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Customs Legislation and Amendments: Impact Analysis

Volume 799: debated on Tuesday 8 October 2019


My Lords, with the leave of the House, I will now repeat, in the form of a Statement, the Answer given by my honourable friend the Parliamentary Under-Secretary of State for Exiting the European Union, to an Urgent Question in the other place. The Statement is as follows:

“Thank you very much, Mr Speaker. I am delighted to respond to the right honourable gentleman’s Question. The Government are devoting huge energies, as the Minister will know, to Brexit preparations. As the Prime Minister has stated, the Government’s preference is to leave with a deal, but, if necessary, without a deal, since it is so vital that we get Brexit done and move the country forward. The last thing businesses need is more uncertainty or 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.

To support the latest bunch of statutory instruments, 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 the previous versions of the impact assessment 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-gathering powers to specify the type of information that can be collected from postal operators; and, finally, various technical amendments and transitional provisions.

As I said, our preference is very much for a deal, but the Government continue to make sure that this country is ready for no deal and that the impacts on businesses will be minimised as far as possible. That is why we have introduced a series of easements for traders moving goods in the UK, to take effect in a no-deal scenario. These easements—for example, our plan to simplify radically import processes for EU goods —mean 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 will exist for us outside the EU”.

My Lords, I am grateful to the noble Lord for repeating the Statement. We have had a significant debate on Brexit under a number of headings this afternoon, and perhaps this one, the most precise of the lot, is likely to cause the most pessimism. This is HMRC indicating what will be the costs to business, and it has made it quite clear that the costs will be very significant.

Large companies importing and exporting in high volumes will face a cost of £28 for filling in the forms for each load imported, and this will take an employee on average one hour and 45 minutes. If the work is outsourced, HMRC estimates that the cost will rise to £56 for each consignment, based on the average charges of freight forwarders. This is HMRC getting down to nuts and bolts and being as accurate as it can—and it can only fill all involved in the health of our economy with considerable anxiety.

This of course is based on a no-deal Brexit. However, from the tenor of the discussions this afternoon in the House, it seems that there is a growing opinion that we are heading somewhat remorselessly towards no deal—or, to put it more accurately, none of us can see that any progress is being made towards an agreement with the European Union.

Left out of the analysis was any reference to the financial services industry. We cannot overestimate the significance of that industry to the overall health of our economy. So, although this is parlous as far as industrial goods and manufactures are concerned, we do not know the picture for a very significant part of our economy—and can only, therefore, I am afraid, be anxious about it.

What we are witnessing now is a process that reflects the failure of the Government, ever since they established their notorious red lines and made up their mind that they were going to set objectives that the European Union was unlikely to meet.

There is one additional feature on which the noble Lord did not make any comment. I do not blame him for that, because it is not directly related. Another aspect of a no-deal Brexit is that it is estimated by the Institute for Fiscal Studies that government debt will rise to its highest level for half a century. Bearing in mind that this takes into account the inevitable debt we ran into during the financial crash of 2008 to 2010, if this will be worse as a consequence of no deal, we can only yet again, I am afraid, tremble at the prospect, and at the same time redouble our efforts to ensure that the Government, even at this very late stage, strike a deal that is better than no deal.

I completely endorse the noble Lord’s sentiment. It is very much the Government’s policy to strike a deal and I, like others in the Government, very much hope that will be successful. The Government’s efforts are very much focused on that objective.

Let me strike at the heart of the question. The noble Lord started by saying that this report articulates what will happen, but actually it articulates what may happen under very strict circumstances. I pay tribute to the officials who prepared such a detailed report for its transparency and integrity. The report in no way dodges or mitigates for several areas in which performance may be considerably better than the headline figures.

First, there are areas in which easement by British government policy will help improve performance. There are three of those easements: the delay in the submission of customs declarations, which we discussed last night; a period of grace to get a guarantee in place to cover additional duties; and the phasing-in of pre-arrival requirements for the entry summary declarations. Secondly, we do not know what the EU will do to improve the situation and, thirdly, the behaviour of importers may introduce new efficiencies. With those in mind, I am hopeful that the headline figures may prove higher than those if a no-deal Brexit were ever to occur.

My Lords, I am grateful to the Minister for speaking to me before Questions; I welcome that courtesy.

In its impact assessment, HMRC itself suggests that many of its assessments are cautious. This is an impact assessment just on the export of goods to the EU for UK bureaucracy; the £15 billion a year is on UK bureaucracy. As indicated, it does not cover exports of services or the likely reduced revenue to the UK Treasury from those extra business costs. It does not include any estimate of the additional bureaucracy costs to the recipient market in the EU. All those must together be marginally more than £15 billion, but—even if it were just the cautious £15 billion—that is massively more than any estimate the Prime Minister has made of the financial benefit to the UK of leaving the European Union with no deal at all.

As we heard from the noble Lord, Lord Callanan, after being pressed by me and others, the Government are working on a package of assistance to benefit the agricultural sector and for the new tariff regime that we will put in place. Indeed, as the readiness report said, there will have to be mechanisms for off-setting new VAT procedures for services and new procedures for VAT processes on parcels—not included in the impact assessment. What are the mitigation measures and what is their value? What is the emergency package that would be necessary for the agricultural sector and small businesses? The Government have not published any information in global sums about what those mitigation factors might have to be. Finally, what is the global cost to British businesses of the increase in tariff prices, in addition to this bureaucracy that HMRC is indicating?

The noble Lord makes very thoughtful points, but I remind him that the estimates in this report are a responsible, thoughtful and transparent effort to calculate the kind of costs that a no-deal Brexit might bring about. They cannot anticipate how the EU might respond, how tariffs might be negotiated or how a trade deal with the EU might affect those costs. With so many imponderables, it would be extremely difficult to tot up a large total of the kind he asks about. I am happy to ask officials whether there is some kind of arithmetic that can be done and to write to him with whatever they can come up with.