Julia Goldsworthy (Shadow Chief Secretary To the Treasury, Treasury; Falmouth & Camborne, Liberal Democrat)

I beg to move amendmentNo. 59, in page 23, line 32 [Vol 1], at end add

‘as required to be shown on the underlying tax invoice’.

Again, this is a probing amendment to seek clarification. It refers to proposed new sub-paragraph (2A)(b), where there is reference to

“power to record any information...relating to the goods that have been inspected.”

What does “information...relating to the goods” mean? What extra burden of paperwork and administration does it represent for businesses? Basically, under the amendment, we are trying to state explicitly that there should be the same information as is required and shown on a tax invoice; that might be a way to give businesses greater clarity on what information will be required of them.

Dawn Primarolo (Paymaster General, HM Treasury; Bristol South, Labour)

The purpose of the clause is to put beyond doubt HMRC officers’ power when inspecting goods for VAT purposes, to evidence that inspection by applying a date stamp to the goods or their packaging, and to scan barcode information into a database. What the amendment would do—first and foremost and absolutely uniquely—is defeat the main purpose of the clause, which is that if it is the same goods circulating, and they are stamped and we have the barcode, that information will be provided. If the amendment prevents us from doing that, we have no power. The amendment therefore strikes at the very heart of how  we are trying to deal with those issues in the clause. I hope that the hon. Member for Falmouth and Camborne will understand that we are talking about recording barcodes or information about the goods in a way that is acceptable to business, so that if the same goods come round again, we know it.

Julia Goldsworthy (Shadow Chief Secretary To the Treasury, Treasury; Falmouth & Camborne, Liberal Democrat)

I am grateful to the Minister for reassuring me that the information will be recorded in a manner acceptable to business. The issue was not just barcodes; the provision also mentions

“information (which may be obtained by electronic or any other means)”,

so my concern was that that would represent an unacceptable burden on businesses. However, as I have been reassured by the Minister that that will not represent an extra, unnecessary burden, I beg to ask leave to withdraw the amendment.

Mark Francois (Shadow Minister, Treasury; Rayleigh, Conservative)

We considered MTIC fraud in some detail under clause 19—and, in passing, I commend the Paymaster General for the detail that she gave in her reply. She did her best to respond to the points raised by my hon. Friends and me, within the confines that she faces, and I am grateful for that. I should like to press the Minister on some specific questions on the proposed powers to inspect goods before we allow clause 20 to stand part of the Bill.

We have received representations from a number of bodies about the measures in this brief but nevertheless important clause. For instance, the Institute of Indirect Taxation reacted to clause 20 as follows:

“We are concerned about the breadth of the new para 10 (2A). Our understanding is that HMRC only want to stamp the container or outside packaging and to scan any bar codes printed on the packaging. We fully appreciate the need for such powers”.

Nevertheless, the IIT goes on to say,

“However, the new sub-paragraph goes far wider than that. It will give customs powers to insist on goods being unpacked completely and then repackaged, at the taxpayers expense and to physically stamp the mobile telephone itself.”

Similarly, the Institute of Chartered Accountants in England and Wales, in its briefing note under the heading “The breadth of powers” states:

“The institute appreciates the value of this clause, as it will deter the multiple use of the same goods in MTIC frauds. Nevertheless, we are concerned that this clause goes far further than necessary, and contains insufficient safeguards. The clause effectively gives HMRC the power to have any goods (whether linked to MTIC fraud or not) completely unpacked and then marked.”

That is the institute’s view. I hear the Paymaster General dissenting, so I hope that she will clarify the situation. I was going to ask whether she could reassure us that the powers would be used selectively and only in appropriate circumstances, and whether she could provide that reassurance beyond doubt.

As well as the specific issue of MTIC fraud, there is the wider question of the deliberate smuggling of  goods in order to evade payment of VAT and duties such as tobacco duty. My hon. Friend the Member for Wycombe (Mr. Goodman) dealt with tobacco duty in part 1 of the Bill, and I do not propose to cover that again now. However, this clause deals with powers to inspect goods.

