I have mentioned. I would not say that there has been a fundamental shift from this Bill onwards. There has always been an issue regarding the balance of power in the use and scrutiny of delegated legislation.
Peter Dowd
Are you saying, therefore, that this is neither a quantitative nor a qualitative shift of power from Parliament to—
The Chair
I think that question has been posed in three different ways, so unless Mr Blackwell has anything else to say, I am not sure he can add to it.
Joel Blackwell: No.
Anneliese Dodds
Q
Joel Blackwell: On the first point, with regards to sub-delegation or tertiary legislation and this use of public notice, the fact that they will not be subject to any parliamentary scrutiny is concerning. We basically reiterate the points made in the Delegated Powers and Regulatory Reform Committee: that if public notices can do the same as regulations they should be subject to parliamentary scrutiny, just as regulations would be. Sub-delegation is an issue for us because there is a lack of parliamentary scrutiny. In some cases it might not be appropriate, but it should still be considered as usual practice, and at the moment it appears not to be.
With regard to the Trade Remedies Authority, the Hansard Society has not really considered that yet. My colleague Brigid has probably, as I speak, just finished on the Trade Bill, so I am happy to write to the Committee about our points on that.
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.
Nic Dakin
Q
Robert Windsor: I will take the lead on that, because the freight borders are heavily engaged in this. CDS has been an ongoing project for about three and a half years. Customs did quite a lot of research with industry on what its requirements were. They have been doing a development stage, which, I have to be honest, is highly technical and way beyond anything that I can understand, although software suppliers and the community service providers have been part of the technical workshops on it. They are now starting to talk directly to us and, as a trade association, we are receiving quarterly updates on the project. I really do not want to comment on whether we think it is going to succeed or be delivered on time, because at the moment it is still under development. Part of the problem that they have, which is not of the team’s making, is that some of the data elements are still to be defined within the Union customs code, such as the format of a unique consignment reference. That matter still needs to be resolved.
Richard Ballantyne: This is a technical area, and Robert and his colleagues will be concentrating on that, but all three of us sit on the Joint Customs Consultative Committee, which is HMRC’s main stakeholder committee, and there are opportunities to get briefings on CDS. I feel personally that if we want the information, it is there.
Tim Reardon: What I would say on CDS is that it is an importers and exporters system. As carriers, we have very little interface with it, but our engagement with Revenue and Customs has been constant and continual since the referendum result, when it became apparent that there was a significant new element of uncertainty about whether the 40% of the UK’s international trade that arrives and leaves in trucks on ferries was going to be able to continue doing as it did.
Richard Ballantyne: Yes, at a very general level, ports touch many Government Departments in terms of policy regulation, and of all the Departments, HMRC has been the most forthcoming since the referendum. The amount of engagement has been quite unprecedented. That is not necessarily to speak negatively about the other Departments, but HMRC has really taken the lead.
Peter Dowd
Q
Robert Windsor: The Joint Customs Consultative Committee meets three times a year, and it covers areas of strategy that are impacting on importers, exporters, freight forwarders, shipping lines, whatever. Since Brexit, the JCCC has established sub-committees specifically dealing with Brexit as an issue and that group, if I remember correctly, meets about four times a year.
The Chair
Before we go too far down a route that is not to do with this Bill, I hope that you can get your remarks back on track. I know you are answering Mr Dowd’s question, but the discussion seems to be somewhat off the message.
Richard Ballantyne: This Bill, this legislation, will be considered by that group.
Peter Dowd
Q
Robert Windsor: There was consultation about the White Paper but there has been no consultation about the actual Bill as it has come out.
Tim Reardon: The clauses of the Bill were not exposed to consultation at all before the Bill was published, as far as I am aware, and certainly not through the forum of the JCCC.
Richard Ballantyne: No—we are all on circulation lists so we get the information directly but, as you both say, it has not been formally considered, although part of that is because this has been quite a quick process. When we had the proposals to update CEMA—the Customs and Excise Management Act 1979—which I think was four or five years ago, there was time and consideration at the JCCC, so perhaps we had a better experience last time .
Peter Dowd
Q
“The Government’s White Paper…outlined an intention to apply a requirement for the goods in such vehicles to be declared prior to shipment so that, on arrival in the port, they can pass straight through in all but exceptional circumstances”.
You go on:
“Schedule 7, paragraph 28, appears to create powers for such an arrangement but is expressed in notably vague terms: their practicability will depend absolutely on detail that is absent.”
How significant is that at this stage, given that we are 15 months away from Brexit? When do you think that you will actually need the detail, especially in light of the fact that you have not been consulted on the Bill in the first place?
Tim Reardon: We would have liked it about four years ago, to be honest. The Bill—that particular paragraph in the schedule—provides for the concept that nothing may be shipped unless the vehicle operator has checked that a declaration has been put in. As a concept, that is unobjectionable, and it has the potential to work, but the devil is entirely in the detail.
