Motion made, and Question proposed, That this House do now adjourn.—(Colin Clark.)
It is a pleasure to have secured this Adjournment debate on the exciting topic of accounting systems in cross-border trade. I know the House is racked with anticipation for this debate, as shown by the packed Benches, so I am looking forward to it.
I have to admit that, because of the potential for there being debates on the European Union (Withdrawal Agreement) Bill this week, I thought that cross-border trade would be a hot topic, and that this Adjournment debate would provide an opportunity for colleagues, especially those from Scotland and Northern Ireland, to talk through some of the issues in greater detail. Obviously, events have overtaken us and we are not quite in that situation, so I will continue with the debate but take a slightly different angle. I shall talk about the development of accounting systems, and refer to some of the work by Her Majesty’s Revenue and Customs on Making Tax Digital, and about HMRC’s support for small and medium-sized businesses. I refer Members to my entry in the Register of Members’ Financial Interests.
While on secondment from Marks & Spencer, I had the great fortune to work for the Prince’s Trust’s Accounting for Sustainability project, which is dedicated to using accountants to try to help to solve social and environmental issues. Indeed, His Royal Highness Prince Charles believes that accountants are the key to saving the world: by changing the data that is used in day-to-day business and in organisations, they can help to steer better decision making—
I hope it is whisky; we will be here for a while.
Accountants can help us with some of our biggest social and environmental challenges. In the current context, with Brexit on the horizon, I thought this debate would be useful, and later in my speech I shall come to the issues relating to trade between Northern Ireland and Great Britain.
Let me give a little background on accounting systems—the non-accountants in the room can tune in now, because this is the exciting bit. Accounting has come a long way since it was established centuries ago: we had the evolution of double-entry bookkeeping from the original ledgers; we then had some base computing in the 19th century, and then more into the 20th century; and we now have the far more advanced accounting systems that we use today. During my previous life, before I entered the House, I was lucky enough to use a range of different systems, on which I shall touch in just a minute.
One of the Government’s greatest advances in the area of using accounting systems to help on the domestic front was the Making Tax Digital scheme. Unfortunately, like many others, I was greatly upset by the fact that the Government had to defer some of their plans to make tax digital because of the advent of Brexit and the consumption of Government time by Brexit preparations. Making tax digital and using accounting systems, whether for small or large businesses, is important because it makes us more efficient and more productive, and it can lead to better decision making for companies right across the United Kingdom. That is vital.
Whether someone is a single trader in Portsmouth, working for the global manager in Edinburgh, or working for a large multinational in London, accounting systems can really give them the transparency of data that they need. They are also environmentally friendly, because as accounting systems develop, we are able to move away from paper receipts and invoices and towards electronic records, which makes interactions between individual companies, customers and suppliers far easier, more efficient and more effective. As a result, the real benefit will be for the entire country, because not only will companies grow, but it will contribute to our productivity and thus our GDP.
Another important point is that as companies are developing, intangibles and intangible assets are becoming more and more important in their valuation. In fact, just a few years ago it was recognised that around 80% of the value of the S&P 500 is in intangible assets rather than tangible assets. That is why the development of accounting systems is so important: we need to be able not only to capture the value of our physical assets, and use the traditional accounting fair-value methods to make sure that those assets are held at the right value, but to look at new methods of valuing intangibles, because the intangibles of brands and, to a certain extent, intellectual property, along with other new technological advancements, mean that it is increasingly the case that less and less of companies’ value is being captured on our stock exchanges, and that obviously has an impact on the prices that are traded and the returns that can be made by companies and customers throughout the country.
