Duties of Customs

Stella Creasy Excerpts

Ways and Means resolution: House of Commons
Monday 20th November 2017 Commons Chamber

[Mel Stride]

The hon. Lady raises an extremely important point, particularly in relation to roll-on/roll-off ports. I have been to Dover to meet the port’s chief executive and other staff, and Her Majesty’s Revenue and Customs is closely engaged through various roundtable exercises with all the UK’s ports. We recognise the paramount importance of ensuring that we have fluid trade flows through those ports. The hon. Lady will know that the White Paper set out clearly the sorts of approaches that we will be taking, if necessary, to ensure that those flows are rapid and effective, and that trade is kept moving.

[Stella Creasy (Walthamstow) (Lab/Co-op)]

Following our time together in Committee considering the Bill that became the Finance (No.2) Act 2017, the Minister will know my concern that small businesses in Britain will be saddled with the 13th VAT directive. He has set out that the Government’s intention is that a new directive will come into place before we leave the European Union, so will he clarify whether he expects British businesses to have to deal with all the vagaries of the 13th VAT directive?

[Mel Stride]

As the hon. Lady knows, at the point at which we leave the European Union, we will gain further control over VAT, although that depends on the precise nature of the deal that is negotiated. It might be that we move from acquisition VAT to import VAT depending on where that negotiation lands, which remains to be seen. The general principle is that the Government are entirely committed to ensuring that burdens on businesses are kept to an absolute minimum and that trade flows are maintained.

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[Mr Fysh]

My hon. Friend makes an important point, and I completely agree.

It is massively important that we look at the data systems, and I have talked a lot with Ministers about the customs declaration service that we are putting in place by January 2019. I have met industry representatives, and I have to thank my hon. Friend the Member for Dover (Charlie Elphicke) for organising some of those meetings in a very efficient fashion. They have been incredibly useful in bringing key civil servants and key stakeholders up to date with exactly what is required.

I do not think we need to reinvent the wheel. We do not need to go for full, all-singing, all-dancing, new solutions overnight; there are some practical steps we can take in the interim. We heard from one panel about a system called Intrastat, whereby economic flows around the European Union, based on actual transactions, are recorded. It was suggested that it is possible to, effectively, bolt the tracing of different liabilities on to that system, with the customs system operating in parallel with it.

What our partners in the EU, or in any other part of the world, want to know when goods are moving across one of their borders is what is in those consignments and whether they need to think about a tariff or take into account some other regulatory provision. It is massively important that we can talk to our counterparts on the other side. I implore Ministers to try to persuade the EU, even though so far it has been very reluctant, to allow member states’ national customs authorities to talk properly to us about what data interfaces are going to be required for what will probably be quite a lot of extra transactions and considerations that will have to be made. I certainly stand ready to help with my contacts, if I can, to enable some of those conversations to happen. Whether it is a ramped-up trade facilitation exercise—the “option 1” that the Minister described—or a partnership based on a new type of tracing of the way in which goods move around our economy and across our external borders and those of the EU, at the moment, we will need to make and record lots of declarations of one kind or another, and the other side will have to be confident that what we say is the status of these goods is in fact the case.

VAT processing has been the Cinderella of this conversation over the past few months. Everyone has been focused on the duty side, and not enough focus and attention has been given to the VAT side. The manner of the processing of VAT really makes a difference to very many businesses, and it is a major cash-flow issue for most businesses. If we want to stay open to ideas, as we do, with our EU friends and allies, and if we want to have good facilitation of cross-border trade, we need to address, for example, the ability of a vendor to attend a trade show and take a load of samples with them, because if there is a VAT issue, that could really be a problem. It is also a problem in the art world where very high-value objects are moving around. We need to think about that.

[Stella Creasy]

I entirely agree with the hon. Gentleman’s comments. Does he share my concern that because the Government are not giving any clarity on this issue, it is very likely that British businesses will have to deal with all the vagaries of the 13th directive on VAT unless we look for some clarity on retaining our current systems for trading, whether through the customs union or the single market?

[Mr Fysh]

I thank the hon. Lady. I agree that we need clarity as early as possible on all these issues, and I encourage Ministers to come forward with ideas on that.

