GOODS FOR SALE ON BOARD SHIPS OR AIRCRAFT

HC Deb 05 July 1999 vol 334 cc728-37

'.—(1) For subsection (4) of section 1 of the Customs and Excise Management Act 1979 (goods for sale on board ships or aircraft to be treated as stores) there shall be substituted the following subsections—

"(4) Goods for use in a ship or aircraft as merchandise for sale to persons carried in the ship or aircraft shall be treated for the purposes of the customs and excise Acts as stores if, and only if—

1. (a) the goods are to be sold by retail either—
   1. (i) in the course of a relevant journey, or
   2. (ii) for consumption on board; and
2. (b) the goods are not treated as exported by virtue of regulations under section 12 of the Customs and Excise Duties (General Reliefs) Act 1979 (goods for use in naval ships or establishments).

(4A) For the purposes of subsection (4) above a relevant journey is any journey beginning in the United Kingdom and having an immediate destination outside the member States.

(4B) In relation to goods treated as stores by virtue of subsection (4) above, any reference in the customs and excise Acts to the consumption of stores shall be construed as referring to the sale of the goods as mentioned in paragraph (a) of that subsection."

(2) This section shall be deemed to have come into force on 1st July 1999 but shall not have effect in relation to any shipment of goods before that date.'.—[Dawn Primarolo.]

Brought up, and read the First time.

Dawn Primarolo

I beg to move, That the clause be read a Second time.

As hon. Members will know, until last week, passengers on ferries, hovercraft and aircraft travelling within the European Union were able to buy duty-free goods, either on board or at duty-free shops at ports and airports. Within the EU, duty free came to an end on 30 June. All merchandise sold for take away must now be sold duty and tax paid. The new clause makes the necessary changes to the Customs and Excise Management Act 1979, bringing the Act's provisions into line with a decision taken unanimously, in 1991, by the previous Government and all other member states.

Several statutory instruments preceded the new clause to give effect in UK legislation to the abolition of duty free. From 1 July, goods sold to the travelling public for them to take away at the end of journeys within the EU are subject to VAT at the rate applicable in the member state of departure. Excise goods, such as tobacco and alcohol products, are chargeable with duty at the rate of the member state of departure or of the country of destination—depending on where they are sold.

The vast majority of journeys within the EU can benefit from the simplified procedures introduced by the Government, and from the concessions that we managed to extract from the Commission. In the few areas where the simplified arrangements cannot operate, discussions have been held with service providers to ensure the smooth introduction of the successor regime.

The new regime is working smoothly, but the Government will keep the implementation of the scheme under review to ensure that—should further amendment be required—we can assist the trade and the travelling public. That includes the possibility of returning to the Commission to press for any changes that may become necessary.

I commend the new clause to the House.

Mr. Letwin

I have already declared one potential interest in that a pet-food shop might be a client of my bank; I now declare another in case some airline or shipping company is also a client.

We accept that the measure is a corollary of the removal of duty free. In the Standing Committee to which the Paymaster General has already referred, we fully exposed the fact that both the previous Government and the then Opposition were partners in crime in bringing about that sorry state of affairs. Moreover, we have adequately exposed the history of the matter. Notwithstanding the protestations of the hon. Member for Wrexham (Dr. Marek), formerly the shadow Economic Secretary, the present Prime Minister came into office, believing, for some reason unknown to man or beast, that he could change something that was locked in unanimous cement—why, I cannot imagine. To his great astonishment, and that of the British public, he found that he could not change it in the least. That, of course, represented a major triumph for the getting to the middle of Europe, sitting at the table and then being eaten thesis—why we have to be at the top table and retain our so-called influence.

Leaving that on one side, the devil is in the detail; that came out in our debates in Standing Committee. The provision makes it clear that the Paymaster General inadvertently misled the Committee in explaining the state of the law. It also demonstrates the depth of the mess. Paragraph (4A) of the new clause is the operative item. It tells us that in order to be "a relevant journey", a journey has to begin in the United Kingdom—that is uncontroversial—and has to have an immediate destination outside the member States. You were lucky enough to avoid the Standing Committee where two problems arose, Mr. Deputy Speaker; we christened them the Gibraltar problem and the Basle problem. The Gibraltar problem came to light only after the Paymaster General realised, and correctly and helpfully informed the Committee, that Gibraltar was not actually part of the EU. We had previously thought that it was a Casablanca problem. I had thought that, in order to get duty free, one would have to fly to Casablanca and then on to Gibraltar, because Casablanca is—I quote new clause 6(4A)— an immediate destination outside the EU, but it turned out that actually one only had to fly to Gibraltar. As long as one goes to Spain via Gibraltar, one will be able to collect duty free; if one goes to Spain directly, one will not.

