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Session 2003 - 04
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European Standing
Committee B

Wednesday 27 October 2004

[Mr. Eric Forth in the Chair]


[Relevant documents: European Union document No. 8241/04, Commission report and draft Council directive relating to directive 92/12/EEC on the general arrangements for products subject to excise duty; and European Union document No. 9983/04, Commission report on the rates of excise duty applied to alcohol and alcoholic beverages.]

2 pm

The Paymaster General (Dawn Primarolo): I welcome you to the Chair, Mr. Forth.

I wish to make an opening statement before we begin our debate on scrutiny. I wish first to say how pleased I am to have the opportunity to discuss with the Committee in more detail the Government's view of the European Commission's proposal on articles 7 to 10 of the excise holding and movement directive. I hope that my explanatory memorandum was of use to members of the Committee when considering the impact of this important European Commission document. They will no doubt also have seen the recent media focus on the United Kingdom's dispute with the Commission about vehicle seizures by Customs officials, an issue to which I shall return briefly in due course.

Articles 7 to 10 of the excise holding and movement directive relate to, among other things, cross-border shopping by private individuals, minimum indicative levels and distance selling of excise goods. The Commission's proposals contain several elements that seek to liberalise the arrangements for cross-border movements by private individuals and clarify—and simplify—procedures for businesses involved in commercial cross-border movements.

The Government believe that, some 12 years after the original directive was agreed, it is right to examine it again. In doing so, as I explained in my explanatory memorandum, the Government support the European Commission's objective to reduce the administrative burdens faced by business and foster an environment in which it can prosper. Likewise, we support the European Union system that makes it simpler for private citizens increasingly to take advantage of cross-border shopping, while ensuring that the excise duty is paid in the right place and that United Kingdom revenues are protected.

In that context, it might be helpful to say to the Committee that the current infraction case being pursued by the European Commission involves a narrow dispute over the proportionality of sanctions applied by the United Kingdom to individuals whom the Commission agrees are breaking the law.

Mr. John Wilkinson (Ruislip-Northwood) (Con): On a point of order, Mr. Forth. I thought that it was the tradition of the House that we did not discuss

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matters that were sub judice. I should welcome greatly your ruling on that matter.

The Chairman: On this occasion, the Minister has probably gone as far as she is able to go in informing the Committee about the state of the proceedings, rather than getting into the substance of them. I gather that that was her intention, and providing that she goes no further than that, we can proceed.

Dawn Primarolo: Thank you, Mr. Forth.

I was about to say that the narrow issue does not impact on legitimate United Kingdom shoppers, and as such does not impinge on the negotiations on articles 7 to 10 that we will be debating today.

While it is right to consider the current European legislation to improve its effectiveness for business and revenue collection, two issues have been of particular concern to the Government. The first is the introduction of the concept of distance purchasing of alcohol. Products ordered by private individuals over the internet or by telephone for their own use would be taxed in the member state from which they were purchased, not the one in which the goods will be consumed. The second issue is the possible removal of the minimum indicative levels used by member states as an indication of the quantity appropriate for own use.

The principle behind the current European law is that the citizens of each member state should normally pay the tax levied by that state on goods consumed within its territory. Excise duty is therefore usually charged in the member state in which the consumer resides. An exception to the rule enables individuals to purchase excise goods, duty paid in other member states, without incurring any liability to duty or tax on their return to their own member state. That is provided that the goods are for their own use and that they travel with the goods. The European Commission's distance purchasing concept would significantly extend that exception, making it the norm for intra-European Union purchases by individuals, thereby undermining the basic principles agreed in 1992. Resisting the distance purchasing provisions is therefore a Government objective. A significant majority of other member states are also firmly committed to opposing the arrangements.

The Commission also proposes removing the European Union guide levels, which help member states to judge whether an importation is for commercial purposes. My explanatory memorandum explained that removing those guide levels would have a detrimental effect on Customs' efforts to combat smuggling. That view has been echoed unanimously during negotiations in Brussels. All member states recognise the threat posed by unscrupulous individuals who abuse the current arrangements and the adverse impact such a proposal would have on national revenues.

Since I wrote to hon. Members in May, there have been further Council working group discussions on the Commission's proposals. The United Kingdom and other member states have continued to press for the removal of the distance purchasing element at the same time as the reinstatement of the guide levels. The

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Committee will be interested to know that the Dutch presidency has issued a compromise text that fully reflects the views of member states. The distance purchasing element of the proposal has been removed and the minimum indicative levels have been reinstated. I understand that the Dutch presidency anticipates holding a further Council working group meeting to discuss the text, which will be held on 19 November, with a possibility of discussion at Finance Minister level in December. We are hopeful that the Commission will now accept the strongly held views of a large number of member states on those two important issues.

As I said earlier, the Government are committed to reducing the administrative burdens faced by business. It will be necessary to study the English version of the presidency's compromise text in some detail to see whether the arrangements, particularly those relating to distance selling, are any better for business than the current arrangements.

The Committee has also expressed an interest in the Commission's report on excise duty rates for alcohol and alcoholic beverages. The report does not contain any proposals for change; it is intended more to stimulate debate in the Council, the European Parliament and the Economic and Social Committee. The Commission's report recognises that the issues surrounding alcohol duty rates in the European Union are complex and politically sensitive. They have a direct impact on the wider objectives of the treaty, and regional, cultural and rural factors must be considered.

One area in which further work may be undertaken is in relation to the 1992 directive on the structure of alcohol taxation. The Commission has agreed that there is a need to review the legislation, as there have been changes in the drinks market in the intervening period. The Government believe that to be an entirely sensible way to proceed given the link between alcohol rates and alcohol structures, and we look forward to those discussions.

Returning to the main item for discussion today, I welcome the opportunity to discuss issues arising from articles 7 to 10 of the holding and movement directive. The Government have always believed that member states must be able to make choices about the level of social provision and the size of their public sector, and therefore about overall levels of taxation. Excise duty is a tax on consumption, and a key objective should be that the consumer pays tax at the rate voted for by the Parliament where the consumption takes place, and that the tax accrues to that Government. The Committee will, I hope, be pleased that negotiations are progressing and that we hope to be able to remove the two changes that we think undermine and weaken the principles of basic taxation.

The Chairman: Committee members now have until 3 o'clock to question the Minister. It would be helpful if questions were single and brief. Looking around the Room, I am sure that everyone will have an ample opportunity to put their questions during the time that remains.

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2.10 pm

Mr. Mark Francois (Rayleigh) (Con): It is a pleasure to serve under your chairmanship, Mr. Forth, not least because you are well known for having a long-standing interest in matters European.

I apologise for beginning the sitting on a slightly sour note, but the normal procedure is that the European Scrutiny Committee considers information that comes out of Brussels and then makes recommendations—

The Chairman: Order. This is the time during which questions are put to the Minister. If the hon. Gentleman is making a point of order, he should make that clear. If not, I invite him to ask the Minister a question.

Mr. Francois: Thank you for your guidance, Mr. Forth. I was framing the question that I was going to ask. Let me come directly to the point. The Minister referred to a draft text, which the Dutch presidency has now produced. That text has not been available to the Opposition, nor to Committee members; in a sense, we are going to have a semi-blind debate. May I ask the Minister when that text arrived in the United Kingdom? Why was it not forwarded to the Opposition or other Committee members in advance of today's debate?


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