Authorised economic operators

Taxation (Cross-border Trade) Bill – in a Public Bill Committee at 4:45 pm on 30th January 2018.

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Photo of Peter Dowd Peter Dowd Shadow Chief Secretary to the Treasury 4:45 pm, 30th January 2018

I beg to move amendment 128, in clause 22, page 14, line 17, leave out “HMRC Commissioners” and insert “The Treasury”.

This amendment provides for the power to make regulations under Clause 22 to be exercisable by Treasury Ministers rather than HMRC.

With this it will be convenient to discuss the following:

Amendment 116, in clause 22, page 14, line 36, at end insert—

“(4) Within three months of the passing of this Act, the Chancellor of the Exchequer must lay before the House of Commons a report on the proposed exercise of the power of the HMRC Commissioners to make regulations under subsection (1), including in particular—

(a) the proposed criteria to be applied in determining whether or not any person should be an authorised economic operator,

(b) an assessment of the structure of the authorised economic operator system in Germany, Austria and such other countries as the Chancellor of the Exchequer considers relevant,

(c) the proposed differences between the structure that is proposed to be established by the first exercise of the power to make regulations under subsection (1) and each of those structures described in accordance with paragraph (b),

(d) the level of proposed resources to be allocated by the HMRC Commissioners for the authorisation of new authorised economic operators, and

(e) the target timetable for the authorisation of—

(i) new authorised economic operators in each class, and

(ii) authorised economic operator certification renewals in each class.”.

This amendment requires the Government to report on the proposed operation of the powers of the HMRC under Clause 22, including comparative information.

Amendment 129, in clause 22, page 14, line 36, at end insert—

“(4) No regulations may be made under this section unless a draft has been laid before, and approved by a resolution of, the House of Commons.”.

This amendment requires regulations under Clause 22 to be subject to the affirmative procedure.

Clause stand part.

Amendment 130, in clause 32, page 19, line 32, after “regulations” insert “under section 22 and”.

This amendment is consequential on Amendment 129.

Photo of Peter Dowd Peter Dowd Shadow Chief Secretary to the Treasury

Amendment 128 would confer powers on the Treasury to act as authorised economic operators instead of HMRC commissioners, for whom the clause currently creates powers.

Clause 22 allows the setting up of an authorised economic operator scheme, which is an internationally recognised quality mark indicating that an operator has met recognised standards of compliance. The status could give special access to some customs procedures and the right, in some cases, to fast-track shipments through customs. Clause 22 gives HMRC the powers to make regulations to not apply sections of part 1 of the Bill to those with such a status, or to ensure that the status is recognised procedurally in other ways.

Once again, this is a very wide power given to HMRC commissioners to ignore large sections of the Bill in relation to certain operators. Under the amendment, we hope to shift the powers from HMRC commissioners to Treasury Ministers. There is a simple reason for that: Treasury Ministers are democratic agents, accountable to the general public. We cannot allow a situation where unelected officials can disapply large sections of parliamentary legislation with no democratic recourse or public oversight. The clause would effectively give HMRC power to refuse to apply all of part 1 of the Bill, from clause 1 all the way to clause 38. Surely this sweeping power, if it has to be created, should be held by a Minister of the Crown—ideally with additional parliamentary scrutiny, as we have tried to ensure throughout other parts of the Bill.

The clause highlights yet another case where democracy is being brushed aside for the purpose of expediency. Our amendment seeks to restore accountability. I hope that members of the Committee will support it today.

Amendment 129 and consequential amendment 130 seek to amend clause 22 and clause 32 respectively. In both cases, the amendments would add a requirement for the Government to introduce affirmative regulations to make further policy. Under clause 22, that is for the purposes of setting up an authorised economic operator scheme.

The use of the negative procedure in that case was commented on in the Lords Delegated Powers and Regulatory Reform Committee report, which addressed the matter of regulations made under the negative procedure under clause 22 as follows:

“Clause 22 allows HMRC Commissioners to make regulations ‘disapplying or simplifying’ any of the law relating to import duty made by or under Part 1 of the Bill (clauses 1 to 38) in relation to “authorised economic operators”, a term that will be amplified in regulations and which essentially covers operators who meet internationally recognised standards of compliance. Bearing in mind that clause 22 covers the other 31 regulation-making powers found in Part 1 of the Bill, its scope is very wide. Given the width of this power enabling HMRC to waive compliance with the law, we consider that these regulations should be subject to an affirmative procedure.”