9.15 pm

My hon. Friend the Member for Spelthorne (Mr. Wilshire) brought out the more vexed issue of the Basle problem. Should Basle airport be privatised, I would recommend that hon. Members consider investing in it early, because Basle has the lucky escape, so to speak, of being in two countries—Switzerland and France—at once, or in neither country at any time. As a result, if one wants to travel inside the EU to France and one happens to be clever enough to do it via Basle, one will also be entitled to duty free, even though one will be walking straight out into France.

Those were just two of the very large run of problems that were brought up, and that illustrated the complicated farce that the present proposals will give rise to. The Paymaster General, in an eloquent series of utterances, told the Committee that it was a puffed-up thing and that no one need worry because Passengers would have to go to Casablanca, get off the plane, go into the airport and then rejoin the plane before take-off. Then she said rhetorically to the Committee: What am I supposed to do about duty-free goods outside the EU?"—[Official Report, Ninth Standing Committee on Delegated Legislation, 1 July 1999; c. 16.] Unfortunately, today, the Paymaster General produces new clause 6 and subsection (4A), and we find that the relevant item is the "immediate destination". It turns out that there is no need to get off the plane at all; it is quite sufficient for that place to be the first stop on one's journey. While one is there, or on the way there, the things that one is sold are stores in the technical meaning of the term and therefore may be sold duty free—and hey presto, the mess is not only a mess, but a mess the character of which, it turned out last week, the Paymaster General has not understood.

Undoubtedly, during the coming weeks and months, clever lawyers, clever airlines and so on will illustrate a heap of other such messes. I am sure that the Paymaster General will then return to the House and say that she never meant any of those things and that she really had quite a different clause in mind. It is just a pity that she has not brought that before the House today.

Mr. Edward Davey

Does the hon. Gentleman think that people travel for duty free or to get from A to B?

Mr. Letwin

The hon. Gentleman, unlike many of us in the House, is obviously not a skier. I have to tell him that there are lots of ways to get to Switzerland and lots of ways to get to France, and quite a lot of them end up by getting from A to B; it is just that one can choose to go via C, D or E. He would be very well advised to think of going via Basle in future.

Mr. David Wilshire (Spelthorne)

Thank you for calling me, Mr. Deputy Speaker. I have little doubt that you would rule a general debate about duty free out of order, so I shall confine myself to some specific matters that are raised by new clause 6, which are relevant to duty free in general but more specifically to the financial arrangements.

I am worried about this issue because my constituency is hard up against the boundary fence of Heathrow, which means that either many hundreds, or a 1,000 or so, constituents of mine depend on the duty free trade for their jobs. It also means that a significant number of customs officers who work at Heathrow are my constituents. Perhaps more important still, almost all my constituents—whether they travel for duty free or for other reasons—enjoy duty free, so I am very much involved in the entirety of this debate.

I am worried about new clause 6 because it gives effect to changes that will lead to redundancies in my constituency, and that will put pressure on the decreasing number of customs officers—decreasing because the present Government see fit to reduce the number of customs officers at Heathrow fairly regularly. In case the Paymaster General is tempted to say that new clause 6 will reduce the work load of customs officers, I would respectfully suggest that it will actually increase it because, previously, anyone passing through terminals 1, 2, 3 and 4 bought duty free and away they went, and the Customs and Excise people knew the score. Now, it will be necessary to decide, when a person leaves, for example, from terminal 1, where the heck they are going, or if they are arriving at terminal 1, where they have come from. As a result we shall need more, not fewer, customs officers—or very clear assurances from the Paymaster General that the existing customs officers will not be put upon unreasonably.

The new clause also confirms the Government's failure to prevent something happening that they trumpeted that they would prevent. It is a failure by the Government from which they cannot hide on this occasion. When the Paymaster General replies, it will not be good enough for her to say, "We have obtained some wonderful concessions." I heard her try that trick last week.

