Public Accounts Committee
Oral evidence: Brexit and the UK border: further progress review, HC 1942
Wednesday 13 February 2019
Ordered by the House of Commons to be published on 13 February 2019.
Members present: Meg Hillier (Chair); Sir Geoffrey Clifton-Brown; Chris Davies; Chris Evans; Caroline Flint; Nigel Mills; Layla Moran; Stephen Morgan; Anne Marie Morris; Lee Rowley.
Sir Amyas Morse, Comptroller and Auditor General, Adrian Jenner, Director of Parliamentary Relations, National Audit Office, Jonny Mood, Audit Manager, NAO, Keith Davis, Director, NAO, and Marius Gallaher, Alternate Treasury Officer of Accounts, were in attendance.
Questions 1-234
Witnesses
I: Bernadette Kelly, Permanent Secretary, Department for Transport, Lucy Chadwick, Director General, DFT, and Clare Moriarty, Permanent Secretary, Department for Environment, Food and Rural Affairs.
Written evidence from witnesses:
– [Add names of witnesses and hyperlink to submissions]
Witnesses: Bernadette Kelly, Lucy Chadwick and Clare Moriarty.
Q1 Chair: Welcome to the Public Accounts Committee on Wednesday 13 February 2019. We have a busy session today, talking to both the Department for Transport and DEFRA about their preparations for Brexit, so there are areas we have picked up on before—and thank you particularly for your responses on the Treasury minutes and so on. We are looking at those issues in general, but we will kick off, as you might expect, Ms Kelly, with the issue of the Seaborne ferry contract and particularly the NAO’s very helpful memorandum, which pulls together the information that they were able to extract from the Department on this. Obviously, that is part of the bigger picture about overall preparedness for Brexit. Both your Departments are quite intertwined, in that the Department for Transport’s preparations have a major impact, potentially, on DEFRA’s preparations and vice versa, which is why you are both in front of us today.
I will introduce our witnesses. We have, from my left to right, Clare Moriarty, permanent secretary at the Department for Environment, Food and Rural Affairs—she is a regular visitor here; welcome back, Ms Moriarty—Bernadette Kelly, permanent secretary at the Department for Transport—welcome back to you—and Lucy Chadwick, one of the directors general at the Department for Transport. Could I just check, Ms Chadwick, what your exact responsibilities are, because “director general” is a general term?
Lucy Chadwick: My job title is Director General of International, Security and Environment, and “International” covers aviation, maritime and, actually, much of our Brexit and international negotiations.
Chair: That explains to everybody why Ms Chadwick in particular is here. I am going to ask Ms Moran to kick off on the Seaborne issue.
Q2 Layla Moran: This question is to Ms Kelly. Why did you wait until September of last year to press the button on seriously considering no deal?
Bernadette Kelly: I don’t think we did wait until September to press the button on seriously thinking about no deal. I think quite a lot of the workstreams that we have had in play have been in play for a lot longer than that, and many of them are addressing some of the challenges of no deal as well as the challenges of a deal, so I don’t quite recognise the characterisation of us only thinking about this in September. I would say our preparations stretch back a lot further.
Chair: I think Ms Moran was talking about the ferries.
Layla Moran: Well, the ferries in particular.
Bernadette Kelly: Oh right; okay. On the issue of freight capacity in particular, I would say, first, that we had been thinking about it for a period of some months, actually, as a potential—
Q3 Layla Moran: How many months?
Bernadette Kelly: Certainly through the summer, we had been talking to the industry, keeping in touch. I think what crystallised our thinking into the need to develop a suite of possible Government interventions was probably three things. The first was the general decision across Government in the summer of 2018 to step up no-deal planning. That was a conscious and particular moment, I guess, for my Department as for others, when we absolutely were part of that broader effort in terms of refocusing our efforts on no deal alongside our deal planning.
I think the second thing is that we were observing two things happening through our communications with the industry and more widely. One was that we could not see at that point evidence that, on the French side of the border, the authorities were starting to take seriously their own no-deal planning, if I can put it that way, in terms of thinking about the kind of systems and infrastructure you would need to put in place, in particular at Calais, to ensure the free flow of goods. That led us in turn to rethink some of our planning assumptions around the extent of disruption that we might expect to see in a reasonable worst-case scenario.
