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Customs Safety and Security Procedures (EU Exit) Regulations 2019

Volume 796: debated on Tuesday 26 March 2019

Motion to Approve

Moved by

That the draft Regulations laid before the House on 27 February be approved.

Relevant document: 20th Report from the Secondary Legislation Scrutiny Committee (Sub-Committee A)

My Lords, in moving these regulations, I will speak to the three statutory instruments that are part of the Government’s package to prepare for the possibility of the UK leaving the EU without a deal. The instruments are related to safety and security, cash controls and the Economic Operators Registration and Identification scheme—EORI.

EU law provides the legal framework for implementing these policies across the EU. By virtue of the European Union (Withdrawal) Act, this law will form part of our domestic law on exit day and will continue to apply as retained EU law.

The relevant EU legislation was drafted to apply to EU member states. Therefore, it will not work as effective legislation for the UK without amendments. These instruments ensure that the UK has a functioning legislative rulebook by replacing references and terminology that will no longer be valid in the event of no deal. This ensures that the UK will have effective safety and security, cash controls and EORI regimes after the UK leaves the EU.

First, allow me to set out the context of the provision we wish to introduce for managing the safety and security risk of goods entering and leaving the UK. The Union Customs Code sets out that the movement of goods into and out of the EU requires entry and exit summary declarations, also known as safety and security declarations. So, for example, shipments from the US or China require a safety and security declaration before entering the EU. If the UK leaves the EU without a deal, UK importers and exporters will be required to complete safety and security declarations for goods moving to and from the EU, as well as the rest of the world.

As well as making required changes to retained EU law, this instrument introduces a provision to phase-in the legal requirement for entry summary declarations on goods imported from the EU. The legal requirement to submit entry summary declarations for goods imported from the EU will apply from 1 October 2019.

HMRC has listened to industry concerns about ongoing uncertainty and the readiness of businesses to comply with safety and security requirements on UK-EU trade from day one. Therefore, we are taking this approach to give businesses more time to prepare to submit declarations to HMRC. This does not remove the requirement for declarations for goods imported from the rest of the world. Goods entering the UK from the rest of the world will still have to make entry summary declarations as they do now.

When the UK leaves the EU, a separate customs union will be created between the UK and the Crown dependencies—the Channel Islands and the Isle of Man. This instrument includes a provision to support the operation of the UK and the Crown dependencies, namely that the movement of goods between the UK and the Crown dependencies will not require safety and security declarations. This instrument does not apply to the movement of goods between Northern Ireland and Ireland.

The second statutory instrument we are talking about today relates to cash controls. The EU monitors the international movement of cash by requiring individuals who are entering or leaving the EU, and who are carrying €10,000 or more in cash, to make a cash control declaration. This declaration must be made to the customs authority of the member state into which they are arriving or leaving.

The UK is committed to continuing this practice. The declarations provide information about the international movement of cash and are one measure that assists in the fight against money laundering, the proceeds of crime and the funding of terrorism. If the UK leaves the EU without a deal, this instrument will require cash control declarations at the UK border, including the border between the UK and the EU. It does not apply to the border between Northern Ireland and Ireland.

The current practice, which requires these declarations between the UK and non-EU countries, will continue. This instrument extends those requirements to movements between the UK and EU. It makes the small change that we will require declarations on amounts of £10,000 or more, rather than €10,000.

The final change as a result of this instrument that I should draw to your Lordships’ attention relates to information sharing. Currently, details of the movement of cash are automatically shared between member states. This instrument removes the requirement to share information but permits sharing of information where it is in the UK’s interests so to do.

The third and final instrument we are discussing today is for the Economic Operators Registration and Identification scheme, EORI. An EORI is a unique registration number given to businesses that interact with customs authorities so that HMRC can identify them effectively. EORIs are necessary when applying for customs simplifications or facilitations, when making declarations or in other interactions with the customs authority.

All EORIs issued by the UK, known as UK EORIs, will remain valid for use in UK customs processes in the event of a no-deal EU exit. Following the UK’s departure from the EU, UK individuals and businesses that want to trade with the EU or other territories outside the EU and do not already have a UK EORI will need to obtain one. Persons who are not established in the UK but who wish to lodge a UK declaration will also require a UK EORI. This instrument ensures that the UK has a functioning EORI scheme by replacing references and terminology in retained EU law that will no longer be valid in the event of no deal. Traders whose only international trade is between Northern Ireland and Ireland will not be required to register for a UK EORI.

