HMRC: impact

Trade Bill – in a Public Bill Committee at 11:30 am on 1 February 2018.

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“No later than 12 months after this Act has come into force, the Secretary of State shall lay a report before Parliament on the impact of the provisions of sections 7 and 8 of this Act on the expenditure and staffing of HMRC.”—

This new clause would require the Secretary of State to lay a report before Parliament on the impact of Part 3 of this Act on the expenditure and staffing of HMRC.

Brought up, and read the First time.

Photo of Alan Brown Alan Brown Shadow SNP Spokesperson (Transport), Shadow SNP Spokesperson (Infrastructure and Energy)

I beg to move, That the clause be read a Second time.

It is a pleasure to serve under your chairmanship, Mr Davies. I will try to assist the Committee with concluding proceedings before 2 pm.

The new clause is all about the Bill’s impact on Her Majesty’s Revenue and Customs. The history so far is that, instead of taking back control, the Brexit process appears to be an interdepartmental bun fight for resources, both cash and human. Right now, there is a Brexit gravy train for consultants, and experts are suddenly back in demand. That was confirmed by the Chancellor, when in the autumn Budget he allocated a further £3 billion over the next two years to Brexit preparations.

Brexit will cause an unprecedented rise in workload for HMRC, whatever customs and tariff arrangements are made. In addition, goods traded with the EU will need to be accounted for as international exports. That is all happening at a time when, as all Members know, the Tory Government are slashing staff and closing HMRC offices across the nations of the UK.

At the same time, HMRC is launching a new customs declaration service, starting in August 2018, with the intention that it will be implemented in full by January 2019. That will replace the customs handling of import and export freight system, which is nearly 25 years old and cannot be easily adapted to new requirements. I think everyone on the Committee will be cynical about that—who has ever heard of a massive IT project that goes live on time and is easily adaptable to suit future processes?

There are serious concerns about whether the system can be put in place properly just a few months before Brexit, given that customs declarations are expected to more than triple once the UK leaves the EU. The National Audit Office has said that the number of customs declarations could increase from 55 million to 255 million if tax and duties must be collected on trade between the UK and EU.

Photo of Hannah Bardell Hannah Bardell Shadow SNP Spokesperson (Trade and Investment)

My hon. Friend is making an excellent speech. Does he agree that what we have seen across the UK, including from the National Audit Office and the Public Accounts Committee, is huge criticism of the UK Government’s change programme? In my constituency, they want to centralise the Livingston HMRC office to Edinburgh. There will be a devastating impact on communities and the continuity of services will be impacted just a moment before these other plans take place. The Government should rethink the process wholesale.

Photo of Alan Brown Alan Brown Shadow SNP Spokesperson (Transport), Shadow SNP Spokesperson (Infrastructure and Energy)

It will come as no surprise that I completely agree with my hon. Friend. The closing of HMRC offices is yet another example of the left hand not knowing what the right hand is doing and of a complete lack of strategic thinking.

Jon Thompson, the chief executive of HMRC, has warned that border and tax checks post-Brexit could require an additional 5,000 staff, with new customs checks costing the taxpayer up to £800 million. Given the uncertainty about future customs arrangements, the fact that HMRC is already undertaking a system overhaul, that the number of declarations could increase fourfold and that transitional arrangements are still unknown, it makes complete sense to assess the impact on HMRC, which is responsible for the taxing and checking of trade that will arise from the Bill.

The new clause would allow for greater parliamentary scrutiny and force an internal departmental impact assessment. This week alone has shown that it takes much effort to force the Government’s hand on impact assessments and for them to be up front about what the impact of Brexit will be. That is why I move the new clause.

Photo of Bill Esterson Bill Esterson Shadow Minister (Business, Energy and Industrial Strategy), Shadow Minister (International Trade)

Welcome back to the Chair, Mr Davies.