Who will the vehicle operator be deemed to be, for example? The Bill widens the definition of a vehicle beyond what anyone in this room I would imagine understands a vehicle to be, so it is no longer simply a thing on wheels but a ship maybe, a train or an aircraft—all of those fall within the scope of “vehicle”. The vehicle operator is any one of those parties in the chain. What is the process by which that business will be required to establish that something has happened? All of those things are critical details to work out whether the thing can work or not.
The issue for us is that it is impossible to tell purely from the powers in the Bill that we will end up with a system that works. We might, and I have absolutely no doubt that everyone’s intention is to create a system that works, but it is impossible to say on the basis of something that is as vaguely drawn as the Bill that it will work. If this is the sole stage of the process where any scrutiny is applied, then clearly one has to take a great deal on trust and faith.
Peter Dowd
Q
Tim Reardon: To be honest, the answer depends on how different where we end up is from where we are now, because what takes time is changing of business processes, construction and reprogramming of IT systems and—worst-case scenario—civil works in terminal infrastructure development. All those things have lead times. How long the lead time needs to be depends entirely on what it is you are trying to do and how much you are trying to change from the current practical reality. Until we can define how different the end state is from where we are now, then—to be honest—it is impossible to put a timeframe on how long it will take to get there.
Richard Ballantyne: To follow on from that, all three of us were at a meeting this morning on border processes and so on, and one of the things we were talking about is the fact that the operators—the port operators, the carriers, the customs providers and other specialists—will not want to make any investments until they know exactly what the detail of the deal is and when that is firmed up.
The Chair
I call Kirsty Blackman. I am aware the Minister responding to the debate in the Chamber is on his feet, so we may well be interrupted for a vote; it will be up to the Committee to decide whether it wishes to resume with this panel after the vote.
Anneliese Dodds
Q
Richard Ballantyne: The British Ports Association is part of the European Sea Ports Organisation, which has a meeting tomorrow on Brexit that I am going to. It includes some of the main UK-facing ports, such as Dublin, Zeebrugge, Calais and beyond. It has been quite difficult. Some of those ports are state-owned, and it is quite difficult for the UK Government to talk with them, although there have been a number of information-type visits looking at customs arrangements as they are and what the operational situation will look like post-Brexit. We have good conversations.
In terms of what is going on with the customs authorities in those countries, it is varied. There is a French customs taskforce—that is an internal taskforce—that I think the ports there are plugged into. I went to see the French ports association to talk about Brexit, and it seemed on top of things, but it is a difficult one. There is a lot of mystery there. Just as the UK Government cannot divulge all the discussions they are having, the ports cannot divulge everything to us. They have to remember that negotiations are being led through the European Commission, so that is the correct avenue.
Peter Dowd
Q
Richard Ballantyne: As you know, the ports industry in the UK is market-led and market-driven. We have three types of port: local authority-owned ports, which operate on a commercial basis in competition with private ports; full private sector ports, or equity ports; and the trust ports, which are Dover, Aberdeen, London and so on, and they are still run on a private basis and pay corporation tax on any profits they make. Significantly, all of them are financially and strategically independent of Government decisions. That has worked. Effectively, the Government have delegated the authority to run the ports because they understand that you need technical experts to manage such things as safety and the commercial arrangements.
In terms of what is going on at the moment, the Government do influence the connections to ports. Ports have publicly owned road and rail connections. Following a lot of lobbying from my association and others, the Department for Transport is undertaking a port connectivity study, which is not about spending any money on connections but about assessing the state of the road and rail connectivity of the UK ports industry, and how we get ports more on the radar when big investment decisions like the road investment strategy and rail strategies are made and Treasury spending budgets are allocated. It is about us, perhaps, rising up. There has been a lot of big-ticket passenger-focused spend, such as HS2, Heathrow and Crossrail. Freight has felt a bit of a poor relation. We are working to improve that, but unfortunately freight does not vote, so it is a challenge for us.
Emma Hardy
Q
Richard Ballantyne: The Department is considering a lot of feedback from the ports. I know Sir John Randall, a former Member of this House, oversaw that as an independent chair. The officials are now working on the final detail. I hope it will make a number of recommendations, and it should be out within the next month. As I say, I think Sir John went to visit Hull.
Emma Hardy
He probably got stuck on the way there. That is good news, thank you.
Peter Dowd
Q
“It has been commented that the Bill is not as precise as Members would have hoped for”—
I suspect you were a diplomat in a different life—
“in terms of either the areas covered by the legislation or in certain cases the powers vested in the authorities. Also from our understanding this document will have to be read with other documents such as CEMA and secondary legislation which still has to be written which has the potential to cause confusion and thus perhaps hinder compliance from Trades perspective.”
