Finance Bill (Ninth sitting)
The Committee consisted of the following Members:
Chairs: † Siobhain McDonagh, Andrew Rosindell
† Badenoch, Kemi (Exchequer Secretary to the Treasury)
† Baldwin, Harriett (West Worcestershire) (Con)
† Browne, Anthony (South Cambridgeshire) (Con)
† Buchan, Felicity (Kensington) (Con)
† Cates, Miriam (Penistone and Stocksbridge) (Con)
† Flynn, Stephen (Aberdeen South) (SNP)
† Jones, Andrew (Harrogate and Knaresborough) (Con)
† Millar, Robin (Aberconwy) (Con)
† Norman, Jesse (Financial Secretary to the Treasury)
† Oppong-Asare, Abena (Erith and Thamesmead) (Lab)
† Phillipson, Bridget (Houghton and Sunderland South) (Lab)
† Ribeiro-Addy, Bell (Streatham) (Lab)
† Rutley, David (Lord Commissioner of Her Majesty's Treasury)
† Smith, Jeff (Manchester, Withington) (Lab)
† Streeting, Wes (Ilford North) (Lab)
† Thewliss, Alison (Glasgow Central) (SNP)
† Williams, Craig (Montgomeryshire) (Con)
Chris Stanton, Kenneth Fox, Johanna Sallberg, Committee Clerks
† attended the Committee
Public Bill Committee
Thursday 18 June 2020
[Siobhain McDonagh in the Chair]
Tax relief for scheme payments etc
Question proposed, That the clause stand part of the Bill.
With this it will be convenient to discuss schedule 14.
It is a delight to see you in the Chair, Ms McDonagh. Welcome to day six of our deliberations—or is it day five? It feels like many more. At the start of the Committee, I said that we were like pilgrims in “The Pilgrim’s Progress”, and that hopefully we would get through the slough of despond. I venture to say that we have made it over the hill of difficulty, but perhaps not quite reached Calvary or the place of deliverance.
Clause 99 and schedule 14 exempt payments made under the Windrush compensation scheme and the troubles permanent disablement payment scheme from income tax, capital gains tax and inheritance tax. The Government deeply regret what happened to many members of the Windrush generation. The Windrush compensation scheme was launched in April 2019 and is a key part of the Government’s righting those wrongs. It compensates individuals who have suffered loss by being unable to demonstrate their lawful status in the United Kingdom. The compensation covers a number of areas, including loss of income, denial of access to social security benefits and incorrect detention. Similarly, the troubles permanent disablement payment scheme makes payments in acknowledgment that, during the troubles, many individuals suffered permanent injury through no fault of their own. It also aims to address the adverse financial impact that troubles-related disablement can have on individuals and families.
Payments made under schemes such as these are often made entirely free of income tax without the need for legislation, but there are circumstances where income tax may apply. Payments could be taxable if they were made to reinstate taxable social security benefits or in respect of a terminated employment. All types of payments could be subject to inheritance tax or capital gains tax if they exceed the relevant thresholds. Clause 99 and schedule 14 will ensure that payments made under the Windrush compensation scheme and the troubles permanent disablement payment scheme are exempt from income tax, capital gains tax and inheritance tax.
The changes reaffirm the Government’s commitment to the Windrush generation and to those who suffered as a result of the troubles, and give certainty about compensation to claimants. The clause also introduces a new power to allow the Government to extend the definition of “qualifying payment” to other compensation schemes, allowing the Government to act more quickly to clarify the tax treatment of any necessary future compensation schemes, including those set up by foreign Governments. As we have seen, payments from such schemes can begin before it is possible to pass legislation in a Finance Act to exempt them from those taxes. Exempting such payments from tax in the past has not been controversial, and I hope it will not be so today and in the future.
The clause provides tax exemptions and gives clarity to those eligible for payments under the Windrush compensation scheme and the troubles permanent disablement payment scheme. I therefore commend the clause and the schedule to the Committee.
It is a pleasure to be here for what is likely to be our final day of line-by-line scrutiny of the Bill. It is important to remember that the reason why we are discussing clause 99 is in no small part, as the Minister alluded to, due to the Windrush compensation scheme, which is the culmination and inevitable consequence of the appalling circumstances of the aggressive and deeply destructive hostile environment pursued by the Government over the course of the past 10 years. As Wendy Williams said in her review, the Windrush scandal, which saw so many people’s lives completely disrupted, and in many cases ruined, was the result of “foreseeable and avoidable” systematic operational failings, so it is right that the Windrush compensation scheme was established. The House has considered those issues many times.
It is a source of deep regret, to put it mildly, that fewer than one in 20 people who have made claims under the Windrush compensation scheme have been paid so far. I want to take the opportunity, as we are discussing clause 99, to restate again our view that the Government must act much more quickly. People are owed that compensation, although the financial compensation will never fully compensate for the emotional and mental trauma that British citizens suffered as a result of the Windrush scandal.
It is appalling that we have added insult to injury by moving so slowly on compensation claims, even where they have been made. Of course, as the Minister outlined, the clause improves conditions for people accessing such schemes, whether the Windrush compensation scheme or the troubles permanent disablement payment scheme, so we have no objection to the clause.
It is regrettable that so many people are still waiting for their money through the Windrush compensation scheme. I urge the Minister to do everything he can to make sure that the money gets out the door.
It is useful that the clause allows for future schemes so that there will, hopefully, be fewer delays and less confusion for people in future about the impact of those schemes. We want to make sure that, where wrongs have been done, people can get the money that they are entitled to in compensation as swiftly as possible.
I thank both hon. Members for their comments. To pick up on the last point, the hon. Lady is absolutely right about the value of building in capacity to respond more quickly in future. It is noticeable that the Chartered Institute of Taxation, which is well respected across the Committee, commented that,
“This is a sensible move from the government to help… It is also encouraging to see that the bill…will make it easier in the future for payments…to be made tax-free, without the need for fresh legislation.”
That very much remakes the point she made, and I thank her for that.
On the point about the numbers paid out, I completely understand the concern and I know that other Ministers do as well. There is a balance between due process and speed. Of course, the compensation claims have to be agreed on both sides—the offers have to be accepted—for them to be payable. It is important that the hon. Members have put their concerns on the record, and I fully share them.
Question put and agreed to.
Clause 99 accordingly ordered to stand part of the Bill.
Schedule 14 agreed to.
HMRC: exercise of officer functions
Question proposed, That the clause stand part of the Bill.
Clause 100 is a technical measure that makes changes to put it beyond doubt that tasks that are being done by an individual officer of Her Majesty’s Revenue and Customs may be carried out by HMRC using a computer or other means. It ensures that the intention of Parliament is appropriately reflected in the legislation and confirms that the rules work as they have been widely understood and applied over many years. No new charges or obligations for taxpayers will result. The changes merely clarify legislation.
If I may explain the context for the introduction of the clause, the Government announced by written ministerial statement on 31 October 2019 that it would legislate retrospectively and prospectively to confirm notices to file tax returns and penalty notices issued by HMRC through automated processes as valid. That long-standing practice has been challenged in the courts on the basis that the legislation states that some tasks are to be carried out by
“an officer of the Board.”
The relevant legislation in the Taxes Management Act 1970 is 50 years old and was designed to support a paper-based manual tax system.
The way in which HMRC administers the tax system has evolved over time, in line with taxpayers’ expectations for a modern and digital system. Decisions made by HMRC officers are often given effect by computer-driven processes, so that HMRC can assess and collect taxes in the most efficient and cost-effective way.
As he expatiates on the value of digital technology to tax collection, will my right hon. Friend share with the Committee his thoughts on making tax digital and how the recent opportunity to make furlough payments has shown the value of a digital tax system?
My hon. Friend makes an acute comment. The response to covid has undoubtedly highlighted the need for greater investment in digitisation within the tax system, and specifically put a greater emphasis on the ability to reach taxpayers quickly to respond to a national emergency and to improve resilience.
As my hon. Friend will be aware, we are introducing making tax digital for VAT, but it is widely thought that there is a case for taking it further. We have it under close consideration. As her question highlights, taxpayers—and people more generally—expect nothing less than to have a tax system that is digital, effective and integrated, and not one where the lack of digitisation can be exploited for the purposes of legal suit.
To avoid any doubt, the clause clarifies the legal basis for the existing policy, which has been in place for many years, allowing for the use of automated processes. It puts beyond doubt that the law operates in the way Parliament intend it to and as it has been widely understood to work to date. It does not introduce new or additional obligations, and will help to ensure the tax system applies fairly to all, while preventing loopholes opening up in tax law that could be exploited by people who do not wish to pay their proper share of taxes.
The changes made by the clause will clarify that tasks being done by an individual officer of HMRC may be carried out by HMRC using a computer or other means. The legislation is treated as always having been in force. The effect of that is to protect over £100 billion in tax revenue, already collected. Failure to legislate would result in enormous disruption and uncertainty for taxpayers and HMRC alike. For these reasons, I commend the clause to the Committee.
The Government have brought forward clause 100 for obvious reasons. As we have heard from the Minister, it is patently absurd that we would be in position where HMRC was dragged through legal processes simply because section 8 notices were issued used automated processes, for example.
There is obviously a good case to be made for applying ever-changing technology to improve the efficiency of processes within HMRC’s systems, to try to improve the customer experience of HMRC customers, which, as we know as constituency MPs, can sometimes be very good and sometimes be absolutely abysmal. Where HMRC can automate processes to free up people time, the focus should be on redeploying those people to try to give people and the state overall a better service. There is nothing to quibble about there.
It is important to lay down a cautionary note about how automated processes and algorithms are used, particularly when it comes to decision making that can have substantial impact on citizens, organisations and businesses. Writing in Tax Journal, Catherine Robins and Steven Porter of Pinsent Masons were critical of the Government’s announcements, arguing that:
“Some of HMRC’s powers can have very serious consequences for taxpayers and the fact that a human being has to decide to exercise them is an important safeguard, which should not be eroded.”
I share their concern, up to a point. I think it is important that there are safeguards, checks and balances and, ultimately, opportunities for people to appeal to human judgment, to account for technical error and to appeal technical error. As the capacity and scope of technological change continues to widen, it is even more important that Ministers and civil servants think very carefully about the application of technology and whether it is indeed right and proper for a decision to be made by an automated process rather than a human being.
Those are much bigger, wider principled and ethical considerations. For the reasons that the Minister has outlined, clause 100 is a perfectly reasonable and sensible provision, and it is one that we are happy to support.
I want to raise some of the concerns expressed to us by the Institute for Fiscal Studies’ Tax Law Review Committee, which sent an extensive note earlier in the week. It is looking for ministerial reassurance that the powers will not be used without proper consultation and discussion of safeguards to replace the discretionary decisions, especially about penalties, currently made by human officers. It is the discretionary point that I am most worried about. We must not get to a situation where computer says no and that is the end of the story, because sometimes it can be quite difficult for businesses to get the decision pulled back and unpicked, and reconsidered.
I will highlight the case of uploading real-time information, because businesses in my constituency had serious issues with the technology for uploading RTI prior to coronavirus and now find themselves unable to claim under the job retention scheme, for example. That has been an issue with technology, and it has been very difficult to resolve it. Meanwhile, those businesses are on the brink, on the point of going bust, with employees whom they are struggling to pay. That is because in an emergency it is difficult to unwind a technical, computer-based decision, made months ago.
I ask for reassurance about the automating of discretionary decisions. What safeguards will be put in place to ensure sure that no businesses find themselves in a situation where they cannot unpick a decision made by a computer, and to ensure that they will be able to speak to a human who has discretion and is able to exercise it effectively?
Again, I thank Opposition colleagues. Let me pick up a couple of the points raised. The hon. Member for Glasgow Central asks for safeguards, and of course she makes a very important wider point. In a rule of law society we want as little discretion as possible to be exercised—and, in particular, personal discretion—so it is important that within HMRC there is baked in a culture of accountability for decisions. From that point of view, nothing is changing. This measure is ratifying an existing set of arrangements by putting them on a legal basis. However, I can reassure her that the issue of safeguards and the balance of powers between HMRC and taxpayers is taken very seriously, and I have specifically commissioned work within HMRC to ensure that that balance is appropriately maintained, not just at customer level but more generally.
The hon. Lady and the hon. Member for Ilford North raised the question of decision making more generally. I think I have, in a way, spoken to that, but I recognise that there is a distinction between the automated exercise of a decision and the capacity to make a decision itself. Of course, HMRC does increasingly rely on computerised systems, and it is absolutely right for our purposes as a nation that it should do so. It is, for example, inconceivable that we could have responded to coronavirus with either the self-employed scheme or the furlough scheme without heavy reliance on computing. It is to HMRC’s enormous credit that it was able to commission and bring into effect a platform and an approach to those schemes in a matter of weeks, using that computing expertise. I also agree with the hon. Gentleman when he points out that there are benefits not merely in terms of customer service, but in freeing up people and, we hope, improving the quality of work by taking HMRC staff away from the more routine operations and more towards higher quality work that can give more professional satisfaction.
Question put and agreed to.
Clause 100 accordingly ordered to stand part of the Bill.
Returns relating to LLP not carrying on business etc with view to profit
Question proposed, That the clause stand part of the Bill.
Again, this is a technical measure. Clause 101 makes changes to put beyond doubt that where an LLP is found not to trade for profit, HMRC can continue to amend LLP members’ tax returns using income tax rules as it has always done, in the same way that it does for general partnerships. It ensures that, as with the previous clause, the intention of Parliament is appropriately reflected in the legislation, and it confirms that the rules work in the way they are widely understood to work, and as they have been applied since they were introduced in 2001. To ensure that this is plainly and unequivocally understood, the measure is introduced with prospective and retrospective effect back to that date—2001—with the result that the changes simply clarify and support the legislation and continue to meet taxpayers’ expectations. Again, they do not result in any new charges or obligations for taxpayers.
By way of context, limited liability partnerships are a legitimate means of structuring business activity. They are used successfully by the vast majority of partnerships: for example, by many large law and accountancy firms that operate for profit. Since the LLP rules were introduced in 2001, HMRC has always treated LLPs and their members’ tax returns under income tax rules on the same basis as any other partnership. That is widely understood and accepted by the vast majority of taxpayers, but it has been challenged in the courts on the basis that where an LLP is found not to trade for profit in line with its partnership tax return, the law does not support its treatment under income tax rules. The upper tax tribunal recently confirmed that HMRC’s long-held tax treatment of LLPs is correct. This decision overturned an earlier decision of the first-tier tribunal that had judged it incorrect. However, as the matter is still in litigation, putting the matter beyond doubt in legislation will provide certainty for LLP taxpayers.
Such legal challenges come from a small minority who are intent on avoiding paying their tax and looking for technical loopholes to do so. They seek to use limited liability partnerships to create losses and to share and then offset them unfairly against their members’ personal income in their own tax returns. That is not fair either to the Exchequer or to the vast majority of honest limited liability partnerships. The Government are legislating to prevent such practice.
The measure introduces three conditions that clarify the position and apply where an LLP delivers a partnership return; where the basis of that return is trading with a view to profit; and where it is found that the LLP was not trading with a view to profit. This clarifies the legal basis relating to LLPs that submit partnership returns where they are subsequently found not to be trading for profit, allowing HMRC to amend LLP members’ tax returns in such circumstances, as it has always done, to remove any unfair tax advantage. The clarification does not introduce any new or additional obligations or liabilities for taxpayers and it prevents loopholes from opening up in tax law that could be exploited in future by those seeking to avoid paying their fair share.
The changes made by the clause clarify the treatment of LLP partnership returns where the LLP is found to be operating without a view to profit. It permits HMRC to amend such returns using income tax rules, as it has always done. The legislation is introduced with retrospective effect, treating it as always having been in force. This is necessary in order to maintain the status quo, provide certainty for taxpayers, and protect about £2 billion of tax revenue that has already been collected. It also ensures that people seeking to avoid tax do not secure unfair and advantageous treatment due to the exploitation of perceived loopholes in legislation.
The policy is not new and nothing will change for taxpayers. No new or additional liabilities will be created and HMRC’s policy and processes will continue to operate in the way that they have for many years. It provides clarity for taxpayers and ensures that there is a fair and level playing field for all. I therefore commend the clause to the Committee.
Limited liability partnerships are a legitimate way of structuring business activity that is used successfully by the vast majority of LLPs that operate for profit. There is no doubt about any of that, but as we heard from the Minister this morning, there have been too many examples of LLPs being used for the purposes of minimising people’s tax liabilities, effectively to avoid tax. Of course, Opposition Members take a very dim view of that.
Clause 101 seems to be a sensible provision, intended to help HMRC to close down tax-avoiding structures that use LLPs to generate and spread losses that the partners use to offset against their other personal income. Let the message go out that people ought to act within not just the letter but the spirit of the law, and if they cannot find in themselves the moral scruples to do that, this House will have no hesitation whatsoever in changing the letter of the law to make sure that people do the right thing and pay their fair share.
The hon. Gentleman has made the point extremely well, and with his support I hope the Committee will agree to the clause.
Question put and agreed to.
Clause 101 accordingly ordered to stand part of the Bill.
Preparing for a new tax in respect of certain plastic packaging
Question proposed, That the clause stand part of the Bill.
