Skip to main content

HMRC Impact Analysis: Customs

Volume 664: debated on Tuesday 8 October 2019

To ask the Chancellor of the Exchequer to make a statement on HMRC’s published impact analysis of introducing new customs legislation and amendments.

I am delighted to respond to the right hon. Gentleman’s question. The Government are devoting huge energies, as the House will know, to Brexit preparations. The Prime Minister has stated that the Government’s preference is to leave with a deal, but, if necessary, they will leave without a deal as it is so vital that we get Brexit done and move the country forward. The last thing that businesses need is more uncertainty and delay. A key part of those preparations is to ensure that there is a functioning customs, VAT and excise regime on exit to put the legal underpinnings in place. HMRC has laid 56 regulations to date following last year’s Taxation (Cross-border Trade) Act 2018 .

To support the latest bunch of statutory instruments, which were debated by this House yesterday, the Government published a third edition of the overarching impact assessment of the movement of goods if the UK leaves the EU without a deal. This updates and builds on previous versions of the impact assessment, which were published in December 2018 and February 2018. The new version provides updates to cover the September 2019 regulations, including transitional and other arrangements for safety and security declaration requirements for the period after exit; further temporary customs and excise easements to extend the transitional arrangements after exit; further VAT data-gathering powers to specify the type of information that was collected from postal operators; and, finally, various technical amendments and transitional provisions.

As I have said, our preference is very much for a deal, but the Government continue to ensure that this country is ready for no deal and that the impact on business is minimised as far as possible, which is why we have introduced a series of easements for traders moving goods in the UK to take effect in a no-deal scenario. Those easements, for example, are planned to simplify radically import processes for EU goods, which means that the costs identified in this impact assessment will be mitigated for UK importers. Crucially, the Government are also working to boost the long-term potential of the economy so that the United Kingdom can seize the opportunities that exist for us outside the EU.

Perhaps I can help the Minister fill in some of the gaps in the statement. The Government’s own assessment shows that their no-deal Brexit policy will introduce

“significant ongoing administrative costs impacting on UK and EU businesses of all sectors.”

It is an avalanche of paperwork descending on British businesses in the form of import, export, safety and security declarations. The burden will cost our business sector an annual £15 billion in administrative costs, and that does not even include the costs of complying with the new VAT procedures, which will hit our vital service companies—all this to pursue the hardest possible Tory no-deal Brexit.

We have heard the Prime Minister’s previous crude dismissal of British business. Now we are seeing his words become Government policy. Does the Minister not understand that this only compounds the uncertainty brought about by this Government’s failure to secure a deal that protects the UK economy? A senior No. 10 source, who I most believe to be the Prime Minister’s adviser—well, I say “adviser”—Dominic Cummings, said:

“We’ll either leave with no deal on 31 October or there will be an election and then we will leave with no deal”,

and that everything to do with the duty of sincere co-operation that we have with the EU partners

“will be in the toilet”.

Does the Minister agree with the priorities set out by No. 10 as a result of that statement? Does he also challenge the Institute for Fiscal Studies, which said today that this would push UK debt to its highest level since the 1960s, soaring to 90% of national income?

The reckless incompetence of this Government just knows no bounds, does it? At a moment of national crisis, this Government pose a threat to their own people and the economy they rely upon. Has the Minister any idea of the scale of the destruction of confidence in the British economy that this Government’s stated policy is bringing about?

This is a long document at some 45 pages or so, but I would have hoped that the right hon. Gentleman could have made it to page 9. He claims that the cost to British business will be £15 billion, but it says perfectly clearly at the bottom of page 9:

“The latest…estimate for the annual administrative burden…is £7.5 billion (updated to reflect 2017 data)”.

I am in no sense happy about that—[Interruption.] I am just correcting the record. The right hon. Gentleman said £15 billion, when in fact the figure is £7.5 billion. That figure is, of course, prior to any mitigations that might be put in place by the Government.

Let me turn to the right hon. Gentleman’s other concerns. He criticised the Government for, as he puts it, failing to secure a deal. All his party had to do was support the perfectly sensible series of deals that have been put before this Parliament, and it would have a deal.

I am not going to comment on unsourced speculation of the kind mentioned by the right hon. Gentleman. Let me just remind the House that when this Government’s predecessor came into office in 2010, debt was at a peacetime high thanks to the previous Labour Government. The deficit was at almost 10% and, interestingly, inequality under the Labour Government was significantly higher than it is today.

