Eighth Standing Committee on Delegated Legislation
Tuesday 29 June 1999
[Dr. Michael Clark in the Chair]
Excise Duties (Personal Reliefs) (Amendment) Order 1999
4.30 pm
The Paymaster General (Dawn Primarolo): I beg to move,
That the Committee has considered the Excise Duties (Personal Reliefs) (Amendment) Order 1999 (S.I. 1999, No. 1617).
I thought that it would assist the Committee if I put the order in context of the decision to abolish duty free. It is a modest measure. As hon. Members will know, passengers on sea crossings or flights between European Union member states are currently able to buy duty-free goods at duty-free shops, or on board ships or aircraft, and bring them into the United Kingdom without paying excise duty. There are, of course, limits as to how much they can buy--typically, it is 200 cigarettes and a litre of spirits.
The privilege of being able to buy duty-free goods on journeys within the EU will end at midnight on 30 June. That decision was not taken by the present Government, but it is one that we have to implement. Together with other EU member states, the previous Government decided in 1991 that duty-free sales should end on 30 June 1999. It must have seemed a long way in the future. Certainly, there is no evidence that between 1991 and May 1997 the previous Government gave any thought to the consequences.
The present Government, by contrast, take the duty-free issue seriously. We fought hard over the past 18 months to get the best possible deal. When, towards the end of last year, it became clear that we had the chance to achieve better arrangements for the excise duty successor regime, Ministers fought for and achieved a good deal for the duty-free industry and for travellers. We have achieved simplifications that will keep the burden of the duty-paid successor regime on business to a minimum.
The Government supported the view expressed by a number of member states, including Germany and France, that a case could be made for a limited extension of duty frees, so that the arrangements for a successor regime could be better considered. At ECOFIN--the council of finance ministers--on 25 May, the Chancellor fully backed the French suggestion that the matter should be discussed at the Heads of Government meeting in Cologne on 3 and 4 June. By so doing, we have kept the issue alive.
Over the past six months, the Government have successfully pressed the Commission for sensible interpretations of the law. We have secured important administrative simplifications that will help to make trade in duty-paid goods as straightforward as possible.
Mr. David Wilshire (Spelthorne): I am interested to hear the Paymaster General say that there has been enormous simplification as a result of Government pressure. What simplification has been achieved?
Dawn Primarolo: I was about to explain that, in order to put the order in context.
The Government pressed the Commission for sensible interpretations of the law and secured important administrative simplifications, which will help to make the trade in duty-paid goods as straightforward as possible. In seeking a better deal, we have striven to keep the burdens on business to a minimum and to give ferry and airline operators the best chances of competing in this market. I can give the hon. Member for Spelthorne (Mr. Wilshire) the examples that he asked for in his intervention.
When aircraft fly over several countries, the duty rate will not keep changing. Similarly, when ferries merely pass through the territorial waters of a member state without docking there, the duty rate will not change. Ferries and aircraft do not need to account for duty and claim reimbursement when goods are not available for sale--for example, on entering the territory of a high taxing member state. In those circumstances, goods can be sold at the lower taxing member state's duty rates as soon as the ferry or aircraft departs from the higher taxing member state's territory.
There is no need for official accompanying documents--normal commercial documentation will suffice. Aircraft and ferries may continue loading goods in the United Kingdom without having to pay excise duty up front. Ferries and aircraft do not need to account for duty on individual journeys--rather, they can account on a monthly basis, in arrears. Ferries and aircraft can offset claims for reimbursement of United Kingdom duty against payments due without completing separate returns. The successor regime that will be implemented is different in those respects from that which was originally on the table six months ago.
In the meantime, Customs and Excise has been talking to the trade to ease its transition to the new trading environment in which it will operate. The trade, of course, has lobbied long and hard to retain duty frees, if not permanently, then for a transition period. Many of its representations have focused on achieving an extension, but throughout, it has also made some representations about the nature of the successor regime, and discussions have taken place with interested parties from a cross-section of the United Kingdom duty and tax-free business.