Clause 102 ensures that Her Majesty’s Revenue and Customs can make preparations to introduce a new tax in respect of certain plastic packaging. The new tax will apply to plastic packaging that is manufactured in or imported into the UK and that contains less than 30% recycled plastic.
Plastic waste is a very serious global issue. Often, it does not decompose. Indeed, it can last for centuries in landfill, or it ends up littering the streets or polluting the natural environment. More than 2.2 million tonnes of plastic packaging are produced in the UK each year. The vast majority is made from new plastic, rather than recycled material, because recycled plastic is often more expensive to use than new plastic.
To tackle this problem, the Conservative manifesto reaffirmed the commitment to introduce, from April 2022, a world-leading new tax on the manufacture and import of plastic packaging that does not contain at least 30% recycled plastic. The tax will provide a clear economic incentive for businesses to use recycled material in the production of plastic packaging, which will create greater demand for this material, and in turn stimulate increased levels of recycling and collection of plastic waste, diverting it away from landfill or incineration.
This follows an initial announcement of the tax at Budget 2018 and consultation on the high-level design in 2019. In its response to the consultation framework, the Chartered Institute of Taxation welcomed the Government’s measured approach to the implementation of the tax. Many respondents agreed with the initial proposals on the tax design, although there were areas where some respondents disagreed.
The Government took this feedback into consideration, announcing in response that we would extend the scope of the tax to include imported filled plastic packaging that contains less than 30% recycled plastic, given concerns about the impact on UK competitiveness without that adjustment. The Government are currently holding a further consultation on the detailed design and implementation of this tax, to ensure that it works as intended and so that businesses have time to prepare for it.
Clause 102 is a technical provision to ensure that HMRC can make preparations for the introduction of the new tax, such as incurring expenditure on the development of an IT system. Alongside this, HMRC is developing the detailed legislation to introduce the tax. We expect that this will be published in draft for technical consultation later this year, before being implemented in a future finance Bill.
In conclusion, the clause forms the first part of the legislation needed to introduce the plastic packaging tax. I therefore commend it to the Committee.
For very obvious reasons, it is quite right to move ahead and use the tax system to incentivise good behaviour, to reduce our reliance on plastics, particularly products using new plastics, and to improve the take-up and use of recycled plastics.
That is why this proposal received such widespread support in response to the Government’s consultation, and I recognise and welcome the fact that the Government responded favourably when the majority of respondents made representations about wanting the tax to be extended to imported filled plastic packaging.
In his remarks, the Minister addressed some of the questions I had about the timetable for introducing draft legislation, and when we can expect it to be implemented. Next year’s finance Bill feels a long way away, and, because of the events we are living through, finance legislation and a finance Bill might be introduced sooner. On the basis of the merits of this policy and the impact it is likely to have on the use of plastics in our country—we certainly hope it will have such an impact—we would support the Government if they were presented with the opportunity to move further and faster. I urge the Minister to consider doing so.
I thank the hon. Gentleman for his comments. As he will know, the introduction of any new text requires great care and attention, which is why, as he rightly highlighted, we have taken such a deliberate approach to consultation. However, I thank him for his support and note his suggestion. With that, I commend clause 102 to the Committee.
Question put and agreed to.
Clause 102 accordingly ordered to stand part of the Bill.
Limits on local loans
Question proposed, That the clause stand part of the Bill.
This is another small, technical measure. Clause 103 makes changes to ensure that Public Works Loan Board lending is available to local authorities in order to support worthy capital endeavours that benefit their residents. There is a statutory limit on the total amount that may be lent to local government through the PWLB, a limit that is governed by section 4 of the National Loans Act 1968. That Act allows for two future levels of that limit to be specified in advance through primary legislation and activated through secondary legislation.
The legislation would be exercised through HM Treasury. A date to exercise these powers has not been, and would not usually be, set in advance. The Treasury considers this clause to be a high priority because of the central role the PWLB plays in the capital finance system, supporting local authorities to deliver public services and, still more urgently, supporting communities through the pandemic as the need may arise.
The changes made by clause 103 will amend the predetermined legislated figures in the 1968 Act. The limit is currently £95 billion, and the clause resets the two future amounts to £115 billion and £135 billion. Clause 103 thus ensures the continuity of PWLB lending, which is a key stream of funding for local authorities across the country.
That is a very helpful question. I cannot update the Committee at the moment, because, as my hon. Friend will know, that is a matter for consideration within the Treasury. However, she has usefully put the issue on the record, and I thank her for doing so.
Clause 103 gives me an opportunity to speak to some of the challenges facing local authorities and the role that the Public Works Loan Board can play. I also want to knock on the head some of the assertions that have been made about local government finances and the sensible use of borrowing by local authorities across the country to invest in local infrastructure and works that benefit their residents. I speak not just as my party’s shadow Treasury spokesperson, but as a former deputy leader of the London Borough of Redbridge and a current vice-president of the Local Government Association.
Local authorities have done a remarkable job managing their finances sensibly and effectively during a very difficult decade. Not only was the public sector broadly hit by cuts, but local authorities felt the brunt because those cuts were both deep and front-loaded. The local authority response to those challenges over the course of the past decade has, to be frank, been remarkable. The same can be said for the ingenuity of many local authorities in making sensible and wise investments that not only improve the lives of their residents but generate income that can then be ploughed back into frontline services and mitigate the impact of central Government cuts. I think I speak for people right across the Local Government Association, regardless of their party, in saying that, as well as devolving power without resources, the Government have too often devolved blame. I hope that Ministers will consider that. I will address the issue this afternoon, when debate the new clauses.
There have been some rather unhelpful and misleading headlines about local authorities borrowing to invest in local projects. Of course, as with central Government, we will always be able to point to decisions that, though made with the best of intentions, do not work and incur a liability for the public purse. If public funds are not used widely, it is absolutely right that there should be scrutiny, lessons learned and accountability. It is fair to say, however, that in the vast majority of cases where local authorities have drawn on the Public Works Loan Board, their approach has been sensible, effective and well deployed. It is important that the facility continues to be made available to local authorities in the same way.
When Ministers consider not just this Bill but impending decisions by the Treasury, I urge them to recognise the awful impact of covid-19 on local authorities. In responding to the Secretary of State’s plea to do whatever it takes to get their communities through the crisis, not only have their costs risen; their income has also fallen significantly. I urge Ministers to think carefully about the demands they place on local authorities, particularly in terms of loan repayments during this period, and to consider whether more could be done.
I have had a look at the figures. Scottish local authorities are due to repay £793 million of PWLB interest and principal debt over the financial year 2020-21. Given the extreme challenges facing local authorities, does the hon. Gentleman agree that it would be sensible if the Treasury considered mitigating those debt repayments?
I am grateful to the hon. Gentleman for his intervention. The Government have to look very carefully at the liabilities facing local authorities and how they are having to balance them against other demands and challenges. As I have said, in addition to creating cost pressures, the pandemic has had an impact on local authority income, too. In that respect, local authorities really are all in this together, whether they are Labour, Conservative or SNP. There are challenges for local authorities right across the United Kingdom. As we will discuss when we come to the new clauses, some communities have been affected more than others. None the less, the challenges are universal.
I hope that Ministers will take that on board and that they will listen very carefully to the representations from the Local Government Association, which is cross-party but Conservative controlled. We will do our best to remedy that in next May’s local elections. I hope that the representations Ministers receive from Conservative LGA leaders—and not just Opposition party representatives —will help them understand the challenges that local authorities are facing, particularly as they have been unable to collect around £1 billion in combined business rates and council tax income during the crisis so far.
I also impress upon Ministers the importance of Government keeping their word to local government. When local authorities were asked to do whatever it takes—and whatever it took—to get communities through the covid-19 pandemic, they took the Secretary of State for Housing, Communities and Local Government at his word and they delivered. Now, they expect to be reimbursed, as was promised. The Government have given some additional funding to local authorities, but it is a drop in the ocean when compared with the cost pressures they face and the fall in income.
With that, I am content to support the clause, and I hope that the wider points that it has enabled me to make have been heard and well understood by the Treasury, and not just the Ministry of Housing, Communities and Local Government.
I will just move the clause, if I may.
Question put and agreed to.
Clause 103 accordingly ordered to stand part of the Bill.
Clauses 104 and 105 ordered to stand part of the Bill.
New Clause 1
Workers’ services provided through intermediaries
“Schedule (Workers’ services provided through intermediaries) makes provision about workers’ services provided through intermediaries.”—(Jesse Norman.)
This new clause introduces the new Schedule inserted by NS1.
Brought up, and read the First time.
With this it will be convenient to discuss Government new schedule 1—Workers’ services provided through intermediaries.
The new clause and new schedule 1 make changes to ensure that the off-payroll working reform is extended to medium and large-sized organisations in all sectors outside the public sector from April 2021.
The reform moves the responsibility for determining whether the off-payroll working rules apply from an individual’s personal service company to the client engaging them. It also requires the client, or the party paying the individual’s personal service company to account for and deduct employment taxes where they are due, rather than that responsibility resting with the individual’s personal service company. The change is not the imposition of a new tax, but is focussed on improving compliance with the already existing off-payroll working rules.
The off-payroll working rules have been in place for nearly two decades. They are designed to ensure that individuals who work like employees but through their own personal service company pay broadly the same income tax and national insurance contributions as those who are directly employed. Without those rules, nothing prevents individuals from being engaged off-payroll simply to reduce the tax and national insurance contributions rightfully due.
Personal service companies have traditionally had to self-assess whether the rules apply. Unfortunately, non-compliance with the off-payroll working rules outside the public sector is widespread. The public sector reform has demonstrated that organisations engaging individuals are better placed to assess the employment status for tax of that individual.
There have been several attempts to tackle non-compliance with the rules in recent years. In November 2015, the Government carried out a consultation on how to improve the effectiveness of the off-payroll working rules. Since then, the Government have carried out three further consultations on reforming the rules. During this period, several alternatives to the original off-payroll working rules were suggested. The Government fully considered alternative proposals as part of the extensive consultation process on the reform.
In general, the approaches suggested would create a group of people who are exempt from the employment status tests and subject to a separate and advantageous tax regime, which the Government did not consider to be fair to the majority of working individuals who are subject to the existing boundary between employment and self-employment. Options such as administrative changes and strengthening HMRC’s compliance response were also discussed, but the consultation found that those would not be sufficient to tackle the problem.
The off-payroll working rules were reformed in the public sector in April 2017, shifting the responsibility for determining whether the off-payroll working rules apply from an individual’s personal service company to the public sector client engaging them. That was because organisations are better equipped to make the correct employment status for tax assessments than are individual contractors, and HMRC is better able to monitor their compliance. This reform is effective in reducing non-compliance with rules: it raised an estimated £250 million in additional revenue in the first 12 months, with independent research showing that it did not damage the flexibility of the labour market.
Following the successful implementation of the reform in the public sector, the Government announced at Budget 2018 that it would address the unfairness elsewhere in the labour market by extending the reform to the private and voluntary sectors from April 2020. In developing these latest changes, the Government have listened carefully to feedback from the implementation of the public sector reform and held many sessions with stakeholders since then to improve the design of the reform for all sectors.
Non-compliance with the rules outside the public sector remains widespread and is forecast to cost the Exchequer more than £1.3 billion a year by 2023-24 if not addressed. This is not sustainable. It denies the taxpayer revenue for important public services and perpetuates an unfairness between individuals who may work in the same way but pay different levels of tax. It also results in a disparity of tax treatment between the public sector and other sectors.
The changes made by new clause 1 and new schedule 1 would move the responsibility for determining whether the off-payroll working rules apply from an individual’s personal service company to medium and large-sized organisations across all sectors that receive the individual’s services. This change will not apply to engagements with the 1.5 million smallest businesses. It is important to note that this change is not an imposition of a new tax, but focused on improving compliance with off-payroll working rules that already exist.
The new clause and new schedule were originally published in draft in July 2019. HMRC took a number of steps ahead of the scheduled introduction in April 2020 to ensure organisations were ready for the reform. In November 2019, HMRC launched an enhanced version of the check employment status for tax––CEST––tool. HMRC worked with more than 300 stakeholders to make the tool clearer, reduce user error and consider more detailed information. HMRC also set up dedicated teams providing education and support to all organisations affected, including one-to-one support for 2,000 of the UK’s biggest employers and direct communications to around 40,000 medium-sized businesses. This was supported by workshops, guidance, online learning and roundtables to help those organisations make the right decisions.
The Government also conducted a review of the implementation of the reform, which was published in February 2020, and announced that HMRC would take a supportive approach to compliance in the first year of the reform, with penalties being applied only in cases of deliberate non-compliance. The new clause and new schedule are being introduced at this stage via a Government amendment with a new commencement date of 6 April 2021. That follows the announcement of a delay to the introduction of the reform on 17 March 2020, as part of the Government’s covid-19 economic response package. This ensures that businesses and contractors will not have to implement and adjust to the reform until next year. HMRC will continue to provide a comprehensive package of education and support in the run-up to the new implementation date, building on the extensive preparations made in anticipation of the original implementation date that I have already outlined.
The Government very much value the important role that contractors play in the labour market and want businesses to be able to design their workforces, and work with those workforces, in a way that makes sense for them. This reform does not change that.
I am winding up, so perhaps I could let the hon. Lady introduce her point in her speech.
When their engagement meets the tests of an employment relationship, contractors should not pay less tax than those who are directly employed. I therefore move that new clause 1 and new schedule 1 stand part of the Bill.
Our position on IR35 has been well rehearsed in previous and recent debates on the Floor of the House, but let me revisit some of those points, because this debate is closely followed outside Parliament and matters to people across the country. Self-employment is a vital part of the UK economy. People who are genuinely self-employed deserve to be properly supported while also ensuring that everyone pays the right amount of tax. Historically, the tax arrangements for self-employed people have differed from those for people on payroll, reflecting the fact that self-employed people have lower levels of protection in areas such as holiday pay, sick pay and other rights and benefits that people would enjoy if they were employed on payroll. Clearly the system has also been subject to abuse, and it is right that we tackle that abuse.
Some of the anxiety arises from concerns that the Treasury, and the Government more broadly, sometimes have a tendency to think of the self-employed as if they fell into only two categories of people. The first is the very wealthy, who use self-employment status to avoid paying their fair share of tax, which should obviously be clamped down on. The second is the very low paid, who work in parts of the economy that are deemed unproductive—even to the extent that some people would think it desirable that such workers were not engaged in those forms of employment, as if that were the best way to tackle the UK’s poor productivity statistics. The true picture of self-employment in the country is a lot more complicated than that, and huge numbers of self-employed people make an enormous contribution to the economy and who provide a whole range of services that benefit citizens across the country and businesses more generally.
It is right that the Government have taken the decision to delay the implementation of the roll-out until April 2021 due to coronavirus. The Opposition would again impress on the Government the need to use the additional time ahead of implementation to provide an additional review and to learn from the mistakes of the public sector roll-out and the continuing anxieties about the planned private sector roll-out. Those concerns were expressed in the House of Lords report entitled, “Off-payroll working: treating people fairly”, which concluded that the Government must address IR35’s inherent flaws and unfairness, a point that was supported by the ICAEW.
The Opposition urge the Government to use this time wisely. We believe it is necessary for the Government to take a broader approach in order to modernise the law on employment status and to look at how it interrelates with tax status, so that we have a genuinely joined-up approach that brings together the issues of tax and employment law. Notwithstanding the planned roll-out of IR35, the Chancellor made it very clear, when he announced the self-employment income support scheme, that there will be consequences for future Treasury policy and future tax arrangements for Britain’s self-employed. That message was heard loud and clear by the self-employed, but if we are asking them to pay a greater contribution, we also have to address the inherent challenge and, in many cases, the injustice around their employment protections and the levels of social protection and social insurance that people enjoy if they are employed, as opposed to self-employed.
As the shadow Chancellor has said, having addressed this issue many times both in her current role and in her previous role:
“We really need a joined-up approach to the issues that brings together the consideration of tax and employment law and levels up protections for the self-employed, as well as dealing with the current implications of the tax system that boost bogus self-employment.”—[Official Report, 4 April 2019; Vol. 657, c. 489WH.]
She made those remarks back in April 2019; it is now June 2020. I am not sure that, in the year that has passed since she made those comments, the situation has changed particularly and that things have improved. The delayed roll-out is something that has been widely welcomed, but it is crucial that the Government use this time wisely. It is not clear from the year that has just passed that the Government will use the next year any better.
Before I get into the substantive detail of this issue, I want to touch on the process and where we find ourselves at this moment in time with the new clause that has been tabled by the Minister. It is simply not acceptable that such a contentious tax matter was first introduced through a 45-minute money resolution debate in the House, instead of being subject to the full scrutiny of the Budget process.
The money resolution debate took place after the Finance Bill was published, meaning that the Government were able to introduce the detailed IR35 tax law as a Finance Bill amendment. The result of what can only be described as a procedural whizz is that Opposition parties cannot do what they were elected to do and amend the proposals as the Bill goes through its line-by-line scrutiny. Frankly, that is not good enough. I certainly thought better—perhaps wrongly—of the Government in that regard. Of course, that entire process missed out those MPs who have been disenfranchised from taking part in the House as a result of the Government’s shocking processes in recent weeks.