To what extent will compliance be hindered? How extensive, how comprehensive, how problematic will that compliance be?
Robert Windsor: It is always more difficult where you have more than one source to draw the compliance requirements from. One of the things that my members have been used to are the codified laws and regulations that have come from Europe, in particular customs codes and things like that. They got more complex as time went on. Basically, there was a single point of reference, so people would go to that and at that point they would pretty much know what was written, how it could be interpreted in different member states—[Interruption.]
The Chair
Order. We are quorate. As has been explained, Mr Stace is giving evidence at another Committee and will be joining us somewhat later. We will now hear oral evidence from UK Steel, the Chemical Industries Association and the British Ceramic Confederation. This sitting will finish at 5 o’clock. Can I ask the witnesses who are here to introduce yourselves for the record?
Dr Laura Cohen: I am Laura Cohen, chief executive of the British Ceramic Confederation. I also chair the Manufacturing Trade Remedies Alliance, a group of seven manufacturing associations, three trade unions and the TUC with an interest in trade remedies.
Ian Cranshaw: Good afternoon. I am Ian Cranshaw, from the Chemical Industries Association. I am the head of international trade and the head of business development.
Peter Dowd
Q
Dr Laura Cohen: The EU has a number of trade remedies in place, the transition of which is being considered by the Department for International Trade at the moment. In the ceramics sector, which I am probably best placed to talk about, we have two measures in place, in tableware and in tiles. These are EU anti-dumping tariffs against Chinese-manufactured products. In tableware, until 2004, Chinese imports had been fairly steady, at around £20 million a year. They then rocketed to £160 million a year. The anti-dumping tariff was introduced in 2013. The Chinese imports have held steady, but even that has allowed our members to stabilise and invest, and employment has increased by 20% to 5,000 UK jobs since 2013.
On tiles, there were about £2 million to £4 million of imports in 2004, and that increased pretty rapidly to £30 million. Anti-dumping duties started in 2011, and they have now fallen back to about half that. Please note, we have just had a renewal in Europe of the measures, on 22 November 2018, following an expiry review. The dumping margin had increased during that period. UK manufacturing employment has increased by 40% to 1,000-plus UK jobs since 2011, so that is good news for UK jobs, but both measures really benefited the UK supply chain, not least the kaolin and ball clay industry in Devon and Cornwall, which employs about 1,500 people. That is part of the 2,500 jobs in the materials supply section of our membership.
Just to bring this example to life, the Minister, Mel Stride, met British Ceramic Tile in his constituency, which has about 400 manufacturing jobs, last week, and it reinforced the message. The Minister also has two Imerys clay quarries at Newbridge and Ringslade in his constituency, which supply the sector.
I just wanted to point out something about the renewal. The Chinese spare capacity increased between 2011 and 2016 by more than four times the entire European Union consumption. The European Commission was very concerned by this development. The extra capacity is propped up by state distortion. I do not say that lightly, because the evidence is quite clear. In December 2017, the European Commission produced a report on the Chinese economy which found gross subsidies and state interference in the manufacturing industry. I quote from the report. The first parts show:
“The overall picture that emerges concerning the framework in which economic activity takes place in China is one where the State continues to exert a decisive influence on the allocation of resources and on their prices.”
The second part of the almost 500-page report says:
“The analysis shows that the allocation and pricing of the various factors of production is influenced by the State in a very significant manner. The third part…examines a number of sectors. These include steel, aluminium, chemicals and ceramics. The sectors have been selected because they are the ones that have featured most in the EU’s anti-dumping investigations since the conclusion of the Uruguay Round. Taking the perspective of individual sectors allows a closer look at the specific rules and dynamics in that sector, but this examination also echoes the findings in the preceding two parts, i.e. the significant distortions resulting from the specific features of the Chinese economy and those found in relation to the various factors of production.”
The report noted that the State Council in China combines the implementation of the belt and road strategy, to actively conquer markets such as Europe. Therefore, anti-dumping remedies are there when competitors do not play by the rules.
The Chair
That was a very comprehensive answer. I hope we can condense further answers slightly.
Peter Dowd
Q
Ian Cranshaw: I may not go into the same detail that Laura did—I am sure I will receive some encouraging signs.
Just looking at some of the bigger numbers so that we all know how many trade remedies we are talking about, I think the EU has something like 130: 50-plus in steel alone; 27 in chemicals; and I think Laura mentioned a couple in ceramics. Again, you need to drill down and understand what the UK’s standing is in those 27 in chemicals across Europe. I believe there is just one where we have gone out, and I know there is a call for evidence by the Department for International Trade of all UK standing in all of the wider remedies in place. That puts it into context.
