Oral evidence - Brexit: UK-Irish relations follow-up

Dame Fiona Kendrick, Mr Leigh Pomlett and Mr James Hookham.

Q8 The Chairman: Good afternoon, lady and gentlemen. As I think all of you will have heard, we have had a very interesting first witness session on the specific and distinctive issues in the island of Ireland, which is of interest to this Committee anyway. We are immensely grateful to you for sparing the time to come and fill things in, primarily, though I want to stress not exclusively, from a commercial and business viewpoint, because concern about the Irish border, or the possibility of a re-imposition of a hard border, has been fairly central to the economic debate on that island. That washes over into the political debate. We also want to get a handle on solutions as much as problems. It may be simplest if I ask you briefly to introduce yourselves, unless you want to make an opening statement, and we will roll straight into questions. Our constraint, even more than usual, is that we have a back-to-back debate going on in the Chamber in a bit. At the very end, it may be that some of my colleagues find themselves disappearing to go and field in that, although I shall not participate myself. We will do our best to manage to match the two and get in what has been a very interesting afternoon and will be, I am sure.

Dame Fiona Kendrick: First, I thank you for asking Nestlé to be part of what we believe to be a crucial issue. I am currently chairman of Nestlé UK and Ireland. Nestlé has regional clusters, so I have responsibility for Ireland, both Northern Ireland as well as the Republic of Ireland. Until the middle of last year, I was chairman and CEO. I stood down from CEO and retain my chairman role. In addition to that, I have been president of the Food and Drink Federation, which I did for 2015 and 2016. I am not sure whether you are aware that that is our largest manufacturing sector in the UK, so it is very important and crucially interested in this issue. Nestlé is one of the largest companies in that sector. We have 8,000 employees and 14 factories, of which one is based in the Republic of Ireland; we are about a £2.5 billion business. We have grown very strongly in the UK, mainly due to the investment that we have made, with more than £600 million put into our factories. My ambition is very clearly to continue with that growth and for us to be successful, both during Brexit and beyond. The food and drink industry wants to get a successful outcome there, given its relative importance to the UK economy. The Republic of Ireland accounts for 6% of our business, but more than 80% of the products that we sell there are manufactured here in the UK. They are identical products in terms of recipe, packaging et cetera. Many of the names you will know well, whether it is our cereal brands, our Nescafé business or our confectionery business. We are No. 1 in many of those sectors there. We have about 700 people employed in the Republic of Ireland. We have one factory in Limerick that produces infant formula. For us, finding a solution is very important. We certainly welcome being part of this inquiry. I hope that we can find a workable solution across all the relevant parties.

The Chairman: Thank you very much. I liked particularly your final reference to a workable solution. By way of putting the witnesses at their ease, perhaps it would help to say that my two ministerial jobs some little time ago—about a quarter of a century ago—successively were in education and skills and in agriculture and the food sector, so those are very close to my heart, too. We are delighted you are here. Then we come to the FTA.

Mr Leigh Pomlett: I am the chairman of the Freight Transport Association, which represents 17,000 members. We also have FTA Ireland, which we represent as well. We represent all modes of transport—not just road but also users of air and ocean—so we are reasonably well-placed. I also sit on the board of the CEVA Group, which is a global logistics company employing 43,000 people, of which 6,000 are in the UK. I wear two hats in some ways: as chairman of the FTA but also representing one of the members of the FTA, a pretty large one, in the shape of CEVA. We have significant interests in the flow of materials into and out of Europe, but also into and out of Ireland in particular. Like Dame Fiona, I welcome the opportunity to talk to you about it this afternoon.

Mr James Hookham: I am deputy chief executive of the Freight Transport Association, so am part of the full-time permanent staff of the FTA. Clearly, Brexit will have huge implications for many of our members, partly as operators of road vehicles—FTA members operate, between them, about half the heavy goods vehicles on the roads of Great Britain—but also as manufacturers, as exporters and, particularly in the retail sector, as importers of goods. All those flows and activities are affected in one way or another by Brexit, so it is a really big issue for us.

Q9 The Chairman: Thank you very much, to the two FTA representatives as well as Fiona. By shorthand from your introduction, a rather oversimplified view is that I regard you as the HGV people, which is not a term of disapprobation. My own experience in moving agricultural produce around the island of Great Britain has been on a rather smaller scale, looking at 30 hundredweight pickups and things. That is a different matter. It might be useful in the dialogue if you can also remember that there are smaller traders across the borders who might want to be considered. However, the main thing, consonant with your earlier introduction, is that we want to find a practical understanding of the problems and to hint towards, and lead the Government towards, a practical resolution of them. I will kick off with the first question and then ask my colleagues to take over. Perhaps we can ask Fiona and then the FTA, but please be as flexible as you can, bearing in mind our constraints, and we will try to get you away in an hour. What are your principal concerns about the impact of Brexit on your industry and businesses? What opportunities do you perceive arising from it as well?