On the substantive issue at the heart of this, let us be clear that IR35 is creating a new group of zero-hours employees paying full taxation but without receiving the associated employment rights. What is just and fair about that? Speaking as a Member with a constituency that is dominated by the oil and gas sector, I have been inundated—inundated—with correspondence from contractors outraged by the decisions that the Government are seeking to take, particularly so given that we are in the middle of a global pandemic. I hope that the huge concern that I and others have about the long and, frankly, short-term sustainability of the oil and gas sector, and the impact that that has on employees, has not escaped the Government’s notice. To then add a further layer of complexity into their employment status is simply unforgivable.
In the north-east of Scotland, we are witnessing job losses hand over fist. Barely a day goes by when companies are not shedding staff. That is applicable to most sectors at the moment, be it hospitality, tourism or aviation, but it is very rare for a sector of such scale to be so dominant in one city, as is the case in Aberdeen. What the Government are seeking to do in relation to IR35 is a slap in the face to those workers who are having to deal with the most difficult of challenges.
Not only are the Government hitting those contractors—many of whom went down that path in good faith—with IR35, but they are failing to deliver any sectoral support to the oil and gas industry. Not a single penny of sector-specific support has been provided by the UK Government for the oil and gas sector, irrespective of the fact that the Treasury has lined its pockets with North sea oil and gas revenue for decades. It is time to give back, not time to double down on the damage, so I urge the Government to reconsider what they are putting forward.
My hon. Friend makes an excellent point about contractors in the north-east of Scotland. In my constituency of Glasgow Central, it is IT contractors, many of whom came to live in Glasgow from India. They work in the IT sector and have found that their contracts have not been renewed with companies that they have been working for, and they are now really struggling to find employment, causing them a huge deal of uncertainty at this time, particularly with the coronavirus crisis.
I welcome the intervention from my hon. Friend, which goes to the nub of the issue that we are discussing. The Government’s policy is, frankly, to turn their back on those people who need support at this time.
If the Minister is not willing to take my word for that, perhaps they will listen to the salient words of one of their own. The hon. Member for West Aberdeenshire and Kincardine (Andrew Bowie) said late last year in a letter to the then Chancellor:
If the proposed changes—making every medium and large sector private business responsible for setting the tax status of any contractor they use—were to come into effect, I would worry for the industry”—
the oil and gas industry—
“and its ability to attract the highly skilled workers they need. It is also predicted that changes could see a worker’s income reduced by up to 25 per cent. Many of these workers are my constituents.”
Many of those workers are also my constituents, and it is simply not good enough. I am glad that there is cross-party support in north-east Scotland for opposing what the Government are seeking to do, and I sincerely hope that that cross-party ethos will be found in this room today, before the Government do more damage.
I just want to pick up on one final point. I think the Minister said in his opening remarks that he listened carefully—that the Government have listened carefully. They have not listened to the House of Lords—I do not say that with any joy, being a member of the Scottish National party—which has been clear that they need to pause this policy and go back to the drawing board. I urge them to do just that.
The issue of off-payroll working has attracted much attention in the House and beyond. Clearly, there are some problems to solve, but they are not easy problems to solve.
In some cases, the issue is straightforward. People work for one employer for prolonged periods up to several years and they really are employees, because they do similar jobs to colleagues and use company equipment, but they do so on different terms. It may be that they are better paid in terms of headline salary than their immediate work neighbours, but the situation is more complex, because they are not paid for holidays or potential pension contributions and so on.
Some workers may have been put under pressure to become self-employed by less scrupulous employers who have sought to save money on things such as NI payments. I have read of cases—I am sure we all have—where the imbalance of power that can exist between an employer and an employee has seen pressure on people to choose a particular route. That is not satisfactory for those employees or taxpayers generally as revenue for public services is missed.
While some may have been pressured into becoming self-employed, vast legions in our economy have chosen the self-employed route because they enjoy the challenge of that type of work or they want to be more in control of their own destiny, which being your own boss can achieve, or many other personal reasons.
That is to be really encouraged, because the flexibility that self-employed workers, often on contracts, provide has been a great boost to our economy. It is one of the ingredients that has contributed to the recent economic progress that we have enjoyed. Being swift of foot in response to commercial opportunities gives a competitive advantage. It has allowed companies to bring in extra resource where they need to boost operational capacity. It has allowed extra skills to be brought into a company when needed. Many people I have met or corresponded with in my Harrogate and Knaresborough constituency have highlighted to me that they have built careers adding real value to their clients.
There are some sectors where the use of contractors is more prevalent than others. We have just been hearing about the oil and gas sector, but that includes IT and technology more broadly, as well as marketing and the creative industries, sectors where the UK is strong, and where I worked before coming into this place. This is about bringing skills and capacity into a company when needed but when there is not enough work for long-term permanent employment. There is also the issue of the growing sector of interim managers.
I see a balance to be struck here in the way the issue is taken forward by Ministers between protecting some employees and recognising that the vast majority have chosen self-employment and are providing real value. We need to balance employment rights and protections between the employed and self-employed, while ensuring that the rules do not have a sclerotic effect on our economy. Flexible, nimble companies responding to customers, adding value, creating wealth and grabbing opportunities is how economies grow and jobs are created. Ensuring that is preserved is critical to the operation of these rules. That is something the Minister must consider as he takes this forward.
I refer hon. Members to my entry in the register of Members’ interests. This is clearly a contentious issue, but the majority of employers and contractors I have spoken to agree that some kind of reform is necessary.
Our tax system must be fair, but it should also support those who take risks to grow businesses and innovate in a way that benefits our whole economy. It should not offer advantages to those who are using PSCs to create wealth only for themselves. I am certainly not saying that it is wrong to create personal wealth, just that our tax system should not offer particular advantages in doing so and tax should not be avoided as a result. We must balance flexibility with fairness and it is not fair that two people doing the same job in broadly the same conditions pay different rates of tax. We must recognise that those who are genuine contractors do not have the same benefits as employees—they do not have the same job security—but where someone is to all intents and purposes an employee, they and their employer should pay their fair share of tax and national insurance.
I have personal experience of running a small business in the tech sector and I believe that current practices discourage people from becoming employees in some sectors. For example, in the tech industry, people with certain programming skills can command such high day rates as contractors that there is very little incentive to become an employee in a small company. That is a particular issue in a sector where there is a shortage of talent and a great demand for skills.
While there is and always will be a role for contractors, contracting costs can be prohibitively high for start-ups and scale-ups, and those businesses find it difficult to recruit employees with the right skills. Start-ups and scale-ups need employees—people who are committed to the company, who can help shape its culture and, importantly, who can pass on their knowledge and skills to new employees as the company grows. Labour market flexibility has to work for employers and employees. At the moment, the very businesses that we most need to grow and innovate are struggling to recruit skilled employees, especially in areas outside London and the south-east, such as Sheffield and Barnsley, which I represent.
I believe that the reforms will make employment and the benefit that it brings more attractive. As I said, we should be using the tax system to support those who create wealth not only for themselves, but for our whole economy. In that way, any tax saving to an individual or company is an investment for the taxpayer, not just lost revenue. A great example of that is the research and development tax reliefs, which I am delighted have been increased in the Bill and will encourage the kind of innovation that the UK really needs to boost growth and productivity. They are incentives that help to create wealth for us all.
In contrast, using a personal service company to reduce an individual’s tax burden does not benefit the taxpayer. The individual’s income tax and national insurance savings are not used to create other jobs or to invest in technology or create products, and so the taxpayer does not receive any return on the lost revenue. Where a worker is genuinely self-employed, facing additional risks, with none of the benefits of employment, there should be no change, but where someone is to all intents and purposes an employee, improving compliance should make sure the taxpayer does not lose out.
I understand that any changes bring risks and uncertainty and I am pleased that the changes to IR35 have been delayed for a year to give our economy some chance to stabilise after covid-19, but fairness should be the foundation of our tax system and properly applied, the regulations will help to achieve that aim.
I will respond to the many important points raised by hon. Members, who I thank for raising them.
My hon. Friend the Member for Penistone and Stocksbridge is absolutely right to highlight the importance of making employment attractive. It is vital that best practice be spread throughout the economy as rapidly as possible and if the effect of that is to create a more level playing field between two sides of a particular divide, that would be a very valuable thing. The Government’s concern is that there is an unfairness in that someone can be, as it were, latently employed, although working for a personal service company, and that is the concern that the Government seek to address.
My hon. Friend the Member for Harrogate and Knaresborough is absolutely right to emphasise the importance of having a flexible and nimble economy. He is right, and the hon. Member for Ilford North is right, to focus on the effect of the self-employment and self-employed contractors in making this happen. For reasons I will come on to, this reform does not tax the self-employed. It does not tax anyone. What it does is to change the determination for people who are not self-employed but who are in fact employed, and to determine whether they are or not.
The hon. Member for Aberdeen South made a series of comments that I am afraid are simply not true. He was very rude about the Government’s decision to introduce this via a separate resolution, but the details of the change were announced as part of the Budget resolutions. They were not moved. They could and may well have been discussed—I do not recall the details—during the Budget debates. Therefore, it was perfectly open to the House to scrutinise those details, although the resolution was not itself moved. If the resolution had been moved, it would not have been possible for us to legislate with anything like the same straightforwardness for the move to an April 2021 deadline. That was the purpose of delaying moving the resolution. The effect was that the resolution was debated on the Floor of the House of Commons in and of itself—given a separate debate to that resolution in order to discuss that. Therefore, the idea that there has been any short-circuiting of due process is entirely wrong.
Of course amendments can still be tabled on Report, and the hon. Gentleman may seek to do that. He was very rude about the reform, saying it would lead to zero-hours contractors, and calling it shocking, but is he planning to support it? Will he vote in favour of it or against it? That will be the true measure of his and the SNP’s position on this important reform.
Finally, the hon. Gentleman talks about the Lords Economic Affairs Committee, but of course he is entirely wrong about that. We have yet to respond to the Lords Committee—we will do so in due course—but we have engaged very closely with it on a whole variety of different areas. If he speaks to Lord Forsyth, he will know that I approached Lord Forsyth personally, having just become Financial Secretary, to reopen the relationship and make it flourish. Indeed, I volunteered to appear in front of the Lords Economic Affairs Committee last year precisely to hold myself and the Treasury accountable in this area.
The Minister has gone through a number of the points I made, but one that he did not touch upon was the impact that the proposal will have upon contractors working in the oil and gas sector, given the huge challenges facing those workers at the moment. What message would he give those contractors, whose future is uncertain in any case, but who are facing this change on top of an already devastating situation?
We are obviously very concerned about the effects of coronavirus, which is precisely why we have delayed the implementation of the reform by a year. The message I would give is that we absolutely respect and support the work that those individuals are doing and understand the position they are in. The Government have rapidly made available very important sources of support for the economy across a whole range of different areas and sectors of work and, indeed, in the benefits system, both for businesses and families and the sustaining of jobs. Therefore, there is no absence of respect or support for the people the hon. Gentleman describes.
The hon. Member for Ilford North mentioned the diverse nature of these different forms of employment. He referred to the self-employed, but actually the self-employed are not taxed by this. The genuinely self-employed are not affected by the reform. The reform is designed merely to change the way in which the status of someone who is latently employed—actually employed, but perhaps unaware of it or not behaving on that basis—is determined. The hon. Member asks us to use the additional time appropriately. We have got before April 2021. I have said already, but let me say again that we are in the process of commissioning external research into the effect of the public sector reform. As he will be aware, the early research immediately after the public sector reform did not bear out the dire predictions regarding flexibility or reduction of income, but we will make sure that external research into the longer-term effects of the public sector reform is completed and placed in front of the House before April next year.
Can I ask the Minister about the impact assessments that will be done? What monitoring is his Department doing of the chilling effect that this is having on contracts right now? What I am hearing from contractors in my constituency is that those contracts are not being renewed now and it is already having a chilling effect, regardless of when the measure is coming in. What monitoring is he doing of the situation?
As I have said, in relation to public sector reform, the external research did not detect any great chilling effect. We will be looking at the longer-term effects of public sector reform. On this reform, it is undoubtedly true that the measure is nudging some companies to consider whether people they had thought of as contractors are not, in fact, employees. In some cases, they are having to review the structure of their workforces. I do not think that is a chilling effect on the status of those contracts, because those people were always latently employed. It is then for the contractor and the company to work out what future arrangement they wish to have.
The IT contractors from India who I mentioned earlier can choose to go anywhere in the world. They have chosen to locate in Glasgow because the work is there, the skills are there and they have a good community in my constituency. If the contracts are not there, they will take their skills and their money and go somewhere else. What is the Minister doing to mitigate against that?
That is a claim that the hon. Lady makes and we will be able to test it over time through external research. It is not a view that has been validated so far in the roll-out to the public sector. It is a diverse and vibrant area of our life and it may well have more resilience overall than she is giving it credit for, but we will not know until we have seen the effects of the reform.
The final point, raised by the hon. Member for Ilford North, is to do with rights. Of course, the measure is to do with the determination of tax due, but the Government have put in the Queen’s Speech a substantial commitment to bring forward a Bill in that area following the Taylor review. I know that my colleagues in the Department for Business, Energy and Industrial Strategy take that very seriously.
Question put and agreed to.
New clause 1 accordingly read a Second time, and added to the Bill.
New Clause 2
Review of geographical effects of provisions of Sections 27 to 30
‘The Chancellor of the Exchequer must within twelve months of the passing of this Act lay before both Houses of Parliament a report assessing the differential geographical effects, broken down by nation and NUTS 1 statistical region, of the changes made by sections 27 to 30 of this Act.’—(Alison Thewliss.)
This new clause would require a geographical impact assessment of the clauses of the Bill relating to reliefs for business.
Brought up, and read the First time.
I beg to move, That the clause be read a Second time.
My understanding was that we were breaking after the previous clause, so I will scramble to find my notes. We think it is important to look at the geographical impact of the Bill. I support the new clause tabled by Plaid Cymru, which has suggested that we have a report assessing the
“differential geographical effects, broken down by nation and NUTS 1 statistical region, of the changes made by sections…of this Act.”
What is lacking in this House—I have said this before and I have no hesitation in returning to it—are real mechanisms to explore how effective the measures in the Finance Bill are in reality. My colleagues and I have supported work on a Budget Committee, which has been before the Procedure Committee to look at it as well. We do not understand the effectiveness of the policies and the ideas that the Government have, so we end up with things being proposed in Bills that turn out to be completely ineffective or we find out that they have differential effects from what the Government expected, so they have to come back later to amend things and try to fix their mistakes.
We feel that requiring the Government to consider the geographical effects of the changes to the reliefs, including research and development expenditure credit, would give a better understanding of how effective they are across the different regions and nations and of whether those incentives actually contribute to the continuing inequalities that we see across the UK. We think this is an issue of real importance to Scotland and to Wales for the measures where we do not necessarily have particular control ourselves and where the devolved nations do not have competence. It is important to understand what the Government are about with the legislation they are proposing as well as its impact, and whether the measures are truly seen to be effective.
The hon. Member for Glasgow Central makes a reasonable case—that will be a running theme throughout a number of new clauses, not least when we turn to new clause 3 in the afternoon session. I will make the points I want to make about the importance of reviewing the geographical impact of measures in the Finance Bill at that point, but I concur with her remarks.
I thank colleagues who have spoken. New clause 2 would require the Government to assess and report on the geographical effects of changes to business tax reliefs made by clauses 27 to 30 within 12 months. That relates specifically to the research and development expenditure credit, the structures and buildings allowance, and the treatment of intangible fixed assets.
Her Majesty’s Revenue and Customs does not routinely require businesses to provide geographical information about where expenditure is incurred as part of their claims for RDEC, SBA or intangible fixed assets treatment. In order to do so, changes would need to be made to the CT600 form, which would create a burden for businesses. In addition, those claiming the reliefs would only provide information after the year-end. For that reason, it does not make sense. It is not possible for Her Majesty’s Revenue and Customs to have that information within the 12 months stipulated in the amendment. HMRC does in fact already publish annual statistics on many tax reliefs, including a detailed breakdown of R&D tax relief claims, which analyses, by region and sector, the number of claims and the amount of relief received. However, the regional analysis is based on the company’s registered office, not necessarily where expenditure is incurred.
Although the next set of annual R&D tax relief statistics will be published by HMRC in the autumn, companies can claim R&D tax relief up to two years after the end of their accounting period. For that reason, the 2020 statistical release will include claims only until 2018-19, and will therefore not include claims for the increased 13% RDEC rate. The Government do, of course, remain committed to levelling up every region and nation of the UK to spread opportunity and to ensure that everyone benefits from growth. For example, the spring Budget provided a £1.14 billion increase to block grants for devolved Administrations to spend on their own priorities. That is in addition to the £2.7 billion that the Government are investing in city deals across Scotland, Wales and Northern Ireland, with £800 million of funding being provided to support four deals in Wales alone, and a further £1.4 billion being provided across 10 deals in Scotland.