Again, I would hold my hand up and say that we are all on quite new ground in this area, apart from UK Steel, which has been incredibly active over the past couple of years. I held a roundtable with some member companies a year ago and got all of the major players in the UK chemical industry. That is interesting, because more than 70% of UK production is by companies headquartered overseas—so that was not necessarily UK companies.
It was very interesting that, when I talked to one of the German companies about trade remedies and trade defence instruments—I will not mention the name, but you will probably work it out—its perspective was, “Well, we have no trade remedy experience or personnel in the UK at all.” Nor did the trade association. We have happily contributed to EU development of policy, but actually, in leading on this, we had no expertise.
The German company pondered for a moment and said, “Actually, if in the future we had to raise a trade issue with the EU—us accusing it or it accusing us of dumping or subsidy—the UK transplant would have to ask our headquarter operation for advice and policy in the expertise in which to raise a concern or complaint to the WTO.” That was quite interesting. I am not sure if I answered the question, but that was a specific example.
Peter Dowd
Q
Dr Laura Cohen: A remedy is addressing unfair competition when overseas manufacturers are not playing by the rules. The ceramics industry and the tiles industry, such as in the Minister’s constituency, has invested very heavily in state-of-the-art, energy-efficient manufacturing with digital printing technology. Given a level playing field, it can take on the world. All we want is a level playing field, and trade remedies allow us to ensure we can get that free trade.
The Chair
Before we go any further, I would like to welcome Mr Gareth Stace, director of UK Steel. I know that you have been very busy on another Committee, so I am glad you have joined us. Do you want to come in on this? You got the drift of the question.
Gareth Stace: Yes. Apologies for arriving late, and thank you.
I would like to look at it from a different angle in terms of using what is the trade remedy and what are protections. The steel sector thrives on free, liberalised trade. A third of all steel produced in the world is traded across borders. We actually have zero tariffs—that is, zero customs tariffs—for steel between developed countries. What does that do? It enables us to be even more liberalised in our free trade. Trade remedies is a safety valve to enable that free trade to take place. I would say that, without trade remedies, we will actually see a rise in protectionism—it is not that with trade remedies we will see a rise in protectionism. Trade remedies allow for free trade to take place; it is not the other way round.
Ian Cranshaw: Within the Manufacturing Trade Remedies Alliance, which we are a member of, we actually do not use the phrase “protection”. There is a global rule-kit of trade, and all we are asking for is that people play by those rules and, if they do not, remedies come in. I was here listening to some of the earlier evidence and there was a balance of the consumer or the producer. Our view has always been that it is in the interests of all parties that inappropriate trade practices are removed—just play by the rules.
Peter Dowd
Q
Dr Laura Cohen: We have three major concerns with the Bill that we think, taken together, will give much lower duties than the EU, and that will attract dumped products from around the world. Those three main concerns at a high level are: first, the measurement of the dumping margin—the calculations and the methodology —particularly where there are distorted economies, and the absence of a methodology in the Bill; secondly, the combinations of various economic interests tests and public interests tests, and I will go into more detail on those; and thirdly, this lesser duty rule, and that is very much an alliance position. Overall, the effectiveness of trade remedies depends so much on the detail of the legislation that is completely absent in the Bill.
Much detail may be in secondary legislation eventually, as we heard from the Hansard Society, but that may be without much parliamentary input: it is likely to be a negative procedure. Even worse, much may be in guidance written by officials with hardly any parliamentary scrutiny at all. Important changes going through the European Parliament and the EU in trade remedies legislation have had extensive scrutiny, and important amendments have been made by MEPs and ex-MEPs, often working across parties. We need a similar level of political oversight in the UK system, but to do that the Bill needs alterations in those three areas. We are concerned because businesses, jobs and investment are at stake. I can go into more detail on those, or my colleagues can.
The Chair
We have quite a few questions, so maybe somebody can come back to you on that point if they need to. Mr Stace, did you wish to come in at this point?
Gareth Stace: There is a lost opportunity in the Bill in terms of looking at what is happening in the EU, which Laura has highlighted, particularly on changes that are taking place at EU-level on how it tackles the lesser duty rule—the UK Government have firmly said, “No, we are not going to follow that; we are going to do something different”—and how it treats non-market economies or economies that subsidise their industries. The Government are saying, “Yeah, we will follow that,” but because the detail is not really there, as Laura said, are they going to follow it to the letter, which would be great, or just broadly in principle? That is that whole thing of everything—I am sure you had already heard that before I arrived.