Returning to what we heard about Ireland in various interventions on the Minister, I would like him to think about whether, in the VAT resolutions, we are confining ourselves a little too much by saying that the Government may not, through the Bill, make any amendment relating to VAT rates, exemptions and zero rating. One of the issues with the Irish border historically, and where the real problems came from when Ireland was given its independence, was the amount of smuggling, and the rates and tariffs on goods going into the UK were a major factor in that. Perhaps we could look to smoothing the feelings and the actual processes on the Irish border to make sure that, as far as possible, our VAT rates are as harmonised as they could be so that there is no temptation to smuggle there.

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[Stella Creasy]

Will the hon. Gentleman give way?

[Ross Thomson]

No. I want to make some more progress.

Scotland’s exports are world-renowned—I am sure the hon. Member for Edinburgh South (Ian Murray) and I can absolutely agree about that—and whisky is just one example of a British export success story, with more than 90% of Scotch whisky being sold outwith the UK.

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[Ian Murray]

I anticipated that intervention, although not quite so early in my speech. I return the hon. Gentleman’s compliments—he is one of the nicest gentlemen in this House. The Labour party’s position on the customs union is that we want the UK to have tariff-free access to the European Union throughout the transition period, with the added option of the UK staying in the customs union. That is the position of our Front-Bench team. It is perfectly clear and chimes perfectly well with amendments (e) and (f).

I am disappointed that the amendments in the name of the hon. Member for Aberdeen North (Kirsty Blackman) were not selected. She has done a lot of work to bring the Ways and Means motion to the House, and I think the arguments advanced reflect the fact that we both want our country to stay in the single market and the customs union, not for ideological reasons, but because we know that the businesses of Aberdeen North and Aberdeen South require us to stay. It is impossible to suggest that the United Kingdom should have exactly the same benefits of the single market and the customs union, with a frictionless border and tariff-free access, but not keep the customs union and the single market on the table. It makes no sense.

[Stella Creasy]

My hon. Friend is making a powerful case. Often it is said that sometimes we just need to simplify: if it walks like a duck and talks like a duck, it is a duck. If everything the Government are saying they want looks like and sounds like the customs union and single market, why are we wasting time debating other things?

[Ian Murray]

I am tempted to say that is because they are all quackers, but I am sure that would not go down well and I gave up on the bad jokes some time ago. My hon. Friend is right: the Government are actually arguing for the single market and the customs union, but do not want either. That is why the Bill on the customs union, which will be published tomorrow, will show clearly that the Government are hell-bent in the negotiations with the EU to take us off a cliff edge. No deal is probably their preferred option, and that is what they are promoting in the Ways and Means motion.

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[Stella Creasy (Walthamstow) (Lab/Co-op)]

It is a pleasure to follow the hon. Member for Glenrothes (Peter Grant), who made another powerful case for what is becoming incredibly evident in British society.

Let me start by trying to find some common ground on something that has divided us for more than 18 months now. I do not think that anybody here tonight wants to re-run the referendum; we all recognise the referendum result. I do, however, disagree with the right hon. Member for Broxtowe (Anna Soubry). I think we can get deals with anybody. The question is, what kind of deal and what are the consequences? And that includes no deal. Yes, we could get a free trade deal with other countries but, as we saw when Switzerland tried to negotiate with China, when big goes against little, the results are often not good for little. It is a real Hobson’s choice. China now has immediate access to the Swiss market, while the Swiss will have to wait decades to get similar access to the Chinese market.

All the options have consequences, including the option that this Government have taken over the past 18 months: trying to fudge and bombast their way through. Like many Government Members, I welcome the fact that we are finally having this debate because I want to speak up, above all, for the people whose lives, livelihoods and businesses depend on the certainty of knowing what happens next. That is a certainty that they are not getting from this Government. Some 18 months after the referendum, there are some 759 different treaties that have to be renegotiated, but there has been no progress on any of them, and we are fewer than 18 months away from the date on which we are supposed to leave the European Union.