At that point, as I say, as we saw what was happening on the ground or not happening, we thought hard about the evidence in front of us. We also thought very, very hard about what that meant for what assumptions we should now be working towards. At that point—I think the NAO Report identifies this—we took a decision following very intensive cross-Government discussion. Ms Chadwick can describe in more detail, if needed, how we went about that modelling, but it was a cross-Government effort in the end and decision that we should contemplate and be preparing for as much as six months of disruption, as opposed to the previous assumption, which was six weeks. So that was the second important trigger.
The third thing I would point to, which I think also crystallised our thinking and the need for action, was that we had been watching to see how the market was assessing the situation and the extent to which there might be, as it were, a natural market response coming from both the freight industry and users.
Chair: That is detailed in the memorandum.
Bernadette Kelly: Those three things, essentially, brought us to the point in September where we thought, “Right.” We had been monitoring the situation and thinking about what might be needed. At that point, we concluded that we at least needed to present options for a more direct intervention.
Q4 Layla Moran: When it came to the contract itself, you decided to use the negotiated procedure, which meant that you were talking about “events unforeseen by the contracting authority”. Are you seriously saying that some kind of market reaction to no deal, you being intimately involved, as you have said a couple of times, in the Government decision to step up planning for no deal and waiting for the French to do something first were all things that you absolutely could not foresee?
Bernadette Kelly: There were two conditions under the procedure that we used. One was extreme urgency. We had absolutely concluded, by the time we had got to the point where we could enter into a procurement process and a contracting process—we knew, given the lead times for this capacity to be provided, that we did now need to act with extreme urgency.
Q5 Layla Moran: Did you not have those lead times before? Were you just unaware, or was it that you had not appreciated that—I am trying to understand. Did you not know that the lead times—
Bernadette Kelly: We absolutely knew what the lead times were. All I am doing is tracking back to a number of triggers in September that caused us to need to revise and accelerate our plans. We then went through an accelerated process, I would say, to define options, to develop a business case, to secure collective agreement for the sorts of actions that we might take and then to carry out a procurement process and contract.
Q6 Layla Moran: I will ask my question again. My question was: did you not see this coming? Because we did. As politicians, we were talking about this long before the summer and then during the summer. Did you not see it coming? This is the core of the issue. The legal advice in terms of whether or not you should have used the negotiated procedure surely hangs on those words: did you foresee it or not?
Bernadette Kelly: Obviously, we knew the prospect of no deal existed much earlier than that. The issue was the collective decision of Government to focus and step up its efforts in response to that. But also, what I don’t think we could have seen—and what I suspect others, also, would not have seen—was the practical responses on the ground, by which I mean what the French were doing and what was happening in the market. We were monitoring those things extremely closely. We could have foreseen that those responses would be different; they were not in practice, so I think what we could not foresee was exactly how the French would respond and how the market was responding. It was at the point at which we realised what those responses looked like that we concluded that we absolutely now needed to—
Q7 Chair: Were you talking to them? How were you engaging with the market before September?
Bernadette Kelly: We engage—we have a maritime directorate; Ms Chadwick is the director general responsible for it. We have a long-standing relationship with the sector.
Q8 Chair: So you were talking to them. So was it really a surprise when you went out to test the market and found that there was a lack of confidence in the UK and they would not be willing to bid? Was that actually a surprise in September?
Bernadette Kelly: Well, this is a market that typically operates without Government intervention and therefore one might reasonably assume that actors in this market—
Q9 Chair: No, I’m asking: did you get any indication—perhaps Ms Chadwick can answer—from the market that they were losing confidence in the UK market because, as the NAO memorandum lays out, of the approach towards getting a deal on exit, or the fact that the deal on exit had not been agreed?
Lucy Chadwick: I think we are talking about different points in time, aren’t we? The market was expecting a degree of confidence in terms of action from the French at the point in September that I think your colleague is referring to. At the moment at which we went out to the market, the market was moving, and we were picking that up. It moved very rapidly and very quickly and—
Q10 Chair: What was the timescale for that?
