Taxation (Cross-border Trade) Bill

Richard Graham Excerpts

2nd reading: House of Commons
Monday 8th January 2018 Commons Chamber

[Mel Stride]

The issues that my hon. Friend raises are probably slightly beyond the scope of the Bill, but they are none the less important. If he would care to write to me, I should be happy to consider them, and, indeed, to meet him if he so wishes.

[Richard Graham (Gloucester) (Con)]

My right hon. Friend is being very generous. It would help us all if he could confirm that this is really an enabling Bill, and that it therefore should not alarm either those who wish to see the continuity of existing trading arrangements, or those who want significant differences. It paves the way for either scenario, depending on the negotiations in Europe.

[Mel Stride]

As usual, my hon. Friend is eloquent and to the point. He makes an important point because, as he says, the Bill is intended to ensure that wherever the deal with the European Union lands, we will be in a position to be ready on day one to ensure that we keep trade flowing across our frontiers, to the benefit of our economy, our businesses and our consumers.

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[Peter Dowd (Bootle) (Lab)]

I beg to move an amendment, to leave out from “That” to the end of the Question and add:

“That this House recognises that the UK will need considered and effective arrangements to ensure a customs and tariff regime, including the potential of a customs union with the European Union, is in place before the UK’s exit, in order to guarantee frictionless movement of goods at UK ports and the ability to levy customs duty and VAT and to protect manufacturing and other key industries through the power to enact protective tariffs, but declines to give a Second Reading to the Taxation (Cross-border Trade) Bill because the Government has failed to provide a coherent plan for the operation of the customs and tariff regime after the UK’s exit from the European Union or for the maintenance of frictionless movement of goods at UK ports, because the Bill is not accompanied by proposals to ensure that Her Majesty’s Revenue and Customs are properly resourced and organised to implement a new customs and VAT regime, because the needs of UK manufacturers and producers have not been properly reflected in the design of the proposals and because the Bill proposes to give excessive powers to Ministers without appropriate procedures for parliamentary consultation and scrutiny.”

Here we are at the start of another year, and it feels much the same as the last one—the same old empty Bills, long on rhetoric and short on detail. Yet always the Government’s default position is a fresh set of powers for Ministers, which is the one fixed point in a changing world. This Government seem to be taking back more control from Parliament as each day passes.

The Bill ostensibly sets out to create a functioning customs framework for the United Kingdom once we leave the European Union—hope springs eternal. We accept that such an arrangement is necessary, regardless of the UK’s future relationship with the EU or, indeed, the nature of its wider trading relationship, yet once again we have been denied any detail in the Bill itself, as hon. Members have identified. There is nothing to guarantee frictionless trade through the UK’s ports from the moment of exit, no measures properly to resource Her Majesty’s Revenue and Customs for the task and nowhere near sufficient detail on the powers and provisions of the Trade Remedies Authority that will be charged with ensuring that our vital British industries are protected. Only yesterday we saw the potentially disastrous consequences of that lack of detail, with reports on the likely result of the Government’s failure to address the EU VAT area for thousands of businesses.

In short, instead of setting up a stable customs framework, this Bill provides few of the policy or, indeed, practical considerations required for the task of leaving the European Union.

[Richard Graham]

It seems rather curious to criticise the Government for denying any detail while we are in the middle of a negotiation. How could the hon. Gentleman expect any Government to guarantee anything until that negotiation is complete?

[Peter Dowd]

This Government have guaranteed absolutely nothing whatsoever. Time after time, they hide behind the veil of negotiation.

Before addressing the Bill’s specific failures in meeting the Government’s objectives, I will raise the issue of the powers created by this Bill that enable Ministers to do whatever they want. The leave campaign’s central message, the one repeated time and again and printed across its campaign literature, was that leaving the European Union would allow the Parliaments and Assemblies of the UK to “take back control” of our law making. And yet again, every piece of legislation published by the Government relating to our exit creates more powers for Ministers, while ignoring Parliament completely. Parliament is in a persistent state of having its head patted—that is as much as Parliament is getting at the moment.

