Brexit has made trading worse for UK businesses, MPs say
Brexit has had a “clear impact” on Britain’s trade volumes and new border arrangements have added “costs” to UK business, a scathing new report claims.
There could be “potential disruption” at the border if cross-border passenger volumes — which have been at a fraction of normal levels due to COVID-19 — recover as expected in 2022, according to a Public Accounts Committee (PAC) report.
This could be exacerbated by “further checks at ports as part of the EU’s new Entry and Exit system” and especially at ports like Dover where EU officials carry out border checks on the UK side, the PAC warned.
The PAC said it had “repeatedly raised concerns about the impact of changes to trading arrangements on businesses of all sizes” and that it remains concerned.
Dame Meg Miller MP, chair of the PAC, said there is “much more work” the government should be doing in the short term to “minimise the current burden” on companies trading with EU.
“One of the great promises of Brexit was freeing British businesses to give them the headroom to maximise their productivity and contribution to the economy — even more desperately needed now on the long road to recovery from the pandemic. Yet the only detectable impact so far is increased costs, paperwork and border delays,” Miller added.
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There have been changes in the way the UK trades with the European Union (EU) and in relation to the movement of goods between Great Britain and Northern Ireland since the end of the agreement transition period on 31 December 2020.
As a result the EU introduced full import controls. The UK government originally intended to do the same but has delayed three times over the last year.
“Much remains to be done to introduce import controls, and in particular to ensure that traders and hauliers across the 27 EU member states are ready as the controls are phased in,” the report says.
Miller called on the UK government to “address the immediate delivery and readiness risks in introducing import controls, and to have a border in place which is operating effectively without further delays or temporary measures”.
“The PAC has repeatedly reported on Brexit preparedness and at every step there have been delays to promised deadlines. It’s time the government was honest about the problems rather than overpromising.”
The committee said government plans to create “the most effective border in the world” by 2025 was a “noteworthy ambition” but “it is optimistic, given where things stand today”.The PAC is “not convinced” by the plan to deliver it.
The report’s other findings and recommendations include:
With closer to normal passenger volumes and the EU’s planned introduction of its new Entry and Exit System to enter the EU expected in 2022, there is a risk that it will take longer to process passengers travelling from the UK to the EU. This is a particular risk at the juxtaposed controls, such as Dover, where EU officials carry out checks on the UK side of the border and where queues might build up in the UK.
The PAC is calling on the government to set out its scenario planning and modelling for passenger volumes in 2022 and clarify how it will manage the increased pressures and any contingencies that may be required, including those relating to new EU Entry and Exit System requirements at juxtaposed controls.
The PAC said the government should write to the committee, within six months, to provide an update on its scenario planning and whether its 2022 modelling has proved accurate, with particular emphasis on HGV drivers.
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The Home Office is currently holding early stage talks with France over how they might operate the new controls without causing queues. It is important that the checks that will apply to HGV drivers do not delay throughput of lorries.
While its still unclear to what extent the declines in UK trade with the EU since the end of the transition period have been caused by Brexit, or by the pandemic, what is clear is that UK businesses face additional administration and cost when trading with the EU.
For example, traders may have to pay an intermediary to help them complete customs declarations and traders in sanitary and phyto-sanitary (SPS) goods selected for physical inspections will have to pay fees to both government and the port. Additionally, traders may also need to pay tariffs if their goods do not meet “rules of origin” requirements and there are internal costs associated with complying with the additional requirements.
In 2019, HM Revenue & Customs (HMRC) estimated that complying with new customs rules could cost UK and EU businesses £15bn ($20,288) per year.
The PAC recommended that the government undertake a “comprehensive exercise to identify and quantify” the additional costs the business community and border stakeholders face as a result of new border requirements, to minimise the costs to business as far as possible. It also wants the government to identify opportunities to reduce costs and administrative burden to traders.