May I say how much I agree with the comments of the hon. Member for Kilmarnock and Loudoun? The impact of HMRC closures, which the hon. Member for Livingston mentioned, on communities and on those losing their jobs was well stated. The same is true of my constituency, with the closures in Bootle and Liverpool.

The Minister advised the Committee in an earlier sitting that

“the resources given to HMRC post Brexit to deal with Brexit are already there.”

He also said that

“the power has been assessed and its likely cost looked at. It has been deemed to be relatively inexpensive and overall will not add a cost burden on HMRC.”––[Official Report, Trade Public Bill Committee, 30 January 2018; c. 261.]

I therefore trust that Government Members will support the new clause, as the hon. Member for Kilmarnock and Loudoun said. The Opposition will support it.

Of course, the Minister may well see fit to release the cost analysis he referred to in order to allay not only our concerns but those of the business community about the impact of additional duties on HMRC, given the significant task it faces in preparing for Brexit and in the light of the up to 40% cuts in staffing levels it has faced over recent years. The Minister referred to funding that has been made available to HMRC to support its preparedness to be Brexit ready. Will he tell us what that funding is, or confirm that it is the £250 million that the Government have made available to the cross-departmental and inter-agency border planning group?

Photo of Faisal Rashid Faisal Rashid Labour, Warrington South

Does my hon. Friend share my concern that HMRC is already significantly understaffed? There have been widespread complaints over the last two years about poor customer service and the closure of hundreds of offices across the country.

Photo of Bill Esterson Bill Esterson Shadow Minister (Business, Energy and Industrial Strategy), Shadow Minister (International Trade)

Absolutely. I know that many of my hon. Friend’s constituents in Warrington are affected by those closures. We clearly cannot on the one hand see cutbacks, and on the other hand expect an expansion of HMRC’s work commitments.

The Public Accounts Committee recently published its report, following an inquiry into our Brexit readiness, in respect of the border planning group. It raised concerns that

HM Treasury’s usual business model is inadequate for allocating Brexit funding to departments who are forced to operate together, at pace, to a hard deadline.”

That seems pretty clear to me. When giving evidence to that Committee, representatives of the relevant bodies on the border planning group explained that funding was released on a case-by-case basis, and demonstrated that much of the funding had yet to be drawn down.

HMRC is still wrangling with HM Treasury over a £7.3 million drawdown to cover upgrades to the CHIEF customs system—I think that is what the hon. Member for Kilmarnock and Loudoun was referring to—in order to level up functionality. HMRC also told the Committee that it was not expecting any shift in the risk profile of goods coming into the UK from the EU, and that it had “no evidence to suggest” that there would be increased trade flows with non-EU countries after Brexit. Will the Minister confirm whether his Department’s assessment matches that of HMRC, and that our standards and regulations will match entirely those of the EU, such that the risk profile of goods in or out remains the same?

HMRC has planned operating resources for no change after we leave the EU, per the evidence it gave to the PAC. Will the Minister confirm that it is Government policy for there to be no change in the regulations? Will he also confirm whether HMRC was right to say that there is “no evidence to suggest” that there will be increased trade flows with non-EU countries after Brexit? He is looking at me with a puzzled look, as he often does.

Photo of Bill Esterson Bill Esterson Shadow Minister (Business, Energy and Industrial Strategy), Shadow Minister (International Trade)

I was not taking it personally. I have seen him with that puzzled look on many occasions, not just when I am speaking—often it is in response to comments from those his own side.

If the Department for International Trade has any purpose, it is surely to absolutely change the volume of trade after Brexit. That, in turn, suggests that HMRC was not right to say that there would be no changes in trade flows. It also suggests that HMRC is significantly under-resourced, which is more to the point, if it is operating on a no-change assumption. HMRC’s new customs declarations service is geared up for a fivefold increase in customs processing once we leave the EU. Surely the Minister accepts that that is likely to put severe strain on HMRC’s capacity and significant strain on its resourcing.

