Background Briefing: Why Theresa May’s Capitulation to the ERG Has Killed Her White Paper - People's Vote

Background Briefing: Why Theresa May’s Capitulation to the ERG Has Killed Her White Paper

Overview

On Monday 9 July, the Taxation (Cross-border Trade) Bill had its report stage and third reading. The European Research Group (ERG) of backbench Conservative MPs tabled four amendments, all of which were accepted by the Government.

The Prime Minister has denied that her acceptance of the ERG amendments means her Chequers proposals is dead. But the reality is that the amendments have made her proposals even more contradictory and unworkable than they already were. This briefing outlines the damage done by each of the four amendments.

 

Top Lines

  • Once again, the Government has proved that it's dancing to the tune of Jacob Rees-Mogg and his band of Brextremists by accepting wrecking amendments which undermine its own Brexit negotiating position.
  • These amendments do nothing to advance the cause of achieving any meaningful outcome to the Brexit negotiations. In fact, each of these amendments have made the proposals outlined in the Government’s white paper even more contradictory and unworkable than they already were.
  • It now looks more likely than ever that we will end up in a “no deal” scenario with a hard border in Ireland that nobody voted for, and huge disruption to trade, aviation, security, medicine supply and food imports.
  • With ministers now resigning from this shambles of a government, and support growing for a People's Vote on the final Brexit deal, it's time for Parliament to give this back to the people.

 

New Clause 36 - Tariff reciprocity  

What it means in practice

  • This amendment means that the UK will not be able to collect tariffs on behalf of the EU unless the EU collects tariffs on behalf of the UK, in the event of the EU and the UK entering into a customs arrangement as envisaged in the Government’s white paper.

Problem: It means the EU is now almost certain to reject the Government’s customs proposal

  • Many in the EU were already opposed to the idea of a facilitated customs arrangement, in which the UK would effectively become the EU’s tax collector, policing its external frontier. This amendment will make it even less popular, as it would rely on EU countries taking on a huge additional administrative burden and cost.

Problem: The amendment also directly contradicts the white paper

  • Section 1.2.1 of the white paper, which refers to the ‘facilitated customs arrangement’ which the Government hopes to enter into with the EU, states that “[T]he UK is not proposing that the EU applies the UK’s tariffs and trade policy at its border for goods intended for the UK."[1] The Government now finds itself in direct conflict with its own white paper.



New Clause 37 - No border in the Irish Sea

What it means in practice:

  • There could be no separate Great Britain and Northern Ireland customs territories and the UK would have to remain as one customs territory.

Problem: It makes agreeing a ‘backstop’ with the EU extremely unlikely:

  • According to the December 2017 EU-UK agreement, which the Government signed up to “In the absence of agreed solutions, the United Kingdom will maintain full alignment with those rules of the Internal Market and the Customs Union which, now or in the future, support North-South cooperation, the all island economy and the protection of the 1998 Agreement.”[2] The EU has been clear that this so-called “backstop” cannot apply to the UK as a whole. On 8 June 2018 Michel Barnier stated that “Let me be clear: our backstop cannot be extended to the whole UK. Why? Because it has been designed for the specific situation of Northern Ireland.[3]


Amendment 72 – No Customs Union without Act of Parliament


What it means in practice

  • The UK is now only able to enter into a Customs Union with the EU if this were passed by a separate Act of Parliament

Problem: Means the UK cannot remain in the Customs Union

  • This amendment means that the Taxation (Cross-Border Trade) Bill cannot be the conduit for the UK to be in a Customs Union with the EU. Combined with New Clause 37, this significantly increases the chances of no deal.

 

Amendment 73 – Separate VAT regime

What it means in practice

This is the most technical of the four amendments but in practice means that the UK would be in a separate VAT regime to the EU.

Makes a hard Irish border even more inevitable

  • With the UK in a separate VAT regime to the EU, this would again raise questions over additional border checks on the Irish-Northern Irish border, where, post-Brexit goods entering the EU from outside the EU would also need to be cleared for VAT purposes.[4]

 

[1]https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/725288/The_future_relationship_between_the_United_Kingdom_and_the_European_Union.pdf

[2] https://ec.europa.eu/commission/sites/beta-political/files/joint_report.pdf

[3] http://europa.eu/rapid/press-release_STATEMENT-18-4105_en.htm

[4] For more information, see here https://europa.eu/youreurope/business/vat-customs/cross-border/index_en.htm & https://ec.europa.eu/taxation_customs/business/vat/eu-vat-rules-topic/chargeable-event-chargeability_en#_Imported_goods