The problem with this Bill, and also with the Trade Bill, is that the proof will always be in the pudding. The Government can promise anything they like, but more than a third of all tariffs in place affect the steel sector and it hits us hard, therefore, if this system, when it comes out, is not appropriate for what it is trying to do. That is why we, in this primary legislation stage, are putting that in so much detail. Why are we doing that? Because we just do not know whether it will be in the secondary legislation or the guidance. That is not our fault; we have to set out our case in full now, at this stage. If the Government said to us, “Honestly, trust us completely and utterly. It will be in secondary or it will be in guidance, to the letter of what you are asking for,” then great, but at the moment we are sitting here very much in the dark. When we talk about day one from when we leave the EU, is that day one next year or day one in 2021? We do not know. If it is next year, we should be planning right now for doing something very different very soon.
Ian Cranshaw: One of the issues is the fact that these things cannot be rushed. We know that they are very complicated. The trade defence instruments modernisation programme in Europe took more than four years, and that is just in modernising a regime that has been in place for 40 years. One of the important concessions we got out of the EU somehow in the chemical sector, which we refer to as an enabling industry or a foundation industry, was about the importance of raw materials. On raw materials, the EU said, “Okay, if the raw material cost is 17% of the overall product cost, we will take in the raw material cost because we are aware of distortions that take place across many markets.”
We have one UK producer, which is specific in the UK, for which the energy cost is 40% of the total costs of the individual company, so it is hugely important. Its remedy is against Russia and gas coming out of Russia. Russia not only subsidises that industry, but does not observe the same environmental standards as we do. It has had every opportunity to do so, but it does not. There is a wider responsibility at play and that goes back to the comment earlier about it being in everyone’s interest to get this right.
Nic Dakin
Q
Gareth Stace: The timescales are not set out clearly enough. I do not want to go over old ground, but the hoops to go through at all the different stages will only lengthen that process. I am sure that will happen, calculating injury and dumping, but if was just dumping, that would happen very quickly.
I might have said already that in the US, provisional measures come in after 45 days and in the EU they come after nine months, which is coming down to seven. The UK has the opportunity to say that we will do it at six months, and we always—unless there are circumstances where it is not appropriate—apply retrospective duties of three months. So you get provisional duties coming after three months, which sends a very strong message to the market: do not dump your illegally traded goods here in the UK.
Ian Cranshaw: I think we would all be disappointed if we could not expedite the EU system, when it has to canvass views across 28 member states. We would have to canvass views in just the UK, so if we cannot bring that nine months—soon to be seven months—down further, an opportunity will have been missed.
Dr Laura Cohen: There is a tremendous opportunity here for Brexit. If an industry is suffering injury and dumping, it is really important that it gets sorted out quickly.
Peter Dowd
Q
Gareth Stace: From my point of view of steel, this time last year we had written five very detailed papers that DIT officials have been very pleased to receive. We have had very good engagement with them, so I could not actually fault that. We probably have had some difference of opinion, so although I heard, “We agree with 95% of what you are putting out,” I said, “That’s fine, but it’s the 5% that is crucial.” Like everything with Brexit, the issue is around that 5% and we do not understand the detail around that.
We continue to engage with DIT, but we have provided all the information we can; there is nothing more we can provide. That is why we are disappointed: in the face of this Bill in primary legislation, we have not seen the detail that the Government had the opportunity to put in.
Dr Laura Cohen: From our sectors, I echo what Gareth has said. As an association, we have had really good engagement with DIT officials. BCC has had four meetings as an association with Ministers or Secretaries of State in the past year. That is really appreciated. However, we have made our case very clearly and I do not know what else we can say. We need to ensure that businesses, investment and jobs get the best possible deal from Brexit.
Ian Cranshaw: As a group, we met Greg Hands. The Minister gave us a considerable amount of time. He had been briefed well and he understood our issues, but he just did not accept them—he had a different view. That is fine; we have to go away and refine our position and give the evidence that was required. Some of the evidence that he called on we would call less than proven.
We know that there was a discussion earlier about the make-up of the TRA and who helped formulate the Government view. They say that for the review on trade remedies they went to a very liberal think-tank and asked what the view is on this, so of course they got a very predictable response. We would have questioned whether they had taken in some of the advice and evidence from business, as they might have got a rounder view of what was required.
Gareth Stace: It was not a liberal think-tank, but a company that represents the Chinese steel sector against the EU. They could have chosen many; why did they choose that company?
The Chair
That is not for me to answer. There are no further questions from Members, so I thank the witnesses for their very comprehensive evidence this afternoon.
Ordered, That further consideration be now adjourned. —(David Rutley.)
Oral Answers to Questions
Peter Dowd Excerpts(8 years ago)
Commons ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Mr Hammond
Yes, I agree with my hon. Friend. Keeping business taxes competitive so that we can attract international investment to this country is essential, but there is a quid pro quo: if taxes are low, they must be paid. We are determined to ensure full compliance and to lead in international forums in looking at ways of improving corporate tax compliance.