Dame Fiona Kendrick: As I said in my introduction, food and drink is a very large sector, at £28 billion GVA and 400,000 people employed. One-third of them are EU nationals, so it is very important that we look to find constructive solutions. It is important for us to clearly consider how we will continue to thrive as an industry, as well as Nestlé within that, currently and post Brexit.

As you know, Nestlé in the UK and Ireland is an arm of a global company. It is important that the UK continues to be a market that we invest in. For us, there are four key priorities to win in the UK that are pertinent to Brexit. The first is skills and talented people being available from within the UK, but also, very importantly, our ability to recruit from overseas. Unlike the food and drink industry, where it is a third, for Nestlé it is less than that. It is about 7.5% of our workforce. I stress however that these are not low-skilled people. These are very often high-skilled people who are required to drive our productivity here in Nestlé in the UK. People and talent is our number one.

Number two is an efficient global supply chain. I emphasise the word “global”. We need to very efficiently and speedily move our ingredients that we source. We import circa £800 million. Those are ingredients that we convert very often into export. We have an export business of about £375 million. The bulk of that goes into Europe. For us, the movement of those products across borders is important. For us to have efficiency and speed in that global supply chain is important. Quite clearly, we manufacture here as centres of excellence for European markets, as well as for other markets outside the EU.

Very important for us is regulatory standards. It is key that we have convergence, that we avoid red tape and multiple regulatory standards. Taking Ireland as an example, every product we manufacture for Ireland is identical, from the front of pack to the nutritional labelling. If we have different regulations, that will require different packaging and therefore a very different requirement in our factories which will ultimately drive a lot of cost. We try to eliminate all cost to have efficiency in factories.

Finally, partnership between government and industry is very important for us to build strength. Personally, I have played quite a big role in working with Defra as well as BEIS to look at an industrial strategy right across the food group. That was mentioned and highlighted in the industrial strategy before Christmas. That is important for food and drink to be able to look to our productivity in the UK. We want nutritious, sustainable food with the best talent and the best R&D capability to produce the best quality product. Therefore, with the formation of the Food Council we are positive about what we can do right across the food chain in close collaboration with government. Those would be my four key concerns on the impact.

Mr Leigh Pomlett: In some ways, I have a similar list from a freight industry perspective. We too are very concerned about skills and the people we need in the industry. To give you some numbers, there are 400,000 heavy goods vehicle drivers in the UK, but 40,000 of those are non-EU nationals, so we are looking at 10% to 11%.

The Chairman: Do they require UK certification, or do they just come in on their own credentials?

Mr Leigh Pomlett: They work here as EU nationals. We are finding that there is a leakage—probably stronger than that, to be honest—of people leaving the industry and going home, which is causing us concerns about provision of truck drivers in the future. This is even worse if you look at the warehouse activity. In the UK and Ireland, 23% of the workforce in warehouses are non-UK nationals.

They are non-UK people. That is one of my primary concerns: to continue to operate supply chains, but with a contracting labour market, which we are having to respond to and react to. It is pretty tough. The other thing that worries me is the borders when we have a huge quantity of trucks operating—400,000 between Ireland and the UK in any one year. It is 4 million across or under the channel every year. If we have border controls that stop or slow the flow of material that will be a major concern, particularly when you are talking about just-in-time industries or perishable goods. Do not underestimate the problems of slowing vehicles down or checking them. Now it takes two minutes; it could take 20 or more. The implications of that are very significant for our ports and industry. I need to make that point very clearly. Similarly, we have regulatory issues. We want to make sure that the drivers who are qualified to drive in the UK can drive in Europe post Brexit.

My final point is on the time we have left. In our industry we will have to train an awful lot of people on how to manage cross-border traffic and customs. We do that. We have people with those skills, but we are going to need considerably more. So are the Government. We are very concerned about that. I said before that it takes me longer to negotiate a commercial logistics contract of a global nature than we have left before we leave the EU.

Mr James Hookham: To build on the reasons why those delays and disruptions might occur, in the context of trade with Ireland nearly all the traffic passes between the two nations across the Irish Sea on roll-on roll-off ferry services, where the vehicles are carried on the vessels themselves. The levels of trade that have grown between the two countries is such that the introduction of border checks at the ports simply could not be accommodated in the physical space available. For ports that have a relatively small area, such as Holyhead and south Wales ports, but even the port of Liverpool, there simply is not the physical space for customs or border controls to be conducted. Because of that there will be congestion. Vessels will not disembark their vehicles as quickly as they would now. This would compound to disrupt services and cause delays in clearance. As a result, the timing of deliveries, the stockholdings in particular countries to ensure that production lines continue and so on will need to be, and indeed are being, rethought in anticipation of some of these delays. In trying to help our members through as many of those new issues as possible, we need urgent clarification from the Government on a number of factors, which I will be pleased to explain.