As we look to our economic recovery from the impact of covid-19, that levelling-up agenda will be more important than ever. Given that the Government already publish detailed analyses and that regional information is collected and held as part of HMRC’s tax returns, asking business to record further information would represent a significant additional business burden. I ask the Committee to reject the new clause.
The Treasury Select Committee is also looking at regional imbalances. Part of the Committee’s work has identified that the data collected by the Government on a range of areas is not sufficient. It is not good enough for the Minister to say, “Oh, it’s difficult to do that.” I accept that money is not necessarily spent where an office is based, but it is a start in understanding where that money is going. If lots of organisations based in London are taking in the money and perhaps it is going somewhere else, the Government ought to be aware of that and ought to be looking at it to make sure that if somebody based in London is taking in the money but it is being spent somewhere else, then perhaps they should be based where the money is being spent. Perhaps they should be moving their offices to where the money is being spent. That puts it back on to those businesses, to add to that consideration, so I do not buy the Minister’s argument that it is awfully difficult and that we should not do it. It is a first step into looking at how it might be done, so I would like to press clause 2.
Question put, That the clause be read a Second time.
Ordered, That further consideration be now adjourned. —(David Rutley.)
Adjourned till this day at Two o’clock.
Trade Bill (Third sitting)
The Committee consisted of the following Members:
Chairs: Sir Graham Brady, †Judith Cummins
† Anderson, Fleur (Putney) (Lab)
† Caulfield, Maria (Lewes) (Con)
Clarke, Theo (Stafford) (Con)
† Courts, Robert (Witney) (Con)
† Esterson, Bill (Sefton Central) (Lab)
Fletcher, Katherine (South Ribble) (Con)
Griffith, Andrew (Arundel and South Downs) (Con)
† Hands, Greg (Minister for Trade Policy)
† Hendry, Drew (Inverness, Nairn, Badenoch and Strathspey) (SNP)
† Higginbotham, Antony (Burnley) (Con)
Hosie, Stewart (Dundee East) (SNP)
† Johnston, David (Wantage) (Con)
† Nichols, Charlotte (Warrington North) (Lab)
† Rowley, Lee (North East Derbyshire) (Con)
† Thomas, Gareth (Harrow West) (Lab/Co-op)
Webb, Suzanne (Stourbridge) (Con)
† Western, Matt (Warwick and Leamington) (Lab)
Kenneth Fox, Committee Clerk
† attended the Committee
David Lawrence, Senior Political Adviser, Trade Justice Movement
Tom West, UK Environment Lead, ClientEarth
Sam Lowe, Senior Research Fellow, Centre for European Reform (also a member of the Strategic Trade Advisory Group)
Nick Ashton Hart, Geneva Representative, Digital Trade Network
Public Bill Committee
Thursday 18 June 2020
[Judith Cummins in the Chair]
The Committee deliberated in private.
That, the Order of the Committee of 16 June be varied so as to omit the final three rows in the table and substitute the following—
Thursday 18 June Until no later than 12.10pm Client Earth The Trade Justice Movement Thursday 18 June Until no later than 12.35pm Sam Lowe, Senior Research Fellow, Centre for European Reform and member of the Strategic Trade Advisory Group Thursday 18 June Until no later than 1.00pm Nick Ashton-Hart, Geneva Representative, Digital Trade Network
Thursday 18 June
Until no later than 12.10pm
The Trade Justice Movement
Thursday 18 June
Until no later than 12.35pm
Sam Lowe, Senior Research Fellow, Centre for European Reform and member of the Strategic Trade Advisory Group
Thursday 18 June
Until no later than 1.00pm
Nick Ashton-Hart, Geneva Representative, Digital Trade Network
Examination of witnesses
David Lawrence and Tom West gave evidence.
We now move on to oral evidence.
Thank you. That will be noted on the record.
We will now hear oral evidence from ClientEarth and the Trade Justice Movement. Do we have them online?
David Lawrence: I am here; I can hear you.
Hello. I am Judith Cummins, the Member responsible for chairing proceedings. I will not be asking you any questions, but I will be calling Members and witnesses to speak.
David Lawrence: That sounds good.
Welcome, and thank you very much for coming. Thank you, Tom—lovely to see you—and thank you, David. Could you start by introducing yourselves? Let us start with Tom.
Tom West: Thank you for inviting me. It is really good to be here, if slightly surreal; it is my first time out of the house for a while.
My name is Tom West. I work for an environmental law non-governmental organisation called ClientEarth. We are interested in the implications of the Bill and trade policy in general on the environment. The way we see it, there are a number of ways in which trade policy can affect the environment, directly and indirectly, in terms of the quality of goods we are trading, but also in terms of how our trade rules affect how able we are to meet our important environmental commitments.
At the moment, the UK has this great opportunity. It has this great chance to redefine and refresh how trade policy is designed. A lot of trade policy is quite old—years and decades old—and was not written in a time when the global environmental challenges, like climate change and biodiversity loss, were understood to the same extent. It is very well established now that there is a real urgent need to take action here. We think there is a chance for the UK to refresh the approach to reflect that and to move us forwards as global leaders in that area.
David Lawrence: Good morning, everyone. My name is David Lawrence and I am the senior political advisor at the Trade Justice Movement. We represent 60 NGOs, faith groups and trade unions that have an interest in trade issues. Our group has done a lot of work on international development and the relationship between that and trade agreements, but obviously our focus recently has been on post-Brexit trade agreements and the UK’s new independent trade policy. We have previously given a lot of evidence on parliamentary scrutiny of trade agreements, which I would like to talk about today, if possible. I also very much share Tom’s concerns about upholding environmental standards and using trade in an environmentally sustainable way, so I will touch on that as well.
Thank you. I now throw the floor open to questions.
Tom West: Sure. I will focus on the continuity trade agreements and what is being done there. It is worth saying at the outset that it is sensible to try to roll over and maintain where we are, as a starting point. It is also important to see that as a starting point as to where we are and where we want to go. The process gone through there demonstrates the need for, first, a better approach to scrutiny and oversight for how we conduct and design our trade policy. Secondly, there is the point about saying, “Let’s review and refresh.” With the continuity agreements in particular, there is a need to put in place mechanisms to review those in due course and to check up on them and say, “Are these delivering the economic things we need from the trade agreements but also, importantly, the environmental issues that we need to deliver on?” If we want to become a global leader in environmental issues, we need to think about what that means for all areas of policy. We cannot simply rely on directly environmental ways to deliver those. Let’s look at those and see: are these the sorts of trade agreements that are working from an environmental point of view? Are they encouraging the right sort of trade and the right sorts of goods and services? And are they allowing us to take the actions we will need to take to fight climate change and reverse biodiversity decline?
What is your view of the Trade Bill as it is? Do you have concerns about it, and are there any additions you would like to see made to it?
David Lawrence: As I said earlier, parliamentary scrutiny is a big concern for us. When the Trade Bill was first introduced, which was a while ago now, it was billed as an open conversation on scrutiny and a new framework for how trade could be done, but in fact we see nothing new on parliamentary scrutiny, and so far the Government have not seemed to be very open to having that conversation or to listening to proposals for how scrutiny should operate. That is not just our concern; it is shared by a lot of other NGOs and businesses, and indeed by many MPs. The UK currently uses a pretty archaic form of treaty scrutiny that dates back to the first world war. It was designed to deal with secret defence treaties between European powers. Today’s trade agreements are a million miles from that. They cover a huge range of policy areas—from food standards and environmental regulations, to NHS prices and digital services. We think it is completely inappropriate to expect that MPs should have no say in how those deals are made.
It is also worth noting that that is an issue that many members of the general public are concerned about. If you think back to the Transatlantic Trade and Investment Partnership, or TTIP—the proposed EU-US trade deal—you will see that one of the reasons it collapsed was that people were not happy about the idea that these important talks were happening behind closed doors and that their own elected representatives did not have much of a say over them. In Westminster, MPs have less of a say over trade deals than MEPs in Brussels or, indeed, Members of Congress in Washington DC.
If I am honest, I think lots of people would be quite surprised and shocked to learn that their own elected MPs do not have a say over these trade agreements, the new deals we are doing with the EU, the US, Australia and Japan, or the new ones announced yesterday. It is not clear who people are meant to write to or who represents them and their interests when they are concerned about how these deals might affect their livelihoods, the food they buy or, as Tom mentioned, environmental standards and principles.
For us, scrutiny is an absolute priority. We also want to use trade to maintain high standards. We have concerns about the GPA and the way that public procurement works, but scrutiny is absolutely the priority. If we do not have that, there is no way Parliament can make sure that trade in the future meets with those high standards, and there is no democratic representation or transparency.
David Lawrence: There is a scrutiny concern that is specific to public procurement as well—making sure that Parliament has a role, that there are democratic processes involved—and there is a standards concern to ensure that procurement can be used in a way that maintains standards. The Government have this levelling up agenda and the idea that post-Brexit Britain will support parts of the country that are not doing so well economically. Procurement is an opportunity to support those areas as well. As we have seen with covid, all sorts of big questions are raised around global supply chains. One of the immediate effects of covid was countries putting in place things like export controls and wanting to localise their supply chains. Procurement is one of the many tools that Governments can use to support local industries in that way and to maintain standards. The more that Parliament has a say over that process, the better.
David Lawrence: From our perspective, there are four elements to an ideal scrutiny procedure. First, before negotiations begin, we think there ought to be a full debate, with a vote on the negotiation objectives, and that ought to be written into law. At the moment, the Government can grant a debate, if they want to—and they have done so, at very short notice, as some of you will remember, I am sure, on the US objectives and the EU objectives—but we want a guaranteed debate and vote on the objectives. Secondly, during negotiations, there should be regular reports back to Parliament on the progress of those negotiations, and, ideally, publication of texts from each negotiation round. That is a practice that is done elsewhere: the EU has updates during negotiations. As I am sure all of you are aware, MPs are very much left in the dark. At the moment, US and EU negotiations are going on, but we rely on leaks, essentially, and reports from Brussels or from DC because there is no formal process for reporting back.
Thirdly, after negotiations there should be a debate and a vote on the final deal to approve it. Again, that is something that happens in the US Congress and in the European Parliament. We do not have that guaranteed. The only way we can get a debate and a vote on a trade agreement is if the Opposition force a debate on it during an Opposition day within a 21-day sitting period. As you all know, it is not guaranteed that there will be an Opposition day that falls in that period, and if there is, the Opposition may decide to use it for other things. The Government are proposing a lot of new trade agreements, so the current system is not reliable in terms of ensuring that debate and vote on the deal.
Fourthly, throughout this whole process we would like to see public consultation and independent impact assessment. There have been some half-hearted attempts at that. I sit on one of the expert trade advisory groups at the Department for International Trade, but there is not a well-established, formal process of consultation with actual trade agreements where businesses and NGOs are brought in to comment on and critique the trade agreements themselves. We have not seen that happen yet. Again, that is something that happens in other countries, but the UK is very much behind on this.
David Lawrence: It is about public trust. We saw in the TTIP negotiations a lot of distrust that ultimately led to the deal falling apart. If you wanted TTIP to happen—if you want these trade agreements to work—you need the public behind you. If there is not transparency, there will be conspiracy, leaks, theories about what is being discussed, accusations and a lot of uncertainty. That is why it is something that businesses and NGOs are united on: regardless of your view on whether the specific trade deals are good or bad for the economy or society, at least if you have transparency, you know what is being discussed and what is on the table. That is why we are pushing for it, and we have joined the British Chambers of Commerce, the International Chamber of Commerce and the CBI in pushing for that level of transparency. It has been a source of frustration, not just among civil society but also among businesses, that these important deals are supposedly on the way but we do not know what is being discussed at the moment.
Tom West: We are supportive of the asks and processes David outlined. Greener UK, which is a coalition of environmental organisations, is also a signatory to the document David mentioned. I will just add some extra things around the side.
First, once a trade deal is in place and up and running, there is a need for ongoing scrutiny and involvement of civil society in making sure it is being implemented in the right way. That is crucial looking forward. Secondly, to give a bit more clarity as to the value of this, within the environmental sphere, the value—in fact, the necessity —of public participation is long recognised. The Aarhus convention 1998 enshrines in law that the public must be engaged in the design of policies related to the environment. It is true here as much as in other areas: by involving the people affected by the policies, you get better policies and better buy in.
There is another interesting point on the value of this. Last year the US negotiators said, “Look, we can’t refer to climate in our negotiations”. They were able to point to an Act of Congress and say, “Our hands are bound here. It’s impossible for us to do this”. In that way, a steer and an instruction from Parliament can strengthen our negotiating arm. As I have said, our vision is that the UK uses its blank sheet of paper on trade policy to align its trade policy with its global environmental ambition. Let us get that clear and written down so that our negotiators can point to it and say, “The conversation that we want to have—and, in fact, that we need to have—is around robust implementation of the Paris agreement, meeting our environmental goals”.
Lastly, David mentioned the need for public support: this matters to the public and they care. For me, this goes to the question—and annunciating—what are we going to get from these trade deals? What is the benefit and value to people? That is very much part of the question and review of what our trade policy is for. We have seen various estimates of what a US trade deal might get us, for example, from an economic point of view. The figures sometimes are relatively small. I have seen some say that the benefit in reduction in tariffs might amount to £8 per household per year. If that is the case, we need to understand what that will do for us and what other benefits we might be able to get from a trade policy that is more closely aligned with our environmental ambitions.
First, given that this is about continuing agreements that we already have, if we sought to change them, they would not really be continuity agreements anymore. Secondly, could you both talk about the counterfactual? If we did not have this Bill or the continuity agreements, what would be the consequences for this country and for those countries in the developing world with which we are seeking these agreements?
Tom West: I think it is right to say that the Bill itself is focused on those continuation agreements, but in some ways that is symptomatic of the wider problem I am talking about in terms of the lack of an approach that says, “Let’s review and revisit what our trade policy is for and how it should be designed,” with an eye, in particular from our perspective, on what that means in terms of delivering our climate and environmental goals. As a first step, yes, we need to take those sorts of measures and it is sensible to do so, but that is just a first step. That, in and of itself, cannot be the full range of what we should be seeking to achieve when it comes to our approach to trade. However, taking that more ambitious approach requires putting in place certain mechanisms and frameworks. We are talking about scrutiny processes as a key part of that and, in addition, frameworks that seek to guarantee that, through our trade deals, we will be protecting and supporting our delivery of environmental goals by making sure that we retain our right to regulate in environmental matters and doing that thoroughly; that we have non-regression in environmental standards and a meaningful and enforceable commitment to non-regression; and that our import standards match up to our environmental goals.
Tom West: I think that the EU’s approach to trade needs improvement, yes. This is not just about trying to replicate what the EU is doing in any of these areas. There is scope to do things better, to use this new power to conduct our trade policy in new ways where we can be a world leader and use our seat at the WTO to say, “There is a better way to do these things,” and that is a great opportunity.
David Lawrence: Can I just add to that? There are issues around the substance of the agreement, but you can improve the scrutiny processes without necessarily changing the substance of the roll-over agreements, while recognising the importance that those deals are rolled over the before the transition period ends. We work closely with Fairtrade and Traidcraft, which are two of our members. They have direct links to lots of the countries that have the EPA trade agreements—economic partnership agreements—with the EU that are being rolled over. There is a tension because a lot of countries want to change those EPAs—they see Brexit as an opportunity to renegotiate those deals—but there is also a desire for those to be done in time. Our hope is that those things are not completely incompatible and that you can have a new Bill, like the Trade Bill, that implements these agreements while also having a process of scrutiny and an opportunity for countries to reform EPAs where necessary.
In terms of the scope of the Bill, the Bill is about roll-over agreements. It is also about the creation of a Trade Remedies Authority and acceding to the government procurement agreement. Both of those latter two things are about future trade policy. They are not just backward looking—"We need to make sure those things are rolled over”. They are also about the UK’s new trade policy. That is why, for the previous version of the Bill, a number of amendments that were ruled in scope, both in the Commons and in the Lords, were about why the scrutiny process is not just for roll-over agreements but for new agreements as well. Indeed, some of those amendments were successful in the Lords. There is an element of, “If not us, then who, and if not now, then when?” about it as well, because the Government are not proposing any alternative trade legislation at the moment.
This is the only legislative opportunity, as far as we know, to put in place these scrutiny provisions. If the Government want to bring forward a trade framework Bill, or something else where there is an opportunity to have a proper conservation about scrutiny, then fine, but in the absence of that, this Bill should be used to put in place those scrutiny procedures, as with the previous Trade Bill.
Tom West: If I may add to that quickly, this lacuna that David and I are both describing, in terms of where is this bigger picture of trade policy, comes through in the conversations on the Agriculture Bill as well, where the issue of food import standards is, quite rightly, an important topic for debate. We are saying that what we do around our import standards is going to matter. It will matter for British farmers, but for our environmental impact and overseas footprint too.
Our view is that the Government clearly need to act to put in place those manifesto commitments to not compromise on environmental, animal welfare and food standards. We have seen statements in the media in the past around the Trade Bill being the right place to do this, but at the moment there is nothing in the Bill about it. The Agriculture Bill provides that opportunity as well. Clearly, there is a need to do something on import standards. That is true of food import standards, but it is true more widely as well. It is not just food that we are looking to import, and we need to make sure that that approach is compatible with our domestic environmental ambition and our global environmental ambition too.
