Delegated Legislation Committee
Draft Cambridgeshire and Peterborough Combined Authority Order 2017
The Committee consisted of the following Members:
Chair: Graham Stringer
† Dakin, Nic (Scunthorpe) (Lab)
† Davies, Byron (Gower) (Con)
† Elphicke, Charlie (Dover) (Con)
† Griffiths, Andrew (Lord Commissioner of Her Majesty’s Treasury)
† Harris, Rebecca (Castle Point) (Con)
† Howarth, Sir Gerald (Aldershot) (Con)
† Howlett, Ben (Bath) (Con)
† Jayawardena, Mr Ranil (North East Hampshire) (Con)
† McMahon, Jim (Oldham West and Royton) (Lab)
† Percy, Andrew (Parliamentary Under-Secretary of State for Communities and Local Government)
Reynolds, Emma (Wolverhampton North East) (Lab)
† Selous, Andrew (South West Bedfordshire) (Con)
Smyth, Karin (Bristol South) (Lab)
† Vickers, Martin (Cleethorpes) (Con)
Winnick, Mr David (Walsall North) (Lab)
† Zeichner, Daniel (Cambridge) (Lab)
Katya Cassidy, Committee Clerk
† attended the Committee
Second Delegated Legislation Committee
Tuesday 21 February 2017
[Graham Stringer in the Chair]
Draft Cambridgeshire and Peterborough Combined Authority Order 2017
I beg to move,
That the Committee has considered the draft Cambridgeshire and Peterborough Combined Authority Order 2017.
It is a pleasure to serve under your chairmanship, Mr Stringer. The draft order, which was laid before the House on 23 January, will implement three key elements of the devolution deal negotiated between the Government and the seven councils in the Cambridgeshire and Peterborough area: Cambridge City Council, Cambridgeshire County Council, East Cambridgeshire District Council, Fenland District Council, Huntingdonshire District Council, Peterborough City Council and South Cambridgeshire District Council. First, it will create the position of a directly elected Mayor for Cambridgeshire and Peterborough who will be accountable to the people. Secondly, it will establish a combined authority chaired by the elected Mayor with its membership drawn from the seven constituent councils. Thirdly, it will confer significant new powers and budgets on the Mayor and the combined authority, as set out in the devolution deal, notably for planning, housing and transport. The draft order will result in arrangements for Cambridgeshire and Peterborough that, in accordance with the deal, will materially contribute to the promotion of economic growth and regeneration throughout the area, improve productivity, facilitate investment, improve the area’s infrastructure and—all being well—drive up housing supply.
The Cambridgeshire and Peterborough devolution deal is built around the directly elected Mayor, who will be the necessary focus point of accountability when major new budgets and powers are devolved. It is one of a number of deals that we are implementing throughout the country in fulfilment of our manifesto commitment. Through the deal, Cambridgeshire and Peterborough will gain control over a new £20 million-a-year funding allocation for 30 years, which will be invested in the Cambridgeshire and Peterborough single investment fund with the aim of boosting economic growth, a £100 million housing and infrastructure fund, and an additional £70 million over five years, ring-fenced to meet the housing needs of the greater Cambridge area. Cambridgeshire and Peterborough will also receive powers over strategic planning, the responsibility to create a non-statutory spatial framework for the area, and a devolved transport budget and responsibility for an identified key route network.
The draft order is made under the Local Democracy, Economic Development and Construction Act 2009, as amended by the Cities and Local Government Devolution Act 2016. Its origin is in the governance review and scheme prepared by Cambridgeshire and Peterborough Councils in accordance with the legislation. The scheme sets out proposals for powers to be conferred on a combined authority for the area and for its governance and funding arrangements.
As is required in all such cases—the shadow Minister can attest to that from his knowledge of all the other combined authority orders that we have implemented—the councils had to consult on the proposals in the local area. The consultation ran from 8 July to 23 August 2016 and a summary of the responses to it was provided to the Secretary of State. For the draft order to be laid before the House, he had to be satisfied that the statutory tests were met; the fact that we are here this morning is proof that he considers that they were, and that the conferring of these functions is likely to lead to an improvement in the exercise of the statutory functions in Cambridgeshire and Peterborough. The seven constituent councils have also consented to the draft order.
The order provides for the establishment of a combined authority
“on the day after the day on which it is made.”
It also provides for a directly elected Mayor, who will be elected on 4 May this year and will take office on 8 May. The next election will be held in May 2021. In summary, the new powers enable the Mayor to create a strategic transport plan and confer on the combined authority the function to maintain a key route network—again, that will be exercised by the Mayor—as well as economic and regeneration functions. They also enable the Mayor and the combined authority to create a non-statutory spatial plan by conferring a general power of competence on them. Finally, they confer on the combined authority public authority functions relating to the devolved transport budget to be exercised by the Mayor.
The new powers will provide the combined authority and the Mayor with the powers needed to support the effective use of the new devolved budgets, which I have highlighted. The order also provides for the necessary constitutional and funding arrangements to support the Mayor and the combined authority. In particular, provision is made for the seven constituent councils to contribute to the cost of funding the Mayor and the combined authority’s activities.
In conclusion, the order devolves new wide-ranging powers to Cambridgeshire and Peterborough, puts decision making into the hands of local people and will help the area to fulfil its longer term economic and social ambitions. I therefore commend it to the Committee.
It is a pleasure to serve under your chairmanship, Mr Stringer. I am pleased that we are discussing another devolution deal that is coming to fruition and that the local authorities in the areas consent to the proposals, which is why we are discussing them today.
Perhaps we need to go a bit further back to see why we are here at all. This was part of a wider devolution deal involving 22 councils across the East Anglia area. That came from the Government trying to impose their vision of what a devolved settlement could be, with extremely high bars for what was and was not acceptable, and extremely high expectations about direct accountability in a way that we do not see in Parliament. Rightly, councillors in the area were not happy with the settlement. People said, “Why are you expecting more from a local authority in terms of accountability than you expect from the UK Parliament?” We do not have a directly elected Prime Minister or Chancellor of the Exchequer, and the Secretary of State, who continues to build his power base through a number of Bills that are coming through, is not directly elected either. However, for posts with a fraction of that power, the Government are demanding that direct elections take place in areas across the country. Moreover, they are demanding that the construct of those combined authority areas bears little relationship to community identity or historical partnership working in those areas.
There was a great deal of sense in Greater Manchester, which has a long history of working together, and not just before the county was disbanded, but since with the Association of Greater Manchester Authorities. Incrementally, ever more joint working was taking place and people were coming together. That is not the case in a great deal of the combined authority arrangements that are being introduced. They are very much artificial constructs that have been bolted together to try to justify the scale of devolution that the Government want. I repeat my fears from previous statutory instrument Committees: turnout could well be affected by people not having a connection to the posts being imposed.
I commend the councils in the area concerned for the consultation that was carried out. It had 4,000 responses, which is significantly more than we have seen in other areas, as was referred to in the councils’ summary document. However, there is a lot of cynicism about what the Mayor could be and what powers will really be devolved. We talk a lot about the devolution of schools—that has been covered in detail in reports in the public domain—but almost nothing has been said about the fact that education responsibilities are being taken away from the same seven local authorities in those areas. The Government need to clarify whether they are really willing to let go in order to let areas develop their own public services and economies, or whether the centre still wants to grab control back from local areas.
I am pleased to see that Cambridge City Council has managed to secure money in the devolution deal; the documentation that we have seen states explicitly that £70 million will be spent on a new generation of council housing. Many Labour councils throughout the country will look at that with a degree of jealousy, because many of them have consistently been restricted and blocked by the Government from bringing in new generations of council housing.
I have a number of questions for the Minister. First, is there a real desire to see genuine devolution of education, skills and training to local authorities? Will that include the reversal of the centralising nature of education in this country? Will the powers gifted under this devolution agreement be offered more widely, so that other areas can be given the opportunity and the funding to build a new generation of council housing?
Moreover, will the Government commit in the very near future—next week would be a good time, if the Minister has time on his hands after we deal with business rates this week—to introducing a framework of devolution in England that is clearly understood and available for all? There is now a significant kickback from areas—not just urban areas but Conservative shires—that do not feel that devolution is on offer to them, either because their community does not meet the requirements for a directly elected Mayor or because the artificial construct of a combined authority does not meet their aspirations for their areas or local economies. We cannot have a vision for a devolved England if we do not have a framework for it.
I ask the Minister to clarify those points. We do not intend to vote against the draft order. In the spirit of championing devolution, we look forward to seeing more devolved settlements in future.
It is always a delight to debate the future of devolution and the position of the Mayor with the shadow Minister, as we have done when considering every single such statutory instrument, and as we probably will when we debate the next draft order this afternoon. I welcome what I think is his tacit support for the deal and I will try to respond briefly to his points.
The shadow Minister compared the directly elected Mayor with the UK Parliament. As I keep making clear whenever we debate these statutory instruments, and as I will no doubt have to keep making clear in future such debates, the difference is that Parliament is elected from across the whole United Kingdom and is accountable for the decisions made throughout the country, whereas for these devolution deals there is nobody elected from or accountable for the entire geography of the area. When maximum powers and budgets are being devolved—shared funding is an example—we insist on having somebody accountable for and elected by the whole area, which would not be the case if we simply left it up to the combined authorities. His analogy with Parliament falls down at that point.
