HMRC told to clarify no-deal Brexit cost projections

Written by Jim Dunton on 21 September 2018 in News
News

Parliamentary committee calls for detailed breakdown on £18bn annual-cost-to-business figure as Chequers Plan customs vision falters

HMRC perm sec Jon Thompson. Parliament TV

A parliamentary committee has called on HM Revenue & Customs to provide a detailed breakdown of its calculations that a “no-deal” Brexit would cost UK businesses £18bn a year as the likelihood of such an outcome increases.

In a report on the customs challenges posed by the UK’s decision to leave the European Union, members of the House of Lords EU External Affairs Sub-Committee urged the department to give an “itemised breakdown of the figure”. They also said the government should set out its proposals for supporting businesses to assess the additional costs of post-Brexit customs procedures.

HMRC perm sec Jon Thompson gave the £18bn figure to the Public Accounts Committee earlier this month after offering a £17-20bn annual estimate to the Treasury Select Committee in June.


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Members of the External Affairs Sub-Committee noted that Thompson had subsequently broken down the £18bn figure as £13bn for import and export customs declarations and £5bn for tariffs.

But the committee said a detailed analysis of the cost would allow the government to better understand the impact on smaller businesses, and recognised that support initiatives such as trusted-trader schemes could place an “unacceptably high burden” on smaller firms.

Peers said that up to 245,000 businesses traded exclusively with the European Union and would have to gain expertise in complex customs procedures, which they did not yet have, or outsource the work at a cost. HMRC estimates there would be a five-fold increase in customs declarations from 55m to 250m a year.

They added that in the event of a no-deal Brexit, additional paperwork and regulatory checks were likely to cause delays at ports and that the government’s position that checks of EU goods could be unilaterally suspended to keep goods moving may be in breach of World Trade Organisation rules.

The committee noted that the Facilitated Customs Arrangement proposals included in prime minister Theresa May’s Chequers Plan had been costed at £700m a year for UK-importers, but left crucial questions surrounding their workability unanswered.

They also observed that the system – which would involve the UK collecting tariffs on behalf of the European Union for goods imported to the UK that subsequently went on to EU member states – had already been rejected as crossing a red line for the EU.

Committee chair Baroness Sandip Verma said that as a “matter of urgency” ministers needed to explain how goods would be tracked, how revenue would be collected, and how the repayment mechanism would work under the preferred FCA vision.

"With only six months to go until Brexit, the clock really is ticking on a mutually acceptable customs agreement,” she said.

"A 'no deal' Brexit will cause disruption – mitigation options are limited and no technology currently exists, which would eliminate border checks completely.

“Even if the UK waived customs checks on goods arriving from the EU, the EU has said that it will not reciprocate."

The committee did praise HMRC, however, for its decision to hire additional staff to cope with the administrative burden of Brexit, observing that perm sec Thompson had said up to 5,000 more staff were needed.

Responding to the committee’s report, a government spokesperson said the FCA was a “business-friendly model” that would ensure frictionless trade for both UK and EU firms.

“We firmly believe it is in the interests of both the EU and the UK to strike a deal. That remains the goal on both sides and we are confident that this will be achieved,” they said.

“The FCA would remove the need for any new customs processes between the UK and the EU, and only a small proportion of overall trade will be affected by the repayment element. We are discussing these proposals with the [European] Commission.”

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