Taxation (Cross Border Trade) Bill committee - sittings three and four

Taxation (Cross-Border Trade) Bill – Public Bill Committee

Sittings three and four –Thursday 25 January 2018

Clauses 1-12 agreed to. Schedules 1-3 agreed to.

Part 1

Import duty

Clause 1 - Charge to import duty
Clause 2 - Chargeable goods

MPs debated the first two clauses together. Financial Secretary to the Treasury (FST) Mel Stride said that clause 1 “establishes the new charge to tax and provides that import duty is to be chargeable. Such a provision is a fundamental requirement of any tax regime.” Clause 2 “provides the definition of chargeable goods, a term used throughout the provisions relating to import duty.”

There were no other speakers and the two clauses were agreed without opposition.

Clause 3 - Obligation to declare goods for a Customs procedure on import (with schedules 1 & 2)

The FST opened the discussion, explaining that clause 3 “establishes an obligation to declare goods that are imported into the United Kingdom; and… introduces the concept of declaring goods for a specific customs procedure.” He added that schedule 1 “sets out the obligations to present and declare goods to customs on import.” He highlighted paragraph 3 of the schedule which enables HMRC to specify when goods must be declared before they are imported into the UK. This was important, he said, because “steps might be needed to reduce the risk of disrupting the flow of traffic at locations where goods need to be cleared quickly through customs.” Dover was an obvious example, he added. Schedule 2, meanwhile, deals with five special customs procedures: storage, transit, inward processing, authorised use and temporary admission. These “exist to support trade fluidity and facilitate the movement of goods into the UK,” said the minister.

SNP Treasury spokesperson Kirsty Blackman raised a concern arising from the committee’s evidence sessions earlier in the week. “Various organisations expressed concerns about the resourcing of HMRC and Border Force. Border Force is the first line for many imports, ensuring that customs declarations are made appropriately and that all appropriate processes are followed. On HMRC, the concern was that no customs officers will be based north of Glasgow or Edinburgh. If goods are coming in to places such as Inverness, it is a three-hour drive for people to get there and look at those goods. What assessment has the Minister made of the extra resourcing that HMRC will need to fulfil the obligations in the clause and the schedules?”

The minister responded that the Government are “vigorously engaged not just with issues around HMRC’s human resource requirements, but with other infrastructure requirements”. He said the head of HMRC “has made it clear that his feeling is that we will need between 3,000 and 5,000 additional staff across HMRC to ensure that we cover off, wherever the day one deal lands. “ This was ‘perfectly manageable’ he thought.

Also in response to questioning from Blackman, the minister explained that: “The Government have made it clear that we wish the end point to be the facilitation of trade between ourselves and the remaining 27 members of the customs union. The Bill provides for that end point to be as close as possible to the existing rules and regulations around the Union customs code; that is very much what the Bill seeks to achieve. At the same time, the Bill retains the flexibility to ensure that we can put into effect the necessary and appropriate measures no matter where the deal lands—or, indeed, if there were to be no deal at all with the European Union, as we certainly do not expect.”

For Labour Anneliese Dodds also took up the issue of location of customs officers. “After HMRC’s ongoing restructuring programme there will not be a single HMRC hub north of Edinburgh and Glasgow, nor there one anywhere along the south coast, including Dover. We heard ample evidence in the witness sessions that that is the busiest and most concerning port from the point of view of customs procedures going wrong. In the light of that evidence, should we reconsider that HMRC reorganisation programme?” The minister responded that, firstly, Border Force was in the Home Office’s remit, not HMRC’s. And secondly, “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.”

Clause 3, and schedules 1 and 2, were agreed without opposition.

Clause 4 - When liability to import duty incurred

The minister, Mel Stride, explained briefly that this clause determines when a liability to import duty is incurred. There were no other speakers. The clause was agreed without opposition.

Clause 5 - Goods not presented to Customs or Customs declaration not made

This was another clause where discussion was limited to a few sentences from the minister. He explained that where goods imported into the UK are either not presented or not declared to HMRC the goods are, under this clause, liable for forfeiture. It mirrors the existing position in EU law, he said. The clause was agreed without opposition.

Clause 6 - Person liable to import duty
Clause 7 - Amount of duty: introduction

Once again, the minister, Mel Stride, was the only speaker as these two clauses were taken together. The minister explained that clause 6 establishes who is liable to pay import duty on goods imported into the UK. Usually the liability for duty falls upon the person named on the declaration, or on whose behalf the goods have been declared, he said. However in there are exceptions: “for instance, in cases where goods are not declared, the liability to pay duty falls on the person who is in possession or control of the goods when they arrive in the UK.”

Clause 7, the minister explained, “contains no powers, but introduces the clauses in the Bill that will be used to set the amount of import duty applicable”. He noted that the standard customs tariff that the UK currently applies as a member of the EU is made up of more than 17,000 tariff lines. The clauses were agreed without opposition.

Clause 8 - The customs tariff

11 amendments to clause 8 were debated by the committee in 4 groups, alongside clause stand part and new clause 1.