Lucy Chadwick: The moment at which we went out with the procurement—
Q11 Chair: In December.
Lucy Chadwick: In December and prior to that in October and November in terms of the indications from the market that interest in doing this was quite different. But the context in which actually that conversation—
Q12 Chair: So it was, as the NAO say, directly linked to the fact that the deal that the Prime Minister came back with did not give them enough certainty at that point.
Lucy Chadwick: Indeed.
Q13 Layla Moran: In hindsight—well, three bids came forward. Were you disappointed, Ms Kelly, with the number of bids that came forward?
Bernadette Kelly: We had approached nine operators. We might have hoped for more bids; we got three bids in the end. Those were the bids that we had. Clearly, we did approach more operators. We might have hoped to have seen more bids in response to that, but in the end we had to deal with the bids we had.
Q14 Layla Moran: So there were more operators that could have—
Bernadette Kelly: Yes, indeed. I think, again, the NAO Report describes this, but I think we sent our invitation to tender to nine operators—from memory—so we absolutely approached a wide range of operators.
Q15 Layla Moran: And that was the maximum number of operators that you could have—
Bernadette Kelly: What we were looking at was either operators who currently were operating shipping freight or those who reasonably could be expected to do so. So, in that sector, those were the key operators.
Q16 Layla Moran: So that was the maximum number of people. Would you accept, given what was happening with the market—this is a bit chicken-and-egg, but had you started earlier, you could have had more bids that were more competitive.
Bernadette Kelly: Look, with hindsight, I don’t know what might have happened; it’s not possible. I think we acted as rapidly as it was possible for us to do, given the things that caused us to decide to take this intervention, so I’m not sure that “with hindsight” is helpful.
Q17 Chair: Well, can I refer you to page 12 of the NAO Report, where footnote 6 tells us, “The Department initially ran the procurement over the first weekend of December, with a deadline of 3 December”? You informed the NAO that, “because the operators were unfamiliar with government procurement processes, no compliant bids were received.” Then you had to go out again. Even when you did it the first time, nobody who came forward was compliant.
Bernadette Kelly: We knew there was market interest. We had every reason to suppose that—
Q18 Chair: Just to be clear: nobody came forward. Obviously, this is an agreed Report—well, memorandum—so you do not dispute that fact.
Bernadette Kelly: No, I do not dispute the facts of the Report. We approved the Report as factually correct. What we were dealing with, I would say, was a sector and an industry that are not used to contracting with Government and therefore did not find it naturally easy to understand how to be compliant with this sort of process.
Q19 Chair: But that was a surprise to you over that first weekend.
Lucy Chadwick: We had had a lot of discussions with them. We had shared many of the documents. So in terms of what we received back—in terms of none of them—it was, yes. We had had—
Chair: Were you surprised, Ms Chadwick, when none of them were compliant bids that first weekend?
Lucy Chadwick: Yes, because we had had a lot of discussions with them.
Q20 Chair: Does that not perhaps say something about the processes in the Department, that you had given them all the information and they still did not manage to comply?
Lucy Chadwick: No, I think it says something about a market that is not used to contracting with Government.
Q21 Chair: So it is them, not you.
Lucy Chadwick: I am not saying it is either. It is a different—an unusual—market for the Government to step into, and as a result, they are not used to some of those processes. There are other markets where they are used to doing that. I think it was actually more a reflection of that. Understanding that, we attempted everything we could in terms of sharing and bringing them with us. We did not manage it on that first attempt. On the second attempt, in terms of going out, which we did very rapidly afterwards, we did. We actually got three very sensible bids.
Chair: We will talk about the three in a minute.
Q22 Layla Moran: When you went out to the nine companies that you thought could provide it, did you tell them that you were going out to others?
Bernadette Kelly: They will have known that it was a competitive process, absolutely. We will have been explicit.
Q23 Layla Moran: So what was the point of the NDAs?
Chair: The non-disclosure agreements.
Bernadette Kelly: The non-disclosure agreements were dealing with the particular terms and contractual arrangements relating to individual companies. They will have been absolutely crystal clear that this was part of a competitive process—
Chair: Ms Moran’s question was about non-disclosure agreements.
