Today and tomorrow, Parliament will debate second reading, the Taxation (Cross-Border Trade) Bill, previously known as the Customs Bill. The bill can be found here.
The bill, if passed, would allow the Government to levy customs duties on goods traded with the EU, contradicting both its stated aims of wanting to have frictionless trade with the EU as well as avoiding a hard border with the Republic of Ireland, as laid out in the Prime Minister’s Lancaster House speech from January 2017.
This briefing outlines Open Britain’s top lines on the bill, the passage of the bill so far, and an overview of the impact of leaving the Customs Union.
- In its current form this bill would hammer our economy, risk chaos at our ports and put Northern Ireland’s stability in jeopardy by dragging Britain out of the Customs Union.
- The Government's hasty choice to leave the Customs Union, and their lack of realism and preparation regarding real alternatives, increases the chances that we could face a crash into chaos and confusion in our customs system after Brexit.
- As things stands, more than 130,000 UK firms will be forced to pay VAT upfront for the first time on all goods imported from the European Union after Brexit. This is yet another aspect of Brexit that the Leave campaign failed to inform the public about.
- If firms have to start paying VAT up front at border entry points, this could upend decades of normal business practices and add millions of pounds in bureaucratic costs that won't just hit profit margins, but will likely be passed on to customers via higher prices.
- There are also serious concerns that the bill could be used to water down human rights and equalities laws. Clause 2 would give ministers unfettered power to amend “retained EU law” with limited or no parliamentary oversight.
- This is all being done in pursuit of fantasy free trade deals. But it is clear that trade deals with other countries will take many years to negotiate, with huge trade-offs, and will not come close to making up for lost trade with Europe as a result of leaving the Single Market and Customs Union.
- It is extremely concerning that the Government is trying to dodge full and proper scrutiny by pushing this legislation through as a money bill. Any attempt sidestep the House of Lords in this way is wholly unacceptable.
Progress so far:
At initial stage during the ways and means resolution, the bill passed in its current form, with amendments brought by Edinburgh South MP and key Open Britain supporter, Ian Murray, exempting duties on exports to or imports from the EU on any future UK customs regime, were defeated in the House of Commons by 311 votes to 76.
The second reading of the bill comes following an exchange of letters between Nicky Morgan MP, the Chair of the Treasury Select Committee and the Chancellor, Philip Hammond, in which he refused to rule out membership of a customs union. Instead, he said the Government “need to seek a new customs arrangement with the EU”.
Impact of leaving the Customs Union
Here we provide an overview of the impact and consequences of leaving the customs union on the economy, trade with non-EU countries, non-tariff issues, the UK borders, the Irish border, security issues.
Economic consequences of leaving the Customs Union:
- The UK’s current annual goods trade with countries within the Customs Union is £466 billion.
- Leaving the Customs Union could cost the UK an estimated £25 billion every year until 2030, according to the Brexit Secretary’s Special Adviser, Raoul Ruparel.
- The cost of new tariffs alone could be at least £4.5 billion per year for UK exporters, according to research conducted by The Independent.
- Analysis by HMRC from March 2017 suggests new customs checks could increase the cost of imported goods by up to 24%.
Impact of leaving the Customs Union on Trade with Non-EU Countries
- As a member of the Customs Union, the UK is party to preferential trade agreements with around 65 countries across the world.
- Outside the Customs Union, it is likely that the UK would need to renegotiate many, or possibly all, of its existing trade deals with third countries. Even the International Trade Secretary has admitted this is not as easy as just ‘rolling over’ the existing agreements.
- The UK will need to arrange new quotas through the WTO, but other countries have already raised potential objections to this.
Non-Tariff Costs created by leaving the Customs Union
- Leaving the Customs Union could see UK companies having to comply with high levels of new bureaucracy and additional costs. Meeting the EU’s requirements on Rules of Origin alone would add significant extra burdens to businesses in terms of time, effort and money.
- IT systems will need to be upgraded and improved and the UK will find itself in the position of having to deal with a huge increase in the number of traders making customs declarations, from the current 141,000 to 273,000. This would include approximately 132,000 traders making customs declarations for the first time.
- The National Audit Office estimates the number of customs declarations per year increasing from 55 million to 255 million if the UK leaves the Customs Union.
Border Impact of leaving the Customs Union: Ports, Airports and Rail Terminals
- Infrastructure improvements will be required at ports to deal with the potential increase in the number of vehicles carrying EU goods, which will need to be parked at ports to await clearance, rather than “driving straight through” as is currently the case.
- Britain’s ports are currently not equipped with the physical infrastructure or parking bays required to deal with this level of checks on freight entering and departing the UK. This could lead to gridlock around busy UK ports like Dover and Holyhead and could damage the trade in perishable goods.
- At some ports, including Dover, as much as 99% of traffic relates to trade with the EU.
- James Hookham, deputy chief executive of Britain’s Freight Transport Association, has said: “If you add an average of two minutes to customs processing, you get a 17-mile queue [from Dover] almost back to Ashford. Another four minutes takes the queue back to Maidstone, six minutes back to the M25, eight minutes and you are up to the Dartford crossing and Essex.”
- An example of the potential consequences of delay at ports was demonstrated in July 2015 when a strike by French ferry operators resulted in huge delays and traffic jams in Kent and the activation of ‘Operation Stack’.
- The IfG report notes that the requirement to implement Operation Stack in 2015 resulted in businesses losing £21 million in stock and the economy in Kent losing £1.5 million a day.
Border Impact of leaving the Customs Union: Northern Ireland and Republic of Ireland
- The UK’s membership of the Customs Union is essential for the maintenance of the currently invisible border between Northern Ireland and the Republic of Ireland. The lack of customs checks and border posts is crucial to the economy of Northern Ireland and the Republic alike, and has profound historical significance.
- The Irish Foreign Minister has said that leaving the Customs Union is “incompatible” with avoiding a return to a hard border on the island of Ireland.
- An estimated 177,000 lorries, 208,000 vans and 1.85 million cars now cross the border every month. Around 30,000 people cross the border each day.
- There are concerns that leaving the Customs Union, and the subsequent creation of different customs regimes between the UK and Ireland, will create incentives for increased smuggling across the Irish border.
Border Impact of leaving the Customs Union: Security
- A recent report by the Public Accounts Committee found that failure to fully deploy a new customs system by the point the UK leaves the European Union would be "catastrophic".
- The report found that HMRC is not being given the funding to increase the capacity of the planned new Customs Declaration Service (CDS) to deal with the consequences of Brexit – nor to develop contingency options.
- The CDS system project is ‘amber’ rated by the Infrastructure and Projects Authority, indicating that significant issues already exist.
- The NAO has raised concerns that Border Force may struggle to cope with the combined demands of a greatly increased number of checks being required for both people and goods entering the UK after Brexit. These risks include fewer seizures of illicit and illegal goods at the border.
- HMRC has stated that it will need up to 5,000 additional staff in place by March 2019 as a consequence of Brexit. The Home Office has stated that an extra 300 border staff will be in place by March 2019, a 4% increase. The Home Affairs Committee has raised serious concerns about whether this will be sufficient.