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[Kirsty Blackman]

I think that we should remain in the customs union and the single market, because then we would not have any of these issues. I appreciate that the Minister says that the Government are looking at this, but I am trying to make it clear how important this matter is, and I hope that I have been able to do that in my discussion of cumulation.

[Richard Graham]

The hon. and learned Member for Edinburgh South West (Joanna Cherry) raised the importance of the EU FTA deal with South Korea—indeed, it adds some £2 billion to our exports every year—but the interesting question is why the EU has been able to make free trade agreements only with South Korea and Vietnam. What about the rest of Asia? Does the SNP believe that sufficient progress has been made in expanding our trade, especially in Scottish whisky, across the whole of Asia, or could the process perhaps have been done more energetically and dynamically by Britain making its own free trade deals?

[Kirsty Blackman]

There are EU FTAs with many countries and we trade through them. Because the EU has such a large market, it is able to strike much better free trade agreements than the UK Government will be able to strike for their much smaller market. That is just the reality.

On the capacity of HMRC, I also want to talk about the issue of authorised economic operators, which was mentioned a lot in the customs White Paper. Relying on the AEO system causes a bit of a problem, as the UK is just not that good at either promoting or administering it. Some of the rules applied by HMRC are nearly impossible for many of the smaller operators to meet, such as the requirement we have heard about that the person who is in charge of customs in organisations has three years of customs experience. Some of our businesses have been trading exclusively with the EU, so they cannot meet that requirement very easily. HMRC must look at this as a matter of priority, and particularly consider the situation in Austria, where it takes less than three months for an initial AEO application to go through. Germany has increased the number of authorised economic operators incredibly successfully. The UK Government could benefit from looking at those countries when they consider making changes. It is not about making the regime slacker and enabling more people to jump through the hoops for AEOs; it is about making the process of applying for and getting AEO certification more accessible and streamlined. I know the UK Government have had representations on this matter, and I urge Ministers to consider them and act as soon as they can. We need to get the system in place as soon as possible so that companies can register and receive the certification to become AEOs in advance of the exit date.

As we heard earlier, there is also an HMRC capacity and streamlining problem in the area of VAT. That was also raised in the media recently in the context of the British Retail Consortium’s concerns. The changes to the VAT regime could create major cash-flow problems for businesses, and they might have to restructure or take on burdensome new cash-flow loans. The BRC says that there is no impact assessment produced by the Treasury about the costs of these measures in terms of additional compliance burdens for business, nor about what the costs of HMRC collecting and refunding these upfront costs would be. It seems that there is a real problem and that the required VAT changes have been pretty badly thought through.

I also want to raise the issue of virtual free trade zones. The Bill contemplates only physical free trade zones, but a virtual zone would allow businesses along the supply chain to benefit from simplifications and facilitations without having to incur the time and expense of individual applications, such as with inward processing relief. The British Chambers of Commerce has requested that the Treasury consider the possibility of including virtual free trade zones in its powers relating to designated free zones.

In the context of HMRC, I also want to mention import VAT on gifts from the EU, which I have spoken about before. Folk will be shocked when they get a bill because they have received a gift worth more than £39 from somebody in the EU. Such a system currently applies if people get a gift from elsewhere in the world, but the Government are suggesting that it should also apply in the case of goods from the EU. That is a major concern, because as there has been free movement and people have been able to live in other European countries, it is perfectly feasible that an awful lot of people will have family members in other EU countries and therefore will be likely to receive gifts of a value of over £39. I want to make it absolutely clear that if and when people start getting those bills, they will be totally caused by Brexit, leaving the customs union, and the proposed changes to VAT.

Trade remedies have been mentioned, particularly by Labour Members. Some of the evidence about the matter that the International Trade Committee received last year was concerning. The EU currently has anti-dumping and countervailing measures that would normally be expected to still be in place after Brexit day, such as a five-year measure that was put in place two years ago, meaning that it will have about two years to run at the time we leave the EU. Bernardine Adkins of the law firm Gowling WLG told the Committee that

“it won’t be possible to grandfather the measures, otherwise you will face problems with the World Trade Organization.”