Peter Dowd (Bootle) (Lab)
The NHS is in crisis due to the tight-fisted approach the Chancellor takes to the public finances—unless a big corporation, a railway company or a failing construction firm needs a handout or a bail-out. During any discussions he has had with the Health Secretary, has he raised the issue of the funding crisis? If so, what solution has he arrived at to fund it properly, or will he be sending in the receiver?
Mr Hammond
The hon. Gentleman may not have noticed but we have put an extra £6 billion into the NHS. The first two weeks of the year are traditionally the highest pressure weeks in the NHS, and we have seen extreme pressure over the past two weeks. He may also not have noticed that we have a flu crisis going on, which inevitably takes its toll. In an ethically based health service, we treat the sickest patients first, and it is right that we prioritise those with urgent needs over those with routine needs in our hospitals.
Peter Dowd
That was an insouciant attitude, if ever there was one. The Chancellor’s local media report that the A&E department in St Peter’s Hospital in Chertsey in his constituency had the highest number of 12-hour waits for patients in Surrey at the start of last year. What imaginative explanation does he have for his constituents, if not the whole House, as to why they, like many others, have to wait for so long to get emergency treatment? I ask again: what substantive funding will he provide to the NHS?
Mr Hammond
The answer to that is the £6 billion of additional money that we put in at the Budget. I am glad that the hon. Gentleman raised St Peter’s Hospital in my constituency, because that gives me the opportunity to make an important point. As other Members will know, whatever the media say about the NHS in general, when one speaks to one’s own constituents about their experience in their local hospital, it is invariably good and they invariably have nothing but praise for the service that they receive from our excellent national health service.
Finance (No. 2) Bill (Fifth sitting)
Peter Dowd Excerpts(8 years ago)
Public Bill CommitteesRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Peter Dowd (Bootle) (Lab)
I beg to move amendment 56, in clause 38, page 27, line 6, leave out “69” and insert “69(1)”.
This amendment specifies the subsection of section 69 of the Value Added Tax Act 1994 that is being amended by Clause 38(2).
The Chair
With this it will be convenient to discuss the following:
Amendment 57, in clause 38, page 27, line 9, at end insert—
“(2A) In subsection (3) of section 69, for ‘subsection (4)’ substitute ‘subsections (3A) and (4)’.
(2B) After subsection (3) of section 69, insert—
‘(3A) In relation to a failure to comply with any regulatory requirement under section 77E (display of VAT registration numbers on online marketplaces), the prescribed rate shall be determined by reference to the number of occasions in the period of 2 years preceding the beginning of the failure in question on which the person concerned has previously failed to comply with that requirement and, subject to the following provisions of this section, the prescribed rate shall be—
(a) if there has been no such previous occasion in that period, £5,000;
(b) if there has been only one such occasion in that period, £10,000; and
(c) in any other case, £15,000.’”
This amendment increases the prescribed rate of a penalty for failure to comply with a regulatory requirement under section 77E of the Value Added Tax Act 1994 (as proposed to be inserted by Clause 38(8)).
Amendment 58, in clause 38, page 27, line 15, at end insert—
“(ba) after subsection (3), insert—
‘(3A) The period specified in a notice in accordance with subsection (3)(a) may not be longer than 10 days.
(3B) It shall be the duty of the Commissioners to give notice under subsection (2) in any case where they are satisfied that to do so would protect or enhance VAT revenue.’”
This amendment specifies the period for compliance with a notice under section 77B as no more than 10 days and requires HMRC to issue a notice in any case where VAT revenue would be protected or enhanced by doing so.
Amendment 59, in clause 38, page 27, line 32, leave out “60” and insert “10”.
This amendment reduces the period at the end of which a person must cease to offer goods in breach of the registration requirement from 60 days to 10 days.
Clause 38 stand part.
Peter Dowd
It is a pleasure, as ever, to see you in the Chair, Sir Roger. My hon. Friend the Member for Oxford East reminded me of the Sherlock Holmes case, “The Adventure of the Solitary Cyclist”. I am not sure whether someone who has a dog with them still counts as a solitary cyclist, but given that there is one cyclist, I expect they do.
If hon. Members look at our explanatory note on amendment 57, they will see that our proposals and the penalties we believe should be enacted certainly do not go as far as the penalties that the hon. Member for Brentwood and Ongar will be aware of, since I understand he did his PhD on the Mercian polity. That is reminiscent of another document, “Theft, Homicide and Crime in Late Anglo-Saxon Law”, which stated:
“It is a startling but infrequently remarked upon fact that for five centuries English law, which prescribed the sternest penalties for theft, contained…a relatively minor royal fine for homicide.”
We are not going to the sternest of fines for what is perhaps de facto theft here, but we are sending a clear message in relation to online marketplace avoidance, or effectively evasion, of VAT: “You don’t try to rip off the Government.”