As I said earlier, a number of systems have come into the accounting sphere that can help smaller businesses to improve and be more effective. One of them is Xero and another is QuickBooks, and there is also Oracle for large companies. I should say, for the sake of fairness, that plenty of other accounting systems are available. The point of these systems is to make sure that, from the base transaction and from the base-level accounts receivable and accounts payable systems, right the way up to the highest-level strategic decision making, managers and users of the information have the correct information —the one source of truth—and that there is consistency in the data right the way through the organisation. That is for the benefit not just of the actual company, but of HMRC and our Government. The better the records we receive, the more accurate the accounts are and the more accurately we can calculate the tax take for those companies as well. Obviously, it is always a good thing that not only should taxes be low, but companies and individuals pay the taxes that they do indeed owe.
In the current context, as we move between accounting systems, I would like to apply some of this to the discussions that we have been having on Northern Ireland. The reason why I take this leap—some might see it that way—is that many of the accounting systems that are imported now are connected to HMRC to help companies and individuals file their tax returns. They are also connected to HMRC for the purpose of VAT filing. As we know with Northern Ireland, VAT and customs have been a key issue in the new withdrawal agreement, and I will explore that a little bit more—hopefully with help from my colleague from Northern Ireland.
I thank the hon. Gentleman for bringing this matter forward. It is a very important initiative. It is just a pity that it is coming at this time, given where we are. Does he understand that these systems, which create a digital border in Northern Ireland and, indeed, in the Republic of Ireland, have been in place since the peace walls came down? That is a fair while ago. Such an approach is, and can be, both sensible and prudent for the region and could be something that happens elsewhere.
I thank my hon. Friend for his intervention. He is quite right. There is a number of those accounting systems, but there is also a number of other systems and structures in place in Northern Ireland. I have to be honest about this. Although I have engaged with some of his colleagues on this over the past two years, many Members in this House and the broader public are still ignorant of the matter. It would, I think, be to the benefit of the House if some of these issues were explored in greater detail and in greater depth, so that Members can make more educated decisions, especially when we are working on such controversial issues as withdrawal from the EU, and as we start mapping out our future trading relationship with Europe. As he will recognise, this will also be important when we have new free trade agreements with other countries around the world—whether they are the rollover agreements that are coming across from the EU or, indeed, new trade agreements such as those with the United States of America. I will touch on that matter in just a moment.
I thank my good friend for allowing me to intervene on him. Let me follow up on the point from the hon. Member for Strangford (Jim Shannon). Presumably, this digital accounting system will not just be routed into HMRC for tax purposes, but could quite easily be pushed sideways to the Border Force. What we are actually talking about is minimising the paperwork for crossing a border, and that is terribly important.
My hon. Friend is almost making me skip over certain parts of my speech, so I appreciate his intervention. He is quite right. One of the key systems that is currently used is the VAT information exchange system. Under the current withdrawal agreement proposals, it will still be open to Northern Ireland. At the moment, I am not sure whether it will be open to other parts of the United Kingdom, but I recommend that it should be. Through that system, companies and member states are able to co-ordinate VAT returns. It also enables the simplification of those VAT returns between different member states. There have been concerns about the system, certainly in the area of fraud, especially when parts are moving between different areas of member states, but the system is still a good one and will be open to Northern Ireland. That is one of the very good things that is contained within the withdrawal agreement as it stands at the moment.
I did have one question on the issue of VAT. Although VIES will be available to Northern Ireland, as I have said, will it be available to the rest of the UK? Furthermore, one point that I would like someone to explain—it may not be the Financial Secretary to the Treasury today, but certainly I hope that it comes out in further debates—is related to the terms found in the withdrawal agreement when it talks about Northern Ireland being outside EU law in relation to VAT, but also about EU VAT law being applicable in Northern Ireland. Greater transparency in the details around this issue and also in the details around the application of the customs code would help a great deal for debates in this House, which inevitably will take place when, hopefully, we return here in December.
Therefore, as I have said, there are a number of systems available. What is even better is that private business and enterprise are catching up with some of these systems and complementing them. As I mentioned earlier, the evolution of accounting systems that are used by some of these smaller companies and larger companies can then obviously work with systems such as VIES, which means that Government, customers and suppliers can all work together to make sure that there is more efficient and effective record keeping, better tax collection and— hopefully—better revenues and profits for all those involved. As I said, I would love to get some more clarification either from the Treasury Minister himself or from a Brexit Minister in the near future.
