Exiting the European Union Committee
Oral evidence: The progress of the UK’s negotiations on EU withdrawal, HC 372
Wednesday 29 November 2017
Ordered by the House of Commons to be published on 29 November 2017.
Members present: Hilary Benn (Chair); Stephen Crabb; Mr Jonathan Djanogly; Richard Graham; Peter Grant; Wera Hobhouse; Stephen Kinnock; Jeremy Lefroy; Craig Mackinlay; Seema Malhotra; Mr Pat McFadden; Mr Jacob Rees-Mogg; Stephen Timms; Mr John Whittingdale; Hywel Williams; Sammy Wilson.
Questions 154 -251
Witnesses
I: Peter Hardwick, Head of Exports, Agriculture and Horticulture Development Board; James Hookham, Deputy Chief Executive, Freight Transport Association; Sian Thomas, Communications Manager, Fresh Produce Consortium; Duncan Brock, CIPS Group Director, Chartered Institute of Procurement and Supply.
II: Jon Thompson, Chief Executive and Permanent Secretary, HM Revenue and Customs; John Bourne, Policy Director of Animal and Plant Health, Department for Environment, Food and Rural Affairs; Richard Everitt, Chairman, Port of Dover; Richard Ballantyne, Chief Executive, British Ports Association.
Witnesses: Peter Hardwick, James Hookham, Sian Thomas and Duncan Brock.
Q154 Chair: Good morning. Can I begin by welcoming our witnesses to the first panel this morning? We have Duncan Brock, the CIPS Group Director at the Chartered Institute of Procurement and Supply; Sian Thomas, Communications Manager from the Fresh Produce Consortium; James Hookham, Deputy Chief Executive of the Freight Transport Association; and Peter Hardwick, Head of Exports from the Agriculture and Horticulture Development Board. Can I thank you all very much indeed for coming this morning? We are very grateful for your time. We have quite a lot of ground to cover and there are four of you on the Panel, so succinct answers will assist us in covering the ground.
I want to kick off by asking each of you, just briefly, to set out what effect the implication of the UK’s exit from the customs union, and indeed the single market, which is the policy of the Government, is going to have on your organisation or the perspective that you have. I will start with Mr Brock.
Duncan Brock: One of the things we have done recently is held a couple of surveys of supply chain managers as to what their feedback is about the changes that are going to happen. The biggest implication at the moment is the uncertainty this is causing for them. We deal with people who are doing sourcing and dealing with supply chains, and they need to plan for the future. The biggest issue we are hearing at the moment is a lack of knowing what to do: whether they should be staying with UK suppliers, whether they should be looking for European suppliers, and how the customs changes are going to impact them.
The real concern is around the delays that are going to occur. What we are seeing now is organisations starting to make some changes, good and bad. If they are UK‑based companies, they are looking for more UK‑based suppliers. Certainly, about 40% of the companies we spoke to are doing that. What was more concerning was the European companies we were speaking to, who are perhaps looking to replace UK suppliers with European suppliers. There is a real impact on the business associated with those.
Q155 Chair: Those organisations you are referring to are deciding that they are going to be in one place or the other and then maximising supply from within that customs area.
Duncan Brock: That is correct, yes.
Chair: Is that as a safeguard against any potential outcome? Is that correct?
Duncan Brock: Yes. What people are looking for is supply chains that are easy to operate and which you can have confidence in. When there are blockages in those supply chains, they will look to find ways of easing them. One way of easing them is bringing them closer to onshore.
If they can find UK suppliers, that will be good for the industry. But the challenge is whether or not the UK supplier base is going to be capable to fill those gaps, particularly in the areas of technical, engineering and medical parts, where clearly there is a lot more involved in being prepared for those suppliers.
Sian Thomas: We are the UK trade association for the fresh fruit, vegetable and cut‑flower industry. We have over 600 members. That includes the multiple retailers, processors, packers, wholesalers, food service industry and growers. We import 62% of all our fresh fruit and vegetables. Half of those imports come from EU countries; the rest come from third countries. At the moment, we are very concerned about the lack of certainty and the lack of knowing how to prepare for Brexit. Obviously, we would like to see transition period, but we need to know very soon what that is going to be and what controls and inspections we need to operate.
We have a complex situation. We not only have to meet the customs requirements, but we have plant health inspections and for some products food safety inspections and controls as well. All that needs to be co‑ordinated at points of entry. For products that we currently import from other EU member states, we do not have any requirements at the moment. We are in a free trade agreement. We are custom‑free and tariff‑free. A lot of our members who have been trading with the EU do not have the knowledge of how to pre‑notify and do customs clearance. Some of those companies are very small, they do not have the expertise, and they are at a loss at the moment to know what they need to prepare for. Our key concern is that.
It also impacts on UK production, because we are heavily dependent on importing propagating materials from mainland Europe. Even for UK production for UK growers, we need to have system where can import those plants and seedlings efficiently. It is going to impact on UK production as well.
Chair: So your members can then grow that on.
Sian Thomas: That is right. For example, for soft fruit about 95% of all young plants are coming from mainland Europe. At the moment, we do not have the capacity—we do not have enough greenhouses—to produce those plants here in the UK ourselves.
Q156 Chair: This may be an impossible question to answer, but, thinking back to 1972, before we joined, presumably the structure of the industry was very different.
Sian Thomas: Yes. We have lost that knowledge in a lot of companies in terms of how to do that trading. A lot of it has become electronic, so the expertise has gone; you are relying on a system to do it for you. We have some pre‑notification within our industry for certain products. At the moment we have a very efficient system that works, which is managed by Defra, and it talks to the customs system, CHIEF. We would very much like to see that maintained. We do not want a new system; we want to use what we have in existence. Surely that is the best route to take, when we have such a short timeframe now.
Q157 Chair: Mr Hookham, what is your view?
James Hookham: Good morning. Thank you very much. The Freight Transport Association represents over half the number of heavy goods vehicles on the roads in Britain. Importantly, our members are also the consigners and importers of goods in this context, as well as the operators of road vehicles and indeed other modes of transport by which those goods are moved to and from the European Union. We are seeing a whole supply chain picture emerging here.
In answer to your question, the announcement by the Prime Minister at the Lancaster House speech indicating the Government’s intention to leave the customs union, was a landmark moment. For us in the supply chain business, that suddenly started to define the scale of change we were going to need to prepare for. Coming out of the customs union, as you know, implies a border, with customs tariffs potentially applicable. Even if those tariffs are eventually reduced through a free trade agreement, there will nevertheless be a need for declarations to be made, and that is a significant difference in procedure.
In some respects, though, the more serious proposition was the decision to leave the single market, because it is the single market that gives us the true benefit of the frictionless trade at the moment. It is that way that the conformity checks, the checks by which European standards and norms are enforced, will most significantly change. It changes from a background check, where enforcement is done largely at the point of production or at other points in the supply chain. By coming out of the single market and losing the mutual recognition of those conformity‑checking systems, the checks move from the point of production to the border. That is why you are hearing so much about the congestion around the border: because there will be a lot of different agencies—possibly up to a dozen or 15 or so—seeking to conduct the work they previously did in the background in the very congested areas of our roll-on, roll-off ferry ports. We are concerned about the physical performance of those checks, and the delays and the queues that will pose to the infrastructure.
Another point I would really like to make, because it really does deserve a lot of attention, is that whatever concerns our members may have about the readiness of UK agencies and institutions, we are hearing very mixed responses as to the readiness of our continental equivalents and our Irish equivalents. I hope the Committee understands that even if Britain is ready on day one with a superbly frictionless processing system for all of this, if our trading partners are not ready then we will face inevitable delays of a similar magnitude.
We are not just worried about freight, though. My final point is really not to forget about the fact that when we come out of the single market we lose the benefit of the community licence, which allows free passage of goods vehicles—the actual vehicles themselves—across the border. The Government need to find a replacement for that if the current arrangements are not rolled over under the new free trade agreement.
This may sound like a trivial point, but it is very important to my members that the qualifications and entitlement to drive of the individual drivers who will be expected to move these vehicles across the border still need to be recognised on a mutual basis. Unless this is picked up somewhere in the new arrangements, the entitlement of drivers to drive the vehicles we are talking about may not be recognised in the EU anymore. We need to make sure that is reciprocated.
Q158 Chair: Do you see any upsides to leaving the customs union and the single market, in a word?
James Hookham: Yes.
Q159 Chair: But if it was down to you—I do not know whether you have taken a view as an organisation—would you prefer to remain in the customs union?
James Hookham: We would certainly see that as a remedy to a lot of challenges, but we are working hard and we can see ways in which we can get close—
Q160 Chair: Would you prefer to stay in the single market or not?
James Hookham: We need to try to preserve the background conformity checks. If they can be done outside the single market, that would still deliver what we need to see. The FTA has not taken a position on the merits of leaving; we just want to keep Britain trading.
Chair: You just want keep the benefits of both.
James Hookham: We want to keep Britain trading, Chair.
Q161 Chair: Indeed, yes. Mr Hardwick?
Peter Hardwick: I am from the Agriculture and Horticulture Development Board. We are a non‑departmental public body funded by a levy raised on producers and processers. We cover the potatoes, cereals, beef, lamb, pork, dairy and horticulture sectors; that is about 75% of UK primary production. Most of our trade—I am looking at this from an exporting point of view—is for the European Union for most of those sectors, the exception being horticulture, which is a significant net importer. That represents something between 60% and 90% of our market. Clearly, continued access to that market is extremely important to us.
There are advantages due to proximity, which I know have been exercised in the past in terms of delivery logistics, stock levels, “just in time” and so on. Some of those actually give us a competitive advantage over third‑country producers, who have to ship from further afield.
Of course, what we are concerned about here are the potential blockages or slowdown in the flow of trade to the continent due to customs checks, veterinary checks and so on, and the costs of those. I am sure there will be others talking specifically about the Port of Dover and the Dover‑Folkestone corridor, but at present about 4 million vehicles move through that corridor per annum, which is a vehicle every eight seconds or so. Depending on whose estimation you accept, veterinary checks and customs checks could increase that delay between 40 minutes and three hours. A vehicle takes around 30 hours to cross the border between Turkey and the European Union at present. Clearly, we have concerns about trying to minimise the impact of that for our exporting businesses.
Of course, we are trying to develop business outside the European Union, but the reality is that that takes a long time. Our key interests are to try to ensure we minimise the impact, delays and costs of exporting to the EU.
Chair: That is very helpful. Thank you very much indeed.
Q162 Stephen Timms: We have been told that if there is an agreement between the UK and the remaining EU 27 countries, there will be an implementation period or transition period of around two years from March 2019 before whatever the new arrangement that has been agreed comes into effect. Is that two‑year transition period long enough to enable the organisations you represent to adjust to whatever the new customs arrangements are?
Duncan Brock: We represent a whole range of different sectors all the way from financial services through to construction, manufacturing and the public sector. In some of those sectors, they say, “Yes, absolutely. We can make the changes we need to make in two years. We can put in place the controls and manage the implications”.
The concern is those companies that are much more in the manufacturing and engineering sectors. If you are going to have controls and customs in place, and the costs associated with that—this comes back to my point earlier about wanting to change the supplier base—it could be three, four or five years, by the time you have actually found the new supplier, got them approved, got them tested and got them into manufacturing. This is particularly the case in the aerospace or automotive industries. They are being forced to make decisions now about suppliers that they would want to have in place in three, four or five years’ time. Two years from transition is actually quite a short time. You want to be making decisions now for three years out, but if we still have to wait another year before we know what the solution looks like, in some cases that is going to be too late for people to make the changes they would want to make.
A longer transition period would be better, and clarity now on what it is going to look like would also be great, because companies can then start to plan, and plan with some confidence about what the future arrangements would look like.
Q163 Stephen Timms: What period would you argue for?
Duncan Brock: I come from a background where I have been in procurement and done sourcing on a global basis. You want to look four or five years out to know what the arrangement is going to be and what the global economic situation is going to be and then make decisions for the long term for your businesses. Most businesses have a five or 10‑year horizon. They are expecting procurement people to be making those right decisions for what the supplier base will look like in the future. We need some certainty around that.
Sian Thomas: We have a very similar view to what Duncan has said. I know that some companies are already making decisions. Where they have the ability to move production to mainland Europe, they are doing so already. However, a lot of that is also related to issues to do with labour and the challenges we have at the moment in securing enough people to work through our supply chain. It is not just harvesting crops; it is working in the pack-houses as well. That is causing some of these decisions to be made now.
Q164 Stephen Timms: Can you give us an example of production having been moved out of the UK?
Sian Thomas: There are some growers in the UK who have facilities in mainland Europe; it is mainly to ensure they can maintain the supply of certain products throughout the year. They are upping their production or they are buying new land elsewhere in mainland Europe. It is predominantly in eastern Europe. There are major challenges in doing that as well, but they feel they can make those business decisions now. They just do not have enough to go on at the moment to invest in this country.
Q165 Stephen Timms: What kind of products are we talking about?
Sian Thomas: These are mainly vegetable crops.