These instruments will ensure that the UK has independent customs processes that work after we have left the EU and will maintain the security of our borders while ensuring that traders are faced with as little change as possible and are given time to prepare for the new customs requirements after EU exit. I commend—

My Lords, before the Minister sits down, can he tell the House how many businesses currently have an EORI? The last published information from the Government suggested that only one-sixth of businesses which trade exclusively with the EU and would require an EORI have one. What is the current position?

The current position is that the largest number of businesses affected would be UK businesses. There are an estimated 245,000 traders who will need to register for an EORI. That figure comprises 145,000 VAT-registered businesses and 100,000 businesses below the VAT threshold. Overseas businesses will also require a UK EORI to make customs declarations for goods being imported into the UK after we leave the EU.

I am grateful to the Minister for indicating how many businesses would be required to have one. How many businesses are registered for and have secured an EORI?

I thank the Minister for the explanation of these three statutory instruments and for the detail he provided. I trust that when he winds up he will stress that this is continuity rather than anything new. To the extent that this is continuity, I do not wish to dwell at this hour on things that are replacing what already exists, but I shall deal with some of the things that might be slightly different.

The customs safety and security procedures SI refers to exempting risks during a six-months transition period. Will the Minister tell the House whether this exemption will cause any risk? There must be a risk in giving a six-month exemption. If this were an insurance company, there would be a risk assessment for giving that six-month exemption. I am sure the Minister and his team have worked that out.

This SI also places requirements on small firms in the transitional period. I agree that there have to be requirements for small firms, but I question why businesses are included as small firms if they employ up to the rather arbitrary figure of 50 people and therefore have this exemption. Has the Minister considered how many companies employing 100 people would divide their company in two and thus be exempted? One could use any multiple of 50, but it seems to be an easy way to avoid the requirement and I wonder whether the Minister and his team have thought about that. Should this be done according to the number of people employed or the size of the enterprise? A massive enterprise with millions and millions of pounds does not have to bother because it can be classified as a small company, but if the opposite applies, you are not exempted.

I turn to the cash controls SI. The Minister mentioned €10,000 becoming £10,000. The SI summons a wonderful vision of men and women with suitcases containing £10,000 going from one territory to another. Can he enlighten this rather diminished House about the circumstances in which people do that? Is it happening and is it something that we should consider? It seems to be a legal invitation to commit malpractice and criminal activity. I cannot think of many occasions nowadays when one needs to cross the border with £10,000. Perhaps the Minister can give us his ideas about that.

The same statutory instrument notes the aim to build risk profiles. It is great to do that but what are the Government doing about the existing risk profiles rather than new ones? We are not reinventing the wheel here. I assume that we are dealing with people who already have risk profiles somewhere in the EU. Perhaps the Minister can say something about that.

My Lords, when the Trade Bill first came to this Chamber in September, out of interest I registered with HMRC as a small business trading with the European Union to find out what information the Government would be providing to businesses. One of the core elements was the EORI component. A business that trades either exclusively or predominantly, or indeed at all, with the European Union was told that it would be required to have an EORI number in the event of no deal. The Government have taken that position consistently over a number of months in indicating that preparations for a no-deal Brexit need to be made.

It has been fascinating to observe both the information that the Government have received and how businesses have responded. As I indicated to the Minister, the last time the Government published information about how many businesses were prepared and in a position to trade with their European counterparts the day after a no-deal Brexit, only one-sixth of British businesses were in a position to do so. That meant that five-sixths would not be able to trade legally with their counterparts in the EU 27 countries. Now, a fortnight before the revised exit day if we leave on a no-deal basis, only one-fifth of businesses can do so. Therefore, if we leave with no deal on 12 April, one-fifth of all British businesses that trade with customers in EU 27 countries are in a position to do so legally. In addition, if, as the Minister said, they are in the category of the 145,000 VAT-registered businesses, they are required to be registered with an EU 27-equivalent of HMRC in those countries.

The Government have not published data on that information. It would be very interesting to know whether they are collecting data themselves. Not only do businesses have to be registered with our regulatory body, the HMRC, but for those 145,000 businesses to pay the correct level of VAT, tariffs and customs duties, they have to be registered with the customs or VAT body of the member state concerned. This is the advice that the Government have been giving, so it would be interesting to know how many companies are in that position.