The number of customs declarations is likely to increase from 50 million now to 250 million when we have to start to export to the EU. This will be governed by a customs declaration service system. Will the system cope, and will there be enough agents to handle that volume of transactions?

We believe the system will cope. Of course, there are a lot of easements in place, and there is already a functioning CHIEF—customs handling of import and export freight—system to handle the current level of declarations.

I think the Minister is in denial. The cost is £15 billion—£7.5 billion from UK to EU trade, and a comparable amount from EU to UK trade, which will no doubt be paid by consumers and businesses here. This denial runs to the heart of this whole problem. The Prime Minister said that leaving the EU would save £1 billion a month. That clearly only adds up if we ignore and deny any costs such as the £15 billion that we are talking about today. But it is worse than that. This figure is an annual recurring cost, so how will it be mitigated?

The figures exclude additional one-off costs. How will they be mitigated and have they even been assessed? They ignore the new VAT rules on parcels that are damaging to small businesses. How will that be mitigated and has it actually been assessed? The £15 billion also excludes the serious damage done to exports of low-margin items where this cost burden may be significant. Has that been assessed? Finally, the figures ignore the multiple damages done to businesses that ship part-finished goods back and forward across borders many times, which multiplies the administrative burden. Has that been assessed? How many business will be damaged and what mitigation is being put in place?

As the House will know, a lot of mitigations have already been passed through statutory instruments, including instruments in relation to stream- lining customs import processes and procedures, special procedures for other areas, and deferment of import duty and VAT. Only yesterday, we passed a statutory instrument on safety and security declarations on our imports.

Mitigation very much depends on the shape of any deal. As the House will appreciate, the figures we are discussing today pertain to a worst-case scenario of a no-deal impact. There are many other areas in which the EU has already indicated that it is happy to give mitigations—for example, in relation to some of our haulage processes and people travelling by air into the European Union.

In the debate around the UK-Ireland border, my hon. Friend will be aware of the confusion among commentators between customs checks and customs declarations. Of course, most customs transactions are not done at borders by a uniformed officer sitting in a customs office, but are essentially financial transactions akin to tax or VAT that are done at the point of production, shipment, transit or arrival. Does my hon. Friend agree that there is a role for HMRC in educating commentators about how modern customs practices work?

I pay tribute to my right hon. Friend for the work that he and the Secretary of State for Digital, Culture, Media and Sport have done on alternative arrangements. He raises a very important issue. As he says, Customs operates a risk-based assessment system of checks that is quite different from declarations. As for educating commentators, I absolutely agree with him and wish those commentators also included some Members of this House.

Given that HMRC has now shown that Brexit means red tape, and that this would harm trade, destroy jobs and cut growth, what estimate has the Treasury made of the impact of lower growth on Britain’s public finances? Does the Minister accept that the Office for Budget Responsibility has said—and now the IFS analysis has shown—that borrowing will rocket under a no deal? Is it not now clear that under the blues, we will be going into the red?

I cannot match the right hon. Gentleman on verbal wit. What I can say is that the Government have published estimates of the impact of a no-deal Brexit in different forms, and we continue to believe that it is vastly in the interests of this country, this House and all our constituents to leave with a deal. I hope that the right hon. Gentleman will support that.

Does my hon. Friend agree that it is critical for the UK to have an attractive regulatory regime as part of delivering the overall international competitiveness of the economy, and that he will do all he can to minimise the administrative burdens on business?

My hon. Friend is absolutely right. I think that in due course it will come to be seen that Brexit was a moment of change in which we moved ourselves to a global position in which we were able to change many of the rules and regulations governing our international and domestic trade for the better—to make them more streamlined, to lighten the burden and to increase our economic efficiency and productivity.

Given that these are HMRC’s own assessments—the Government’s own assessments—of a multi-billion pound cost, the Minister could have given HMRC any credible assessment of mitigation if he had any. Can he instead confirm that these costs do not even include tariffs, and that they are in fact the costs not simply of no deal but of refusing to have a customs union at all? Given that a proposal for a deal including a customs union only lost by three votes back in April and that such a deal would, according to his own figures, have saved British businesses billions, why have the Government continually refused even to explore a deal that includes a customs union?