Q24 Layla Moran: I do not understand why non-disclosure agreements were used in this case, when you were going out to every possible person who could bid for it. What is the point of the NDA? It sounds like you are trying to hide it from everyone else to stop them panicking. What is the point of them?
Lucy Chadwick: No, what we were trying not to do at that stage was to send any signals into the market that were not being quite carefully managed. It was a sub-set of the market that we judged to be capable of responding to it; it was not the total market. If you look at the total international market for operators of ferries, there is a much broader market. These were the ones that operate in the UK or had plans to operate in this market.
Q25 Layla Moran: Is that a decision that you had taken yourself, or is that a decision that had been indicated from the cross-departmental co-ordination that you have been doing around no deal?
Lucy Chadwick: I am not going to get into a discussion about broader NDAs in the context of this particular question—
Q26 Layla Moran: No, but I am asking whether you had had a direction from elsewhere in Government to say, “Try to keep this under wraps.”
Lucy Chadwick: No; this was very specific in terms of this particular process. We wanted to manage it. You can imagine the messages it could send and we wanted to manage those in a very careful manner.
Q27 Layla Moran: But why this one and not any other one?
Lucy Chadwick: Because of the timing, particularly around the Prime Minister’s deal here and the vote around all of that.
Q28 Layla Moran: So all the procurement that you were doing around that time in your Department was being done under non-disclosure agreements.
Lucy Chadwick: No, only this particular one.
Layla Moran: But why?
Lucy Chadwick: Because of the timing of this and the particular—
Q29 Layla Moran: So there was no other procurement going on along these lines elsewhere in your Department.
Lucy Chadwick: I am sure there will have been other active procurements that were not managed in that way.
Q30 Layla Moran: So it was only this one, you are saying. I will ask Ms Kelly, because you have the overview of the entire Department. If other procurement was happening at the same time, why would this one—
Bernadette Kelly: We are engaged in procurements all the time relating to our general transport business, which are wholly unconnected with our planning for Brexit.
Q31 Layla Moran: So it is the Brexit ones in particular.
Bernadette Kelly: This obviously had a particular set of sensitivities, as Ms Chadwick has described, relating to our wider handling of Brexit preparations.
Q32 Layla Moran: So it would be correct to say that no other Brexit-related procurement was happening around that time.
Bernadette Kelly: I do not know that, because I have not checked that fact.
Q33 Chair: We know that across Government—Ms Moriarty will probably acknowledge this from her Department—there are non-disclosure agreements around Brexit work. You are saying this was a decision about this contract, but we have also heard—I think from you as well, Ms Kelly—that there are non-disclosure agreements as a result of the sensitivities of managing Brexit. Which is it? Is it your departmental decision, or is it a wider Government decision? We are still a little unclear.
Bernadette Kelly: I would say in this instance, the conduct of this process was one which the Department was managing and taking decisions around. Within that, we would have been taking judgments around the use of non-disclosure agreements, both in terms of commercial sensitivity and wider sensitivity of our Brexit planning.
Q34 Chair: Given that you were all going to nine people and they all knew that they were in a competitive race, what was the point of the non-disclosure agreement?
Bernadette Kelly: It is still the case that a lot of procurement activity that we do is commercially sensitive and is quite often covered by non-disclosure agreements in various forms and shapes.
Q35 Layla Moran: I can understand if you were only going to one specific partner, say. There are further questions about stakeholder management later. When you are going to everyone who could possibly do the service, why not just have an open and transparent procurement process?
Lucy Chadwick: I will repeat: I think this was an extremely sensitive moment, given where we were, actually, with the Prime Minister returning with a deal—
Q36 Chair: So it was sensitive at Government level. It wasn’t sensitive about the letting of this particular contract for some freight. It was more about the Government issues.
Lucy Chadwick: That is correct.
Q37 Caroline Flint: I want to pick up on the answer about the market not being used to contracting with Government. How much did you foresee that as a risk? You said that during the summer you started to rethink the strategy and rethink what might have been an outcome here. Surely that should have been pre-empted if you were doing a proper risk assessment and counting that in.