Even if we crash out on a delayed basis in a fortnight’s time, the vast majority of British businesses will not be in a position to trade legally with their European counterparts. Regardless of what the Government have been saying about the need for preparedness for a no-deal Brexit, British businesses are simply not prepared. That may be because they do not believe the Government would be so cavalier with the interests of the British economy or that, in the words of the business Minister who resigned overnight, the Government are,

“playing roulette with the lives and livelihoods of the vast majority of people in this country who are employed by or otherwise depend on businesses for their livelihood”.

Or perhaps they do not believe that the advice provided by the Government has been of a sufficient standard.

I am open-minded about which category they might be in but sympathetic to the latter because, last week, on the day the Government indicated they were open to extending Brexit day, I received an email, as a business, indicating that exit day would still be 29 March. This afternoon, as I listened to the Leader of the House speaking about the statutory instrument for extending Brexit day, I received an HMRC email indicating that the policy of the British Government was still to leave the European Union with a deal; but there was no indication of an exit day at all.

How on earth can British businesses be expected to prepare now with the Government not even indicating a firm basis on which they need to prepare? Given that having an EORI number is only one of a number of requirements on British businesses, the Government—not Parliament—are asking them to make impossible business decisions. They are asking them to take risks to plan for an eventuality that even the Government are not confident will happen. It would be helpful if the Minister, in responding to this short debate, gave an estimate of when the Government expect all British businesses to be in a position of readiness for exiting the European Union. If at the moment, a fortnight out, only a fifth of British businesses that trade with their counterparts in the European Union are prepared, when do the Government estimate that all British businesses will be in that position?

I too thank the Minister for presenting these SIs. Taking them in the same order as on the Order Paper, the first one concerns customs safety and security procedures. The impact assessment says:

“The main purpose of this regulation is to enable the UK to continue to meet its safety and security obligations under the World Customs Organisation … Framework of Standards by introducing a new UK regime”.

This is the new UK regime. It introduces a safety and security declaration—in a sense, at the UK-EU border—after a six-month transition period. It also introduces an authorised economic operator programme. I could not understand whether this was an asymmetrical situation or a symmetrical one. For the six months while the UK firms do not have to make these declarations, is it possible that EU member states may require declarations from what was to have been this Friday and is now a fortnight on Friday, or do we have a reciprocal deal? The impact assessment gives a feel for the real world. It says:

“In the event of a no deal scenario, the UK will no longer be part of the EU security zone and carriers and operators will need to make safety and security declarations for goods moving between the UK and the EU. Whilst many carriers, specifically large economic operators, are experienced in transporting goods to both the EU and non-EU countries, HMRC anticipates that this will present a significant ongoing administrative burden for them, especially when submitting an ENS as it will be a new legal obligation and an additional cost to submitting a customs declaration for import purposes”.

The intention of this programme is no doubt to smooth the effects of a no-deal scenario but at best it will only reduce the chaos, and chaos there will be—at least, that is what it seems to me. However, let us look at the reason why these instruments are in front of us. Paragraph 3.1 of the Explanatory Memorandum says the reason is that the European Statutory Instruments Committee and the Secondary Legislation Scrutiny Committee both recommended that the instruments should be moved from the negative procedure,

“to the affirmative resolution procedure, as they believe the House may wish to debate the implications the safety and security requirements may have for trade across the Ireland/Northern Ireland border”.

The reference to this in the Explanatory Memorandum is:

“The amendments to the retained EU law contained in this instrument will not have effect in relation to trade in goods between Ireland and Northern Ireland. Further details on the arrangements for trade between Northern Ireland and Ireland will be published as soon as possible”.

I looked at the instrument to see how that retained law was disapplied. Almost hiding in plain sight in regulation 1(3) is this simple statement:

“They do not have effect in relation to the movement of goods between Northern Ireland and the Republic of Ireland or the reverse”.

That has a charming, heroic simplicity about it. In one line it says that a problem that completely destroyed the Prime Minister’s agreement—that is, the backstop—can be ended by that simple statement. What are the plans for the border under these circumstances? The regulation says they will be published “as soon as possible”. One would have assumed that there was a target to publish them before this Friday because it is the 29th, although we now know that exit day is possibly a fortnight later.

The question posed is the question that the best minds of Her Majesty’s Government and the EU have failed to solve: what will actually happen at that border? My understanding is that if we fall back on WTO rules, there is an obligation to impose tariffs and for these sorts of safety and security rules to be enforced. We will in fact end up with a border down the Irish Sea. Are the two parties in Northern Ireland simply going to ignore all their obligations under these various international treaties? If we have here tonight, at this late hour, a solution to the Irish border question, I would be delighted to hear it from the Minister.

