Tax on Imports under £135

Question

14:36:00

Asked by

To ask His Majesty’s Government whether they plan to take action to tax imported goods worth below the £135 threshold for value added tax.

My Lords, VAT is already due on all imports into the UK. The Government are reviewing the customs arrangements for imports under £135 and are exploring the merits of reform to the online marketplace rules.

My Lords, I am glad the Government are reviewing it; as the Minister is aware, the noble Lord, Lord Lucas, RAVAS, the British Retail Consortium and many others have been campaigning on this issue for many years. Now that President Trump is reducing the exemption tariff for goods into the US, there will be extra pressure on Chinese suppliers to send goods VAT and duty-free to the UK. I understand that the EU is minded to reduce the exemption to zero in 2028. Can we be assured that the United Kingdom will not wait for the EU in reducing our exemption to zero?

I am grateful to the noble Lord for his question. Just to be clear, again, VAT is already due on all imports of goods into the UK, regardless of their value. Since 2021, VAT on imports below £135 is collected at the point of sale. There is some evidence of non-compliance, so the Government announced in April that we will review the online marketplace rules. We are engaging with stakeholders to understand the impact of any potential changes. On customs duty, given the concerns of domestic retailers about the lack of a level playing field, we have also announced a review of those arrangements. Since the Government announced the review in April, both Ministers and officials have engaged with a wide range of stakeholders on the impact and operation of the regime. The findings from that engagement will help determine the review’s next steps.

My Lords, I will row in behind the noble Lord, Lord Leigh, on this issue. Could we get a slightly more satisfactory answer on why it is taking so long to find a solution so that the UK can collect the VAT that is due on small items? Will the Minister remember not just that we need the money for tax revenue but that the lack of a level playing field disadvantages British companies in this arena, which find that their goods are displaced by imports because they are not paying VAT?

We fully recognise all the issues that the noble Baroness has set out, which is exactly why we established a review in April. That review will look at the online marketplace rules to establish whether they can be amended to remove opportunities for businesses to avoid their VAT obligations. All available options will be considered, and it will proceed in the way that we set out.

Further to the question from the noble Lord, how concerned are the Government that, as a result of the Trump tariffs, Chinese goods will be diverted to our market to our detriment?

The Department for Business and Trade has set out our measures to try and prevent that from happening, and it will continue to monitor it, as you would expect it to.

My Lords, broadening the topic on taxation a little, at the weekend the Transport Secretary said that in Labour’s manifesto it committed not to put up taxes on people on modest incomes. Can the noble Lord tell us the Treasury’s definition of a modest income?

The Government have pledged not to increase taxes on working people, which is why we are not increasing income tax, national insurance contributions or VAT.

Can I help the Minister on how to collect a lot more in tax revenues by attacking the anomalies? By taxing capital gains and dividends at the same rate as wages, and by charging national insurance at the same rate, the Government could collect around £15 billion a year. Another £14.5 billion could be raised by restricting tax relief on pension contributions to basic rate only. Can the Minister explain why the Government have not tackled anomalies that favour the wealthy?

I am always grateful to my noble friend for his Budget representations. He knows that I am not going to get into speculation about the next Budget and that, in terms of what we have done so far to tackle the tax gap, the Government announced the most ambitious package ever to close it, raising £6.5 billion of revenue in terms of the Budget. In the Spring Statement, the Government announced further measures which will raise over £1 billion in additional tax.

My Lords, to go back to the Question, foreign firms exporting to the UK are making increasing use of the current arrangements. As a result, domestic producers are disadvantaged and the Treasury is forgoing what could be a substantial amount of tax revenue. Given the concerns expressed across the House, does the Minister agree that the time has arrived to deal with this anomaly, and to do so as a matter of urgency? Has the Minister discussed options with the businesses affected in the UK, and when will the review that he talked about conclude? We would all like to see the conclusion of this debate so that our retailers are not adversely affected.

I agree with almost everything that the noble Baroness said, but she failed to point out that it was her Government that established the existing system and it is this Government who are reviewing it with the intention of changing it. I agree with all the criticisms that she puts forward, but they are criticisms of her own Government. As I say, we have set out a review, and officials are currently engaging with stakeholders to understand the impact of any reforms and have so far held multiple round tables covering some 70 businesses. All available options will be considered, and we will come forward when we have concluded the review.

My Lords, can the Minister tell us how long this has been a problem, and whether anyone attempted to resolve it over the past 15 years? Can he say whether this is another case in which this Government have failed to put right 14 years of Tory mismanagement?

It is not quite 14 years, I think; these rules came in in 2021. The previous Government prioritised trade facilitation in the aftermath of Brexit and, since 2021, VAT on imports below £135 is collected at the point of sale to prevent congestion at the border. However, this has opened up some opportunities for the rules not to be followed. We recognise that and have established a review, which the previous Government did not.

My Lords, this imprecision is not helping. In answer to my noble friend Lord Bridges and the noble Lord, Lord Sikka, there was an attempt by the Minister to indicate what modest incomes were. However, equally confusing and rather upsetting is the Government’s inability to define what exactly they mean when they talk about “wealthy people”. Can he be a little more precise and helpful to us?

The noble Lord is very kind in trying to get me to speculate on the Budget, but that is something that I am not going to do. I will not be giving a running commentary on the fiscal forecast, nor will I be speculating on the next Budget now. The Government have pledged not to increase taxes on working people, which is why we are not increasing income tax, national insurance contributions or VAT.

My Lords, the last Government removed the VAT exemption for tourists—the ability to reclaim VAT—which hit a lot of retailers and crafts companies based in the UK. The unique campaign to get that tax removed united people like the Scottish National Party with the Labour Party. Is that now a done deal? Will the tourist tax remain in place, or will the Government ever review it in terms of attracting international visitors?

Again, I am very happy to take that as a Budget representation. As the noble Lord knows, we keep all taxes under review, but I will not be speculating on the next Budget.

My Lords, the Government have very wisely produced a number of 10-year strategic plans for the country, which have generally been welcome. The one area where we have not done any serious work is on taxation, and the fact is that both the wealthy and less wealthy are going to have to pay more money in the future to deliver these strategies. On VAT, there is a good deal of opportunity for flexibility, and the Minister has indicated that a review is taking place. Could that not be widened to see how far VAT could be extended to raise additional funds? Beyond that, could we not think about a review for a 10-year strategy on taxation for the country? We might try and bring in the Opposition to get them involved with it, too.

I know this is something that is close to my noble friend’s heart, and he has made those points to me several times. As I have said before, I am happy to take that as a Budget representation, but I am not going to speculate on the next Budget now.

My Lords, would the Minister just like to confirm that, when he talks about working people, he means self-employed people and anyone with a payslip?

I think that is a fair definition of that phrase, yes.

My Lords, I have a question to the Minister: why are we always talking about taxation and not being more efficient with our spending?

We have just completed a zero-based review of the whole of government spending. If the noble Lord has areas of spending that he would like to cut, I am very happy to hear them.