Amendment 104, tabled by Kirsty Blackman (SNP), sought to require the Government to classify goods in regulations giving effect to the customs tariff only in relation to relevant factors. Blackman said this had been suggested by the Law Society of Scotland. “Adding the word ‘relevant’ [to the legislation] would ensure that, under the clause, the Minister was stuck to making changes or decisions in relation to relevant factors,” she explained. “It is simply a small technical change that would tighten up the way the law is written.” The minister disagreed, saying that, “if one went down the road suggested by the hon. Lady, the word ‘relevant’ would probably be inserted in multiple places throughout all the legislation that we ever pass in this House. It is understood that rational ministers and others would take relevant decisions, rather than irrelevant decisions.” Blackman responded that not all ministers might be as reasonable as him. She pressed the amendment to the vote but, despite gaining Labour support, it was defeated 10-9.

Blackman also tabled amendments 105 and 118 which sought to clarify that goods may be defined for the purposes of the import and export tariffs respectively simply by reference to their number. The minister responded that clause 8 “already refers to reference or consideration being made of the quantity of the goods concerned. I think the meaning of the word ‘number’ is, in that context, subsumed by the meaning of the word ‘quantity’.” Blackman did not press these amendments to the vote.

Two amendments tabled by the Labour Treasury team sought to require the Treasury to have regard to, respectively, the interests of manufacturers (amendment 1) and the impacts on sustainable development (amendment 78) in considering the rate of import duty. The latter, it emerged, had been suggested by Traidcraft. Explaining the thinking behind amendment 1, Shadow Economic Secretary Jonathan Reynolds explained how manufacturing industry is exposed to Brexit. He called on the Committee “to support the Opposition’s amendment, to enshrine the right to consultation, to protect British jobs and British manufacturing, and to guarantee that our post-Brexit economy does not leave British industry out in the cold.” Shadow Financial Secretary Anneliese Dodds, said Labour had tabled amendment 78 because it seems sensible to retain the possibility of ‘so-called eco-tariffs’ in the Bill. She noted that 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. She said that, given the prominence of the environment within the EU’s existing customs regime, it was worrying that the Government seemed not to have considered the environment at all when putting the Bill together. The minister responded that clause 22 of the Bill introduces powers that would allow issues such as what qualifications there might be to become registered as a certified AEO, to be set using regulations. On manufacturers he said clause 8 already requires the Treasury to have regard to the desirability of maintaining and promoting the UK’s external trade and productivity, and it was hard to see how this would not include manufacturing. Labour nevertheless pressed amendment 1 to the vote and it was defeated 10-9.

Amendment 106, tabled by the SNP, sought to require the Treasury to have regard to the public interest in considering the rate of customs tariff in its standard form. Peter Dowd, for Labour, had some concerns about this, believing that, in some parts 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.” He pointed out that public interest is not defined in the Bill, leaving “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.” This amendment was not pressed to the vote.

Labour tabled three amendments seeking to require the Treasury “to have regard to recommendations of any relevant select committee of the House of Commons or contained in a resolution of the House of Commons in considering”, respectively, the rate of import duty (amendments 2 and 3), and whether to exercise the power to set lower rates of import duty (amendment 4). Jonathan Reynolds explained Labour were seeking to ensure that there is no democratic deficit in how the detail of the Bill is filled in, and that the core objective of Brexit—greater democratic control for the House of Commons—is achieved. Kirsty Blackman, for the SNP, described the amendments as ‘incredibly important’ saying they would ensure effective and appropriate scrutiny, and make for better legislation. The Financial Secretary was less keen. He said the amendments were not necessary as the Treasury would listen closely to recommendations from Select Committees and others in any case. Labour pressed amendment 2 to the vote but it was defeated 10-9.

Labour’s new clause 1 (along with amendments 7 and 8) sought to establish 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, in a speech enhanced at times by ‘dramatic music’ emanating from a Conservative MP’s phone, explained that 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.” In response the Financial Secretary argued that, “for indirect tax matters, it is common to have framework primary legislation supplemented by secondary legislation… The tariff is long and complex, with more than 17,000 different types of good, and potentially subject to regular amendments. For example, the Commission currently makes daily changes to the tariff, some of which would, if the Government continued to take that approach, fall into the scope of the additional procedure. That is simply not practical.” New clauses are not voted on until the end of committee stage. Clause 8 was approved without opposition.

Clause 9 - Preferential rates: arrangements with countries or territories outside UK

Clause 9 allows the Treasury to implement preferential trade arrangements, enabling the rate of import duty applied to goods originating from a territory covered by such an arrangement to be lower than the standard rate.

Amendment 107 from the SNP sought to require the Treasury to consult relevant stakeholders before making regulations giving effect to such an arrangement. Proposing it, Kirsty Blackman said that the Government had said that “if they are varying the rate of import duty downwards rather than upwards, there should be a less rigorous procedure, but,” she argued, “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.” Peter Dowd, for Labour, said Blackman had “hit the nail on the head”. But the minister argued that 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”. Blackman withdrew her amendment.