James Hookham: There are two factors here. The first factor, as I said earlier, is that the critical path is as much the readiness of EU agencies to implement a border of some degree from the day of Brexit, and I am beginning to think the question is actually better directed to the counterpart agencies elsewhere in the EU. My reading of the situation is that they are quite a long way behind in their readiness and preparation. Clearly, they may well be arguing for an implementation period simply to introduce the consequences of leaving the customs union. They are certainly behind the preparations HMRC are making.
The other factor—this is a really important one, which is playing out right now as we speak—is that within the supply chain and logistics sector, major importers and exporters are beginning the process of negotiating and agreeing the logistics contracts that will be applied during the period immediately after Brexit, i.e. the second quarter of 2019. Inevitably, in those negotiations, customers of logistics companies are asking, “How are you going to cope with Brexit?” Decisions are beginning to have to be made and assumptions are having to be made by people who will be operating and moving these goods in 2019. As we heard already, decisions will be made based on some brave assumptions about what they think, because, frankly, we are working in a vacuum at the moment.
In many cases, a lot of the cost and expenditure will have to be committed to in the next few weeks and months in order to be ready for the day when borders and conformity checks go in, if indeed they do go in, on 29 March 2019.
Q166 Stephen Timms: In view of all that, is two years enough?
James Hookham: It will be fantastic if everything is ready on both sides of the Channel by that, but it will be the readiness of French, Belgian, Dutch, Spanish and Irish customs that will be the determining factor in that.
Peter Hardwick: I have the advantage of being at the end of the line, so a lot of the boxes have been ticked.
From an AHDB position, as a public body, of course, we do not have a view on how long the transition period should be, but there probably does need to be one, in order to put in place the technological solutions that will be needed to deal with this. I believe those technological solutions exist, but, as has been said, they require mutual recognition. It is all very well for the UK to set up an electronic certification system, a pre‑clearing system and so on from our end, but when those goods arrive at the European border point, that system is going to have to be mutually accepted and recognised at that end as well.
That will take some time for two reasons. One is that we do not know at this stage what our trading relationship will be. Under an ambitious free trade agreement, that may be relatively straightforward; under a harder Brexit agreement, or the lack of an agreement, those solutions may be more difficult to put in place. Those solutions exist: very simply, goods can be pre‑cleared at the point of dispatch. There are issues with that—and we will perhaps come to those a little later on—in terms of groupage and split consignments, i.e. products that have different tariff codes in the same vehicle, et cetera. Those solutions exist, but they take time to put in place. I know that Defra and HMRC are working on those, but they do take time.
Q167 Stephen Timms: Mr Hookham, could I just pick up on your point? It is all very well if we sort things out in the UK, but we have to get them sorted out in France, Ireland, Belgium and so on as well. Are you seeing information about what is being done in those other countries? Is there somewhere you can go to find out what the state of preparedness there is?
James Hookham: Yes, we have good working relationships with Dutch customs through our counterpart organisations in the Netherlands. They are probably the most advanced of the five border states. Irish customs are well ahead in their thinking, albeit reluctantly. They do not want to go down this route. I cannot get French customs to pick up the phone to talk about it at the moment.
Stephen Timms: You are not getting any information there at all.
James Hookham: That may be for other reasons, but I have no understanding of where French customs are, other than that they appear to be recruiting large numbers of new staff.
Q168 Stephen Timms: I have one other question. We have been told by the Secretary of State—and we also heard the same thing in Brussels—that if there is a positive decision, as we all hope there will be, at the December Council in a couple of weeks’ time, then it should be possible to announce what the arrangements will be during the transition period, however long it proves to be, by the end of March 2018. We will then know how things will look for a couple of years after March 2019.
From the point of view of your organisations, how important is it to achieve that March 2018 deadline? Perhaps I should start with Mr Hardwick.
Peter Hardwick: You said March 2018.
Stephen Timms: Yes, March 2018 for announcing what the arrangements will be during the transition period of two years or so.
Peter Hardwick: It is essential. All our exporting businesses need to know the basis on which they are working. It is true that in primary agriculture, we are not selling that far forward, but, that said, businesses want to mitigate risk and they want to understand precisely the circumstances under which they are exporting and what arrangements will be in place in the future in terms of pure costing and competitiveness. There will not be an immediate impact in March 2018. That is for sure. Those businesses are selling at relatively short periods ahead of production. However, businesses are certainly looking to the future in terms of what they are planning to do.
If we look at the sheep sector—the lamb sector is one that has been talked about a great deal—we know that a loss of market into the European Union would significantly affect competitiveness and would have some influence on what farmers are planning to do in the future in terms of either expansion or contraction. Clearly, having some understanding of what their market conditions might be in a year’s time is extremely important.
If you are in the beef sector, there is a three‑year lead time to make a decision as to what you are going to be doing. Actually, on a global basis, there is every indication that we have great opportunities, but we still need to ensure that our domestic or European markets are maintained. It is important that we know as soon as possible, yes.
Q169 Stephen Timms: Does anyone else have anything particular to say about the significant of March 2018?
Sian Thomas: I would just say that we would welcome it, but we would want the status quo, effectively, and not to have a series of hurdles and different phases to go through. If we are going to have to change, we would like to know what we are changing to and that we do that once.
James Hookham: May I offer a minimum number of factors that, from a trading point of view, need to be covered by that statement in March? First of all, we need a fix on the tariff. Presumably, we are using the same coding. We need an indication of whether we are going to be applying full tariffs or preferential tariffs or no tariffs at all, subject to what the view is.
The big issue, as I said, is also about these conformity checks. Will there be rollover and recognition of the mutual arrangements at the moment, or will we have to prepare for the border?
One very big issue is vehicle permits, as I mentioned, and the loss of the community licence, or its continuation in some other guise and the recognition of driver qualifications. That just keeps us rolling on day one.
Mr Djanogly: We were just talking before about relations with other EU member states, and Mr Hookham said that he was finding good, positive relations with the Dutch and the Irish but there was not much contact with the French. I would be interested to hear all of the panel’s views on what engagement they have had, particularly with the French and Belgians, and whether they feel preparations are being made by those countries, and indeed what you would like to see in that regard.
Duncan Brock: To start, I made the point earlier on this. One of the things being said by European companies—particularly French, German and Spanish companies—who are dealing with the UK is, “We are actually going to move our supplier base back into Europe.” That is a big threat. It is almost like saying, “We do not know what the future is going to look like, so let us bring the supplier base back into the 27 member states, where we can source economically”.
Q170 Mr Djanogly: Are you implying that they just do not want to talk about it at all?
Duncan Brock: They are taking the prevention measure, I suppose, which is, “There might be a problem, there might be customs issues, and therefore it is easier if we source from Europe, rather than trying to source out of the UK”. We have evidence that says that about 15% of the businesses we surveyed had already lost contracts because of that, and others were struggling to get contracts to extend beyond March 2019, because of that uncertainty.
Q171 Mr Djanogly: Are you addressing this?
Duncan Brock: It is difficult to address at the moment, because the companies have to make their own choices. All we can do is provide guidance to them as to what options there are. Back to the point about March 2018, at least if at that point we know what arrangements are going to look like, people can start to make some longer‑term decisions.
We are finding that people are making short‑term decisions now based on their perception of what the answer will look like.
Sian Thomas: We are talking to our European colleagues through our European trade association and also directly with colleagues in the Netherlands and Spain particularly, and also third countries, because they are also very keen to ensure they keep UK market access.
In terms of Belgium and France specifically, we have not been talking directly. At the moment, we are very much seeing a position where people are waiting to see what we are doing. They want to know the answers from the UK. At the same time, we are seeing initiatives such as with the Dutch, because they are such a strong trading partner for us. We import 75% of our cut flowers from the Netherlands, for example. We are a very significant market. Overall for the EU, we are the third largest importing nation. We are important, but at the same time they will look to other markets if it becomes too difficult to trade with us.
James Hookham: Could I just offer a quick view? I doubt whether our trade partners elsewhere in the EU are actually hearing much about what the British preparations are at the moment. For all the reasons we know, until the green light is given to progress the discussion on future trading arrangements, everyone is being a little bit coy about just how severe and hard the borders will actually be. We need to get through the next couple of weeks and hopefully come out the other side with permission to speak about this out loud and in public. As much as informing British importers and exporters about what the arrangements are, there is a large amount of work to do to make sure our existing customers and suppliers abroad are also up to speed.
Peter Hardwick: From my point of view, from my contacts in Belgium I know that work is being done in Belgium. The Port of Zeebrugge is working on apps and other processes for pre‑clearing and so on. There is work being done there.
Relatively recently, in the meat sector, the European trade organisation for the meat sector has produced a report that highlights the potential impact on them of losing access to this market. That is useful from our point of view, because it highlights that this is a potentially negative thing for them and it gives them the opportunity to communicate with their own Governments. To put this in perspective, the loss of the Russian market exposed about €1.2 billion of trade to potential losses. The estimation of the European meat industry is that the loss of the UK market would cost them about €4.3 billion, i.e. something like four times as much.
They are very concerned about the processes and ensuring there is free movement. They recognise, equally, that that is not just down to the UK; it is also down to their own Governments ensuring those processes are in place. There are trade associations on the other side of the water who are trying to press their own Governments to ensure they make progress.
Sammy Wilson: The EU have already said they are trying to address the issue of trade from third countries anyhow. In February of this year, the Trade Facilitation Agreement with the World Trade Organisation came into effect. That was meant to allow for electronic registration for inspections of premises and easier freight. Is there any evidence that this is already easing the movement of goods from third countries? How would you see that applying once we become third country, after leaving the EU?
James Hookham: There is a critical difference. Clearly, Britain trades using all manner of different customs regimes with the rest of the world, so this is nothing entirely new. What is distinctive about our trade with the EU is the volumes, the intensity and the short timescales. Whereas it is quite easy to apply WTO rules or other arrangements to freight traffic that may be at sea for a number of weeks, or that can be sufficiently pre‑notified because it is coming a fair distance, when you are looking at a total time of transit across the Strait of Dover of 90 minutes, for example, you are trying to compress all of those requirements into a very short time window. Because of the lack of IT arrangements and automated arrangements, you are probably looking for it all to be done at one point, at the border.
We have some very clear ideas as to how in time, hopefully, HMRC will seek to simplify and automate the various arrangements that are put in for cross‑Channel traffic and the traffic across the Irish Sea. We summarised these in a document we published a couple of weeks ago, Chair. I would be happy to provide a copy to the Committee. We have put together 10 ways to simplify and automate customs arrangements, which would make use of the easements and other facilitations that the WTO provide and recognise. These do require investment and proper resourcing, not just in the UK but also in the other member states as well.
Peter Hardwick: Could I perhaps add to that? What that does not resolve are the requirements for sanitary and phytosanitary checks. Those are a complication. If I take an example at the moment, for New Zealand—because they have a high health status—the rate of checks on consignments of lamb coming in to the European Union is around 2%. Because there have been some issues with Brazil, the rate of checking for poultry is 100%; for beef, it is around 50%. Normally, it is around 20%. This is all going to depend on how we can maintain regulatory convergence with the European Union in terms of animal and plant health rules, because, whatever the WTO says on customs and customs checks, it does not resolve this issue. We all know very well that there are countries around the world that use these as non‑tariff barriers.
In a situation where we are no longer a member state, outside the customs union, outside the single market and are wanting to make some divergence on a regulatory basis, which was an expectation that many farmers had when they voted to leave the European Union, we are going to have to think about the impact of that, because that could slow things up.
Richard Graham: I am interested in where strategically you see the threats and the opportunities. Sian, you mentioned that we are a considerable net importer of cut flowers from Europe, probably particularly from Holland. We have already seen a significant devaluation of the currency. If you took the assumption that that might be likely to continue, what are the opportunities for import substitution, i.e. greater activity by domestic growers and less importers penetrating the market here? What are the opportunities on the other side for increasing our exports, given that we should be more competitive?
Sian Thomas: I would broaden it to fresh produce as well as just cut flowers.
Richard Graham: Yes, please do.
Sian Thomas: There is great potential for us to increase production here in the UK of indigenous fresh produce. Obviously, there are a lot of products we cannot grow due to the restrictions of our climate. The majority of products we import are those products we cannot grow or they are products we import to ensure we are maintaining food security throughout the year. While we have a season of growing, we need to maintain a supply throughout the year. That is something the UK consumer has become used to. They want to have a wide range of products available. We have over 400 different types of produce available.
Q172 Richard Graham: What are the opportunities for those products that we do not grow but do import from elsewhere actually being reduced in price, by virtue of being able to import from wider afield?
Sian Thomas: At the moment, we are already seeing the differences. We have a wide range of different sources throughout the year. I am not sure that is going to change significantly with Brexit, in terms of the range of sources. At the end of the day, it will be down to what the consumer is prepared to pay.
Q173 Richard Graham: Peter Hardwick, from your point of view, again, how do you see that impacting your markets?