The shadow Minister spoke about the history of local authorities working closely together in Manchester. Manchester is probably the best example in England of authorities working together over a long period. For the Cambridgeshire and Peterborough deal, we have had to apply the statutory tests, which require that the area covers a functional economic area and that it improves the function and exercise of statutory powers. Both of those tests have been met. He also spoke about the scale of devolution. All I will say about that is that we have an investment fund of £20 million a year, a £100 million housing and infrastructure fund and a £70 million fund specifically ring-fenced for Cambridge City Council. That is substantial and very real devolution.
The shadow Minister asked about skills funding. As he will be aware from previous debates, a number of deals include the devolution of post-16 or post-19 skills funding. As one would expect, there is still a national policy on our education system, but the two do not necessarily run contrary to each other. We have made good on our pledges on devolution in the area of skills.
Does the Minister agree that there could be a compromise position? We could meet the objectives of having regional schools commissioners and of having devolved arrangements by allowing the boundaries for regional schools commissioners to be coterminous with those for combined authorities.
The problem with that is that we do not have devolution deals agreed in every location, so there will always be a different approach in different parts of England. Each deal is bespoke and we have negotiated different arrangements for post-16 and post-19 skills funding in each of them, as the shadow Minister will have seen.
The shadow Minister raised the devolution offer for England more generally. We have always made it clear that we take a bottom-up approach and that if areas want to come and discuss proposals with us, we will always be open to them. However, a lot of areas have decided that they do not want to proceed with devolution offers and deals. Other arrangements are available to such areas that might better meet their needs, including unitarisation or the merging of councils, but that is for the areas themselves to determine.
Finally, the shadow Minister spoke about turnout. As we have discussed several times in debates, the Department has put money into promoting these elections in May. In previous debates I have given the example of the mayoralty of London: people were not as enthusiastic about the first mayoral elections as one might have hoped, but they have become much more enthusiastic as the Mayor’s role has developed and grown in importance. These are new roles, and I am sure that local people will understand their importance once they see that the Mayor has significant powers and access to significant finance. We will do everything we can, along with the Electoral Commission and the councils themselves, to encourage people to take part in the May elections. These are substantial positions and the people elected to them will have access to quite substantial powers and budgets.
I do not intend to detain colleagues for long, but I have two brief questions and an observation. First, lest anyone watching the proceedings should think that the House does not take its scrutiny role seriously, let me say that I believe there is a mistake in the explanatory memorandum—on page 4, at line 6 of paragraph 7.3—which refers to something that happened on 8 November 2017. Perhaps the Minister could ask his officials to correct that, so that the electronic version is correct.
I certainly support the draft order, which seems to have broad local support. However, speaking as someone whose local authority area is not in a combined authority, could I ask the Minister to explain whether the local authorities underneath the new body that we are setting up will be slimmed down to some degree—or are we just creating a new structure without taking anything away? I am concerned about the totality of the public sector and how we pay for it.
I see that the Norfolk and Suffolk combined authority will not go ahead, because the Borough Council of King’s Lynn and West Norfolk was not happy with it. Will the Minister briefly give us his thoughts on whether individual district councils should continue to have the power of veto when there is broad support for combined authorities?
I can only apologise for the mistake in the date in the explanatory memorandum, although I have not been able to find it myself. The Opposition Whip, the hon. Member for Scunthorpe, is a former teacher, like me; I am sure that we are both disappointed not to have spotted that mistake for ourselves, but I am delighted that someone else did.
On the creation of a new structure, we must remember that the combined authority is made up of the local authorities. We are not creating a new elected body to sit as part of the mayoral combined authority; it is the local authorities working together and pooling their resources for the good of the local area. I therefore do not see it as creating a wholly new structure on top.
My hon. Friend the Member for South West Bedfordshire tempts me down the route of talking about what happens in two-tier areas, as in this deal, and whether the local authorities underneath the structure might want to be “slimmed down”—a beautiful way of raising the prospect of unitarisation or of councils merging, which we know can be very controversial. All I can say is that that is an issue for the local authorities. If they wish to pursue a route of unitarisation or merger, it is for them to come forward with proposals for us to consider. We certainly do not require, as part of the deal, any change to governance structures beneath the new mayoral combined authority, but it is something that can be promoted locally.
On Norfolk and Suffolk, my hon. Friend is absolutely right that—
Order. This is fairly precisely defined secondary legislation relating to Cambridgeshire and Peterborough, so I would be grateful if the Minister stuck to that matter. I have tried to be relaxed about this.
I would be as delighted as you, Mr Stringer, if we could keep the debate as narrow as possible. All I will say in response, therefore, is that it is a requirement of the legislation that all local authorities in a devolution deal area consent to the creation of the combined authority. That has happened in the case of Cambridgeshire and Peterborough; in other areas it has not. Nevertheless, the legislation is clear that we require 100% consent to create the combined authority.
Question put and agreed to.
draft Tees Valley Combined Authority (Functions) order 2017
The Committee consisted of the following Members:
Chair: Mr Nigel Evans
† Blenkinsop, Tom (Middlesbrough South and East Cleveland) (Lab)
† Brazier, Sir Julian (Canterbury) (Con)
† Campbell, Mr Alan (Tynemouth) (Lab)
† Caulfield, Maria (Lewes) (Con)
Cunningham, Mr Jim (Coventry South) (Lab)
† Harris, Rebecca (Castle Point) (Con)
† Herbert, Nick (Arundel and South Downs) (Con)
† Lilley, Mr Peter (Hitchin and Harpenden) (Con)
† Mercer, Johnny (Plymouth, Moor View) (Con)
† Morris, Anne Marie (Newton Abbot) (Con)
† Pearce, Teresa (Erith and Thamesmead) (Lab)
† Percy, Andrew (Parliamentary Under-Secretary of State for Communities and Local Government)
† Shah, Naz (Bradford West) (Lab)
† Shuker, Mr Gavin (Luton South) (Lab/Co-op)
† Tugendhat, Tom (Tonbridge and Malling) (Con)
† Wheeler, Heather (South Derbyshire) (Con)
Danielle Nash, Lauren Boyer Committee Clerks
† attended the Committee
The following also attended, pursuant to Standing Order No. 118(2):
Malhotra, Seema (Feltham and Heston) (Lab/Co-op)
Third Delegated Legislation Committee
Tuesday 21 February 2017
[Mr Nigel Evans in the Chair]
Draft Tees Valley Combined Authority (Functions) Order 2017
I beg to move,
That the Committee has considered the draft Tees Valley Combined Authority (Functions) Order 2017.
It is a pleasure to serve under your chairmanship, Mr Evans.
The draft order, if approved and made, will be another important step in bringing to life the devolution deal that the Government agreed with the Tees Valley in October 2015. It will confer on the combined authority a power, to be exercised by the Mayor, to designate a mayoral development area. That is a necessary step in advance of the creation, by order, of a mayoral development corporation.
The order also includes transitional arrangements to allow the combined authority to act in place of the Tees Valley Mayor, before he or she is elected on 4 May 2017. The functions being conferred correspond to those held by the Mayor of London in relation to the Greater London area. The order confers the functions with appropriate modifications—I will restrain myself from talking about those at this stage but can say more later—to reflect the different conditions in the Tees Valley.
The implementation of the devolution deal agreed between local areas and the Government has already seen two orders made in relation to the Tees Valley, and there will be more. The first was the Tees Valley Combined Authority Order 2016, which establishes the combined authority from 1 April 2017 and includes the functions relating to economic development, regeneration and transport. The second order taken through the House is the Tees Valley Combined Authority (Election of Mayor) Order 2016, which creates the position of Mayor for the Tees Valley, with the first election being on Thursday 4 May.
The order that we are considering this afternoon is the next step in implementing the devolution deal and it will enable the establishment of a mayoral development corporation in the south Tees area by summer 2017—but only, of course, if the Mayor and the combined authority wish to see that. We will confer further powers on the Mayor and the combined authority at a future date; indeed, we laid an order before the House on 6 February to do just that.
The draft order is made under the Local Democracy, Economic Development and Construction Act 2009, as amended by the Cities and Local Government Devolution Act 2016. Before laying the order, the Secretary of State considered the statutory requirements set out in the 2009 Act and he is satisfied that they have been met. In short, they cover the conferring of the functions on the combined authority being likely to lead to an improvement in the exercise of statutory functions across the Tees Valley. The Secretary of State has also had regard to the impact on local government and communities and, as required by statute, the five constituent councils and the combined authority have consented to the making of the order.
On the detail, the order confers on the Tees Valley Mayor and the combined authority the powers—appropriately modified, as I said—that the Mayor of London and the London Assembly hold to establish mayoral development corporations. Those powers include the power to designate mayoral development areas. The Mayor is required to notify the Secretary of State of a designation and the latter is then required by order, subject to the negative procedure, to establish the mayoral development corporation.
The powers also include the power to transfer property to the mayoral development corporation and to decide that the corporation has certain functions, in particular whether it is to be a local planning authority. There is also the power to appoint members to any such corporation. There are modifications that make the powers different from those that exist in London, but I will not go into detail about those at this moment.
