Brexit: The Customs Challenge (European Union Committee Report)

Motion to Take Note

Moved by

That this House takes note of the Report from the European Union Committee Brexit: the customs challenge (20th Report, HL Paper 187).

My Lords, I am grateful for the opportunity to debate the EU Committee’s report, Brexit: The Customs Challenge, this afternoon. As chair of the EU External Affairs Sub-Committee, I extend my thanks to the members of the committee for their important contribution to this report, to Members speaking today, and to everyone who provided written and oral evidence to the committee. I also thank the committee’s secretariat, as it was constituted at the time—Jennifer Martin-Kohlmorgen, Julia Ewert and Lauren Harvey—for its assistance with the inquiry and preparation of this report.

Last year, the EU External Affairs Sub-Committee investigated the customs challenges in the event of no deal and considered the Government’s Chequers proposal for a facilitated customs arrangement. I strongly regret that—even though the committee published its report in September 2018, and despite the rule that commits the Government to respond within two months of a report’s publication—more than six months on the committee is still awaiting a response. Not only is the response outstanding, but the Government have not proposed an alternative date for its submission. I urge the Minister, who I know will take this seriously, to provide the official government response as soon as possible and ask him to confirm when he expects to provide it to the committee.

The first half of the report covered what trade with the EU under WTO rules, commonly referred to as “no deal”, would look like. Despite the various votes in the Commons on avoiding no deal, a no-deal Brexit will continue to be a risk unless and until a withdrawal agreement is passed. I also remind the House that, even if there is a transition period, if the two sides fail to agree on their future relationship, there could still be a delayed no-deal Brexit.

Our report warned that no deal would cause significant disruption and be costly. Tariffs would apply and traders would be required to make customs declarations, with customs and regulatory checks also to be carried out. Overall, HMRC has estimated that if customs declarations were introduced between the UK and the EU, there would be a cost to businesses running into billions each year. The completion of customs declarations would raise the cost of UK-EU trade by £13 billion a year. Half of that—£6.5 billion— would be shouldered by UK businesses. There would also be additional tariff costs. HMRC originally estimated an additional £5 billion per year in such costs, though the UK Government’s intention to reduce 87% of tariffs by value in the event of no deal should lower the amount somewhat. Having said this, UK businesses will still face tariffs on most exports to the EU by value. Although EU tariffs are generally low, some sectors, such as the agricultural and automotive sectors, will be disproportionately affected.

I also emphasise the report’s finding that no technology currently exists, or will be available in the short term, which would dispense with the need for border checks. In all cases, some form of physical infrastructure will be required. This is of particular relevance to the Northern Ireland/Ireland border, where trade under WTO rules risks reintroducing a hard border. We also found that the introduction of new customs checks at the border under no deal would cause congestion and delays at roll-on roll-off ports. The Port of Dover’s ability to handle its trade volume, for example, depends on vehicles flowing through the port without stopping for customs controls. Even if the UK adopts a light-touch approach to these checks, roll-on roll-off ports such as Dover operate in a closed loop with their French counterparts in Calais or Dunkirk. Congestion on the French side will inevitably have a knock-on effect on the UK. This poses a significant challenge to just-in-time production and agri-food businesses, and could lead to the disruption of highly integrated supply chains. In turn, this could make UK businesses that are part of such supply chains less attractive.

My Lords, it was a pleasure to serve on the sub-committee chaired so effectively by the noble Baroness, Lady Verma, whom I thank.

After all these months of delay, waiting for the Government to respond, we should consider where we are overall. The Government are hardly prepared for the customs arrangements that would be needed for any version of hard Brexit, and the businesses and individuals who will have to operate in this environment have few clues as to what to expect. People in haulage, ports and administration have a sense of application to do their best, but nobody has been able to tell them which best they should do.

All the time, the clocks are ticking. Complex supply chains face multiple difficulties without any real prospect of resolution. With the small cavalcade of lorries in Kent, the appointment of a ferry company with zero experience, zero ships and zero port agreements, the emergency plans for food and medical shortages and the declaration of the possible need to contain civil unrest with military deployments, it is hardly surprising that nobody is oozing confidence. The sunny uplands are a fantasy. We Brits are a pragmatic and phlegmatic lot, but this has felt to me like launching Eddie the Eagle down a precipitous slope to jump against seasoned athletes, our best aspirations amounting simply to hoping he will survive.

In the area of customs, I still do not know what our national vision is. How does that vision, if there is one, link trade and customs provisions with economic performance, and thus with other vital interests such as security, defence, foreign policy, justice, home affairs and other key sectors? Customs and trade are essential components of a successful economy, and a successful economy holds the key to everything else.

In all markets between nations, including the WTO’s often dysfunctional system, we generally acknowledge that there must be rules so that everybody knows the standards within which they will trade. Even outside the EU’s customs union, checks and intrusive procedures are still inevitable. How else will we deal with, for example, the enduring compliance with preferential rules of origin? If we are to enjoy the frictionless benefits of being inside, do we really think it right to do so without accepting that there are both rights and responsibilities?