Peter Hardwick: There is always going to be some opportunity to further develop the UK market, but the nature of our exports tends to be focused on dealing with products or parts of the carcass, if it is an animal, that have low structural demand in the UK. There has been a lot of talk recently about selling pigs’ feet to China, as an example. We are not going to sell more pigs’ feet in the UK. Equally, we are not going to sell some types of lamb in the UK market. We have a strong market for light lambs in southern Europe, for example.
Q174 Richard Graham: We have seen a currency devaluation. If we look at the opportunities for exporting, we are already beginning to sell pig products into China; we have just restarted selling beef into the Philippines and so on. Is that devaluation of the currency effectively going to help our export business in the growth areas of the world?
Peter Hardwick: It is, and it is doing so right now. In fact, the pork example is actually a very good one. We have actually maintained our trade into the Far East when other European countries have perhaps lost a little bit of market share because there has been a slight dip in the market there. There are indeed places where this is already happening. It is already happening in the European Union as well. We have actually seen all of our exports increase in value this year as a consequence of the devaluation of sterling. It is making us more competitive in all markets, yes.
Q175 Stephen Crabb: I have a question for Mr Hookham, if I may. In previous interviews and statements you have made, you have drawn a distinction between 20th century‑solutions to the issues at borders and 21st century‑solutions. Presumably the document you have kindly shown the Committee today contains the FTA’s ideas on exactly that.
James Hookham: Indeed, yes.
Q176 Stephen Crabb: You talk about the need for investment in these new solutions. In your discussions with civil servants and Ministers, how strong an understanding do you feel that they have about what the new solutions should be? How strong do you detect the appetite to be for actually seeing resource and investment go in to achieving these solutions?
James Hookham: To be perfectly honest, it is difficult to get a fix on exactly what Ministers feel the border is going to be like. Clearly, the level of investment and easements you need to put in depends critically on how high‑friction the border controls will actually end up being. We obviously would prefer the lowest possible frictions, and that is still on offer. That is what the Secretary of State has described. That is still our overriding wish, but, given the probable short time period of two, three or perhaps four years, we do accept that the time required to develop, to innovate and, above all, to commission and test some of these ideas—because there are some large sums of money and important security issues at stake—does mean that they are on a different time trajectory to simply being ready for day one.
The UK is ready for this. It has got good experience from trading with the rest of the world. In terms of us in the FTA, there is certainly experience from our counterpart organisations around the world about how poorly free‑trade agreements have been taken up, because of the frictions in trade procedure. We are learning from those, so there have been a lot of examples in the Far East and Australian trades, for example.
In terms of upsides to Brexit and positioning ourselves as a global player, if we keep trade arrangements and procedures as low as possible, there is a big opportunity for us to demonstrate what we can do.
Q177 Stephen Crabb: If Government are wedded to a short transition period, is there a danger that will inevitably push the solutions back towards default, old‑style arrangements rather than innovation, which you seem to be suggesting requires a longer timeframe.
James Hookham: It might. Obviously, one does get concerned at the very large numbers for the recruitment of new border staff. We need to see a continuation of the arrangements that are in place elsewhere, where it is intelligence‑led, targeted and risk‑based. Where there are known issues on conformity in particular countries, those goods are particularly focused on. Again, what will put the current system under strain and allows that to happen for the sort of countries Mr Hardwick was talking about is just simply the sheer numbers of vehicles. There are 10,000 trucks a day. Knowing which ones of those vehicles is carrying the consignment you particularly want to look at is the technological challenge; that is what we need to sort out.
Q178 Wera Hobhouse: In order for us to get an idea of what that will be like physically, what additional or new border infrastructure do you expect will be needed once we leave the EU?
James Hookham: Again, this comes back to initial arrangements and longer‑term arrangements. As part of the free‑trade framework, if I can call it that, which might be outlined by March next year, it would be very encouraging to hear that the Government certainly hope to seek agreement with the EU to continue the current mutual recognition of the conformity arrangements.
That would relieve the borders of a lot of pressure and a lot of demand for physical space to stop and inspect loads and vehicles, as well as the accommodation of staff and so on. That is going to put a lot of pressure on the ports, and on the Channel ports in particular. As soon as we are able to, we want to start talking to customs about being ready for day one but also providing for a system that does remove as much of this old‑style check as possible.
There are all sorts of ways we can do this, such as transit arrangements or bonded warehousing. These are all ways of minimising the friction that exists in other parts of trade. They will need special adaptation to work for EU traffic, again because of the volumes but it is all doable, and the quicker we start talking about it, the better.
Q179 Wera Hobhouse: Are there any activities that could be moved away directly from the ports? We have been to the ports and seen it, and the Port of Dover said to us that they could not actually physically do it there. Which activities could be moved away from the border, and how far?
Peter Hardwick: To some degree, we know how to do this already. If you are shipping goods outside the European Union, the goods are not inspected at the border; they are inspected at the exporting plant or coast. The vet who is responsible for doing the veterinary check does the check there and seals the vehicle there. It leaves the country and no further checks need to take place.
From the point of view of UK exports, provided that we have agreement at the other side that this is acceptable, in theory that consignment does not need to be opened again until it arrives at its importing destination. That works well where you have a single, homogenous consignment, but 15% to 30% of the exports that we do from the UK are what are called groupage. They are not necessarily even collected from one site, and they are not delivered to one site. There are complexities we need to try to overcome. The question is: can we live without groupage? I suspect we cannot. However, there are many complications around it.
From a simplistic point of view, there is a mechanism in place already that could be made more streamlined. Even today, if you want to export outside the European Union and you want an export health certificate, it is produced on a piece of Crown‑watermarked paper, which is sent by snail-mail or a courier to the exporting site. Some of the pre‑application work is now done electronically, but, if you look at some of our European competitors, they are already doing all of that electronically. The document is actually generated electronically at the point of dispatch and so on. There are some things that we need to do to make that more efficient, so that we can bring the procedures as far back as we possibly can.
To answer your first question, hopefully nothing; in other words, we do not want any additional infrastructure at ports, because there is simply no space to do it.
Q180 Wera Hobhouse: Again, if I may, Chair, the reciprocal arrangements on the other side of border surely must be a very concerning issue, particularly if, for whatever reason, other countries are dragging their feet. The French are a particular concern.
Peter Hardwick: I cannot really comment on that. I do not have direct experience of it. I would have to rely on my colleagues, who may have had closer contact with them. My concern would be anywhere where that might occur.
For us, the issue is about what happens when it arrives on the other side of the Channel and who checks it. If that is in Zeebrugge or Rotterdam, they are already well versed in dealing with non‑EU consignments. I would share the view that James has, that we are actually probably well set up as far as some countries are concerned but less well set up in others. Calais is analogous to Dover: they have an equal lack of infrastructure, so they have exactly the same problem.
Q181 Hywel Williams: I want to comment specifically on Holyhead. We have been told there is no capacity to extend the port facility, but I am also concerned about the quality of the A55, Euroroute E22, the bridges over the Menai Strait and the effect of building the new nuclear power station at Wylfa, just down the road from the port. Do you have any concerns about this? Have you talked to the Welsh Government at all about this?
James Hookham: Yes, we do. Clearly, the volumes are not quite as intense as they are on the Strait of Dover, but we have certainly discussed this with the Welsh Government, and my colleagues have presented evidence to one of the Select Committees there. This is of huge importance for our Irish customers and suppliers. In some respects, they are far more concerned about this than perhaps even we are, because this is their sole route through to the continent as well as to their markets in the UK. In some respects, although the ferry services are less frequent across the Irish Sea, they will still generate the peaks in arrivals and departures of trucks that will put those peaks of pressure on whatever arrangements are in place at the port.
Right along the west coast of the country, the port authorities have all said that they would find it difficult to accommodate and provide the facilities for the sort of checks we may be talking about. Again, finding ways of doing those away from the border remains a priority, not just for the traffic on the Strait of Dover but for all of our roll‑on, roll‑off ferry ports.
Peter Hardwick: There is no doubt that the Holyhead corridor has in fact grown even more quickly than the Dover corridor. The Dover corridor has quadrupled since 1992, and through Holyhead it is about 700%. You are talking about a lot of vehicles through a relatively small area not only, of course, in terms of the direct trade but also the land bridge, which Ireland uses with the continent, to move vehicles through. Obviously, from a local point of view and in terms of logistics, it is extremely important.
Q182 Mr McFadden: Good morning. In his initial comments, the Chairman talked about the world of 1972 before we joined, and we have read a lot about “just in time” delivery and so on. This question is particularly for Sian Thomas and James Hookham. Can you give us a flavour of just how trade has changed in recent years with this “just in time” delivery? Therefore, what kinds of products and industries would be vulnerable to delay?
James Hookham: The landmark moment for the supply chain logistics sector was actually in 1992, because that was when the borders came down, the customs requirements were relaxed and the single market was created. That dispensed with all of the formalities we have been talking about for what became intra‑EU traffic. You would need to ask the Port of Dover for the absolute numbers, but what you have seen as a result of the removal of those constraints has been the true and genuine operation of the European single market. Manufacturing decisions, points of production decisions and decisions about the locations of storage and distribution centres were able to made on a genuinely pan‑European basis, rather than just serving individual national markets.
Certainly in our industry, you quite often find directors and senior managers of logistics responsible for Europe, the Middle East and Africa, because they manage supply chains on that kind of geographical scale. Certainly, within Europe, the removal of barriers has made that a very practical proposition. You are seeing manufacturing processes sourcing large numbers of components from across the Union, assembling them in one particular part and redistributing either sub‑assemblies or finished products. Because of the reliability of journey times and passage through the borders, this has resulted in high dependency on goods and supplies turning up when they are expected. It is actually a wonderful manifestation of a single market in operation. This is what it was supposed to be like, and I would submit that industry has risen to that opportunity.
Unpacking and unravelling all of that is not the inevitable consequence of Brexit. Clearly, there may be some delays and some additional processes put in and some additional costs. Some businesses may decide that they will restructure their supply chains accordingly, particularly due to tariffs, I would imagine, and possibly access to labour. However, a lot of businesses will simply press on. They will try to absorb these costs and continue to serve customers and suppliers in the way they do.
There are some particularly vulnerable sectors. I know the high‑value engineering sectors are particularly concerned. In the longer run, there are some choices available about where production is conducted and assembly is performed in this sector. However, certainly from the point of view of the logistics sector, our challenge will be to keep the costs of transport and distribution as close to where they are at the moment so that those difficult choices do not have to be made. We need to keep Britain’s supply chains running.
Q183 Mr McFadden: You said there are some vulnerable sectors. What would be your top three vulnerable sectors?
James Hookham: From what I have heard and read, I can understand the concerns of the automotive sector, because that manufactures in the UK to supply a predominantly European base. The pharmaceutical sector is also vulnerable. I know the Irish pharmaceutical manufacturers are very concerned. Some of our smaller businesses have also found new markets and access to new markets as result of the removal of barriers. These are relatively smaller‑scale consumer products. They are made in the UK and they have found ready markets. That is the SME sector as much as the large brand names we are familiar with.
Sian Thomas: I can give you some examples. We have a number of highly perishable products, which have a very short shelf‑life. A lot of those products are cut, packed and date‑stamped in the country of origin. They are truly ready to go on the retailer’s shelves when they arrive in the UK.
We have seen the impact of any delays at the point of entry on those products through a different EU regulation that was imposed on certain products, which increased the level of controls. What can happen is that product starts to deteriorate and the quality is lost. The supplier presents that product to his customer, and that customer may refuse to take it. Not only may they refuse to take that consignment, but that supplier may lose his contract with the retailer. We have had that happen in the past purely through delays at the point of entry. The industry has had that experience.
Another example would be a wholesale floral market. They are used to putting in a request for supplies with a Dutch wholesaler in the Dutch market in the afternoon, and the next morning they will have that supply in the market delivered to them. They are used to having a very quick and very short supply chain. A number of our UK retailers have now cut out the middlemen: they are directly sourcing flowers. They are used to this process as well, because they have had the advantage of having that very efficient supply chain.
Q184 Mr McFadden: The picture you are giving us is that speed is of the essence, and that is the way trade works. That is fine. With regard to customs, the Government produced a paper in August that outlined a couple of proposals for future customs arrangements. I want to ask all four of you this question quickly. Have you read the paper? Does it solve the problem for you? I will start with you, Mr Brock.
Duncan Brock: I have read the paper, and there are elements in the recommendations there that would ease the flow of goods through customs. There is always going to be some level of delay, but the intent of the paper was to make commerce as frictionless as possible. If we can keep the amount of time and delays to a minimum, that is clearly going to help. I am not an expert in the whole customs area. I have colleagues with me who are far better in that area. They are better placed to comment than I am.
Sian Thomas: Yes, we responded to the paper at the time. It was very much a menu. Certainly, it was not one solution; it was various options that could be put together. We have also talked to HMRC since that point. However, one of our key concerns was not to have something that was one‑size‑fits‑all and an overreliance on IT. We need to remember that we have small businesses that are operating. They do not necessarily have the expertise and the capacity to take some of these solutions on board. We need something very simple.
