The Exchequer Secretary to the Treasury (Angela Eagle): I beg to move,

It is a pleasure to serve under your chairmanship, Mr. Jones, for the first time this year. The purpose of the order is to increase the individual tax and duty free allowances for travellers entering the United Kingdom from a non-European Union country. As a result of a specific proposal to increase the value of the allowance for other goods made by the then Chancellor of the Exchequer in 2004 and revisions to the EC travellers’ allowance directive agreed subsequently at ECOFIN in November 2006, the value was increased on 1 December 2008. As a result, travellers by air or sea bringing goods, including electrical items, souvenirs, clothes and perfumes, into the United Kingdom from outside the European Union saw their individual allowance increase from £145 to £300 with a further increase to £340 from 1 January 2009.

That two-stage increase was due to the change in the value of sterling against the euro between October 2007 and October 2008. Member states that have not adopted the euro are required to calculate the exchange rate conversion in October of one year and then apply the value from 1 January the next year. There are also several other changes to the travellers’ allowance, such as a new allowance of 16 litres of beer, which I hope will be welcomed widely by all members of the Committee; an increase in the still wine allowance from 2 to 4 litres and the removal of perfume allowances.

To introduce all the changes, the Travellers’ Allowances (Amendment) Order was laid in Parliament on 28 November 2008. The instrument amends the Travellers’ Allowances Order 1994, and it came into force on 1 December 2008—just in time for the Christmas rush. The legislation implements Council directive 2007/74/EC by setting down the new allowances and makes minor amendments to the existing order. I hope that it will be widely welcomed by the Committee.

Mr. Hugo Swire (East Devon) (Con): Can the Minister educate the Committee by explaining how the figures and allowances were arrived at? Who was consulted about them? Are the figures arbitrary or are they based on a formula? If so, when are they due to be revised again?

Angela Eagle: Revisions are due. The directive requires revisions every four years or at least a review, not necessarily leading to revisions. The last time that the figures were examined in any great detail to change their shape was in 1994. I summed up the changes between the old system and the new one that has superseded it in my opening remarks. If the EU Commission wishes there to be changes, it is a matter for it to make suggestions to that effect. Member states can suggest—as we did in 2004—that some matters be looked at. Decisions must then be made unanimously at ECOFIN. Those are the structures within which such decisions will be made. I hope that the hon. Gentleman finds that helpful.

I was just about to commend the changes to the Committee. There is nothing particularly controversial about them. I hope that they will be welcomed, in that they are increases. I am happy to answer any questions that hon. Members might have about the detail.

Justine Greening (Putney) (Con): I welcome you to the Chair, Mr. Jones. The order is likely to be welcomed by the majority of the travelling public. It increases the value and amount of goods that they can bring into the country from outside the EU without paying duty or VAT on them, and it puts into effect the new higher limits on goods that were agreed as part of the European Union directive on the exemption from value added tax and excise duty of goods imported by persons travelling from third countries.

Following the Minister’s opening statement about the specifics of the order, I have a few questions that I hope she can clarify. My hon. Friend the Member for East Devon has also raised some valid queries. First, I wish to obtain clarification regarding the exchange rate. As the Minister will be aware, the value of the pound has fallen significantly against the euro, even since the October date when it was most recently assessed. In fact, if we were converting the euro allowances into pounds now, rather than having new limits of £340 on goods for air and sea travellers and £240 on goods for non-air and non-sea travellers, those limits would have increased to £389 and £271 respectively. Effectively, if someone is travelling within the EU area, they are suffering from the falling pound, and if someone is travelling outside the euro, they are also facing a loss because of what has happened to the pound. Will the Minister respond to that point? It seems that it will be a full 12 months before what could be a lower pound for some time is reflected in the allowances for British tourists, who face a disadvantage compared with their European counterparts.

The order also makes a number of changes to the allowances for alcohol and tobacco. The latter remains broadly unchanged, apart from the ability now to make up the allowance from a combination of different tobacco products. We welcome that because it seems a sensible change for the public. On alcohol, there is a separate limit for beer of 16 litres and the allowance for wine is up from the previous 2 litres, as the Minister suggested. Will the Minister clarify why the allowances are set at those particular levels? A further point—it is perhaps a minor, technical one, but it is still worth mentioning—is that 16 litres of beer is equivalent to just over 36 440 ml cans of lager. If we were talking about 330 ml bottles, in which beer and lager is often sold, there would be 48.48 of them. Although the allowances are a round number, they do not quite work in terms of the amounts of cans and bottles of alcohol that will be brought back into the UK, and I wanted to flag that up.