The Chairman: Thank you. I have two areas to follow up briefly. One is the problems of freight handling and frontiers. I have seen a bit of comment in the press, as I am sure you have, about potential difficulties, more typically in Dover than Holyhead. If you have done any iterations on this—I do not mean at great length—and you have any papers you want to share with us as a Committee we can pass them on to colleagues. It would be useful to get a scale of the picture. I hope you are also making sure that the Government are aware at least of how you see it.

I then turn to Fiona from the manufacturing side. I have a micro point that is not intended to be a fast ball. You were saying that the regulatory regime for your products sold in the Republic of Ireland is exactly the same as in the United Kingdom. One thing that is different is the currency. Presumably it is down to the retailer to price, or put a sticker on or any offers they want, and it is not an issue that concerns you as a manufacturer. I just want to clarify that.

Dame Fiona Kendrick: Pricing is obviously for retailers. They have responsibility for pricing, as you rightly said. Our position is to supply them with the products. You are referring to price-marked packs, if you like, where the price is on that. Where that is done we will come to an agreement. It would be very much the retailer’s decision to decide on that pricing point. The mechanism of having a different currency there is obviously an issue we have to deal with on a daily basis.

The Chairman: But at least with your own cost structure you know exactly what you are putting in. My second question possibly would come out, but I think it needs drawing out at an early stage. It is a question of economies of scale. It would be fair and not disrespectful at all to the southern Irish market to say that, by itself, it would not add massively to your economies of scale in the absence of a European market. Looking at the Brexit picture slightly outside the debate about Ireland—one reads of another food manufacturer having problems keeping the scale up in Norwich, for example—how important is it for you to see your plant, which is primarily in the UK but I think you said there was one case in southern Ireland, supplying to the whole of the European market? If that were interrupted, would it grossly affect the economies of carrying on your production and manufacturing activity in the UK?

Dame Fiona Kendrick: Yes, I understand your question. Clearly, as a multinational and as part of a region, our investment has been very much focused on factories that would be centres of excellence that will produce for both the domestic market and the Republic of Ireland, but will also produce for Europe. We export some £375 million per year, the bulk of which—more than 70%—goes into Europe. That is a very important part of Nestlé’s decision-making criteria for where to invest. We have some very large factories that will often produce for up to 70 different countries. It is very important, therefore, that the regulatory framework is aligned and converges; otherwise, it can add cost into the business.

Q10 Baroness Brown of Cambridge: Can I take you back to the question of the Irish border? You started telling us what some of the challenges will potentially be when we leave the EU. Can you paint us a picture of what it is like now, so we have a baseline for thinking about what it might be like? It would be useful if you could explain the current situation for the process of cross-border operations and movement of goods, both UK to Ireland, so east-west, and within the island of Ireland, so north-south. I would be interested in that for your individual businesses and for freight transport as a whole. Indeed, I think you already started to touch on the scale of those operations. It would be interesting to hear more about that if you have some numbers. If you do not have numbers, it would be helpful if you could write to us. I will start with Fiona for Nestlé specifically, then perhaps we can pick up on the freight transport sector more broadly.

Dame Fiona Kendrick: To give you some precise numbers, we move 22,000 tonnes of Nestlé products into the Republic of Ireland. Some 82% of that is manufactured here in the UK, with the remainder coming in from Europe. That gives you a sense of the size of it.

Baroness Armstrong of Hill Top: Is that per year?

Dame Fiona Kendrick: Yes, it is in a year. One hundred per cent of what we produce for the Irish market is transported from the UK, whether it is made here in the UK in the Nestlé factories or it comes in from elsewhere in Europe. We have about 2,500 trucks or so crossing the Irish Sea each year into the port of Dublin.

It is important to note that we do not routinely move our trucks across the north/south border – we distribute either into Dublin or into Belfast from Britain. For the most part we distribute directly to the customer. Then it is very often the customer—you know the customers as well as I do—who will truck the products across the border.

We only have limited warehouse capacity in Ireland. That is pretty typical. We go direct to the customer, whereas we do have more extensive distribution centres in the EU. If there were a delay moving it across, it would have a big direct impact on our customers in Ireland, but less so in the EU because you could have a buffer within the warehousing system and the distribution system that you have in Europe. For Ireland it is predominantly direct over to the customer. Just-in-time is how we manage our business, on a very efficient and regular basis. Retailers do not want to carry excess stock in the context of the importance of working capital today. That gives you an idea of what we do, direct into the north and into the south. From Nestlé’s perspective, nothing of ours moves over the border.