If she is right, we have a pretty significant problem, especially because the call for evidence the Government issued at the end of November seems to suggest they do not know which trade remedies are relevant to UK companies. If the UK Government have to create a trade remedies agency, get it up and running, and furnish it with details that have not been provided in this Bill—how to conduct investigations, how subsidies are to be defined, how to assess if a UK industry has been injured, how to define a UK industry, and how to calculate the level of duties and guarantees needed to rectify the injury caused—and if they have do all that before putting in place even the trade remedies that currently exist, we have another problem.

UK Steel has been particularly vociferous in its criticism of this aspect of the Bill. It says that the chief and overriding concern is that schedules 4 and 5 to the Bill, concerning anti-dumping and anti-subsidy measures respectively, contain very little detail. It goes on to point out that for many of our major trading partners, including the EU and US, such issues are covered by primary legislation. The UK Government have chosen to deal with this through not primary legislation, but secondary legislation. That is yet another concern that we have about the Bill. The Bill does not even have the level of detail of the WTO agreements, so if the Government had included those, the Bill would have been substantially better.

The lesser duty rule is also a significant issue, as the UK Government are looking to go in that direction at a time when the EU is looking to move away from it. This is a concern for us, and for UK manufacturers and jobs in particular.

I and my party have general concerns about the loss of the customs union and the single market. We also have very specific concerns, which echo the views of businesses, about aspects of this Bill. A Fraser of Allander Institute report last year said that 134,000 jobs in Scotland are supported by trade with the EU, and Brexit threatens to cost our economy in Scotland £11 billion a year by 2030 and to result in many fewer jobs. The OECD highlighted in June last year:

“In case Brexit gets reversed by political decision…the positive impact on growth would be significant.”

There are major issues about tariffs if we leave the single market. The EU average tariff on imports from outside the EU was 5.2% in 2014. The average tariff on food was 15%. Skimmed milk exported into the EU from outside the single market attracts a tariff of 74%. If our organisations get hit by these tariffs when they are exporting—if we end up outside the EU single market and customs union as part of a no-deal scenario —we will not just have the problems I have mentioned about issues with the Bill, trade remedies and how HMRC will cope with all this. All these things are an incredible problem. Would it not be better and easier, and would it not be in the economic interests of everyone in this country, if the UK Government were to say, “Actually, we are going to stay in the single market and the customs union”?

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[Richard Graham (Gloucester) (Con)]

In following the hon. Member for Redcar (Anna Turley), I can only applaud her support for her local port.

I support this Bill. Above all else, as I said earlier and the Minister confirmed, it is an enabling Bill to create a post-Brexit functioning customs, VAT and excise regime. Because this is being done well ahead of the results of the negotiation, it does not predetermine the result. That necessarily disappoints those in this House who want the predetermined detail in order to see the extent to which the Bill suits their own vision of what our post-Brexit relationship should look like. In so doing, the Bill satisfies those for whom the Bill is intended—not politicians, but traders, exporters of goods and services, businesses and organisations, including universities and hospitals, with cross-border business in a wider sense—for we and, above all, they need to have in place the mechanisms for setting import duties, regulations, protections, dispute resolution procedures and so on, whatever the final trade and customs arrangements with the EU turn out to be.

That should be uncontroversial, but because the details are not in the Bill, Members are finding all their concerns and worries in their own imaginations. After a speech of some half an hour, for the hon. Member for Aberdeen North (Kirsty Blackman) it all boils down to the fact that she wants to stay in the current customs union with the European Union. For the hon. Member for Stoke-on-Trent Central (Gareth Snell), it is about protecting the ceramics industry. With respect to him and to Stoke-on-Trent, however, no customs Bill can do that, for the customs Bill is about making arrangements for future import duties, not about defining the new technology and brilliant designs that the world admires and wants to own, which is what will determine the future of the ceramics industry there.