Again, the Lords are bringing home the point about democratic accountability.

Amendment 129 seeks to amend the Bill, following the advice of that cross-party Committee, because of another example of the Government sidestepping parliamentary scrutiny. We want—we will say this time and again—to reintroduce some measure of scrutiny into the process. Similarly, amendment 130 brings the notes under clause 32 into line with the changes made in clause 22, as I described earlier. It is therefore a consequential amendment in ensuring that the Bill properly reflects the comments made by the Delegated Powers and Regulatory Reform Committee. As I am sure everyone will agree, the proposals are all about parliamentary scrutiny in the important area of customs policy.

Photo of Kirsty Blackman Kirsty Blackman Shadow SNP Spokesperson (Economy), SNP Deputy Leader

It is most unusual to hear the Lords held up as champions of democratic accountability, but the work of the Delegated Powers and Regulatory Reform Committee on the Bill has been incredibly useful, and it has allowed us to have a more knowledgeable debate on the subject. It was quite reasonable of the Opposition to have brought forward their amendments.

I will speak to amendment 116, which I intend to press to a vote. It is about authorised economic operators, which is what the clause covers, because I have real concerns about the system. I am not the only person to have concerns—they have been expressed previously—about how the UK manages the AEO scheme within the UK. The UK scheme is managed dramatically differently from schemes in other countries, which is a real concern for businesses.

The Government’s customs White Paper mentioned that people could be authorised economic operators, and basically suggested that that would solve all their woes. Given how difficult it is for companies to become authorised economic operators, and given HMRC’s shortcomings in overseeing the process and ensuring that it is as smooth and quick as possible, I have real concerns that the system cannot be used effectively by many businesses as a way to ensure—slacker customs procedures is not the right term—slightly different customs procedures that would allow things to move a bit more smoothly.

In the amendment in my name and that of the hon. Member for Dunfermline and West Fife, we are looking for the Government to provide more information. Part of that is about giving businesses certainty further in advance, and part is about ensuring that the Government think about how the authorised economic operators scheme will go forward.

Among the various things we are asking for in the amendment is

“the proposed criteria to be applied in determining whether or not any person should be an authorised economic operator”.

Part of that is to do with the issue that the UK Government and HMRC have had with requiring companies to have someone with three years of customs experience in order to be approved as an authorised economic operator. That is how things have been applied and work now, but if we suddenly include the, I think, 130,000 new companies that have not previously had to do customs checks, we will need a different system, because those companies will not have someone who has been working for three years in a customs-related role. The Government will have to agree that some sort of external company can take on the role of that person, or that the companies can have a differentiated system until they have had that three years of experience in exporting. It is reasonable to expect the Government to be a bit more flexible.

Our proposed new paragraph (b) asks for

“an assessment of the structure of the authorised economic operator system in Germany, Austria and such other countries as the Chancellor of the Exchequer considers relevant”.

Although the scheme is internationally recognised, the way in which it is implemented and the way in which the equivalents of HMRC oversee it varies wildly by country. In some places, the system is much quicker, and it is much easier to get through the process. Companies receive more assistance and guidance to get them through the process, and the officials make a determination about applications more quickly.

It is important for the Government to look at other countries. The British Chambers of Commerce said that Austria and Germany do this in a much smoother way; that is why those countries are included in the amendment, but it would be completely reasonable for the Government to include any other countries that they think are relevant.

Paragraph (c)—

“the proposed differences between the structure that is proposed to be established by the first exercise of the power to make regulations under subsection (1) and each of those structures described in accordance with paragraph (b)”— would again require the Government to provide us with more information in advance. Paragraph (d), on

“the level of proposed resources to be allocated by the HMRC Commissioners for the authorisation of new authorised economic operators”,

is pretty critical. Given that I assume the Government expect to see a dramatic increase in the number of applicants for authorised economic operator status because of the number of companies that will be exporting for the first time, it is reasonable that they should report on how they intend to ensure that sufficient resources are allocated to seeing the process of authorised economic operators through.