The views of the trade sector have been taken into account at all stages in determining the United Kingdom line on the abolition of duty frees and the nature of the successor regime. Customs and Excise held discussions with the trade on the administrative simplifications needed, some of which have been negotiated, as I have just described. In recognition of the logistical difficulties facing the industries in changing their retail environments to cope with the ending of duty frees, Customs and Excise has agreed some transitional arrangements.
First, duty-free shops at ports and airports will retain their status as tax warehouses for three months, to allow them to make changes to cope with the new arrangements. During that period they will be able to sell stock purchased and held free of duty direct to members of the public, charging them the appropriate VAT and duty due on the goods. Normally, a shop would have to draw, for sale to European Union passengers, merchandise that had already been charged with excise duty. The facility is similar to that which we grant to any excise warehouse given the statutory three months' notice for closure, to allow the duty-free shop or warehouse to run down or exhaust its stocks of duty-free goods.
Also, under the new arrangements, ferry operators will be required to ``shut up shop'' when they do not intend to make sales in United Kingdom seas. However, for a period of three months, when the shop is physically closed and no further passengers are allowed to enter, operators will be able to continue to make sales at the rates of the member state of departure to passengers who are in the shop when it closes.
With the co-operation of the trade, the successor regime can be made to work. Customs will continue to consult fully on all aspects of its implementation. If unforeseen practical problems arise, we will not hesitate to press the Commission for further improvements.
I have talked about some of the technical simplifications that we have achieved. However, I am sure that hon. Members are most concerned about the effect of the provisions on the travelling public. What difference will passengers see on 1 July? There have been many scare stories about shops closing halfway across the channel or not opening at all. The reality is unlikely to live up to those images.
As regards airports, the British Airports Authority has already said that it does not expect to increase prices on 90 per cent. of the product lines available in its shops. As regards aircraft, the simplification that we have achieved will mean that operators who want to sell dutiable products at prices that compete with continental shops will be able to do so 20 minutes after take-off. Those who travel on aircraft will appreciate that that is a reasonably short period. As regards ferries, operators are still working out the best way of offering their passengers the best deals. However, many will use the full range of simplifications that we have created to produce an attractive and, as they put it, competitive shopping experience.
We must not forget that duty free will continue for passengers who travel to third countries. Within the European Union, the drinks and foods that passengers buy for consumption on board will remain tax free.
One may ask why, if we could delay the ending of duty free, we could not phase the process out over a few months Unfortunately, that was not possible, and the United Kingdom could not do so unilaterally. That would entail changing the law that comes into effect at midnight on 30 June, which would require a proposal from the Commission and unanimity among member states. As I said, customs is working closely with the affected industries to implement the new arrangements as straightforwardly as possible and with a light touch in the next few months.
Duty-free sales for passengers who travel within the European Union come to an end on 30 June. That requires us to make several legal changes, and we are dealing with one in particular today. At present, the Excise Duty (Personal Reliefs) Order 1992 permits travellers to bring excise goods that are bought in duty-free shops at ports and airports or on board ships and aircraft into the UK without paying UK excise duty. From 30 June, there will be no need for relief from the payment of excise duty on duty-free excise goods because no duty-free goods will be available to travellers within the European Union. The amending order therefore removes the relief.
The personal reliefs order will continue to provide for travellers to purchase duty-paid goods in other members states and to bring them into the UK, providing that they are not for a commercial purpose. The personal reliefs order does not apply to passengers who travel from outside the European Union, who are covered by other legislation. Such passengers may continue to bring in duty-free goods.
The order also makes explicit the current implicit right of courts and tribunals to decide whether goods that are purchased in another member state have been brought into the UK for commercial purposes and are thus not entitled to relief from UK excise duty.
Together with the Value Added Tax (Abolition of Zero-Rating for Tax-Free Shops) Order 1999, which we will debate later this week, the order gives effect in UK law to the European Union legislative changes agreed in 1991 by all member states. However, customs has been consulting and will continue to consult trade interests on the working aspects of the successor regime in order to ensure that we achieve the best possible regime.
4.45 pm
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