This is not just an issue for the United Kingdom and the EU. I had the great fortune to work in China and the United States before I came to this place, and was able to see some of their tax collection and accounting systems in progress. China is an enormous country of over 1 billion people, but a significant amount of accounting records are still kept in paper format—this was back in 2008, so some of the new software was not available then—and everything is signed off by an original chop. For those who do not know, that is a traditional stamp. A record, fapiao or receipt needs a traditional ink chop to be recognised for accounting purposes; multiply that by over 1 billion people, and it becomes more of an issue.
Motion lapsed (Standing Order No. 9(3)).
Motion made, and Question proposed, That this House do now adjourn.—(Colin Clark.)
As a result, I found that we were not able to get the level of transparency and speed of information when we were working right across China—certainly in a multinational company with lots of subsidiaries—as quickly as one would hope in the 21st century, although I know that China is leading the way in many technological advances.
Some of these walls and barriers can also be seen in the United States of America. As many people will know, the United States of America is a federal system. Therefore, companies operating in America often have to file individual city, state and federal tax returns. The US does not have VAT. It has sales tax, which varies as between different parts of the country. This puts an additional burden on individual businesses and increases their costs. It benefits accountants and lawyers, but does not necessarily benefit the revenues and profits of companies. If a company is based in New York, it will have a New York tax return as well as a federal one, and if it has operations in different parts of the United States, it may indeed have to submit sales tax and other taxes in those other states, and then aggregate it all together. That means extra costs and extra burdens.
I hope that the Minister will be able to reassure me that no matter how far we go with devolution in our country, we do not turn to the more federal system whereby we erect more transactional barriers between different parts of the United Kingdom. I do not think businesses, consumers or suppliers want that. We need to ensure that we use accounting systems to make the flow of trade easier, rather than erecting more walls and bureaucracy.
Accounting systems are also incredibly important for cross-border trade because the more open and secure they can be, and the more internationally verifiable they are, the higher levels of trust there will be between customers, suppliers and Governments all around the world. If a Government are entering a new trade agreement with a different country—or indeed the customers and suppliers of that country are engaging in new trade after a new free trade agreement has been signed—having the accounting systems installed and developed means that they have a common way of working. That means that deals can be struck more quickly and sales can be far more profitable.
Let me turn to my ask of the Government. The Conservative and Unionist party has always been the party of business. Brexit has obviously taken an enormous amount of Government time. When Parliament is returned—and I hope that I and my hon. Friends on these Benches will also be returned, as well as the hon. Member for Strangford (Jim Shannon)—I hope that we will start putting more Government time and effort into progressing systems such as Making Tax Digital, and providing training and incentive programmes to small and large companies so that they invest in their systems. That will mean that they will have more efficient and effective trade, and can make the most of the great trade deals that the Minister is looking to implement when we return to this place and leave the EU.
Better accounting systems would also be great for UK consumer rights, because they provide a greater level of transparency, detail and trust. As I am sure the House will appreciate, in the 21st century trust is an enormous issue for consumers in the United Kingdom and around the world. The greater levels of transparency that companies can provide about their products and ways of operating—whether with regard to tangible assets, intangible assets, sales receipts or the taxes they are paying—the greater the faith that consumers will have in them. I can see my hon. Friend the Member for Stirling (Stephen Kerr) smiling at me. He will have received, as I have, many emails from people complaining about multinationals such as Amazon not paying the right amount of tax. I know that they use efficient accounting systems and I am sure that the Government are working with them to try to make sure that when tax is owed it is paid. Accounting systems can provide that level of transparency to give customers faith that where sales are made, the right level of taxes are paid as well. That is the case both for large and small businesses.
