Avoidance and customs checks raised in Brexit debates

European Union (Notification of Withdrawal) Bill, Committee Stage, House of Commons – 6-8 February 2017

Summary

MPs voted 494 to 122 in favour of the two clause Bill which grants the Prime Minister the power to “notify, under Article 50(2) of the Treaty on European Union, the United Kingdom’s intention to withdraw from the EU”. The Bill was unamended during its three day committee stage, despite the tabling of 193 new clauses and 92 amendments aimed mostly at steering the Government’s negotiating strategy. The Bill now passes to the House of Lords.

The focus of the debate was on constitutional questions – the role of Parliament and the devolved administrations in the negotiating process, whether MPs or the public should get a vote on any final agreement between the UK and the EU – but tax and related issues were occasionally touched on during the proceedings.

Tax avoidance

New clause 7, tabled by the Labour frontbench, was debated and voted on on Wednesday. This clause set out the Government’s commitment to observe the Code of Conduct on business taxation to prevent excessive tax competition and laid out the statutory objectives that the Government must have regard to EU tax avoidance and evasion whilst carrying out negotiations under article 50.

Labour spokesman Paul Blomfield said that “it really did not help [our negotiations] for the Prime Minister to threaten our friends and neighbours with turning this country into an offshore tax haven if she did not get her way.” He said this was not a threat against the EU but a threat against the British people. “Those voting to leave the EU did so on the understanding that the NHS would receive more money, but that will not be possible if we slash taxes, and this House should not allow that. That is the purpose of new clause 7.” He added that: “The Government have been working with our partners in the OECD on efforts to avoid a race to the bottom on corporation tax, and new clause 7 endorses that work”.

Public Accounts Committee member Caroline Flint (Labour), who was behind the Finance Bill amendment on public country-by-country reporting last year, said that it was in the UK’s interest “that we present ourselves not as a nation retreating from a successful international union, but as a nation that remains determined to uphold that union’s best values. New clause 7 speaks to that aim, as it would commit the Government, in advance of any negotiations, to having regard to the legislation shared throughout the EU on preventing and tackling tax avoidance and evasion”. She said the UK “should pledge, ahead of the negotiations, to comply with the EU code of conduct on business taxation. We should do so not because we are required to, but because we want to uphold the standards on which, in many ways, the UK has been leading. It is unfortunate that some of the Prime Minister’s comments seem to rail against some of the positive efforts that have been made to tackle tax evasion and avoidance and some of the issues relating to tax havens. It would be a huge step backwards if we were seen to step away from something important and on which we could be leading the world.”

For the Government, David Jones, minister at the Brexit department, responded that “On new clause 7, which concerns the preservation of EU tax avoidance measures, the Prime Minister has made it very clear that we will convert the acquis into British law, and that it will then be for the British Parliament to decide on any changes to that law, with appropriate scrutiny.” The new clause was rejected by 336 voted to 289.

Additionally Plaid Cymru and the SDLP tabled a new clause which would have required the Prime Minister “to commit to implementing the Leave Campaign’s pledge to abolish current tax avoidance measures and work to reclaim that which is owed to the UK before [beginning the process of exiting the EU]”. However this was not selected for debate.

Customs

Three separate new clauses were tabled by Labour backbenchers (lead signatories Helen Goodman, Owen Smith and Angela Smith) proposing impact assessments of leaving the Customs Union (and, in two cases, the single market as well) before beginning the process of leaving the EU. None of them were pressed to the vote. The Government’s argument was that, as with other amendments, the issues raised could be debated at a later state in the Brexit process. “These amendments are not for this bill, instead they are for the many future debates that will take place,” the minister told MPs.