The process for establishing a mayoral development corporation in the Tees Valley would be as follows. The Mayor would designate a mayoral development area if the Mayor considered that the designation would further economic development and the regeneration functions of the combined authority; if the Mayor had consulted on the proposal and had had regard to that consultation; if the Mayor had published the proposal and it had not been rejected by the combined authority within 21 days—the buy-in of the combined authority is important and gives a further element of local accountability; and if the Mayor had received the necessary consents from combined authority members and the North Yorkshire Moors National Park Authority.
Once the Mayor has made the designation and notified the Secretary of State, the Secretary of State must make the order to establish the mayoral development corporation. If the Mayor has yet to be elected, the chair of combined authority takes the place of the Mayor. Members of the Committee may be aware that the combined authority is currently consulting on a proposal for a mayoral development corporation to cover the SSI site and the wider 500-acre industrial site located there. That consultation started last December and runs for 11 weeks, closing on 10 March. As I mentioned, the order includes transitional arrangements that will allow work to continue at a pace to create a mayoral development corporation in the Tees Valley. The order also provides for the necessary funding arrangements to support the Mayor and the combined authority in delivering the functions.
In conclusion, the order devolves brand new powers to the Tees Valley combined authority, gives effect to the significant devolution deal that we have negotiated with the area, and puts local people and business leaders in a strong position to drive economic growth and regeneration in the Tees Valley. I commend the draft order to the Committee.
It is a pleasure to serve under your chairmanship, Mr Evans. I am standing in for my hon. Friend the Member for Oldham West and Royton (Jim McMahon), who leads on devolution for the Opposition. I would like to put on the record my thanks to him for his valuable work in scrutinising the devolution deals.
Today’s draft order is the next step in the process towards implementing the Tees Valley devolution deal. The Tees Valley combined authority has been created, and I look forward to supporting Sue Jeffrey in her bid to become the first female metro Mayor in the country.
The order gives the Tees Valley combined authority the functions it needs to execute the powers handed down by central Government in the devolution deal. That includes devolved responsibility for transport; the creation of a mayoral development corporation to examine what strategic sites should be developed; and the creation of a Tees Valley investment fund. Local leaders are supportive of devolution to Tees Valley, but their support is caveated. Local leaders did not welcome the imposition of a Mayor for the Tees Valley combined authority, but they have accepted it. In evidence to the Select Committee on Communities and Local Government, Councillor Sue Jeffrey, the leader of Redcar and Cleveland Borough Council, said:
“It is a price we are having to have, so we will make it work...We have to take what is on offer and do what we can with it.”
That smart and pragmatic approach has been adopted by all five councils and shows how people in local government operate best: taking what they can get to defend local communities even when the conditions are set by others. The imposition of a directly elected Mayor has been a barrier for a lot of other devolution deals that have not made it through.
On this side of the House, we support devolution, but it needs to be real and meaningful. We would do things differently. We believe that devolution should be bottom-up, not top-down. Forcing totally different parts of the country to adopt a one-size-fits-all, top-down approach contradicts the essence of true devolution. We are not opposed to the concept of Mayors where a well-run mayoralty can provide visible leadership and accountability, but we do not support imposing rigid governance arrangements, such as Mayors, as a prerequisite for the devolution of powers.
Devolution should mean that people and communities are free to choose the most appropriate model for their community. These devolution deals should be an opportunity to bring powers and decision-making closer to the people. However, the imposition of Mayors contradicts that and risks undermining public confidence in devolution. Does the Minister accept that different areas require different governance models, and that true devolution supports them to create their own suitable models?
People feel that the proposed devolution process is being done to them rather than being done with them. We have serious concerns about how that devolution process has been handled and the lack of buy-in from the public. We need to get that buy-in and to get them on side, but at the moment they are not a meaningful part of the debate. People do not feel remotely connected to the current devolution process, and because the public have not been brought on the journey, voter turnout in lots of areas could be very low. The Communities and Local Government Committee has warned the Government that such a disconnected, remote system, which has led to low turnout, will have implications for the democratic legitimacy of some elected Mayors.
The fledgling proposals could be undermined from day one, and mayoral positions could be tainted going forward. The Government must consider that possibility when designing the devolution deals. What are they doing to ensure greater public engagement and community buy-in for future devolution deals?
If we believe in devolution and in power being distributed closer to the communities that we serve, we need to let go of that power; we must not put unnecessary requirements on local areas to receive that power. Although Tees Valley has accepted the conditions of the devolution deal, we want to see progress made in places where a Mayor is not an acceptable option. Concerns have been expressed about the creation of a fourth or even a fifth tier of local government that could create a complex, over-bureaucratic, costly system of representation that does not reflect an area’s needs. It is wrong, however, that some areas are not being given devolved powers because of that. If the principle behind the order is about getting devolution going, at some point we will have to come forward with a devolution framework for all of England—one that does not pick off one area against another.
I hope that the Government will ensure that every area will get the type of devolution currently available only in some areas. Devolution should not mean excluding some places or leaving communities behind. What will the Department for Communities and Local Government do to ensure that those areas that did not accept a directly elected Mayor will still enjoy the benefits of devolution?
On Brexit funds, we need an assurance from the Minister about the implications for future EU funding. A key benefit of the Tees Valley deal was control over EU structural funds; the Tees Valley has been a long-term beneficiary of European funding and has secured a commitment worth £169.8 million over the current EU funding period. The combined authority was going to control that funding, and that control was an essential part of the devolution deal. In the light of the Brexit vote, Tees Valley needs clarification in view of the current instability about inward investment. Can the Minister offer reassurance to the Tees Valley combined authority that expected levels of funding, including those expected from the EU, will be maintained—not just until 2020, but after that? Will there be local control of those funds?
I appreciate that I have asked the Minister a number of questions; if he cannot answer them today, I would like him to commit to answer me in writing in the near future.
We share concerns about regional investment in the light of the gross disparities between infrastructure spending in the capital compared with the regions, so we are glad that the Tees Valley devolution deal includes control of the new £15 million a year funding commitment over 30 years; a comprehensive review and redesign of the education, skills and employment support system in the region; and responsibility for business support. That is key to the Tees Valley, given the importance of the chemical industries cluster and associated manufacturing industry.
I commend the work of the five councils in the Tees Valley combined authority and their efforts to secure the best possible deal for their area and community despite the constraints placed on them. However, the £15 million devolution deal over 30 years does not come close to compensating for the cuts that those councils have already seen to their budget—the Tees Valley area has seen cuts in excess of £240 million per year since 2010, which is a huge sum to lose from local authority budgets. Local authorities as a whole are facing a £5.8 billion funding gap by 2020.
One of our major criticisms of the Government’s approach to devolution is how they expect communities to flourish when they have systematically underfunded local councils and run down public services. I think the Minister would accept that we cannot empower local government by impoverishing it. The Labour party, in Parliament and in local government, is committed to supporting local areas to secure the deals that best suit local need and will best help them to meet the challenges they face in supporting their local communities. It is absolutely right that we continue the devolution journey.
The order is an important step if people believe in devolution and in taking power away from the centre and giving it to communities. Members on this side of the Committee welcome the order but we caution against this type of top-down devolution in the future, and express serious concerns about future funding. Nevertheless, we accept that this is another step on the journey to devolution across England.
I thank the shadow Secretary of State for what was a generally positive response to the journey of devolution if not, necessarily, to its structure. She is right about the shadow Minister. He and I have gone to head to head on every single one of these orders thus far. In every instance, we have debated the issue of a mayoralty, whether it was within or outwith the particular order before us, and have debated at length the future of devolution across the rest of England and the different structures and options available to local authorities who might wish to reform themselves.
We have also debated turnout, at length. In today’s Opposition it is not always clear that there is consistency but we certainly had consistency today from the shadow Secretary of State, which is something we do not see very often from the Opposition Benches. On that, she can go back and report positively—
This is a positive statement about the quality of the Opposition in the shadow CLG team, in that they seem to be on the same side.
The shadow Secretary of State made particular mention of a candidate, so I should even it up by saying that we have an excellent candidate in Ben Houchen. I hope, and feel, that this could be the year for us in the Tees Valley.
The Minister just mentioned the Conservative candidate for the Tees Valley mayoral elections. Does he agree with that Tory candidate’s comments about the SSI blueprint? He said that it was laudable example from the Government—after the loss of 5,000 jobs, a massive impact on GDP and the Tees Valley economy, and business rates lost to the local area. Does he agree that the mayoral candidate was right to celebrate that catastrophe for the Tees Valley as a success?
The good thing about being a diligent northerner is that I tend to read the local papers of the north-east closely and know exactly the example to which the hon. Gentleman refers. It took place at a hustings, at which the candidate in question actually stated that the Government response, including the £80 million and the swift setting-up of a taskforce, was a blueprint for how to respond to those sorts of issues. There was also general agreement among the other candidates at the event about the Government response being a blueprint. It was not at all his saying that the terrible situation there was in any way a blueprint for what the Government want to see—clearly not.