Bernadette Kelly: During the summer, we had not reached the point at which we would have taken the view as a Department or taken a collective view in Government that we needed to proceed to directly intervene to procure capacity in the market. The conditions had not reached the point that would lead us to that decision. Throughout the process of developing the business case and the optionality—as the NAO Report sets out, we looked at a very wide range of options—we were factoring into that what we understood to be the market’s readiness to engage in this procurement process. I would say that was very much a part of our thinking. As I say, the other thresholds that would have led us to conclude that we needed to actively intervene in this way had simply not been reached until we got into the autumn period.
Q38 Caroline Flint: I know we are going to touch on stakeholder engagement in more detail, but how much were the people responsible for liaising with the companies giving sound advice about the state of negotiations? It appears that there seemed to be a bit of an assumption that a deal was going to be forthcoming, so that maybe led to a certain complacency. I am interested in the guidance during the lead-up to December, or intimations that were given to companies about how big a problem no deal was going to be.
Bernadette Kelly: What we would have been saying to the parties was exactly what was being said publicly. There was no question in my judgment that we would have been asking or expecting departmental officials to be giving a different assessment to the companies. What we were saying to the companies, just as we were saying publicly, was that the Government were now taking their no-deal planning very seriously, that this was a serious set of contingency arrangements and that we were therefore putting into effect the steps needed to deal with that no-deal planning. That is exactly what we would have been saying to the companies. We would not have been giving them a different assessment, not least because I don’t think we were in a position to do so.
Q39 Layla Moran: The hope at the time the original business case was made was that the three contracts that had come in would cover 11%—correct?—of the capacity that would be needed, and the Department was planning to purchase 20% of the additional capacity on the routes. As we know, it ended up being 83% for Brittany and 100% for DFDS and then 50% for Seaborne. Ms Kelly, what is your assessment of why you ended up having to buy so much more than you had initially anticipated?
Bernadette Kelly: I think that is a misreading of the figures. I will try to clarify. At the point at which we developed our business case, before we went to the market, we tested a range of options, but we were looking at the possible costs and so on associated with purchasing capacity up to the equivalent of 25% of the capacity across the short straits. That was the sort of modelling figure that we used in our business case. Then we went out to the market, as the NAO Report describes, and we got back a set of bids. Those bids provided the possibility of up to 11% of capacity in total, of which 8% would be the capacity the Government itself was purchasing and reserving for, as it were, its own use. Actually, what we purchased, or contracted for, was less than the amount that we had set out in our business case, which, as I say, was more of a kind of modelling assumption in the interest of putting together a set of assessments.
Q40 Layla Moran: Is that because your modelling assumption had been that you would get more bids? That is my reading of that.
Bernadette Kelly: Our modelling assumption was that there might have been higher market appetite to enter into this sort of arrangement than in fact proved to be the case.
Q41 Layla Moran: Thank you for that clarification. Have you revised the business case now, after having purchased so much more capacity—
Bernadette Kelly: We have not purchased more; we have purchased less.
Layla Moran: Well no, but has there been any revision of the business case as a result?
Bernadette Kelly: What we were then doing, and what I certainly did in my accounting officer assessment elsewhere, was we were constantly, at various decision points, ensuring that any decision that was taken to proceed with the contracts could still be justified in terms of value for money as well as other aspects of managing public money. While we did not do a full business case revision, from memory, because many of the options in the business case had, by that point, been discounted, we certainly were looking at the potential costs now to Government of the bids on offer versus the benefits that we thought those contracts could secure. So yes, we were constantly revising that and keeping that under review throughout the process as the numbers changed.
Q42 Layla Moran: Moving to Seaborne itself, we see from the Report that there were various aspects of due diligence that were followed. Some were concerning. Why did you award the contract to Seaborne when it was non-compliant with the requirements set out in the invitation to tender?
Bernadette Kelly: In the case of two of the three bids, there were some non-compliances, but they were of an order that we thought enabled us to continue legitimately with a process. It is perhaps worth me saying a little bit in response to the general question of why we would contract with Seaborne.
Chair: We are going to have questions for you on it, so would you give us a quick answer?
Bernadette Kelly: Let me just say a few things, because there has obviously been a lot of media noise about this. It is perhaps helpful to clarify how we viewed it in the Department. First, it is true that Seaborne was a start-up without a proven track record, but it was a known quantity in the industry—a fledgling company that had been seeking to set up a business for some time and had been working with Ramsgate to that end.