I have to say that this is the most passionate speech on accountancy I have ever heard. I am slightly amused by, or in awe of, the idea that accountancy can save the world. To underline my hon. Friend’s point, technology removes operational burdens from business and boosts productivity. Is he going to come on to, or will he comment on, the barriers that are stopping more companies taking up the benefits that he is articulating so very clearly?
My hon. Friend makes a very good point. The Minister will be well versed in some of the reports and debates on Making Tax Digital. A lot of these barriers were articulated at that time. One key area will be costs. Sometimes the cost of pieces of accounting software is very low, perhaps a couple of hundred pounds or so, but for a small company it is still an additional cost. The other obstacle that customers and companies will face is knowledge of the accounting software. Even in a large multinational business, many of the executives on the board, and many of the managers, have no knowledge of their accounting system. They are only focused on simple outputs and do not necessarily know what is underneath the bonnet. With modern cars, as we all know, that often leads to more costly and more complicated servicing when the time comes. That is great news for finance directors but not such great news for operational directors.
I thank my hon. Friend for that intervention—I think. As my record will show, I am very much in favour of more international co-operation, and I hope that we will be doing that when we come back.
Accounting systems can really help with cross-border trade, from small companies to large multinationals. As I hope I have laid out in this short speech, they have been used in places such as Northern Ireland, and they can be discussed in some of our debates when, hopefully, we return to this place. It will be useful for the Government to use some of these systems as they negotiate new trade with other countries all around the world. The Government are very fond of saying that they want a global Britain and that our exit from the EU will allow us to expand over new horizons. I therefore hope that after this speech and the debate that follows, the Minister realises that it may well be accountants who have the key to that global Britain.
I congratulate my hon. Friend the Member for Ochil and South Perthshire (Luke Graham) on securing the debate. We came to a bit of a joint decision that it should happen around the time of the withdrawal agreement, because much of the debate on that has been about how borders will operate post Brexit. The hon. Member for Strangford (Jim Shannon) obviously has concerns, as do I, about the differences between trade happening between GB and NI, between NI and GB, and across the Republic border. I think we all want those things to be as seamless as possible.
As my hon. Friend the Member for Ochil and South Perthshire said, we are not in the old world of wet stamps and guys with kepi caps on borders checking paperwork; we are very much in a new world where digital information is in place to make things work. I have had concerns—I refer to my entry in the Register of Members’ Financial Interests—about the push towards making tax digital, particularly for smaller traders, for which I can see very little use for it. However, bigger companies have naturally migrated away from the old systems of Kalamazoo and paper-based things of years of old—you have to be a very old accountant to remember those—to entirely digital systems. VAT returns now have to be sent completely digitally, with details of all the transactions underlying them.
Therein lies the solution to many of the problems raised. My hon. Friend the Member for Ochil and South Perthshire mentioned the VIES system, which is already live in Northern Ireland. There is also the CHIEF—customs handling of import and export freight—system and economic operators registration. We are in a new world, but for people to say that intra-EU trade is somehow seamless and completely frictionless is simply not true.
What does my hon. Friend say to people like me who are gravely concerned about the degree of complexity in these accounting systems, which makes any kind of audit trail really difficult? The big four audit companies have such a poor record in auditing these accounting systems. What does he say to people like me who are sceptical about how to drive transparency, which was mentioned by my hon. Friend the Member for Ochil and South Perthshire?
I would go against that. I think my hon. Friend will find that the digital trail is more likely to be there than the old paper trail. It is rather like my hon. Friend’s tweet from 10 years ago: it is still there, and it will be with him for a lifetime. This gives us an opportunity to have greater audit accountability. I take his point about the big four auditors, but we are talking about volumes of transactions that are mind-blowing, and to ask an auditor—I declare an interest: I am an auditor, and I still hold registration—to be responsible for every jot of every transaction lacks an understanding of what the audit process is all about.