[Stephen Kerr]

My hon. Friend is making a powerful speech. Does he agree that without this Bill we will have the archetypal cliff edge that the Opposition parties go on and on about? By not supporting Second Reading, they risk creating the cliff edge that they are always going on about.

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[Richard Graham]

My hon. Friend is absolutely right. He brilliantly pre-empts the point I was about to make, which is that although some Opposition Members have described the uncertainty that they say the Bill will cause, the Bill will precisely help to avoid the cliff edge that all of us—but, above all, businesses—want to avoid. I thank him for his intervention.

The key is that the Bill will ensure that a customs regime is in place for cross-border business to flourish, whatever the results of the negotiations. To be honest, I think my right hon. Friend the Member for Broxtowe (Anna Soubry) underestimated the importance of technology not just in business, but for our customs processes. Regardless of whether or not we had decided to leave the EU, replacing the existing customs system, CHIEF, with the new IT platform, CDS, will, although it comes with a caveat about new Government IT systems, help our customs regime—it is currently rated fifth out of 160 countries in the world for its efficiency by the World Bank—to maintain or improve our position. The trusted trader system used by Canada and Australia, for example, has obvious replicability for trade at the border between Northern Ireland and the Republic of Ireland.

At the same time, the Bill is not devoid of ideas. The earlier customs White Paper outlined the two key negotiating positions for the Government, the first being a streamlined option and the second being a new customs partnership. My own belief is that if our European partners—that is entirely the right word for members of an organisation with which we have 44% of our exports—prove pragmatic in their interpretation of the new partnership, I very much hope that option 2 will prove possible. This option would allow the UK to mirror EU customs arrangements and trade policies for goods that are eventually to be consumed within the EU—even if they are first used, as it were, in the UK—thereby ensuring that the right amount of EU duty is paid without introducing new customs processes between us. This would be a practical benefit from a new partnership that I very much hope will come forward from the negotiations.

Let me turn to the amendment. The hon. Member for Bootle (Peter Dowd) talked with some passion about the manufacturing jobs in his constituency—rather fewer, I have to tell him, than the 4,000 manufacturing jobs in Gloucester; we all have manufacturing as a key element of our constituency business. He has concerns about the Bill’s impact on manufacturing, and the amendment therefore raises three objections to the Bill, which I will come on to. At the same time, there is clearly a certain demand from Opposition Members for an internal Labour debate about their party’s position on the customs union. The hon. Member for Nottingham East (Mr Leslie) would like a special debate on whether the preference of the leading Opposition party is for a customs union or for the customs union, and I am sure others from the Scottish National party would add weight to his discussions on that subject.

The truth is that Labour’s objection to powers coming back to the UK because we are “denied any detail”—the hon. Member for Bootle used that phrase—is bizarre, given that the whole point of the Bill, as my hon. Friend the Member for Stirling (Stephen Kerr) mentioned, is to avoid a cliff edge by putting in place the mechanisms needed, whatever the result of the negotiation, which has not yet started in detail. At the same time, Labour is complaining that the Bill gives powers back only to the Government, rather than to Parliament. In fact, of course, all the detail post-negotiation would come to Parliament through secondary legislation, on which all of us in this House would decide.

[Mr Leslie]

Has the hon. Gentleman had a chance to look at clause 31(4) in relation to forming a customs union with the United Kingdom? He can correct me if I am wrong, but I do not think that that would necessarily come before Parliament. It would be done by Her Majesty through an Order in Council.

[Richard Graham]

On that specific detail, the hon. Gentleman may well be right, but, ultimately, Parliament will decide the shape of any future agreement.

[Nigel Mills]

Will my hon. Friend give way?

[Richard Graham]

Let me respond to the intervention, if I may, and I will then come to my hon. Friend.

The key thing in all the arrangements for a future customs union is that the precise nature of its structure has not yet been decided. It is all still up for debate, and the Bill is therefore an enabling Bill that puts in place the future mechanisms.

[Nigel Mills]

I was just trying to help my hon. Friend. The answer is in clause 32(10), which states that the Order in Council cannot happen unless this House has approved the order first.

