Eleventh Report
Taxation (Cross-border Trade) Bill
1.On 8 January 2018, the House of Commons gave a second reading to the Taxation (Cross-border Trade) Bill. The Bill provides for a self-contained customs regime for the United Kingdom when it leaves the European Union in March 2019.
2.The Bill confers very broad powers on the Treasury:
(a)to determine the rates of import and export duties, and the goods they are to be levied on;
(b)to amend existing Acts of Parliament concerning excise duties on alcohol, tobacco and hydrocarbon oil;
(c)to make any provision that the Treasury consider appropriate in relation to VAT, customs duty or excise duty, in consequence of the United Kingdom’s withdrawal from the European Union.
3.The Bill is a supply bill, which in accordance with established practice is not amended in the House of Lords. In due course it may be certified as a money bill under the Parliament Act 1911.
4.Although constitutionally the House of Commons remains supreme in financial matters, the Taxation (Cross-border Trade) Bill involves a massive transfer of power from the House of Commons to Ministers of the Crown. Ministers are given well over 150 separate powers to make tax law for individuals and businesses. These laws made by Ministers will run to thousands of pages. The Treasury’s delegated powers memorandum, which sets out in detail all these law-making powers, alone runs to 174 pages.
5.The House of Lords Delegated Powers and Regulatory Reform Committee, which has no counterpart in the House of Commons, examines all bills (including supply bills) to see whether they grant inappropriate law-making powers to Ministers or other persons, and whether those powers are subject to an appropriate degree of parliamentary scrutiny.
6.Normally we report on a bill in sufficient time to allow members of the House of Lords to consider it before the bill’s committee stage in the House of Lords. Given the significance of this Bill and the fact that it will not be amended when it comes to the House of Lords, we wish to draw our concerns about the delegated powers in this Bill to the attention of the House of Commons and the Government.
Summary
7.In the time available, and bearing in mind that the Bill will soon complete its passage in the House of Commons, we confine our report to the most important points. We deal with them under five headings arranged thematically:
(A)The balance between affirmative and negative instruments, with examples of powers which we consider should be subject to the more rigorous affirmative procedure.
(B)Those Henry VIII powers which, despite enabling Ministers by delegated legislation to amend primary legislation, are subject only to the negative procedure.
(C)The appropriateness of a sunset provision for some delegated powers, as in the European Union (Withdrawal) Bill.
(D)The radical concept of making law by “public notice”, a modern form of ruling by proclamation, without any opportunity for Parliamentary scrutiny.
(E)The inclusion in the Bill of tertiary legislative powers, made and published without any opportunity for Parliamentary scrutiny.
(A) The balance between affirmative and negative instruments, with examples of powers which we consider should be subject to the more rigorous affirmative procedure
8.The balance in this Bill between affirmative and negative procedures is overwhelmingly in favour of the negative procedure. Furthermore, where the government use the affirmative procedure,1 it is the “made affirmative” rather than the “draft affirmative” procedure. “Draft affirmative” regulations are laid before Parliament in draft and cannot be made unless they are debated and approved by both2 Houses. “Made affirmative” regulations, typically used for urgent cases, are made and come into force but cannot remain in force unless debated and approved by Parliament3 typically within a fixed period e.g. 28 days or one month of being made.
9.We consider that the preferable approach for affirmative instruments is the one normally adopted by the Government. “Draft affirmative” instruments should be the norm. “Made affirmative” instruments should be confined to urgent cases. This was the approach adopted by the Government in the European Union (Withdrawal) Bill.4 It requires a Minister using the “made affirmative” procedure to make a declaration in the regulations of his opinion that, by reason of urgency, it is necessary to make the regulations without a draft of the instrument being laid before Parliament and approved. Subsequently the regulations must be debated and approved if they are to remain in force.
10.We also consider that the following instruments made under the negative procedure should be made under an affirmative procedure.5
(i) Clause 8: the customs tariff
11.Clause 8 is the foundational provision in Part 1 of the Bill that allows the Treasury to make regulations establishing and maintaining a customs tariff. The first set of regulations made under this clause must be subject to the “made affirmative” procedure.6 The Government do not explain why the first set are singled out but not necessarily subsequent regulations. Subsequent regulations of equal importance (save where they increase import duty) are apt to be dealt with under the negative procedure. We consider that an affirmative procedure should generally apply to clause 8.
(ii) Clause 14: increased duty for agricultural goods
12.Clause 14 confers a wide power on the Treasury to increase duty for agricultural goods by regulations subject to the negative procedure. There is no limit on the amount of the increase which may be imposed, or the period for which it can have effect. Furthermore, the trigger points for the exercise of the power (referred to in clause 14(1)) are themselves to be determined by regulations. Elsewhere, the affirmative procedure applies to regulations that increase duty for goods: see, for example, clauses 32(2)(b) and 40(2)(b). We consider that an affirmative procedure should likewise apply to clause 14.
