Finance Bill

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Dawn Primarolo: I want to deal with the point about Marks and Spencer and Her Majesty's Customs and Excise. Just as an aside, I smiled when I saw the hon. Gentleman's amendments in defence of the ECJ, but I will not take that any further. The change introduced by Her Majesty's Customs and Excise involved a reduction in the existing time limits for assessing and reclaiming indirect tax from six years to three years, hence the issue of transition. Clause 303 simply restores the position that was thought to exist prior to the DMG decision. The clause does not reduce a known limitation period, as was the case with the change introduced by Her Majesty's Customs and Excise. Instead, it preserves what was thought by most to be the limitation period, which in any event is a generous six years.

Mr. Flight: I understand the argument. I am not a lawyer and nor is the Paymaster General, but she must be aware that the issue of whether the ECJ ruling is relevant can be argued both ways. I cannot quote counsel's advice because it is sub judice, but there is a clear legal line on why the ruling applies. Put simply, unless the DMG judgment is overturned, it is the law. For better or worse, it changed the law. If the Government change the law back again—albeit for understandable reasons—to what they thought it was, they have changed it from an unlimited period to a six-year period. I totally understand the logic of doing that, but that would be the legal position. It is pretty simple to argue that the case is analogous to the Marks and Spencer case, which also involved shortening a period.

However, there is little point in using the Committee's time to argue points of law—we are not lawyers. The matter has been put on record and will clearly be resolved by forthcoming judicial review. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 303 ordered to stand part of the Bill.

Clause 304 ordered to stand part of the Bill.

Clause 305

Mutual assistance: customs union with the Principality of Andorra

Question proposed, That the clause stand part of the Bill.

Mr. Andrew Tyrie (Chichester) (Con): I have one brief question, which the Economic Secretary can drop me a line about. Why is the clause restricted to imports and exports of goods, rather than including services as well? In the interests of brevity, so that we can try to wind up this morning, my only other point is that, again, we can see Sir Humphrey's influence in the background notes, which state:

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    ''Joint Committee Decision No 1/2003 (adopted on 3 September . . . ) provides for a number of administrative mechanisms designed to improve procedures.''

I am bewildered to know exactly what that means, but I will not waste the Committee's time exploring it. I would just like an answer on the services point.

The Economic Secretary to the Treasury (John Healey): This a relatively straightforward clause, which provides mutual assistance between Andorra and the UK in the recovery of customs debts. It will enable the UK and Andorra to assist each other in the recovery of customs debts owed to one by businesses that are established, or have assets in the other. The clause deals with current UK legislation and provides for mutual assistance in debt recovery between the UK and other member states and Andorra.

As the hon. Gentleman says, the clause applies only to customs debts arising from unpaid customs duties payable on imports or exports. The mutual assistance provisions do not extend to indirect taxes such as VAT, excise duties, charges such as agricultural duties or direct taxes such as income tax or corporation tax.

The safeguards are identical to those that apply to intra-EU mutual assistance. They will be in place to allow the taxpayer to challenge disputed liabilities. I will, as the hon. Gentleman requests, write to him about goods and services, and I commend the clause.

Question put and agreed to.

Clause 305 ordered to stand part of the Bill.

Clause 306

Ending of shipbuilders' relief

Question proposed, That the clause stand part of the Bill.

Mr. Tyrie: This is a small clause with a long history. It removes tax relief on energy input used to construct ships, and it is part of a raft of major measures to subsidise shipbuilding in this country that have been in place for decades. To its detriment, the industrialised world engaged for a generation of shipbuilding in an auction of subsidies, and some auctioning continues to this day.

We support the clause. We left such clauses on the statute book as well of course, but I hope that the Committee does not find it too party political of me to point out that it took an EU directive requiring the removal of those state aids to force the ending of relief. Since the Government came to power, the reliefs under the clause have totalled £70 million. We are talking about not threepence ha'penny, but quite a sizeable sum of money. I do not mind if the Economic Secretary has to write to me to answer these three important questions. Are there any other forms of state aid to shipbuilding left? Who were the beneficiaries? Are the Government committed not to find other ways of getting money to the shipbuilding industry?