Paragraph (e) is about

“the target timetable for the authorisation of…new authorised economic operators in each class, and…authorised economic operator certification renewals in each class.”

We have heard concerns that the renewal process for an authorised economic operator can take 12 months. If that is so—that may be an outlier—that is a ridiculous length of time for a renewal. The Government may decide that they want a first application to take that long, but I would contend that even that is pretty excessive. It would be incredibly useful for the Government to set out what the targets are, so that companies know, when they are going into the system, how long the Government intend to take in making a decision. When a company is considering, for example, exporting to a new market or changing the way it does it exporting, it should be able to look at the Government’s timeline and plan on the basis of how long it will take them to process the authorised economic operator approval or renewal.

It would be sensible for the Government to come back with all those answers. Businesses would be very happy if the Government gave them more certainty about all those matters. This is a pretty comprehensive amendment, and it relates to a number of aspects of the authorised economic operator scheme that I have concerns about. I hope the Minister will provide a degree of certainty about all of them. If he cannot, I will be keen to press this amendment to a vote.

Photo of Mel Stride Mel Stride Financial Secretary to the Treasury and Paymaster General

Clause 22 provides the framework under which the UK can set up its version of an authorised economic operator. AEO schemes give compliant traders who meet certain criteria access to simplified customs arrangements. The AEO concept is well known in international trade. A total of 41 customs territories, including the 28 EU member states, have introduced a version of an AEO scheme. Providing authorised traders with simplified customs arrangements is encouraged under the World Trade Organisation trade facilitation agreement.

AEO status operates as a quality mark. It indicates that a business’s role in the international supply chain is secure, and that its internal systems are compliant with HMRC customs controls. AEO status is not mandatory. However, in general AEO schemes enable traders to access customs facilitations and simplifications and undertake customs activities with only light-touch oversight from customs authorities. They allow customs authorities to distinguish between lower and higher-risk movements of goods, avoid unnecessary targeting of resources, and provide customs simplifications and facilitation of legitimate trade.

Clause 22 allows HMRC to set out what customs requirements or procedures can be simplified for AEOs, sets out where HMRC must take account of AEO status when administering the customs system, and gives the criteria or conditions that a business must meet before AEO status is granted. The clause also provides for the creation of different classes of AEO status, which enables the Government to develop simplification schemes appropriate to different types of business, and to match them with robust but achievable criteria and application procedures, thus avoiding a one-size-fits-all approach.

Amendment 128 seeks to ensure that the Treasury, rather than HMRC commissioners, exercises the power to make all regulations under the clause.

The clause allows the UK to continue the authorised economic operator scheme. HMRC is responsible for customs administrative processes, including the system relating to AEOs. HMRC should therefore be responsible for making the regulations relating to the scheme. Regulations will make clear what authorisation criteria and administrative processes HMRC will use to ensure that businesses meet the required standards before it grants them AEO status. The regulations may also set out where and when HMRC must take account of AEO status when administrating the customs system.

The power in clause 22 could not be used to alter the tax base. The AEO scheme provides administrative benefits only, and AEOs will be required to pay any tax and duty due, just as other traders will. It is therefore appropriate that HMRC commissioners, rather than the Treasury, exercise the power in clause 22.

The hon. Member for Aberdeen North raised an important point about our preparedness and the speed with which we are able to accommodate and process applications for AEO status. She mentioned the process taking 12 months. I think it is fair to say that our view is that that is too long. I believe that case is an outlier. I think the maximum, subject to there being no errors in the application, is in the order of six months, but I think that we and HMRC recognise that we need to speed up and simplify that process still further as we go forward. Certainly, as a Minister, I have had a number of engagements with HMRC to look at how to achieve that.

The hon. Lady also mentioned the three-year track record period, and she alluded to those 100,000-plus businesses that currently only trade within the European Union that will now potentially be able to benefit from AEO status. First, the three-year requirement is actually an EU requirement. As we move out of the EU, that could be an area that we look at, and we may decide that changes are appropriate.