On that point, Ministers might be aware that suggestions are circulating in some quarters to the effect that the Government are considering some kind of scheme for the marking of cigarette packets against counterfeiting and smuggling—perhaps something similar to the strip stamps on Scotch whisky. I see the ears of my friend from north of the border, the hon. Member for Dundee, East, pricking up.

That might range from simple marks that consumers can inspect to see that goods are genuine—but which risk being easy to counterfeit—to more complicated technologies for marking packets of cigarettes, which might be available to those with scanning equipment that can determine whether a packet of cigarettes is genuine and which could, theoretically, be used by HMRC inspectors in order to combat fraud.

I understand that discussions on the issue recently took place between the tobacco industry and HMRC. Bearing in mind that there was considerable discussion and consultation before strip stamps came in, can the Paymaster General say whether those discussions have progressed any further, whether there is any depth to them and whether the Government have any plans—even at an early stage—to mark cigarette packets in some way as an anti-fraud measure? Not least because of all the other changes that have taken place in relation to smoking in the past year or so, it is important to know what the Government have in mind.

Julia Goldsworthy (Shadow Chief Secretary To the Treasury, Treasury; Falmouth & Camborne, Liberal Democrat)

The Paymaster General went into great detail about the broader issues relating to clause 19, so I shall try to keep my remarks specific to clause 20. It is important for the combating of MTIC fraud that HMRC has the ability to enter premises and to inspect and, most importantly, mark the goods that they are inspecting. That is an important way to tackle fraud. In practical terms, that will involve date stamping and scanning bar codes to check that descriptions are correct.

As has been said, businesses have raised the concern that that could result in the goods being defaced or damaged. However, I understand that the Government have a dilemma. If they cannot mark the internal goods, there is nothing to prevent them from doing another round on the carousel. I seek clarification as to how HMRC will tread that tightrope and apply the law in a proportionate way. For example, will there be a full right to appeal at a VAT tribunal if it is considered that the goods and their value have been impaired as a result of their being marked in such a way? I shall be interested in further comments from the Paymaster General.

Stewart Hosie (Spokesperson (Chancellor of the Exchequer; Home Secretary); Dundee East, Scottish National Party)

I welcome clause 20, particularly the power in proposed new sub-paragraph (2A)(b)

“to record any information (which may be obtained by electronic or any other means)”.

We have heard that the cost might fall anywhere between £1 billion and £2 billion—perhaps up to£10 billion. It strikes me that it might well be necessary to seek a document with a full range of serial numbers for a carton of computer chips or other high-value items of the sort that we have been discussing to find out whether such goods are being passed down the chain in the criminal process. I welcome the measures, but I share some of the concerns about the proportionate use of the power.

I understand the point made by the hon. Member for Rayleigh about cigarettes. I know that very few hon. Members smoke, but I am led to believe that each cigarette packet has a stamp on the bottom. That might be sufficient without having to add a strip stamp, and he is absolutely right on that issue. It caused a great deal of consternation in the Scotch whisky industry, and I should like some comfort from the Paymaster General that in seeking to introduce machine-readable strips to avoid fraud, the Government will place no additional burdens on the Scotch whisky industry. The existing stamp will be sufficient.

Philip Dunne (Ludlow, Conservative)

I share some of the concerns raised earlier by the hon. Member for Falmouth and Camborne. The powers go way beyond the powers discussed in the previous clause, which dealt just with MTIC fraud. As I understand the clause, the powers will apply to the HMRC in any investigation that it wishes to undertake in relation to VAT fraud. Therefore, we need to look at the clause in the context of the supply of all goods across the country, not just those goods involved in the fraudulent carousel trade. In some respects, the powers go a step too far. I have no difficulty whatever with the power in proposed new sub-paragraph (2A)(b) relating to scanning bar codes. That is a sensible measure that will allow the Revenue to gain access to goods and record information about them.

Perhaps I should declare an interest by reminding Committee members that I am the chairman of a bookshop chain that benefits from a zero-VAT regime on the sale of books. However, we also sell other products, including greeting cards and some relatively high-value arts and art products, and that is where my concern arises. If they were marked by the industrious inspectors of the HMRC, could the marking damage the value of the products by damaging the products themselves?