(iii) Clause 19: reliefs
13.Clause 19 allows the Treasury to make regulations providing for full or partial relief from a liability to pay import duty. Given the importance of this matter and the scope of the regulations (relief can be given in the regulations by reference to “any factor”), we consider that these regulations should be subject to an affirmative procedure.
(iv) Clause 22: authorised economic operators
14.Clause 22 allows HMRC Commissioners to make regulations “disapplying or simplifying” any of the law relating to import duty made by or under Part 1 of the Bill (clauses 1 to 38) in relation to “authorised economic operators”, a term that will be amplified in regulations and which essentially covers operators who meet internationally recognised standards of compliance. Bearing in mind that clause 22 covers the other 31 regulation-making powers found in Part 1 of the Bill, its scope is very wide. Given the width of this power enabling HMRC to waive compliance with the law, we consider that these regulations should be subject to an affirmative procedure.
(v) Clause 30: general provision for the purposes of import duty
15.Clause 30(b) allows the Treasury by regulations to make “other provision generally for the purposes of import duty”. This provision goes beyond the typical “supplementary” provision found in many Acts and, indeed, in clause 30(a). We note that a seemingly benign provision like clause 30(b) might take on a wholly new significance in practice,7 yet it is only ever subject to the negative procedure. There is no apparent limit on what may be provided for under this power other than the fact that it has to be compatible with the provisions made by or under Part 1 of the Bill. This being so, we consider that these regulations should be subject to an affirmative procedure.
(vi) Clause 39: charge to export duty
16.Clause 39 is the foundational provision in Part 2 of the Bill that allows the Treasury to make regulations establishing and maintaining a charge to tax on the export of goods from the UK. Clause 39(7) contains a particularly wide power allowing the Treasury to replicate or apply, with or without modification, any provision made by or under sections 1 to 38 of the Bill (which sections contain 30+ regulation-making powers) or indeed any other Act of Parliament relating to import duty. Although this is an extraordinarily wide power, only the first set of regulations made under clause 39 must be subject to the “made affirmative” procedure. The Government do not explain why the first set are singled out but not necessarily subsequent regulations. Subsequent regulations of equal importance (save where they increase export duty) are apt to be dealt with under the negative procedure. We consider that an affirmative procedure should generally apply to clause 39.
(vii) Clauses 42 & 47: EU law relating to VAT and certain excise duties
17.Clause 42(2) contains a wide power for the Treasury to amend VAT law which is retained EU law under clause 4 of the current European Union (Withdrawal) Bill.8
18.Clause 47 contains a similarly wide power for the Treasury to amend certain excise duties (relating to alcohol, tobacco and hydrocarbon oil) which are retained EU law under clause 3 of the European Union (Withdrawal) Bill.
19.Regulations under these powers are subject to annulment in pursuance of a resolution of the House of Commons. Given the importance and scope of the powers in clauses 42 and 47, we do not consider that the regulations should only ever be subject to the negative procedure.
(B) Those Henry VIII powers which, despite enabling Ministers by delegated legislation to amend primary legislation, are subject only to the negative procedure
20.This Bill contains Henry VIII powers allowing Ministers to amend Acts of Parliament and which are only subject to the negative procedure:
(1)Regulations under clause 31 allow the UK to create a customs union with other countries. Clause 31(6)(a) allows HMRC to modify or disapply not only any Act of Parliament whenever passed but also Part 1 of the Bill itself. The customs union could potentially govern the whole range of import duty. This would then effectively allow the amendment of the whole of Part 1 of the Bill by means of negative regulations.
(2)We have already mentioned clause 39(7) (export duty), which confers a Henry VIII power on the Treasury to replicate or apply, with or without modifications, any Act of Parliament relating to import duty.
21.We have frequently stated in our reports that Henry VIII powers require a compelling reason not to be affirmative. The Government do not satisfactorily explain why these provisions should be subject only to the negative procedure. We consider that the Henry VIII powers mentioned in paragraph 20 should be subject to an affirmative procedure.
(C) The appropriateness of a sunset provision for some delegated powers, as in the European Union (Withdrawal) Bill
22.The Government’s White Paper, Legislating for the United Kingdom’s withdrawal from the European Union,9 acknowledged the importance of time-limiting delegated powers where powers are not needed in perpetuity. Clauses 7 to 9 of the European Union (Withdrawal) Bill contain important time-limits on the use of delegated powers. There is no corresponding time limitation in the Taxation (Cross-border Trade) Bill on the use of delegated powers, even though the Treasury’s delegated powers memorandum acknowledges that the Bill has been drafted to cater for various contingencies that might never materialise, for example, if the UK leaves the EU without a negotiated agreement.10
23.We invite the Government to time-limit those regulation-making powers that do not need to exist in perpetuity, as they did for the European Union (Withdrawal) Bill. We consider that candidates for a sunset clause include clauses 42 (EU law relating to VAT), 45 (general regulation making power for excise duty purposes), 47 (EU law relating to excise duty) and 51 (VAT or duties of customs or excise).