I could wish that the right hon. Lady, who is widely respected across the House, had used her influence to bring Labour Members into the Lobby to support the deal that was offered—[Interruption]—and, still more, the deal that we are currently exploring, when that is placed before the Chamber. [Interruption.] The impact analysis is a careful piece of work that reflects dozens of statutory instruments that have been placed before the House. It is a composite of all the impact assessments in place, and should be seen as such. Before Members become too enervated, they should reflect that although the number has gone up somewhat, the unit cost of a declaration has not gone up. The increased number reflects the increase in trade in the last couple of years, and in the period to 2017, which is interesting, because it does not look as though trade has been headed off by the threat of Brexit.

I welcome the Government’s extensive work to get businesses and us ready to leave at the end of October, and particularly the facilitations and easements, which can substantially reduce the amount of money lost in these sorts of transactions; that has to be the way forward. The cost is much lower than those in the Treasury’s forecasts thus far.

My hon. Friend is right to point out that although there is a cost, we do some £275 billion-worth of trade with the EU; we should see this in that context. As I say, the figures are before we take into account any behavioural change, either by UK exporters and hauliers or importers, or by the EU, and should be seen in the wider context of the liberalisation that we expect to occur after Brexit.

The Chief Constable of the Police Service of Northern Ireland has already spoken directly to the Prime Minister, and has made it abundantly clear to him that his police officers will not carry out customs functions at or near the border after the UK leaves the EU. That being the case, the Minister has a duty to explain to HMRC officials what plans the Government have to keep those officials safe when they are carrying out their functions at or near the border after the UK leaves the EU.

I am grateful to the hon. Lady for that question. That is a very serious issue. I have discussed it with senior officials at HMRC, and I can tell her that they are taking the issue extremely seriously.

Is not the problem with reports of this sort the assumptions on which they are made—not least the assumption that though circumstances change dramatically, behaviour will not change at all?

My right hon. Friend, having of course taught economics in his previous life, is acutely aware of the dynamic effects of change when people are confronted with different circumstances. As he correctly points out, this is a static assessment; it does not reflect the dynamics once a change is made.

In effect, the Minister is telling the House that a £7.5 billion tax on trade is being introduced by the Government. How many jobs will be lost as a result of the reduction in trade? Given that we control the administration of imports, why are the Government allowing this £3.8 billion figure?

I think the hon. Lady misunderstands. Only in the event of a no-deal Brexit would we incur any of the additional declaration costs described here. This is not a tax; these are the administrative costs associated with a change in the country’s trading position.

Does my hon. Friend agree that there will be extremely serious impacts on exports? We have been trying to promote exports for many years, given that we have such a large trade deficit, but the fact that 60% of our exports to the EU will now incur tariffs will be a real problem for our exporters—particularly of ceramics in my area, but also for exporters in many other areas. What does he say to that?

My hon. Friend is right to raise that concern on behalf of his constituents. Of course, we run a very substantial services surplus with the rest of the world, and that will be unaffected by these customs declarations. What he says of his concerns is true; that is why I hope very much that the House will come together to support the Government in procuring a deal before we leave the EU.

Diolch yn fawr iawn, Mr Speaker. The Tories’ claim to be the party of business and law and order has been blown apart by its Brexit policies. What is the point of the Conservative party today?

I do not need to tell the hon. Gentleman that conservatism, as a body of thought, has many virtues, and business has traditionally benefited from the Conservative party’s commitment to low taxation and a supportive business economy. If he casts an eye over the spending round, he will see an enormous array of investments designed to complement growth in business with growth in public services. It is that balance that makes for good government.

If the appetite of the hon. Member for Carmarthen East and Dinefwr (Jonathan Edwards) remains unsatisfied by that ministerial reply, my counsel is that he should read the biography of Edmund Burke that the Minister penned, which is, at any rate, a stimulating read.

How many businesses would be affected if we left the EU without a deal—a deal that some Opposition Members seem to be opposing?

As my hon. Friend will know, there are over 150,000 VAT-registered businesses that trade with the EU, and another 100,000, we believe, that are not VAT-registered. If they wish to continue to trade with the EU—that trade may be just part of their business—they will experience some effect. It would be impossible for me to improve on the Speaker’s last comment, but if I might direct my hon. Friend to my book on Adam Smith, he will see that economies are dynamic, as has been recognised since the 18th century. We would expect the dynamic effects of the change in our status to offset many of the concerns raised in the impact assessment.

Anyone outside this place watching the response to this urgent question will be appalled by what they have heard so far, because the party that is supposed to be against red tape is piling it on for so many businesses. I can give the Minister the figures needed to respond to the question from the hon. Member for Mid Dorset and North Poole (Michael Tomlinson): 245,000 businesses will be affected, according to the impact assessment laid out yesterday. It will cost each company £28 at a minimum, and take an employee on average 1 hour and 45 minutes, to fill out each form for each load. How on earth will that ensure growth and jobs in our country?