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The government provided a range of support to help UK firms get ready for new EU controls in preparation for the transition period. This included targeted support to the 10,000 higher-value businesses which had previously only traded with the EU.
Some support was provided to SMEs, including the £20m SME Brexit Support Fund, but narrowly defined criteria meant that many firms could not access this support and only £6.7m was paid out.
The government also set up the Export Support Service, which brings together different departments to provide support to UK exporters, in particular smaller businesses.
The PAC said the government should “identify” what issues businesses are facing in relation to the new border requirements and “determine” how they can provide SMEs with additional support, both through existing mechanisms, including customs intermediaries, and new methods of targeted support.
The UK originall
y intended to introduce import controls on goods entering Great Britain from the EU when the transition period ended in January 2021. These controls were delayed three times and the government intends to introduce them in phases between January 2022 and November 2022.
The committee said that while government departments have made headway to towards introducing the systems, there are still concerns.
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It cited communication issues between the Import of Products, Animals, Food and Feed System (IPAFFS) and the Goods Vehicle Movement Service (GVMS) system in telling hauliers where they should go if the goods they are carrying are selected for SPS checks.
It also highlighted some of the staff and infrastructure required for the implementation of import controls are “not yet in place”.
Departments have consistently rated a lack of trader and haulier readiness for new border controls as a high risk to the operation of the UK border after the end of the transition period.
UK traders have been dealing with EU import controls since January 2021 and the Cabinet Office was very positive about the extent to which UK hauliers, logistics companies and traders had adapted to them. The focus now is on EU trader and haulier readiness for UK import controls when they are imposed throughout 2022.
The report called on the government to “set out” departments’ assessment of EU trader and haulier readiness, to determine whether any intervention by either itself or the EU may be required; and to set out any plans for additional support.
“Improving readiness in 27 countries is significantly more challenging than improving it in one, and we share others’ nervousness about the state of EU trader readiness for the controls to be introduced throughout 2022 and the lack of visibility and metrics on this,” the committee said.
The PAC shared “concerns” that many businesses are still not fully aware of all the new requirements, for example around rules of origin, and it will take time for them to get up to speed.
It also noted potential risks caused by delays in putting in place the necessary permanent infrastructure. For example, until the Dover White Cliffs site becomes operational in 2023 trucks arriving in Dover that are carrying goods selected for physical checks will have to travel 60 miles to Ebbsfleet. The further the inland sites are from the ports, the greater the risk that goods could be offloaded on the way.
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As a result of these worries, the PAC is urging the government to provide an assessment of the fiscal and regulatory risks for imports from EU to the UK and set out how it will minimise any potential gaps in the temporary arrangements it intends to operate until all its planned permanent infrastructure is in place.
The UK government published its strategy to put in place the “world’s most effective border” by 2025, this set out its strategic objectives and target operating model for the border at a high level but “did not contain any significant detail” about the delivery plans underpinning these.
To support delivery of the strategy, chancellor Rishi Sunak in the October 2021 Spending Review provided £838m to deliver critical customs IT systems and £180m to deliver a single trade window.
Although HMRC thinks these investments could make it easier for traders by simplifying the system and ensuring they only have to submit information once, the PAC is calling on the government to set out a timetable for its planned programme of work to create “the world’s most effective border by 2025”, and the key risks it will need to manage in taking this forward, within six months.
The UK and the EU have both recognised “issues” with the implementation of the Northern Ireland Protocol. The Cabinet Office told the committee that “the results of its monitoring of the impact of the Protocol had been very concerning and had revealed considerable diversion of trade”.
The government also “shared concerns that the Protocol “does not have support among significant parts” of the Northern Ireland community.
While the UK reserves the right to trigger Article 16 safeguards if needed, it is seeking a comprehensive negotiated solution and the two sides remain in negotiations. The UK set out its proposed changes to reduce checks required under the Protocol in a July 2021 Command Paper and the EU has also put forward some proposals, including some new suggestions they had previously rejected.
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