Taxation (Cross Border Trade) Bill committee hears oral evidence

MPs on the Public Bill Committee heard oral evidence and questioned Customs experts, business representatives and other witnesses as they began their deliberations on the Taxation (Cross Border Trade) Bill (also known as the Customs Bill). The CIOT's submission to the committee was discussed.

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

Tuesday 23 January 2018

The MPs began by agreeing their programme motion. They have the following programme of witnesses for today's sittings. Notes on the questioning and areas covered will be added over the course of the day.

9.25am until no later than 10.25am - Panel One

Anastassia Beliakova, Head of Trade Policy, British Chamber of Commerce
William Bain, Policy Advisor - Europe and International, British Retail Consortium
Peter MacSwiney, Chairman, Agency Sector Management (UK) Limited, Co-chair of the Joint Customs Consultative Committee’s (JCCC) Customs Brexit Group (CBG), Trade Chair for the JCCC
Gordon Tutt, Association of Freight Software Suppliers (AFSS)

Shadow Chief Secretary (Labour spokesperson) Peter Dowd opened the questioning, asking the witnesses for their views on the capacity of HMRC to cope with changes to Customs arrangements. Anastassia Beliakova said they had been hearing from their members, even before Brexit came onto the scene, that HMRC was understaffed. The absence of a helpline that was once available was cited. In particular there was a shortage of staff dedicated to goods checks, she said.

Peter MacSwiney said that in order to get goods to flow freely through borders post-Brexit we are going to have to rely on advance information and bulk-type entries done with some sort of simplified procedure. The border force is not engaging very much with trade and what they want those processes to be. Customs seemed to be getting bogged down with the authorisation process, said MacSwiney.

Gordon Tutt said his members were having trouble getting approvals processed quickly. This was particularly worrying. One change mooted was that before a trader can get their approval granted they must have software in place. Most traders won’t go to the cost of getting a contract if you don’t know you are going to get your approval.

William Bain said the introduction of the Union Customs Code (UCC) took three years for companies to get ready for. There is a concern about the capacity of the new CDS system to handle 255 million customs declarations a year depending on the kind of deal agreed over next few months.

SNP spokesperson Kirsty Blackman asked whether the panellists had concerns about moving from acquisition to import VAT. Bain said yes, companies would take a big cashflow hit. Beliakova echoed Bain's comments. She said deferment schemes could be more generous. Postponed accounting - as we currently have - could be set up covering all countries outside the UK.

Blackman also asked about the primary - secondary legislation split. Bain said he was less concerned about process than about outcomes. MacSwiney said thne JCCC was keen the legislation reflected the way business works. They had asked for some involvement in the primary legislation but had been refused. He was concerned about gaps in the law where things were neither explicitly permitted nor explicitly prohibited. Much would depend on the interpretation of the authorities.

Further discussion with this panel covered how prepared businesses are for Brexit, country of origin declarations, AEO status and warehousing capacity.

In response to a question from the minister, Mel Stride, the witnesses praised HMRC's engagement with them.

10.25am until no later than 11.25am - Panel Two

Jeremy White, Barrister in international trade and Customs and Excise law, Consultant EdFitor, Tolley's Customs & Excise Duties Handbook (also CIOT Customs spokesperson)
Barbara Scott, Director, Customs Associates Ltd
Sue Davies, Strategic Policy Adviser, Which?
Helen Dennis, Policy & Advocacy Manager, Fairtrade

Labour MP Jonathan Reynolds asked about legislative scrutiny in the Bill. SNP MP Kirsty Blackman said the CIOT’s submission is ‘particularly damning’ especially on unintended consequences. Is there a way this process be made better. She also asked about HMRC’s likely performance in dealing with Customs by Brexit day. Conservative Chris Davies said since Article 50 every lawyer is dismissive of the way the Government is going forward. He asked the CIOT’s Jeremy White if he is ‘giving lawyer speak or is this something that is going to cause problems in the future’.

Shadow Chief Secretary to Treasury Peter Dowd cited the CIOT’s submission (p3.4) which said the Government’s approach to give ministers exceptional and permanent powers is unnecessary. He asked what was wrong with that, he asked. He also asked about the appeals process; the CIOT said this could be a step back in relation to an effective appeals process. Nic Dakin asked what the panel thought about the UK’s proposed public and economic interest test, which he described as cumbersome.

FST Stride agreed with Jeremy White that the simplest way is to take the UCC on board and modify as required. He asked Jeremy if there is anything in the Bill that prevented that from happening. He is concerned the Government may ‘tie its hands’ by agreeing to that now. 