I have had a good, long and hard look at the so-called wonderful concessions, and one of them bears mentioning. We were told that, if a ferry is coming across the English channel and someone happens to get himself into the shop before the vessel enters territorial waters, there is a concession that enables the individual to continue shopping. However, the small print states that, after three months the concession will disappear. So much for the Government's marvellous negotiating skills when they go to Brussels.

There are a number of matters concerning the new clause on which I seek clarification. I begin with the concept that it is founded upon the treating of goods in ships and aircraft as stores. Are we absolutely clear what we mean? The clause states that it is necessary to refer to section 1(4) of the Customs and Excise Management Act 1979. That is where we must turn to find our definitions, and I did that this afternoon.

Section 1 of the 1979 Act amounts to four and a half pages of various definitions. The section goes so far as to draw a distinction between a ship, which is defined, and a British ship, which is also defined. Search as I might, I could find no definition of an aircraft. If we are to be told in the new clause that we must refer to the 1979 Act for a starting point, where is the definition of "aircraft" from which we must work?

The Paymaster General may shake her head and think that I am being pedantic. However, she tells us that we must refer to the 1979 Act for a definition of "ship". I ask her to provide us with one for "aircraft".

Another feature that bothers me about the concept of treating goods as stores is that the new clause refers to "Goods … carried." It does not refer to goods loaded. Here, there is a problem. As it is made clear in the definition that we are talking about ships and not British ships, we are talking about any ship that comes into a United Kingdom port carrying goods.

Let us suppose that a Norwegian ship leaves Bergen and calls in at Newcastle. There is no problem because it has come from somewhere outside the European Union. However, it is carrying duty-free stores from Bergen which it will take back to Bergen. If I understand the clause correctly, if that ship returns directly to Bergen, there is no problem. It will not have landed anything but it will have duty-free goods on board. However, if that ship, having sailed from Bergen to Newcastle, calls in at Rotterdam before returning to Bergen, Customs and Excise will have to board it and make a list of every last thing on it and make those concerned pay duty, which they may or may not have paid back when they leave Rotterdam to go to Bergen. That is the nonsensical feature of referring to "Goods … carried" and not goods loaded. I shall be most grateful if the Paymaster General will tell us why the particular wording has been used.

I am also concerned about "relevant journey" as a definition. We are told that it equals an immediate destination outside the member States. This afternoon, the Paymaster General helpfully gave me a list of those parts of the European Union that are outside the customs union. One of them was Andorra. Another that has been mentioned is Gibraltar. However, we are told that a relevant journey must take one outside a member state. Gibraltar is not outside a member state. It is part of the European Union, but it is outside the customs union.

The Andorran situation bears closer scrutiny. Last time I was there, huge numbers of French matrons driving Renaults and Citroens were bombing up and down the mountain, going up empty and coming down full, and seemed to be making numerous journeys every day. If they can go on doing that, why cannot we, when we go across the channel?

I am worried about whether the definition of "relevant journey" is accurate. My hon. Friend the Member for West Dorset (Mr. Letwin) referred to the Basle-Mulhouse problem. I shall not detain the House by rehearsing the stupidity of it, but when I was given a list of parts of the EU that are outside the customs union, I got wonderful places in the Caribbean and other bits of France all over the place, but no mention of that lovely little part of France that is occupied by Basle airport.

As the Paymaster General told us in Committee last week, if we travel into Basle airport from Heathrow, we can have all the duty free to which the allowances entitle us, but it is in France, so the information that we were given this afternoon was, I suggest, duff information. It did not include all those parts of the EU that are outside the customs union.

Will the Paymaster General therefore revisit the answer that she gave me and try again? Will she also tell me whether the definition of "relevant journey" as an immediate destination outside the member states is sufficient, given that she admitted that travelling to a part of France can be construed as a relevant journey? There seems to be some trouble with the drafting.

There is a further problem with the definition of "relevant journey". If we leave Tilbury and head for Tangier, that is a relevant journey. If, however, we have engine trouble on the way and put in in Vigo in northern Spain, do Her Majesty's Customs and Excise have to fly out to Vigo to say, "Oops, sorry, this is not a relevant journey any more, so we want to make sure that you give us all the excise duty and VAT."? If not, where is the qualification in the legislation that states that an unexpected diversion into an EU state does not trigger the problem that I am highlighting?