Tom West: We have not run the counterfactual of saying what would happen if these had not gone in there. Overall, the idea of continuing those agreements for now, and then looking at them in the round later on, is an approach that makes sense.
David Lawrence: Yes, I agree with that. The Bills both need to pass before the end of the transition period in order for the deals to be rolled over. We are in agreement on that. The question is whether you can do that, while also having better scrutiny and setting in stone better standards for the future.
Tom West: Starting with the US deal, we are concerned about the attempts and the approach from US negotiators, particularly around agriculture and food standards, to change the way the UK currently regulates and legislates in that area. It is clearly set out in the US negotiating objectives that they want to open up UK markets to US agricultural products. Our view is that in many areas those are produced to lower standards than is currently allowed here in the UK.
That also raises the indirect effect that trade deals can have on environmental standards, which is incredibly important. Trade rules can place restrictions on what it is that countries can do to meet their environmental goals. Our view is that achieving environmental goals is a good thing do—it is of value in and of itself—and that trade rules should work within that framework. Limiting what we can do, in order to achieve certain trade goals, is a restriction that we should not have in place.
To go back to the specifics of the US deal, another area of concern is chemicals. Currently in the UK, there are more than 1,300 chemicals for use in cosmetics that are not allowed; in the US, that is around 11. I think that demonstrates the stark difference between the regulatory approach in the US and the current approach we have here. While the UK now has the chance to do things differently—I am not saying we must stick to EU ways; that is not necessarily the approach we need to be taking—we do want to make sure that our standards get better and not worse.
David Lawrence: In terms of the scope of the Bill, I do not think what we want is for the Trade Bill to become a big debate about the US trade agreement, but we do want it to be a debate about scrutiny. If you have those scrutiny practices in place, when the US deal comes round, Parliament can actually debate that properly, rather than relying on the occasional parliamentary question or a Backbench Business debate, which is what currently happens, even though it is on the Government’s own terms for really important big trade agreements.
I completely agree with what Tom said about standards. The key thing here is that there are two dominant regulatory regimes in the world—the EU’s and the US’s. In many ways, Brexit will force the decision about which of those regimes we align with. Something that we have called for—I believe Tom and ClientEarth have called for it as well—is sequencing, whereby the EU deal comes first. We sort out our relationship with our largest trading partner, with whom we are already aligned on so many things and have been for so long, before we negotiate with the US, because the US really do want us to align with their regulatory regime, as Tom said.
You mentioned Canada. Canada and Japan have both asked not to renegotiate their existing terms, but essentially want to seek new free trade agreements with the UK. They have also both emphasised that they want the UK to sort out its relationship with the EU first, because historically the UK has been a springboard, particularly for Japanese investment in the European Union. For a lot of our trading partners, sorting out our relationship with the EU is an absolute priority. We have said let us do that first and then we can think about new trade agreements, such as one with the US.
There are a number of other concerns with the US deal. I will not go into huge detail on that unless you want me to, but we have concerns around public services provision, digital services and regulations in a number of areas, not just the environment, but also health regulations and food standards; we are also concerned about investor protection provisions, because we have seen that those have been used in really damaging ways in other US trade agreements, such as NAFTA. Those are some other concerns we have about the US deal. As I have said already, the real priority is scrutiny, because then we can have that debate properly in Parliament.
Tom West: So, as David was talking about, there is this point about the two big regulatory spheres of influence. Canada is very much close to that US sphere and so, while there might be less of the direct issues, we see that stepping-stone effect.
One extra thing to add is that there are approaches that the US takes in its trade agreements and trade deals that are clearly better than what the EU is doing. Around enforcement, for example, some of the approaches that the US will often take include better enforcement mechanisms for environmental provisions in trade deals. Looking at the different approaches is certainly worth considering.
For Tom, a recent High Court decision about Heathrow airport ruled that we could not have Heathrow airport because it was counter to the Paris climate agreement. Are there risks if we do not put extra environmental standards in the Bill that future trade agreements will be brought into question, as that national policy statement was?
David Lawrence: In terms of downsides to scrutiny, we are very much calling for scrutiny and I do not think there are any really obvious downsides. As I said, it is an area where, perhaps unusually, we are very much aligned with the private sector. A lot of businesses are also calling for similar things.
In terms of developing countries, as you will know very well, Fleur, there are a lot of organisations in the UK representing the interests of developing countries and a lot of foreign aid organisations who would like to be able to see what is going on in trade negotiations and be able to represent those interests to MPs, but at the moment there simply are not those scrutiny proceedings in place. Obviously, the process of scrutiny takes time, so maybe it would slow things down a bit, but on the long-run game of improving public trust in what the Government are doing and public understanding of how trade deals work—where they are beneficial and where they are potentially harmful—it is absolutely worth having those additional scrutiny proceedings in place.
Tom West: The Heathrow decision is a really good example of how important it is to make sure that all of our policies are compatible with our environmental goals. While we might not get a direct read-across in this case here, what it does demonstrate is that we need to make sure that what we are doing in all areas is compatible with meeting Paris and our other environmental goals, too. We have got net zero and an Environment Bill that could provide a framework for some ambitious targets, and we need to make sure that that is compatible. Making sure that we have got that clear framework in legislation will necessarily help with that.
David Lawrence: We have very similar concerns in relation to devolved nations. It is obviously tricky because you do not want to necessarily end up in a gridlock situation where an entire UK-wide trade agreement is blocked because one of the nations has a veto, but at the same time there will be parts of trade agreements that primarily or only affect the industries in the devolved areas and that cut across regulations that are normally devolved competencies. In those areas, we would like that to be the decision of the devolved authorities. Obviously, there is a role for consultation throughout that, as there has been through the Brexit process. I know it has not been handled perfectly in the Brexit process.
More generally, it is about applying the normal standards of democratic scrutiny that we would expect for other areas of domestic legislation to trade agreements, in recognition that trade agreements have a large and wide-reaching domestic effect. If the Government want to build a new railway like HS2, they have to put it in a Bill that has all of its Commons stages, layers of scrutiny and Committees like this one, and then it goes to the Lords and it comes back again. It goes back and forth, the media get involved and people write to their MPs about it. That is just for a railway and this is for a trade agreement that, if the Government are to be believed, is central to the UK’s post-Brexit industrial strategy, and MPs do not have anywhere near that level of say over it. So what we are calling for is similar to the way in which other regulations and big projects and proposals are treated with the level of democratic scrutiny that they receive.
Tom West: Yes, I agree. With environment, agriculture and fisheries all being devolved, this is obviously really important to our concerns, too. Clearly, there is a need for better mechanisms to be in place to make sure that the four Governments of the United Kingdom can work together to have the appropriate conversations about how we are going to work these things out. It is not straightforward exactly how it will work, but clearly it needs to be done so that the devolution settlements can be respected, and, as David says, so that the proper democratic input into trade agreements can be had.
If there are no further questions from Members, I will thank the witnesses for their evidence and we will move on to the next panel. Thank you, David and Tom.
David Lawrence: Thank you.
Tom West: Thank you.
Examination of Witness
Sam Lowe gave evidence.
Sam Lowe: Thank you for inviting me. My name is Sam Lowe and I am a senior research fellow at the Centre for European Reform, a think-tank. I am also a member of the Strategic Trade Advisory Group.
Thank you, Sam. I call Bill Esterson.
Sam Lowe: The first thing that I should say is that I think the Bill is necessary; there is a need for continuity when it comes to the UK’s trade relationships with third countries. Looking at the provisions for the government procurement agreement, I can see why there might be some concerns about the powers given to the Executive to alter things in future, but I also understand why the provisions are there, in that the government procurement agreement will evolve over time, new members will accede to it and there will be a need to update it.
Specifically on the continuity agreements, there are a few points that I would like to make. First, I am not sure that the scope is fully understood, in that it maybe covers more agreements than people think. As well as the ones that we all know about, for example Chile, Jordan and the like, it also covers Singapore and, to my reading, Vietnam, which was signed by the EU in June 2019. That is something that should be considered.
When it comes to the broad categorisation of continuity, I have a few questions. I would probably recategorise the agreements. I would start with category 1, which is the pure continuity agreements where there are just minor changes to be made. I am thinking of Chile, Israel, Jordan, Lebanon, Faroe Islands and the like. I would also include South Korea stage 1 in that box.
My second box would be the agreements that are continuity agreements but will be substantially different from what exists within the EU. Those are the agreements with Norway, Iceland, Switzerland and Turkey, and I would probably add Ukraine to that box as well. Because the existing relationship is so contingent on our EU membership, there is no doubt that the future agreement we have with them will be substantially different from today.
The third category are just new agreements, because we have decided that they cannot be rolled over and we are set to renegotiate them. That would be Japan and Canada. I would also put South Korea stage 2 in that box, in that the South Korean roll-over agreement contains a commitment to consider renegotiating after three years, but it also contains a poison pill that means that we will inevitably have to, because the rules of origin provisions that allow for EU inputs into UK goods to continue to qualify for the agreement’s local content provisions expire after three years. In that case, it will be a renegotiated new agreement.
As to whether I think the Bill is appropriate in its coverage, I think for box 1—pure continuity with minor changes—it is fine. For box 2—continuity but with big changes—I would say that it is probably still fine. There are obviously some concerns that they will change substantially, but those agreements are ones where we probably need to prioritise continuity over all else. In box 3, to my mind, they are new agreements, so I am not sure why they will be covered by a Bill that is focused on continuity—particularly in the case of Japan, where we have seen new objectives and even statements that we want to go beyond the EU’s existing agreement.
I would conclude with the need to consider the counter- factual. What we are discussing here is not necessarily the whole trade agreement; we are discussing how we deal with the implementing legislation accompanying the trade agreement. If we think about what that covers in practice, we are largely just talking about procurement and perhaps some issues on technical barriers to trade—that is it. In practice, we are probably talking about fairly minor changes in this space.
In the grand scheme of things, I suppose the question we are asking ourselves is: would slowing this down for everyone in order to do this via primary legislation add sufficiently extra scrutiny on the whole? I am not convinced it would, considering that it is ultimately still a yes/no decision either way. Parliament is not going to change; it just has to decide whether it wants it. Here is where I think it speaks to the bigger issue, which the Bill does not address but is hard to ignore. I listened to some of the first panel, and they touched on it. Parliament’s role vis-à-vis trade policy is incredibly limited; it is largely an Executive competence. Parliament has very little influence over what trade agreements look like, and very little ability to object to them if it comes to it.
Sam Lowe: The question of whether it is needed is a very good one. I am not sure I can actually answer it. You have just acknowledged that some of the agreements have passed. I suppose it is required, in that there might be a need to get some legislation through very quickly at the last minute if some of these negotiations drag on, so there is an issue there. Your first point was about what is in the agreements.
Sam Lowe: I cannot confess to have looked at the text of every single one, but one of the concerns that had been raised was that there was an issue about whether the tariff rate quotas will have been changed in a specific agreement. When I looked at Chile in this case, the changes that had been made did, to my mind, make sense. For me, the most interesting point about some of the continuity agreements is the approach to rules of origin, which I mentioned earlier. It is the process by which a product qualifies for tariff-free trade under a trade agreement, dependent on the amount of local value added. As the UK has an issue, which is that in many sectors we do not create enough local value added to qualify for free trade agreements under normal rules of origin-type provisions, we have inserted conditions that allow for EU inputs to continue to be accounted for—either indefinitely in the case with Chile, or temporarily with South Korea. That is not necessarily a concern, but it is interesting. It is actually quite a new approach to rules of origin, and the jury is out on whether it is WTO-compliant. I probably lean towards it being compliant, but I have certainly heard counterarguments.
Sam Lowe: Sorry, you cut out at the end.
It was just about what the impact of our not having a TRA might be. Have you given any thought to that?
Sam Lowe: We do need a Trade Remedies Authority. As it stands, this is dealt with at EU level, and when it comes to disputes over trade—be it because we are worried about unfair subsidies abroad, or worried about products being dumped on our markets or being sold at an artificially low price—we need a means to investigate and remedy them. In the interim, I believe the approach is that following our exit from the transition, we are just going to continue with the EU trade defence measures. However, those measures might not be justifiable if we are only taking into account the UK context, so they are all going to need to be reviewed.
I do have some concerns about the practicalities of the Trade Remedies Authority. First, I believe it has lost two provisional chief executives already, and it is still looking for a new one. Secondly, speaking as someone who comes from south Wales, from Llanelli—I am not an “everything needs to happen in London” person—I am not convinced that it was a sensible decision to put it in Reading and offer the salaries it does when it is trying to attract trade lawyers with vast amounts of experience. My fear is that it will create a false economy: we will end up paying law firms to do it all for us for a while as we build up the internal capacity, and then because of the pay constraints, the people who have learned how to do the job will be able to leap into these law firms to get paid a lot more. That may point to a broader problem with retention in the civil service.
Sam Lowe: Canada is a long story, in that it links back to the previous iteration of the Government’s no-deal tariff schedule and its publication. When we put forward a tariff schedule that was very liberal and offered a lot of access to everyone, the Canadians looked at it and said, “We do not want to roll over any more, because you are giving the whole world for free what we had to pay for via our trade agreement”—remember, they also had to open up their market in that context. I believe that the more recent update to the new global tariffs has changed that calculation slightly on the Canadian side, and will lead to a renegotiation.
The reason that the Japanese were not able to roll it over from a domestic point of view was that from their perspective, they had liberalised their agriculture sector to a great extent over previous years—through their agreement with the EU, through the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, and also through their more recent agreement with the US. If they were to roll the agreement over to the UK, they would be giving extra agriculture access to their market on top of all that, but for free. That was just not politically doable within the Japanese context, so it led to the need for this renegotiation.
Turning to the contentious issues, I suppose that with Canada we could return to some of the TTIP issues around investment all over again. That is also the case with Japan. I think both those deals are probably doable by the end of the year under certain circumstances, but you will notice that the UK has had difficulty replicating agreements with the bigger countries. It has not been so difficult with some of the smaller countries, but if you think about the ones that have not been done yet—Japan and Canada, but also Mexico and Ukraine—many of those countries want to be certain of what the future UK-EU relationship looks like, and what concessions the UK offers the EU, before finalising anything with the UK.
We have until 12.35 pm for this session, and three other Members want to ask questions, so it would be good if we could keep questions and answers quite concise.
Sam Lowe: Yes. In terms of countries that require continuity, Turkey is quite a good example: we currently have supply chains that run out of the UK into Turkey and back. I think particularly the automobile industry has some exposure here. This is a really tricky one, in that we are currently in a customs union with Turkey via our membership of the EU and, unless we are in a customs union with the EU, which is obviously not Government policy, we are going to be unable to replicate that relationship with Turkey. When it comes to the future trade agreement with Turkey, at least on the tariffs level, the most we can expect is for it to match what we have agreed with the EU. That, of course, would be better than not having a trade agreement; but the benefit of being in a customs union is you do not need to worry about rules of origin. So all of a sudden this becomes a slight issue with Turkey, and it is why I put it in my second box earlier, of being a continuity agreement but with big changes.
Of course the other ones that really do, probably, matter are Switzerland and the EEA countries—Norway, Iceland—in that we have quite deep trade relations with them now, as we are part of the single market. That will obviously, again, change quite substantially because of our decisions over our relationship with the EU.
Another country that does matter, and I believe it has been resolved—I do not want to say certainly, because I do not have a list up in front of me—is South Africa, in that we actually have automobile supply chains that run through South Africa. There we have a different problem, in that it does not achieve the same for the companies as now; we currently export products to South Africa—inputs to South Africa under the EU-South Africa agreement— that are put into, say, a car there and then sold back into the EU under the preferences of the agreement, because the UK-based inputs can qualify as local to South Africa under something called bilateral cumulation. That will cease to exist under the new agreement.
The point I would make is that all the agreements are going to change. I have just, in my head, got three different categories.
Sam Lowe: Having read the Trade Bill, I think the approach seems broadly sensible. I do not have it in front of me at the moment, but I believe the Secretary of State approves the chair; and then the chair makes a recommendation on the chief executive, subject to sign-off of the Secretary of State, unless the chair is not there, in which case the Secretary of State does it. I understand it is an independent body to the Government, but it obviously needs to have close ties with the Department for International Trade.
Sam Lowe: Taking into account the current scope of the Bill, which is to achieve continuity, it is slightly unique in that sense. However, I agree with a comment by an earlier witness: if there is not going to be further legislation to lay down the scope for Parliament’s engagement in future trade agreements, it seems to me that it would be possible to expand the remit of the Bill to cover that. I think that is right, in that the Trade Remedies Authority and GPA provisions are forward-looking, so there is no reason why you could not do that as well.
The UK’s general approach to scrutiny is very poor. I think parliamentary scrutiny is very poor. Parliament has very little ability to influence trade negotiations or set the agenda of trade negotiations. To my mind, it has—[Inaudible]—yes/no vote. Just from a democratic point of view that seems slightly out of order to me, in that, when we compare it with the US or the EU, Parliament at the crudest level has a yes/no option on whether to approve a trade agreement or not. As a result it is much more involved with the process. That is something I should like changed. Of course that is not currently in the scope of the Bill, but if the Government are not going to introduce further legislation, I would understand if the scope of the Bill was expanded.