James Hookham: Briefly, the simplified scenario that was described as the first option is probably the most likely one we are looking to achieve. We hope that that is what will come out of the statements or announcements that we hope will be made by March, which we were discussing earlier. The gatekeeper proposal, where the UK was offering to manage the entry and exit of goods on behalf of the EU, was the kind of bold and innovative initiative that I would have expected. However, the chances of that happening very much depend upon the residual political goodwill that survives Brexit, because a huge degree of trust would have to be placed in the UK in that situation, but in the longer run it would actually solve a lot of our ongoing challenges. Although it was dismissed, certainly in Brussels, as a non‑starter, it should be kept on the table. In the long run, it may be something we might want to involved with.
I very strongly support the idea that we need to tackle these sorts of challenges in the longer term through individual supply chains. We talked about the vulnerable supply chains, as you heard just now in response to your earlier question. We probably do need to prioritise those supply chains and apply some of the remedies I mentioned. They will have the capacity to invest, and a lot of them are already highly automated. We can probably get some early wins if and when we know exactly what we are shooting for.
Peter Hardwick: I have read the paper, and of course under the circumstances of a relatively free trade arrangement, the solutions are innovative and could function well. Obviously, there is a contingency scenario also laid out in the paper, but it does not resolve directly the key issue of veterinary checks and plant and animal health checks. It is a customs paper, and it is about customs checks.
Whatever solution we come up with in future, it is essential that the work of HMRC and the work of Defra is closely tied together to ensure that there is continuity between both those transactions. That is extremely important.
Jeremy Lefroy: I will ask a slightly different question, because mine has already been covered. I will just address it to Mr Brock. Mr Brock, earlier you talked about something like 15% of your members had said that they had potentially lost business because companies were placing contracts within the other EU 27 when they had been previously supplied from the UK. Do you also notice UK companies that perhaps were importing components as part of the supply chain sourcing locally? Certainly, from my point of view, I want to see very open and free trade with the European Union. If those customers in the EU 27 received certainty about frictionless trade, or trade that is as frictionless as possible, would they return to UK suppliers? There are two questions there.
Duncan Brock: I will take the first one about the risks associated with losing business and whether the real impact of that is coming through. Yes, it is there. It is a concern. We are seeing a lack of continuity there, and people not signing because of the long‑term contracts in place.
To come to the second point about whether EU business would come back, from a procurement background, you are always looking for the best value. You are always looking for the way in which you can get the best value for your company. Value includes the technical capability of the suppliers as well as their quality, service and their cost.
If the UK supplier base is strong, EU companies that are looking for the best value they can get would clearly look at the UK. There is a lot of investment going on here; there is a lot of good technology investment going on in the UK supplier base. Why would the EU companies not look to the UK as an alternative to looking at Germany, France or Spain? As a procurement person, you would always re‑evaluate your supplier base. Most people go through it on an annual cycle, checking what they have, what they could do and what they could change. We will see the EU constantly looking globally and looking at the UK as part of that as they go through.
If the costs associated with sourcing from the UK start to drop—the point was made earlier about devaluation, which is clearly helping UK suppliers supply—of course they would come back and look the other way around. From the UK perspective, if more people are sourcing onshore, there is clearly an opportunity for people to do the same and source more locally. What we are seeing is that it is not just Brexit that is causing that. I would add that, actually, one of the reasons people are looking for shorter supply chains is also to do with transparency. There have been quite a few issues associated with the long supply chains and not knowing what is going on through the various tiers. The more you can bring it locally, and the more you can audit it and have a view of what going on through it, the better control you have over it. That sort of dynamic is going on at the same time.
Q185 Jeremy Lefroy: As a follow‑up on that, are you seeing UK companies making provision to make outward investment in the EU 27 to supply their customers locally? Conversely, are you seeing EU companies looking to invest inwardly into the UK to be closer to their customers?
Duncan Brock: We have seen both of those. From a procurement perspective, we see more evidence of companies saying to EU suppliers, “We want to continue a long‑term relationship with you. Are there ways in which you could co‑locate and build the manufacturing capability in the UK?” From the survey we did, about 23% of companies said they were doing that and talking to suppliers to try to find a long‑term solution.
None of us like the change in the supply base. You do want continuity where you can get it. If you can get the same manufacturer to co‑locate in the UK, clearly that is an option. What that company needs is the long‑term confidence that they can make that investment and have the continuity of supply. Getting companies to make that longer‑term commitment is where it comes through. I am sure European companies are doing exactly the same at the moment as well.
James Hookham: If I may, that is a very good example of the decision that many boards are considering now. It is just that kind of decision. We have about 12 weeks left before they will make a decision one way or the way.
Chair: Time is obviously of the essence.
James Hookham: Yes, it is critical.
Chair: This is the final question from me. You have said very clearly in all of your answers that you are finding ways to keep delays and checks to a minimum. Can I ask you about one other border that we have not fully touched on yet? That is the border between Northern Ireland and the Republic of Ireland. There, the Government have set a very high bar: we are leaving the customs union and the single market, but the Government have also said there will be no border and there will be no infrastructure. Given your experience, can you explain to us how that can work at the land border between Northern Ireland and Republic of Ireland? It is not about minimising delays or checking; it is about there being nothing. Can anyone help us on that rather knotty question?
Peter Hardwick: It is the same answer, actually. As long as you can have some mechanism by which all the necessary checks take place back from the border, it can be done. In other words, if you have some way of pre‑certifying consignments at the point of dispatch and the point of arrival, you do not have to have a physical check somewhere in the middle.
Q186 Chair: How do you do that with phytosanitary checks, given what you have just said?
Peter Hardwick: It is a complication, but technically it can be done. There are good examples of this. Northern Ireland exports, if you want to put it that way, some 400,000 sheep a year south of the border for slaughter; here is a movement in the other direction of live pigs; there is mutual exchange of live cattle, dairy products and so on. At the moment, the consignment is checked by a vet at the point of dispatch. When it arrives at the abattoir in the Republic, it is checked by another vet, who says, “I have done the check”. You do not have someone standing at the border doing that, because, if you did, you would have a delay. If that is a delay of a truckload of live sheep and it is 30 degrees outside in the middle of the summer—that is some hope in Ireland, but it could happen—you do not want to see that happen for all sorts of reasons, including animal welfare reasons. There are mechanisms in place. I do not have a full answer to this, because I do not cover all sectors and I do not fully understand all the ramifications. However, I do know there are technological solutions for these sorts of things.
We do know that in other examples where there are land borders between the European Union and countries that are not inside the European Union, like Norway, there are some checks, but there is the use of automatic number-plate recognition and all sorts of other technology.
Q187 Chair: Norway, of course, is in the single market.
Peter Hardwick: It is, and it also does not have an agreement on agriculture. There are some differences.
Chair: Indeed there are.
Sian Thomas: If I may pick up on plant health inspections, we very much have a risk‑based approach here in the UK, and I have had assurance that we will continue to maintain that. We do have pre‑notification of fresh produce through the PEACH system, which I mentioned previously. That will flag if a product is to be checked, if it must be sampled. It is a documentary check, physical check and sampling.
That is a facility that can be used and expanded, but there is also an assured trader scheme that is in operation. That takes the track record of a supplier or an importer and takes that into account. If they have high standards for plant health certification and they are meeting all the requirements, do they need to be checked as much as another exporter or importer who does not have that record? This works really well in certain areas for certain government departments. We have been asking for this to be used across the board. The Food Standards Agency has been looking at it over the past two years, to see whether it could be applied in a food safety situation. There is a lot more we could do, working with industry. We often have higher standards than the regulatory standards to meet the requirements for the UK consumer.
We can do better, and we are doing better. If we have that trust, we can work together and reduce the inspections that need to be carried out, whether they are at the border or further inland.
Chair: That is very helpful.
Q188 Sammy Wilson: In the brief we had, I notice that there are very few trusted trader arrangements within the United Kingdom. We have about a tenth of the number of trusted traders that you would have in Germany. Is there any particular reason why this mechanism has not been used, given that it could ease the movement of goods?
James Hookham: The trusted trader regime was developed for an entirely different purpose: it was developed for security more than anything else. The Authorised Economic Operator scheme is the scheme that is actually used in the EU. In our experience, it is quite demanding. You really need to be certain you are going to get some benefit from going through what is quite a protracted procedure before you actually apply for it. Therefore, it is not really something businesses have had to do unless they are in that kind of trade.
To your point, we sincerely see some form of trusted trader arrangement as a significant contributor to easing pressure on the border. If you can identify the notional 20% of the traders who account for 80% of the actual volume, you are a very long way to solving your border problem. You could get them into some pre‑authorisation scheme and that would take the pressure off the borders. That would need to apply not just for customs and excise and duty payments but also to some of the other checks that my colleagues have been talking about, of the non‑tariff kind.
Chair: Thank you very much indeed for coming this morning. You have been extremely helpful, and we are very grateful to you for giving up your time.
Witnesses: Jon Thompson, John Bourne, Richard Everitt and Richard Ballantyne.
Q189 Chair: Good morning and welcome to our second panel of witnesses today. Richard Everitt, Chair of the Port of Dover, can I once again thank you for your warm hospitality to the Committee when we came to visit? We also have Jon Thompson, Chief Executive and Permanent Secretary at HMRC. John Bourne, Policy Director of Animal and Plant Health at Defra, it is nice to see you again. Last but by no means least, we have Richard Ballantyne, Chief Executive of the British Ports Association. You are all very welcome, and we are grateful to you for giving up your time today to come and enlighten the Committee.
Can I begin by asking you, Mr Thompson, about the new customs declaration service, about which the National Audit Office produced a report? In that, they said that full functionality would not be in place by March 2019. Can you just explain to us what you expect to be working by that time and how much work is still needed to get to that point?
Jon Thompson: The National Audit Office report was produced in July, and there was a hearing of the Public Accounts Committee last month. However, the fieldwork was undertaken in February of this year, so there was a long gap between when the NAO did the work and when it was subject to the scrutiny of the Public Accounts Committee. The project is completely on track. We have every confidence that it will be ready and complete by January 2019, which has been the longstanding target date. The project has met all of its milestones in the current year. We have an excellent team of people working on that. It has begun some early testing already. We have already had some end‑to‑end testing of customs declarations with two of the five community service providers.
The next steps for us are scaling the project up. There has been a bit of misunderstanding, for which I should take some responsibility, in terms of understanding that this is not a system where you flick a switch in January 2019. Its migration begins in the summer of 2018, in July, and traders begin to build up from July through to January 2019, when we complete the migration of the system.
I am very confident that the Customs Declaration Service will be in place. To be really clear with you, as I have been with other Select Committees, I will never give a guarantee on a technology project, but I am very confident this project will work.
Q190 Chair: That is probably very wise. Presumably, Mr Thompson, you look upon the prospect of a transitional arrangement or implementation period, whatever you call it, as something that is welcome. Do you anticipate that things will just carry on as they are at the moment during those two years, given what the Government have said about their expectations of what that period will consist of?
Jon Thompson: Yes.
Q191 Chair: Good. Can I turn to a second question, which I want to ask you and Mr Bourne before turning to other Panel members? We heard our previous witnesses discuss how delays and checks could be kept to a minimum in a post‑EU membership world. I want to ask you about Northern Ireland, because clearly, in that case, the Government have made their policy on the customs union and the single market clear. They have also said that they want no border and no infrastructure. It would be helpful if you could tell us how that can work in Northern Ireland and its border with the Republic of Ireland. Given the policy position the Government have adopted and given what the Government of the Republic of Ireland have been saying, how exactly can you achieve no border and no infrastructure?
Jon Thompson: I cannot give you any more information than that which is already in the public arena in the combination of the “Future customs arrangements” paper, which was produced in August, and the “Northern Ireland and Ireland” paper, which was also published in August. Essentially, you need to read the two in combination. First of all, the assumption is that what is adopted in the future is a negotiated settlement with the EU, in which the highly streamlined customs arrangement is adopted. That is a basket of changes that essentially keeps all of the good features of trading with the European Union: for example, you stay in the common transit convention and there is mutual recognition of the Authorised Economic Operator scheme and so on and so forth.
Because of the unique situation of Ireland and Northern Ireland, however, you need to add on three additional things, which are set out in the “Northern Ireland and Ireland” paper. First of all, that is to maximise the Authorised Economic Operator scheme, which you were asking about. Secondly, it is to seek a derogation for small traders, because there needs to be a recognition that the Ireland‑Northern Ireland border is very much a local economy in which traders cross the border on a regular basis. We are seeking a derogation for small traders, with the definition of small to be negotiated. Thirdly, we want to move to a system of self‑assessment, which is set out in the Union Customs Code and is the direction of travel for the European Union.
If you take the highly streamlined customs arrangements and you add those three things on, we believe that would cover the vast majority of the trade between Northern Ireland and Ireland. If there were any checks, they would be risk and intelligence‑based, and they would take place well away from the legal border.