I will return to the point I was making, because I know that the Minister will want to speak for some time. I was talking about the fact that things are not completely frictionless today. If I sell, as a VAT-registered entity in the UK, to another VAT-registered entity, it is not frictionless. That transaction has to be recorded on both sides, and it will find its way through Making Tax Digital on to a VAT return, so the trail is there. If I sell to an EU company, a level of complication comes into play, because I have to obtain an EU registration number, and I can then zero-rate that transaction. On the other side, they have to do a reverse charge to recreate that VAT for themselves and claim it back. It is a burdensome system, whichever way we look at it. Whether or not a business is partially exempt, at the end of the day, the transaction looks the same, but it is not frictionless; it is far from it.
A big trader with transactions of more than £250,000 going out to the EU and more than £1.5 million coming in enters the ambit of the Intrastat system, which is quite burdensome. A business has to classify each and every commodity that it is selling abroad, according to an Intrastat classification nomenclature. If one were to look on the UK Trade Info website, they would find that there are literally thousands of lines of code. One really must ask whether this is bureaucracy gone mad. I was looking at the website as I was listening to the very worthwhile speech by my hon. Friend the Member for Ochil and South Perthshire. There is a different code for frozen lamb carcases and half carcases from frozen meat of lamb. One wonders why we have such a complex system.
This is all done electronically, and it comes down to trust. When we buy something in a shop, there is not a man from HMRC at the counter making sure that the transaction finds its way on to a VAT return, just as not every single transaction across EU borders is checked. But those records and proof of a good being transferred have to be maintained for six years. Again, this is not a frictionless system.
The issue of trust is very relevant to the Republic-Northern Ireland border. There are massive excise duties across that border. There are different currencies and a different VAT rate. Corporation tax is different, and income tax is different. There are a vast number of different things going on. I always give the example of the Jameson lorry that trundles from the Republic across the border into the north and perhaps then over to GB, and the Bushmills lorry going from Northern Ireland across the border to the south. There is no physical border infrastructure, yet there are hundreds of thousands of pounds of potential differences in the excisable duties. These lorries are never stopped, however, because there is trust, and that is the route to solving this problem.
Many people will say they have concerns about VAT losses across the border. There are such concerns, but again, this is based on trust. I consider that the amount of excise losses even today, during our membership of the European Union, must be of very great interest to the Financial Secretary to the Treasury. Let us just consider the cigarette trade, in which cigarettes come across the border from Poland at £2.50 a packet versus a UK cigarette price of about £10 or more, yet we accept those losses because individuals are allowed to bring in as many of these products as they please. That obviously feeds into a black market, and I can assure the Financial Secretary that those are just the cigarette trade excise losses. We have chosen as a country—for good or evil, but that is a debate for another day—that such evil products should have a very high rate of excise in the UK for health reasons, and we find that a good percentage of cigarettes for sale in the UK come in from other EU countries.
I am very pleased that my hon. Friend the Member for Ochil and South Perthshire mentioned that the US has a federal system. The US is often held up as the land of the free, as it is called, but I do not think that holds very true of Uncle Sam. The level of bureaucracy in running a business in the US is infinitely higher than in running one in the UK. I was quite intrigued to learn that if an individual in California decides to buy goods on eBay or whatever site they please from a low-tax state such as Dakota, they have to do a personal return for a transaction above a certain size monthly or quarterly, and actually return the equivalent of the sales tax—VAT, in other words—that the Californian authorities have lost because they have taken their trade outside California. These things are solvable.
I really wish the hon. Member for Strangford (Jim Shannon) was still in his place, because I understand the Northern Ireland concerns. As with anything in the profession of accounting or of running a business, when there is change, everybody puts their hands up in the air and says, “We’ll never get to grips with this. I’m retiring. I’m giving up. It’s all too complicated.” That applies to the real-time information for PAYE that we imposed some years ago—there were the same concerns—or auto-enrolment for pensions, but we get on with it.
My hon. Friend is making a very strong point about taxation returns and the problems in Northern Ireland. Does he agree with me that some of the simplest solutions can be the best? Some of the best tax regimes are in places such as Hong Kong where there are flat taxes, which are simple and elegant. He talked about some of the complications in the US, which has a tax code that runs to some 75,000 pages, so it is said, whereas the UK’s had about 17,000 pages in 2015.
