HMRC Impact Analysis: Customs

To ask the Chancellor of the Exchequer to make a statement on HMRC’s published impact analysis of introducing new customs legislation and amendments.

I am delighted to respond to the right hon. Gentleman’s question. The Government are devoting huge energies, as the House will know, to Brexit preparations. The Prime Minister has stated that the Government’s preference is to leave with a deal, but, if necessary, they will leave without a deal as it is so vital that we get Brexit done and move the country forward. The last thing that businesses need is more uncertainty and delay. A key part of those preparations is to ensure that there is a functioning customs, VAT and excise regime on exit to put the legal underpinnings in place. HMRC has laid 56 regulations to date following last year’s Taxation (Cross-border Trade) Act 2018 .

To support the latest bunch of statutory instruments, which were debated by this House yesterday, the Government published a third edition of the overarching impact assessment of the movement of goods if the UK leaves the EU without a deal. This updates and builds on previous versions of the impact assessment, which were published in December 2018 and February 2018. The new version provides updates to cover the September 2019 regulations, including transitional and other arrangements for safety and security declaration requirements for the period after exit; further temporary customs and excise easements to extend the transitional arrangements after exit; further VAT data-gathering powers to specify the type of information that was collected from postal operators; and, finally, various technical amendments and transitional provisions.

As I have said, our preference is very much for a deal, but the Government continue to ensure that this country is ready for no deal and that the impact on business is minimised as far as possible, which is why we have introduced a series of easements for traders moving goods in the UK to take effect in a no-deal scenario. Those easements, for example, are planned to simplify radically import processes for EU goods, which means that the costs identified in this impact assessment will be mitigated for UK importers. Crucially, the Government are also working to boost the long-term potential of the economy so that the United Kingdom can seize the opportunities that exist for us outside the EU.

Perhaps I can help the Minister fill in some of the gaps in the statement. The Government’s own assessment shows that their no-deal Brexit policy will introduce

“significant ongoing administrative costs impacting on UK and EU businesses of all sectors.”

It is an avalanche of paperwork descending on British businesses in the form of import, export, safety and security declarations. The burden will cost our business sector an annual £15 billion in administrative costs, and that does not even include the costs of complying with the new VAT procedures, which will hit our vital service companies—all this to pursue the hardest possible Tory no-deal Brexit.

We have heard the Prime Minister’s previous crude dismissal of British business. Now we are seeing his words become Government policy. Does the Minister not understand that this only compounds the uncertainty brought about by this Government’s failure to secure a deal that protects the UK economy? A senior No. 10 source, who I most believe to be the Prime Minister’s adviser—well, I say “adviser”—Dominic Cummings, said:

“We’ll either leave with no deal on 31 October or there will be an election and then we will leave with no deal”,

and that everything to do with the duty of sincere co-operation that we have with the EU partners

“will be in the toilet”.

Does the Minister agree with the priorities set out by No. 10 as a result of that statement? Does he also challenge the Institute for Fiscal Studies, which said today that this would push UK debt to its highest level since the 1960s, soaring to 90% of national income?

The reckless incompetence of this Government just knows no bounds, does it? At a moment of national crisis, this Government pose a threat to their own people and the economy they rely upon. Has the Minister any idea of the scale of the destruction of confidence in the British economy that this Government’s stated policy is bringing about?

This is a long document at some 45 pages or so, but I would have hoped that the right hon. Gentleman could have made it to page 9. He claims that the cost to British business will be £15 billion, but it says perfectly clearly at the bottom of page 9:

“The latest…estimate for the annual administrative burden…is £7.5 billion (updated to reflect 2017 data)”.

I am in no sense happy about that—[Interruption.] I am just correcting the record. The right hon. Gentleman said £15 billion, when in fact the figure is £7.5 billion. That figure is, of course, prior to any mitigations that might be put in place by the Government.

Let me turn to the right hon. Gentleman’s other concerns. He criticised the Government for, as he puts it, failing to secure a deal. All his party had to do was support the perfectly sensible series of deals that have been put before this Parliament, and it would have a deal.

I am not going to comment on unsourced speculation of the kind mentioned by the right hon. Gentleman. Let me just remind the House that when this Government’s predecessor came into office in 2010, debt was at a peacetime high thanks to the previous Labour Government. The deficit was at almost 10% and, interestingly, inequality under the Labour Government was significantly higher than it is today.

The number of customs declarations is likely to increase from 50 million now to 250 million when we have to start to export to the EU. This will be governed by a customs declaration service system. Will the system cope, and will there be enough agents to handle that volume of transactions?

