GOODS FOR SALE ON BOARD SHIPS OR AIRCRAFT (Hansard, 5 July 1999)

§ Mr. Patrick McLoughlin (West Derbyshire)
Will the Financial Secretary tell us why she considers the motion to be necessary?

§ The Financial Secretary to the Treasury (Mrs. Barbara Roche)
I certainly will.
We shall have a number of debates today on the matters covered by the motions, and during those debates, we will explain exactly why we are dealing with them in this way. It is, of course, natural for representations to be made during the passage of a Finance Bill, not only by hon. Members on both sides of the House—

§ Mr. McLoughlin
Will the Financial Secretary give way?

§ Mrs. Roche
Not at this stage. It will be my great pleasure to give way to the not-so-silent Whip when the time comes.
655 As I was saying, it is right for representations to be made not only by hon. Members on both sides of the House, but by industry. That has been the normal course of events during not only this Bill's passage, but the passage of Finance Bills under the Conservative Administration. Being a listening Government, we listen and take representations into consideration.

§ Mr. Oliver Letwin (West Dorset)
In due course, we shall debate the substance of the new clauses that deal with goods for sale on board ships and aircraft, but this motion paves the way for that substantive discussion. I think that this an appropriate time for us to ask a number of pertinent questions relating to the amounts of the taxes and duties being raised, which are of some significance, and which we debated to an extent when similar matters dealt with in statutory instruments came before the Standing Committee last week.
Can the Paymaster General—or the Financial Secretary, on her behalf—tell us how much money will be raised by this and associated measures? Can she also say how she envisages the money being used? If, as seemed clear in Committee, it is to go directly into the Consolidated Fund—as we would expect—what projections have been made as part of the forward look, how far have the figures already been incorporated in the Chancellor of the Exchequer's projections, and will any revisions to those projections be required?
In Committee, the Paymaster General waxed eloquent about the Government's difficulty in forecasting the financial effects with any degree of accuracy. [Interruption.] As the Financial Secretary says, from a sedentary position, she explained that it would be difficult to forecast the total effect of the change relating to duty-free sales. I assume that this measure will form part of those arrangements. If there is a difficulty of forecasting, how can appropriate numbers have been figured into the Chancellor's calculations? However, if numbers have been figured into his calculations, how can there be the difficulty of calculation to which she alluded during the Committee's consideration of the measure?
The answers to those questions will be helpful when it comes to consideration of the subsequent matters that are associated with the motion, and which fall to be debated a little later.

§ Mr. David Wilshire (Spelthorne)
I have a couple of questions to which I would welcome an answer when we debate the substance later. Both relate to the amount of money that will be raised by the measures.
The first relates to something that the Minister said in the Eighth Standing Committee on Delegated Legislation last week. One of the concessions that the Government said that they had obtained was that items that are dutiable, but consumed on board an aircraft or ship, would continue to be "free of tax"—I quote from the Hansard of the Committee. Before we start our debate later, may we be told whether it is free of tax—VAT—or free of VAT and duty? We need to have that point clarified, so that, when we debate the substance, we shall know exactly how much the concession is worth. If it concerns only VAT, it is hardly worth anything. If it concerns VAT and duty, it is a significant concession. That is something that we must debate, but we need the financial facts first.
656 On the other matter, I would be enormously grateful if, at the start of the debate on the substantive matters, the Government could let us have a list of those ports and airports that are geographically within the European Union, but to which the measures would not apply. What is the value of that concession, or exemption from the regulations that they seek to bring in? I should be grateful for answers to both those questions before we start the main debate.

§ Mr. Michael Fabricant (Lichfield)
I, too, would like to express my concern that there has been insufficient analysis of the split between duty and VAT, which my hon. Friend the Member for Spelthorne (Mr. Wilshire) has already mentioned. In particular, I wonder whether the resolutions would apply to airports and ports, or only the vessels and aircraft themselves. If they apply to airports, in the collection of VAT, how will a distinction be made between travel within the European Union and transportation that is undertaken by passengers outside the European Union—where, of course, the issue will be duty free?
The Minister will be aware that, for example, terminal 3 at London Heathrow has aircraft travelling to the European Union, to other parts of Europe that are not part of the EU and to the United States of America. Has she made any analysis of the burden on shops in trying to determine whether a boarding card is for the EU or outside the EU? Has she made any projections of how much extra revenue will be derived gross over the next five years from the collection of VAT and/or duties, compared with the actual disbursements by the state over the next five years as part of our contribution to membership of the EU?
Has the Minister estimated the costs that will be incurred by Government in ensuring that the new regime will be administered properly? Presumably, extra staff will be employed by Customs and Excise to ensure that the duties are maintained correctly. If that is so, what will be the marginal cost of employing extra staff for each of the next five years? For that period, what burden will the state—and, therefore, taxpayers—bear in implementing the measure?

