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Mr. Burnett : There are real concerns about the draconian nature of clauses 17 and 18. We also endorse the view that something should be done to combat missing trader fraud, which is international and, according to the Treasury, costs a huge sum of money—between £1.7 billion to £2.75 billion. The abuse has to be tackled, but I should like to quote the House of Lords Economic Affairs Committee, which is drawn from all three major parties and includes eminent members from all parties. In its introduction to the report, that Committee made it clear in paragraph 1.9 that
- "a proper balance has to be struck between those efforts and the need to safeguard the rights of legitimate traders."
Several organisations have highlighted their misgivings about the clauses, and members of the Committee that considers the Finance Bill are fortunate to be sent details of representations from major organisations such as the Law Society, the Institute of Chartered Accountants, the Chartered Institute of Taxation and so forth. I do not want to go into great detail or repeat the further matters raised by the hon. Member for Eddisbury (Mr. O'Brien) in respect of quotations from the House of Lords Economic Affairs Committee report. However, I should like to return to some of the points that were properly raised in the representations of the tax law committee of the Law Society. Ministers receive them and I hope that the Economic Secretary will have had an opportunity to study them carefully.
The Law Society flagged up several points and I should like to go over three of them. New sub-paragraph (1A) in paragraph 4 to schedule 11 of the Value Added Tax Act 1994, which is inserted by clause 17(3), should make it clear that the amount of security that needs to be provided is proportionate to the amount of tax at risk. It does not do so, but the explanatory notes make it clear that it should. That is how the explanatory notes state that the clause should operate: it does not do so and should be amended in
order to do so. The new sub-paragraph (1A) in paragraph 4 to schedule 11 should authorise only the requirement for security as regards future input tax claims. As drafted, that means that a business could seek to recover VAT and be informed at that stage that security was required in respect of a prior transaction.5.30 pm
The "relevant goods or services" in the new sub-paragraph (3) of schedule 11 are not defined. I understand that Customs and Excise is to put out a statement of practice that will indicate that the supplies to which it wishes to apply the enhanced security provisions include oil, fashion goods, computers, phones and accessories thereto. Nevertheless, as it would be possible to extend the types of goods affected by the enhanced provisions by an amending statutory instrument, legislation should surely set out the goods and services in question.
Those are just three of the points made by the tax law committee of the Law Society, and I have raised them not at random but because they are important. I must stress the central points made in the House of Lords Select Committee report. I hope that the Economic Secretary will make it clear that he has understood the importance of a separation of powers and of the report's recommendation, in paragraph 5.11, on the interposition of an external judicial authority. That is, of course, the least of safeguards. I hope that the response to this short debate will give us some comfort and that the Treasury has understood the legitimate criticisms of those of us who, though we understand the necessity for the provisions, believe that the rights of the individual must not be trampled in order to combat a serious fraud on the Exchequer. The human rights considerations cannot and should not be overlooked, and, in the hope that the Economic Secretary has had a chance since Committee to consider the point carefully, I look forward to hearing his considered view.
John Healey: I welcome the detailed, serious and measured way in which the hon. Members for Eddisbury (Mr. O'Brien) and for Torridge and West Devon (Mr. Burnett) have approached the amendment. I accept their recognition of how serious missing trader fraud is, and I welcome their support for the objectives of clauses 17 and 18, which the hon. Member for Eddisbury also offered in Committee. I intend to deal with the points made as probing points, although it will be up to the hon. Gentleman to decide whether they are. I hope to set out clearly the legal basis on which we propose these measures and the safeguards that we are putting in place, particularly for legitimate businesses that may be concerned about the impact.
The measures before us are both proportionate and necessary. They are necessary because we must deal with what both hon. Gentlemen have recognised is a systematic and widespread attack on the VAT system, which is costing the British taxpayer billions of pounds a year. We are dealing with a form of VAT fraud, and any misconception that it is some sort of tax evasion that is pushing at the margins of legitimate tax legislation should be clearly nailed. The affected trade sectors—there are two principal sectors—are clearly riddled with this fraud. In many cases, the goods involved have gone backward and forward between member states so often that their boxes are falling apart.
The level of such transactions is often staggering; for example, sales to Ireland of a certain type of computer chip in the first six months of 2002 exceeded the total market for those chips in the continents of Asia, Africa and Europe. In another case, in a three-month period, a 21-year-old supposedly supplied 10 per cent. of the entire world production of a type of computer chip. As hon. Members will realise, what was happening, in effect, was that the same chips were going around in circles, and huge amounts of VAT were stolen each time.
The Customs have also intercepted single shipments of mobile phones, in one case weighing 14 tonnes—enough phones to fill a football stadium—which were useless for the legitimate UK market because they were of the two-pin plug variety. That did not matter to the fraudsters, of course, because the phones were not destined for UK customers but only to perpetrate a large-scale fraud.
Amendment No. 52 would remove both clause 17 and clause 18 and I shall turn to the arguments used to justify the concerns reflected in the proposal. In response to a point made by the hon. Member for Eddisbury, I shall demonstrate that we have the legal vires for the clauses and explain why we reject entirely the case put to us by the firm of solicitors to which he referred.
I shall try to put to rest the questions about legality in relation to EU VAT directives and to the European convention on human rights by explaining the legal position in some detail. First, on EU legislation, article 22, subsection (8) of the sixth VAT directive provides the vires for clause 17. It states:
- "Without prejudice to the provisions to be adopted pursuant to Article 17 (4), Member States may impose other obligations which they deem necessary for the correct levying and collection of the tax and for the prevention of fraud, subject to the requirement of equal treatment for domestic transactions and transactions carried out between Member States by taxable persons and provided that such obligations do not, in trade between Member States, give rise to formalities connected with the crossing of frontiers."
Secondly, on the ECHR, clause 17 is compatible with article 1 of protocol 1—on the protection of property—contained in schedule 1 to the Human Rights Act 1998: because, first, it is prescribed by law; secondly, when used, it will strike a fair balance between the demands of society and the interests of an individual; and, thirdly, it is taken for a legitimate purpose. The proviso to article 1 is that it should not
- "in any way impair the right of a State to enforce such laws as it deems necessary to control the use of property in accordance with the general interest or to secure the payment of taxes or other contributions or penalties".
Finally, clause 17 has inbuilt safeguards. It will be applied only in appropriate circumstances: where Customs can satisfy the tribunal that there has been an evasion of VAT or an attempt to evade it and where it is accompanied by a statement of practice—as the hon.
Member for Torridge and West Devon mentioned—which lays down stringent guidelines as to how security is to be applied and introduces even further safeguards. Although the statement of practice itself does not have the force of law, once it is published, Customs will be expected and, if necessary, required by the courts, to follow it.
Mr. Burnett: On this important matter, is the Economic Secretary assuring the House that, before action is taken, the VAT tribunal will have to be satisfied in all the circumstances that he has outlined?
John Healey: No, we are not dealing with an application to a tribunal before action is taken. Such action must be based on Customs evidence sufficient to satisfy a tribunal, so those involved in taking the action will be conscious of that test, which a tribunal will apply if the case is brought to tribunal by a trader who wishes to contest the action taken by Customs and Excise.
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