My Lords, I too thank the noble Baroness, Lady Verma, for introducing this extremely useful and comprehensive report this afternoon. I also thank the members of the excellent committee secretariat for all their hard work and commitment, as well as for their dogged determination to seek out the facts in this constantly rather opaque process.

When I was rereading the report yesterday afternoon, ahead of today’s debate, as well as reading my own notes from our committee’s extremely informative visit to the port of Dover last July, it was difficult not to feel both angry and depressed. The lack of progress since the report was published last September is shameful. Clearly, the debate taking place at the other end of the building this afternoon, and the second set of indicative votes, will have a direct impact on these issues, not least if the proposal on the customs union passes.

The fact that more than 6 million people have now signed a petition calling for Article 50 to be revoked shows just how concerned people are by Brexit, and in particular by the prospect of a no-deal Brexit. As the Brexit debate has increasingly taken on the quality of a quasi-religious fundamentalist debate rather than an analysis of the facts, it is not surprising that people—most especially people working in small and medium-sized businesses—are increasingly in a state of despair.

I shall focus my remaining remarks this afternoon on the impact on businesses and the preparations for a no-deal Brexit. An estimated 145,000 businesses in the UK trade only with the EU, and an estimated extra 100,000 more may be in the same situation. These are businesses which, over past decades, and certainly since the creation of the single market in 1992, have been accustomed to trading with our EU partners without barriers or friction. Trading with Hamburg or Lyon has been little different for those companies from selling their products from Newcastle to London.

I congratulate the noble Baroness and the other committee members on the report. She mentioned the current delays at Dover. I noted in the report that they relate to lorries from Turkey, which is in a customs union. Last week, I met a number of customs agents who told me that the paperwork involved in trade with Turkey, with its customs union, is worse than that for trade with America or China. Do the noble Baroness and her party think that a customs union would solve these problems?

I do indeed—not least because of the figure I just gave: 1% of all traffic currently going through the port of Dover comes from non-EU member states. The other 99% goes through in a slick operation. With a no-deal Brexit, that will change overnight—not necessarily because of the Dover side but because of the Calais side, which will have to introduce restrictions.

To conclude, as the report makes clear, the consequences of a no-deal Brexit would be not merely “a bit bumpy”, as some Brexiters have claimed. They would have a real and damaging impact on businesses and the lives of ordinary people for generations to come.

My Lords, I join other noble Lords in congratulating my noble friend Lady Verma on her excellent chairmanship of our committee. I thank my colleagues and our ever-diligent staff for their contributions to our long and sometimes exhausting —but sometimes rather exhilarating—meetings.

This is our third report on customs and trade. It is right that we concentrated so much attention on this, because whether we remain in a customs union or not, the issue is central to the binary choice that the Government are, I am afraid, not making at the moment, and which we will have at some stage to make. The noble Baroness, Lady Suttie, has just made the point that down the Corridor a very important debate on indicative votes is taking place. The most popular Motion so far, as we saw last week, was moved by my right honourable friend Ken Clarke in favour of remaining in the customs union.

On the point just made in an intervention, I make a distinction between remaining in the customs union and, like Turkey, having a customs union with the customs union. That is a different and separate point. As I understand it, Ken Clarke was arguing for us remaining in the existing customs union, which is the only way to maintain the entirely frictionless trade we have enjoyed with our colleagues in European Union countries for 45 years—and the only way to avoid a hard border in Ireland and keep the United Kingdom together. I fear that if there were a hard border in Ireland, the problem of Scottish independence would loom its hoary head. Therefore, this is a way of keeping the United Kingdom together.

We should not forget the value of inward investment into this country. As an economist, I am extremely aware of this. It exists simply because we are part of a huge market of 500 million people. It is the jewel in the United Kingdom’s crown. We have far more inward investment than Germany, and twice as much as both France and Italy. That would undoubtedly be threatened—indeed, is already being threatened—if we removed ourselves from these arrangements. Politically, this may well be the ultimate compromise we have to make. I voted remain; if the remainers can accept that we will leave the European Union, as we are targeted to do, perhaps the Brexiteers could accept a soft, sensible Brexit that we could support. The 52% to 48% split in public opinion suggests that that is one possible way forward, and I note that the Chief Whip is going to be revealed on television this evening as saying that it is something which the Prime Minister should have thought about when the results of the last general election became apparent.

My Lords, in this House we are fortunate to have had many reports about Brexit and all its complications from the various sub-committees and the main European Union Committee. I am sure we are very grateful to all Members who have worked hard on those reports. They are of immense detail and complexity, but also immense conviction and persuasion. That does not gainsay my feeling at the end of reading them all carefully, which I try to do if I can: one comes to the inevitable conclusion that there is no substitute for actually staying in the European Union.