New clause 2, tabled by Labour, aimed to establish 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 said 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.” There was ‘no inkling’ what conditions the Treasury will agree to when it comes to entering into preferential rate agreements, he said, particularly whether industries will be protected by the use of quotas or rules of origin. He gave a number of illustrative examples of potential problems. The minister gave the same response as to new clause 1 (above), that for indirect tax matters, it is common to have framework primary legislation supplemented by secondary legislation. He argued that any delays in implementing preferential duties in trade arrangements could have significant impacts on UK supply chains or exporters who rely on the arrangements.

Clause 9 was approved without a vote. New clauses are not voted on until the end of committee stage.

Clause 10 - Preferential rates given unilaterally (with schedule 3)

This clause and schedule seek to ensure that the UK can operate a unilateral trade preference scheme when the UK leaves the EU. They provide the powers to implement a scheme that will enable the reduction of import duty on goods originating from developing countries.

The MPs discussed four amendments and a new clause alongside this clause and schedule. Amendment 108, tabled by the SNP, sought to require the Treasury to consult prior to making regulations establishing preferential rates for developing countries. Kirsty Blackman explained: “It is absolutely clear that unilateral preferences, particularly those relating to these provisions, and the reasons for unilateral preferences, are good—they are sensible in relation to our least developed countries—but we must also ensure that relevant stakeholders are consulted.” International Trade minister Graham Stuart replied for the Government. He said that a trade preference scheme must be regularly updated to adapt to global changes. “A statutory duty to consult on all such changes would delay the efficient operation of the scheme,” he argued. “It could reduce the effectiveness of unilateral preferences for around 70 developing countries.” Blackman was unpersuaded and pressed her amendment to the vote, seeing it defeated 10-8.

Amendment 109, also tabled by the SNP, sought to place beyond doubt that regulations may reinstate the nil rate band after suspension or withdrawal. The minister, Graham Stuart, said that while it was ‘clearly important’ that we can reinstate preferential rates of import duty after they have been suspended or withdrawn, the Government did not believe that the amendment was required. Blackman was unconvinced, but did not press the matter to a vote, expressing the hope that the Government will table their own amendment at Report stage.

Amendment 80 was tabled by Labour to provide that the Secretary of State may have regard to things other than the classification of least developed countries by the UN in amending the list in Part 2 of Schedule 3. Anneliese Dodds said that while the current ‘everything-but-arms’ EU trade regime does not explicitly include reference to human rights and the environment or other criteria, there is pressure at EU level for those factors to be taken much more closely into account, and the UK should be able to as well. The trade minister argued that the amendment was unnecessary - other relevant considerations could already be taken into account when determining whether a country is least developed. “The UK has a long-standing commitment to universal human rights, and that will be reflected in our trade preference scheme,” he promised.  The amendment was not pressed to the vote.

Labour’s new clause 4 (and accompanying amendment 10) sought to establish a system of enhanced parliamentary procedure for regulations setting lower import duties for eligible developing countries, with a requirement for the House of Commons to pass an amendable resolution authorising the key provisions of the proposed regulations, and also required that certain other regulations be subject to the affirmative procedure. Peter Dowd feared that, “if we are not careful, trade policy, far from being responsible, may become a free trade free-for-all, leaving many developing countries behind.” To prevent this Parliament would have to hold the Government to account. The trade minister responded that the overarching principles of the preference scheme were set out in primary legislation, and Parliament would have the opportunity to debate the inclusion of these principles and powers throughout the passage of the Bill. The scheme will need to be updated regularly, he argued, implying the Opposition’s proposed mechanism was disproportionate.

Clause 10 and schedule 3 were agreed without opposition. New clauses are not voted on until the end of committee stage.

Clause 11 – Quotas

The Financial Secretary explained that clause 11 makes provision for the purpose of establishing an independent quota regime for the UK. The clause specifies the circumstances in which a quota may be established and gives the Treasury the power to make regulations concerning the administration of the quota regime. Kirsty Blackman said she was “still not entirely clear how those quotas will be decided in advance and what circumstances will be used to decide an appropriate level of quota”. The Financial Secretary replied that “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.”

Labour’s new clause 3 and accompanying amendment 11 were debated alongside this clause. Again this new clause sought to establish a system of enhanced parliamentary procedure, this time for regulations setting quotas under Clause 11. Peter Dowd explained that, ultimately, Labour were 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.” The Financial Secretary rejected the call for the same reasons he had rejected the enhanced procedure earlier.

Clause 11 was agreed without opposition. Amendment 11 was not pressed to the vote. New clauses are not voted on until the end of committee stage.

Clause 12 - Tariff suspension

Clause 12 provides for an exception to the application of the standard rate of duty as set under clause 8, the Financial Secretary told the committee. “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.”

Labour tabled two amendments (amendment 5 and amendment 9) which would require regulations under Clause 12 to be subject to the affirmative procedure. Introducing them, Peter Dowd highlighted the report of the House of Lords Delegated Powers and Regulatory Reform Committee, which said that the Bill involves a “massive transfer of power” that gives Ministers over 150 powers to make tax law for individuals and businesses. The Financial Secretary replied that: “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.” The amendments were withdrawn and the clause was approved without opposition.

The committee then adjourned until Tuesday 30 January. Read the report on the next two sittings here.

George Crozier, CIOT Head of External Relations.