Brexit report points to unknown risks for new customs IT system

Profile picture for user ddpreez By Derek du Preez July 30, 2017
Summary:
Economic consultants Oxera have highlighted that the UK is building a new IT customs system, but it doesn’t yet know how customs will change post-Brexit.

Brexit

The UK’s decision to leave the European Union obviously has far-reaching consequences. However, one of the most immediate challenges facing trade post-Brexit, is that of the customs agreement (if any) that the government strikes with the EU for any future relationship.

Prime Minister Theresa May began by promising to maintain the “frictionless” transport of goods between the UK and EU after Brexit. This has recently shifted to ‘as frictionless as possible’. Michel Barnier, the EU’s chief negotiator, however, has said that it is impossible to leave the single market (as the British government has hinted is its intention) and build a customs union that has frictionless trade.

A new report released by economic consultants Oxera has detailed the different scenarios facing the UK, after it leaves the European Union on 29 March 2019. The different scenarios mean different degrees of economic pain for the UK, but they also highlight the unknowns for its new customs IT system.

To put it simply, a new system is being built that is intended to go live just before our departure from the EU. And yet, this system is being built with little knowledge of what the new customs processes and regulations will require. Which, to put it lightly, doesn’t bode well.

The Oxera report outlines how since the single market was established in January 1993, goods leaving the UK for the EU, and vice versa, have not been subject to customs checks on either side. Lorry loads of goods entering Dover from outside the EU are subject to checks that take 45 minutes on average, having been subject to the same checks on entering the EU. The report notes:

Post-Brexit, adding four of those checks (at an Irish port, at two English ports, and then a French one) onto each consignment of Irish goods starts to look unpalatable.

In addition to this, the report provides an example that a fuel injector for a diesel lorry sold in the UK will have crossed the Channel five times before the truck is even driven by the customer.

This is important, as any future system being designed will have to consider this complexity and load - something that hasn’t been an issue, at this scale, for over two decades.

The problem is that the government agreed to replace the current HMRC customs clearance system before idea of ‘Brexit’ was considered a possibility. In other words, a system is being built for a scenario that isn’t likely to reflect the reality come 2019. As the report notes:

One important barrier to ensuring the delivery of frictionless trade is the small matter of a new government IT system. It was agreed well before the referendum was announced that the current HMRC customs clearance system, CHIEF, would be replaced in March 2019.

It’s now due to be delivered just before we leave the EU and, having been planned to deliver 60 million clearances per annum, it will now need to deliver 300 million per year,[5] with no understanding yet of what the customs deal with the EU looks like.

Concern is building

A number of government and non-government organisations have already raised concerns about the new customs clearance system - Customs Declaration Service (CDS). For example, the National Audit Office (NAO) recently released a report, which said:

Core parts of the system work in other countries but have not yet been used at the volume and intensity the UK might need. For example, the customs declaration management component has been tested to cope with 180 million declarations a year compared with the 255 million which may be needed. Until it is shown to work at this level and with the UK’s specific systems, there is a risk that this new component may not meet the UK’s requirements.

It added:

HMRC has only two months between January 2019, when it plans to complete the transition to CDS, and March 2019 when the UK plans to leave the EU. This provides little contingency time should the programme overrun or unexpected problems occur.

In addition, tech lobby group, techUK, recently said that “There are industry concerns that the overall performance of the UK system will fall if substantial capacity and improvements are not implemented to deal with increased volumes”. It urged the government to consider new technologies for the customs clearance system. techUK said:

In short, the UK can and must use the opportunity of exiting the European Union to create a new world-leading model for a data-driven responsive customs system. techUK encourages the Government to undertake an immediate review, in close dialogue with the full diversity of the UK tech sector, to investigate how new digital technologies, such as blockchain and machine learning, can play a role in delivering a data-driven and frictionless customs system.

My take

The Oxera report outlines a number of scenarios for the UK post-Brexit, with regards to customs checks at the ports. The range from low regulation, with low enforcement, to high regulation, with high enforcement - and the end result will all depend on the deal that is struck.

However, the scenario we end up with will inevitably have an impact on the final customs system that is introduced. It’s extremely concerning that the specifications for the system being implemented are based on a scenario that didn’t take into consideration an exit from the European Union. I can’t imagine that the CDS system, as it currently stands, will be sufficient for what will be required on 29th March 2019, unless a lengthy transitional agreement is in place and more time is allowed to build a system that is suitable.