I believe that the first iteration of the story that went online in one of the local newspapers was different from the one that went up a little later, so I think there was a bit of politics going on. I am aware of the situation but, to be absolutely clear—we do not want to get into a general debate about the hustings for the mayoral election on 4 May—no candidate would ever stand up at any event and say they thought what happened at SSI was positive, or in some way a blueprint. The Government response was a blueprint and there has been general agreement on that in the region. The Government reacted quickly and £80 million was swiftly made available and that was a good blueprint for how to respond to what was, notwithstanding that, a terrible situation.
I am all in favour of shortening the winter, but not by extending the mayoral campaign into the Committee Room, so let this be the last contribution, Mr Blenkinsop.
Thank you, Chair. As the only Tees MP on this Committee, it is important that I get across this point in relation to the debate held at the Materials Processing Institute, which seeks a metals strategy from the Government. The Minister knows that, as I have talked to him about it previously.
The important and pertinent point for this debate is that the £80 million never arrived. It was promised by the then Secretary of State for Communities and Local Government, who said that the Tees Valley was going to receive £80 million, but it was actually £50 million. Yet the Government, even in this debate, reiterate that it is £80 million, which is not the case. In fact, I believe that the £50 million is £16 million short of the previous Labour Government figure from 2009, when the same works did not hard close; they were actually mothballed and brought back to life. Would the Minister like to reflect on the £80 million figure and correct it?
This is not about steel.
We are not talking about steelworks; I appreciate that.
It is clear that this is still a live and important issue. What this order does—this is one thing we can all unite around—is to give this new devolution deal the power to create a mayoral development corporation based around that site. We have been very clear as a Government that we believe it has enormous potential.
There are huge challenges—the hon. Member for Middlesbrough South and East Cleveland knows that better than I do—but I was proud to sign the indemnity to get the works under way and to assess some of the issues with the site. I am proud that we set up the company in December to take on the day-to-day management of the site through the Department for Business, Energy and Industrial Strategy.
I continue to believe that there is huge potential in the site, as do Lord Heseltine and local MPs. The best way forward is to work together to try to secure what we can for the future of the site. I believe this order, which gives the Mayor and the combined authority the power to establish a mayoral development corporation should they so wish, is a positive step towards the future of that site and the Tees Valley generally.
I want to respond to the shadow Secretary of State’s two very direct questions. On devolution deals across the country, we remain open to discussions with other areas if they wish to come forward with proposals. A number of them are in discussion with us at the moment. Others may choose not to go down a mayoral combined authority route. Some are already openly talking about unitarisation or other ways of trying to improve the delivery of local services. That is, of course, up to them.
I must say that there is no such thing as EU funding, given that we are a net contributor to the European Union, so we give far more than we get back. The people of the Tees Valley sensibly voted in very large numbers to leave the European Union—a decision I fully agree with. We have been very clear on European funding. The commitment has been repeated time and again from the Prime Minister down, and work is ongoing to look at what we can do in terms of funding post our exit from the European Union. The commitment is very clear on that, and I am happy to write to Members if need be.
I do not think there is anything else to respond to. I am not going to rerun the whole mayoralty debate. It requires the consent of all local authorities, and I think this order is a positive move towards what we want to see with the SSI site in particular. It gives the powers to do that, and I commend it to the Committee.
Question put and agreed to.
Draft Nuclear Industries Security (Amendment) Regulations 2017
The Committee consisted of the following Members:
Chair: Mark Pritchard
† Barclay, Stephen (Lord Commissioner of Her Majesty's Treasury)
† Bingham, Andrew (High Peak) (Con)
† Brown, Alan (Kilmarnock and Loudoun) (SNP)
† Debbonaire, Thangam (Bristol West) (Lab)
Johnson, Diana (Kingston upon Hull North) (Lab)
† Kendall, Liz (Leicester West) (Lab)
Lammy, Mr David (Tottenham) (Lab)
† Mann, Scott (North Cornwall) (Con)
† Morton, Wendy (Aldridge-Brownhills) (Con)
† Norman, Jesse (Parliamentary Under-Secretary of State for Business, Energy and Industrial Strategy)
† Prisk, Mr Mark (Hertford and Stortford) (Con)
† Quince, Will (Colchester) (Con)
Reeves, Rachel (Leeds West) (Lab)
† Swayne, Sir Desmond (New Forest West) (Con)
† Thompson, Owen (Midlothian) (SNP)
† Throup, Maggie (Erewash) (Con)
† Tracey, Craig (North Warwickshire) (Con)
† Whitehead, Dr Alan (Southampton, Test) (Lab)
Marek Kubala, Committee Clerk
† attended the Committee
Fourth Delegated Legislation Committee
Tuesday 21 February 2017
[Mark Pritchard in the Chair]
Draft Nuclear Industries Security (Amendment) Regulations 2017
I beg to move,
That the Committee has considered the draft Nuclear Industries Security (Amendment) Regulations 2017.
It is a delight, Mr Pritchard, to serve under your chairmanship.
I will give some background information on the draft regulations and explain why we are making the amendments. The UK takes civil nuclear security issues seriously, including with regard to regulation. Since 1980, this country has been a signatory to the convention on the physical protection of nuclear material, or CPPNM. The convention requires its signatories to have in place a robust legislative and regulatory regime to ensure the security of civil nuclear materials that are stored or in transit. The UK also complies with international guidance on best practice in the field produced by international bodies, in particular the International Atomic Energy Agency.
The Nuclear Industries Security Regulations 2003 represent the cornerstone of the United Kingdom’s regulatory regime for civil nuclear security. They place significant obligations on the operators of civil licensed nuclear sites with regard both to physical security measures for their facilities for nuclear material and to the security of sensitive nuclear information. They also cover the movement of nuclear material by air, road and rail within the UK and globally in UK-flagged vessels. The legislation requires all civil nuclear operators to produce and implement robust nuclear site security plans and it requires the transporters of nuclear materials to produce transport security statements.
The draft amendments being considered in Committee will update the regulations in four key areas. The overarching aim is to enhance still further civil nuclear security arrangements and to ensure that the United Kingdom’s regulatory regime remains up to date, comprehensive and robust. That will help to ensure that this country continues to give full effect to its obligations under the CPPNM. The amendments will increase accountability for producing nuclear site security plans, strengthen information and cyber-security arrangements, and better reflect the remit of the Office for Nuclear Regulation in the area of personnel security. I will provide further detail on each amendment.
The first amendment is to regulation 4(1) of the 2003 regulations. It will require that a nuclear site security plan approved by the ONR is in place for each nuclear site. At present, the security regulations do not specify on whom that obligation is placed. The amendment will make it the responsibility of the designated responsible person for the nuclear site, as defined in the security regulations, to ensure that an approved security plan is in place at all times. In tandem, a related amendment to regulation 25 will make it a criminal offence for the responsible person to fail to meet the obligations under regulation 4(1) as amended. The creation of such an offence underlines the security imperative placed by the Government on nuclear operators to maintain up-to-date security plans that have the approval of the independent regulator.
In combination, those amendments will add clarity to the regulatory regime by making the responsible person accountable for ensuring that the site has approved nuclear security measures in place at all times. I should add that the implications of creating a new criminal offence have been fully considered and the Ministry of Justice has approved the measure.
We will also amend regulations 4(3)(d) and 16(3)(c). Those amendments are aimed at further enhancing industry information security and preparedness for cyber-related incidents. The amendments will make it a requirement for nuclear site security plans and transport security statements to set out the steps to be taken in the event of the loss, theft or unauthorised access to sensitive nuclear information. Requiring duty holders to outline those contingencies will help to ensure that risks associated with information security and cyber-attacks are identified as early as possible and managed effectively using measures approved by the ONR.
We are also making amendments to regulations 9, 17(3) and 22(7), which relate to personnel security. Ensuring robust measures are in place to combat the potential threat that insiders pose or may pose to the civil nuclear industry is a key priority for the Government and the regulator. The amendments are intended to provide the ONR with greater flexibility for determining whether nuclear premises’ “relevant personnel” are suitable in security terms. Instead of solely approving all such relevant personnel itself, the ONR will be able to assess and approve the industry’s broader personnel security arrangements—for example, by examining the effectiveness of review and aftercare arrangements for personnel working in the sector.
The amendments will also allow the ONR to approve processes to be used by duty holders to determine whether relevant personnel are suitable in security terms. That will involve consideration by the ONR of whether the measures used by duty holders are in accordance with Her Majesty’s Government’s personnel security policy or not. We are also making an amendment to regulation 22(5)(a) to remove a reference to guidance published by the ONR or security classifications that have become obsolete.
The amendments have been developed in consultation with the Office for Nuclear Regulation, and the Department for Business, Energy and Industrial Strategy conducted an industry consultation on them between 24 June and 22 July 2016. In total, 19 responses to that consultation were received from a range of industry stakeholders. On the basis of those responses, economists at the Department have forecast one-off administrative costs to the civil nuclear industry of less than £100,000 arising from the changes. That assessment has been approved by the regulatory policy committee. I consider the security benefits arising from the changes to outweigh that cost by far.
In parallel with the amendments, the ONR intends to issue revised security guidelines to the civil nuclear industry. These guidelines, known as the Security Assessment Principles—SyAPS—are closely aligned to emerging threats to nuclear security, especially in relation to cyber-security and information assurance. The amendments I have outlined will complement the revised guidelines.