Two Conservative MPs raised issues around customs checks during debate. Charlie Elphicke, MP for Dover, said it was “clear in the decision that we want to enter trade agreements elsewhere in the world that we must leave the customs union.” He said MPs like himself “have been putting together industry groups to look at how it can be done, listening to what HMRC says, listening to how checks can be put in place, and listening to how we can construct a frictionless border that will work for Britain and work for Europe… It is in the interests of Britain and the European Union that we construct a frictionless border, and that is why I am also in discussions with the authorities in Calais. It is in the interests of Britain and France, of Dover and Calais, and of the United Kingdom and the European Union that we ensure that this works. We need to embrace electronic bills of lading, risk-based checking and audits in workplaces. We need to treat the border as a tax point rather than as a hard place with border posts… That is how we can ensure that we continue to have frictionless trade even if we have to leave the customs union.” 

Mark Harper, a former minister, intervened to make a point about the Irish border. “Let me give a constructive suggestion. Because of the common travel area and the rights of Irish citizens in the United Kingdom, which are also reciprocal, it seems to me that there is no need to have checks on people movements across the border, and from the conversations we had earlier about the fact that most customs checks can be done electronically, it seems to me that we can perfectly well maintain a soft border and the prosperity of both parts of the island of Ireland when we leave the EU.”

Labour MP Pat McFadden noted that the Government’s White Paper defined the Government’s aim as “the freest possible trade in goods and services between the UK and the EU” and that the Brexit Secretary had said that this would be “a comprehensive free trade agreement and a comprehensive customs agreement that will deliver the exact same benefits as we have” (Official Report, 24 January 2017). “That is the test the Government have set themselves. I wish them well in ensuring that we do get the exact same benefits as we have.”

Tax credits

The SNP tabled an amendment which would have required the publication of an assessment on the impact of Brexit on the DWP’s responsibilities. The party’s spokesman, Patrick Grady, explained that: “The Scottish Government are seeking to give people in Scotland reassurances that they are allowed live and work here. One of the key agreements of the UK’s renegotiation in earlier years was that the UK would be able to establish a four-year period before non-UK EU nationals have access to in-work benefits such as tax credits, child benefit and housing benefit. It is unclear whether the new deal that is done with the EU will enable the UK to impose such restrictions. The Scottish Government did not approve of the proposal and would want to seek different arrangements if they could. Again, there is a question about whether these powers will be devolved to the Scottish Parliament.”

Other proposals

A range of other new clauses (NCs) and amendments which may be of interest / relevance to tax advisers were tabled but not voted on. These included:

• NC20 and NC21 (Labour backbench, led by Chris Leslie) seeking regular reports from Ministers about the impact of withdrawing from the European Union on the UK financial services sector, and seeking to ensure that the Government endeavours to preserve existing trading rights for UK-based financial services companies.
• NC134 (Lib Dems) requiring a separate parliamentary vote before the UK can be withdrawn from the European Economic Area.
• NC168 (Labour backbench, led by Seema Malhotra) requiring the Government to establish a National Convention of representatives across of levels of Government, regions and sectors, to meet and produce a report recommending negotiating priorities, to better reflect the needs of the regions of the UK. This would include representatives of trade unions and trade bodies, representatives of business organisations, and other representatives considered by the Secretary of State to represent expertise and experience of British civil society.
• NC44 (Labour backbench, led by Helen Goodman) requiring the Prime Minister to publish an impact assessment on the risk to supply chains from any new non-tariff barriers in good time before Parliament votes on the final agreement.
• Amendments 25 and 26 (Labour backbench, led by Mike Gapes) requiring reports on the implications of, and costs and benefits for, the British Overseas Territories and Crown Dependencies of Brexit.
• NC40 (Labour backbench, led by Helen Goodman) requiring the Prime Minister to set out a draft framework for the future relationship with the EU which includes reference to the maintenance of economic and financial stability.

As indicated above, the Bill has passed unamended to the House of Lords where 2nd reading debate will take place on February 20th.

Full text of debates and related documents available at: http://services.parliament.uk/bills/2016-17/europeanunionnotificationofwithdrawal.html 

By George Crozier, CIOT Head of External Relations