Jeremy White said parliamentary scrutiny will be ‘excessively difficult’, He showed a thick handbook (Tolley's Customs & Excise Duties Handbook) that he edits and which shows the big size of the UCC. The problem with the Bill is that it is ‘overly ambitious’ and fails to distinguish between provisions that are just charges and machinery (regulatory framework). The Bill brings into force the repeal of the UCC on EU 'Exit Day' but it will be 'recast into UK legislative form (that is, using different, language and phraseology) and while this may be appropriate for a ‘no deal’ arrangement it increases the burden of cost and also creates risks in respect of any trading activity that follows afterwards, particularly if the UK has any transition period at all or is subject to obligations of the ‘leaving treaty' to preserve the regulatory framework of the UCC. To be realistic, the UK cannot expect the EU to be in favour or agree to a regulatory framework which is different to the UCC, he said. If we have a recast on ‘Exit day’ anyone involved in trade will have to look at the UCC and the changed English implementation for almost every importation. This unnecessarily makes parliamentary scrutiny very difficult.

The CIOT submission brings out evidence that some companies have already amended their supply chain to cope with arrangements because of the uncertainty. Anything the Bill can do to reduce uncertainty is helpful, such as by its commencement provisions allowing the Withdrawal Bill to operate, so UCC is automatically incorporated then exercising powers to modify that application. That would deal with some of the uncertainty and costs.

From lawyers and consultants’ perspective at the CIOT, they agree that this Bill is trying to do too much, said White. We applaud some of the flexibility but our problem is the cost in parliamentary scrutiny and to businesses If the Government continues with a recast in UK legislative form – which creates uncertainty. He joked he will have to get paid twice for reading the UCC and the English version all the time as things stand.

The lack of parliamentary scrutiny creates uncertainty. Regarding appeals provisions in the bill and increased discretions and considerations granted to HMRC, White said Customs issues should not go to the High Court and instead should all be appealable to the First Tier Tribunal (Tax Chamber)”. With respect to the new burdens to be face by SMEs, he added that some companies will ‘sell out’ to companies that have the necessary IT systems that reduce customs friction.

With respect to evasion and avoidance, uncertainty and departure from international and EU precedents does increase the risk of avoidance, for example there may be a risk in the area of customs valuation subject to the future wording of the relevant UK SI.  All we have seen in the Bill is a very small framework principle rule but it does not adopt the language of WTO, said White. The statutory instrument should follow the form of the WTO Customs Evaluation Agreement, he urged.”

White told FST Mel Stride that the Government could allow the Withdrawal Act to incorporate the UCC (while modifying the UCC as required) by amending the commencement provision of the Taxation Bill. Parliament would need to amend the Taxation Bill so that it does not repeal the UCC on exit day. In addition work by or under the instructions of Treasury or HMRC will be required to make the necessary modifications for the type of Brexit deal agreed. The Bill needs to be amended so that not all of Part 1 and Schedule 7 do not take effect on exit day.  Whereas Schedule 7 could be used to bring the UCC back into force by affirmative statutory instrument, it would also be necessary to repeal some of the substantive provisions of Part 1 – and that would be messy.

Barbara Scott, Director, Customs Associates Ltd, and Chair of the Customs Practitioners Group, was also on the panel. She told Peter Dowd that the new Bill moves away from the UCC when the opposite was supposed to happen. She cannot see how the UK can present a new regime before Brexit. She sees the Bill as an opportunity for ‘plain English’ language, however. She said it will be a tough challenge for HMRC to reach out to companies that have only ever traded within the EU; it is a cost that no one has tried to measure, especially for SMEs. Border Force will still carry out the same controls whether a trader is authorised or not authorised, which discourages a business from becoming an AEO. We do not have many AEOs in this country. The benefits of AEO status are currently quite low.

Sue Davies said consumer interests could be made more explicit in the Bill and support the economic test in connection to trade remedies. She said the extra costs that companies will face because of Brexit will be taken on by the consumer in higher prices. She wants the UK public and economic interest test to be more ‘explicit’ about the public interest side and for the need for a consumer impact assessment, otherwise we may go down an unnecessary protectionist route. Which? says the Trade Remedies Authority is critical especially that it is transparent and takes consumer interests on board.

Helen Dennis said there is a high dependence on the UK market among developing countries and therefore changes to tariffs can ‘make or break’ livelihoods. The Bill looks at the status quo and continuity but could have looked at improvements to the Customs regime all the same. She said as things stand there should be a process whereby MPs can ‘call things in' and request further scrutiny. By bringing forward the UK Preference Scheme it would takes the best bits of EU policy, she said, but some countries do not qualify for that status so are unclear about their market access. On coffee, tariffs is not the key issue here, as the UK have duty-free access to most vulnerable countries, but there is still scope for tariffs to be improved. Do we say the Secretary of State has the power every three years to extend the Preference Scheme, for example? There are products she would like to include in a new Preference Scheme, which the Bill gives power to the Secretary of State to do. In the Bill, there is a list of things the Secretary of State or Chancellor must have regard to; at the moment but there is nothing that relates to development impact.

