MPs have expressed surprise that the Treasury has not yet coughed up the cash that HM Revenue and Customs needs to upgrade its customs system to cope with a probable five-fold workload increase following Brexit.
The Commons’ Public Accounts Committee urged HMRC to “bang on the doors of the Treasury” to secure the funding it needs to scale up its Customs Declarations Service (CDS) and develop contingency plans in case Britain crashes out of the EU without a deal in March 2019.
In a report published today, the PAC said HMRC cannot use the uncertainty regarding the outcome of Brexit negotiations as an excuse to delay taking action now, and warned of the “catastrophic” consequences of leaving the EU without a viable system in place.
In 2013-14, before the EU referendum, HMRC began work to replace its customs system, Customs Handling of Import and Export Freight (CHIEF), with a new system, CDS, which aims to be fully operational by January 2019.
Following the EU vote it became clear that the customs system would now have to be able to handle 255 million declarations a year, five times more than the 55 million made by traders in 2015.
Despite this, top officials from the tax agency have told MPs the programme is on track and well governed, but have admitted that some risks remain that could jeopardise the already tight timetable. HMRC has also said it won’t know the cost of upgrading CDS to deal with the increase in declarations until January 2019.
According to the PAC report, HMRC’s “main contingency option” – if CDS fails – is the current CHIEF system, which would need a £7.3m cash injection to upgrade it so it could handle 255 million declarations. The tax agency said it was “in conversation” with the Treasury regarding this money.
“In the context of the CDS programme, this would seem a relatively small sum to pay to guard against the wider financial and reputational costs of failure,” said the report.
“It needs to progress this work urgently and obtain the additional funding required, to ensure that CDS can deal with the potential increase in volumes, and that an adequate fall-back option is in place in case this is delayed.”
A failed customs system, the PAC said, could lead to “huge disruption for businesses… massive queues at Dover and… food being left to rot in trucks at the border”.
The report also calls for HMRC to improve its engagement with traders and keep them abreast of the CDS timeline; to “urgently prioritise and make difficult decisions” with regard to its “unsustainable” amount of transformation projects; and to report back to the PAC on progress made by March 2018.
Jon Thompson, HMRC chief executive, told the committee last month that the organisation was undertaking a full review of its reform plans to assess how many could be realistically taken forward alongside those relating to Brexit.
Meg Hillier, PAC chair and Labour MP, said: “Failure to have a viable customs system in place before the UK’s planned exit from the EU would wreak havoc for UK business, trade and our international reputation. Confidence would collapse amid the potentially catastrophic effects.”
She said HMRC is under considerable pressure to deliver CDS on time but does not yet have the funding to increase its capacity to cope with Brexit or develop contingency options.
“This is deeply worrying,” she added. “HMRC requires a relatively small sum to upgrade the current CHIEF system – a move which would provide some peace of mind to traders, many of whom are still operating with limited information and in great uncertainty
“HMRC tells us it is merely ‘in conversation’ over CHIEF upgrade costs when, on behalf of business and the British public, it should be banging on the doors of the Treasury.”
A government spokesperson said: “The Customs Declaration Service is on track for delivery by January 2019 and has the capacity to deal with a significant increase in customs declarations at the border. We’ve already allocated over half a billion pounds in funding to ensure a successful exit from the EU and we will have a fully functioning UK customs service on day one post Brexit.
“HMRC will continue to operate the current service (CHIEF) in tandem with CDS during the transition from one system to the other. This will provide an additional level of contingency, should it be required.”