Baroness Brown of Cambridge: On the process and any necessary tracking, paperwork or anything electronic, is there none, or it is all done remotely?

Dame Fiona Kendrick: It is all done remotely. It is frictionless and very efficient. It goes straight through.

The Chairman: What is the FTA’s point on this?

Mr Leigh Pomlett: Transport and trade between the UK and Ireland are seamless now. There is no administrative burden here. Traffic just flows. There are 200,000 movements a year across the Irish border. That is quite a big number, but the interesting thing about that border is that there are so many crossing points. There are more crossing points along the Irish border than there are in Europe. It is like a colander. To manage that would be hugely complex. For the traffic flowing between the UK and the island of Ireland, you are looking at 400,000 movements per annum of roll-on roll-off heavy goods vehicles. It is quite a lot. It is about 10% of what goes under or over the channel, to give you some sense of the metrics we are talking about. At the moment it is seamless.

The particular concern I have about Ireland is that we often use the phrase “land bridge”, which is important because if you are manufacturing in Ireland, you transport goods through Great Britain into continental Europe. It currently makes no sense to operate out of Dublin and go straight to Zeebrugge because it takes far too long. It is much quicker to come through the land bridge of Great Britain. The issue there is that you will have to cross the border twice. Therefore, you will have double delays. I described the very complex environment of the Irish border as almost colander-like, with flows that might be disrupted twice and the land bridge which is the UK, which means that the Irish can get to European markets a lot faster than they can directly from an Irish port to Zeebrugge. That is what we are trying to manage and navigate our way through.

Mr James Hookham: I will give you some examples on that.

Baroness Brown of Cambridge: I am trying to focus on what it is like now, because my colleague Lord Whitty will follow up with a question on what the challenges might be in the future, so do not pinch all his lines.

Mr James Hookham: We heard it described as frictionless and seamless. My offer is that it is boring, because nothing happens beyond the physical movement of the goods. Clearly there are opportunities for customs agencies and other enforcement staff on both sides of the border, in both jurisdictions, to make targeted and unannounced inspections, normally based on intelligence. There is not a routine processing.

Baroness Brown of Cambridge: How often does that happen?

Mr James Hookham: It is largely intelligence led. It is random. You would need to ask HMRC. Other checks are performed on vehicles and so on, but largely a vehicle operator or their driver would turn up at Holyhead, get on to a ferry and expect an unimpeded journey. His or her ferry would be timed to arrive at Dublin at about 6 am, giving time to get to stores in Dublin in time for opening. It is a very well-oiled machine.

Baroness Brown of Cambridge: That is just-in-time, then?

Mr James Hookham: It is indeed.

The Chairman: So it does not have an uncertainty factor? Things can always go wrong—they could have a puncture—but broadly speaking, if you set off in Belfast at a certain time you will turn up in Dublin at a certain time. If there is a delay, it will not be a regulatory delay.

Mr James Hookham: We would stock for that day’s sale or a few days’ sale. At the moment, you are not supplying a warehousing inventory that is then called off.

Lord Teverson: I used to operate a distribution centre for Sainsbury’s, so I should know the answer to some of these things. I was fascinated that Nestlé divides north and south and you do not cross the border. Is that because it does not make sense logistically, in that all your delivery points into distribution centres in the north are closer to ports, or is there some deeper reason that we need to understand?

Dame Fiona Kendrick: There is no deeper reason. It just makes sense for us. You have different currencies and invoicing systems, so it is much easier for us to go into Dublin and then directly to our customers, or into Belfast to our customers.

Lord Teverson: What is the currency issue over there in terms of delivery? I do not understand that.

Dame Fiona Kendrick: There is not a direct currency issue, but we operate the Republic of Ireland directly through Dublin. With the way that customers are set out through the Republic of Ireland, it makes sense for us to go directly through Dublin to them. That is the way we have done it. Our logistics team has spent many hours analysing this. It is working with the customers the way they prefer it and the way we believe to be the most efficient.

Lord Teverson: I would get them to look at it again. Coming back to a point from the FTA, at the moment there is clearly no issue about individual drivers going across all these borders because they have a right to work and everything else. When that stops—this is what I should know, but I do not—is there a convention that a driver, because they are employed in one country, can take a vehicle right the way through others anyway, so it does not matter, or does that then become a problem later? For instance, say within Ireland there is a Czech driver employed by a Dublin distribution company having to deliver into Northern Ireland and maybe do some other work while he or she is there. Would that become a problem after Brexit, or is it covered by international conventions on transport?

Mr Leigh Pomlett: It could be a problem because there is a lack of clarity on it. I do not know the answer to that question. I am looking for clarity to find that out. We are concerned that would become an issue, but we do not know at this stage whether it would.