Mr. Fabricant

My hon. Friend contrasts the difference in travelling from one part of the EU to another, not involving the UK. He asked whether there had been a mistake in the drafting. Does he think that we have over-egged the European Union directive and made it a tougher regime than it need otherwise be?

Mr. Wilshire

I am certain that we shall behave as we usually do in the United Kingdom, and rigorously enforce measures while others shrug their shoulders and may or may not bother to enforce them. That is one of the reasons why we suffer time and again at the hands of Brussels bureaucrats, when others get away with ignoring them. Again, Mr. Deputy Speaker, if I went down that track for much longer, you would rightly call me to order.

Another phrase that concerns me in the wording of the new clause is "for consumption on board". We have not had an explanation why the Government suggest that. I am all in favour of as many concessions as we can get, but this seems illogical. The reason why our harmless bit of fun has been taken away, as I understand it, is that the Brussels bureaucrats decided that it was against the interests of the single market for us to be allowed to buy duty free as we travel round the EU.

If we travel from Paris to London, we are travelling within the EU, but the Brussels bureaucrats say that it is perfectly all right for us to have duty free, provided that we consume it. That is daft. If we can get a concession for consumption, why not other concessions?

The exception is incredibly difficult to enforce. Someone travelling on a ferry may be thirsty and buy lots of drinks, only to be taken ill because the sea is rough. What will he do? He has bought drinks to consume, but has not consumed them. Will customs officers tear around the ship checking what people have eaten, drunk and smoked as they make their journey and demand duty if they have not finished a bottle? We need an explanation.

9.30 pm

Another thing bothers me about the words "for consumption on board". We now know that duty-free prices at places such as Heathrow were seriously inflated—we are talking about £5 on an £8 bottle of spirits. We are granting an exception so that ferry companies and aircraft operators can sell duty-free drinks to passengers. Do the Government plan to make it compulsory for bar price lists and menus to make it clear that the person serving drinks is taking advantage of a duty-free perk? If they do so, there would be a warning of some sort and, when people paid, they would not make the mistake of comparing bar and menu prices with those in what was the duty-free shop and is now the duty-paid shop to judge whether they were being ripped off.

What do the Government have in store for Eurostar in respect of the words "for consumption on board"? When people catch a ferry from Dover to Calais or fly from Heathrow to Charles de Gaulle what they eat, drink and smoke on the ship or the aircraft is duty free—that is the concession—but it is not if they catch a train. That also is illogical. Perhaps the Paymaster General can tell the House why Eurostar and Le Shuttle have been singled out for such particularly nasty treatment.

Mr. James Gray (North Wiltshire)

Has my hon. Friend noticed the astonishing urgency with which the Minister's Parliamentary Private Secretary is dashing up and down to pick up bits of briefing? He is obviously hitting a few bull's eyes.

Mr. Wilshire

I am fully expecting detailed answers to all my questions. Although some Labour Members may think that I am being a bit of a nuisance, Mr. Deputy Speaker—[Interruption.] I apologise, Madam Deputy Speaker—[Interruption.] I apologise, Madam Speaker; you can tell that I have been carried away by my enthusiasm.

The new clause raises two other issues—the safety of aircraft and environmental damage. Profit margins are being cut and the holding down of prices in what were duty-free shops will work only if sales increase. There is now no limit on what people can buy duty paid at Heathrow airport or wherever and it therefore follows that it is perfectly possible to buy a large number of bottles of spirits.

When I raised that issue with the Paymaster General in Committee last week, I received the answer that airlines would not allow vast numbers of bottles to brought on board. However, the number does not have to be vast. Someone with no hand luggage could easily bring four or five bottles on board instead of one. That would be within most airlines' limit. Alternatively—this has already happened—someone could buy a large number of bottles and arrange for the aircraft operator to carry them in the hold.

I represent part of Heathrow, and I am worried by the thought of large quantities of inflammable liquid in glass bottles hurtling about the skies. I believe that we have opened up a safety problem and I should be grateful if the Paymaster General would address it. I am also concerned about the extra weight that will be carried by aircraft. It would be easy to say that I am making another pedantic point, but if the weight carried by an aircraft increases the burn of aviation fuel increases and further damage is done to the atmosphere and the ozone layer.