Secondly, HMRC often has a considerable amount of information on those who export, which will be useful in making the kind of assessments we are looking at. There are already many AEOs in existence that benefit from AEO status in exporting to and importing from outside the European Union. Thirdly, HMRC is firmly committed to continuing to consult industry, businesses, importers and exporters to make sure that we fully take on board their legitimate requirements for us to make the system as quick and as simple as we can.

Amendment 116 would require the Chancellor of the Exchequer, within three months of the passage of the Bill, to undertake a review of the AEO scheme that HMRC proposes to implement. That review would include the criteria HMRC will use to determine whether a trader qualifies for AEO status, comparison with the way other countries set up and run their AEO system, and HMRC’s plans to process applications for AEO status.

Photo of Kirsty Blackman Kirsty Blackman Shadow SNP Spokesperson (Economy), SNP Deputy Leader 5:00 pm, 30th January 2018

The amendment does not call for a review at all; it calls for a report to be provided. It is not about concerns being raised about the current operation of the scheme, but about how HMRC will look at the scheme going forward.

Photo of Mel Stride Mel Stride Financial Secretary to the Treasury and Paymaster General

I thank the hon. Lady for that clarification. She is right: I said “review”. However, my comments are equally relevant to a report on how it is going and thoughts on how we move forward.

The inclusion of clause 22 reflects the feedback from businesses enjoying the benefits of the current AEO regime. In responding to calls for continuity in that regime, it will help to minimise any potential disruption. What is more, HMRC has already committed to improving the authorisation process for traders and has been meeting with businesses, as I outlined, since last autumn to consider practical improvements to the process. The process is ongoing and includes drawing on the best practice of other countries.

On the amendments, the draft regulations will make clear what the authorisation criteria for AEO status will be. It will largely be the same as the current EU criteria. Those regulations will also set out the details of AEO status, which will largely be the same as the current system.

Photo of Kirsty Blackman Kirsty Blackman Shadow SNP Spokesperson (Economy), SNP Deputy Leader

It would be very useful to know whether the Minister has any idea when the regulations will come forward. Part of my concern was the lack of advance notice for businesses.

Photo of Mel Stride Mel Stride Financial Secretary to the Treasury and Paymaster General

That will be determined to a large degree by the negotiation that is in play with the European Union and by whether we have an implementation period. We are hopeful that such a period will be seen to be in our interest and that of the European Union. The measures will be brought in at the appropriate time, as and when we require our own stand-alone system, so that we are ready on day one and have the regulations that will allow us quickly and effectively to introduce AEO status. It is not about having a one-size-fits-all model. It is about having different classes so that we are able to be helpful in particular to the small and medium-sized enterprises that we recognise may benefit from a different approach from that for larger businesses.

Amendments 129 and 130 would apply the draft affirmative procedure to all regulations made under clause 22. The Bill ensures that the scrutiny procedures that apply to the exercise of each power are appropriate and proportionate considering the nature, length and technicality of the regulations and the frequency with which they are likely to be made. The Government believe that using the negative procedure under clause 22 provides a sufficient level of parliamentary scrutiny, while having regard to the technical nature of the regulations. The regulations may, for example, be used to specify the criteria and processes that HMRC uses when determining whether a business can be authorised as an AEO. Regulations may also set out where and when HMRC must take account of AEO status when administering the customs system. Adopting the draft affirmative procedure for these types of regulations will affect the expediency and efficient administration of the customs regime. For those reasons, I urge the hon. Lady to withdraw the amendment.

Photo of Anneliese Dodds Anneliese Dodds Shadow Minister (Treasury)

I do not want to try the patience of the Committee—I know we have been here for three hours—but I hope it is acceptable to push a little on one element of amendment 116 that the Minister did not address explicitly. The amendment, which was tabled by the SNP, demands that there should be a report on

“the level of proposed resources to be allocated by the HMRC Commissioners for the authorisation of new authorised economic operators”.

The Committee still lacks clarity on how many of the new processes will be delivered in taxes.