John Bourne: On our issues, which are essentially the phytosanitary ones—that is probably what you are asking about—my first point would be to say that the risk post‑exit does not change. Nothing is altered from the point of view of the risk we are managing, and we manage those risks today. At that level, there is no issue in one sense. As Mr Thompson said, I cannot speculate about where the negotiations are going to go, because I do not know. Is there a real problem from our point of view? No, the risks do not change. What I cannot tell you either is what the EU might agree at the border, because that is part of the negotiations. Clearly, there is two‑way trade across the border. We can decide what we do on our side, but we cannot determine what happens on the other side. That is for them, as part of the negotiations.
You heard from the previous witnesses, and there is a perfectly good system functioning now and there are some quite good models that one can draw from. That is where we are at the moment.
Q192 Chair: Can I just ask one other question? In the event there was no deal—Mr Thompson, you set out the things you thought were required—would it be possible to achieve no border and no infrastructure between Northern Ireland and the Republic of Ireland, given what you have just told us?
Jon Thompson: I agree with Mr Bourne. In those scenarios, it would be possible for the Government to make a unilateral decision about what they will do at the border, which would be in line with the answer to your previous question.
The question then is about how the Republic of Ireland might respond? We do not believe—and this has been our consistent advice to Ministers—that we require any infrastructure at the border between Northern Ireland and Ireland under any circumstances.
Q193 Chair: Yes, but the Republic of Ireland response, or indeed the EU response, might be to say, “This is now the external border of the European Union. You might be leaving the door open, but we have got a job to do to put the same arrangements in place all the way around”. That would be a bit of a problem. As you have said, it depends on how the Republic responds. Is that correct?
Jon Thompson: Yes. As Mr Hookham from the Freight Transport Association said to several of your earlier questions, the most significant risk we see in terms of leaving the European Union under any circumstances is about how the member states of the European Union react. In respect of many of the initial issues that were put to you in answer to your first question about uncertainty, risk, tariffs and so on and so forth, those would or could be imposed by member states. That is the area over which we have little or no control. How exactly the French, the Dutch, the Belgians or the Irish eventually react is not something over which the Government, civil servants or indeed UK plc has much influence. That is the most significant risk in this conversation, if one might say that.
Q194 Chair: Yes, except insofar as the UK has chosen to leave the customs union and the single market, which is a given as far as the policy is concerned.
Jon Thompson: I took that as a given. You are right. I did take that as a given.
Chair: That is where this issue arose.
Q195 Sammy Wilson: You have outlined the proposals the Government have put forward. I know the Irish Government were initially looking at how tracking could be implemented, et cetera.
Jon Thompson: Yes.
Sammy Wilson: Has there been any response? I know we are not in negotiations with the Irish Government, but has there been any response from the Irish authorities as to how workable they see the kinds of suggestions that are being made and how willing they would be to co‑operate with them?
Jon Thompson: There are no formal conversations with either the French or the Irish, because of the political situation. We cannot talk to customs or taxation‑management organisations in either of those countries. There are only informal conversations with the Belgians and the Dutch. I am afraid I cannot answer your question, because we are not in any discussions at the moment. There has been some public reaction from politicians, but I am sure you will be familiar with that.
Q196 Stephen Timms: Mr Thompson, I want to pick up your point about how, whatever happens, you are confident that there will not be any requirement for infrastructure at the border between the Republic of Ireland and Northern Ireland. What is it that is different there compared with other borders, where clearly infrastructure is required, that gives you grounds for that confidence?
Jon Thompson: The argument that we are advancing, and the argument that was advanced in the “Northern Ireland and Ireland” paper is that there are some unique circumstances here in relation to Northern Ireland. It is a slight danger and risk to say this, given that you have local members on this Committee, but, having travelled there and talked to many people, business flows very easily across the border. There are therefore some very unique circumstances in what we regard as being a very local economy. We believe you cannot apply the European Union’s normal arrangements at the border here.
To make this real for you, if a business takes all of its tools across a border, it needs to declare those appropriately every time it crosses the border. We cannot have plumbers and electricians and other repairmen in a van travelling across a border and trying to declare those. We have to recognise that that is a unique set of local‑economy circumstances. That is the argument that has been set out by the Government. That does not apply in Dover‑Calais. Dover‑Calais is fundamentally a very different kind of arrangement to Northern Ireland. We are trying to reflect the unique circumstances here of that economy in the response that was set out in the “Northern Ireland and Ireland” paper.
Q197 Stephen Timms: Is there not at least in theory a danger here? If there is a softer border at a particular instant between the Republic and Northern Ireland and checks that are made elsewhere are not made there, could this open up some vulnerability to smuggling or something undesirable in the future, even if it is not happening at the moment?
Jon Thompson: This touches on one of the questions you will undoubtedly want to get to. There is an assumption that because we are leaving the European Union, somehow, under whatever circumstance, the risk to the United Kingdom is now proportionately larger and therefore more checks must take place at the border. I do not necessarily believe that. Mr Bourne rightly said—Mr Hookham also said this in your earlier evidence—that this has to be about risk and it has to be intelligence‑led. One of the fundamental questions the Government will need to wrestle with in due course is whether French wine, Spanish tomatoes and Italian cheese are any more risky in April 2019 than they were in March 2019. Therefore, do you have to respond in any way at the border with the Border Force?
You can do a straight‑line demand extrapolation of how many additional customs declarations there will be, and the answer is approximately fivefold. That does not automatically mean there is a fivefold increase in the risk or that there needs to be a fivefold increase in the Government’s response to checking all of that. You can decouple those two things, and then you have to fold in the fact that you have got physical constraints in many places, including the Port of Dover. Frankly, you need to be able to work from that physical constraint with some consideration of the risk and then design an intervention approach for the future. Ultimately, you also want to move to answer Mr Crabb’s question about whether there will be a technological leap. Yes, we are working on that project, too. Ultimately, in a post‑Brexit world, you integrate all government agencies around all imports and exports, but that is a five‑year‑plus timescale.
Q198 Richard Graham: Jon Thompson and John Bourne, good morning. Both of you have made it fairly clear that the real risk is actually how member states of the EU react once we have left the European Union. John Bourne, your answer to one specific question about whether there is a real problem on your side was, “No”. When you read the newspapers and the media, and you read some of the extravagantly dire predictions made about the border between Northern Ireland and the Republic of Ireland, how do you both find yourselves reacting?
Jon Thompson: Opinion varies significantly, does it not, about whether leaving the European Union is a good thing or not, what the consequences will be, and who is in control of this? There are lots of stories out there from whichever sources take an opinion, and then they wildly speculate, frankly, about certain things. I cannot respond to that. My only vehicle to responding to some of that is answering questions in Select Committees like this. This is my seventh one in seven weeks. I am trying to get it out there.
Richard Graham: I have seen you in other Select Committees, and I know you have got a lot of experience of this. For example, when you read politicians in the Republic of Ireland saying, “The only way the border can work is for Northern Ireland to stay in the customs union”, how do you find yourself reacting from a practical point of view? Is that the only way the border can work? Everything you have both said so far suggests that there is not actually going to be much of an issue. Am I missing something?
Jon Thompson: I did not say there would not be much of an issue. What I said was that it depends how the Republic of Ireland react.
Richard Graham: Indeed.
Jon Thompson: I am not going to speculate about how the Republic of Ireland reacts, and neither would it be appropriate for me to speculate about what France might do.
Q199 Richard Graham: From our point of view, there is absolutely no reason why it cannot broadly be business as usual.
Jon Thompson: That is correct. Several senior HMRC officials have given evidence on this. That is the consistent advice we have given Ministers.
Q200 Richard Graham: John Bourne, from your point of view, there has been a lot of speculation that animals will not be able to cross the border and so on.
John Bourne: Yes. I come back to the negotiation, which we cannot predict. As Mr Thompson said, from our point of view, in the short term, there is no reason to think the risks have significantly changed. It is very similar to the EU border at Dover or somewhere. If you do not think the risk has changed, there is no urgent driver for changing our risk management processes. One might well conclude that over time one might want to, because one might not be 100% satisfied by the current risk management processes, but it is not a day‑one problem.
Mr Thompson mentioned that Ireland has got some very specific characteristics. It is worth remembering that on the animal‑health front there is the all‑island animal health policy. They already have that sort of holistic approach. Again, we cannot predict what the EU will do, but one would assume that, other things being equal, they would wish to keep that sort of approach, because it makes good sense in terms of biosecurity.
Q201 Richard Graham: Very briefly, I have one last question. Have you had any suggestion, John Bourne, from the Irish side that they wish to make any changes?
John Bourne: As Mr Thompson said, it is fair to say that we are not negotiating with the Irish.
Richard Graham: No, indeed. I do not mean in terms of negotiations but in terms of your informal day‑to‑day contacts.
John Bourne: I was in Ireland the week before last talking about something quite different, and I confess we did not talk about the future of the border. For both sides, it has not really been on the agenda. We recognise that it is very much in the political space, and it would not be appropriate for civil servants to be discussing what future arrangements might look like.
Stephen Crabb: To continue on the theme of the Northern Ireland border conundrum, I was interested to see the comments in the last few days from both William Hague and Bertie Ahern, who both seemed to be suggesting that the only real solution to all of the questions involved in this border issue will rely on, basically, a fudgy outcome. William Hague talks about the need for both the UK and the EU to show flexibility and for the EU to show less rigidity towards its own rules. Bertie Ahern went even further. He talked about the need to make technology work in most cases and then turn a blind eye to those areas that cannot come within technology. Both of those seem to be kind of suggesting that there is really no final solution to this that does not rely on some kind of fudgy compromise. Mr Thompson, what would your response be to that?
Jon Thompson: I would not use those words. What is required for Ireland and Northern Ireland is a bespoke agreement. I have set out what the Government’s intention is. As I said in answer to the first question, I cannot really go any further than the Government’s stated position, because of the ongoing political dialogue on a different level, which means we cannot get into more detailed planning with the Irish about how we would exactly solve this particular problem. We will either reach a strategic agreement with the EU, and then that will flow, or we will not.
Q202 Richard Graham: But you are clear that the solutions you have in mind do not rely on anything other than rigid enforcement of our rules.
Jon Thompson: The current papers published by the Government, on which we gave extensive advice, build on aspects of the Union Customs Code. We thought that would be received by the European Union as being a constructive way in which we might be able to negotiate it, and we await a response to that.
Q203 Peter Grant: Good morning, gentlemen. Mr Thompson, I want to look a bit more closely at the new Customs Declaration Service, which you are in the process of developing. What is your assessment of the volume of transactions and the number of declarations that system will need to deal with?
Jon Thompson: At the minute, the number of customs declarations that are required because of trade with the rest of the world is just over 55 million; that is 2016. Our assessment is that that would need to rise to 255 million, if you go on the basis of the statistics we have about intra‑EU trade. We are building the Customs Declaration Service to handle 300 million transactions. I have that all split between imports, exports, values and how many we intervene on if you want to go into the detail of it.
Q204 Peter Grant: Has the system been tested to show it can cope with that volume at a steady state?
Jon Thompson: The volume testing is in November, and I will get a report next week. The Public Accounts Committee has asked me to go back and give further evidence in March about the outcome of testing through December, January and February.
Q205 Peter Grant: Was that 300 million capacity part of the original design?
Jon Thompson: No.
Q206 Peter Grant: I understand the system was designed before we knew we were leaving the customs union. What was the original design specification?
Jon Thompson: It was 100 million, because before the vote to leave the European Union we were aware that the current system, which is called CHIEF, the Customs Handling of Import and Export Freight, was not compliant with the Union Customs Code. All member states need to be compliant with the Union Customs Code by the end of December 2020. Therefore, we were replacing that system with the Customs Declaration Service by 2020 at 100 million. We have had to bring forward the date to 2019 and we have had to increase the volume from 100 million to 300 million.
Peter Grant: You were originally designing a system with almost 100% safety margin. It was expected to deal with 55 million; you wanted it designed to cope with 100 million to give it a bit of safety margin. You are now moving to a system where you expect to have to cope with 255 million, and it is being tested up to 300 million. The margin of error is now significantly less. The margin of error is less than 20% rather than nearly 100%. Is that something that concerns you?
Jon Thompson: It certainly gives me several years’ worth of future growth. Although I gave you the numbers for 2016, the years before 2016 are slightly lower and slightly higher. 300 million will be enough to last a decade. It is worth recognising that the current system, which is CHIEF, was implemented in 1994 and will last until 2019. If there were significant rises in the numbers of customs declarations, heading towards the 300 million, we would fairly quickly be able to work out the capacity requirements and add them on. I do not think that is a particularly difficult issue.
Q207 Peter Grant: What is the additional cost of changing the specification of the system partway through the design and implementation?
Jon Thompson: To be frank with you, I do not know the answer to that question. The budget is set at £157 million, and it needs a little bit more money. It needs another £6 million to have a completely tested fallback plan. I would have to go back to before I joined HMRC, actually, to work out what the original budget was. If you will indulge me, I will happily write to you with the answer on what it was before the vote and what it is now.[1]
Q208 Peter Grant: When contingency plans are being drawn up for when something goes wrong, the standard when you are doing risk assessment is to combine how likely you think something is to go wrong and what the impact might be, and then clearly you concentrate on mitigating the things that are likely and have a big impact. Have you done that kind of risk assessment around the implementation of the new system?
