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Trade Bill - Committee (4th Day)

Part of the debate – in the House of Lords at 6:30 pm on 4th February 2019.

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Photo of Lord Purvis of Tweed Lord Purvis of Tweed Liberal Democrat Lords Spokesperson (International Trade) 6:30 pm, 4th February 2019

My Lords, I am very happy to have my name attached to these amendments. It shows the Government there is a degree of cross-party consensus that it is important that these aspects—which, as the noble Lord, Lord Stevenson said, did not get the level of scrutiny they deserved in the Commons—get scrutiny in Parliament. This is after the event, because in effect we are scrutinising legislation, but there is no harm in a bit of post-legislative scrutiny of the taxation Act. In an exchange the Minister and I had during the very brief proceedings in this House on the Taxation (Cross-border Trade) Bill, the Minister said there would be ample opportunities for scrutiny, such as during the upcoming Trade Bill, so we are taking him at his word and offering the Government a chance to give a full-throated defence of the ERG amendments passed in the Commons.

As the noble Lord, Lord Hannay, said, there are perhaps some unintended consequences of these amendments that we now need to properly scrutinise. It is an extraordinary position we find ourselves in where Members of the Government’s party moved amendments to the Government’s Bill that would in effect render the Government’s then policy on the facilitated customs arrangement largely inoperable. Now those same Members are meeting the same Government today to breathe new life into the very systems of a facilitated customs arrangement that they themselves rendered largely inoperable by their amendments. I was struggling for an analogy on the way to the Chamber this afternoon. I could not find one as ridiculous as the position we now find ourselves in. If it is the purpose of the so-called alternative arrangements working group that is now meeting to try to find solutions to the problems that they themselves created, I do not think that any alternative arrangements will come out of this working group.

The ERG amendments now sit most uncomfortably with the process under way, so it is right that we give them proper scrutiny. The Government say one of the amendments they accepted—that there would need to be a stand-alone statute for any customs arrangement agreed with the European Union—is not necessary for any other trade agreements. If I understand it correctly, the positon of the Government is that the free trade agreement with the European Union would undergo a CRaG process, which is an affirmative process to be approved because there is a treaty, but a secondary customs arrangement that would come with that would have to have a stand-alone statute. Why? What is the Government’s rationale for that? In the Commons, the Government simply said they thought it would be appropriate that there would be a stand-alone statute. I do not understand why, so I hope the Government might be able to tell us why that would be the case.

Clause 54 of the Act, which was an amendment, makes it impossible to operate under the Union Customs Code. The facilitated customs arrangement being aligned with the Union Customs Code and seeking to be operationally integral to it has been rejected by that amendment. Given that the withdrawal agreement is based on a customs territory which would be operating alongside Ireland, which would be operating the Union Customs Code, I do not understand how the Government see this working. Even more than that, in the withdrawal agreement the Government say that a customs territory would be operating with the Union Customs Code at the end of the implementation period in 2021. Even in theory that is questionable, given the position in the Conservative Party at the moment. But the European Union has put back the full implementation of the Union Customs Code until 2025, so even if the Government got their way it would not be operable for an extra four years after the end of the implementation period. So unless one of the alternative arrangements is to ask the European Union to accelerate its customs code process by four years, I am not sure how that will be able to be operational either.

I hear what colleagues have said about reciprocity, but on the flight down from Scotland this morning I read the HMRC guidance for businesses in the event of no deal. The Government’s advice to businesses, both here and in the EU, includes registering with EU member states’ regulatory bodies, for British businesses that are exporters, so that they pay their VAT to them. Here is the advice on parcels—not a theoretical or esoteric example, but an example now—for anybody in this country making an online purchase now for delivery in April, which is probably many thousands of people. I quote from the guidance for parcels to be delivered to us if there is no deal:

“For parcels valued up to and including £135”—

VAT will be levied on that, because it will no longer have the low-value consignment relief—

“a technology-based solution will allow VAT to be collected from the overseas business selling the goods into the UK … Overseas businesses will charge VAT at the point of purchase and will be expected to register with an HMRC digital service and account for VAT due”.

That seems to be in contravention of the law. Where is the reciprocity on that? Also, how many overseas businesses have so far registered with HMRC? How are they being informed, in their member states, that they need to? Unless that happens and there is an agreement, anybody making an online purchase with a parcel coming from the European Union will be paying more and may not even receive it in the way they are expecting.

It is important that the Government are clear about reciprocity. Not only is there a need for scrutiny, as well as confusion on the VAT aspect that clearly exists for businesses, but, as the noble Lord, Lord Hannay, indicated—and I agree with him—VAT is just one element of the trading relationship. It is only one element of the multilayered and complex transactions that exist across borders. Checks to ensure that the proper VAT levy is going to be applied are part of a process on rules of origin, on whether the tariff barriers are being circumvented or whether the product comes from a country with which we do not have a trading relationship, et cetera. All have to be underpinned by clear legal frameworks, not by assertions.

I conclude with one statistic that makes the case for a clear risk register for businesses as well as Governments to operate the necessary checks. This is an example from the Republic of Ireland, which trades with Northern Ireland. There are 1.5 million declarations annually through the customs system. From the Irish Government’s position, if there is no customs union with Brexit, that will increase to 33 million. The risk register provides that 2% of all those consignments need to be physically inspected and 6% need to be looked at for a documentary check. Now, 2% of 1.5 million is a burden in itself, but we all know what the calculation for 33 million is. That raises issues around VAT, customs compliance and the other checks that will be necessary. The Committee and the country deserve clarity from the Government. The clock is ticking and advice is already being provided, so businesses need that information now and that is why the Government should either defend these amendments or, as they may do with Clause 6, bring forward their own amendments to clarify and correct the situation.