I was grateful to the Minister for responding to a parliamentary question that I laid just before Christmas on the comparative strength of the UK in customs officers as compared to other nations. His response suggested that it was not possible to have a comparative analysis. He said that the European Commission collated figures, but they were not directly compared and would not be comparable.

I have since looked at the World Customs Organisation’s annual report for 2016-17, which compiles information given to it directly by customs organisations. What came out of that is concerning. It suggests that we have about 5,000 customs officers, and there is a commitment from the Government that we might have an additional 3,000 to 5,000, although it is unclear when that will be decided. Those customs officers currently process 77 million declarations for import and export—that number could go up substantially if we shift out of the EU customs union—so each customs officer has to process about 15,400 declarations per annum. According to the report, that is 10 times as many as every US or Canadian customs officer. It is 15 times as many as German customs officers, more than 30 times as many as Australian customs officers and about three times as many as customs officers in Hong Kong, Norway and Switzerland. There may be issues with comparability with some of those data sources, but they must be pretty big issues if that large gap can be accounted for just through different reporting processes. The SNP is absolutely right to call for more clarity on how exactly the new procedures will be resourced adequately.

Photo of Mel Stride Mel Stride Financial Secretary to the Treasury and Paymaster General

I thank the hon. Lady for her intervention, which was characteristically acute and well informed. I hope I can reassure her that we take the resourcing of Her Majesty’s Revenue and Customs in this context extremely seriously. It is one of the critical elements that HMRC is looking at. On a number of occasions when I have met with Jon Thompson, the head of HMRC, it is very high up on our agenda as a very important issue that we are tracking on a regular basis. HMRC carried out a detailed review of resources required to manage an upturn in authorised economic operator applications, including a review of lead times and dealing with an increase in applications as we approach March 2019.

Initially, the UK may wish to follow the current Union customs code approach to the AEO programme, depending on the outcome and the progress of the negotiations. If that were the case, it would simplify matters quite considerably, at least in the near term. In the longer term, HMRC has carried out extensive discussion with stakeholders, as I mentioned earlier, to identify ways in which the application process might be streamlined. That will inform the development of future schemes.

On the general points that the hon. Lady understandably made about staffing levels and the large number of additional declarations that will potentially come our way on day one, depending on the outcome of the negotiations, she is right that HMRC has indicated that 3,000 to 5,000 would be about the range of additional staff that we will be looking at. The Chancellor made it clear in his recent Budget that £3 billion will be made available—£1.5 billion per year—across all Departments, including HMRC, to make sure that appropriate requests are met. We are not only very close to the requirements, but very much engaged in ensuring that they are appropriately resourced.

In terms of increasing the volume of declarations that we will be handling, we are working on the IT side and on the custom declarations service system. Our commitment in that area is important.

Question put, That the amendment be made.

The Committee divided:

Ayes 9, Noes 10.

Question accordingly negatived.

Amendment proposed: 116, in clause 22, page 14, line 36, at end insert—

“(4) Within three months of the passing of this Act, the Chancellor of the Exchequer must lay before the House of Commons a report on the proposed exercise of the power of the HMRC Commissioners to make regulations under subsection (1), including in particular—

(a) the proposed criteria to be applied in determining whether or not any person should be an authorised economic operator,

(b) an assessment of the structure of the authorised economic operator system in Germany, Austria and such other countries as the Chancellor of the Exchequer considers relevant,

(c) the proposed differences between the structure that is proposed to be established by the first exercise of the power to make regulations under subsection (1) and each of those structures described in accordance with paragraph (b),

(d) the level of proposed resources to be allocated by the HMRC Commissioners for the authorisation of new authorised economic operators, and

(e) the target timetable for the authorisation of—

(i) new authorised economic operators in each class, and

(ii) authorised economic operator certification renewals in each class.”—(Kirsty Blackman.)

This amendment requires the Government to report on the proposed operation of the powers of the HMRC under Clause 22, including comparative information.

Question put, That the amendment be made.

The Committee divided:

Ayes 9, Noes 10.

Question accordingly negatived.

Clause 22 ordered to stand part of the Bill.

Ordered, That further consideration be now adjourned. —(David Rutley.)

Adjourned till Thursday 1 February at half-past 11 o’clock.