What the Government and HMRC have said appears to be at odds when it comes to standards and regulations, and whether they will match—especially the comment about there being “no evidence” of increased trade flows. [Interruption.] I thought that the hon. Member for Livingston was trying to intervene, but she is not.

Photo of Faisal Rashid Faisal Rashid Labour, Warrington South

I will give my hon. Friend a rest. Does he share my concern that if HMRC is not adequately resourced to collect and disseminate data in relation to our exports, placing any additional burdens on businesses to furnish that information is entirely unhelpful?

Photo of Bill Esterson Bill Esterson Shadow Minister (Business, Energy and Industrial Strategy), Shadow Minister (International Trade)

Absolutely. We made that point earlier in our proceedings and my hon. Friend makes it extremely well.

Coming back to what the hon. Member for Kilmarnock and Loudoun said, HMRC has suggested to the Public Accounts Committee that it will need 3,000 to 5,000 extra staff to perform effectively post-Brexit, but that will depend on the level of risk that Ministers are willing to take. The Public Accounts Committee received written evidence suggesting:

“There are very few International Trade businesses, both importers and exporters, who take Customs compliance seriously” and that businesses need more support from HMRC to deal with post-Brexit requirements.

If that is the case, clearly a voluntary information disclosure, which the Minister has assured us the Trade Bill makes provision for, would be entirely futile as a means of gathering the information his Department requires. I note, as I did on an earlier occasion, that the Bill does not suggest that it is voluntary, and we are not aware of any business that would ever consider a request from HMRC to be voluntary in nature. The second point—that businesses require more support from HMRC to deal with post-Brexit requirements—is more telling; it further suggests that there will be a significant strain on HMRC’s resources if it is to carry out its existing functions, let alone carry out new ones.

If those new functions are subject to voluntary application, will they also be subject to voluntary roll-out from HMRC? In that case, perhaps there will be nothing to report in 12 months’ time. The additional burdens being placed on civil servants to prepare for Brexit are significant, and with limited resources being made available to support those endeavours, we are right to be concerned about the ongoing operability of HMRC, and indeed other public bodies. That is why we shall support the new clause.

Photo of Barry Gardiner Barry Gardiner Shadow Minister (Department for Business, Energy and Industrial Strategy) (Energy and Climate Change), Shadow Secretary of State for International Trade

Very briefly, I commend the hon. Member for Kilmarnock and Loudoun for tabling the new clause.

We have seen in recent days that the Government are usually reluctant to release any impact assessments or reports of any substance, for fear that they will prejudice negotiations and put the Government in the most awkward position. However, I am sure that the hon. Gentleman will take heart from the fact that it is now usual for the Government, 24 hours after saying that they will not publish a report, to decide that they will do so anyway. I confidently expect the Minister to stand up and say that those on the Government Benches cannot support the new clause—we will support it, as my hon. Friend the Member for Sefton Central said—but the hon. Member for Kilmarnock and Loudoun should not worry or be discouraged, because I have no doubt that within 24 hours, the Government will see sense.

Photo of Greg Hands Greg Hands The Minister of State, Department for International Trade 11:45, 1 February 2018

Welcome back to the Chair, Mr Davies; it is a pleasure to serve under you, as ever.

Clause 7, as we know because we debated it at length on Tuesday, sets out the powers that are needed for the Government to collect data to establish the number and identity of UK businesses exporting goods and services. Clause 8, in turn, sets out the powers that are needed for HMRC to share data with the Department for International Trade and other Departments and organisations in order for those bodies to carry out their public functions in relation to trade. Any trade information collected or shared by the Government under clauses 7 and 8 will come at minimal cost to business and the taxpayer—I will go into a bit more detail in a moment—and will be below the threshold needed for an impact assessment and review.