Jon Thompson: I am sorry. Are you asking me what the key risks of implementing the CDS system are?
Peter Grant: First of all, I just want you to confirm that that kind of risk assessment has been done. From your answer, I am assuming you have done that. What is your assessment of the likelihood of a major problem from implementation—some kind of mishap, failure or unforeseen circumstance that has a major impact on the ability of the new system to do its job? Do you assess that in terms of percentages or in terms of one in how many years? What is the method by which you assess that?
Jon Thompson: It is extremely low that it will not work. Ultimately, that is why I will not give you a guarantee. To be slightly Rumsfeldian, you do not know what you do not know. It is a £157 million technology project. It is meeting all its milestones and targets, but technology projects sometimes go wrong for reasons you do not foresee. I am very confident on—
Chair: Mr Ballantyne also wanted to come in on this point.
Richard Ballantyne: I cannot give a guarantee there are not going to be problems; that is not my responsibility, so I will not jump in there. What I would say is that trade is relatively calm about the systems. We are in good contact with Jon’s team, who are briefing us about the developments and the timescales on that.
What we are looking at perhaps more at the border is the operational challenge. That is where you start to make entry to the UK condition on customs declarations. The systems will work, we understand. It is actually the process of getting the clearance. In the case of ro-ro ports—Richard Everitt will brief you more on Dover—it is actually whether you want to hold up lorries while you get customs declaration clearance.
Chair: I am very keen to move on to that, because we asked a lot of questions of Mr Thompson, and I would like to hear from Mr Everitt and Mr Ballantyne, from both of your respective perspectives, about some of the implications. If you have finished, Peter, I was going to bring Pat Mc Fadden in for that very purpose.
Q209 Mr McFadden: Good morning. I am going to slightly switch tack to talk about some of the port issues. Mr Everitt, we visited the Port of Dover some weeks ago—I cannot remember exactly how many—and it was a really instructive experience to see how the port operates. I believe 99% of the freight trucks that arrive in Dover come from within the EU at the moment and about 1% from the outside, if I have got that roughly right.
Richard Everitt: It is between 1% and 2% non‑EU.
Q210 Mr McFadden: Can you talk us through the difference in how the 99% or 98% are treated compared to the 1% or 2% from outside, in terms of time requirements, paperwork and so on?
Richard Everitt: I could not give you the detail of the paperwork as such, but essentially the 98% or 99% get off the ferry and drive on the roads and are away from the port. A proportion of them are stopped based upon risk assessments for various reasons. Of the 1% to 2% that are non‑EU, they go to a facility to the west of the dock, and customs processes are done at that facility. It is normally up to 20 minutes and it may be quite a bit longer, depending on where they are from and what they are carrying. We have a facility to the west for the non‑EU traffic, but they are there for some time, if I can put it that way, as distinct from the rest, who just flow through the port.
Q211 Mr McFadden: The Government have set out certain policy positions in terms of the way we are going to leave the EU. From your point of view, the two most significant ones are that we are leaving the single market and we are leaving the customs union. I will come to you in a second on this, Mr Ballantyne, more widely, but how would the port cope with a significant increase in the percentage of trucks that have to undergo checks as a result of those changes?
Richard Everitt: We would face very real difficulties. You saw the way that traffic flowed when you were there. In terms of inbound, we have virtually no space. As I say, a very small number are going off to the west. If we are handling 5,000 inbound trucks a day, you can do the maths. Less than a hundred are going to the west. We take some heart from the Government’s paper; there seems to be a very strong commitment to free-flowing traffic and, indeed, doing checks and paperwork away from the port. That must be the way it is done, because we could not cope with any significant increase in delays on inbound traffic.
We have to also look at the other aspect of what we do, which is outbound. I heard your previous witnesses this morning. There is a complete lack of clarity at this stage as to what is going to happen in France, at Dunkirk and Calais, and that is where we have the biggest concern about delays. The UK can control its own operation, whereas at this stage we have no clarity about what will go on in France and at those two ports in particular. That is where we do have concerns that there could be very significant queues.
We work very closely with Calais and Dunkirk. Indeed, the whole region is very keen to ensure that there is uninterrupted flow through Calais for inbound traffic as much as outbound. You heard some of the reasons why they are concerned about outbound as well. At the Government level, there is not yet any clarity as to quite what requirements, if any, will be placed on inbound trucks coming into France..
Q212 Mr McFadden: Mr Ballantyne, do you want to comment on this? We visited the Port of Dover, but you are representing all the ports in a way. What difference, more broadly, in trade do these policy positions that have been announced make?
Richard Ballantyne: It is probably fair to say that most UK ports are relatively calm about Brexit, notwithstanding certain things like tariffs on automobiles that are exported into the EU, et cetera. But the ro-ro sector, of which Dover is the leading roll‑on, roll‑off port, does have particular concerns and challenges, and it represents anywhere in the region of 40% by value of international trade. As you saw earlier from your previous witnesses, it is high‑value and perishable commodities. There will be a cost to holding those vehicles up, not only on the port but on the logistics chain.
On the customs‑declaration process, if you are dealing with bulk shipments—i.e. one commodity on a bulk carrier—there are tried and tested ways in which port agents submit it through to Jon’s system at HMRC for clearance, and it is relatively straightforward.
To add to that, this is not just about Dover, but the other ro‑ro ports—the likes of Holyhead, Portsmouth and other terminals—do not have juxtaposed controls that Dover has. Admittedly, though, that is only on immigration at the moment.
This was one of the options set out in the customs paper in August. If you are looking to have those controls on other side of the sea in either continental Europe or Ireland, presumably those will need some kind of treaty and bilateral agreement with those member state governments. As we have seen with existing treaties, that can be complex.
Mr McFadden: Do you mean things like the Le Touquet agreement?
Richard Ballantyne: Yes, and the Treaty of Canterbury.
Q213 Chair: When we visited, Mr Everitt, we asked you and your colleague from Calais who was also present about what the practical implications for Dover would be if there was no deal. It would just be helpful if you could put that on the record for the Committee.
Richard Everitt: Yes, I go back to my earlier point. The biggest worry with no deal is what the requirements will be on the other side of the Channel, which we do not know. We do not have any information on that. In terms of the UK, we have a White Paper about customs, which sets out a contingency proposal. Again, that seems to recognise the importance of traffic flowing freely through the ports and undertaking checks away from the ports. If that is the case, then we do not have too many concerns about inbound traffic, but outbound is a real worry, in the absence of knowledge as to how it will be handled in France.
Q214 Chair: Given what we saw when we came and the limited space at Dover, that clearly has implications up the road.
Richard Everitt: It has significant implications up the road. You saw that we have very, very limited space. By coincidence to some degree, because this was planned before the decision, we will be moving a cargo terminal from the eastern dock to the western dock, which will give us space for possibly another 200 trucks. In the round, that is a useful addition of space, but it is not that significant overall, though it will help.
Mr Rees-Mogg: My question has been rather superseded by some of the discussions we have had. If I may, I will stick with what we have been on at the moment, because it is more interesting. Mr Everitt, I have one question on what we send back to the EU. We have a very big trade deficit. Are a lot of the lorries going through Dover on the way back in fact empty?
Richard Everitt: They certainly would be. I do not have numbers on the proportion that are not carrying goods. Yes, there certainly will be some going back empty.
Mr Rees-Mogg: There should not be too much difficulty in sending back the empty lorries, even if France is—
Richard Everitt: I would like to think they could go through relatively easily. I have just been handed something. One third of lorries are empty going back.
Mr Rees-Mogg: Thank you very much. It is just one of those things that has puzzled me.
Richard Everitt: It is very useful when a little note comes.
Q215 Mr Rees-Mogg: It is a very efficient system. Mr Thompson, I am very interested in the basis of checks, because there are higher checks on non‑EU imports. It is 2% at Southampton, but otherwise it is four seconds for a container to be approved. What is the primary basis for those checks?
Jon Thompson: At the minute, we check on the basis of risking of what we know is being exported from where and to where, some information about the history of the trader, the nature of the goods and the value of the goods. You very quickly bump into non‑customs‑related issues, and we have integrated in the national customs hub work that is undertaken by HMRC but is not actually to do with customs per se, but, for example, is in relation to quotas. 27% of the work HMRC does is in relation to Defra rules in terms of quota limits. If you import Brazilian chicken, that is fine; it is a low risk for us. However, there is a quota on the amount of chicken that can be imported into the European Union; we police that. When you look at the statistics in relation to imports from the rest of the world, it is slightly misleading because 40% of what we actually do is not to do with customs; it is to do with other rules.
Q216 Mr Rees-Mogg: In terms of any checks that would be needed on EU imports after we have left, it would not need to be at the 2% level. This comes back to Mr Bourne’s point on the risk assessment: the risk does not change. As I understand it, the checks are primarily for contraband rather than because they are answering customs questions. In the absence of quotas, the current level of checking could remain at broadly the same levels.
Jon Thompson: It would not increase by fivefold, which is the estimated increase in the number of customs declarations, which is the answer to Mr Grant’s question. Risk would rise over time, but it would not be in proportion to the number of declarations. That is definitely true.
Q217 Mr Rees-Mogg: What risks do you see rising? Would they be in the health area, particularly for food and animal products? Would it be in the customs area? That is then in our control as to the tariffs we impose. How do you see the risks evolving?
Jon Thompson: I cannot answer for any other government department, but the major risk from an HMRC perspective is actually excise. Perhaps I can give you an illustration. A packet of 20 cigarettes, which retails in this country for, say, £9, you can buy in eastern Europe for £1. If you are prepared to try to import it from somewhere in the Middle East across an eastern European boundary, you can almost certainly get it for 10p. Now, given that £7 billion of excise revenue is raised at the border, there is a significant challenge in relation to tobacco and alcohol at the border. That is the major risk here, not really the £3 billion of customs. At the minute, we pass 80% of that on to the European Union. That is the area where HMRC is particularly exercised about risk over time.
Q218 Mr Rees-Mogg: That is a risk that you have anyway.
Jon Thompson: I agree.
Q219 Mr Rees-Mogg: To some extent, would it be easier to protect those excise revenues once we have left the European Union?
Jon Thompson: It could be. It is worth stepping back slightly here. What exactly are the Government’s objectives for running a border? Revenue‑raising is only one element. We have an agreement with the Prime Minister that the Government now formally has three objectives. One is the security of the United Kingdom; the second is the free flow of trade; and the third is the raising of revenue. We need to try to keep those three in some harmony.
To respond to your question, on leaving the European Union we may wish to protect the integrity and security of the United Kingdom, keep the flow of trade going and take some risk in relation to revenue while you mature a system over a number of years that will give you more information and enable you to intervene on the revenue side on the basis of risk and intelligence. We have reached that agreement. You need to trade those three objectives off.
Q220 Mr Rees-Mogg: If I have understood your evidence correctly today, basically customs and excise can do whatever is required of it, can minimise any delays at the border to ensure they are no worse than they currently are on our side. Whether this happens or not is going to be a political decision made by future Governments.
Jon Thompson: In relation to imports, yes.
Mr Rees-Mogg: Yes, I mean in relation to imports. You cannot do anything about exports. That is out of your control.
Jon Thompson: Yes, and I am making sure that I do not walk out of this room leaving you with the wrong impression. You are absolutely right in relation to imports, but in relation to exports it is a fundamentally different question.
Mr Rees-Mogg: I absolutely agree with that.
Q221 Stephen Kinnock: The Institute for Government has said that there are 36 organisations involved in customs operations and policy. They refer to it as a “constellation” of government agencies, ranging from vets checking for animals, the specialist checking of plant products and meat, and there is even a role for those who can assess fine art or diamonds. It also includes local government, the port health authorities and trading standards. It is a vast constellation of organisations. My question to you is about the extent to which you feel that the co-ordination of this incredibly complex group of organisations is running in a smooth and efficient manner. How much of your time would you estimate is now being absorbed into the process of responding to the result of the referendum on 23 June 2016? That is probably a question for all of you.
It is two questions, really. One is about the effectiveness and efficiency of co-ordinating. Who are the lead players? Who is making this co‑ordination happen so we have a clear and cohesive position? Secondly, can you give us a sense of the amount of time and perhaps even money that this is absorbing?
Richard Ballantyne: Yes, the run‑up to Brexit is quite an amazing time to be running a ports association, given the obvious implications for changes at the border and impacts on trade. There are multiple working groups and stakeholder committees; we have regular meetings with officials and Ministers, et cetera, not to mention appearances before Committees such as this. Probably the leading stakeholder committee we are a part of is the HMRC’s Brexit group, which is obviously focused on customs arrangements and the implications at the border. I would say that has listened to trade. The number one concern in that arena has been on the ro-ro ports, which we mentioned earlier.
Going back to your other question alongside that, can you just remind me?