Mr James Hookham: At the moment it is not an issue because in the single market there is mutual recognition of driving qualifications obtained in another member state. They are recognised without question.

Lord Teverson: I get that the qualification side is not a problem.

Mr James Hookham: That is a product of the single market. When we were told that the country would be leaving the single market, that was one of many mutual recognition aspects that were going to be brought into doubt. Very high on our list of priorities for the Government is to re-agree that, possibly through an international convention. Even when we have properly declared goods in the back of the vehicle, there is also a separate issue about recognition of driving licenses – governed by the Vienna Convention – and the issue of permits to drive the vehicle across the border. Even if that is all sorted out, the driver should not be prevented from travelling with the vehicle because, for some reason, there is failure to recognise the legitimacy of the driving qualification that he carries.

The Chairman: That is a really helpful area. It would be useful if you could revisit it with a bit of correspondence later on. As I would say in general, this is a living conversation. As and when things develop in the negotiations, we would like to hear about them. If I may cut Lord Teverson rather short on that fascinating inquiry, on which I need the answers myself, I will ask Lord Whitty to come in with the other side of the question.

Lord Teverson: Not to prolong this in any way, this is not just about recognition of the qualification, which I understand is fundamental; it is all about what work you are allowed to do. Is it just driving? I am thinking particularly about the cross-border thing in Ireland, where you have non-Irish EU citizens doing work in Northern Ireland and how that would work out.

The Chairman: Thank you, that is fine.

Q11 Lord Whitty: We have already strayed into the non-boring scenario, but it is the case that the Government have said we are leaving the single market and the customs union. You have touched on some of the implications of that for Irish trade. Could you be a bit more explicit about what you think will happen, first on the north-south border, and secondly on east-west trade, both bilateral and trade of Irish goods through Britain into Europe?

Mr James Hookham: Leaving the customs union implies the creation of a customs border where one does not exist at the moment. Regardless of the outcome of trade discussions, that will require individual consignments to be declared to the respective customs agencies. That will require traders to make submissions that they do not have to at the moment. That is a new learning curve for many businesses, particularly those that trade solely with the EU. It imposes quite an additional burden on HMRC to reconfigure its declaration systems to cope with some 300 million declarations that will arise post Brexit. It requires possible payment of tariffs, which are not paid at the moment.

Lord Whitty: Leaving aside tariffs, even if we had a free trade agreement with nil tariffs, there is still this administrative side.

Mr James Hookham: Yes, as we understand it. The advice we give to our members at the moment is that preparing for some kind of customs declaration to be made is one of the few reliable positions that they can make, given the declaration of intention to leave the customs union. The single market provides for the mutual recognition of standards, which is particularly relevant in the food sector for hygiene, phytosanitary and so on. It is not that those checks do not currently take place, but they take place in the background, often at the point of manufacture or at the point of dispatch. Unless some other arrangement is negotiated in the course of the trade discussions, all those checks will move to the border and will be carried out within the port area in a very conventional sense. As you said, it will become very unboring simply because very few of those facilities exist. They will need to be established.

Lord Whitty: There has been a lot of talk relating to trade with the continent and trade with Ireland to resolve these issues by prior electronic means or by facilities away from the border or the port. What is your view from the freight side?

Mr Leigh Pomlett: I agree. Technology will have to play its part here. Clearing customs away from ports will be important. The FTA has given thought and responsibility towards this. We worked out 10 ways, given that there will be customs and friction of some sort, of how to manage that. We have given that some thought. We have a 10-point proposal to manage that. We do not have the time to go through that now, but it exists, and we have spoken to various Ministers about it.

The Chairman: It would be useful to correspond on that. I am cutting this bit slightly short in order that we can ask all the questions. Looking at the longer-term economic implications, if the Republic of Ireland is a member of the EU and we are not, whatever the regulatory regime, Great Britain is, as you yourself have said, a land bridge to the south of Ireland. Will that be inhibited or constrained by regulatory pressures? Will people just say, if they are starting in Le Havre, “It’s more difficult, so we’ll have to ship it across rather than going through the UK”?

Mr Leigh Pomlett: I can see that happening. The pragmatist in me would avoid all this confusion and go direct from Dublin to Zeebrugge or Dunkirk. If I were an Irish shipping line I would be quite excited, but it would mean that the supply chains and the manufacturing processes would have to be re-engineered because you would be building quite a long delay, uncertainty and unreliability into the supply chain.

Lord Whitty: Bearing in mind that the major export from the Republic of Ireland is actually food and drink, there is an important element there of freshness and just-in-time.