24.By way of example, clause 51 contains a wide power which (in the words of paragraph 250 of the Treasury’s delegated powers memorandum) “is necessary to ensure that the Treasury and Secretary of State have the ability to deal with the consequences of withdrawal from the EU and to maintain fully functioning and legally operable customs, VAT and excise regimes in a range of scenarios”. The regulations are such as the Minister “considers appropriate in consequence of, or otherwise in connection with, the withdrawal of the United Kingdom from the EU” (clause 51(1)). But regulations under clause 51 could be made at any time in the future, including decades after our withdrawal from the EU. We consider that a sunset clause of some description would seem appropriate in this case and the other cases mentioned in paragraph 23.
(D) The radical concept of making law by “public notice”, a modern form of ruling by proclamation, without any opportunity for Parliamentary scrutiny
25.The Bill relies heavily on the concept of making law by “public notice”. Paragraph 39 of the Treasury’s Delegated Powers Memorandum says that such notices will only make provision that is purely technical or administrative in nature. Nonetheless, clause 32(9) of the Bill allows anything that can be done under public notice to be done by regulations, implicitly acknowledging the importance of things done by public notice. For Ministers and others to make law by “public notice”, without any recourse to Parliament, is highly unusual and such provisions should attract strict surveillance by Parliament. The Statute of Proclamations 1539 gave proclamations the force of statute law. Although it was repealed in 1547 after the death of Henry VIII, it now enjoys a limited revival under the veil of Ministers and HMRC making law by “public notice”.
26.Under clause 37(5), a public notice means something published in such manner as the person issuing it “considers appropriate”. There is no definition of “appropriate” and it could range from full-page adverts in the national press to obscure notices in trade journals. It might even include Facebook and Twitter. For example, clause 24 allows HMRC by public notice to establish a system for making rulings to determine the customs code which should be applied to particular goods, and for determining the place of origin. Both of these matters are liable to impact on the amount of duty that a person has to pay. Also, rulings made in pursuance of clause 24 will presumably be capable of having legal effect (see clause 24(2)(g)) and therefore affecting a person’s rights and liabilities. Large companies with advisers are less likely to be worried than small businesses and others struggling to keep abreast of laws that are made by this novel form of public notice without any involvement whatsoever of Parliament.
27.We consider that the creation of a generally applicable system for making determinations which are capable of affecting an individual’s legal position should ordinarily be dealt with by legislation, subject to scrutiny by Parliament, rather than by public notice without any such scrutiny. It might be of importance whether the system provides for any means of review or appeal against determinations made by the HMRC in this context.
(E) The inclusion in the Bill of tertiary legislative powers, made and published without any opportunity for Parliamentary scrutiny
28.The Bill allows powers to be given to Ministers or others to make further subordinate legislation (tertiary legislation) without there necessarily being any parliamentary procedure or even any requirement for the tertiary legislation to be made by statutory instrument: see clause 51(2)(a) which allows for regulations to make any provision as might be made by Act of Parliament.
29.Furthermore, clause 32(7)(b) states that any power to make regulations under Part 1 of the Bill includes “power to make provision by reference to things set out in a notice published in accordance with the regulations”. Such a notice “published in accordance with the regulations” is therefore a species of tertiary legislation, which is made and published without any parliamentary scrutiny at all. Clause 32(7)(b) increases the circumstances when legislation by public notice is possible.
30.We consider that tertiary legislation should be subject to the same parliamentary control and time-limits applicable to secondary legislation.
1 For example, clauses 32(2) and 40(2).
2 Or, in the case of money-related statutory instruments such as those under this Bill, by the House of Commons only.
3 See footnote 2.
4 Schedule 7, paragraph 4 (the numbering was amended at committee stage in the House of Commons).
5 See also the examples in paragraph 20 below.
6 Clause 32(2)(a).
7 In 1972, the government indicated during the parliamentary debates on the European Communities Bill that regulations under section 2(2) might only be expected to be made very infrequently (3 or 4 times a year). In due course, many dozens of such regulations were made every year.
8 There is a similarly wide discretion given to the Treasury in regulations made under clause 42(5).
9 Cm 9446, March 2017, para. 3.25 and note 13.
10 HM Treasury, Taxation (Cross-border Trade) Bill Delegated Powers Note (20th November 2017), paras. 2, 215, 219 and 223, by way of example.