It is a pleasure to serve under your chairmanship, Mr Pritchard. I will make some brief comments. In general, we support any sensible measures that are aimed at improving nuclear safety. The Minister clarified responsibilities, security checks on personnel and extra cyber-security, which make sense and which we welcome.
However, I suggest to the Minister that there is still a gap in the Government’s strategic thinking regarding nuclear power. The Government are moving forward with a new nuclear strategy—we know about their determination to get Hinkley Point C through—yet at the same time, with Brexit, we are facing withdrawal from Euratom. There seems to be a lack of joined-up thinking and of clear strategy in the wider sense. Will the Minister comment on that? The withdrawal from Euratom was only mentioned in the explanatory notes to the European Union (Withdrawal) Bill, which seemed to catch a lot of people on the hop; the Nuclear Industry Association wants to remain in Euratom.
What impact will the Government’s negotiations with other countries such as the US, Canada and Japan have on the regulations and the Government’s wider thinking on nuclear safety? That is also why the Scottish National party called for a White Paper to be published before the triggering of article 50, and why we want an impact assessment on EU withdrawal to be produced. Although we welcome the initial measures that tidy up the legislation, we are looking for some comfort on wider nuclear safety and how the Government will proceed with regard to Brexit.
The Opposition do not have any serious concerns about the measure. It is composed of sensible changes to procedures, which it undertakes on the basis of existing safety regulations. Indeed, it is part of a series of amendments that have been made to those safety regulations since their introduction in 2003. It brings the regulations into line with the new arrangements for security guidance that are coming out in the spring. It is my understanding that the introduction of the regulations is entirely in line with previous practice and not in response to any particular emergency, shortcoming or other factor that might cause rushed legislation to be put in place. They are also entirely in line with the safety guidance as it stands and how it is developing.
A minor question arises on the change to regulation 4 of the 2003 regulations. It appears to suggest that there has been a responsible person and an approved security plan for nuclear premises in place in previous safety regulations, but that there was no connection between the two. The amendment also appears to suggest that there should be a connection:
“The responsible person must ensure that there is an approved security plan in place”.
That puts the blame on the responsible person, as it were, if an approved security plan is not in place. If that is not the case, what happens currently? Is there a serious lacuna in approved security plans—that is, no one is actually responsible for them, and the instrument makes someone responsible for them—or does the instrument merely give legal weight to a practice that is widespread in nuclear safety? Perhaps the Minister will be able to assure me that that is the case. I hope it is, and that the regulation is not filling a hole, but is bringing into law something that is widespread, as security regulations stand at the moment.
May I also ask the Minister where we stand, so far as the regulations are concerned, amended or not, in relation to the treaty from which they stem? The convention on the physical protection of nuclear material is an international convention that puts common practice into place across a wide number of countries. The convention, which was signed up to at the beginning of 1980, is a multilateral convention and an indefinite treaty, and the UK is one of its contracting parties.
On 3 March 1980, Euratom signed up to the convention, apparently on behalf of the contracting parties within Euratom. If we trace the chain back from where we are today, in terms of amendments to the regulations, the relationship of the regulations to the convention and the signing the convention, it appears to be the case that all of this might fall down if we are not a member of Euratom. Can the Minister reassure me that I am not correct on the signing of the convention: it was actually signed up to separately by the contracting parties and that Euratom, although it may have signed the convention, had no relationship to those contracting parties?
Alternatively, if the convention was signed up to by Euratom on behalf of the contracting parties in Europe, what is his view of the salience of the regulations if we were not a member of Euratom? Will we have to go back to the drawing board, write them all out again and start again on nuclear safety? Or would we find other devices in order to recover what we had lost by not being a member of Euratom?
I am grateful for the questions that have been asked so far. I thank the hon. Members for Kilmarnock and Loudoun (Alan Brown) and for Southampton, Test (Dr Whitehead) for their helpful and supportive comments. I am grateful for their support for the amendments. Their overarching aim is to further enhance, as the hon. Gentlemen recognise, civil nuclear security by ensuring that the UK's regulatory regime remains up to date, comprehensive and robust. As I have outlined, they will strengthen accountability at civil nuclear sites for the production and maintenance of security plans that have the approval of the Office for Nuclear Regulation; improve the civil nuclear industry’s information security and preparedness for cyber-related incidents; and provide the ONR with greater flexibility in determining whether “relevant personnel” are suitable in security terms, to help ensure that robust measures are in place to combat the potential threat that insiders pose to the civil nuclear industry. The changes, as I hope colleagues agree, will reinforce the regulatory regime for civil nuclear security and help to ensure that the UK continues to give effect to its international obligations under the convention.
May I comment on all the issues that were raised? Our nuclear security will not be affected at all by the decision to leave Euratom, which does not have a role in setting security standards, regulation or inspection of UK civil nuclear security arrangements. As for the wider impact, the UK complies with its obligations and follows international best practice, as I have described with regard to the convention on the physical protection of nuclear material, and on a continuing basis through the membership of the International Atomic Energy Agency. These are not Euratom institutions or constructs, and are not affected by the UK’s decision to leave Euratom. We are separate signatories to the convention, in response to the question raised by the shadow Minister, so we are not affected by the decision to leave Euratom. As the Committee will know, we are very much persuaded of the importance of Euratom, and wish to continue to have the closest possible relationship with it and its members after Brexit.
To respond to the other questions asked by the shadow Minister, the regulations are, as he suggested, part of a continuing process of reform and improvement, and were not introduced in response to any specific emergency or concern. They are in line with safety guidance that has been issued. As for regulation 4, it was not previous practice that no one should be responsible, but it has not been a guaranteed process of responsibility tied to individuals. The regulation cleans up that potential gap—different sites have different practices, and part of the purpose of the regulations is to raise the bar for all of them so that a common security standard is applied in each case. From that point of view, the hon. Gentleman should not, as he suggested, have any concerns. I therefore commend these regulations to the Committee.
Question put and agreed to.
Value Added Taxation
The Committee consisted of the following Members:
Chair: Philip Davies
† Baker, Mr Steve (Wycombe) (Con)
† Barclay, Stephen (Lord Commissioner of Her Majesty's Treasury)
† Blackman, Kirsty (Aberdeen North) (SNP)
† Cartlidge, James (South Suffolk) (Con)
† Dowd, Peter (Bootle) (Lab)
† Ellison, Jane (Financial Secretary to the Treasury)
† Goodman, Helen (Bishop Auckland) (Lab)
† Green, Kate (Stretford and Urmston) (Lab)
† Rees-Mogg, Mr Jacob (North East Somerset) (Con)
† Robinson, Mary (Cheadle) (Con)
† Smith, Nick (Blaenau Gwent) (Lab)
† Williams, Craig (Cardiff North) (Con)
Kenneth Fox, Committee Clerk
† attended the Committee
European Committee B
Tuesday 21 February 2017
[Philip Davies in the Chair]
Value Added Taxation
[Relevant documents: 30th Report of Session 2015-16, HC 342-xxix, Chapter 2; 17th Report of Session 2016-17, HC 71-xv, Chapter 1; 26th Report of Session 2016-17, HC 71-xxiv, Chapter 7; 28th Report of Session 2016-17, HC 71-xxvi, Chapter 11; 30th Report of Session 2016-17, HC 71-xxviii, Chapter 4.]
Before we begin, it may be helpful to remind Members of the procedure in European Committees. The whole proceeding must conclude no later than two and a half hours after we start. First, I shall call a member of the European Scrutiny Committee to make a brief statement about why the Committee decided to refer these documents for debate. Secondly, I shall call the Minister to make a statement, followed by questions for up to an hour, though I have some discretion to extend that if there is an appetite to do so. Thirdly, the Committee will debate the Government motion, and I will put the question on the motion when debate or the time available is exhausted, whichever comes first.
I understand that the hon. Member for North East Somerset would like to make a brief explanatory statement about the decision to bring the documents to the Committee.
It is a great pleasure to serve under your chairmanship, Mr Davies. It may be helpful to the Committee if I take a few minutes to explain the background to this document and why, nearly a year ago, the European Scrutiny Committee recommended it for debate.
The EU has a common system of value added taxation, governed principally by the 2006 VAT directive. The VAT directive, in its present and earlier versions, is meant to be a temporary arrangement, pending member states’ agreement on a permanent and definitive VAT system. The Commission has accepted that the existing system contributes to VAT fraud in cross-border trading.
Following extensive consultations begun in late 2010, the Commission published in April 2016—it works very swiftly—an action plan to establish a
“VAT area that is fit for purpose in the 21st century.”
It sets the direction of travel the Commission envisages for VAT and presents a set of ideas for wider EU debate under four headings: “Recent and ongoing policy initiatives”, “Urgent measures to tackle the VAT gap”—that is the difference between expected revenue and revenue actually collected, a significant part of which results from fraud—“Medium term measure to tackle the VAT gap” and “Towards a modernised rates policy”.
The European Scrutiny Committee has considered the document twice. In April 2016, it said that the document might prove to be the catalyst for the EU finally achieving a definitive VAT system. Accordingly, we recommended that it be debated in this Committee and that Members might wish to explore whether such a VAT system is indeed now in prospect in the foreseeable future; what difficulties for other member states the Government see in agreement on a definitive system; the extent to which the existing regime has contributed to cross-border fraud and the extent to which the proposal might remedy that; and what difficulties there may be for the UK in reaching such an agreement.