2.00pm until no later than 2.45pm - Panel Three

Rosa Crawford, Policy Officer, EU and International Relations, TUC told Kirsty Blackman that while the union is clear that there are risks in not having a relationship that ensures tariff-free, barrier-free, frictionless trade and great costs associated with adding customs checks, ‘we have not seen any detail of what the Government are offering’.

Peter Dowd was told by Kathleen Walker Shaw, European Officer, GMB, said the provisions in the Bill do not fulfil the promise GMB 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.”

Kirsty Blackman asked whether a Customs Union with the EU would be good or bad for jobs. Alan Runswick, Branch Chair (Liverpool), PCS, said 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. “As offices close, staff are being laid over and years of experience are being lost, at a time when our chief executive is forecasting that we might need to recruit 3,000 to 5,000 extra people.” 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 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.”

c2.45pm until no later than 3.15pm - Panel Four

This was a very technical session about how Parliament works. Joel Blackwell, Senior Researcher, Hansard Society, made some points about Parliamentary process. Blackwell told Kirsty Blackman that the negative procedure is the default procedure for scrutiny of delegated legislation, and in this Bill that represents that fact; the majority are subject to the negative procedure. “Again, referring to the Delegated Powers Committee report, we would agree with the clauses they highlight that they think are negative and should be affirmative, particularly the ones that are what we call Henry VIII powers amending primary legislation. That Committee has always said that there needs to be a compelling reason why a negative procedure would be adequate for Henry VIII powers. Reading the delegated powers note, I cannot see a compelling reason; I think they should be made affirmative. “

He then discussed his sift and scrutiny committee suggestion with Emma Hardy.

When asked by Nic Dakin about his view on the Henry VIII powers in this Bill and their impact on this area of legislation, Blackwell said all Henry VIII powers should be subject to the affirmative procedure unless the Government give a compelling reason, and ‘we do not think that that has happened in the Delegated Powers Committee note’.

Peter Dowd asked whether it is a fair assessment to say a significant constitutional shift in the balance of power between the Executive and the legislature is taking place because of Brexit. She answered that there has always been an issue regarding the balance of power in the use and scrutiny of delegated legislation.

c3.15pm until no later than 4.15pm - Panel Five

Tim Reardon, Policy Director,  Ferry an Cruise, UK Chamber of Shipping, told Kirsty Blackman, that if the effect of any agreed union was to replicate the existing arrangements, ‘we would expect no disruption to the movement of goods, but to achieve that it would need to be a very broadly drawn union agreement that extended beyond purely customs fiscal issues’.

Labour’s Mike Hill Brexit asked whether no deal is likely to massively increase the number of customs declarations required for transporting goods through ports. What impact do you think that will have on your members? Robert Windsor, Executive Director, British International Freight Association, told Hill that there is the big impact of the re-imposition of VAT on goods coming in to the country, because ‘if you have a duty deferment with customs, you have to fund it. ​The point is that you fund two months’ deferment, not one. Those elements are definitely concerning my members.”

When asked whether small ports will suffer from not having customs officers, Richard Ballantyne, CEO, British Ports Association, said that may not happen if there is only one commodity on a shipment where shipping agents are able to help out. He told Kirsty Blackman that the UK should maintain something as close to the present Customs arrangements with the EU as possible. “People tend to focus on import work, but we venture that exports are actually more important. If you have a shipment going from here to Poland, for instance, it may have to transit two or three member states. We think it is very important to have something that would permit that.” He is receiving is a lot of inquiries from European-based freight forwarders with no UK base who are inquiring whether they can establish in the UK because they obviously see an opportunity.

Gareth Stace, Director, UK Steel, told Peter Dowd that without trade remedies, the world will actually see a rise in protectionism. When asked about the lesser duty rule by FST Mel Stride, Stace said: “The lesser duty rule is used quite a lot in various different regimes, but it is not used in the US at all. We want to create strong links with the US in terms of trade, so that seems a bit odd.” But he added that ‘if we did not have the lesser duty rule, we would have seen less dumping in recent years. The lesser duty rule has not meant that new cases did not stop dumping”.

c4.15pm until no later than 5.00pm - Panel Six

Dr Laura Cohen MBE, Chief Executive, British Ceramic Confederation, told Dowd that she has three major concerns with the Bill that 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.”

The committee will carry out line by line scrutiny of the Bill:

Thursday 25 January 11.30am and 2.00pm
Tuesday 30 January 9.25am and 2.00pm
Thursday 1 February 11.30am and 2.00pm

The Committee must complete consideration of the Bill no later than 5.00pm on Thursday 1 February.

The Bill can be viewed on the Parliamentary website: https://publications.parliament.uk/pa/bills/cbill/2017-2019/0128/18128.pdf
The Explanatory Notes on the Bill are also available: https://publications.parliament.uk/pa/bills/cbill/2017-2019/0128/en/18128en.pdf

George Crozier and Hamant Verma, CIOT External Relations Team

Posted in: Customs, Indirect Taxes
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