I very much congratulate the noble Baroness, Lady Verma, on leading this discussion of the report and the other three members of the committee who have spoken so far. I thought the concluding remarks of the noble Baroness, Lady Suttie, on the numbers were very relevant and need looking at again. I also thank the noble Lord, Lord Horam, for his words highlighting the dangers and difficulties of producing the customs union concept in the way that my great friend Kenneth Clarke was trying to explain properly on the radio this morning. He did a very good job but there are many minuses as well as many pluses.

On the report itself, I agree very strongly with all the remarks made by the three ensuing speakers, with their worries and anxieties about what this all means. I hope the Minister will kindly look at the report’s conclusions, on page 48. I am particularly concerned about paragraph 191, which states:

“The UK Government’s estimate that 96% of UK goods trade would be able to pay the correct or no tariff up front and not go through the repayment mechanism has been challenged. We call on the Government to clarify the methodology it used to arrive at the 96% figure”.

Then, on a totally different subject, paragraph 193 states:

“We welcome the Government’s stated intention to uphold current UK food standards and not lower them in free trade agreements with third countries”.

Will the Minister address the difficulties arising from the lack of infrastructure for customs dealings between Ireland and the UK using the UK as a land bridge, particularly at Holyhead? I do not think it was visited by the committee; nor did witnesses from Holyhead come before the committee.

This is not the first time I have agreed with the noble Lord, Lord Wigley, on these matters, and I do so strongly—partly in the nervous realisation that I know much less about Holyhead than he does. The noble Lord has referred to this in a number of speeches; I agree with the broad outline of his comments and thank him for intervening today.

The background to what is happening is a tragedy and a matter of great sadness for this country. No Prime Minister with any wisdom and good sense would have set out to totally ignore the wishes of almost 50% of those who voted in what was only an advisory referendum, even though David Cameron said he would abide by the decision. Even after the futile election of 8 June, after she had lost her mandate and was able to carry on only artificially via a dubious deal with and huge bribe to the DUP, the Prime Minister defiantly carried on. She chose not only to ignore the wafer-thin majority in the first referendum but to deal just with the ERG—not even with the whole of her own Conservative Party. The ERG came first in all her dealings and all her discussions. This again reveals the huge weaknesses in our now totally dilapidated political and parliamentary system, which can be removed only with drastic and radical reforms, which should not be done by politicians—they would never agree—but by sensible outside experts and professorial characters of distinction, men and women. We have to get rid of this bandit politics disease in Britain and come back to reassuring the public.

In that context, I conclude by saying something in contrast to the miseries we are all experiencing with this Brexit process—Brexit is on the verge of being registered with the NHS as an official disease, and anti-Brexit is part of it. However, public opinion has changed, and it was, at last, reassuring to go on the march on 23 March with over 1 million like-minded people from all over the country, including many former leave voters who now grasp the looming disaster of Brexit. The 6 million-plus signatories to the petition underline the huge change in public opinion on this matter. None of these reports is rendered less important and valuable because of this, but that is the reality.

My Lords, I did not have the privilege of being a member of the committee responsible for this excellent report, but it is a very interesting read. It is, unfortunately, a historical document, and it would have been a lot more appropriate to debate it some months ago. It is striking that, in the six months since it was published, although we have learned a lot more about the problems associated with customs arrangements, there have not been any solutions. Therefore, what the committee advises is as relevant now as it was then.

The report draws attention to the fact that, as my noble friend said, there are 145,000 VAT-registered businesses in the UK, and a further 100,000 under the VAT threshold, that currently trade abroad but exclusively with the EU. That means that they have not had to deal with the paperwork and bureaucracy associated with international trade. In addition, the report draws attention to the huge cost to business of no deal, estimated by HMRC at £18 billion per year. It is a pity that figure was not on the side of a bus.

The report also emphasises that all the talk of using technology to overcome border issues, particularly in Northern Ireland, is basically so much hot air—those are my words, not the report’s. There is no technological solution. Essentially, there are bound to be hold ups at the border, and, however brief they are, they will have a huge impact. Since the publication of this report, we know quite a lot more about the details of that impact.

I will start with Dover, which has already been mentioned, the largest roll-on roll-off port in the UK. Noble Lords will be familiar with the expectation that there will be long queues. The report acknowledges that there is no space for additional checks, examination sheds, checkpoints or additional barriers, and no space for lorries to park as they wait. Of the UK’s total trade in goods, 17% goes through Dover, and it depends on going through without stopping. Indeed, both Dover and Eurotunnel market themselves as a continuous, non-stop motorway to Europe. Some weeks ago, I met the Road Haulage Association. Its representative told me that an Amazon lorry can have 8,000 individual shipments on it, and would normally have an individual customs declaration for each of those 8,000 shipments. Each customs declaration has 36 different fields that must be completed. The RHA estimates that it would take 170 staff one day’s work to process that lorry. The implications on a grand scale are serious.