Sam Lowe: The point I am making is that this Bill is not really comparable to other systems, in that it is sort of unique. To score the UK approach more generally to treaty scrutiny out of 10, it would be below five.
Thank you very much for giving evidence. If there are no further questions from hon. Members, I ask that we move on to the next panel. We are just waiting to get the technicalities sorted out, so we will suspend for a few minutes.
Examination of Witness
Nick Ashton-Hart gave evidence.
We will now hear oral evidence from Nick Ashton-Hart from the Digital Trade Network. Nick, can you hear us?
Nick Ashton-Hart: I can indeed.
Nick Ashton-Hart: Thank you. I will try to be brief, because it is important for you to have time to ask me things. I am Nick Ashton-Hart, the Geneva representative of the Digital Trade Network, which is a coalition of industry groups throughout the world. I am the focal point for industry on digital economic policy in Geneva. I have been involved in the trade community for more than a decade and participated for about 20 years in multilateral telecommunications and trade policy as it relates to use of the internet.
I am frequently on national delegations and an adviser to countries or groups of countries that are negotiating economic policy. I am also the special adviser on international internet policy for the International Chamber of Commerce in the United Kingdom, although I am speaking to you today in my personal capacity as a trade expert in the field.
Nick Ashton-Hart: Thank you very much for the question. Thank you all for asking me here. It is a great privilege and honour, as an immigrant who arrived here in 1986 with £900 in my pocket, to be heard by Parliament.
With respect to the Bill, many of the comments I made about the Bill in the last Parliament remain true. There are some changes in this Bill, but the core of the issue is the road it sets out in terms of consultation on trade policy with not only Parliament, but industry as a whole. In my work, I see how Trade Ministries worldwide relate to stakeholders and how they choose to involve stakeholders in trade policy-making and negotiating.
I understand the argument that the continuity agreements are intended to be as close as possible to and a simple replication of the provisions of the agreements that you benefited from via membership of the EU, and that consultation is not necessary because of that fact. As I said in 2018—and this remains true—these are not the same agreements. At that time, we did not have any of the agreements rolled over, if you will, so we assumed that they would not be the same agreements. Based on my experience in trade policy, nobody makes exactly the same deal with a smaller party that they did with the larger party, because it is not in their interest to do that. In this case, we have even more reasons.
As an example of how these agreements are not the same, I offer up the Swiss agreement. There are 20 mutual recognition chapters of the Swiss-EU agreement. The UK-Swiss agreement has only three, because Switzerland cannot agree that our regime is equivalent unless we continue to apply the EU regime, as the Swiss-EU agreement requires that. So, 24% of the UK’s exports and 16% of imports in that deal are not covered currently. That is also true in the agreement on customs, so UK goods will not be expedited through the Swiss border in many cases as a result.
Therefore, these are fundamentally not the same agreements, yet they are treated, in terms of consultation with industry and Parliament, as if they are, when they are materially different. It is like anything else—if you start out on a road, you want to make sure that the destination you are heading towards is the destination you want to reach. I think that, as a country, the destination we should want to reach is that the country as a whole buys into the arrangements for trade policy that the country proposes to make.
While I accept that in February 2019 the Government’s roadmap for consultation with Parliament and with civil society and the like began to approach what we would consider a more standard relationship, I offer this comment to Committee members to consider. If you are negotiating with another party about economic affairs, the reason why you want industry to have a close relationship with you when you are doing that is because industry has relationships with industry on the other side—in the country that you are negotiating with. Industry can then help you to gain support from industry in your negotiating partner for the provisions that you are recommending, which are also in the interests of industry in that other country, or negotiating partner. If industry is not a close collaborator with you throughout the negotiating process—not just in setting up the terms that you are looking for before you negotiate, but throughout the negotiation and ratification process—you are robbing yourself of a key element that will help you to negotiate a successful outcome.
That is just as true when you are dealing with issues such as the GPA as it is when you are dealing with regular free trade agreements, or regulatory co-operation agreements, which are not really discussed that often but are fundamentally important—financial technology bridges, or FinTech bridges, and the like.
That is the key thing that I have heard from industry, and the key thing that I have seen is that the continuity agreements are taking longer to reach than had been thought. I wish I had been wrong about some of my predictions back in 2018; unfortunately, pretty much all of them have turned out to be taking place. These agreements have been more difficult, they have been more different and there are gaps in coverage. Of course, all of that is not terribly surprising, but despite the knowledge that industry and other stakeholders were right when they said that more consultation was needed, the Bill still does not provide for that consultation to take place, which is a real lack, and an opportunity that should be seized.
The consultation should not be seen as a negative; it should be seen as a positive. These agreements will last longer than they are expected to, and the successor agreements to them will take longer to negotiate than is estimated, because there is one thing that you can guarantee about a trade agreement negotiation process and it is that the target date for finishing it is not the date you will finish. You will definitely finish at some later point than you predict. That has proven true for us with these continuity agreements, which is not a surprise to anyone in the trade community.
Hopefully, that is not too long an answer.
Nick Ashton-Hart: First, I should say that you will have testimony from other witnesses who will have more knowledge of all the continuity agreements than I do. As you know from our conversations, I am a services guy, so I tend to focus on services and digital services.
As is the case in the Norwegian agreement, we will find that in any third-country agreement we try to make, the EU will quite naturally have made conditions on that country’s negotiations with additional third countries—the regulatory choices that the third country has with other parties with which they negotiate, other than the EU, are constrained by the agreement with the EU.
When it comes to regulatory chapters in trade agreements, there are really three major powers: the US, the EU and China. We do not have the regulatory freedom to determine, on our own sovereign nature, exactly what we do. Ultimately, we will adopt one of these three—we are smaller, and that is how it works. Big blocs carry the weight and tend to get more of what they want than do smaller parties. That is true of negotiating for anything in life. Anyone who has bought a car or a house will realise that those things stay the same. We will find that the choices that other countries are allowed to make in terms of their agreements with us are constrained by their deals with the great powers.
Nick Ashton-Hart: The GPA is its own special animal. You will already have had descriptions of it, so I will not describe it. The GPA is a pretty loose agreement, and you can decide what you want to include within it and what you want to exclude. In theory—actually, in reality—it offers access to large amounts of potential supplies to Governments around the world, because Governments are major purchasers of everything. There are many conditionalities on that, and we will get less out of it than is suggested by the headline numbers, because of the flexibility of the arrangements and the scheduling. Countries, naturally, often like to sound more open than they are in this area.
I know of a certain European example: a major trading partner of ours in the EU that speaks a language that is not in the world’s top 50 most spoken languages has the same commitments on government procurement as does the EU, in terms of market access to third countries. What is not stated, however, is that you must do all of your bidding, contractual work and work with that party in that language that is not in the world’s top 50 languages, which quite naturally rules out the vast majority of people and companies in the UK, especially small companies. I am sure that a vanishingly small number of people in the UK speak that language.
So yes, the GPA is important, and yes, it does allow our firms access to many other markets but, looking at the fine print, access is not as simple and straightforward as is suggested. The GPA allows you to say to another country, “You—service provider X—can bid on services with my country.” It does not say, “And we will treat you as if you are one of us for regulatory issues.” You still need to be able to meet the regulatory requirements as a service provider that a domestic service provider has to meet. That is understandable and reasonable, but if your regulatory system in the UK is not seen as equivalent by that country, you will have to go through the additional step—if it is a regulated service, and many of them are—of being found to be regulatorily compliant with the regime of the country you are selling into. As we know, services are all heavily sensitive to regulation and to regulatory compatibility in third countries that you are selling into. That is why the single market is such a massive enabler of services trade throughout the European Union and its member states.
Nick Ashton-Hart: We are, as you know, one of the world’s powerhouses in services. Part of the reason we are a powerhouse in services is because, in the digital realm, we are also a great power in terms of innovation and firms that have had a lot of international success. Something like 60-plus per cent. of UK trade is underpinned in one way or another by digitalisation, so we are highly sensitive to any barriers to services through regulation, as well as through things such as the free flow of data and data protection.
We know that the agreements will not be duplications, because they are already not exactly the same. To the extent that we can, we should try to ensure that there are liberalising measures associated with at least the fundamentals of digital trade—some arrangements on data protection and on mutual recognition. Of course, that would also require us to stay quite close to the EU regime on data protection, which I and the industry have strongly argued in favour of. It is difficult, because if you are a negotiator and say, “I want to replicate this agreement, but I want to change one thing,” the other side is quite naturally incentivised to say, “Okay, then I want to change another thing.” The reality is that everyone will come to this with some changes, because—for many reasons, only one of which I covered—you cannot just copy and paste.
To the extent that we can put in digital measures, we should. It should be a part of the negotiating mandate for those agreements. It may be; I speak to DIT people quite frequently and have not heard whether it is, so I would not like to say whether it is, one way or the other.
Nick Ashton-Hart: I would say that, at the level of principle, it probably should be. This is an example of an area of regulation that is not only economically consequential, but social and politically consequential. It is also not understood very well. The issues around platforms relate to business-to-consumer platforms, and particularly to social media. Those platforms are a tiny minority of the actual economic value of platforms as a whole. Business-to-consumer traffic represents about 10% of a platform’s value vis-à-vis the 90%, which is business-to-business traffic.
It is important at a level of principle to recognise that there are sensitivities, but it is also important to recognise that economic policy does not solve social problems and that the hooks need to be there to allow for exceptions, so that social problems can be anticipated and dealt with by the competent authorities that are responsible for them. In economic policy, however, the default is that platforms are a public good in the same way that markets are a public good. We want to facilitate innovation in the platform space, and our economy is a huge beneficiary of that.
If there are no further questions from Members, on behalf of the Committee I thank you, Nick, for your evidence.
Ordered, That further consideration be now adjourned. —(Maria Caulfield.)
Adjourned till this day at Two o’clock.
Parliamentary Constituencies bill (First sitting)
The Committee consisted of the following Members:
Chairs: Sir David Amess, † Ian Paisley
† Afolami, Bim (Hitchin and Harpenden) (Con)
† Bailey, Shaun (West Bromwich West) (Con)
† Clarkson, Chris (Heywood and Middleton) (Con)
† Efford, Clive (Eltham) (Lab)
† Farris, Laura (Newbury) (Con)
† Fletcher, Colleen (Coventry North East) (Lab)
† Hughes, Eddie (Walsall North) (Con)
† Hunt, Jane (Loughborough) (Con)
† Lake, Ben (Ceredigion) (PC)
† Linden, David (Glasgow East) (SNP)
† Matheson, Christian (City of Chester) (Lab)
† Miller, Mrs Maria (Basingstoke) (Con)
† Mohindra, Mr Gagan (South West Hertfordshire) (Con)
† Shelbrooke, Alec (Elmet and Rothwell) (Con)
† Smith, Cat (Lancaster and Fleetwood) (Lab)
† Smith, Chloe (Minister of State, Cabinet Office)
† Spellar, John (Warley) (Lab)
Sarah Thatcher, Committee Clerk
† attended the Committee
Tony Bellringer, Secretary, Boundary Commission for England
Isabel Drummond-Murray, Secretary, Boundary Commission for Scotland
Shereen Williams MBE, Secretary, Boundary Commission for Wales
Eamonn McConville, Secretary, Boundary Commission for Northern Ireland
Public Bill Committee
Thursday 18 June 2020
[Ian Paisley in the Chair]
Parliamentary Constituencies Bill
Before we begin, I have a few announcements. Please ensure your mobile devices are on silent. I allow you to bring in tea and coffee. I am not as strict as some other Chairs. You are welcome to keep refreshed during the proceedings. I call the Minister to move the programme motion in her name.
I beg to move,
(1) the Committee shall (in addition to its first meeting at 11.30am on Thursday 18 June) meet—
(a) at 2.00pm on Thursday 18 June;
(b) at 9.25am and 2.00pm on Tuesday 23 June;
(c) at 11.30am and 2.00pm on Thursday 25 June;
(d) at 9.25am and 2.00pm on Tuesday 30 June;
(e) at 11.30am and 2.00pm on Thursday 2 July;
(2) the Committee shall hear oral evidence in accordance with the following Table:
Date Time Witness Thursday 18 June Until no later than 12.20pm Boundary Commission for England Boundary Commission for Scotland Thursday 18 June Until no later than 12.40pm Boundary Commission for Wales Thursday 18 June Until no later than 1pm Boundary Commission for Northern Ireland Thursday 18 June Until no later than 2.30pm The Conservative Party Thursday 18 June Until no later than 3pm The Labour Party Thursday 18 June Until no later than 3.30pm The Liberal Democrats Thursday 18 June Until no later than 4pm The Scottish National Party Thursday 18 June Until no later than 4.30pm Plaid Cymru Thursday 18 June Until no later than 5pm Professor Richard Wyn Jones, Wales Governance Centre, Cardiff University Tuesday 23 June Until no later than 9.50 am Dr Alan Renwick, The Constitution Unit, University College London Tuesday 23 June Until no later than 10.10 am The Green Party Tuesday 23 June Until no later than 10.40 am Professor Roger Awan-Scully, School of Law and Politics, Cardiff University Tuesday 23 June Until no later than 11.25 am Professor Iain McLean, Department of Politics and International Relations, University of Oxford Professor Sir John Curtice, Department of Politics, University of Strathclyde Tuesday 23 June Until no later than 2.30 pm The Association of Electoral Administrators Tuesday 23 June Until no later than 3pm The Local Government Boundary Commission for England Tuesday 23 June Until no later than 3.30 pm The Electoral Reform Society Tuesday 23 June Until no later than 3.50 pm The Democratic Unionist Party Tuesday 23 June Until no later than 4.10 pm Dr Jac Larner, Wales Governance Centre, Cardiff University Tuesday 23 June Until no later than 5 pm Professor Charles Pattie, Department of Politics, University of Sheffield Dr David Rossiter
Thursday 18 June
Until no later than 12.20pm
Boundary Commission for England
Boundary Commission for Scotland
Thursday 18 June
Until no later than 12.40pm
Boundary Commission for Wales
Thursday 18 June
Until no later than 1pm
Boundary Commission for Northern Ireland
Thursday 18 June
Until no later than 2.30pm
The Conservative Party
Thursday 18 June
Until no later than 3pm
The Labour Party
Thursday 18 June
Until no later than 3.30pm
The Liberal Democrats
Thursday 18 June
Until no later than 4pm
The Scottish National Party
Thursday 18 June
Until no later than 4.30pm
Thursday 18 June
Until no later than 5pm
Professor Richard Wyn Jones, Wales Governance Centre, Cardiff University
Tuesday 23 June
Until no later than 9.50 am
Dr Alan Renwick, The Constitution Unit, University College London
Tuesday 23 June
Until no later than 10.10 am
The Green Party
Tuesday 23 June
Until no later than 10.40 am
Professor Roger Awan-Scully, School of Law and Politics, Cardiff University
Tuesday 23 June
Until no later than 11.25 am
Professor Iain McLean, Department of Politics and International Relations, University of Oxford Professor Sir John Curtice, Department of Politics, University of Strathclyde
Tuesday 23 June
Until no later than 2.30 pm
The Association of Electoral Administrators
Tuesday 23 June
Until no later than 3pm
The Local Government Boundary Commission for England
Tuesday 23 June
Until no later than 3.30 pm
The Electoral Reform Society
Tuesday 23 June
Until no later than 3.50 pm
The Democratic Unionist Party
Tuesday 23 June
Until no later than 4.10 pm
Dr Jac Larner, Wales Governance Centre, Cardiff University
Tuesday 23 June
Until no later than 5 pm
Professor Charles Pattie, Department of Politics, University of Sheffield Dr David Rossiter
(3) proceedings on consideration of the Bill in Committee shall be taken in the following order: Clauses 1 to 11, the Schedule, Clause 12, New Clauses, New Schedules, remaining proceedings on the Bill;
(4) the proceedings shall (so far as not previously concluded) be brought to a conclusion at 5.00pm on Thursday 2 July. Chloe Smith has given notice of her intention to move a motion in the terms of the Resolution of the Programming Sub-Committee [Standing Order No. 83C].
Thank you for your chairmanship, Mr Paisley. We all look forward to serving with you. I welcome the shadow Minister and all members of the Committee. I am grateful to everybody for their time and to the witnesses.
It is important that we have a motion here that provides for four oral evidence sessions and six sessions of line-by-line scrutiny, with the option, should we need it, for afternoon sessions to run longer, but I am sure none of us wants any midnight finishes, so we will stick to the work in hand. This gives a good amount of time for the Bill to be properly scrutinised. I really welcome the fact that we have a wide range of witnesses.
I draw the Committee’s attention to the letter that everybody ought to have received from me already, outlining a Government amendment we are making with respect to the data to be used by reviews, which I hope is welcome in the light of the impact of coronavirus.
The Minister is referring to a letter of 15 June. I assume everyone has received that.
Question put and agreed to.
That, subject to the discretion of the Chair, any written evidence received by the Committee shall be reported to the House for publication.—(Chloe Smith.)
Copies of written evidence that the Committee receives will be made available in the Committee room. I believe they are at the back of the room.
