I am grateful to the Delegated Powers and Regulatory Reform Committee (“The Committee”) for its report of 17 January on the Taxation (Cross-border Trade) Bill (“The Bill”). The points raised in the Committee’s report were also raised during the Bill’s passage through the Commons, which was completed on 16 July.
As the report identifies, the Bill enables the government to establish a standalone customs regime, as well making necessary provision in relation to VAT and excise. The powers and procedures in the Bill have been drafted in a way that is consistent with other tax legislation, and recognises the need for the UK to be able to give effect to a smooth exit from the European Union.
The Committee’s report addresses five key themes. This response sets out the government’s approach in each case.
At Report Stage, the government made a series of amendments to the Bill. This response therefore also sets out any relevant instances where the government has revised or refined the drafting of the Bill following feedback from the Committee and others.
The Committee’s report suggests that the scrutiny procedures provided for by the Bill are weighted too heavily in favour of the negative procedure, and makes specific recommendations as to the powers it believes the affirmative procedure should apply to.
In this Bill, the negative procedure is used where regulations make provision generally in relation to the collection, administration and enforcement of customs, VAT and excise. This is consistent with the approach that is taken in all existing UK tax legislation. The government believes that the negative procedure, where used in this Bill, provides a sufficient level of parliamentary scrutiny having regard to the frequency and speed with which regulations may need to be updated.
However, the government has accepted that it is appropriate for clauses 30, 42 and 47 to be subject to the made affirmative procedure. Clause 30 provides that the Treasury may make general provision for the purposes of import duty. And clauses 42 and 47 set out how EU law retained by the EU (Withdrawal) Act 2018 applies in relation to VAT and excise respectively, while providing the Treasury the ability to exclude or modify some retained EU law by statutory instrument. These powers are entirely necessary, and depending on the outcome of the negotiations may need to be exercised with some regularity. However, following the interest expressed by Parliament, the government has amended the Bill to apply the made affirmative procedure to their use.
In all other cases, the government believes that adopting the affirmative procedure would produce impractical results.
The Committee’s report states that the use of the made affirmative procedure is inappropriate in anything but what it defines as “urgent cases”, and that the draft affirmative procedure should be used instead. In the case of tax legislation, however, it is usual practice to use the made affirmative procedure for the protection of the public revenue and to ensure continuity in the administration of the tax system. These are the purposes for which the powers in this Bill may generally be used.
In this Bill, the made affirmative procedure will allow the government to give immediate effect to legislation where there would otherwise be a gap in UK statute. For example, the customs tariff may need to be amended swiftly (using the powers under clause 8) to reflect a change in international trade. However, such legislation would cease to apply after a short period of time in the event that it does not obtain the express approval of the House of Commons within 28 days. Recognising the unique interest in the power provided for by clause 31 (4), which allows the UK to give effect to a customs union arrangement with another territory or territories, the draft affirmative procedure will apply in this case. An Order in Council made under that power must be laid in draft and approved by the House of Commons before it can be presented to Her Majesty in Council. Again, this is consistent with a longstanding approach to such legislation, including that used to give effect to the provisions in double taxation treaties that the UK enters into.
The Bill contains four powers to amend primary legislation by regulations. These are contained in clauses 45, 51 and 56, and Schedule 3 (introduced by clause 10). Of these, only the Schedule 3 power is subject to the negative procedure. This can only be used to update the list of countries to which the UK grants unilateral trade preferences, in line with established UN and World Bank criteria, and so is necessarily limited. Otherwise, the government believes that the affirmative procedure is appropriate and proportionate in these cases, and the Bill is drafted to reflect this.
Of the two specific powers that the Committee’s report identifies as ‘Henry VIII’ powers subject to the negative procedure:
As with other areas of the Bill, both of these powers are consistent with the approach that has been taken to previous tax legislation.
The Committee’s report identifies clauses 7, 8 and 9 of the EU (Withdrawal) Bill (now the EU (Withdrawal) Act 2018), which are subject to a two-year time limit, as analogous to some powers in the Taxation (Cross-border Trade) Bill, and proposes that a similar sunset provision would be appropriate for those powers. However, the powers in this Bill are more limited than those in the EU (Withdrawal) Act in that they relate only to customs, VAT and excise legislation. These powers are necessary to ensure that the UK has fully functioning tax regimes under a range of possible outcomes from the negotiations with the EU.
Nevertheless, the government has responded to concerns raised by applying, via amendments to the Bill, sunset provisions to some of the powers identified. These are the powers under clause 51 (which would be time-limited to three years from exit day) and the powers under clauses 42 and 47 (which are detailed above, and would be time-limited to four years from exit day). It would not be possible to apply a shorter time limit to any of these powers without inhibiting the UK’s ability to respond effectively to developments in the negotiations.
The government does not believe that it would be appropriate, proportionate or practical to apply a sunset provision to the power provided by clause 45. The power provided in clause 45 ensures that after EU exit HMRC has the ability to deliver the legislative changes needed to maintain a functioning and legally operable excise regime. The UK’s excise regime is largely set out in secondary legislation using a complex mix of powers, including secondary legislation-making powers in the European Communities Act 1972, which will be repealed by the EU (Withdrawal) Act. Without the powers provided in clause 45 of this Bill there is a substantial risk that there will be a gap in powers or that it will be necessary to replace whole sets of regulations rather than make amendments to existing provisions, creating less accessible legislation. Given one of the core objectives of this clause is to deal with that risk and ensure that after EU exit Government has the same ability which it has now to maintain a functioning regime for excise goods, it is not feasible to sunset this power. The government has however taken steps to limit the powers in this clause. For example, the definition of ‘excise duty’ in clause 49 limits the breadth of the power and ensures it can only be exercised in relation to excise duties under the Alcoholic Liquor Act 1979, Hydrocarbon Oil Duties Act 1979 or the Tobacco Products Duty Act 1979. These are the excise duties that are most affected by the UK’s withdrawal from the EU.
The Committee refers to the making of law by public notice as a “radical concept”. The government does not accept this assessment. It is usual practice for public notices to be used in relation to the administration of tax regimes. Such notices make provision that is purely technical or administrative in nature, may be subject to regular updating or need to be changed quickly, or may be based on external sources. Examples in the Bill of where powers to make public notices are appropriately conferred include in relation to the form and content of a customs declaration, and the currency exchange rates that will apply for the calculation of import duties due.
The Bill also provides for trade remedy measures to be imposed by public notice. These measures will be determined by an independent and impartial body, following a rigorous and extensive investigation process. This process is informed by strict World Trade Organization (WTO) rules. The use of public notices here recognises the imperative to act quickly to give UK industries much-needed relief when they are suffering injury, and is consistent with the approach taken by other WTO members.
It is not unusual for tax legislation to enable sub-delegation in regulations. This is because there is often a need for provisions that are highly technical, lengthy and purely administrative. An example of this is where there is a need to mandate the use of a particular form for a tax return. It would often not be proportionate for Parliament to be asked to consider the format and precise data fields of a form. The government has taken this approach in paragraph 5 of Schedule 1 to the Bill, which allows HMRC to specify, in a public notice, the electronic form that must be used for a Customs declaration and the method for lodging this electronic form.
The government therefore does not accept the Committee’s recommendation that tertiary legislation should be subject to the same parliamentary control and timelimits applicable to secondary legislation.
I thank the Committee again for their report and hope that this response has been helpful.
23 July 2018