That is a topic for a wider debate, which I have often considered. The UK tax code does not have 17,000 pages; it has been rather well expanded to 22,000 pages. When we compare that with the tax code of Hong Kong, which runs to 350 pages, we can see the difference. When I was a councillor on Medway Council, we had a document on the localisation of council tax that ran to 370 pages. I wondered how on earth the entire tax code of a very successful and vibrant economy such as Hong Kong could run to 350 pages, yet Medway Council, which I served on, managed to get a 370 page document just to consider the localisation of council tax.
I know the Minister will want me to conclude, Madam Deputy Speaker, and I do not want to take up any more of his time, but the fact is that these things can be solved through the trust that exists today and the digital returns that exist today, including internationally. The concerns that our friends in the Democratic Unionist party have about a future trading bureaucracy are real, but once this is in operation, they will fade away, and people will get used to the new system within a very short time. I thank my hon. Friend the Member for Ochil and South Perthshire for bringing forward this debate, and I look forward to hearing from the Minister.
I feel almost embarrassed to be intervening on the promising discussion between my hon. Friends the Members for Ochil and South Perthshire (Luke Graham) and for South Thanet (Craig Mackinlay); it is almost as though one would be intruding by saying anything from the Treasury Bench, given the degree of conversation that was going on. I thank them both for a most engrossing and expert discussion.
When I was thinking about this debate, I did a little research into the background of my hon. Friend the Member for Ochil and South Perthshire and discovered that part of his life had been spent not merely as an accountant at Tesco and Marks and Spencer, where he started to develop the considerable personal knowledge he has demonstrated, but involved an outfit called Tough Mudder. I do not know whether you have come across Tough Mudder, Madam Deputy Speaker. It is an organisation that specialises in ultra-long obstacle courses of 8 to 10 miles, or possibly longer. It holds some rather interesting events. I bring your attention to the “arctic enema” in which participants plunge into a dumpster filled with ice water, dunk themselves underneath the plank that crosses the dumpster and then pull themselves out on the other side. There is also “electroshock therapy” in which live wires hang over a field of mud that participants must traverse. Above all—this is especially important in the context of the House of Commons—there is “Everest” in which participants run up a quarter pipe slicked with mud and grease; just the thing to ascend the ladder of career opportunity in Government and Parliament. It does not surprise me at all that my hon. Friend should have acquired those important skills; he is demonstrating them so brilliantly in his parliamentary career.
It is also quite interesting how my hon. Friend has deployed precisely those Tough Mudder tactics so successfully today in calling for an Adjournment debate on cross-border trade and accounting systems and then taking us into the highways and byways of the tax code. I call that classic bait-and-switch of the kind that the founders of Tough Mudder would be delighted with.
Let me mention a few of the things we have touched on before coming to the main thrust of the topic. My hon. Friend is absolutely right to highlight Making Tax Digital for VAT, not merely as a success for HMRC—although it has had some delay, it is clearly proving to be that in relation to VAT—but because of its wider effects. More than 1.25 million businesses are signed up to Making Tax Digital for business, and very nearly 1.75 million VAT returns have been successfully submitted through the service. Some 81% of all businesses mandated from April are now signed up to it. That is a tremendous achievement, and it fully bears out the point made by my hon. Friend the Member for South Thanet. When the British people are presented with a challenge, particularly on taxation, they rise to it and overcome it. That is an important and valuable characteristic, and it is one we rely on.
There are also wider benefits, and they are becoming quite evident. There are potentially quite significant productivity benefits—we are still measuring them in HMRC. The benefits are starting to become sufficiently well known within the smaller business community to result in many signing up for Making Tax Digital VAT voluntarily; they are not captured by its mandate because they are not above the threshold. That is an important aspect of the wider picture of improving productivity and audit and accountability that goes with these developed processes.
