A report released this week by Oxera warns that new post-Brexit customs arrangements could disrupt supply chains, bring gridlock to south-east England, and cost the UK a ‘conservative’ £1bn a year.
The warning from the well-respected economic consultancy underlines the real economic impact of Brexit to UK businesses that trade with the EU, as well as EU businesses trading with the UK.
Currently around £466bn of goods are traded between the UK and the EU each year with no customs controls. Post-Brexit, goods moving from or into the UK will be subject to customs declarations. The government’s position is that it wants the flow of imports and exports to be ‘as frictionless as possible’ after Brexit.
There are a number of post-Brexit scenarios examined in the report. In the worst case, high regulation and high enforcement would lead to gridlock in south east Kent which would inevitably cause businesses to rethink ‘just-in-time’ delivery models.
Customs Declaration Service
While the UK currently boasts one of the world’s most efficient border clearance processes, the report also identifies one key barrier to ensuring the delivery of frictionless trade, namely the implementation of the new Customs Declaration Service (CDS).
The CDS was originally commissioned in 2013/14 to replace HMRC’s ageing customs declarations system known as CHIEF. HMRC plans that CDS will handle all customs declarations from January 2019.
Initially the CDS was designed to deliver 60 million clearances per year. Post-Brexit, it may need to deliver an estimated 255 million clearances per year. Yet, according to the National Audit Office, the system has only been tested to cope with 180 million declarations a year.
The NAO also raises concerns about the short two-month window between the planned completion date and the UK’s exit from the EU. Despite assurances from HMRC that the project is ‘on track’, there is precious little contingency time should the programme overrun.
Worryingly, the HMRC project team also appears to have been dogged by staffing shortages. At the end of March 2017, there were 67 vacancies in the programme team with nine people required for immediate start to prevent an adverse impact on delivery.
Aside from the IT challenges, new post-Brexit customs arrangements may also require higher numbers of HMRC and Border Force personnel to effectively man the new UK customs border. The ability to clear goods post-Brexit may also be severely restricted by the reduction in the number of freight agents who traditionally handle the customs declaration process on behalf of importers and exporters. For example, prior to the single market, there were around 125 freight agents in Dover; there are now around 25.
Many also fear that the new arrangements will place greater emphasis on exporters and importers to manage their own declarations.
Such changes will impose greater compliance costs for businesses and new arrangements could feasibly result in delays at ports for declaration processing and customs checks. For many businesses that have only known the single market and a custom-less environment for trade with the EU, this could come as something of a shock.