I would also like further clarification regarding the separate 60 ml allowance for perfume and 250 ml allowance for toilet water, which have now been subsumed within the general goods allowance. Will the Minister confirm that that is effectively an unlimited millilitre allowance as long as it stays within the increased monetary value? I also wanted to point out to the Minister that the annexe transposition note states:

or “any allowance for alcohol.” Obviously, the age at which people are able to buy cigarettes in this country has increased to 18. Will the Minister comment on how she will reconcile those two issues? I do not think that the Minister wants 17-year-olds to be able to bring cigarettes into this country when having brought them in, they would not be able to smoke them. It is appropriate for health reasons that they are unable to do so.

The Minister said that there will be no impact on business, but can she talk about what consultations have taken place with the travel industry and, critically, with Her Majesty’s Revenue and Customs about the processes that it might need to change to deal with the new allowances? Can she say whether the Revenue feels the extra, higher allowances mean there is any additional risk of smuggling? Finally, will she say something about the impact on VAT receipts, given that we now have a higher allowance? Previously, I presume, people had to pay some form of VAT if they went over the allowance. If the Minister would provide clarification on those points that would be very much appreciated.

Mr. Jeremy Browne (Taunton) (LD): I am grateful for the opportunity to contribute briefly to the deliberations. When I saw that we were to discuss the travellers’ allowances order I thought that it would be a far more controversial set of proposals than has turned out to be the case. That is a relief to all of us as travellers, rather than just those of no settled abode.

In her opening remarks the Minister said that these changes were driven by the relative values of the euro and pound sterling. For clarification, will she confirm that were the pound to regain strength over the course of 2009, we would be back here in a year’s time reducing all the allowances? Is it the case that these matters are not in our hands, as the Minister is merely following European directives and is driven by the relative exchange rate, or do we have discretion? If we do have discretion, does that mean that if the pound were to regain some of its value relative to the euro, the allowances would not automatically be altered downwards to bring them back into line?

I would also be interested to hear, because the Minister did not say and it was not mentioned by the hon. Member for Putney, what the revenue implications of these changes are. [Interruption.] The hon. Lady says from a sedentary position that she did make that point. In that case, may I repeat it? I would be grateful for the Minister’s response, not just on the exemption for perfume, but also, as people are allowed to bring more generous amounts of alcohol into the country presumably there will be a revenue implication, although that may lead to some other behavioural change at the same time.

An issue that certainly was raised by the hon. Lady was the effect on smuggling. One assumes that there would be a negative effect on smuggling. If people had a greater ability legitimately to bring goods of this type into the country, they would have less incentive to smuggle them, but I would be interested to know the Minister’s analysis of that situation.

Finally, will the Minister say what consultation has taken place? I represent a seat in Somerset, and obviously people travel abroad and bring back alcohol and other goods from abroad. However, if I represented a seat near a major airport, for example, I might be anxious about the effect that this would have on retailers, off-licences and small shops in the area. It shows a strange lack of joined-up government that the Department of Health seems to spend an inordinately large amount of time and money on saying that we should drink less alcohol, with lots of adverts extolling the virtues of drinking less alcohol, at the same time as the Treasury is making it easier for people to bring alcohol into this country for their own consumption, at much cheaper prices than they can buy it in the United Kingdom.

I am unclear how those positions are reconciled when there is a tax escalator on beer. Someone who runs a brewery, either in my constituency or elsewhere in the country, sees the tax on their beer production going up year on year on year, which makes it hard for small pubs and brewers. At the same time, people who might choose to buy a pint of beer from that local brewery are being told that if they go on holiday outside the European Union, they can bring back a bigger allowance of lager and not be taxed on it, so traditional pubs and brewers are being put at a disadvantage, as well as mixed messages being sent out on public health. I can only assume that there has been extensive consultation on this area and I would be interested to hear why this was the outcome of that consultation.

Mr. Philip Hollobone (Kettering) (Con): I may be geographically challenged, but I am struggling to think how one would enter the United Kingdom except by air or sea. I accept that if someone came on the Eurostar they would technically be on dry land all the way, and I also accept that if they were coming from the Republic of Ireland they could enter Northern Ireland by road, but I do not understand how one could enter the United Kingdom from outside the European Community’s value added tax or excise duty area, except by air or sea. I may be a simple fellow, but I do not understand that.

In paragraph 6 of the schedule to the order, however, under subsection (b) it states:

I am struggling to see why not. Further, why should there be a difference in the monetary value attached to how one comes into the country? Why should there be a difference of £100 for those who travel by air or sea under the definition, but only £240 for other travellers?