Q222 Stephen Kinnock: It was really about a time estimate. If you think about your working day prior to 23 June 2016 and your working day now, what percentage of your time is being absorbed by dealing with the impact of the referendum vote?
Richard Ballantyne: It is probably quite a substantial amount, I have to say, but that is what members pay me for. We respond to government policy and what is upon us.
Richard Everitt: From the point of view of Dover’s senior management team, I would say probably something between 20% and 25% of their time is being spent on these types of issues.
On your first point, Mr Kinnock, if I may, our strongest plea is that these various organisations ultimately work off a common set of data. Mr Thompson mentioned that just now. We want to get much better data co‑ordination between the various principal agencies that are overseeing what happens at the border; it would help us all enormously and probably make for a much better system from a security point of view, from a revenue‑raising point of view, from a health point of view and in terms of those other activities that are undertaken at the ports.
Jon Thompson: There is a border planning co‑ordination group, which was set up in March of this year in response to the point that you are making and the fact we are leaving the European Union. The group has strategic oversight of the Government’s plans, of the impact on the border of the withdrawal from the European Union. It is focusing on three things: what would happen across all of those organisations in 2019 if we left and switched to trading on WTO rules; what would happen with a negotiated outcome; and, in response to Mr Crabb’s question, a longer‑term project of how we could become the most effective customs and border operation in the world. We are currently ranked by the World Bank at number four. We have purchased the IT system that is used by the Dutch, who are currently ranked number two. The piece of work that we are currently doing is how to get to take all of the best practices that exist in the world and blend that together into a single, integrated government facility—a “single window” is the term—which would serve the customer. If you are an importer or an exporter, you just go to one place; you transact once. All government agencies get all of the data they require, you get all the licences you require, and then you are free to import and export.
In a world where you want the United Kingdom to be a great trading nation, we think that is a good option. We have permission to do that. We have set up a project to do it. If Mr Crabb had still been here, I could have given him an update. I am already on the public record as saying that is a project in the order of £500 million to £800 million, which will take somewhere in the order of five years.
It is out there; it does exist in Singapore. It is called TradeNet. There is the United Nations Centre for Trade Facilitation’s electronic business guidance on how governments integrate themselves around customers. There is plenty of work going on, but all of those organisations are involved in that border planning co‑ordination group. We have to make sure we do not get a situation where the Border Force does something, Mr Bourne does something else and the Forestry Commission does something else. We are trying to co‑ordinate and integrate all of the moving parts of what we need to do in 2019 and 2021. I am happy to set out more if you need it.
Q223 Stephen Kinnock: Mr Everitt estimated something between 20% and 25% of his and his team’s time is now being taken up by this.
Richard Everitt: That is the senior management time.
Q224 Stephen Kinnock: Are you able to give an estimate along those lines?
Jon Thompson: It is significant. When I took this job, the then Chancellor of the Exchequer asked me clearly to run HMRC and then go through what is regarded as the largest organisational transformation programme in Europe, and then we decided to leave the European Union. That was added on. I would guess it is somewhere between 40% and 60% of my week.
Q225 Stephen Kinnock: Between 40% and 60% of your time is spent on dealing with the ramifications of Brexit.
Jon Thompson: We have employed 340 extra people so far. My estimate is that in the end it will be somewhere between 3,000 and 5,000,and probably at the upper end of that range.
Q226 Stephen Kinnock: Have you done an estimate in terms of cost? What will be the additional cost of the 3,000 to 5,000 staff to your payroll?
Jon Thompson: It is in the order of £200 million extra, in addition to our current budget.
Q227 Stephen Kinnock: Is that on an annual basis? It would be a £200 million annual payroll addition.
Jon Thompson: Yes, and next year it will be more than that because there are a series of IT changes that we will also need to make. The current estimate for 2018-19 is around £300 million, and then it should settle down around £200 million from 2019 onwards.
Q228 Stephen Kinnock: Mr Bourne, I would ask the same question of you, if you would not mind.
John Bourne: For us as Defra, 80% of our work is framed by EU legislation anyhow, and a quarter of EU law applies to Defra. In a sense, a decision to leave the EU inevitably has a very major impact. In terms of how much time is spent by Defra as a whole on the actual EU exit—because clearly we have business as normal going on with the EU as well, as we are still members of the EU—I am not sure I could put a figure on it. I clearly only do my role. From a very personal point of view, I can tell you what time I spend on it approximately. I would think I probably spend 40% to 50%. It is probably fair to say they are often some of the more challenging issues, too. In terms of complexity and difficulty it probably ranks rather higher.
As Clare Moriarty said to the Public Accounts Committee, Defra as a whole are getting a share of the £250 million from the Treasury for this year.
Q229 Stephen Kinnock: I am sorry. What is that £250 million?
John Bourne: That is for other Departments in terms of extra money, and we will get a share of that. There will be a process for next year as well, but I cannot actually put a figure on what we actually spend on the borders or indeed overall what we have at the moment.
Q230 Stephen Kinnock: Are you taking on additional staff to deal with the ramifications of Brexit?
John Bourne: Yes, we have taken on 400 to 500 for this year.
Q231 Stephen Kinnock: You have taken on 400 to 500 additional staff.
John Bourne: Yes. As we get towards the EU exit, in particular on the operational side of stuff, depending on what the deal is, that could require considerably more people, but it rather depends on what the negotiated outcome is. It is really hard to put figures on it.
Q232 Stephen Kinnock: That is interesting. You have done some scenario‑planning, and no deal would probably lead to X amount of additional staff; a Canada‑type of deal would be another scenario. Have you done a bit of sort of war‑gaming of the different exit scenarios and what that would mean in terms of capacity?
John Bourne: You are coming back to what Mr Thompson said. Clearly, at one end, if we had business as normal, there would be no impact at all. At the other end, we can sort of control what we do up to a point, but what we do not know is what will happen on the other side of the border.
To look at a very simple example—I am sure you have come across this—if we had to do export health certificates for animal products going to the EU, there would be about a threefold increase in what we do now, which is purely for third countries. All of those have to be signed off by a vet at the end of the process. That would clearly have an impact, but it rather depends on the volume as well.
There are a whole range of uncertainties in this, but, clearly, yes, we are contingency‑planning for day one.
Q233 Stephen Kinnock: I have one final, very quick question. Thank you for those answers. In terms of the impact of that, what is interesting is the opportunity cost—the things you might have been working on or the innovations you might have been working on within the context of us staying as a member of the European Union. Have you done an assessment of opportunity cost? What is it that you are not able to do because of what we have just discussed? What are you not able to do because this has absorbed so much capacity that you have had to stop aspects of your business as usual and aspects of the innovation and projects you might have otherwise been working on?
It would be good to get a very quick snapshot of what you might describe as “opportunity cost”. Do you feel there has been an opportunity cost and, if so, how serious is it across your four organisations?
Richard Everitt: If I can start, inevitably there is an opportunity cost, because we have not added materially to the staff to deal with these, but the chief executive—he probably would have been here, but he is on holiday this week—is spending a huge amount of his time on this. We are going ahead with the big development on the west of Dover, which fortunately we have been able to maintain on programme. But where we would have used our time otherwise, if I can put it that way, particularly the senior management time, is really looking in depth at how we use that limited space you saw on the eastern dock.
We are about to start a masterplanning exercise with our key customers, looking at the future, looking at how we bring technology in and how we configure it, et cetera. We are probably going to have to bring in resource to do that. We would have been ahead of where we are, had we not been spending time on this project. It is not a disaster, but desirably we would have been further ahead with the masterplanning than we are at the moment.
Jon Thompson: I have four drivers, really. First, I run the second largest civil service organisation, which is clearly fairly significant in terms of the overall revenues of the country. Secondly, I have the largest organisational change programme in Europe. In 2015, HMRC was given £1.3 billion worth of investment to modernise and digitise the tax system. Third, I have to leave the European Union. Last week, the 2017 Autumn Budget gave me an additional 1,500 staff and another 130 changes to the tax system. We are currently going through a process of reprioritising all of those, which manifests itself in 267 current projects. We are going through a reprioritisation process, which will be given to Ministers in January. It is highly likely that some of those projects will need to be deferred or stopped altogether.
Q234 Stephen Kinnock: Is that because of the impact of Brexit?
Jon Thompson: There is an absolute limit to the capacity and capability of a large organisation. We have to leave the European Union, so that clearly gets a higher prioritisation. Some of the other projects will need to be de‑prioritised, and they will either have to take place over a longer period of time or they may have to be stopped altogether. That seems to me to be a perfectly good way of running a business. We have given a commitment to give that to Ministers in January and give it back to the Public Accounts Committee at the end of March.
Q235 Stephen Kinnock: Are there any other comments on opportunity cost?
Richard Ballantyne: As an association, many of our members are looking at new opportunities. Some are coming out of regulatory rules and regulations from the EU, such as the habitats regulations and the port services regulation.
In terms of new business and new trade, some ports—particularly those, say, on the east coast, with intra‑EU facing traffic—are probably looking at similar trade levels but are trying to deal with the operational challenges arising from things like declarations and port health‑checks, et cetera. Other ports elsewhere are looking at new business routes and links externally in third countries, but at the moment we are leaving that to them and we have not done any central assessment of that now. Government are working on things internally, and we are just starting to talk with officials on that type of initiative.
Craig Mackinlay: Mr Thompson, I want to pursue a little more what Mr Rees‑Mogg was saying in terms of what drives your need to do checks now and whether that will be any different post‑Brexit. Obviously, this is very linked in with border control. Border control has its own worries about firearms, drugs, people trafficking and those types of things. You are more concerned about whether the goods declared to be on board are the actual goods on board. In terms of your interest in a big corporate that may be sending over car parts—a regular trip from wherever in Germany to a car plant in the UK—what would be the regularity of you taking one of those lorries apart? I would guess it is very small, if not infinitesimal, because they are trusted and you know what is on there. I would guess that if you have ever taken them apart, you found exactly what they said was on there. Would there be any reason why that be any different post‑Brexit?
Jon Thompson: No.
Q236 Craig Mackinlay: Border control would have the same concerns about trafficking, drugs and firearms as we have today, I would assume.
Jon Thompson: Yes.
Craig Mackinlay: Going on to the update to the CHIEF system and the Customs Declaration Service, there was a report by the National Audit Office that raised some concerns about whether you would be able to bulk up to 250 million transactions. As it currently stands, your system might be able to cope with 180 million. Maybe I am being simplistic, but if you have a system that works to a good number of volume, would scaling it up even higher just mean more powerful computers, more server racks and all the rest of it, as long as the framework fundamentally works? Is it any more difficult than that in your mind?
Jon Thompson: I answered Mr Grant’s question on this. We are scaling it to 300 million.
Q237 Craig Mackinlay: I am sorry I missed that. That is fantastic. That is really good news. It was good to hear that you are looking at the Dutch and Singaporean systems as well.
Jon Thompson: We have purchased the Dutch system. That is the core of the new Customs Declaration Service. That is already in place in a live‑like environment. We have done some end‑to‑end testing of whether you can actually make a declaration work. The next phase is whether we can scale it up to 300 million. That is the next test. There are a series of tests through the spring, and then migration starts in July.
Craig Mackinlay: To Mr Ballantyne, we heard from the previous panel, particularly from the Freight Transport Association, that they feel—perhaps this is driven by WTO Trade Facilitation Agreements—the Dutch and the Belgians seem to be stepping up to the plate, and they are starting to think about the post‑Brexit environment. However, they do not seem to be getting to far with the French authorities. If the French are not playing ball as much as they should, could there be the opportunity, or the need if it arose, for exports from the UK to be routed perhaps through Dutch and Belgian ports, who have got themselves to the level they need to be at? Would that substitution be easy or possible?
Richard Ballantyne: Representing competing ports, you will appreciate that I do not want to get drawn too much into whether there will be huge changes there. Going back to the previous session, last Friday I was actually in Paris and I gave a talk to the French ports association, who themselves have a Brexit group. They advised me that the customs authority in France has its own Brexit taskforce group, which is just about getting going.
I have heard differing stories about whether or not customs authorities are in communications with ports and others. Many of the ports in Europe are state‑owned, so there are natural links there. Generally, the message when we go to the ports is that they should be prepared, but that is a big “should”.
Craig Mackinlay: Absolutely, yes.
Richard Ballantyne: Going back to your previous point about CDS, I would say, yes, there will probably be similar risk levels, but what does change is the process. At the moment, lorries are used to not having to produce any particular customs declarations, but the process will change; they will have to. Even slight delays start to have impacts at terminals. We heard Richard Everitt before. Dover is spatially challenged in terms of the capacity there. That is true of other ports, particularly ro-ro ports.
Craig Mackinlay: I am just trying to think about this problem of capacity. As Mr Thompson said, you have trusted big corporates who move stuff across the border. They are never taken apart by customs or anybody else, because what they say is what there is. In a post‑Brexit world, even if there is—heaven forbid—a tariff, I cannot see that this would not be trusted, that what they are telling you would not be the truth. I cannot see where we are adding delay in the system. I am struggling to see where the delay would be, if we trust what they say.