The hon. Lady has managed to pull off the trick of saying almost exactly what I said, but in slightly fewer words. As I pointed out, 150,000 businesses registered for VAT, and a further 100,000 that are not registered for VAT, may be affected. That makes 250,000, which is not a million miles away from the 245,000 that she described. If she looks at the impact assessment, she will see that the declaration cost will vary from between £15 for an export declaration for fast parcel operators, to £56 for traders operating below the VAT threshold and outsourcing their declarations, so there is a range of impacts. This was scouted, as she will know, in previous discussions with HMRC officials and in past impact assessments.

What has become of the Tory party? If the Minister really believes that a £15 billion additional burden on business is acceptable, can he tell us how large a burden would be unacceptable?

I would have expected the right hon. Gentleman, as a man of great assiduity who is widely respected across the House, to differentiate between the £7.5 billion that we are talking about and the overall impact on the EU as well as the UK of £15 billion, which is one of the things that will bring both sides together into what we hope would be, in these extreme circumstances, a deal. Of course, no impact on business is something that we want. That is why we are pressing the House for a deal, and I hope he will support us in doing that.

I think we are all confused about the nature of conservatism this afternoon. When the Minister and I joined the House in 2010, Prime Minister David Cameron was embarking on a red tape challenge. I did not understand that the ambition was to increase red tape in the manner that we see today. When did the Minister last speak to the car industry? We know that every 60-second delay takes away from that industry £50,000 of gross value added—every 60 seconds. If, as it seems, there is no deal to be had and we are heading towards that catastrophe, has he asked the car industry how many jobs we are going to lose?

The way to respond to that is to remind the hon. Lady that when I was at the Department for Business, Energy and Industrial Strategy, I had extensive engagement with different industrial sectors, including the car industry. The same was true when I was at the Department for Transport. There is no doubt, as she will know, that the importers and exporters that are repeatedly crossing the borders will be affected by this. Of course, there are mitigations in place, and I hope she will help us to avoid those by supporting the deal.

To put this £15 billion figure in context, it is the equivalent of a 7% increase in corporation tax for those businesses and firms—or, to put it another way, the exact plan of the Labour leadership, were they to get into power and increase corporation tax. If the Minister shifts to the ideological fringes, he should not be surprised if he sacrifices any claim to be in the party of business.

I think most people would be surprised to hear me considered a member of the ideological fringes of any side of the political debate. We do not wish this country to have to incur this £7.5 billion cost, and we do not think it would be a good idea for the country to have a Labour Government who imposed twice that amount in corporation tax.

The Minister keeps claiming that his preference is for a deal, but is it not clear from the fictional briefing given by Dominic Cummings of the conversation between Chancellor Merkel and the Prime Minister today that the Prime Minister and Mr Cummings have absolutely no interest in a deal whatsoever? The tariffs proposed by the Government have been described by the normally mild-mannered and loyal hon. Member for Tiverton and Honiton (Neil Parish) as extremely disappointing. He says that no tariffs on imports but tariffs on exports will ruin the United Kingdom’s farming industry. In the past hour, the head of the National Farmers Union has called it a “betrayal of British farmers”. How does he respond?

I am not going to comment on the detail of tariffs, which were discussed in detail during an urgent question yesterday. I do not think there is any proper suggestion that the Government are in any sense comfortable about incurring these costs or any other costs. We would like to leave the EU with a deal, and the Chancellor of the Duchy of Lancaster and I have been working with colleagues around the clock for the past three months and longer to deliver it.

With regard to what my right hon. Friend the Member for Exeter (Mr Bradshaw) just said, it is absolutely right that the Government—particularly the Chancellor of the Duchy of Lancaster, who was the Secretary of State for Environment, Food and Rural Affairs—listen to what the NFU is saying about no deal. With that in mind, is it not about time the Government updated their own website, which does not seem to have been changed since earlier this year, so that farmers at least know what will happen in the event of no deal?

In general, as the hon. Gentleman will know, the website is updated daily, but I take the point. As a man with many farmers in his constituency, I will ensure that the website is checked to see that the data is up to date.

I also recommend the Minister’s book on Burke as great bedtime reading; it is very good. Does he ever discuss the nature of modern conservatism with Dominic Cummings? Is it right that a Minister could have been on the radio at primetime this morning with Paul Johnson from the Institute for Fiscal Studies, but Cummings refused to let a Minister appear?