I am afraid that I will probably disappoint the noble Lord, Lord Tunnicliffe. In this context, I should say that this is certainly not an objective or outcome that we are hoping will occur; we want to leave with a deal, ideally the withdrawal agreement that has been set out. I will deal with the contributions from the noble Lords, Lord Purvis, Lord Palmer and Lord Tunnicliffe, as best I can. There will be some gaps, so I give notice that I will have to write on a couple of points.

The noble Lord, Lord Palmer, began by asking me to stress the continuity element. I am very happy to say that that is what we are seeking to do. We are simply following the same process as with the onshoring exercise to ensure that we replicate what is there at present. Continuity is the objective. I suspect that the answer to the noble Lord’s subset of questions on number, amount or size of firm is that we are providing continuity of the existing arrangements. I will not be able to answer this evening the point about the innovative idea of firms with 100 employees dividing into two to somehow get around the requirements; I will write on that point if I may.

Let me deal with the noble Lord’s other point. If the UK leaves the EU without a deal, this instrument will remove the requirement for safety and security declarations for six months. He rightly questioned what assessment we had made of this. Taking this approach, the risk to safety and security will not increase after EU exit, given that goods from the EU are not currently subject to safety and security declarations. The transitional period does not apply to non-EU traders that already comply with the current safety and security regulations. After the six-month transition, businesses will be obliged to submit safety and security declarations.

The noble Lord, Lord Purvis, asked what information the Government will provide to businesses on EORI and how to register. I take his point about the level of registrations; of course, we wish it were higher. We have tried to make it as easy as possible to register. He has had the experience of doing it. Our belief is that doing it online takes five to 10 minutes. I do not know whether that corresponds with the noble Lord’s practical experience. I have not done it, but our feeling is that it can be done relatively easily. Businesses need to be aware that it will be important for them to do that in the event of a no-deal Brexit.

Will the Minister flesh out the word “important”? Can businesses trade if they do not have—I cannot pronounce the damn thing—this unique identification number?

That is the whole point. We are saying that, in the event of no deal, they would require that to trade. It is a very serious commitment. If they are above the relevant threshold, that will be a requirement.

If there are a lot of businesses which have not registered, through negligence or misinformation, how much of a risk is that?

Clearly, that is a risk. We have put out technical notices and engaged quite significantly with industry bodies on this. We have listened to the industry, which is one of the reasons why we have taken this approach on safety and security, with the six-month transitional period. We have tried to get the information out there as much as possible. However, we are concerned about that as an eventuality and encourage businesses to register, even at this late hour.

I hope the Minister will forgive me for pressing this point, but there is a world of difference between being concerned, with perhaps some irritation, minor penalty or whatever, and whatever proportion you want to take—say four-fifths—of the firms that would want to trade across this border not being able to in a fortnight’s time.

Once they became aware of that situation, if that eventuality occurred, the remedy—to get the registration—is a fairly simple and straightforward process. We would like them to do it before then. That is why we have been encouraging them to do that—but we cannot force them to at this stage.

Businesses cannot do it afterwards if they want to trade on day one of exit if there is no deal. A post-fact situation is irrelevant if they wish to trade without any obstruction on day one of a no-deal exit. Will the Minister confirm this or get information from the Box before he sits down? The information I have received is that HMRC can only process a maximum of 11,000 a day. I hear what the Minister is saying about the Government encouraging businesses to register and that it may take only a short period of time, but that depends on the complexity of the business they do. That is for them to have an EORI. Even if all the businesses wish to register, there is only a certain capacity at HMRC, as I understand. I would be delighted if the Minister can say that that is incorrect and that before exit day—on 12 April if there is no deal—all the businesses that can trade can conceivably be in a position where they can trade. If he is not able to give that reassurance, we are in a very difficult position.

Let me clarify that, because I think we can be more helpful on that point. There is a lighter-touch element to this: businesses can trade but they need to give a name and address. That is the requirement. They need an EORI number when interacting with customers and HMRC. So when they are doing that part of the exercise, rather than the trading element—completing their VAT return et cetera—they will need that number when they interact, but to trade they would need simply to give their name and address. I hope that offers some reassurance.

I am not sure that it offered the clarity we need. Is it the Government’s position that, in the absence of having an economic operator number to trade with others in the EU 27, businesses have only to state that they have a British-registered trading address? That is absolutely not the advice that HMRC has been providing British businesses that trade with those in the European Union.