§ Sir Teddy Taylor (Rochford and Southend, East)
Will the Minister tell us the implications for our further debates of approving motion 5? Motion 1 states that provision may be made in the Bill including provision having retrospective effect". However, in the paper submitted on 12 May, in Brussels, to the code of conduct group, the Minister said: This Scheme has been legislated but not yet activated. If there has been some error, will it have an impact on our further debates, bearing in mind that there is provision for retrospectivity in something that has not yet been—

§ Mr. Deputy Speaker (Sir Alan Haselhurst)
Order. I remind the hon. Gentleman that we are debating motion 5, not motion 1. As far as I can see, there is nothing in motion 1 about a retrospective effect.

§ Sir Teddy Taylor
I am not questioning that point. I am asking the Minister what relevance the motion will have to our future debates. I was simply citing the matter as an example of something that has already happened.

§ Mrs. Gwyneth Dunwoody (Crewe and Nantwich)
Has my hon. Friend the Paymaster General had an opportunity to look back over the papers from any previous Government who, 15 years ago, were aware of what would happen on the matter? Has she had access to the calculations that were made then? Will she also tell us whether she has had any access to the terms of reference of BAA plc on its responsibility being divided between the administration of airports and the creation of shopping malls?

§ Mr. Edward Leigh (Gainsborough)
Motion 5 is important, as it could have a significant effect on not only the public, but on Ways and Means motions generally and on the Government's finances. It is a thoroughly unpopular measure, which is being foisted on the British people against their will. However, the matter has now been settled and we cannot argue about it.
The Government pray in aid the fact that the measure will have a significant impact on Government revenue, as those who are affected by it will have to pay duty. Nevertheless, today, I think that we have to hear a bit more from the Minister about the precise revenue implications of a thoroughly unpopular and draconian tax increase being imposed on those who are simply trying to buy something on board a ship or aeroplane.
In this short debate, the Government might also make clear the precise implications of the measure for the various tax regimes as—now that we are getting rid of duty free—even the shortest journey by sea or air might pass through different tax regimes. It is not clear how the measure will be implemented in practice, or how the tax will be levied.
Therefore, not only will the public be losing a highly valued privilege—which they have enjoyed for a very long time—and the Government, by underhand means, be receiving revenue that they had not previously expected, but the public will be put to various inconveniences.

§ Mr. Fabricant
My hon. Friend mentioned implementation of the measure and various tax regimes. Does he accept that there could be very real difficulty in collecting duty from travellers on a flight going to a European Union destination and then on to a non-European Union destination? How does he imagine that Customs and Excise will ensure that the correct duties are applied at the correct time?

§ Mr. Leigh
My hon. Friend made that point in his excellent earlier comments. It certainly has not been made clear, to the House or the public, how that problem will be resolved. Clearly, different rates will apply according to whether a flight or sea journey originates from a European Union destination or from a non-European Union destination. However, a part of some air or sea journeys originating in a non-European destination will be made in the European Union. What tax will people pay on those journeys? The public could be very confused. The situation is not acceptable.
We should also consider the potential for the Exchequer to lose revenue because people in Dover and the Heathrow area will lose their jobs as a result of the loss of duty-free concessions. We now hear that such has been 658 the profit margin of many duty-free shops that they can apparently afford to ensure that the public buy their whisky or cigarettes for the same prices as before. That may be the case, but the Government cannot rely on it. They must come clean and explain the revenue implications.

§ Mr. Fabricant
Does my hon. Friend share my concerns and those of my hon. Friend the Member for Spelthorne (Mr. Wilshire) about the confusion in the collection of duties between EU and non-EU areas, and the considerable doubt about the sums that will be collected, depending on whether the duties concerned are VAT duties or excise duties in the normal sense of the word? Does he agree that it will be interesting to hear whether the Paymaster General is able to answer my questions about the differentiation between the collection of excise and VAT duties?

§ Mr. Leigh
The differentiation between excise and VAT duties is very interesting. My hon. Friend the Member for Rochford and Southend, East (Sir T. Taylor) also referred to it. I hope that the Paymaster General will be able to enlighten us. I have certainly received no enlightenment so far.

§ Mr. Letwin
My hon. Friend's remarks bring to mind a further oddity. Does he agree that the clause to which this motion refers would reduce the revenue accruing to the Exchequer? Is it not odd to have such a Ways and Means motion?

§ Mr. Leigh
I am not sure whether it is very usual. I do not understand why the Government are apparently reducing the revenue coming to the Exchequer. I cannot believe that that is their intention. I am sure that there is some misunderstanding.
What will be the effect of the revenue from duty free not being available for reinvestment in terminals and the transport network? That useful source of revenue will now be lost—

§ Mr. Deputy Speaker
Order. I must counsel the hon. Gentleman that he is going far too far.

§ Mr. Leigh
I apologise, Mr. Deputy Speaker. All those points have implications for the Ways and Means motion. If that revenue is no longer available, the Government must make up the shortfall somehow. The motion is incredibly important and we should have a proper debate on it. It should not just go through on the nod as yet another Ways and Means motion. The implications for the Exchequer are enormous. The public are being made to suffer. The Government are introducing an underhand tax rise which the public did not ask for. It is incumbent on the Minister to explain the implications for Ways and Means.