Our proposals seek to address the growing levels of online VAT fraud and the responsibility of online retailers to play a much-needed part in tackling it. We now all spend a large proportion of our lives online, so it is unsurprising that more UK consumers than ever are buying a larger proportion of their goods through online marketplaces such as Amazon, eBay and others. In 2016, 14.5% of all UK retail sales were online, up from 2% in 2006. Just over 50% of those sales were through online marketplaces rather than directly by the seller.
The VAT rules clearly require that
“all traders based outside the European Union (EU), selling goods online to customers in the UK, should charge VAT if their goods are already in the UK at the point of sale”,
but, as hon. Members will be aware, some are not doing so. According to the National Audit Office:
“HM Revenue & Customs (HMRC) estimates that online VAT fraud and error cost between £1 billion and £1.5 billion in lost tax revenue in 2015-16 but this estimate is subject to a high level of uncertainty… The estimate is calculated from an assessment of the extent of under-valuation in a sample of medium and high-risk imports from high-risk non-EU countries, underpinned by assumptions informed by operational data and intelligence. This method uses an estimate of import VAT fraud as a proxy for the scale of online VAT fraud and error, and HMRC considers it to be the best estimate from data available,”
which is perfectly reasonable.
The Campaign Against VAT Fraud on eBay & Amazon in the UK estimates that online VAT fraud
“equates to £27 billion in lost sales revenue & additional taxes to UK businesses and the public purse in the last 3 years”
alone. What is more, HMRC has stated that it does not have data on online fraud and other losses before 2015-16, and as far as I am aware it does not plan to repeat the review of lost tax for future years. Similarly,
“HMRC estimates do not account for the wider impacts of online VAT fraud and error such as distortion of the competitive market landscape.”
Ruth George (High Peak) (Lab)
I have worked with major UK retailers for almost 20 years, and there has been growing distortion in the market, as between brick-and-mortar retailers and online retailers, on business rates in particular. Does my hon. Friend agree that if we do not tackle VAT fraud more proactively, it simply adds insult to injury for those honourable retailers that are investing in considerable job and employment opportunities in the UK?
Peter Dowd
My hon. Friend makes a valid point that goes to the heart of much of today’s discussion: those who seek to avoid should pay appropriate penalties.
The slowness of HMRC to respond to growing fraud online has been criticised by the Public Accounts Committee, which raised concerns first in April 2013 and more recently in October 2017. It is not alone; the National Audit Office reported in 2013 that
“HMRC had not…produced a comprehensive plan to react to the emerging threat to the VAT system posed by online trading.”
The report found that HMRC had developed tools to identify internet-based traders and launched campaigns to encourage compliance, but had shown less urgency in developing an operational response to it.
Trader groups, such as the Chartered Trading Standards Institute, have been raising concerns for many years, and claim that online VAT fraud has been a problem from as early as 2009, yet the Government did not recognise the problem until 2015. Nearly three years later, the Government are finally introducing measures that will force the Amazons and eBays of this world to be held jointly accountable for the VAT of online vendors that use their sites.
My understanding is that HMRC has instead pursued civil operations against suspected evaders, as HMRC claims that difficulties in prosecuting suspected online fraud make that route lengthy, costly and uncertain of outcome; I suppose that is justice. Barriers include sellers being based outside the EU, and the need to show intent to commit fraud. I would like to ask the Financial Secretary to the Treasury how many operations HMRC has pursued since 2015, and what their outcomes were.
The Public Accounts Committee report on online VAT fraud found that HMRC had only recently begun to take the problem seriously, despite the fact this fraud leads to significant loss of revenue to the Exchequer, in effect depriving our public services of the funds they so desperately need. The Committee found that HMRC, rather than trying to use its pre-existing powers, waited until the introduction of new measures under the Finance Act 2016 before it attempted to hold online marketplaces responsible for VAT that had been fraudulently evaded by traders. HMRC has been too cautious in using those powers, and the Government have refused to name and shame non-complaint traders; so far, to my knowledge, they have not prosecuted a single one for committing online VAT fraud.
Professor de la Feria, an expert in tax law at the University of Leeds, pointed out that HMRC has not been doing enough to tackle the problem, despite the required legislation being in place. She argued that laws existing before the introduction of the 2016 measures provided scope.
Luke Graham (Ochil and South Perthshire) (Con)
As a member of the Public Accounts Committee, I was at the hearing on VAT fraud. Does the hon. Gentleman not recognise that VAT is incredibly difficult to police, especially on e-commerce platforms, given the international nature of a lot of the trade, including by small traders in China? Does he not accept that changes put forward in the Budget address some of the concerns that the Public Accounts Committee raises, and mark a positive step on the Government’s part?