When we reconsidered the matter in November 2016, we deplored the Government’s inexcusable failure to schedule this debate in a timely manner. However, we also added further matters that Members might wish to explore in this debate, which include: details of the Council conclusions on the action plan and their implications for the UK; what the prospects are now for implementation of the Commission’s undertaking in relation to zero rating of sanitary products; and to what extent the Government expect there to be continued UK and EU harmonisation of VAT rules post-Brexit. I look forward to hearing contributions on those issues in the debate and to the Minister’s response.
I call the Minister to make an opening statement. I remind colleagues that interventions are not allowed during a statement.
It is a pleasure to serve under your chairmanship, Mr Davies. Good morning, colleagues. I am pleased to be here to discuss the European Commission communication on an action plan on VAT, “Towards a single EU VAT area—Time to decide”, which my hon. Friend the Member for North East Somerset outlined. I apologise that it has taken so long to schedule this debate and, indeed, has spanned two Ministers. We are here now, and we will have a chance to look at these issues and cast our minds ahead to the new challenges, as circumstances are very different from when the debate was first called for.
The action plan on VAT provides an update on progress and identifies the next steps to be taken to improve the system. As we have heard, the Commission’s Green Paper on the future of VAT, published back in December 2010, launched an EU-wide consultation on the future of VAT in the EU. The subsequent White Paper in 2011 set out the Commission’s vision of a simpler, more efficient and robust VAT system that is tailored to the single market. The White Paper was presented to this Committee in an explanatory memorandum in December 2011 and the Committee debated it in 2012. The Commission’s communication, published in April last year, is the continuation of that work.
Like the preceding Green and White Papers, the action plan contains no legislative proposal, but sets out the Commission’s vision for the future of VAT—in the Commission’s words:
“A VAT area that can support a deeper and fairer single market, and help to boost jobs, growth, investment and competitiveness. A VAT area that is fit for purpose in the 21st century.”
The overall approach in the plan is aligned with the UK’s approach of reducing burdens on business and developing a practical and workable system. The plan identifies the areas in which the Commission feels that further reform is necessary and presents a range of ideas for future EU work.
The ideas are grouped under four headings, as has been mentioned. Under the heading, “Recent and ongoing policy initiatives”, the plan highlights the shortcomings of the current EU VAT system in dealing with cross-border e-commerce. It outlines the Commission’s intention to present legislative proposals that would modernise and simplify VAT rules for cross-border e-commerce, and highlights the Commission’s intention to produce a package of legislative proposals this year, with the aim of improving the VAT environment for small and medium-sized enterprises to facilitate growth and encourage cross-border trade.
Under the heading “Urgent measures to tackle the VAT gap”, the plan proposes improvements to co-operation between EU member states and between EU and non-EU countries. It suggests that such changes would improve the efficiency of tax administrations and improve levels of voluntary compliance and co-operation between businesses and tax authorities. The plan also identifies potential measures to improve co-operation between tax administrations and customs law enforcement bodies and to strengthen tax administrations’ capacity in the fight against fraud, which I know has been at the forefront of the Committee’s thinking over the past few years.
The plan then focuses on moving towards a robust single European VAT area. As has been alluded to, the current VAT system is technically a temporary one. As members of the Committee know, when VAT was first established the aim was for goods to be taxed in the country of origin. At that time, however, an origin-based system was not possible for technical and political reasons, so transitional systems were adopted. Various attempts have been made to move towards an origin-based VAT system, but all have been unsuccessful. The Commission’s 2011 White Paper concluded that the origin principle remained unachievable and confirmed that the destination system would instead be pursued. The action plan committed the Commission to produce a legislative proposal for a definitive VAT system based on that principle this year.
The final section of the plan focuses on moving “Towards a modernised rates policy”. Parliament has a particular interest in that and in some of its implications. It highlights the constraints of the existing VAT directive in limiting member states’ freedoms to set VAT rates. Those rules were designed for a VAT system based on the origin principle and were therefore intended to guarantee the neutrality of the system. Given the agreement to pursue a final system based on the destination principle, the plan highlights that there is now an opportunity for member states to be given greater autonomy in setting rates.
The plan outlines two possible options that would give member states that additional flexibility. The first involves extending the current range of reduced rates legally applied in any member state to all member states; the list of goods and services eligible for the reduced rates would then be regularly reviewed. The second involves removing the existing reduced rate list and granting member states much greater rate-setting power.
The Commission has recently produced a number of the proposals that were trailed in the plan. In the context of the digital single market initiative and the May 2016 conclusions on the plan, the Commission published a proposal on e-publications in December last year. That was presented to the European Scrutiny Committee in explanatory memorandum 38344. Helpfully, that proposal has generated some discussion on VAT rates more generally and on the level of flexibility and autonomy that should be enjoyed by member states in setting domestic rates. That is important in the context of the wider rates review trailed in the action plan, which is expected by the end of the year. That is specifically relevant to the UK’s pursuit of the legal changes necessary to allow the introduction of a zero VAT rate on women’s sanitary products. We explored that issue in detail during Report stage of last year’s Finance Bill, and I know that Members across the House feel strongly about it.
As Members will be aware, the Government broadly welcome the action plan, most of which follows the UK approach to reducing the burdens on business and developing a system that is practical and workable, as seen in a number of the changes in the digital single market proposals presented to the European Scrutiny Committee in explanatory memorandums 38341/2/3, and specifically the introduction of a threshold for cross-border supplies of digital services and the “soft landing” easements for small businesses.
Of course, these and any other legislative proposals emerging as a result of the action plan are and will be subject to scrutiny in the normal way. They will also be subject to negotiation, and the unanimous agreement of member states will be required before any legislative changes can be made. As always, the key will be in the details of further work and proposals. The plan provides a basis for member states to explore the future of the EU VAT system and, in particular, a basis for a way forward on key UK priorities on simplification and on VAT rates.
We now have until 9.55 am for questions to the Minister. Although I may allow the shadow Minister some leeway, I remind hon. Members that questions should be brief. Subject to my discretion, it is open to a Member to ask related supplementary questions.
It is a pleasure to serve under your chairmanship, Mr Davies. I thank the hon. Member for North East Somerset for his presentation and the Minister for soldiering on with a cold or virus.
Reference was made to “Time to decide”. I think that was 23 June last year, actually. That is symptomatic, in that many hon. Members are exercised by the fact that the Government are in assent on this matter and for so long have been all at sea—I think mid-channel might be where they are. Of course, the European Scrutiny Committee showed its exasperation on this matter and wagged its finger at the Government for not being able to debate this in due time to tease out many of these very important issues. However, we are where we are.
I think that in the last Committee of this nature that I was at, I raised the fact that we are now, in the light of the referendum, just going through the motions; I think we are all going through the motions. Before the hon. Member for North East Somerset got up and spoke, I thought, rather quaintly, that some Members do not grasp that, but clearly everybody is now beginning to grasp it.
On a more positive note, we have before us a framework in relation to the operation of a VAT system that simplifies things by reducing bureaucracy and so on. No one can disagree with that, but within a couple of years we will not be a member of the EU. We will not be in the single market, I suspect, or in the customs union and all the other institutions, so the debate that we are having, to some degree or another, will all be pretty obsolete. Unless the Government can push this along in the next two years—so pretty sharpish—it is pretty pointless, but of course by that time we will, I assume, have gained complete sovereignty over our tax affairs. We will not be beholden to the Commission—presumably. We will be able to have whatever VAT rate we want—presumably. We will be able to be as flexible as we want with the rates—presumably. Conservative Members, who wear subsidiarity as an amulet, will even be able to get rid of the descriptive name of the tax and call it something other than VAT. I am sure that Members will have their own monikers and acronyms ready: WOT, the “We’re off” tax, or GOT, the get-out tax. I suspect that it will be the legacy of some Conservative Members to get rid of the last vestige of European colonialism. It will be similar to when the Irish painted their red postboxes green.
Anyway, VAT arrangements will still exist. The bottom line is that we need certain assurances that over the next two years there will not be more loss of tax from the VAT regime as a result of aggressive tax avoidance or evasion, especially given that Her Majesty’s Revenue and Customs’ ready reckoner indicates that a 1% change to the standard rate is worth about £5.7 billion. We really have to keep our eye on that. As we move into this transition, we have to keep our eye on that. We have to put markers down in relation to green tax as well. I am talking about commitments not to put too much tax on green issues. We do not want tax hikes by the back door.
On the tampon tax, my hon. Friend the Member for Dewsbury (Paula Sherriff) and many women’s groups have fought hard to abolish the tax, and we need to push on and get an unambiguous commitment from the Government.
Order. We will have a debate after the questions. I was prepared to give the hon. Gentleman some latitude but I ask him to crack on. I do not want him to use up his debate material during the questions. He might want to save it up for the debate.
I have raised the issues of tax avoidance and the green tax. On the optimism about getting the measure through, do we believe that we will be able to introduce it within the next two years? How long is a piece of string in relation to this matter? I hope that we do not have to hold our breath for too long.