We believe the system will cope. Of course, there are a lot of easements in place, and there is already a functioning CHIEF—customs handling of import and export freight—system to handle the current level of declarations.

I think the Minister is in denial. The cost is £15 billion—£7.5 billion from UK to EU trade, and a comparable amount from EU to UK trade, which will no doubt be paid by consumers and businesses here. This denial runs to the heart of this whole problem. The Prime Minister said that leaving the EU would save £1 billion a month. That clearly only adds up if we ignore and deny any costs such as the £15 billion that we are talking about today. But it is worse than that. This figure is an annual recurring cost, so how will it be mitigated?

The figures exclude additional one-off costs. How will they be mitigated and have they even been assessed? They ignore the new VAT rules on parcels that are damaging to small businesses. How will that be mitigated and has it actually been assessed? The £15 billion also excludes the serious damage done to exports of low-margin items where this cost burden may be significant. Has that been assessed? Finally, the figures ignore the multiple damages done to businesses that ship part-finished goods back and forward across borders many times, which multiplies the administrative burden. Has that been assessed? How many business will be damaged and what mitigation is being put in place?

As the House will know, a lot of mitigations have already been passed through statutory instruments, including instruments in relation to stream- lining customs import processes and procedures, special procedures for other areas, and deferment of import duty and VAT. Only yesterday, we passed a statutory instrument on safety and security declarations on our imports.

Mitigation very much depends on the shape of any deal. As the House will appreciate, the figures we are discussing today pertain to a worst-case scenario of a no-deal impact. There are many other areas in which the EU has already indicated that it is happy to give mitigations—for example, in relation to some of our haulage processes and people travelling by air into the European Union.

In the debate around the UK-Ireland border, my hon. Friend will be aware of the confusion among commentators between customs checks and customs declarations. Of course, most customs transactions are not done at borders by a uniformed officer sitting in a customs office, but are essentially financial transactions akin to tax or VAT that are done at the point of production, shipment, transit or arrival. Does my hon. Friend agree that there is a role for HMRC in educating commentators about how modern customs practices work?

I pay tribute to my right hon. Friend for the work that he and the Secretary of State for Digital, Culture, Media and Sport have done on alternative arrangements. He raises a very important issue. As he says, Customs operates a risk-based assessment system of checks that is quite different from declarations. As for educating commentators, I absolutely agree with him and wish those commentators also included some Members of this House.

Given that HMRC has now shown that Brexit means red tape, and that this would harm trade, destroy jobs and cut growth, what estimate has the Treasury made of the impact of lower growth on Britain’s public finances? Does the Minister accept that the Office for Budget Responsibility has said—and now the IFS analysis has shown—that borrowing will rocket under a no deal? Is it not now clear that under the blues, we will be going into the red?

I cannot match the right hon. Gentleman on verbal wit. What I can say is that the Government have published estimates of the impact of a no-deal Brexit in different forms, and we continue to believe that it is vastly in the interests of this country, this House and all our constituents to leave with a deal. I hope that the right hon. Gentleman will support that.

Does my hon. Friend agree that it is critical for the UK to have an attractive regulatory regime as part of delivering the overall international competitiveness of the economy, and that he will do all he can to minimise the administrative burdens on business?

My hon. Friend is absolutely right. I think that in due course it will come to be seen that Brexit was a moment of change in which we moved ourselves to a global position in which we were able to change many of the rules and regulations governing our international and domestic trade for the better—to make them more streamlined, to lighten the burden and to increase our economic efficiency and productivity.

Given that these are HMRC’s own assessments—the Government’s own assessments—of a multi-billion pound cost, the Minister could have given HMRC any credible assessment of mitigation if he had any. Can he instead confirm that these costs do not even include tariffs, and that they are in fact the costs not simply of no deal but of refusing to have a customs union at all? Given that a proposal for a deal including a customs union only lost by three votes back in April and that such a deal would, according to his own figures, have saved British businesses billions, why have the Government continually refused even to explore a deal that includes a customs union?

I could wish that the right hon. Lady, who is widely respected across the House, had used her influence to bring Labour Members into the Lobby to support the deal that was offered—[Interruption]—and, still more, the deal that we are currently exploring, when that is placed before the Chamber. [Interruption.] The impact analysis is a careful piece of work that reflects dozens of statutory instruments that have been placed before the House. It is a composite of all the impact assessments in place, and should be seen as such. Before Members become too enervated, they should reflect that although the number has gone up somewhat, the unit cost of a declaration has not gone up. The increased number reflects the increase in trade in the last couple of years, and in the period to 2017, which is interesting, because it does not look as though trade has been headed off by the threat of Brexit.