I have always said that we do not have representatives from Mr Thompson’s organisation looking over my shoulder when I go to a shop. It tends to be trusted that what I am doing is going to go through the till and end up in the tax system. Whether that is to be believed is another question, but you can see the point. We tend to trust what is being told, because generally it is what is happening.
Richard Ballantyne: I will take that in two parts. First, on the process side, it is for Jon’s officials to describe what the requirement should be, but, under current arrangements for third‑country traffic, freight arriving from outside the EU must conduct customs declarations and be cleared by the Salford systems. That would presumably be true for ro‑ros, which is where the particular issues arise.
Going back to tariffs, when we had the referendum I have to say I thought tariffs would be a really big issue for the ports. Going out and speaking to my members, however—notwithstanding some specific types of trades, such as the automobile trade with Europe, which I mentioned earlier, and one or two on the agricultural side where there are high tariffs—a lot of ports are relatively calm about tariffs. That is a fiscal transaction and it is conducted away from the border, so it is not conditional on, in this case, lorries being permitted entry into the UK. There are agents who are well versed in dealing with that, and there are schemes. If you do not pay, it is a big problem. You will effectively be finished.
Again, it is about the declaration, the process and the inspections—port health particularly. I have had numbers from one of the main container terminals previously that is dealing primarily with third‑country traffic, and they suggest that around 70% to 80% of the physical inspections at the border are port health related.
The declaration may be straightforward and quick, but if you have not got anything at the moment then that does present a new stoppage. Unlike areas like bulk shipments and containers, where you might be able to find some capacity in a terminal to pile them up while you are waiting for the clearance, lorries will queue very quickly. They can backload on to ferries; they can backload out on to public roads. That is the particular challenge in the ro-ro sector.
Jon Thompson: The fundamental question here is whether what is currently intra‑EU traffic any more risky post leaving the European Union than it is now? What we intervene on now is risk and intelligence‑based. That is a system we will continue to apply in the future. We may not intervene any more than we do now, to answer your and Mr Rees‑Mogg’s question.
Craig Mackinlay: I can understand the point being made particularly by you, Mr Bourne, in terms of plant and animal health, but a lot of this comes down to the political will for mutual recognition. I find it hard to believe that the day after Brexit we are going to have doubts about cos lettuce grown in Ireland and British lambs being transported the other way. I find it hard to believe that this becomes a brave new world unless there is political will to upset it.
John Bourne: There is a brave new world going the other way in terms of lamb exports. Clearly, this comes back to our point about what the other parties decide. From our point of view, we absolutely agree with you: we do not think there are significant reasons to alter our risk assessments on day one. We have been doing this for a long time and nothing has really changed; hopefully, we have got relatively appropriate risk management processes in place now.
Over time, that may well change because trade flows may change and, in particular, the sorts of things that drive trade flows will change, such as tariff regimes, et cetera. However, that will take place over time, and it is not a day‑one problem. We would agree with you that, as Richard said, if you are looking at third‑country trade, phytosanitary checks are quite a big issue, but they have always been taking place; they are not going to be new. As you say, on day one, other things being equal, there should not be a significant change in risk profile.
Craig Mackinlay: I just have one last very brief one, Mr Bourne, while we have got you. We have a vast amount of what I would call exotic products, which are not grown anywhere in the EU. You have green beans from Kenya during the winter season; you have pineapples and, obviously, a vast banana trade. Realistically, how much do you drill down into these phytosanitary issues for, say, a big company like Chiquita, bringing in lots of bananas? They are a trusted company that is very experienced at what it does. Is it really that invasive and delaying? Have you come to an arrangement that makes it work fairly quickly?
John Bourne: At the moment, the rules are set at EU level. I could not tell you off the top of my head whether a banana is a regulated product or not. There are regulated products—
Q238 Craig Mackinlay: I was just giving an example of something of which there is a lot.
John Bourne: There are regulated plants. In third‑country trade, every one of them has a documentary check, which is not done at the border, and there is a regime for inspections, which is set at the EU level. That is the regular trade. As Mr Thompson recognised, that is where we know the trade has come in because somebody has applied in the system. There is then the fraud and smuggling end of it, which actually by definition is not part of that system.
Craig Mackinlay: You are not going to know about that, no.
John Bourne: Therefore it has to be picked up by other means, which is really where HMRC’s co‑operation comes in, because they are normally coming in labelled as something quite different, so our systems will not pick them up.
Q239 Hywel Williams: Briefly, I am particularly concerned about Holyhead and the possibilities of complications, because the Welsh Government are responsible for the infrastructure outside the ports. Have you had any discussions with the Welsh Government about these sorts of issues around Holyhead?
John Bourne: Yes is the answer to that. We have regular discussions with our devolved colleagues on these issues, so they will have heard exactly what we are saying to you today.
Jon Thompson: In response to Mr Kinnock’s question, I left out the fact that I chair the border planning co‑ordination group. We have a full‑time director‑general for border co‑ordination. She has been to Holyhead and has had some good conversations with them. She has walked the site, and therefore we are in conversation about what might we need to do, subject to the Ireland-Northern Ireland settlement.
Richard Ballantyne: Yes, absolutely, we speak regularly to the Welsh Government. The subtle difference there between Welsh and Irish traffic is, because of the Common Travel Area, there are no immigration checks. Yes, there is security present at the border, but there is no border in the way there is at other ports such as Dover. It is even more of a culture change, if you like, there. But, yes, there is regular dialogue with the Welsh Government. We are very alive to it.
Q240 Hywel Williams: Mr Thompson, is there any possibility for goods being shipped from Ireland to the EU 27 across the UK to be treated differently so that any checks or any difficulties could be missed?
Jon Thompson: The Government’s preferred outcome is to retain the common transit convention, so that goods travelling from the Republic of Ireland through the United Kingdom into the European Union are suspended. That is the right word. The procedure allows the transit of the goods across or within the European Union while the duties are suspended. As a preferred option, we would obviously like to keep the common transit convention for that traffic. As I understand it, it is vital for the Republic of Ireland.
Q241 Hywel Williams: Can I just have one very brief further question? I am just wondering about traffic being diverted from Dublin and Holyhead to the Republic of Ireland, to Northern Ireland, to Liverpool or to Scotland, or, alternatively, any goods being shipped from Ireland directly to the EU 27, say to Rotterdam. I should say that when we were in Paris we asked a trade specialist there whether that had been considered, and he said that he was not aware of any assessments of that possibility.
Richard Ballantyne: As you can imagine, those ports that may be negatively affected are obviously very aware of that and they are keeping an eye on this very closely. One of the positions we have when we talk to Government is to be careful of disrupting trade. Ultimately, it is for the freight and logistics industries to decide which is the most cost‑effective and efficient route for them.
Q242 Richard Graham: Jon Thompson, can I come back on one thing we have not touched on yet? This is to do with the two models of customs arrangements that the Government have presented to the EU. One is likely to lead to an increase in administration, and the second is described as “untested”. Can you share with us a little bit more about both of these? What sort of modelling has been done to assess their impact on trade flows?
Jon Thompson: The highly streamlined customs arrangement is a basket of changes, most of which essentially exist now. They are features of being a member of the European Union that we would like to retain: staying in the common transit convention, for the reasons Mr Williams and others set out; mutual recognition of trusted trader schemes; customs co-operation; data‑sharing; self‑assessment; and with no rules of origin, and so on and so forth.
Richard Graham: That is the first one.
Jon Thompson: That is the first one, but it still assumes that customs declarations would need to be made. We believe the only way to remove that is in the second option, which is called the customs partnership. This is novel. We were asked to see whether we could develop something creative, and we came up with a customs partnership. It was debated at some considerable length. Essentially, the customs partnership would mean the UK would operate the EU border for customs purposes.
When you landed your container at Felixstowe, you would be entering the European Union for customs purposes. After that, the tariff you would actually pay would depend on where the goods were actually consumed, whether they were consumed in the United Kingdom or in the European Union. The reason we developed this is because it would remove the requirement for the customs declaration for intra‑EU traffic but, on the other side of it, the reason why it is novel and would take quite a long time to implement is because it requires businesses to have multiple different systems tracing where the goods are actually consumed.
That is what would then be linked to the tariff that you would pay, as opposed to where they entered. Instead of which country they entered, it would be about consumption.
Q243 Richard Graham: That is largely to do with transhipments and third‑country origins. Is that correct?
Jon Thompson: No, it means that for the purposes of customs, the UK would look like it was still in the customs union for imports and exports, but we would differentiate the tariff. If you imported goods into the United Kingdom and those goods were consumed in the United Kingdom, then you could get a refund, if our tariffs were lower.
Richard Ballantyne: Could I just add something on that? You mentioned impacts, but in terms of the ports, we particularly highlighted earlier the ro-ro ports. This would nearly represent no major change. It would be as we are now, because there would be no declaration required on all those lorries going back and forth. The issue is if a product comes into Felixstowe, Southampton or somewhere and it is then processed and turned into something else. How do you calculate what percentage of that product, which may then be shipped off to Calais or somewhere, is British produced and how much is non‑EU?
Q244 Richard Graham: Richard Ballantyne, is that an ongoing discussion with HMRC and so on?
Richard Ballantyne: We have made it clear that, particularly for the ro‑ro ports, this is the model we would favour. The technicalities are beyond my association; that is for the other customs associations, et cetera.
Q245 Richard Graham: In simple terms, the new partnership model is the preferred option. Jon Thompson, is that right? I am looking at you. That is what we have heard from the operators.
Jon Thompson: We were asked to develop two options as part of the negotiations. There are distinct advantages of the novel and albeit untested model, because, as Richard said, in relation to ro-ro ports, it removes the angst entirely; there are no customs declarations at this point between Dover and Calais. If you could remove that administrative burden, then it would feel very similar to where we are now whilst we were not formally in the customs union. We were asked to develop something creative. We did; we thought it was an interesting option, but we are being up front in terms of saying that it is novel and untested, and therefore we are also saying that it would take approximately five years to implement.
Richard Graham: That is if there was the political will on the other side to do that.
Jon Thompson: If it could be negotiated.
Q246 Richard Graham: Could I check whether I understand it correctly? It would deal with one problem, but the consequence would be that a whole load of other people having to track where those things go and then make appropriate declarations. Are you not swapping one bit of paperwork for another bit of paperwork, only it would fall on different people? Is my understanding correct?
Jon Thompson: No, not necessarily.
Q247 Richard Graham: You said you would have to track whether the stuff that came in was consumed in the UK or then went on into the EU. To do that, you would have to be able to differentiate between the two.
Jon Thompson: You would.
Q248 Richard Graham: That would require declarations, would it not?
Jon Thompson: Only if the tariff differed.
Q249 Richard Graham: Yes, if the tariff were different. But if the tariff remained the same, it would not be a problem.
Jon Thompson: If the tariff remained the same, you would be paying the same whether those goods were consumed in the United Kingdom or the European Union.
Richard Ballantyne: It does not involve any infrastructure modifications. In the highly streamlined option, which was the first option Jon referred to, for ro-ro ports, you are requiring lorry drivers and haulage firms to feed information to the customs system prior to their arrival in places like Calais. It is then processed and cleared while they are on board the vessel. When they arrive at the Port of Dover, in this case, there is some kind of traffic‑light system and an automatic number‑plate recognition camera, which picks up that the lorry is free to move. If it needs to be pulled aside, then it could be, but generally it will be business as usual. That obviously requires certain infrastructure modifications, and certainly IT infrastructure investment.
Richard Graham: Presumably that is why HMRC are saying it needs five years.
Jon Thompson: On the the novel aspect of it, to be completely transparent with you—and this was all set out in the customs options paper—the new customs partnership being novel would require further changes to primary legislation over and above the Bill that is currently in the House. You would then have to develop a series of further technology changes. We think it is conceptually possible to deliver it, but it requires a longer run, largely for logistics and freight operators.
Q250 Richard Graham: Just to be clear, when you say “five years”, if somebody encouraged you to press the button to get started, that could be five years from tomorrow.
Jon Thompson: Five years elapsed, yes. Part of Mr Timms’ questions was about when I am going to finish, and the answer is, “When am I going to start?”
Q251 Richard Graham: I understand that. That is very helpful. From the point of view of the two Richards, are you saying this new system is potentially an improvement on where we are now in terms of ease of business? Are we saying it is as good as now, or not quite as good as now?
Richard Everitt: We would say the partnership approach is pretty much where we are today. If it could be achieved, we are probably being a little bit more pragmatic than some ports and saying that we are almost certainly going to have to go into the streamlined approach before we would be able to get to the partnership approach, because all the negotiations would have to take place.
Chair: Richard, I am afraid we have just about run out of time, because PMQs is about to start.
Richard Graham: Richard Ballantyne could perhaps nod if that is broadly his answer.
Richard Ballantyne: Yes.
Chair: Can we record a nod? A nod is recorded in Hansard. I am very grateful to all of you for coming today and for giving us so much of your time. You have been very helpful to the Committee.