I will make a general point and then respond with a bit more detail on fraud. I could not disagree more with the shadow Minister, although I thank him for his kind words on the state of my voice—I apologise to colleagues. It is certainly not the case that the vote to leave the European Union makes the debate “obsolete” and our participation in and engagement with the agenda pointless. For a start, there are UK businesses that have EU subsidiaries that will continue to be affected by the VAT rules within the EU, so it is important that the rules work well and are subject to sensible reform. The UK has always been a good influence for pragmatic reform in all such regards.
The precise arrangements under which we operate outside the EU will be subject, as we all know, to detailed and complex negotiation once article 50 has been triggered, but the EU will remain a major trading partner. We are leaving the EU; we are not leaving Europe. It will be an extremely important commercial relationship. The extent, therefore, to which the direction of travel on EU VAT rules aligns with our own priorities regarding simple and pragmatic regulation that is not burdensome to small businesses is, and will remain, extremely important.
Before we came into the debate, I asked my officials about how we will influence policy once we are outside the EU. The reality is that there are people who are not in the EU now who will influence and have a view about the EU’s VAT proposals. Equally, the OECD does a lot of work in that respect. There is a broad alignment of direction of travel between that organisation and the EU, and to that extent we are an important influence within the OECD. I reject the idea that the debate is obsolete and that our interest ceases once we are outside the EU. It remains the case that we need the rules to function sensibly and in a way that is as unburdensome as possible and addresses fraud, to which I now turn.
No system will be entirely fraud-free, and the concern for the UK and member states more generally about any move to a new system is that any change could introduce a new type of VAT fraud. In all aspects of the tax system, we have to consider where people might look to exploit the gap created by a change. In the UK, the level of VAT fraud attributable to criminal attacks on cross-border trade has fallen from a peak of between £2.5 billion and £3.5 billion in 2005-06 to between £500 million and £1 billion in 2014-15. The Commission has done various studies, and the one from 2013 estimates that such supplies amount to about €184 billion-worth of VAT for the UK alone, in terms of intra-EU supplies. Any change to the VAT rules on intra-EU supplies that would introduce a new type of fraud has, therefore, the potential for huge losses and it is important that we tread carefully. Within any proposal for a definitive VAT system, that will be an area for great scrutiny. We welcome the Commission’s engagement with us and its acceptance that member states will need to work very closely together to explore and evaluate.
I was trying to make a point about the obsolete nature of this debate. Would the Minister agree that there is a big difference between having a debate when a member of the European Union, with access to the single market and so on, and when outside the Union? We have been discussing it for several years; we are moving out and the EU know that, so this debate is to some extent pretty obsolete.
Without rerunning the referendum campaign, those issues were explored. I do not accept the basic premise, for the reasons I have given. Many businesses will continue to trade within the EU and have EU subsidiaries. The EU will remain a hugely significant trading partner and, as with all our trading partnerships around the world, we would look to bring UK influence to bear in a way that would support our own economic goals. There is a mutual benefit in having rules that work for everyone. We will also be a major trading partner for many EU members when we are outside the EU. Those are also important trading relationships. To that extent, there is mutual interest in making sure that we continue to move in a broad direction of travel and that we bring UK influence to bear.
When I was Europe Minister in the Department of Health, my experience was that the UK perspective on regulation, particularly with regard to the burden on business, was always felt to be a pragmatic and valuable contribution. I have no reason to think that that will change afterwards, albeit that relationships are clearly going to be in flux over the coming period of negotiation.
I take the Minister’s point, but the first sentence in the document is:
“This action plan sets out the pathway to the creation of a single EU VAT area.”
That is in the context of the single market. Does the Minister not agree that she is putting her head in the sand in the way that she is continuing to discuss this matter?
I am not sure I can add a great deal more. No, I do not have my head in the sand. I am being practical, as many of us now have to be. As Ministers, many of us are engaged on a day-to-day basis with the practicalities of how we move forward.
To reiterate, when we are outside the EU, it is probably going to remain our most important trading relationship. Therefore, it is vital that we continue to be good EU members while we are in, and that we continue to be engaged, practical and positive once we are out.
On Report of the Finance Bill last year, we included provisions to legislate by this spring or by the time that we had left the EU, whichever was legally possible and feasible. We have continued to engage with the Commission at official and ministerial level quite extensively since that debate. We are not likely to be in a position to move this spring, for the reason I spelled out in my comments, but we have given a commitment. We have the same view on this matter in all parts of the House; we want to deal with this long-standing anomaly. I am sure Members of all parties would also support the fact that we are equally committed to abiding by the rules for as long as we are in the club. We will not, and cannot, act outside the rules—that would be counterproductive to a negotiation in good faith—but we have included legislative provisions to move on this matter as soon as we are legally able. The clock is ticking on it. We are not moving towards a distant and unsighted point—we have a sense of the backstop date.
I have two questions. The Minister said a few moments ago that she looked forward to European Union alignment, after we have left, with our own VAT successor system, but that is surely the wrong way round. We will want to look at the opportunities to align our systems with a very large trading bloc sitting on our doorstep. First, to what degree does the Minister accept that the Government will wish to continue down a route of as much harmonisation as possible post-Brexit between our VAT system and whatever is developed in the European Union?
My second question is a prosaic one on behalf of my constituents who are trying to understand how their travel arrangements and holidays in the European Union might be affected after Brexit. Does the Minister envisage it will be possible to reclaim VAT paid in European Union countries as consumers leave the European Union to return from their holidays to this country?
On the first point, I did not express a specific aspiration about harmonisation. I said there was a clear national interest in continuing to engage with the EU. As I said before, the OECD and the EU are moving broadly in the same direction around VAT systems. There is therefore a wider interest in the UK’s continuing to pursue some of its key objectives around simplification and making the arrangements less burdensome, particularly for smaller businesses. The precise aspects of VAT arrangements are, as with so many things, a matter for the detailed negotiations ahead, once article 50 has been triggered.
It is reasonable to say that we would look to have arrangements in future that allow us to continue to trade easily and successfully with all our major trading partners, of which the EU will be an incredibly important one. It remains the case that it is sensible for us to stay engaged with the debate, but the detail of all of those things once we are outside the EU, including issues around things such as harmonisation, are for the negotiations. We cannot be clear yet, but I assure the Committee that the Government will seek the best deal, obviously. It is clear that, after we have left the EU, VAT will continue to be a major contributor to the Exchequer. In the UK we estimate we will raise £120 billion this year, which is important revenue for the Treasury.
Although the exit from the EU will offer the UK greater flexibility, it is important to manage expectations just a little. Colleagues might be interested to learn that requests for reliefs have already been flooding into the Treasury in anticipation of our leaving the EU—to date, a total of more than £30 billion—so the ready reckoner is already ticking over. Colleagues will have done their mental arithmetic and realised that £30 billion is rather a large proportion of the estimated £120 billion that we hope to raise this year. That is on top of the range of zero and reduced rates that have already been applied, estimated to be slightly less than £45 billion in 2016-17.
The issues around future rates for us outside the EU and all other issues have to be carefully considered, not only in terms of our trading relationship with the EU, but in terms of our domestic policy and economic and budgetary constraints. As with all such things, it is a complicated picture, but we will continue to engage with the debate. It is worth putting on the record that UK officials are not only engaged but making an extremely positive contribution to the wider debates on the technical policy-making areas, and we will continue to do that to good effect.
May I take it from the answer given to the hon. Member for Stretford and Urmston that there is at least the possibility that we will get back duty free when we have left the European Union? It would be a wonderful gift to the British people and would increase their joy when they travel.
It seems unusual for a Government Minister to draw attention to the fact that she did not answer a question, but since I did not answer that question, I made no such speculation or comment. As I have said, all these matters are for the negotiations ahead and a range of different outcomes are possible.
Just a final question from me. The Minister also did not answer the question from the hon. Member for Wycombe about the tampon tax. Although the Government have legislated to get rid of the tampon tax, depending on whether we are in or out of the Union, does the Minister believe that we will be able to implement a zero rate on the tampon tax before we leave the Union? What is the real possibility of that happening?
We have taken the House’s instructions very seriously. There was not just the debate on Report last year, to which I responded; this has been a live debate probably for my adult lifetime, and there have certainly been a lot of debates in the House in recent years, so we have been actively pursuing this issue. I recently detailed in a written answer some of the extensive engagement we have had at ministerial level and through letters at official level.
While we are in the EU, both sides continue to be bound by existing rights and obligations, and EU law allows for a reduced rate of not less than 5% to be applied to those products. We apply the lowest reduced rate, but we cannot apply a zero rate until there is an EU legislative change. We continue to push for it and to engage on the issue very actively, but the EU legislation can be initiated only by the Commission, and to date it has not provided the proposal that it was planning to bring forward before the EU membership referendum. We continue to push for the proposal, and we have tried to find ways of accelerating the prospects of a change, but it is likely that it will feature only as part of the VAT rates review that we anticipate will happen towards the end of this year. We will continue to keep the House updated, and no doubt we will return to the issue in the debates on this year’s Finance Bill.
Irrespective of Brexit, what is the Minister’s assessment of the likelihood that the European Union and its component member states will be able to develop and introduce a modernised VAT system, as the Commission hopes? What difficulties does she envisage for the other member states in reaching agreement on doing so?