Dame Fiona Kendrick: I want to reinforce what James said about the sanitary and veterinary inspection taking place back at the point of production. That is important so that we have as frictionless a border as possible, because when you are talking about fresh produce and limited stock sitting in retailers’ distribution points it is paramount to understand the movement of that and the potential for wastage and further costs. The more that that can be done back at the point of production as opposed to at the border, the easier it will be for those products to move through with ease.

The Chairman: That is very helpful.

Q12 Baroness Neville-Rolfe: Your practical answers are really helpful. My question may well be another one on which you want to write to us. I am interested in the different border arrangements that exist. First you have the UK and Irish border, which we have talked a lot about; secondly, you have the border between the UK and continental Europe; thirdly, there is the flow of traffic, which for a global company will be important, across the EU itself—for example, across the Schengen and non-Schengen countries, where there is border traffic regulation; and, fourthly, the external border, where there is quite a lot of flow—for example, between Norway and Sweden, as we heard earlier today; between eastern Europe and Ukraine; with Turkey; and between the EU and Switzerland. My question is: what are the distinctive arrangements for the free movement of goods but also, because you have brought it out so well, the movement of the drivers, rules on phytosanitary and things like insurance? I do not know whether that is something you can say in a general way, but it would be really helpful if you were able to share with us some information on that because we are looking to understand what will happen in future, and we are looking for good practice on things like the external border so that we can factor those in and perhaps give advice to the Government that might help to solve problems on the Irish border.

Mr James Hookham: Anything is possible in the fullness of time. Our proposals that we have referred to are well within the capabilities of technology. Provided that there is a will, the necessary funding and reciprocal investment on the other side of the border, some of the inevitabilities of a hard-Brexit border could be ameliorated by technology. Some really important measures have to be taken to keep goods flowing. We have mentioned drivers, which, hopefully, are a mere administrative consideration. The other issue that I will happily tell you about is that there is no right to the automatic movement of goods vehicles across borders. Prior to the creation of the single market in 1993, they were regulated by bilateral or multilateral quotas. In the absence of any other agreements that is what the country will revert to on the day of Brexit. The only scheme available by default is the ECMT multilateral scheme. The current number of quotas under ECMT covers approximately 3% of the current level of movements between the UK and the EU, and is clearly inadequate. Some other means of permitting goods vehicles to cross the UK/EU border in both directions and deliver the goods one way or another needs to be found, because that could be a bigger impediment to trade than the customs issues that we have spoken about already.

The Chairman: I think we will get Baroness Wilcox to follow up this train of thought. In a sense, all these questions are heading in the same direction.

Q13 Baroness Wilcox: Obviously, you have answered in part on the technology-based solutions but, to take us a little further down the page, I shall take one or two other things that we would like answers to. Waivers from security and safety declarations, cross-border trade exemptions benefiting primarily smaller local traders, streamlined processes for other trusted traders and the tracking of imports to the UK: how logistically feasible are these proposals?

The Chairman: Because this was slightly truncated or overlaid, it is worth pointing out that these were in the UK Government’s position paper on Northern Ireland and Ireland.

Mr Leigh Pomlett: They are all feasible. My concern is timescale.

The Chairman: Do you mean timescale of implementation rather than of operation?

Mr Leigh Pomlett: Yes. As it is, I currently cannot envisage us being able to deliver in the timescale that we are talking about. The technology that exists for Norway/Sweden is fine, but we are talking about volumes that blow that apart. Their technological solutions might have some capability, but I would not necessarily assume that at this stage because we are talking about vast volumes here, whereas in Norway and Sweden we are not. How do you cope with the sheer volume of transactions crossing these borders? Technology would have to play its part. My concern would be the sheer time that it would take to implement.

Baroness Wilcox: I have been in business a long time and lived and worked in Ireland for a long time, and I know it is amazing what you can get through over there in the most awful conditions, so I am much more likely to ask you, “Well, can’t you give us the positive action that you would take to keep the business going?”. After all, what are you going to do—leave Ireland?

Mr Leigh Pomlett: No. As I mentioned, we do not have the time, but we have the 10 action points that I referred to, although I cannot give the details, about how we would cope with that situation. My comments were more broadly about how you deal with Brexit on that side of Ireland where the complexities and volumes are huge to contemplate. James referred to the fact that we do about 55 million customs clearances at the moment, which would go up to 250 million to 300 million. That is the quantum that concerns me, with—how much time do we have left?

Mr James Hookham: Two hundred and forty-three days, or something like that.

Dame Fiona Kendrick: I am a bit more positive, I have to say. I believe the players in the negotiation are determined to try to find a solution here. We are quite confident that a solution that can be found, although we do not know whether that is a technological solution that will fully meet the customs processes. Frankly, though, time is definitely becoming a big issue across the whole Brexit piece.

The Chairman: Time for negotiating?

