Cross-border Trade and Accounting

Part of the debate – in the House of Commons at 7:19 pm on 30th October 2019.

Alert me about debates like this

Photo of Jesse Norman Jesse Norman The Financial Secretary to the Treasury 7:19 pm, 30th October 2019

I feel almost embarrassed to be intervening on the promising discussion between my hon. Friends the Members for Ochil and South Perthshire (Luke Graham) and for South Thanet (Craig Mackinlay); it is almost as though one would be intruding by saying anything from the Treasury Bench, given the degree of conversation that was going on. I thank them both for a most engrossing and expert discussion.

When I was thinking about this debate, I did a little research into the background of my hon. Friend the Member for Ochil and South Perthshire and discovered that part of his life had been spent not merely as an accountant at Tesco and Marks and Spencer, where he started to develop the considerable personal knowledge he has demonstrated, but involved an outfit called Tough Mudder. I do not know whether you have come across Tough Mudder, Madam Deputy Speaker. It is an organisation that specialises in ultra-long obstacle courses of 8 to 10 miles, or possibly longer. It holds some rather interesting events. I bring your attention to the “arctic enema” in which participants plunge into a dumpster filled with ice water, dunk themselves underneath the plank that crosses the dumpster and then pull themselves out on the other side. There is also “electroshock therapy” in which live wires hang over a field of mud that participants must traverse. Above all—this is especially important in the context of the House of Commons—there is “Everest” in which participants run up a quarter pipe slicked with mud and grease; just the thing to ascend the ladder of career opportunity in Government and Parliament. It does not surprise me at all that my hon. Friend should have acquired those important skills; he is demonstrating them so brilliantly in his parliamentary career.

It is also quite interesting how my hon. Friend has deployed precisely those Tough Mudder tactics so successfully today in calling for an Adjournment debate on cross-border trade and accounting systems and then taking us into the highways and byways of the tax code. I call that classic bait-and-switch of the kind that the founders of Tough Mudder would be delighted with.

Let me mention a few of the things we have touched on before coming to the main thrust of the topic. My hon. Friend is absolutely right to highlight Making Tax Digital for VAT, not merely as a success for HMRC—although it has had some delay, it is clearly proving to be that in relation to VAT—but because of its wider effects. More than 1.25 million businesses are signed up to Making Tax Digital for business, and very nearly 1.75 million VAT returns have been successfully submitted through the service. Some 81% of all businesses mandated from April are now signed up to it. That is a tremendous achievement, and it fully bears out the point made by my hon. Friend the Member for South Thanet. When the British people are presented with a challenge, particularly on taxation, they rise to it and overcome it. That is an important and valuable characteristic, and it is one we rely on.

There are also wider benefits, and they are becoming quite evident. There are potentially quite significant productivity benefits—we are still measuring them in HMRC. The benefits are starting to become sufficiently well known within the smaller business community to result in many signing up for Making Tax Digital VAT voluntarily; they are not captured by its mandate because they are not above the threshold. That is an important aspect of the wider picture of improving productivity and audit and accountability that goes with these developed processes.

My hon. Friend the Member for Ochil and South Perthshire also rightly mentioned the concerns and opportunities created by new methods of managing and valuing intangibles. That is always of great interest to Revenue and Customs, as he might imagine. He talks about the importance of transactional barriers and the need to avoid them; of course, I agree. He rightly focused on extracting an appropriate level of tax from the very largest companies and platforms—he and I have written about this in other contexts. It is important to level the playing field, with platforms using their power for good rather than yielding to the temptation to exploit insider information and one-to-many power to create an unlevel playing field. In part, that is exactly what our digital services tax is designed to do.

My hon. Friend the Member for South Thanet quite rightly mentions cigarette excise losses. If it is of any reassurance to him, I personally have sat with the HMRC fraud team tracking of some of these gangs in real time. I can tell him that it is an enormously impressive operation and one that yields great benefits to the Revenue and to this country’s Exchequer.

Turning to the issue at hand, let me say a few things about the very important question that my hon. Friend the Member for Ochil and South Perthshire asked about cross-border change and the role that accounting systems can play in that. He will be aware that the Government are committed to an efficient and effective customs system that minimises administrative burdens on people who trade. He will also know that HMRC has invested some £34 million to fund training for individual businesses and—this is the key point—to develop and grow the customs intermediary sector so that it embeds greater expertise and institutional capacity to sustain our customs over the longer term. Indeed, I spoke at the launch of the UK Customs Academy, funded by HMRC, only last month.

It is also important, as my hon. Friend has stressed, to make customs processes as simple as possible. The current declaration system, known as CHIEF, as my hon. Friend the Member for South Thanet mentioned, is being replaced with a new customs declaration service that is much more modern, much more flexible and able to anticipate vastly larger volumes of trade, and much easier and quicker for traders to use. The digital and streamlined processes committed to in the 2018 Budget are already coming into play and the specific commitment to halve the time it takes to receive authorised economic operator status is a further exemplification of that.

Let me come, slightly more widely, to the question of VAT. My hon. Friend the Member for Ochil and South Perthshire is right to ask whether VAT systems can be used to facilitate cross-border trade. This is an issue that officials within HMRC have explored in relation to HMRC’s own VAT regime and whether that can be deployed to facilitate customs processes. The House should be clear that there are specific challenges arising from that. The first has to do with the monitoring of goods, and the UK is under an obligation to demonstrate its control over goods imported and exported from this country. The Government need to be able to monitor the movement of goods in real time, but the trouble is the current VAT system, which is of course typically run on a quarterly returns basis and does not meet the real-time requirement, as VAT is accountable after the movement of goods.

The second challenge is a related one and bears on assurance. It is an underlying principle of the World Trade Organisation and the World Customs Organisation that tariffs should exist as a trade policy tool and must be applied in a fair and reasonable way. Real-time controls are a way of satisfying authorities that the correct tariff has been applied and collected on goods and, of course, it is important not to lose the credibility that border controls confer when they are deployed on the UK as a trading partner. That would potentially be put at risk by this suggestion.

Real-time controls of course also help to ensure that goods that do not comply with regulatory standards or that pose a security risk—of course there are such goods—do not enter this country. Without some customs processes, it would be difficult to identify and check goods that pose a risk to this country. It could be a phytosanitary risk, one from hazardous materials or, of course, one from weapons and other things of that nature.

The final challenge I would identify is that we are under an obligation to show that we have applied trade policy in a fair and uniform manner, and customs controls allow us to differentiate countries that have free trade agreements from those that are subject to most favoured nation status. Of course, any future customs facilitation for UK-EU trade will be a matter for negotiation once we have left the EU. Both we and the EU envisage putting in place ambitious customs arrangements to make use of all the available facilitative arrangements and technologies that we can.

Let me reassure you, Madam Deputy Speaker, and colleagues across the Chamber that we are preparing for that negotiation and will work with Parliament, the devolved Administrations and others to ensure a successful outcome in the interests of all parts of the United Kingdom.