That, at this and any subsequent meeting at which oral evidence is to be heard, the Committee shall sit in private until the witnesses are admitted.—(Chloe Smith.)
The Committee deliberated in private.
Examination of Witnesses
Tony Bellringer and Isabel Drummond-Murray gave evidence.
Mr Bellringer, you are very welcome before us, physically, and Isabel Drummond-Murray, can you hear me? Hello.
Isabel Drummond-Murray: Hello. I can, yes.
You are very welcome with us virtually. Thank you both for taking the time to join us and for allowing the panel to proceed.
We are now in public session to hear evidence from Tony Bellringer, secretary to the Boundary Commission for England, and Isabel Drummond-Murray, secretary to the Boundary Commission for Scotland.
Before I call the first Member to ask a question, I remind the Committee that questions should be limited to matters within the scope of the Bill. We will stick to the timings in the programme order. The Committee has agreed that for this panel we will have until 12.20 pm or thereabouts.
I ask any members of the Committee who wish to declare any relevant interests in connection with the Bill to make those declarations now.
I call the first witnesses. Will you please introduce yourselves? We will start with you, Isabel.
Isabel Drummond-Murray: I am Isabel Drummond-Murray, secretary to the Boundary Commission for Scotland.
Tony Bellringer: I am Tony Bellringer. I am the acting secretary to the Boundary Commission for England.
Minister, we move to you for questions.
Could you talk us through what it consists of to conduct a review? Also, given that this legislation focuses on having equal and updated boundaries, perhaps you would be able to give us some insight into the importance of updating your work, including the fact that we have a slightly shortened review for the first of the series of actions that is outlined in the Bill.
Tony Bellringer: How a review operates is set out in the current legislation. Prior to this review, the legislation was most recently and substantively amended in 2011, when the rules by which we work were changed. Essentially, we gather the parliamentary electorate from across the United Kingdom. There is a statutory formula set out, which calculates the distribution of the House of Commons seats across the different parts of the UK.
There are four commissions—one for each part of the UK. Effectively, each of us then works independently. At the end of the day, we have to come up with a report that recommends to Parliament the prescribed number of seats for that part of the UK. Currently, they must be within plus or minus 5% of essentially a mean average electorate figure for the constituencies, the official term for which is the electoral quota.
We go through a process of iterative public consultation; that process is also prescribed in the legislation. We have an initial proposal stage. We work slightly differently to the local government commissions, in that we start off by coming up with a scheme with proposals, and then we publish those and consult on them, whereas the local government commissions tend to consult first and then come up with some ideas.
The initial consultation then produces a raft of responses; we receive very many responses. We then work through all of those responses; we do genuinely consider every single response that we get. And we look at what we may need to change from our initial proposals.
Currently, we are required to do something called secondary consultation, which is publication of all the responses to the first consultation that we receive. So, there are no new proposals in there; it is simply giving people an opportunity to comment on what other people have said.
We then look at all the responses to that secondary consultation as well and come up with a set of revised proposals, which we again publish and consult on for a period of time. We then look at those again, decide whether any final changes need to be made, and then we write up our final report and recommendations. Currently, those are submitted to the Government, who are then required both to lay that report before Parliament and translate it into a draft statutory instrument, which must be actively debated by both Houses. If it is approved, those constituencies will be used at the next general election.
As for the second question about the importance of conducting a review now, the constituencies that we currently have were the result, in England, of a review that concluded in late 2006; the order was made in 2007. Those constituencies were first used in the general election of 2010. However, the process that led to that report began in 2000. Therefore, the electorate data that your current constituencies are based on dates from 2000.
A review was commenced under the new legislation, to report in 2013, and as we know from the Bill, there was also one that was held in 2018 and reported in the same year. To date, neither of those reviews have resulted in a new set of constituencies, so your existing constituencies are very out of date. So the Government have come forward with this proposal to set aside the recommendations of the 2018 review and proceed very quickly to another review, largely working to the same rules established in 2011, but with a slightly truncated timetable that I believe would see us report in July 2023, with—I guess—the idea being that you would then have about 12 months before the expected next date of a general election.
Isabel Drummond-Murray: I think that Tony has covered the legislative framework pretty well, so, no, there is nothing I would add to that.
“One of the most testing issues in the context of the revised statutory framework has been the requirement to reconcile the need to adhere to a fixed electorate tolerance (i.e. within 5% of the electoral quota) with the need to respect local ties and/or existing constituency boundaries.”
Do those concerns still stand and, if so, is there any way of alleviating the difficulties that the commission will face?
Tony Bellringer: Yes, the problem still exists. It is essentially a pragmatic problem. The smaller the tolerance level you allow, the closer you get to the pure principle of electorate equality between constituencies, and that is all to the good. The problem is that that makes it very much harder to have regard to the other factors that you specify in the legislation, such as the importance of not breaking local ties, and having regard to local authority boundaries and features of natural geography. Basically, the smaller you make the tolerance, the fewer options we have. That is what it boils down to.
How could you mitigate the problem? The only real way to mitigate it is to make the tolerance figure slightly larger. The larger you make it, the more options we have and the more flexibility we have to have regard to the other factors—but obviously, the further away you are moving from the pure principle of electorate equality. You do need to strike the balance somewhere.
The commission itself does not have a view on what the correct figure should be—before anybody tries to ask me that question. However, we would highlight the fact that some academic work has been done on this. I believe that you are due to interview Charles Pattie, who was one of the authors of a report in 2014 that looked specifically at the issue. He is more qualified to say than I am.
Tony Bellringer: Yes is the short answer. As you say, particularly in England we work or we have traditionally worked on the basis of using wards as our building blocks—I am sure there will be some discussion about that in due course. But as you say, a number of wards, particularly in urban authorities in England, are larger than the entire possible range that you are permitted—the difference, I should say—so by moving one ward, you will move from being too big as a constituency to being too small, with nothing in between, so you then have to start looking at splitting the wards, which becomes more problematic for us, for reasons that I am sure we will get on to.
Isabel Drummond-Murray: It is not possible to give an answer to that until we have the electorate data that the review will be based on. I think, informally, we did look at the December ’19 register, and if that were the one being used, it did suggest a reduction in seats in Scotland. Clearly, the Bill as drafted suggests the December ’20 register. Until we get those figures published, from whichever data is finally proposed by the Bill, we cannot tell you exactly how many seats there would be. We would have to run the formula that Tony referred to, and that would allocate between the four countries.
Isabel Drummond-Murray: It was problematic in the last review, because the public hearings were held during the initial consultation and that meant that you were trying to guess in advance where there was likely to be particular interest. You were trying to cover the geography and population of Scotland with five hearings, so if you held one in Edinburgh and one in Glasgow, you then had a large area to cover with the three remaining ones. The Bill proposes holding public hearings and a secondary consultation, which will help, because we will then have an idea of whether to hold the ones outwith the central belt in, for example, Inverness or Hawick. You just cannot tell. There is still an element of guessing, from the responses received, as to where people really want to come along and discuss in public what we propose, but yes, that will help. I think six also helps, geographically.
Isabel Drummond-Murray: We start the review by allocating loose groupings—they are not set out in legislation, but they enable us to divide up the country. As a preliminary step, we always look at the highlands first, because of the rule that an area bigger than 12,000 sq km can go below the minus 5% threshold. However, because of the way the legislation is worded, you would only need to go below that 5% if you could not reasonably construct a constituency otherwise, but we could. We found in the 2018 review that it was possible to stick within that plus or minus 5%, despite its being a very large constituency. I think Highlands North was the only constituency proposed in the 2018 review that was above 12,000 sq km, which is obviously geographically very large.
Isabel Drummond-Murray: We do not use polling districts, in part because there has not been an available Scotland-wide, up-to-date dataset that we could access. We create our own postcode datasets, so when we come down to split below ward level, if necessary, we do it on the basis of postcodes. We have always been able to split wards in Scotland, if necessary.
Tony Bellringer: In essence, there are two categories. One is mandatory—the plus or minus 5%—which we have to stick to and is obviously our primary factor. About half a dozen other statutory factors are set out in schedule 2 of the Parliamentary Constituencies Act 1986. We do not prioritise any of them formally. I guess we would look first at the rule about having regard to existing constituencies. So far as possible, we actually start off by asking how many constituencies that are currently there already fit the plus or minus 5% and whether we can start by not changing those. We then look at those that are not within the plus or minus 5% and think, “Okay; that is going to have to change, and that is going to have to change”. That is why you often find, unfortunately, that you may be sitting as an MP in a constituency that perfectly meets the plus or minus 5%, but your constituency changes because some of the neighbouring ones have to change and have to take in some of yours, or vice versa.
As I say, we do not have a firm ranking, but we then probably look at local ties. To a certain extent, you would expect existing constituencies to have already respected local ties, which is why it is not higher, because local ties are generally what people feel most strongly about—in fact, probably more than the numbers, to be honest. They accept the principle of electorate parity, but if you ask most people on the ground, they are more concerned about their local communities being split off from each other in the drawing of the lines. That is what the vast majority of responses to our consultation are about, so we do look at whether we are breaking local ties.
There is also the obvious map factor of physical geography and what are termed significant geographical features. River estuaries, mountain ranges and motorways are fairly obvious bits of physical geography that can have quite a significant impact on how you would want to look at drawing a constituency. Is that enough for you?
It is, yes, thank you. Ms Drummond-Murray wanted to answer as well from the Scottish point of view.
Isabel Drummond-Murray: It is a broadly similar process. As Tony said, you weigh up the factors and go through the process of the various consultation rounds. That is an important part as well: whatever we have weighted or not at the beginning, by the time we go through the consultation, it is all open to change. In the 2018 review, by the end, only 10 of our mainland constituencies were unchanged from the initial proposals. Whatever we do at the start is open to public views on things such as local ties, names and so on.
Tony Bellringer: Er, yes. [Laughter.]
Isabel Drummond-Murray: I was going to say that we never get it wrong—we have a technically correct proposal—but as I say, in consultation, we listen to people’s responses. Certainly, in our initial proposals, we set out constituencies that were very unpopular and we listened and changed them where we could. You are then constrained by how much you can change within the legislation and all the knock-on consequences of the change that you also have to throw into the mix.
Tony Bellringer: To clarify my initial flippant response, it is largely as Isabel says. You could almost say that we deliberately put some proposals out there at the initial consultation stage that are quite radical and, yes, get quite a lot of negative responses—Mersey Banks is a classic case. The other one that I have had to talk about quite a lot is moving the city of Gloucester out of Gloucester in the 2013 review.
We do that in the full knowledge that it is only the first round of consultation and people will tell us if they genuinely think it is a really bad thing to do. There are actually reasons for doing those things, but as I mentioned earlier, you are somewhat constrained by what is happening around that constituency. It might not be an ideal solution for that constituency, but it might have allowed us to solve a number of issues in neighbouring constituencies. It is not ideal, but we put it out there and test the water, because it is the first stage of consultation and we know full well that if we get a huge pushback on it, we will change it to something better.
Tony Bellringer: Yes. We would like to get it right first, but we are cognisant of the fact that if we do not get it exactly right first time, we have a process whereby we can correct it.
We genuinely do not know. We feel that it is probably going to be unpopular in that particular constituency, but, as I say, we have had to do it there. We think that, as a whole in the wider area, it provides a better solution. It is not a good solution for that constituency, but any alternative we have been able to come up with creates problems in those other constituencies. As an overall balance, we think that is probably best, but we recognise that you are not going to like it if you live in that particular constituency, so let us test the water and see what the general public opinion is in that area. Everybody in the area could come back and say, “No, there’s a better option.”
This is your third “final”.
I will not push it to a fourth. Do you have any consideration of constituencies that have multiple local authority areas? Some Members represent two local authorities and others represent three. Do you have any rules or guidance on minimising that?
Tony Bellringer: Yes. One of the statutory roles is having regard to local authority boundaries and local government boundaries. As far as possible, we try to limit the number of local authorities that the prospective MP of the proposed constituency will have to deal with. That is very much in our mind.
Isabel, did you want to add something?
Isabel Drummond-Murray: No, I was just agreeing. That would be the approach we would take, too.
Can I follow up on one of the responses to David Linden’s questions, about splitting wards to do what this Bill is trying to do, which is to create equal and updated boundaries across the whole of the United Kingdom? I speak as one who represents a constituency of 83,000 people—well in excess of what I am sure will be the eventual quota. Isabel was talking about the importance in Scotland of using postcodes to try to get some sense of equalisation. Could Mr Bellringer outline for the Committee what the approach is to splitting wards in England, and whether any experts have looked at this to give us advice on what is a good process to follow, particularly when it comes to polling districts?
Tony Bellringer: As I mentioned earlier, we have traditionally had a general policy of using wards as our building blocks. However, as you will know from the previous couple of reviews, there have been instances in which we have been prepared to split a ward to solve a problem in that area.
As Isabel alluded to, the difficulty in England is that we do not have access to a comprehensive dataset below ward level that contains the parliamentary electorates and associates them with the boundaries of whatever that unit is—a dataset that we can then manipulate in the software and quickly move those units around to recalculate the figures, because that is how it works. When we split a ward in England at the moment, we have to go back to the local authority and get the detailed breakdown, usually on a polling district basis, and manually calculate those figures, which really slows the process. If we were to move to a much more open process of using sub-ward-level units as our building blocks, we would have to source that data from somewhere.
Tony Bellringer: At the moment, we do not have the postcode areas in England. We would have to create them; they could be created, but it would take an awfully long time to do.
Between the 2013 and 2018 reviews, one of the things with which we kept ourselves occupied was constructing a polling district-level dataset with the help of Ordnance Survey, in order to map those figures against the actual polling district boundaries. That is almost the most difficult part of the process. We sort of have the figures already because we have access to the actual registers, which are usually subdivided by polling district. However, the polling districts are not mapped in a consistent way and we have to be able to associate the electorate figure with the actual boundary of the unit you are working with, so that when you move the unit, the numbers change accordingly. You need to have mapped those polling district boundaries electronically. We did that process, and it took us and Ordnance Survey about two years to map every polling district in England.
Tony Bellringer: As I say, we went through the process between 2013 and 2018, so at one point in time we had a polling district dataset that we could use. However, as you know, polling district reviews happen all the time across the entirety of England, so that single, comprehensive polling district dataset goes out of date almost instantly. There has to be a way of keeping it up to date. At the moment, that requires us to know who is doing the polling district review and when, so we can go and find out what they have changed it to. Do they have it mapped? No—then we need to get somebody to map it into the system. At the moment, there is no process by which the results of a polling district review are notified either to us or to Ordnance Survey so that it can be incorporated and the dataset can be kept up to date.
You are being asked to write a wish list on this issue. Could you do that for us?
Tony Bellringer: Yes. We did actually approach the Government at the time. We have kind of done the work to build that and issue one. There is a requirement for a local authority that does a polling district review to publish the findings, but they just do that by publishing it on a website, and it is also not necessarily in a mapped format. All it actually requires is a bit of something tacked on to that legal requirement to publish, which says, “You also need to send it to Ordnance Survey and the Boundary Commission.”
Could you give that to us within two weeks?
Can I ask one other question—will you indulge me, Mr Paisley? I noticed that the commissions try to minimise the disruption to existing boundaries in its proposals, which is obviously a sensible thing to do. I also noted that it has said in the past that the commissions are not obliged to shut their eyes to likely future growth. That is particularly noted in section 40 of the guidance that was produced at the last review. Will both commissions outline their approach to the next review and whether it will be the same sort of approach? I declare an interest in that I represent a part of the country that is building a lot of houses. To propose boundaries that will inevitably be changed radically in the future would seem to be a waste of the commission’s time.
Tony Bellringer: Immediately before we start a review, the commission meets representatives of political parties to talk about how it plans to operate its internal policies within the framework of the statutory requirements, and that is an example of the kind of thing that we would be talking about with them.
It is unlikely that it would change significantly. The fundamental principle in doing this work is that you have to at some point draw a line and say, “That is the data that we are working with.” You cannot build a house on constantly shifting foundations and so you have to say, “That is the data and we are going to work with that data.”
At the same time, where we are looking at competing options in an area, if one is obviously more suited to an area that is clearly growing in population—maybe we know that from strategic planning approvals that have gone through in the area—that will veer us towards that option as the preferred option. That is really what it means.
What we cannot do is say, “Well, okay, the electorate that we are supposed to be working with is this and the electorate is now this, so let’s use that instead.” We still have to stick to the original electorate figure, but be alive to the fact that it is clearly growing and can be demonstrated to be growing. That is quite key as well—we draw a distinction between proven growth in an area and projected or speculative growth in an area.
Tony Bellringer: Yes and no. The distinction I am trying to draw here is that if you have had a strategic planning development approved and it has been built and people have started to move in, you can say that those figures have changed—it is clearly growing. Even though those figures have derived from a point in time after the electorate data that we are supposed to be using, there is a clear indication that the area is growing. If you have had a strategic planning development approved, but it has not been built yet at the time we are doing our review, we might go, “Well, it is not as convincing.”
Isabel Drummond-Murray: I do not think there is much to add to that. We have to work with the electorate as set out in the legislation. On the local government side—I am also secretary to the Local Government Boundary Commission for Scotland—the legislation sets out that we take account of the forecast for five years.