One can imagine the same point applies to a number of other areas of which I have no direct experience, such as collectors’ stamps. If inspectors were to go around marking and defacing collectors’ stamps in the offices of Stanley Gibbons, they might destroy them. Actually, that might increase their value, because they would be specialist collector’s items if they had an official stamp.

Mark Francois (Shadow Minister, Treasury; Rayleigh, Conservative)

I take the opportunity at last to declare an interest. I do not smoke and I am not a lawyer, but I am a stamp collector.

Edward O'Hara (Knowsley South, Labour)

The hon. Gentleman got away with that.

Philip Dunne (Ludlow, Conservative)

My hon. Friend might wish to proffer a view on whether stamp prices would rise or fall if the stamps had been marked by the HMRC. I would not know.

The provision raises questions, which I hope the Paymaster General will address, about how the Revenue will interpret the powers. Should not some safeguards be introduced to prevent it from marking goods if that would damage their value?

Rob Marris (Wolverhampton South West, Labour)

Can the hon. Gentleman envisage a number of goods besides stamps whose values could be harmed? For example, if Rolex watches were marked to prove that they were not counterfeit, surely that would enhance their value.

Philip Dunne (Ludlow, Conservative)

Having had the pleasure of travelling through a night market in Hong Kong relatively recently, I have seen arrays of watches of all kinds of luxury brands available. The hon. Member for Loughborough (Mr. Reed) is shaking his wrist to suggest that he might be wearing one. I suspect that the hon. Member for Wolverhampton, South-West might be right: in some cases, marking might help. I suspect also that the vast majority of such watches are for sale outside this country, so the HMRC would not have jurisdiction. I ask the Paymaster General to address those points.

Dawn Primarolo (Paymaster General, HM Treasury; Bristol South, Labour)

As I said in my introductory remarks, the clause will simply put beyond doubt the right of the HMRC’s officers to evidence the inspection of goods and to make a record of any information relating to them. Under schedule 11(10) of the Value Added Tax Act 1994, they already have such powers. I do not know why hon. Gentlemen are suddenly so worried. Those powers are operating perfectly well. Although they are predominantly used to tackle MTIC fraud, their use is not limited to that area and never has been. I do not consider it necessary to restrict the scope in an area where it is already operating because to do so could undermine the HMRC’s existing rights to record information during routine VAT inspections.

Let us not run away with the idea that suddenly there are loads of extra powers; there are not. The HMRC’s officers already have the powers. The provision is to put the powers beyond doubt in what is a difficult area with regard to MTIC fraud. The powers go back to 1973, so they have existed for a long time.

Philip Dunne (Ludlow, Conservative)

The right hon. Lady has explained that the powers to stamp packaging already exist. Do they also exist to mark goods?

Dawn Primarolo (Paymaster General, HM Treasury; Bristol South, Labour)

Yes, I believe so. The next issue is one that the hon. Gentleman raised, as did others. They painted a picture of an Armageddon in which huge amounts of goods would suddenly be unpacked, stamped and thus damaged. That would then be at the trader’s cost.

The requirements are no different from that those that exist for the inspection of goods under the current powers. The HMRC does not require access to individual product items to carry out the stamping and scanning. Hence, my point to the hon. Member for Falmouth and Camborne about the importance of needing to be able to scan the barcode and record such information. There is an HMRC date stamp on the outer packing of goods, such as boxes containing retail consignments of mobile phones. It is a matter to which we will need to pay careful attention, but it is dealt with at the moment.

I should not really answer the questions about cigarettes, but they are stamped and there is no extension to those powers either.

As I understand from my hon. Friend the Financial Secretary, there was much debate earlier in Committee about the memorandum of understanding with the industry. What is under discussion, which is of mutual benefit to the industry and to the Government, is the question of counterfeit goods and whether developments of technologies can assist the industry and us in dealing with the problem. With that clarification, I hope that members of the Committee will be satisfied with the clause.