§ Mr. Fabricant
My hon. Friend is right to say that the issue should not go through on the nod. Was it not the Speaker's decision that up to 45 minutes should be allowed for debate on each of the Ways and Means motions? Would it not be an insult to the House if we merely nodded them through?

§ Mr. Leigh
We saw earlier that the Minister was trying to nod things through at the rate of an express train, 659 moving motions formally. That is not acceptable. The British people demand explanations from the Government and we intend to get them in this short debate of a mere 45 minutes. The public are angry and want an answer. It is incumbent on the Minister to give an answer from the Dispatch Box. If she does not, we should vote against the motion.

§ The Paymaster General (Dawn Primarolo)
The new provisions, which the motion provides the way for, would bring into United Kingdom legislation directive 92/12 EEC, which allowed only until 30 June 1999 the continuation of duty free for passengers to take away at the end of an intra-Community flight or sea crossing. I am sure that at the heart of all the points that have been made is a concern for passengers. I am delighted to be able to tell the House that shopping at Gatwick was easier than ever this morning. Gone are the complicated restrictions for Community travellers, who can now purchase as much as they like, duty paid. The tax-free shops have risen to the challenge and created a marketing opportunity, as we knew they would.
All travellers pay the same price for non-dutiable goods. Almost all prices have been held, emphasising what a good deal this is for the consumer. There is plenty of advice on hand, and travellers and retailers alike have adapted quickly to the new rules. BAA, for example, announced last week that it was holding at least 90 per cent. of all prices at exactly the same level.

§ Mr. Fabricant
I am not sure whether the right hon. Lady's remarks are strictly on Ways and Means. However, will she clarify how those concerned at terminal 3 at Heathrow, or at the Gatwick terminals—where travellers go within and outside the EU—know what VAT or duties to charge or not to charge? How do they know the passenger's ultimate destination?

§ Dawn Primarolo
It is up to the duty-free shop to ascertain whether the person is travelling within the EU or outside the EU. All travellers must produce their ticket to purchase at a duty-free shop, and the new technology in shops has been altered to cope with the arrangements.

§ Mr. Wilshire
I want to ask the hon. Lady about the figures for Gatwick, which are clearly important, as the sales post-duty free will determine the amount of revenue that the Government get. What proportion of the sales was to people travelling from Gatwick to the EU, and what proportion was sold to those travelling from Gatwick to destinations outside the EU? That will tell us how much is duty paid and duty free, and will enable this House to determine what income the Government will receive. The other thing that we need to know—

§ Mr. Deputy Speaker
Order. The hon. Gentleman can make a brief intervention, but not a second speech.

§ Mr. Wilshire
I understand your point entirely, Mr. Deputy Speaker. What quantity of goods within those figures is being bought by individuals, so we know how much extra is being taken on aircraft?

§ Dawn Primarolo
I intended to assure Opposition Members that airports and ports—I gave Gatwick as an example—were coping admirably with the new arrangements. Alas, I do not have responsibility for the commercial success or the figures of those shops, or for the flow of business through them. I was addressing whether things were running smoothly at our airports.
Conservative Members asked me about the expected increase in revenue, and VAT in particular, following the change in arrangements. Last week, we discussed a statutory instrument that also amended our legislation, and I made it clear to the hon. Member for Spelthorne (Mr. Wilshire) and others that it is difficult to give a precise estimate, as the increase will depend entirely on the decisions of shoppers and those who provide the facilities for them.
It is estimated—it is only an estimate—that there could be an increase of £120 million a year, but that depends entirely on how the companies providing the services seize on the new commercial opportunities that are now open to them. That is certainly outside the Government's control. I made it clear in Committee that we would monitor closely how the arrangements work and assess whether they continue to provide the best opportunities that we can secure after the abolition of duty free.
The hon. Member for Spelthorne asked two specific questions, and I hope that it will be in order for me to answer them now. First, I can confirm that consumption on board, once the journey has started, will be free of both VAT and excise duty. Secondly, the territories involved outside the EC fiscal area are Andorra; the Aland Islands; the Channel Islands; Gibraltar; the Republic of San Marino; the Canary Islands; the overseas departments of France; and Mount Athos. I am sure that that will help the hon. Gentleman enormously when he takes part in the relevant debate later.
My hon. Friend the Member for Crewe and Nantwich (Mrs. Dunwoody) asked about regulations, especially with regard to airports. I have not seen any. She asked about the preparation undertaken by the previous Government. There was no preparation, to my knowledge, and that made the task all the more difficult for the Government and the traders as my right hon. Friend the Prime Minister sought a deferment of the abolition of duty free, to enable us to get a good successor regime in place. We had very little time. There has been great co-operation between the traders, airport authorities, ferry companies and Customs and Excise to try to get the best result for everyone.

§ Mr. Deputy Speaker
Mr. Oliver Letwin.

§ Mr. Letwin
Thank you, Mr. Deputy Speaker. I was going to try to intervene on the Minister, but she finished before I could. I want to ask—

§ Mr. Deputy Speaker
Order. I apologise. I had not realised that the hon. Gentleman had already spoken. I called the Minister on the understanding that she was winding up the debate, so we must now put the Question.