Yesterday’s Customs White Paper is the first of the Government’s Brexit publications to touch on the ‘no deal’ scenario in any real detail. It confirmed that, in the absence of a deal, trade that currently moves uninhibited between the UK and the EU would suddenly face significant friction - tariffs, customs checks, and import/export licensing.
No deal, or ‘the contingency option’ as the Treasury is calling it, is the most extreme change in the shortest period of time.
Preparing to crash out of the European Union (EU) on day one requires thousands of new staff, infrastructure and technology and changes to over 30 government departments and public bodies. And that is just to prepare the border.
On top of that there will be a need for new public bodies and regulatory agencies, such as a new Trade Remedies body announced yesterday in the Trade White Paper, and the replication of over 40 Free Trade Agreements that we are currently signatories of through our membership of the EU.
Two pages of the Treasury White Paper may be the most we’ve seen publicly on ‘the contingency option’, but behind closed doors in Whitehall these plans have existed for months.
In the spring of this year, we were told that every department had drawn up two Brexit plans – one for ‘a negotiated outcome’ and one for ‘no deal’. They mapped out a route to March 2019 that would ensure the UK was ready for every eventuality.
We heard that departments were asked to, wherever possible, avoid relying on new technology since large ICT programmes and hard deadlines often prove incompatible.
Customs is one of those cases where ‘day one’ delivery is dependent on ICT. Customs Declarations Service is the new system being implemented at the moment as part of the Union Customs Code - the current EU customs rulebook - which started in 2013 and it is not due to be in place until January 2019. Just months before it will be needed in a no deal scenario.
Missing decision points?
With less than three years from referendum to exit, these no deal plans were already squeezed into heroic timelines. Many of them included decision points that appear to have come and gone.
Take border agents. It takes about a year to train even the more generalist members of staff, and in a no deal scenario the numbers required could be in the thousands. If the Government is going to recruit, hire and train a new cadre of Brexit border agents it needs to at least have started the process by now.
The Customs White Paper talked about using ‘inland clearance’ – moving customs checks away from the ports where possible, to limit the demand placed on the physical border – which is something the Institute for Government recommended in our recent report on Customs. But that requires specialist facilities to be built and staffed.
To date there has been nothing to suggest that any infrastructure is being built in the South East to give the Eurotunnel and Dover the inland facilities they will require in the case of no deal.
Past changes to the border suggest that there is not enough time to properly prepare for no deal
Major changes at the border take time and government is just one of many players in the process. There are port operators, customs handlers and freight forwarders, all of whom need to prepare for no deal and all of whom will not want to spend money until they are sure it is necessary.
The Union Customs Code was agreed in 2013, introduced in 2016 and government and business had until 2020 until they needed to be compliant.
In the past, and for relatively straightforward changes, businesses were given 18 months to adapt once the UK government had finished work on a change. They now have less than that to prepare for a no deal scenario.
Our recent paper on customs also highlighted the fact that customs is a canyon not a cliff edge.
Even if the UK’s border is ready for Brexit, ports could turn to gridlock if the there are issues in Calais, Rotterdam or other European ports. The famous queues of lorries along the M20 in Kent in 2015 were a result of problems in Calais, not Dover.
Then there is the question of the Irish border. There are reports that Ireland’s Office of the Revenue Commissioners (ORC) see some form of hard border inevitable, even with an imaginative negotiated solution. The Customs White Paper offers very little on potential solutions in the case of no deal.
Preparing for no deal might offer the UK Government some negotiating capital, but it has consequences
There seems to be broad support for the Government’s increased focus on no deal preparations. For the more risk averse, it’s seen as vital to have contingency plans in place. For others, who are keen to call the EU’s bluff, unless you are able to walk away from the negotiating table, you’re going to get a bad deal.
The reality is that seriously preparing for no deal requires money to be spent, and quickly. The cliff edge is fast approaching – new systems, public bodies, staff and infrastructure will be required in a range of areas.
And the impact of no deal could be felt long before March 2019. For many businesses, their ‘contingency option’ kicks in by the end of 2017. City firms have already said that jobs will start moving to the continent if there is no movement on transition by January 2018.
So while the Government must prepare to walk away with nothing in March 2019, there will be high hopes for an early transition.