There is a simple solution to the problem that the new clause causes: the Government should allow the sale of duty-paid products at lower foreign prices to arriving passengers at British airports. They would not then need to go to Charles de Gaulle airport in Paris to stock up with huge numbers of cheaper bottles. They could fly with less luggage, the aircraft would be safer and there would be less chance of environmental damage. I commend that approach to the Minister.

So many messages have been passed to the Paymaster General that I have probably asked enough questions of her. I see that another answer is on its way to her as I speak. I hope that she will not fall into the trap of saying simply that I am being difficult, or trying to wile away a few minutes. All my questions are serious. They raise difficulties about the wording of the clause and the workability of a forthcoming Act of Parliament. All of them need clear answers, although some were technical and, if the answers being passed to the hon. Lady do not answer them in detail, I should be grateful to receive a written reply, copied to the Library.

I deplore what has happened. It has spoiled the fun of many. It causes redundancies in my constituency, and it is yet another reason why the EU's powers need to be taken away. But I am a realist. What has happened has happened, and we must get the Bill right. Will the Minister repeat the undertaking that she gave in Committee to introduce the changes with the lightest possible touch from Customs and Excise in the early stages, when problems will arise? Will she repeat her undertaking to review absolutely everything over the next three to four months—not just what suits her—to see whether we can learn from the mistakes that the Government have undoubtedly made?

Dawn Primarolo

I will not say that the hon. Gentleman was wasting time, and he was wrong to suggest that I should. I think that he is misguided, and that he has not paid attention to the fact that the successor regime operates already. He obviously has not read the newspapers or the undertakings given by suppliers about the possibility of job losses, but I understand entirely why he, like any good constituency Member, is particularly concerned about the future employment of his constituents.

The hon. Gentleman was present when I made it clear that preparations for the abolition of duty free and arrangements for the successor regime were working smoothly for traders and travellers. I am happy to repeat that Customs and Excise will work closely with the trade and will apply the light touch for which he asked. We shall review the work of the successor regime in the light of experience. The hon. Gentleman will have seen that many of the disasters that he predicted, and which he continues to forecast, have not happened.

The hon. Gentleman asked why on-board consumption was VAT free. The Commission announced on 2 October 1998 that member states could continue to allow goods consumed on board to be relieved of VAT. I explained in Committee that the Government would allow that to happen.

Mr. Wilshire

The Minister may recall that I asked whether consumption was exempt of tax alone or of tax and duty. She may have made a slip of the tongue, but I understood her to say that goods would be free of VAT. Will they be free of VAT alone, or duty too?

Dawn Primarolo

I am sorry; I misheard the hon. Gentleman. I thought that he was asking about VAT only. The position that I set out earlier on excise duty and VAT is correct.

The hon. Gentleman asked about the immediate destination provision. As I said in Committee, if a flight involves a stop-over outside the European Union, travellers have a limited entitlement to duty-free goods. As he well knows, it is a very limited entitlement and may not be the bargain that they thought they would get.

Over the next few months, the staff of Customs and Excise will concentrate on helping the industry to adjust to the new regime. In the long term, Customs and Excise does not expect the duty-paid regime to be any more demanding of its resources than the former duty-free regime.

The hon. Gentleman may have seen the report in The Sunday Telegraph on the decision of British Airways not to sell alcohol and tobacco on flights, but to continue to offer other goods under the EU restrictions.

As I said to the hon. Gentleman in Committee, safety is a matter for the airline companies, which are perfectly capable of enforcing a reasonable attitude towards the carrying of duty-paid goods, and are doing so.

The hon. Gentleman's final point was on triangular routes. A ferry may move through several duty regimes. As I said in Committee and in my opening remarks, the simplified arrangements apply to the majority of journeys. However, in the exceptional case of triangular routes, fuller accounting procedures are required. Those operators are already used to dealing with more complex accounting of their stores and sales under the old regime. The problem that the hon. Gentleman forecasts is not manifesting itself in the spectacular way that he continues to suggest.

The Government would have preferred more time to work on a successor regime, but it was not available to us. We would have preferred it if the previous Government had made some preparation for the abolition of duty free, for which they voted, but they did not. In the circumstances, we have a regime that has been welcomed by the trade, that is working well for the travellers, and that is ensuring that the transition from duty free to the new regime is as smooth as it could possibly be. I commend the new clause to the House.

Question put and agreed to.

Clause read a Second time, and added to the Bill.