My hon. Friend the Member for Ochil and South Perthshire also rightly mentioned the concerns and opportunities created by new methods of managing and valuing intangibles. That is always of great interest to Revenue and Customs, as he might imagine. He talks about the importance of transactional barriers and the need to avoid them; of course, I agree. He rightly focused on extracting an appropriate level of tax from the very largest companies and platforms—he and I have written about this in other contexts. It is important to level the playing field, with platforms using their power for good rather than yielding to the temptation to exploit insider information and one-to-many power to create an unlevel playing field. In part, that is exactly what our digital services tax is designed to do.
My hon. Friend the Member for South Thanet quite rightly mentions cigarette excise losses. If it is of any reassurance to him, I personally have sat with the HMRC fraud team tracking of some of these gangs in real time. I can tell him that it is an enormously impressive operation and one that yields great benefits to the Revenue and to this country’s Exchequer.
Turning to the issue at hand, let me say a few things about the very important question that my hon. Friend the Member for Ochil and South Perthshire asked about cross-border change and the role that accounting systems can play in that. He will be aware that the Government are committed to an efficient and effective customs system that minimises administrative burdens on people who trade. He will also know that HMRC has invested some £34 million to fund training for individual businesses and—this is the key point—to develop and grow the customs intermediary sector so that it embeds greater expertise and institutional capacity to sustain our customs over the longer term. Indeed, I spoke at the launch of the UK Customs Academy, funded by HMRC, only last month.
It is also important, as my hon. Friend has stressed, to make customs processes as simple as possible. The current declaration system, known as CHIEF, as my hon. Friend the Member for South Thanet mentioned, is being replaced with a new customs declaration service that is much more modern, much more flexible and able to anticipate vastly larger volumes of trade, and much easier and quicker for traders to use. The digital and streamlined processes committed to in the 2018 Budget are already coming into play and the specific commitment to halve the time it takes to receive authorised economic operator status is a further exemplification of that.
Let me come, slightly more widely, to the question of VAT. My hon. Friend the Member for Ochil and South Perthshire is right to ask whether VAT systems can be used to facilitate cross-border trade. This is an issue that officials within HMRC have explored in relation to HMRC’s own VAT regime and whether that can be deployed to facilitate customs processes. The House should be clear that there are specific challenges arising from that. The first has to do with the monitoring of goods, and the UK is under an obligation to demonstrate its control over goods imported and exported from this country. The Government need to be able to monitor the movement of goods in real time, but the trouble is the current VAT system, which is of course typically run on a quarterly returns basis and does not meet the real-time requirement, as VAT is accountable after the movement of goods.
The second challenge is a related one and bears on assurance. It is an underlying principle of the World Trade Organisation and the World Customs Organisation that tariffs should exist as a trade policy tool and must be applied in a fair and reasonable way. Real-time controls are a way of satisfying authorities that the correct tariff has been applied and collected on goods and, of course, it is important not to lose the credibility that border controls confer when they are deployed on the UK as a trading partner. That would potentially be put at risk by this suggestion.
Real-time controls of course also help to ensure that goods that do not comply with regulatory standards or that pose a security risk—of course there are such goods—do not enter this country. Without some customs processes, it would be difficult to identify and check goods that pose a risk to this country. It could be a phytosanitary risk, one from hazardous materials or, of course, one from weapons and other things of that nature.
The final challenge I would identify is that we are under an obligation to show that we have applied trade policy in a fair and uniform manner, and customs controls allow us to differentiate countries that have free trade agreements from those that are subject to most favoured nation status. Of course, any future customs facilitation for UK-EU trade will be a matter for negotiation once we have left the EU. Both we and the EU envisage putting in place ambitious customs arrangements to make use of all the available facilitative arrangements and technologies that we can.
Let me reassure you, Madam Deputy Speaker, and colleagues across the Chamber that we are preparing for that negotiation and will work with Parliament, the devolved Administrations and others to ensure a successful outcome in the interests of all parts of the United Kingdom.