Dame Fiona Kendrick: Time in negotiating and then beyond that, when we finally know what we are negotiating against, the time we have through the transition period to plan in some detail. However, it is not just about time; it is about investment, physical infrastructure and—I come back to this—people with the right skills. We will need people for this. I keep talking about talent, but it is paramount here. On a practical note—I am a practical person; we need to find some solutions around this—one of the ways in which we are helping to mitigate the risk, although this will not sort it all out, is that we are considering the merits of applying right across our business for authorised economic operator status for customs and security checks. That may well be one thing that you could put forward now for companies to do. It would not mitigate all delays by any means—for example, for sanitary and veterinary checks—but it would help. Smaller companies thinking about this need some practical help in terms of what they can do today to mitigate against that.

The Chairman: I notice the FTA nodding at that.

Mr Leigh Pomlett: Absolutely. We are an authorised economic operator. Ensuring that this status is recognised by both the UK and the EU through a mutual recognition agreement is one of the 10 points that I referred to. That would help with a lot of these issues. However, there will be hundreds of thousands of businesses wanting to get that recognition in a very short space of time. Today it takes about a year or more to get it, but when you have tens of thousands of companies looking to get that recognition very quickly, I am trying to communicate that that is going to take some managing.

The Chairman: I think the word is “challenging”.

Dame Fiona Kendrick: FDF, of which I was president, has 6,500 members relating to food and drink—that is the sheer size of it—and 96% of those are SMEs. It is important that we help those smaller companies by giving them some practical help if, as many of them are, they are exporting over to the Republic of Ireland.

The Chairman: I see pretty strong assent from the witness table on that area, so it is clearly one of interest to the Committee. I think we might move on to Lord Selkirk, who wants to ask specifically about sanitary and phytosanitary controls and perishable foods.

Q14 Lord Selkirk of Douglas: I would like to ask two questions. First, is the suggestion in the Government’s paper that sanitary controls and checks can be avoided through an agreement on regulatory equivalence for agri-food realistic? What would be the impact on your industry if such checks and controls became necessary? The other question relates to north-south co-operation. The Government has stated that “North-South cooperation on agriculture has enabled the island of Ireland to be treated in policy and operational terms as a single epidemiological unit for the purposes of animal health and welfare.” How significant is this in terms of identifying a solution to these issues?

The Chairman: Who would like to start on that?

Mr Leigh Pomlett: I would not.

Dame Fiona Kendrick: Maybe I will. We would welcome some regulatory equivalence or alignment on agri-food products so that food and drink could continue to cross the UK/EU and UK/Ireland border without the many additional sanitary and veterinary checks that are in place between the EU and third countries. If alignment were not achieved, as we have said, that would add significant logistical challenges and costs. I have mentioned food waste as well as delays and spoilage. I cannot reinforce how important having regulatory convergence will be, wherever possible, if we are going to try to ease that movement of products freely across those borders. It is clear that the Government have made this a priority in the negotiations. We believe this needs to remain at the top of the negotiations because it is so crucial for our food and drink products to be able to move.

The Chairman: I would have thought that the two salient points about the Irish situation were, first, that it is hugely important across the island and, secondly, that by definition these goods are highly perishable. It is possibly a subsidiary point that they are often handled by relatively small units of production, at any rate, if not of manufacture. I think that is well understood by the Committee, and we are very grateful to you for clarifying it.

Q15 Baroness Armstrong of Hill Top: I want to ask about the implications of the agreement that the Government reached with the EU to conclude phase 1 of the negotiations. What implications do you think the agreement on the Irish border and so on, or at least the statements on it, have for your business? You have already seen the questions and I wonder whether you think the last one is too political for you, but we would appreciate any views that you might have on the implications of the agreement for business and whether, given that the Government have said they intend to develop specific solutions to address the unique circumstances of the island of Ireland, you have any views on such solutions, short of continued UK-EU regulatory alignment.

Mr James Hookham: I am happy to start on that one. Based on the statements made in December, as an adviser to my members on business I am certainly not confident in giving them advice on what they should start to do. We welcome the intention to try to resolve some of the issues, but at this point I do not think there is a confident picture about what will happen regarding the north/south border or indeed the Republic/GB border. That still needs to be clarified in the quite granular terms we discussed earlier. I am afraid it comes down to customs declarations, vehicle permits and drivers’ licenses; those are the realities of the way the trade flows. We have a clear checklist of the things that need to be covered. Our fear is that, in the very broad spectrum of issues that need to be debated, some of the issues around supply-chain continuity will be lost, and a failure to address them will manifest as an interruption of supplies on day one. It is therefore important that the Government are aware what is at stake if they fail to do this. Regarding the other deeper, much more political issues at stake at the Northern Ireland/Republic border, our simple reaction is that we will abide by it, and advise our members to do the same, with whatever formalities emerge from that agreement. We await that outcome in order to be able to understand what to do.