Secondly, the business model that Seaborne presented was a plausible one for the industry. The fact that they were planning to lease ships, rather than owning those ships, was not in any way abnormal or remarkable for this industry. There was an industry piece in Lloyd’s List, for example, that described that very thoroughly about that time.
Thirdly, the senior management did have very considerable experience in the sector. Fourthly, we knew that they had some credible backers. Specifically, we knew Arklow was a prospective backer with serious intent. Finally, we did do due diligence and that did not uncover any reason for us to think that this was not a fit and proper entity for us to contract with.
Q43 Layla Moran: How can that be true? For Deloitte—obviously the financial stability could not be assessed at all, because it had not been incorporated until April 2017, but that is a reason, not an excuse for ignoring it. That should have been raising some eyebrows.
Bernadette Kelly: Yes, that was. And by the way, can I just say—it is very important—we did put in place for this contract an exceptional set of milestones, precisely because we knew that it was a start-up, it did not have a proven track record, and the delivery risks were greater around Seaborne than our other two contracting parties. We put in place steps to ensure that we were managing those risks. It was the execution and use of those steps that led us to terminate the contract. We were well aware that it was a start-up that did not have a record, and we put in place conditions to deal with that.
Q44 Chair: You have used very careful words, Ms Kelly. You said that you knew Arklow was a prospective backer with serious intent. Did you have any paperwork to show that Arklow was actually going to be the backer of Seaborne?
Bernadette Kelly: Certainly, during the course of December, we had evidence that confirmed that they were a backer who were intending to work with this company.
Q45 Chair: What evidence?
Bernadette Kelly: They had presented evidence to Seaborne—words to the effect that, “Yes, we look forward to working with this company as a trading partner.” I cannot give you the precise details, but we—
Chair: Could you write to us with the details?
Bernadette Kelly: Needless to say, in our own due diligence as well as that carried out by the companies, we were asking the question, “This is a start-up company; can we believe that it has the sort of backers that would allow us to think it can deliver this plan?”
Q46 Chair: When did you first get a letter, or any comfort, from Arklow directly?
Bernadette Kelly: We got a formal letter to my Secretary of State from Arklow on 15 January, from recollection.
Q47 Chair: So, after you had let the contract?
Bernadette Kelly: Yes, after, but we had had intimations via Seaborne that they—
Q48 Chair: Via Seaborne? You took the word of Seaborne?
Bernadette Kelly: I would need to check what precise pieces of paper were in play at that point.
Lucy Chadwick: We certainly had a number of discussions with Seaborne in terms of who their backers were, and we did do what you would expect in terms of assurance and due diligence about the credibility of those in terms of their—
Q49 Chair: Now the contract has gone, will you be able to publish or provide us with that due diligence paperwork?
Lucy Chadwick: We can absolutely look at—
Bernadette Kelly: We will investigate that.
Q50 Chair: It has happened in other cases in Government. It wouldn’t be unprecedented.
Bernadette Kelly: We can investigate.
Q51 Chair: So that’s a yes?
Bernadette Kelly: I would like to write to the Committee once we have had a chance to review exactly what documentation exists.
Lucy Chadwick: The reason for pausing is that some of this documentation is shared with you at the time in terms of commercial confidence. The pauses are just because we need to make sure that we are not contravening that by sharing any information that would be commercially sensitive.
Q52 Layla Moran: Understood—you can come back to us. Coming back to due diligence, were you surprised that your due diligence did not pull up any of the issues with Seaborne’s directors that have been reported in the press since?
Bernadette Kelly: What our due diligence did was look at whether there were any winding-up orders or disqualification orders or things of that sort at Companies House. There were other things that the media brought up. I am not going to comment. Some of it seemed relatively unevidenced to me. I think the media were then looking for all sorts of things to publish about those people. What we did was the normal level of due diligence that we would expect to do—namely, asking, “Is there any evidence on the record that suggests that these people are not fit and proper people to be in this position in a company the Government is contracting with?”