The Government are spending money, hand over fist, to try to sort out the mess that they are creating every single day. We have had it confirmed that that money is coming from our armed forces, and the Minister has confirmed to me today that it is also coming from our education services. Money is being reprioritised to try to figure out what on earth a deal with Europe would look like. Eighteen months on, we have no answers. And all because the Prime Minister simply cannot admit that she simply got it wrong in the Lancaster House speech when she ruled out of access immediately the customs union and the single market.

I support the amendments in the name of my hon. Friend the Member for Edinburgh South (Ian Murray) because the British public deserve better. If the Government are going to make a mess of it, it is up to us as parliamentarians to try to give the people we represent—who need certainty and to understand what their future holds—the clarity that they desire.

[Peter Grant]

Does the hon. Lady think that it says something about the Prime Minister’s priorities that she took the time to apologise to her own Back Benchers for the disastrous general election that she dragged them into, but she will not apologise to the people of these islands for the disastrous Brexit that she is dragging us into?

[Stella Creasy]

I was struck by the discussion earlier about making decisions so quickly. I, too, did not vote for the article 50 legislation to be triggered, because I was concerned it was too soon in the process. However, some disasters are of our own making, and a snap general election in which the public thoroughly rejected her hard Brexit is certainly something the Prime Minister should learn from.

In her Lancaster House speech, the Prime Minister said that she wanted associate membership of the customs union—a membership that does not exist. The legislation that will come from the motion before us tonight is supposed to answer that question. Yet, I have read the Government’s White Paper, I have asked the Prime Minister repeatedly about the idea of associate membership, and I have asked her whether she has raised it with her European counterparts, and we have no answer.

It is a bit like someone asking to be an associate member of a gym—to use the swimming pool, but not to pay for all the weights or classes. Oddly enough, most business people would turn them down flat or at least give them an answer. I am very struck by the fact that, 18 months on, the Government cannot even tell us whether they have asked whether the wonderful, mythical, innovative, creative, dynamic partnership they believe they can get is even on the table.

This approach literally makes no sense. If we look at the reality of how we trade as a nation, we see that we are not an island factory; we are a nation that works with other countries to produce goods, and we are proud of the goods we produce through our hard endeavour. Let me give a great example. In the food and beverages industry, the EU accounts for almost 70% of our supply chain. In our car industry, 44% of the value of UK car exports comes from imported products. In the UK, we are great at making bumpers, brakes and clutches, but we are not so good at radiators, suspension or gearboxes. That is why we work with other countries to produce the great British cars that we are all so proud of. That is what is at stake when we reject the customs union out of hand: the ability to navigate and manage those relationships effectively and efficiently. For every £1 in car exports from the UK, 44p is spent on importing foreign parts. Some 24% of all imports from the EU are from the car industry. That is at stake when we suddenly rip up the rules under which that relationship happens.

The car industry is not alone. In 14 different sectors, at least 15% of the supply chain is dependent on the European Union—dependent on not having the kind of customs tariffs we are talking about and on having frictionless trade. That is true of some sectors much more than others. In the paper industry, 71% of the supply chain is dependent on the European Union. In the rubber and plastics industry, the figure is 69%; in pharmaceuticals, it is 66%. That is why we know that leaving the customs union will cost us £25 billion. These new tariffs alone will add at least £4.5 billion a year to importers’ costs—money they can ill afford to spend.

Then we get on to the practicalities—this is not just about the money that being part of the customs union and the single market helps us to save. We will see delays at Dover because nobody has yet invented the technology that will allow this frictionless trade. When we talk about pre-lodging customs checks, we know that that means still more paperwork and more complexity in the supply chain. It is no wonder the car industry is desperate for us to continue our membership of the customs union. So too is the National Farmers Union; so too are the leading pharmaceuticals brands. Being part of the EU gives us access not just to markets in the EU but, through our free trade agreements, to a third of all global markets at preferential trading rates.

When we look at the case for the customs union and at what it gives us now, it is clear that this is not about nostalgia for the “Ode to Joy”; cold, hard business sense says that if we have a good way of working, why would we rip it up? But ripping it up is exactly what the Government are doing—for something that, 18 months on, they still cannot tell us will exist. [Interruption.] I am sorry to see that I have made the Ministers entirely leave the Front Bench by pointing that out, because I really hope that at least one Minister will be here to answer one of my concerns about this legislation and particularly about the VAT proposals.