[Richard Graham]

Precisely. I am grateful to my hon. Friend. Everything comes back to this House.

The point about the options that the Government have set out and the new customs partnership is that this will have huge practical benefits. Let me give a couple of examples. We could apply our own tariffs to goods destined purely for the UK. For example, for mangoes from India and the Philippines, which are not really a competitive product with anything we grow in this country, there is no reason why the EU should determine what tariff we apply. However, if a basic bicycle was made in another part of the Commonwealth and then exported to the UK for further modifications for onward export to the EU, it would make absolute sense for us to mirror the EU trade and customs arrangements.

The future customs arrangements, which are being negotiated, will therefore have profound implications for our future trading opportunities, and the Bill provides the way forward and opens the door to success, whatever the outcome of the negotiations. That is why the Liberal Democrat amendment, seeking a guarantee that the UK’s trading relationships with the EU and the rest of the world are not damaged, is so bizarre. How can anything like that be guaranteed, particularly during a negotiation? That was doubtless the reason why the amendment was not selected for debate.

This evening, one Opposition party is concerned about guarantees while a negotiation is going on, and another—the main Opposition party—is complaining about being denied any detail about the same negotiation, which has not yet properly started, while a third has already decided, regardless of the results of that negotiation, that it is all a terrible mistake. This evening therefore provides us with an opportunity to back a Bill, which should be entirely uncontroversial politically, that enables the businesses and manufacturers in all our constituencies to know with certainty that, whatever the results of the negotiation, we will have in place the mechanisms for their future exports. It is precisely because the Bill is practical and flexible and because it caters for all outcomes, while making sure that there is no cliff edge, that all of us should support it this evening.

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[Mr Leslie]

I will come on to that when I discuss part 3 of the Bill and the VAT consequences for not just businesses, but potentially consumers as well.

[Richard Graham]

I know that the hon. Gentleman holds his views deeply and sincerely; colleagues of mine hold very different views equally sincerely. Surely the crucial thing for all of us, however, is that the Bill allows for any of those possible outcomes. It does not predetermine the result of the negotiations or determine whether the United Kingdom will have a future free trade agreement with the European Union that replicates almost completely the existing customs union. Therefore, surely we can agree tonight about the importance of having a mechanism in place that avoids the cliff edge that all the businesses in all of our constituencies want to avoid.

[Mr Leslie]

If only that were the case. In fact, that same point is raised in paragraph 9 on page 6 of the explanatory notes, which states:

“The Taxation…Bill does not presuppose any particular outcome from the UK’s negotiations with the EU.”

That is not true. The Government have absolutely presupposed that the customs union is off the table. It is the ultimate presupposition, if ever anyone wanted a definition. This Bill apparently does not allow us to stay in the customs union, but it should allow us to do so, because I happen to believe that there is a majority in this House of Commons for membership of the customs union. I have a little job of work to do to continue to persuade my own party’s Front Benchers of that particular point, but I will try my best to do so because I think they will eventually recognise that being part of the customs union is incredibly important for our economy not just in the transition period, but for the longer term. I believe that the numbers are here in the House of Commons to support that and that it will eventually be proven.

I am disappointed that the Government have tried to twist parliamentary procedure by deeming this measure to be a money Bill. It is Mr Speaker who will decide whether or not it is a money Bill, and I think he will do so at the end of this particular Commons procedure. The Government, though, in a slightly tricksy way, are putting through the Bill following a Ways and Means resolution. Why have they done that? They have gutted the Trade Bill and stuck everything they possibly can into what was the customs Bill so that it cannot be amended by the House of Lords. It is the most obvious trick in the book—rule 101 for a Minister. I have been around the block a number of times, and I have to tell the Minister that there are whole clauses in the Bill, such as clause 31, that are about the formation of a customs union. How is that a matter purely for a money Bill? It is absolutely an issue of public policy to do with our trading alliances that the other place should have every right to pass comment on. If it has advice and suggestions for this place, it should be allowed to amend the Bill.