Angela Eagle: I will do what I can to answer the questions that have been put. I shall begin with those questions that the eagle-eyed hon. Member for Kettering has just asked. He is right to question which routes there would be into the country that are not by air or sea. He is also right to spot that there is a small issue of private pleasure craft there. However, this is a European Union-wide arrangement, which applies equally to all countries. While we are an island, a large number of other European Union member states have long land borders with non-European union states.

Part of the negotiation was to get an increase in travellers’ allowances for those who come from non-EU states into the UK, which is what we were trying to achieve from 2004 onwards, when it was mentioned in the then pre-Budget report. We had to get the unanimous agreement of all European Union member states to make any change. We wanted an increase simply because we felt that the old limits were getting ludicrously low and were not keeping up with modern habits of shopping and what was available. However, in order to do that and to change the directive, we had to have unanimity at ECOFIN. When matters go to ECOFIN, or to any other combination of the Council of Ministers where there is unanimity rather than majority voting, there has to be agreement from countries in all situations. There was therefore a compromise to meet the worries of those European Union states that have long land borders with non-EU countries where goods might be quite cheap just over the border. Consequently, it was agreed that there would be a lower limit for those who brought goods in by land, in order to deal with the worries of those member states. The hon. Gentleman is right to point out that we are an island and that there are no land borders, long or otherwise, with non-EU member states that apply to the UK. However, this directive pertains to the whole of the European Union and therefore has to deal with all eventualities. That is the explanation he sought.

I turn now to the questions asked by the hon. Members for Putney and for Taunton, particularly those about the exchange rate. Under the current system, changes happen on 1 January of each year and are dependent on the value of sterling against the euro in the October before. Therefore it does not change weekly, daily, or monthly as it would be inconvenient to have exchange rate changes that frequently for those countries that have not joined the euro. The directive therefore says that a change should be put into effect to reflect the exchange rate fluctuations, but the way it is worked it out is that we look at the exchange rate in October and we then apply any changes. There is a 5 per cent. cushion either way, so if the exchange rate has changed up or down more than 5 per cent. there will be a recalculation of the amounts of cash that are allowed in the travellers’ allowances for those who are coming in from non-EU states.

The hon. Lady pointed out that there has been a change in the value of sterling. The change for the new levels was calculated in October last year and there have since been further fluctuations in the exchange rate. Those will not be taken into account until October this year, when we can check whether the 5 per cent. level either way has been breached. That will have implications for the cash level of the allowances that will come into effect in January 2010.

The hon. Member for Taunton was slightly confused and mixed up two issues. We are not debating those changes, but rather the renegotiation of the amounts—something that has been going on now for four years. That is sometimes how long it takes to get the European Union to look at long-standing directives. At the end of 2006, an agreement was reached at ECOFIN that it was desirable to increase the amounts permitted for travellers coming from non-EU countries. As the hon. Gentleman will know, there is a different system for people who travel within the EU, where the amounts that can be brought across borders are unlimited if they are for personal use, but require payment if they are for commercial use. I would not like him to mix up the two things. The changes before us are not only about an increase in the overall amounts and the changes that I mentioned in my remarks, but also about the revaluation due to sterling. Those are two separate things.

The hon. Lady asked about cigarette allowances. Because travellers’ allowances are laid down in European Union legislation, they must be followed by all member states. Anyone over 17 years of age is entitled to allowances of alcohol and tobacco under the directive, although individual member states must determine their own rules about the sale of tobacco and alcohol products on domestic territory, taking into account their own views on social and health issues. The hon. Lady is right—we take a firm view on such matters, particularly on tobacco. However, anyone over 17 years old will be entitled to allowances for alcohol and tobacco as that is a matter of European Union law. It is a compromise figure; there are many different age limits in the member states and that figure was decided on when the directive came into effect.

Hon. Members asked about consultation. During the negotiations about some of these changes—which people will realise were quite protracted—officials discussed the issues with a number of external stakeholders, to keep them abreast of what was likely to come out of negotiations at ECOFIN and with the Commission. The European Commission also held consultations with stakeholders at EU level when preparing its original proposal, which was to increase the rates. Consultation has taken place across the whole process.

Justine Greening: My final question concerned the impact on tax revenues. Will the Minister address that issue before she sits down?

Angela Eagle: We do not expect the impact on revenues to be very great either way. The increase on beer, for example, has simply shifted it away from what used to be other goods, and given it its own category. The impact is quite minor in the scheme of things. Perhaps people wonder why perfume and eau de toilette have been deleted altogether and put into the category of other goods. That is simply because, as everyone will be glad to hear, there has been a massive shift in the European Union away from charging excise duty on perfume—except in Belgium apparently, and I leave hon. Members to draw their own conclusions about that. We do not expect the revenue implications of the changes to be significant either way.