Peter Dowd
Yes and yes, but that does not alter the fact that we need to push on as much as we can with tackling this issue. The amendments go some way towards helping and, importantly, towards sending a message to those who choose to evade VAT. In online marketplaces and fulfilment houses, fraudulent activity continues fairly unabated, and we must do something about it.
Professor de la Feria also believes that part of the reason that HMRC has been slow to tackle online fraud is that it is most likely considered not cost-effective to pursue it. Online marketplaces and HMRC are not doing enough together to tackle the problem, notwithstanding the action that has been taken. Online marketplaces continue to earn their commissions, and so their profit, from people who are defrauding the British taxpayer. Amazon, for example, organises regular presentations at Chinese fairs—a point referred to by the hon. Member for Ochil and South Perthshire—to recruit overseas sellers, I suspect; has plans to buy a shipping company; and fulfils orders and handles payments. That all suggests a very embedded relationship with the seller. Those connections and networks are there; people must know each other to set them up. HMRC should use those relationships and networks to do something about the problem.
Until we can incentivise online marketplaces to act, they will continue to offer a lacklustre approach to tackling online VAT fraud. In September 2016, HMRC introduced new legal powers to tackle online VAT fraud and error. They allow HMRC to issue a warning to online marketplaces about potential sellers who are not paying VAT. Since their introduction, how many times has HMRC used the new powers? How many sellers has HMRC issued a warning about, and what was the result of the use of the powers? Since they were introduced, HMRC has seen an increase in the number of new VAT registrations from non-EU sellers, but HMRC confirms that it is not aware of the proportion of those sellers that have in the past been trading and not charging VAT, or whether those sellers will be compliant in future. Last year, HMRC told the Public Accounts Committee that it expected to collect £50 million more VAT in 2017 from the traders that had recently registered for VAT, so can the Minister confirm that HMRC has collected that money, or is on course to do so?
According to HMRC, some online VAT fraud is due to a lack of awareness, some overseas sellers being unaware that they need to pay VAT. Both Amazon and eBay, when testifying to the Public Accounts Committee, agreed with that view and described the lack of awareness of VAT rules as a major element of the problem. What efforts has HMRC made to educate sellers in the UK about potential VAT fraud? More importantly, what efforts have been made to ensure that overseas sellers are aware of the need to pay VAT?
The other part of the problem stems not from error, but from clear criminality. HMRC’s strategic threat assessment, carried out in 2014, concluded that it was highly likely that organised criminal groups based in the UK and overseas sellers in China were using fulfilment houses to facilitate the transit of undervalued or misclassified goods, or both, from China to the UK for sale online. It is particularly concerning that HMRC is uncertain of the exact number of fulfilment houses in the UK. Surely one of the first parts of cracking down on this criminality is establishing the exact number of fulfilment houses in operation. That goes some way to dealing with the point made by the hon. Member for Ochil and South Perthshire. Perhaps the Minister can take a minute to explain what steps HMRC is taking to address the issue and crack down on organised criminal groups in the UK and other countries, and what efforts Border Force is making to tackle online VAT fraud by targeting fulfilment houses, where the goods are stored.
Once again, it seems that HMRC is hampered by the Government’s cuts to staffing and resources, and that this is having an impact on the Government’s ability to crack down on online VAT fraud. According to the Public and Commercial Services Union—HMRC’s trade union—in real terms, after the cost of inflation is taken into account, the resources available to HMRC are about 40% less today than they were in 2000. Since 2010, under this Government, HMRC’s staffing has fallen by 17%, and it is set to fall further under the “Building our Future” programme. These are important factors in relation to tackling evasion. That programme will close practically the entire departmental estate of 170 offices. How will that help with tackling the mass of VAT crime?
The elephant in the room is the added uncertainty about Brexit and its impact on the effectiveness of the measures. There is considerable uncertainty about the exact terms on which the UK will leave the EU, so it is vital to get to grips with this. Sellers based in the EU may end up operating under the same VAT terms as apply to non-EU sellers and therefore may also be tempted not to charge VAT. Perhaps the Minister can offer insight into what steps HMRC is taking to ensure that these measures will be robust, irrespective of the outcome of the Brexit negotiations.
There are already considerable control weaknesses at the border. The most recent European Anti-Fraud Office report on customs duties was scathing about the state of UK customs, arguing that “continuous negligence” has deprived the EU of almost £2 billion in revenues on lost Chinese merchandise. According to the report, British customs played a central role by repeatedly ignoring warnings to take action over Chinese textiles and footwear pouring into the EU. Since then, HMRC has failed to open any criminal investigations into specific fraud schemes. The European Anti-Fraud Office is so aggrieved with the UK Government that it has recommended to the European Commission’s directorate-general for budget that the UK should be forced to pay £2 billion directly into the EU budget.