As I said, this would be a very major change to the EU VAT system. To give colleagues a sense of perspective, it would affect about €600 billion of member states’ VAT revenue, which is a lot of money. We estimate that between 3.2 million and 3.7 million EU firms are involved in cross-border trade. Although this Committee in particular has expressed a degree of frustration at the speed at which events move, it is right that the Commission, member states and business stakeholders work together and take time to assess the impact. Any change has to strike the right balance, in terms of both preventing fraud and of simplicity and ease of operation. Inevitably, there is sometimes an offset between those two ambitions. We probably feel that the Commission’s medium-term timeline looks a bit optimistic, but we continue to monitor these events very carefully and influence them.
If no more Members wish to ask questions, we now proceed to the debate on the motion.
Motion made, and Question proposed,
That the Committee takes note of European Union Document No. 7687/16, a Commission Communication on an action plan on VAT: Towards a single EU VAT area—Time to decide; and agrees with the Government that it provides a basis for a way forward on key UK priorities on VAT simplification and on VAT rates.—(Jane Ellison.)
I have a few things to add to our debate. First, I want to talk about the Scottish context, particularly on VAT for police and fire. It has previously been said that there cannot be changes to VAT for police and fire because of European regulations, and that there cannot be a change within what is classed as one member state.
In Scotland, our police and fire services are paying £35 million a year in VAT that we believe we should not be paying. We have made that case on a number of occasions, but the UK Government have refused to make changes to the system, despite allowing both the London Legacy Development Corporation and Highways England a derogation in terms of their VAT, which has not been the case for the Scottish police and fire services. If we are leaving the European Union, which it seems we are, will there be changes in that regard?
The other thing to consider is that if we go forward on the basis of what has been provided today—the document that has been put forward by the EU—there is a suggestion that there will be more flexibility for member states regarding what they can and cannot zero-rate. So if we continue with these regulations, would there be a possibility that the UK Government could more easily zero-rate the police and fire services than they have so far been willing to do? That is a specific point about the Scottish context.
I will also mention sanitary products. Again, this document mentions a couple of options for the future, option 1 and option 2, both of which involve changes around some of the derogations; option 2 in particular involves changes of that kind. We have this historical situation whereby the derogations were created when we first joined the European Union and they make little sense in today’s context. Some things that are luxury products—I consider them to be luxury products—currently have a derogation, and there are some things that I would consider essential products, such as sanitary products, that do not. I am not just talking about products for the absorption of blood but those for the absorption of urine or breast milk, which I have pressed the Minister on previously.
Those products should have a zero rate of VAT, because they are necessary. There are strange contextual issues around products used for the absorption of urine, but a number of people have got to pay VAT on them even though they are absolutely necessary products for them. It is really important that the Government consider this issue as we go forward.
I will put both those things in context. I disagree with the hon. Member for Bootle, who said that this debate is almost irrelevant; the opposite is actually true. What we need to do, as current members of the European Union, is ensure that decisions taken around VAT are as favourable as possible for the UK. We need to go into those negotiations and make our position clear, which is why I am taking the time today to speak about those things that I think are really important, so that the Minister is aware, when he goes into those negotiations, that I think they should be key priorities.
The wider context is that we will be outside the EU and we will have less of a seat at that table than we do currently. The Minister has mentioned the seat that we have around the OECD table, but when it comes to the single EU VAT area the likelihood is that it will take some time to create it and that we will lose our seat at the EU table before it actually comes into force. So we need to make our voice heard as clearly as possible right now, so that future regulations are positive for us.
One of the reasons I think this issue is really important is that if Members look at the top of page 8 of the papers we have been given they will see that the second paragraph says:
“better cooperation with international organisations and non-EU countries over VAT should make it possible to extend the EU system of administrative cooperation to non-EU countries, particularly to ensure effective taxation of e-commerce.”
In the context of the article 50 negotiations that we will have, I think that the Commission will say to us, “No, we’re not very keen to discuss some of the ongoing future framework.” However, we are currently a member state. We have not yet triggered article 50 and while the article 50 negotiation period is happening, we have two years as an EU member state. The Commission does not have the ability to exclude us from negotiations about how things will develop in the future. So if the Government and the UK fail to do what I am suggesting, there will be a huge issue regarding how the UK gains access to things such as the single market in the future.
We will not be in a single EU VAT area because we will not be an EU member state. However, the paragraph that I have just read out says that it should be
“possible to extend the EU system of administrative cooperation to non-EU countries, particularly to ensure effective taxation of e-commerce”,
so we will be involved as a third country. Given the way the EU does trade deals, it will look to ensure that there is as much equivalence and commonality as possible in a number of areas. We therefore need to make the case for the industries, sectors and products that we think are important. Ensuring that our voice is as loud as possible in these negotiations will benefit us as a country.
The likelihood is that the EU will look to include some commonality or equivalence in relation to VAT systems in a post-Brexit deal with the UK. The EU is a much bigger entity than the UK, so we need to think carefully about how the EU is currently structured and what it is currently doing to ensure that it is as favourable as possible for us when we become a third country and try to make a trade deal with it.
I have been listening carefully to what the hon. Lady has said, which has been interesting. What consideration has she given to the need to co-operate on issues such as VAT in a world of global e-commerce that necessarily extends to many nations and millions of people outside the European Union?
That is a really interesting point, which highlights how much sovereignty has to be given away when agreeing a trade deal with another country. As the EU is a major player and a major consumer of our services exports—that is particularly relevant for e-commerce—we probably need to concentrate on agreeing a trade deal with it before thinking about deals with other countries. It is likely that the EU will want to talk about VAT when it makes trade deals with other third countries, too, so having a common relationship with the EU will probably be positive for us when we make deals with third countries.
I very much appreciate the chance to talk in this debate and make our priorities clear. If there is more flexibility over VAT and its devolution once the UK leaves the EU, I will call for the entirety of VAT to be devolved to Scotland. We have mentioned that before. Under the Scotland Act 2016, the top share of VAT is devolved to the Scottish Parliament. Although that is nice, it does not give us flexibility over policy levers, so I would call for further devolution in that situation.
I thank hon. Members for their contributions. I particularly thank the hon. Member for Aberdeen North, who spoke for the Scottish National party, for her wide-ranging contribution. I note that she made a bid with regard to police and fire services to add to the Treasury’s £30 billion and counting of VAT bids. We have explored the issue of the VAT incurred as a result of the changed arrangements, so she will be familiar with the point that I am going to make. That issue was in the business case for the changed arrangements. The Scottish Government were warned repeatedly that that would be the result of the way that they restructured emergency services, so it is surprising that the SNP keeps raising the issue as if the change was somehow imposed from the outside. The Scottish Government were alerted at the time. Our position on that remains unchanged, but as I said, I will add it to the list of things for which people want to see relief, along with the others that she mentioned.
I agree with the hon. Lady more—I think we both perhaps disagree slightly with the shadow spokesman for the Labour party—on her point that it remains very much in our interests to continue to engage with this debate. I will not speculate or second-guess the outcome of our Government’s negotiations or where the EU Commission is going on this, but there is a mutual interest in smooth and competitive trading arrangements. European markets account for around half the UK’s overall trade and foreign investments; around 3.5 million jobs. We will therefore continue to engage extremely actively and constructively while we are in the EU. However, it remains the case that even once we are outside it, the EU VAT system is influential. It is in our interests to ensure, to the extent that we can, that it is aligned with OECD and other international work, to take up the point made by my hon. Friend the Member for Wycombe that this debate is wider than the EU.
We will remain engaged and there is mutual benefit, not just because of businesses that have EU subsidiaries. Because of the cross-border nature of trade, there is mutual advantage in making sure that arrangements make sense, both within and without the EU. I reject the counsel of despair from the Opposition Front Bench that there is no point in doing this—there is every point.
I am surprised the Minister has taken that view. It is a complete distortion. We are talking in the context of the document before us. This debate is specifically in relation to the document before us. It has taken years to get to this position. We are only two years from leaving the EU, and the idea that this has to do with post-Brexit negotiations is complete and utter tosh. Does the Minister agree that there is a difference between trying to saddle us, in relation to post-negotiation deals, with this and trying to deal with this specific issue? The two are completely different and the Minister should know that.
The Minister does know that, but the point I am making is that we are obviously in the EU until we are not. It continues to be in our interest to influence debate. I think I have engaged very directly with the shadow Minister’s point. The point I have been trying to make is that this is a broader challenge than just within the EU. The international direction of travel on VAT remains important. The extent to which, for example, better co-operation is enshrined within new systems will provide better information on which we can help to shape policies around supplies across borders.
The OECD is already looking at ways to improve international co-operation, so there is every reason to continue to engage with this agenda. It is nonsense to say that it is irrelevant, even though we will be outside the EU in due course. The extent to which we have a degree of alignment in objectives and that direction of travel between the EU and other major trading blocs, and international trading and economic organisations such as the OECD remains fundamentally important because they have at their heart the desire to find some key principles around which we can all agree that will facilitate trade, less fraud and lower burdens on business across the piece.
I end where I began by saying that this is an important issue on which we will continue to engage while we are in the EU, and continue to influence in a number of different ways once we are outside it.
Question put and agreed to.