To deal with some of the points raised in the debate, the hon. Member for Kilmarnock and Loudoun asked about the impact on HMRC. I can confirm that HMRC will not require additional staff or resources for this function as a result of the data provision in the Trade Bill. From what the hon. Members for Sefton Central and for Brent North said, it sounded as if they are going to vote for the new clause. The different Opposition parties seem to be attacking the issue from different angles. Although the hon. Member for Kilmarnock and Loudoun said that too much resource is going to some places—I think that he called it the “Brexit gravy train”—the hon. Member for Sefton Central seemed to say that resources were too limited. However, I think that they are both coalescing around voting for the new clause.

Photo of Alan Brown Alan Brown Shadow SNP Spokesperson (Transport), Shadow SNP Spokesperson (Infrastructure and Energy)

To clarify, I was talking about the Brexit process as a whole. It is certainly a gravy train for consultants, because the Government do not have the expertise in house.

Photo of Greg Hands Greg Hands The Minister of State, Department for International Trade

Well, I guess we will leave it at that. I accept the hon. Gentleman’s intervention to clarify precisely what he meant by the “Brexit gravy train”, but let us look at the truth.

The truth is that collecting the data will involve minimal cost to Government and business. The cost will certainly be below the level at which an impact assessment must be published, which is £1 million. I do not know what the cost of the hon. Gentleman’s assessment might be, by contrast, but the cost of the provision in the Bill will be less than £1 million. The Regulatory Policy Committee confirmed to my Department during the course of our analysis that no impact assessment was therefore needed, due to the low costs associated with the provision.

Photo of Matt Western Matt Western Labour, Warwick and Leamington

Does the Minister accept the interpretation that businesses will need additional support and that that is what is being proposed? HMRC will need additional capacity to help small businesses. Given that the Government and the Secretary of State are determined that businesses will look for new markets to diversify, those businesses will have a lot to do, so we need to give them as much assistance as possible.

Photo of Greg Hands Greg Hands The Minister of State, Department for International Trade

I agree, which is why we have made additional resources available for HMRC. We recognise that it will require additional staff, and that is being discussed. However, that does not relate to this Bill and this power. That is the most important thing to realise. The hon. Gentleman’s points about the generic nature of HMRC are well made, but my point is that this power will be introduced at minimal cost and will not affect the overall equation. The point that he raised about additional resources being needed for HMRC overall is not in dispute.

Photo of Matt Western Matt Western Labour, Warwick and Leamington

The Minister is being most generous. My point was that the report that we are requesting would help us to better understand the implications for HMRC.

Photo of Greg Hands Greg Hands The Minister of State, Department for International Trade

I do not think that that is necessary. The work that has been done shows that the cost would be less than £1 million. The new clause is all about trying to work out the cost of this particular measure, not about the wider implications for HMRC.

The hon. Member for Sefton Central asked whether this is a futile exercise. I say to him that we will be able to target support directly and ensure that UK business is at the forefront of post-Brexit opportunities, thanks to the data that this provision may well realise.

Finally, I remind the Committee that the Government currently do not collect any export data at all from about 4 million UK businesses. Our analysis elsewhere suggests that about 300,000 businesses in the UK could and should export but do not. We need this limited data collection and sharing power to be able to find and help them. I therefore urge the hon. Member for Kilmarnock and Loudoun to withdraw the new clause.

Photo of Alan Brown Alan Brown Shadow SNP Spokesperson (Transport), Shadow SNP Spokesperson (Infrastructure and Energy)

I listened to what the Minister said. Clearly, if we stick to the existing trade agreements, nothing will change and everything will be much the same. Although there may be a logic to that, I will press the new clause to a vote because it would allow the Government to print an impact assessment that shows that nothing will change, that everything will be okay and that there will be no impact on HMRC. I would have thought that the Government would be happy to do that, and that it would not take too long.

Question put, That the clause be read a Second time.

The Committee divided:

Ayes 8, Noes 9.

Division number 35 Caledonian Pinewood Forest — HMRC: impact

Aye: 8 MPs

No: 9 MPs

Aye: A-Z by last name

No: A-Z by last name

Question accordingly negatived.

New Clause 11