Baroness Armstrong of Hill Top: It would be easier if we remained in the customs union or the single market.

Mr James Hookham: The example given about recognising the phytosanitary or sanitary controls is of course a statement of what happens now—that is why the single market works. However, it is perhaps a good example of what could be renegotiated back in, having removed the country from the mechanics of the single market and the customs union. Provided that the checks performed by UK agencies continue to be recognised by EU agencies as legitimate and meeting the required standards, the current background enforcement of standards—not just food hygiene but many other conformity standards—could in theory continue. As we have said, this is taking place in the background at that point of production, not in the very congested port areas at the border.

Dame Fiona Kendrick: First, we really welcome the progress made at the end of last year and that the negotiations can now move on to phase 2, focusing on the future relationship. What is important for us now is the speed with which we move on to the next stage, because we need to understand the detail so we can go into contingency planning in some level of detail during the transition period, which we obviously welcome. What is important for us is the competitiveness of British business. We need to maintain that competitiveness, so understanding as quickly as possible the final detail of those negotiations to allow us to plan effectively will be crucial.

If I may broaden the discussion beyond the issues of Ireland and the border, we are looking across every aspect of what Brexit will mean for Nestlé. We have some understanding of tariffs and those things and the costs relating to that. I would be very happy to share those on a confidential note with the Committee so you have some better understanding right across all aspects of what may pertain when we look at Brexit in its broadest sense. Clearly, that includes regulation, tariffs, people et cetera.

The Chairman: We will of course respect that confidence. We would be very grateful. I do not want to trespass on your generosity, but one point occurs to me. Given that you historically have a Swiss base, as I understand it, do you have any perspectives about life outside the EU, but close to the EU physically? I was almost going to say of an anecdotal nature. How, at main board level, do you wake up in the morning to decide how to deal with that situation, where you allocate your resources and so forth? I am not asking for anecdotes or, indeed, commercial secrets. Any flavour that you can give us would be helpful.

Dame Fiona Kendrick: I will do that in a confidential note.

The Chairman: I appreciate that. Any further comments?

Mr Leigh Pomlett: I too welcomed what was agreed before Christmas, but it did not alter the practical advice we were giving to our members and the actions we are taking at this stage, because we need more clarity around it. I go back to a point I was making earlier on. There was a welcome statement on citizens’ rights, but we are losing drivers and warehouse people. That is the fact. We may be making these people feel extremely welcome, but they might not feel as welcome as we want them to feel. The fact of the matter is that other countries could do with those people back. I ran a lot of Polish operations, for example. They need those people. We are in a competitive world now, so far as this is concerned.

The Chairman: Thank you. That gives some light and shade.

Lord Whitty: I have two points. One arose from the discussion we had with the previous witnesses. What would happen if, for example, the phytosanitary arrangements in Northern Ireland and southern Ireland were the same but they were different in the UK? My second point is on the transition. It now looks as if we are going to have a two-year transition period—well, between 21 and 24 months—when there will be a standstill in regulatory controls. Would that be welcome to you to give the industries you represent more time, or would it increase the uncertainty because there will be two stages of adaptation to the new situation?

Dame Fiona Kendrick: On your first point, as I mentioned earlier, having as much of that checking done at the point of production as possible would ease that whole issue—the product would be produced for wherever it is going and would then go and be a consignment. It would be much better to do that at the point of production as much as possible.

Your second point is obviously on the timeline. In an ideal world, we would want the regulations to lift and shift over. That would be an ideal world; we wait to see whether that is what will happen. Importantly, having that transition period and knowing what the detail of the negotiations have been will allow businesses to do the very detailed planning they need to do to be effective from the date it becomes effective, 21 to 22 months further on. We welcome that transition period, but clearly we need to see as soon as possible the base we will be doing all the planning against. That quite clearly will be in the next 15 months.

Mr Leigh Pomlett: I would give exactly the same answer from the freight perspective.

The Chairman: On that note we conclude this session, but I would be churlish if I did not record our huge thanks to you. It is very healthy for this Committee, which often deals sometimes at the more rarefied level. We have not had a banal discussion but a very practical one about some of the impacts on the manufacturing industry and how what is produced can be moved around and made available to consumers in a way that is convenient and not disruptive to overall trade, let alone the political implications for the island of Ireland that we were considering earlier. Apart from expressing our thanks—and thanks to my colleagues for their forbearance in getting through this in reasonable time—as I said at the beginning as far as I am concerned this is a living dialogue. If there is further development or thought on your side, either in practical solutions to the problems identified, or upcoming or ongoing problems, we would like to hear about them. We are very grateful for your time, which is scarce. We appreciate that. Please let us keep in touch. I formally close the session.