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Tuesday 2 May 2018

A recent Commons committee hearing with HMRC’s top brass reveals Brexit contingencies are not nearly extensive enough.

In October we posted on the blog this item covering Philip Hammond’s convoluted ideas to resolve the then crisis-in-waiting over the Irish border. The piece covered in earnest the nonsensical ‘new customs partnership’ the government had floated at the time, formally pitched to Brussels a month ago.

Under the customs partnership, Britain will hold onto the EU’s external tariff, thereby negating the need for a border on the island of Ireland. The UK would however take back control of its trade policy and seek to offer discounted tariff rates on imports from non-EU countries with whomever it strikes commercial deals after Brexit.

The concept is fraught with technical complications. Each consignment entering the hybrid UK/EU market would need additional tracking to ensure discounts were appropriately awarded. And with goods flowing freely into different markets within the same trade zone, Brussels would insist on full regulatory alignment. The government concedes it is “unprecedented”, Jacob Rees-Mogg has called it “cretinous”, which is putting it charitably – see today’s Brexit Brunch for details on the ultimatum issued by Rees-Moggs’s European Research Group.

The hybrid proposal, along with other contingencies of varying levels of detail first surfaced in the government’s August trade position paper, making a return appearance in HM Treasury’s Customs White Paper in October, the focus of our blog piece.

The EU has since had a chance to chew on the British government’s ideas, before unceremoniously spitting them out. The contingencies vaguely sketched out in the white paper need fleshing out now more than ever. Case in point:

The government is actively considering ways in which to mitigate the impacts on traders of such a [WTO] scenario, and the Customs Bill will make provisions that would allow the government to implement such facilitations.

All well and good, but the Customs Bill is merely the framework, upon which Britain’s entire customs infrastructure depends. In its examination of how HMRC will have to adapt to withdrawal from the EU, the Institute for Government outline the need for massive investment in new personnel, IT systems and land for inspection. The authorities will need to expand checks currently performed on the 30% of goods trade currently transported to the UK from outside the EU to the remaining 70%, which a no deal would entail.

The HM Treasury document does not give this massive undertaking the consideration it deserves, although £3bn was allocated to Brexit transition at the Autumn budget a month later. Adapting customs will be by far the most resource intensive aspect of decoupling from the EU, surely HM Treasury’s big money commitment had British borders foremost in mind.

Fast-forward seven months and the picture becomes decidedly mixed. On Monday, Jon Thompson, boss of HMRC, and Jim Harra his deputy appeared before the Commons Public Accounts committee to update MPs on the department’s progress.

Yes, funding has been allocated – £260m in 2018/19 to be precise – to both adapt IT systems and hire staff. Contingencies are being mapped out. Revenue and Customs have been caught in the middle of a long transition from an existing British-designed electronic import and export declaration system known as CHIEF to a new one, based on the EU’s system, known as CDS (Customs Declaration Service). Wisely, the transition has been sped-up, the deadline is January 2019. No panic if they fail to reach their target, HMRC will simply have to keep both systems going. The only major drawback is that, in sticking with the EU system, the government has yet another excuse for remaining in the Customs Union or a version of it.

The other big task is purchasing land to inspect a larger volume of lorries away from major ports like Dover, Folkestone and Holyhead. These ro-ro (roll on roll off) ports currently deal almost exclusively with EU freight currently not requiring inspection. They will need to be converted in the event Britain goes it alone or agrees to a traditional trade agreement with Brussels.

To avoid delays and traffic jams, the simple solution is to check consignments at HMRC depots around the country, away from bottlenecks like the M20 joining Dover to London. For this, the government has no choice but to invest in real estate. At the committee hearing, Brexiteers’ worst fears were realised. Nothing is being done to expand inspection capacity. See the extract from the hearing below:

Sir Geoffrey Clifton-Brown (Conservative): I will tell you why I asked that question and then get your reaction. A television programme produced some fairly horrendous statistics showing how a very small delay to each Customs transaction at Dover would lead to huge traffic jams building up on the M2 and the M20. Do you have contingency plans to deal with that? Do you think the Government have sufficient infrastructure to park those lorries somewhere without causing absolute mayhem on our roads system in whatever Brexit scenario might take place?

Jon Thompson: The government’s position is that it continues to plan for a contingent exit.

Meg Hillier (Chair – Labour): It is all right planning, but it is going to happen soon, so what will you do when it happens?

Thompson: That is the Government’s position. You might not like it, but that is the government’s position: to continue to plan for a contingent exit.

Hillier: Is HMRC buying land around Dover?

Thompson: I can continue to repeat the line if you want me to.

Hillier: But are you planning to buy land?

Clifton Brown: Let’s try this a different way: do you think the Government’s planning is at a sufficiently advanced stage to stop these things happening? Clearly, we will look the laughing stock of the world if we cannot process Customs and lorry and traffic movements properly at Dover or any other port.

Thompson: The border planning group has been asked to produce two integrated plans: one in relation to infrastructure, and the other in relation to IT systems. We have a conversation about CDS, but there is a large number of other IT systems across the Government—85 from memory—some of which have to be new. Although we have a detailed conversation in relation to the totemic nature of CDS, there are a wide range of others that you may come across in the course of the Committee where you may not think they are quite as far on as CDS.

Clifton Brown: You are not answering the question.

Thompson: I’m getting round to it.

Clifton Brown: No, you are not. Let me have another go at it. Are you in detailed discussions with the Department for Transport on a contingency of how you will deal with delays in Dover and other ports?

Thompson: Yes, on a contingent basis.

Hillier: Does that include purchase of land?

Thompson: That’s a matter for the Department for Transport.

Clifton Brown: Rotterdam, for example, has been purchasing a considerable amount of land to deal with this and, as you know, they have made some very critical public comments about Dover’s preparedness to deal with this situation.

Thompson: A body that is not in public hands, of course.

Thompson’s colleague, Jim Harra then revealed a new pre-clearance system is being piloted at Felixstowe, which handles large volumes of non-EU imports, with checks conducted inland. However, it’s one thing testing out a well-known formula, investing in the necessary infrastructure to implement it is quite another. Chillingly, Harra also admitted: “If we were to leave with no deal in March 2019, there is not the time to have all the infrastructure in place for an optimum compliance model.”

Not only Rotterdam, but also Calais is buying up land to boost capacity. We are not. It says everything about this government that where we are building contingencies in IT, those fall-backs are merely the status quo, and the objectives are to entangle ourselves further in the EU’s customs systems. Where the only contingencies to pursue are entirely unilateral and have nothing to do with syncing in with the EU, barely a finger has been raised.