The UK is heading for a Brexit border and customs system disaster

SUMMARY:

A second report this week highlights the government’s lack of urgency and contingency planning for a new customs system following Brexit.

The UK government has limited time to implement significant changes to systems, processes and resources to deal with the complexity of a new customs system, following its exit from the European Union in March 2019.

A second government report out this week highlights how the UK could be heading for a borders disaster, if it doesn’t quickly recognise the scale of the challenge and put the necessary funding, guidance and leadership in place. And even if it does, the timelines are so tight that there is little room for error – not the ideal situation for an incredibly complex, fast paced IT project.

To complicate matters further, the worst case scenario would be a ‘no deal’ Brexit, which continues to be touted by senior ministers. Whilst the Prime Minister has indicated that she hopes to agree a transitional arrangement with the EU come March 2019, which would see the borders and customs checks carry out as normal for an agreed period of time, there is very little guarantee that this will be achieved, given that little progress has been made on negotiations since the EU referendum last summer.

A no deal scenario would result in a cliff edge that would see customs declarations increase by over 300%, over night – likely resulting in huge queues and traffic jams at the border, with no easy solution in sight.

It’s surprising that the government isn’t taking this more seriously – as highlighted by the House of Commons Home Affairs Committee report out today – with not even a Minister given responsibility for management and governance of the process.

Chair of the Committee, Yvette Cooper MP, commented:

The Government’s border planning for Brexit is extremely unconvincing.

The Government should be aiming for transition arrangements which require no change at all in customs and border requirements as everyone is running out of time to make any staffing, infrastructure or procedural changes – and they risk long delays at the border, both in the UK and abroad.

But there must also be an urgent acceleration of contingency planning in case there is no deal at all. As things stand, the Government is running the risk of celebrating their first day of Brexit with the sight of queues of lorries stretching for miles in Kent and gridlock on the roads of Northern Ireland, which would be incredibly damaging to the UK economy and completely unacceptable to the country. Contingency planning is essential.

If the Government gets this all wrong, we could be facing Operation Stack on steroids.

Why the delay?

Worryingly, the report out this week notes that since the Home Affairs Committee took evidence ten months ago, little has changed in terms of the detail of the government’s intentions for Brexit, nor has any action been taken to begin laying the foundations for a new customs system.

To give you an idea of the scale of the challenge at hand – in 2015, goods worth £696 billion crossed the UK border (imports were worth £411 billion and exports totalled £285 billion); the value of goods traded between the UK and the EU was £382 billion in 2016, compared with £393 billion traded with the rest of the world; about four million goods vehicles cross the Channel each year, with 2.5 million passing through the port of Dover alone in 2015; approximately 141,000 traders currently make customs declarations for trade outside the EU, but HMRC has estimated that an additional 180,000 traders will need to make customs declarations for the first time, assuming the UK leaves the EU customs union.

Currently there are no customs duties at the EU internal borders, including with the UK, and very few checks of EU goods are carried out on the border. Goods vehicles entering the UK from the EU undergo virtually no customs interventions at all. In contrast, lorries carrying non-EU goods are subject to a range of checks at UK border entry points – taking hours.

If no agreement with the EU is reached, the number of checks will increase substantially.

And whilst the Prime Minister has said that she wants the UK “to have a customs agreement with the EU”, with the government aiming for “the freest and most frictionless trade possible”, the EU has said that frictionless trade outside the Single Market and the Customs Union is not possible.

The UK is essentially aiming for an agreement that is completely unique to anything the EU has agreed with a third country previously – and even if it manages to agree a trade deal similar to those made with the USA, Canada and Japan, there will still be friction introduced into the system.

Even if a transition deal is agreed, businesses are rapidly running out of time to implement any changes required. The Committee heard evidence from industry that two years would be a push, but a one year timeline is incredibly difficult – if not impossible – for new processes and systems to be put in place (made even worse by a no-deal scenario).

The UK currently has 16 months until Brexit day, with no clear indication of which way negotiations will go.

The report states:

If it is not possible for the Government to reach a deal with the EU that results in no changes to customs and border operations in the transition period, then businesses and haulage operators urgently need details of what those changes will be. At a minimum, the options under consideration should be published so that these organisations and the public sector can make the necessary plans and investments for those operational changes.

Given the lead times for changes in staffing, technology and infrastructure, Border Force, HMRC and other public sector agencies also need clarity rapidly if any such changes will be required for the transition. The Government must make sure that all affected agencies have contingency plans in place to introduce new systems and capacity over the next 16 months. The Home Office should also set out its own urgent assessment of the additional costs of the options for each scenario.

The Brexit Secretary has stated that he wants to reach agreement on transitional arrangements in the first quarter of 2018. This timescale already poses immense difficulties if significant changes are required. If there is any further slippage to this timetable it will be extremely damaging to the smooth operation of the border regime, including to trade and security operations, and to businesses which will struggle to make major changes in such a short period of time.

In other words, a no deal scenario, at this stage in the game, with less than two years to go, is simply not an option for businesses. If that happens, it will be a disaster. And the government needs to secure a transitional agreement ASAP – to allow businesses time to make any changes to processes, systems and resources.

We’ve already noted this week how HMRC is pushed for time to implement its new Customs Declaration Service (CDS) system. Funding hasn’t been agreed to scale it up, contingency plans haven’t been put in place and HMRC is already stretched with a number of transformation programmes under way. Given the short timelines – and the lack of scope for introducing errors – this is incredibly troubling.

Why the lack of urgency and leadership?

The report notes that given the lead times for changes in staffing, technology and infrastructure, government needs to find a way to co-ordinate strategy across the departments involved and rapidly clarify if any changes will be required for the transition.

However, there appears to be a lack of urgency on the government’s part.

Not only are businesses not being informed of what they should be doing to prepare for Brexit day – again, just 16 months away – but there appears to be a lack of leadership from inside the government to direct this. The Home Affairs Committee notes:

We were not satisfied with the answers we received to a vitally important question about planning for post-Brexit customs arrangements: who is in charge? The Government’s approach seems to us to lack focus, urgency and above all leadership.

Any progress seems to rely on working groups of government officials, with no meaningful ministerial leadership. This is particularly worrying given that the costs involved would appear to be significantly higher than the existing Brexit contingency funding requested by the Home Office and even higher than the total envisaged by the Prime Minister for the whole Government.

Moreover, the fact that multiple government departments and agencies are involved in delivering customs means that a fully joined-up approach from the Government is urgently needed, as well
as proper coordination with the private sector.

The impetus to achieve this is only likely to come from a named senior Government Minister taking responsibility, who can then provide regular reports to Parliament on the Government’s plans.

My take

The government may narrowly avoid catastrophe at the borders if it can agree an unprecedented transitional deal with the EU – followed by an unprecedented low-friction customs arrangement after this period. Whether that’s likely, is anyone’s guess. A no deal scenario, which is still very much on the table, will inevitably end up in a disaster.

The best of government IT projects – ones far less complicated than this, that don’t require cross-department collaboration, cross-country collaboration, private-public sector partnership – still run over budget, encounter problems and certainly take longer than 16 months. I genuinely fail to understand why the government isn’t throwing everything at this. Arrogance, possibly.

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