The other general issue concerns whether we will be—as usual—reasonably obedient European citizens, getting rid of the relief, while other shipbuilders in

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Europe may not be so quick to get rid of it. Many have argued that the auction of reliefs must be reduced, leaving a level playing field at each stage of reduction. I am not convinced by that argument in terms of economics or in practice. However, it is an argument. Therefore, what is the situation for the removal of similar reliefs in the main subsidising shipbuilding countries of the EU, Germany, Spain and one or two of the new entrants, such as Poland?

I will understand if the Economic Secretary does not have the answers to all those points, but why have the Government decided to delay implementation for a year? Is it because they already had commitments to ships under construction, which would have meant changing the terms for beneficiaries of the relief, or is there another purpose to the delay? Beyond that, I would be happy if the Economic Secretary wrote to me on any points that he is not able to answer today. As I said, I support the measure.

John Healey: I believe that I will not need to write to the hon. Gentleman, as I can answer his questions directly. The European state aid rules, plus the regulation that was passed in 1998 and came into effect at the end of 2000, apply across the EU. The UK is not singled out by the regulation for removal of old-style subsidies. The spirit and purpose of the regulation is to remove such reliefs across the European Union.

The hon. Gentleman asked about remaining state aid. A form of special support for shipbuilding in Europe was introduced in June 2002 as a temporary defence mechanism, principally in response to particular competitive pressures from the Korean shipbuilding industry. It applies in a very restricted way to container ships and chemical carriers. In fact, it does not apply to any of the ships built in UK yards. It was intended to last until March 2004 and has been extended by one year. That is the only remaining type of formal state aid. I shall discuss the beneficiaries of the traditional shipbuilders' reliefs in a moment.

To support the shipbuilding industry, the UK Government have shifted the focus of support from old-style operating subsidies, as the hon. Gentleman rightly noted—I welcome his support for the measure—to supporting and directing investment to help the shipbuilding industry to build up its skills base and to increase investment in technology, research and development. Such productive investments will help to secure the industry's long-term future. We have moved away from the direct operating subsidies represented by shipbuilders' relief.

The clause repeals the national legislation on shipbuilders' relief. I announced the abolition of the old-style operating subsidy in my written statement to Parliament on 12 January. Abolition reflects the Government's policy to replace operating subsidies with more effective support for the shipbuilding industry: promoting international competition; promoting and putting in place support for enterprise, research and development; science and innovation; and tackling skills needs.

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Contrary to the hon. Gentleman's impression that there is a one-year delay, the statement of 12 January confirmed the full and immediate abolition of shipbuilders' relief. The clause repeals with retrospective effect the national legislation on shipbuilders' relief.

As the hon. Gentleman said, this is a short clause with a long history. Shipbuilders' relief was introduced in 1966 to provide relief to shipbuilders from hydrocarbon oil duty incurred on the costs of constructing, fitting out and equipping certain vessels. The relief was payable by Customs and Excise at a rate of 2 per cent. of the value of an eligible vessel. The relief was, in effect, an old-style direct operating subsidy that has no place in a modern and competitive business environment.

In view of our policy for modernising the support that we give to industry, in 1998, we gave strong support to the European Commission's preparation of the regulation that established new rules on aid to shipbuilding. The regulation explicitly refers to commercial vessels and fishing vessels for export from the Community. Since Community regulations have direct effect in member states, the classes of vessel specified in the regulation automatically lost their right to shipbuilders' relief from 31 December 2000, the date the regulation came into force.

Shipbuilders' relief was also payable in respect of other fishing vessels and warships. The purpose of the regulation was to bring to an end state operating aid in the Community. To comply with the spirit of the regulation and with more general state aid law, I also announced on 12 January the abolition, with immediate effect, of shipbuilders relief for those categories of vessels. However, I confirm that Customs will honour claims for contracts signed on or before the date of my announcement in Parliament in respect of those categories of vessels.

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The Government are therefore committed to continue support for our manufacturing industry, and shipbuilding in particular, but it will be done differently in order to ensure that the industry has the skills that it needs and the right level of productive investment for the future. I commend the clause to the Committee.

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