I am grateful for the hon. Gentleman’s kind words about my book, but I cannot comment on remarks that may or may not have been made or rebutted on a media programme of which I know nothing.

Ford finally came up with its frustration in relation to a lack of customs union and single market and decided to close the engine factory in Bridgend, with 1,700 jobs lost directly at the plant and 12,000 across the south Wales economy. When I look at today’s report, I look with horror at what will happen to the small and medium-sized enterprises across my constituency. What assessment has the Treasury made of the impact of today’s report on SMEs in individual constituencies? Ordinary lives will be devastated, even more so in my constituency than they already have been.

The hon. Lady is absolutely right that any job losses are deeply regrettable, and I am sure she will be delighted that, in aggregate, this country has proven to be astonishingly adept at creating good new jobs over the past 10 years. With this impact assessment, I think I am right in saying that the detail is not available that allows for a constituency-by-constituency or even regional assessment, which is why it has been done in aggregate, based on the number of declarations that are expected and the cost per declaration. Of course, it may be possible for other entities to take the number of businesses that were expected to fill out declarations and produce impact assessments for the specific areas that they are concerned about.

It is quite clear from the Minister’s answers that the Government are willing to place enormous additional burdens on business. Given everything that he has written and said in the past, how can he possibly justify that approach?

I gently remind the hon. Gentleman that the burdens that he claims will be placed by this can not only be mitigated by voting for a deal but will be as nothing compared with the burdens that will be imposed on the UK economy by a Labour Government dedicated to nationalising, without full compensation, a swathe of industries and expropriating a large number of people by transferring property into the hands of employees. I think those things will impose much greater costs on the economy than anything that has been contemplated today.

The Minister is on a sticky wicket, and deep down, he knows it. After the Prime Minister’s announcement today, it will get even stickier. I am still not clear whether he expects businesses to absorb the £7.5 billion of costs or pass it on to consumers.

In the event that we had no deal and this £7.5 billion of estimated costs were incurred, that it was not mitigated and that there were no behavioural reactions by businesses, there would be some costs—we do not know what they would be—and it would be up to businesses to decide how those costs should be allocated between consumers, employees and other stakeholders.

People watching this will be amazed. The Minister appears not to be aware of what is being said out there. He is still speaking as though there is a deal to be done, when the Prime Minister and his advisers are making it absolutely clear that the deal is dead. The impacts that we are discussing will fall on businesses, and they are looking at a Government who appear utterly clueless about what to do. All we are getting now is a blame game. Will the Minister come to the Dispatch Box and say something that might help manufacturing businesses in my constituency?

I would be delighted to do that. With the good grace of the people of Great Britain, they will have a Conservative Government for many good years to come, supporting their interests, their welfare and the growth and productivity of the British economy. No finer outcome could be hoped for by British business.

Does the Minister have no shame at all in being a member of a Government who are meant to be on the side of business, having done a job in which, when I used to do it, we were so proud that for every one new piece of regulation we got rid of two? We see now a Government embarking quite clearly on no deal—this sham of trying to get a deal is exactly that—and imposing on our already struggling businesses an additional £15 billion. Has he no shame to be associated with this appalling Government?

I am unable to match the right hon. Lady’s capacity for bombastic intervention, but let me just tell her that if she looks at the statutory instruments that have been placed in front of this House, she will see that their purpose is not to regulate, but to create mitigations to protect people in the event of a no-deal Brexit. If we have a no-deal Brexit, these will be useful mitigations and supports for businesses and people. If she doubts that, she can avoid the issue altogether by supporting the Government on the deal that I have no doubt is being promoted vigorously.

The extra administrative costs for filling in customs forms alone for businesses will be £15 billion per year. This contrasts markedly with the Prime Minister’s claim that if we left the EU with no deal, we would save £1 billion per month. Does the Minister agree with me that there is a growing chasm between the rhetoric of a Prime Minister and the reality of a no-deal Brexit?

No, I do not accept that at all. I think that it is perfectly clear that the Government remain very fixed on securing a deal. That is what these negotiations and discussions are about. At the same time, it is important to prepare for the possibility of no deal—no responsible negotiator would fail to have a walk-away position—and this quantifies those. As I have indicated, there are mitigations and dynamic effects that may well reduce their actual effect. In that context, this is wise planning and provisioning—plans that I hope we will never have to invoke.