That all points to the need for regular review. We draw a line when we know there is going to be growth and there is capacity to absorb it through the existing 5% tolerance. I guess we could take account of it, but it is not something that has featured particularly on the parliamentary side, simply because of the way in which the legislation is drafted. We use the electorate at the start of the review; we do not guess what the electorate will be at a point in the future.
We have four more questions and about 11 minutes on the clock, though I will push it on to get all the questions asked, because the evidence we are getting is very good for the inquiry.
Thank you for your evidence, Mr Bellringer. It has been really informative. I want to explore the building blocks further. To pick up on the polling district, you said that you had done a piece of work and commented that it was difficult to stay on top of the reviews that came through—to be able to understand them—but, as you have also just outlined, you cannot build on shifting sands. At some point, you have to draw a line. In terms of using polling districts to build in this review, do you have a set of data sat there that you could use?
Tony Bellringer: Not this time round—because it was so expensive last time, in time and money, in the resource that had to be put in to develop it, and yet it was so instantly out of date. In the actuality, when we came to it, because in the last review we were still using wards as our building blocks—it is still our general policy to use the wards as the basic building blocks—we only split half a dozen in the final recommendations. So the times that that would need to be used under our existing policy are few compared with the amount of time and effort that needs to go into producing it, and given how quickly it goes out of date, we just felt that it was not worth doing this time around.
It is important that we get some steer on how you could get away from using wards, which is a tradition—it is not legislated that it must be wards—because it negates having to go outside the 5%, which is another Organisation for Security and Co-operation in Europe recommendation, that for free and fair elections seats should not vary by more than 10%, and would allow the objective of keeping communities together, of keeping county constituencies together and away from borough constituencies. In my city of Leeds, my seat is a county constituency; the other seven seats are borough constituencies. That would be giving regard to keeping those existing seats together.
I am asking both commissions about the practicalities of what recommendations you would make to the Committee before we finalise these laws—how to get to a situation in which you can use the smallest building blocks to cause the minimum disruption, which is what you are really after when looking at constituencies. I am seeking some comment on that. Mrs Miller explored it well, but just outlining—
I think he has got the question, Alec. We are really appreciative.
Tony Bellringer: The policy of using wards is fairly long standing, and it has always been discussed with the representatives of the political parties in the meetings before each review commences. In the past, they have generally been supportive of that. It goes to the statutory factor of having regard to local authority boundaries, because a ward is a local authority boundary. We view a ward as almost a representation of a local tie; generally speaking, when the Local Government Commission does its work it should try to bring people of the same communities into one ward. We use that almost as a substitute.
Isabel Drummond-Murray: We certainly had a number of complaints about large constituencies bringing together communities that did not feel that they had anything in common with each other. Where possible, we made changes to reflect that. The tight tolerance of 5% meant that, initially, we had to come up with some ideas to put out for consultation. For example, we had a constituency in our initial proposal that stretched from rural south Perthshire down to urban Fife. There was very much a feeling that, “We do not have anything in common with that part of the constituency.” So yes, I think people take account of more than just whether their local community is kept together; some people have concerns about other communities that they are associated with.
Tony Bellringer: Yes.
My question is about electoral registration. Do you find that it fluctuates between general elections? Do we get a higher registration level at the time of a general election, and should that be the point at which we count the population for future reviews?
Tony Bellringer: One of the few things that we do in between reviews is collect the electorates and see how they change from year to year, but we get only an annual snapshot. If it is around the time of a general election, the electorate numbers tend to go up. Unsurprisingly, people are encouraged to join the register and are motivated more to do so. I know there are arguments about the accuracy of the register at any given point in time. I do not feel qualified to comment on that, but it is certainly true that the numbers go up around the time of elections.
Tony Bellringer: I am very pleased to say that we hold ourselves up as a model of independence in the process. During the substance of a review, we do not share with the Government, Government officials or Ministers any information about the substance of what we are working on that is not communicated to the public at large.
Tony Bellringer: We have been very clear in the past that we do recognise strength of local feeling. If there are lots of people locally saying a particular thing, that carries a lot of weight with us. However, it will not be an instant knockout if somebody comes up with what we feel is a very well argued solution that might not have been proposed by anybody else previously that in our view respects more of the different factors and across a wider area and provides a better solution overall—maybe not for an individual constituency, but overall.
Tony Bellringer: It is something that we always used to be able to do in the past and did do on occasion. Prior to 2011, there was not this hard maximum and minimum, but we would still be aiming to keep constituencies within a broad range. Occasionally we would breach that if we needed to, to provide a better holistic solution.
Chris, you have time for one quick question.
My question is about how to deal with county boundaries or sub-units within a region. It is specifically an English problem, obviously. I will take the north-west as an example because there are five discrete units. If we take Greater Manchester’s current electorate—I am using the December 2019 figures—we can neatly subdivide it into 27 seats that are just on the edge of quota. However, there are basically 49,000 extra voters that you could take in from Lancashire, so at what stage do you make a determination on whether to start splitting wards and have a neat compact unit within one county? Or do you start looking across county boundaries?
Tony Bellringer: As Isabel suggested, we have our nine regions in England, so we work within the regions. We start off by subdividing that as well, and we largely try and work with county units. As far as possible, we start off by trying to keep within county boundaries, but we might need to put a couple of counties together because we know that if you just do that initial mathematical calculation distribution, they end up with halves of constituencies in both counties, for example, and that will not work mathematically. You cannot have the smaller number or the higher number in either because they would be either too small or too big.
Tony Bellringer: We use the same distribution formula that is used to allocate the seats across the UK initially. We do that for the regions, and within the region we work out what we call a theoretical entitlement: if you use this agglomeration of a couple of counties, it would be allocated this many seats on the face of it.
Tony Bellringer: I do not think that it makes a huge difference to us if they do not have a legal standing. They are a recognised administrative unit, as you say, that is used by electoral administrators in the delivery of an election. That is another reason why at the moment we use wards, because, although they have more of a legal status in law, they are used as a unit by the electoral administrators to deliver elections. One thing that we do have a mind to is that somebody has to use this constituency in delivering the election, and we want to make that process as smooth as possible for the people actually running the election as well.
I am afraid that that brings us to the end of this session. As usual, it got more interesting as time went along. We probably could have had much more time, although I am sure that our two witnesses are very pleased that there is no additional time. However, it shows that there is considerable interest in this issue. More expert witnesses will come along now, so we will be able to continue some of these lines of questioning. I thank our two witnesses for coming today—you have been brilliant, informative and very helpful to the Committee. I thank you for your efforts.
Examination of Witnesses
Shereen Williams MBE gave evidence.
We will now hear from Shereen Williams, who is on the line. Shereen, can you hear us?
Shereen Williams: Hi. I can hear you.
You are very welcome. We are sorry for keeping you for a couple of minutes. I was only allowed to run over because we had a technical issue with bells ringing, and I felt that we lost a couple of minutes. We will not let that little technical difficulty deny you that time at the end of this either. Introduce yourself, and then we will move on to the Minister.
Shereen Williams: I am Shereen Williams, secretary of the Boundary Commission for Wales. I took up the role in January 2019, and I also head up the joint secretariat for Local Democracy and Boundary Commission for Wales, which is responsible for local government boundaries.
Thank you. I will call the party leads first, and then I will take questions.
Shereen, may I ask about how you hold public hearings? We have gone through some more general discussion with your two predecessor witnesses, so perhaps we might turn to this angle with you. As you will be aware, the legislation proposes moving the timing of one of the public hearings but maintains very firmly that there should be ample public consultation, which we think is really important for public accountability and public involvement. Perhaps you might give us some insight into how you manage that for Wales.
Shereen Williams: The challenge we have had in the past is that we have to pick the five areas in which to hold the public hearings quite early on, so we have to guess which areas might have the most challenge, in terms of proposed constituencies. It is hit and miss. Sometimes you could be there for two days, and you would have one full day of people turning up for the public hearings, and the next day there will be a much smaller number. It also uses up a lot of staff resources and the time of the commissioners.
The Bill proposes that that is done as part of the second round of consultation, which would give us a bit more flexibility on where we should physically choose to have these public hearings, based on the feedback and representations we get in the first round of consultation. For Wales, it is very important that we have an appropriate spread across the whole country, to make sure that people can get to a public hearing if they need to.
Shereen Williams: The challenge that we have in Wales is that whether we go with 600 seats or 650, Wales will take the biggest hit in terms of loss of constituencies. It would mean, I think, a massive change: across the whole country, I cannot guarantee that even seats that fit within the current limits will be able to remain intact. That is the challenge we have in Wales; the 5% does give a very tight range for us to work around.
I think the valleys will present a unique challenge for us, because you do not really want to split a valley and have half in one seat and the other half in another seat. It will require us to look at our building blocks and how we work on that, getting input from local communities and from local authorities—from our stakeholders—and asking, “If we had to go down the route of splitting a valley, what is the best combination to work?” I am aware that we had the exact same problem at the last review.
Shereen Williams: It would give us more flexibility, yes, to put communities together, but again, I think it is very clear that, as an independent body, we do not have a view as such on the electoral quota; that is something for our MPs to make.
Shereen Williams: From the commission’s perspective, it is about communities that are together. We look at your electoral wards and communities that are linked through joint programmes and projects. Also, quite uniquely, in Wales, as you are very aware, is the Welsh language. We take it into account that you have constituencies where there are lots of links to the Welsh language. That is something we would like to keep together. That, for us as a commission, is what we would consider a community tie as well.
Shereen Williams: I think it will be just as complex as the previous reviews, because we are losing quite a lot of seats. If you lost one or two seats, it might be easier to amend existing constituencies by adjusting, making small boundary changes, but the fact that the number is a bit bigger—if you lose eight rather than 11, that three will help slightly, but the complexity will remain the same.
Shereen Williams: I do not think that is something I can possibly comment on. As a commission, we are given the rules to work with, so it would not be up to the commission to comment on something like that.
Shereen Williams: In the past, we have made full use of that plus or minus 5% to make sure that communities are kept together. If the variance is changed, we would still use the same practice where possible. A constituency could have exactly 0% variance or minus 5%, minus 4%, minus 3% or minus 2%. We would work within those parameters in helping communities stay together. That would be our limit.
Shereen Williams: Like our colleagues in England, Scotland and Northern Ireland, we use electoral wards as our building blocks. However, if there was great difficulty, we would use community wards within the electoral ward. In the past, we have put forward proposals where one or two parliamentary constituencies had a split ward in them. It is a route that we would rather not take because it creates confusion for voters when you have a different local authority and a different parliamentary constituency compared with somebody who is in the same electoral ward as you.
Shereen Williams: The four Boundary Commissions are in regular contact. We rely on each other and we share good practice on a regular basis. In terms of those changes that have taken place in Scotland, I cannot imagine why we would not be able to invite Scottish colleagues to present to commissioners and to inform our thinking on how we deliver this report for Wales.
Going back to the question that my hon. Friend the Member for Loughborough raised about splitting wards, it is interesting that that seems to be something that can happen in Wales and Scotland, although the procedures are not as easy as they might be. We heard that from the commission in England. Would you be able to advise the Committee about working with Mr Bellringer on what would need to be put in place to ensure that, if it was helpful, sub-ward-level splits could take place? Would you be able to provide some more information for the Committee on that?
Shereen Williams: Scotland and Wales’s challenge is significantly different from England’s because of the number of electorates. Tony has to co-ordinate in terms of trying to get all the parliamentary constituencies set up for England. In Wales, we are used to splitting wards because we tend to do that for our local government boundary reviews, so we are quite comfortable with the practice of breaking up electoral wards and splitting up communities into sub-wards in order to create electoral wards—this is going back to community wards. In terms of sharing that practice with Mr Bellringer, that would not be an issue, but I have to acknowledge that he has a far more difficult job in hand compared with us in Wales and Scotland.
Rathlin Island. I think you are right.
I wondered whether, as somebody who was brought up in Wales and understands the importance of cultural identity within the Welsh nation and the psyche, you have thought further about how that constituency should be treated. I am a Hampshire MP, and the Isle of Wight gets particular protection because of that.
Shereen Williams: That would be something for Parliament to decide as to whether Ynys Môn becomes a protected constituency, as they have in Scotland and the Isle of Wight. It would not be for the commission to comment on that.
Shereen, thank you very much for your wonderful evidence and, more importantly, for getting us back on time. You have made my chairmanship so much easier. Thank you for giving us your time this morning.
Shereen Williams: Thank you for having me.
Examination of Witness
Eamonn McConville gave evidence.
Eamonn McConville: My name is Eamonn McConville. I am the Boundary Commission secretary for the Northern Ireland commission.
Could you speak up a little for us? It is not a problem I have, but it is one that some other people have.
Eamonn McConville: Sure, no problem.
We will move to the Minister first, then to the main party spokespeople, and then Shaun Bailey is the first on my list for this section.
Eamonn McConville: Yes, Minister. Northern Ireland is obviously geographically the smallest part of the United Kingdom, so we literally have less room for manoeuvre when it comes to creating our modelling of the constituencies. That can be compounded by the effects of rounding during the calculations under rule 8, when it comes to allocating constituencies to each part of the UK.
That can leave us restricted in our ability to create the correct number of constituencies under rule 2. The legislation does currently, and I think the new legislation does prospectively, include a small degree of flexibility that allows us to fall beneath or outside of the plus or minus 5% tolerance from the electoral quota, but as I say, that is there because it recognises the mathematical conundrum that can sometimes present itself in Northern Ireland.
Eamonn McConville: The parliamentary constituencies create the boundary under which the Northern Ireland Assembly constituency areas are formed. They are further subdivided into five areas for the Northern Ireland Assembly elections. There is that coterminosity that does not exist, for example, in Scotland.
For clarity, Eamonn, you said five areas, but do you not mean five seats in each constituency?
Eamonn McConville: Five seats, yes. Sorry, Chairman, that is exactly what I meant.
Eamonn McConville: The most pressing impact of covid-19 for ourselves in Northern Ireland is in relation to the recruitment and training of staff ahead of the commencement of the next review. There are obviously practical implications of being face to face while still maintaining social distancing, but there is the added difficulty that commission staff are seconded from other Departments. That is our normal practice. Those Departments are under pressure to resource their response to covid-19 and to Brexit, which is coming down the line. There is a real difficulty facing us at the moment in terms of getting staff in and trained in time for the next review, but we are working with Departments on that.
Eamonn McConville: We had hoped to recruit the first of the staff by September. We are a small team, so we plan to get the remaining two staff in by December of this year. We are still within a reasonable window, but time marches on fairly quickly when dealing with recruitment processes and getting staff released, so we are keen to get that work under way.
Eamonn McConville: During our public consultations, people are free to put forward whatever local issues or local ties pertain to themselves and their local areas. The one thing that we cannot take into account—this applies across the UK, to all of the commissions—is anything that would affect or is influenced by electoral trends, electoral outcomes and things like that. Anything that would fall under a local tie is valid, in terms of what we would consider.
The second part of your question was on the electoral quota range. Again, as my colleagues have told you, the 5% presents issues in terms of accommodating local ties more roundly across Northern Ireland. As I said earlier to the Minister, we have the flexibility in rule 7 in terms of geographical limitations, because of the particular circumstances in Northern Ireland. It is interesting to note that the flexibility in the 2018 review would actually have come within the plus or minus 7.5% that has been discussed previously by other people. It is not a huge degree of flexibility, but it does allow us—when we are restricted in circumstances under rule 2—to have a certain degree of flexibility.
Eamonn McConville: You are absolutely right that we now have the 11 local government areas, but we are working with different factors. In the last review, the 2018 review, we had 17 constituencies. While our considerations would have included trying to fit as many whole parts of local government areas into the 17 constituencies, the mathematics just do not allow for that, so we then take on board the other factors, which include local ties.
In Northern Ireland—it is similar across the UK—we have more major towns with satellite towns and villages around them. That is one thing that came to the fore in our consultation process, and we tried to accommodate that in our proposals as they went through the various consultation stages. There are similarities, but clear differences, simply because of the rules that we operate under.
Eamonn McConville: Do you mean for our initial proposals, or as the process progressed?
Yes, for the initial proposals, but perhaps you could say if you were diverted as the process developed.
Eamonn McConville: We operate with exactly—or very close to—the same operational methods as the other commissions. We all operate under the same legislation, with the requirement to carry out the three public consultations. As my colleague Tony said, the initial proposals are our best estimate as to what would be a good starting point. From there, we seek public views and, if required, we amend to accommodate those within the factors that my colleagues mentioned previously—local ties, geographical features, existing constituency boundaries. It is a very similar process to that outlined by my colleagues.
Eamonn McConville: Our building block is set out in the legislation as the local government ward that exists. In Northern Ireland, our electorate in each of those wards is smaller than, for example, in England. Tony spoke earlier of wards with 10,000. Ours typically have 2,000 to 3,000.
We still face the issue of how small we are geographically, plus having Lough Neagh right in the middle of Northern Ireland, so there are times when we are balancing all the factors. Consideration of splitting a ward does arise, but, like my colleague, there is no ready-made data set through which we could split a ward. We have to take that into account, whether by looking at geographical features or through another method. For the last review, we decided not to split any wards.