We have all talked about tariffs and customs tonight, but I want to unmask myself as a geek interested in VAT. When I talk to small businesses in my local community, VAT is one of their prime concerns. [Interruption.] I am grateful to the Minister of State, Ministry of Justice, the hon. Member for Esher and Walton (Dominic Raab) for being here. I am particularly looking for answers on the 13th directive—I know it is something he knows intimately.

VAT is one of those issues every business will say is a nightmare. I never thought that Labour Members would be arguing for less red tape than Government Members were, but that is exactly what we are talking about tonight. Some 63% of small businesses say that Europe is their priority market. If we add to the paperwork they have to deal with by removing the customs union and the single market, we will of course make trading harder for them. Compared with the bigger companies, they do not have the flexibility that Ministers blithely suggest they have.

Currently, businesses incurring VAT in the EU are able to claim it back through intra-country mechanisms. If they sell printers to Sweden, and they incur VAT as part of that, they can claim it back—it is relatively easy. Specifically—I am sure the Minister will want to look this up—we are talking about articles 170 and 171 of Council directive 2006/112/EC—the prime VAT directive. The detailed rules are in Council directive 2008/9/EC, and they are in our legislation. These Ways and Means resolutions will therefore have to address this point. I am sad that the Financial Secretary to the Treasury is not here to hear it, because I have been raising it with him for some time. I can see that he is talking to his officials. I very much hope that in his concluding remarks he will finally be able to tell me the answer.

Right now, because we have the single market, businesses trading with Europe can reclaim their VAT and manage VAT relatively simply. If we leave the single market, they will have to move on to the 13th directive, which covers non-EU companies trading in the EU. The details of the 13th directive are clearly written to be advantageous to companies, saying that they can set their own VAT terms. Let us think about that for a moment. A UK car manufacturer trying to trade across Europe in radiators and the pieces and parts that make them will suddenly have to deal with VAT across 27 different countries, and 27 different pieces of paper. I am glad that the Financial Secretary is now here because he and I share a concern to remove red tape for our businesses to make sure that British businesses are not facing additional paperwork and additional complexity.

[Mrs Ellman]

Does my hon. Friend agree that the very serious problems for businesses that she is so ably identifying have implications for the whole of a local community? As companies get into great difficulties and jobs may be lost, that reduces spending power and affects the whole community and the services there.

[Stella Creasy]

I absolutely agree. This is the challenge that we face.

Eighteen months on, it is not unfair that businesses across the country are saying “What next?” and asking how they might adapt to whatever the final deal with Europe might be. Eighteen months on, none of us is any closer to being able to give them any answers. They do not need White Papers that talk about ambition and creativity in VAT proposals; they need clarity, because if they are going to have to learn new systems and have additional paperwork, and if there are going to be excessive delays in their imports and exports, they need to be able to adjust for it. The Government can say all they want about getting these ambitious deals, but they have to negotiate with 27 other countries that are quite happy with the relationships that they already have, perfectly satisfied with the intra-EU arrangements that they already have, and think that the customs union works for them. If we in this House want frictionless trade, if we want to make it as easy as possible for our businesses, big or little, to trade, and if we want them to have as little paperwork—digitised as it is—as possible, then the answer is the single market and the customs union. In 18 months, nobody has been able to come up with a better arrangement. I will wager that the same will be true in 18 months’ time.

Let us not leave British businesses hanging any longer. I am backing the amendment tabled by my hon. Friend the Member for Edinburgh South because I want to be able to go tomorrow to those businesses in my community that trade with Europe and say to them, “This is what it’s going to look like. You can plan ahead in your supply chain, you can buy ahead, you can do the deals you need to do, and you can invest.” I understand why they feel that they cannot do that right now, and it is my job to try to help them gain that certainty. That is why I ask other Members of this House to join us in voting for this amendment and giving this Government the message that Britain deserves better.