The reality is that we would prefer them to have an EORI registration number. It is a fairly straightforward process that takes five to 10 minutes. But we are talking about extraordinary circumstances. The advice I am given and that I am presenting is that they need to give just their name and address to be able to continue to do that.

The noble Lord asked about the limit on processing of 11,000 per day and whether HMRC had the capacity. The customs declaration service has the capacity to process significantly higher numbers than that.

The noble Lord, Lord Tunnicliffe, asked whether we would end up with a border down the Irish Sea. These non-fiscal statutory instruments will not create an east-west border between Northern Ireland and Great Britain. This will be a temporary measure until a permanent solution is in place. We will seek to discuss this at the first opportunity with the Irish Government and the European Union. However, until this point, this policy is necessary to avoid a hard border on the island of Ireland and to uphold the Belfast Good Friday agreement.

I am grateful for the Minister’s patience on this. It is important. He said at the Dispatch Box that HMRC has a capacity much greater than for providing 11,000 registrations a day. On GOV.UK on 28 February 2019, HMRC announced:

“HMRC has the capacity to sign up 11,000 businesses per day for EORI numbers”.

What have the Government done since then to provide that extra capacity? Am I wrong in believing the Government on 28 February? What extra capacity is provided to offer this, other than what the Government themselves have said in their own statement?

I am advised that the customs declarations service does have the capacity to process significantly more. I do not have a number. When I write on the other issues, I will include an update.

Just to clarify once more, there has been legal advice over the years that, when something is in Hansard, it proves to be something people can rely upon. The Minister is saying that a name and address being given will suffice. As that has, presumably, now been recorded in Hansard, has the law now been clarified?

The noble Lord may not have been present for a rather fascinating debate on Pepper v Hart, which took place on another Bill recently—the Trade Bill, I think—and my noble friend Lady Fairhead is here. I and the noble Lord, Lord Stevenson of Balmacara, are not going to rehearse that argument again, but a degree of clarity came through that. I do not wish to make light of a very serious point which the noble Lord is raising, that this is impacting on real businesses, real lives and real trading opportunities. What I am trying to do is give as much information as I can from the Dispatch Box in a fast-moving situation, and provide more information in writing. I hope that the noble Lord will accept that in good spirit.

The noble Lord raised the point about £10,000. I share his surprise. Like him, I am not used to carrying anywhere near that sum across borders. The Financial Action Task Force, an international government body, has identified this as a key risk. This requirement of declaration is set by each of the members; the EU sets the limit at €10,000; the USA sets it at $10,000. The Government chose their own limit, using a memorable round number. They did not want to use another state’s currency or alter the figure to reflect changes in the exchange rate.

The noble Lord also asked about existing risk profiles. In a no-deal scenario, we will continue to use the current risk profiles, updating them as needed.

The noble Lord, Lord Tunnicliffe, asked if we had asked the EU for a transitional period. After the UK’s exit from the UK, we will seek to negotiate a safety and security agreement with the EU, so that safety and security declarations are not required on imports between EU countries and the UK.

The noble Lord, Lord Purvis, asked for the Government’s estimate of when all businesses would have an EORI number. We are committed to making it easier for businesses to be ready. Information is clearly laid out on GOV.UK. I have said all that.

I am grateful again to the Minister because this is a very important point. My question is a simple one. On 28 February, the Government released the information that 40,973 businesses have registered. On the same day, they said that up to 11,000 businesses a day could be registered because of the capacity. The Minister has said at the Dispatch Box that that capacity is now considerably higher, without explaining what has been done in the meantime to provide that extra capacity. Can he provide something simple? Is there sufficient capacity for all British businesses which trade with the European Union to be in a position, if they so choose, to be registered before 12 April?

I am afraid that I cannot go further than what I have in front of me, but I will happily put an assessment of that question in writing. Of course the situation as it stands today is that, without the statutory instrument which may receive the agreement of your Lordships’ House tomorrow, we would leave on 29 March. This is one element where there is a real sense of urgency and a need for businesses to prepare for that.

I can save writing a bit of a letter here. The answer is yes; we can do that. Let me take the time over the next few days, before April 12, to go into a little more detail and set that out. I will write to all noble Lords who have participated in the debate and, as usual, place a copy in the Library. I hope that will be helpful to noble Lords.

I again thank your Lordships for their contributions and scrutiny. I think we have benefited from that process.

Motion agreed.