Q53 Layla Moran: I understand that, and I would accept that if there was not everything else on which it was not possible to do due diligence, like their financial stability and the technical note that said it would be really difficult. Shouldn’t you have done more due diligence on the backgrounds of the directors of Seaborne than you would normally have done?
Bernadette Kelly: The step we chose to take to give ourselves confidence and to ensure that we were managing the delivery risks around this was to put in place a series of milestones. We were then strictly managing Seaborne to ensure that they were delivering against those milestones.
Q54 Layla Moran: But you did no formal due diligence on their management backgrounds. Is that correct?
Bernadette Kelly: We did the due diligence that Slaughter and May carried out for us, which was the normal due diligence we would do in circumstances of this sort. So yes, we did do formal due diligence—the normal due diligence that we would do in these circumstances.
Q55 Sir Geoffrey Clifton-Brown: Did your due diligence team include a legal element?
Bernadette Kelly: Yes, it did.
Q56 Sir Geoffrey Clifton-Brown: And they produced a report on this prospective contract?
Bernadette Kelly: I am not sure I recognise “a report on this prospective contract”. What we were doing throughout this process was seeking advice from a number of sources. We were getting advice from Deloitte on financial stability and also on pricing. We were getting advice from Mott MacDonald on the technical aspects of delivery. We were getting advice from Slaughter and May on some of the legal issues. We were getting advice throughout this process on all those aspects.
Q57 Sir Geoffrey Clifton-Brown: What I am specifically interested in is this. Surely, if you had a legal team on board and a critical part of this contract was the leasing of the 50 ships from Arklow, at the very least—
Bernadette Kelly: Fifty ships? No.
Q58 Sir Geoffrey Clifton-Brown: How many ships was it?
Bernadette Kelly: Two.
Q59 Sir Geoffrey Clifton-Brown: At the very least, I would have expected, before the Government accepted this contract, to have seen some heads of terms of agreement between Arklow and the company as to the terms that they were going to lease these ships on. Were there any heads of terms? Was there a draft lease? Was there an actual lease?
Bernadette Kelly: The milestones contained several specific steps that we expected to have been achieved at various points along the way, which would have given us confidence that the contractual arrangements were in place for the ships that Arklow was going to acquire on behalf of Seaborne. They were not in place at the point at which we signed the contract, but we put in place milestones to drive that process and to ensure that those things happened within the necessary timeframes.
Q60 Sir Geoffrey Clifton-Brown: My daughter is a high-powered IP and M&A lawyer. Commercial companies can do these sort of deals in 24 hours. Why did you not have the proper legal paperwork in place, given that this deal was predicated on the company’s having no ships and having to get them from elsewhere? It chose to get them from Arklow, but there was no paperwork to give any form of comfort to the Government that they could realistically attain those ships.
Bernadette Kelly: I think our assessment was that there was sufficient evidence to think that they could realistically achieve that. We knew that not all those contractual arrangements had been entered into; that was explicitly understood. However, we put in place a set of milestones to drive that process.
Q61 Sir Geoffrey Clifton-Brown: You are going to consider carefully what evidence you can publish or give to the Committee on this matter. Will you please specifically cover this? It seems to me incredible that the Government could contemplate letting a contract like this without sufficient comfort that these ships were actually going to be available. Can I move on to my second question?
Bernadette Kelly: Can I just say that it was important that we took an informed judgment on whether it was credible that those ships would be available, and our informed judgment was that it was? The sequence of events of this particular commercial matter occurred because, in order for Seaborne to be able to secure contractual arrangements with its backers, those backers wanted the assurance of the Government contract, as it were, to drive that process. I think it was the commercial sequence of events. However, we certainly took a view about whether the plan they presented was plausible, and our judgment was that it was.
Q62 Sir Geoffrey Clifton-Brown: Was your having no real paperwork on these ships the reason that the contract was abruptly cancelled last Friday? Was it that the Government got cold feet about the contract, or was it that Arklow pulled out?
Bernadette Kelly: We had a set of milestones against which we were holding Seaborne to account. We were carefully assessing whether sufficient progress was being made against those. Up until Friday, or the period very shortly before Friday, there was evidence to suggest that good progress was being made in the critical areas of leasing ships, securing financial backing, port operations and all those key areas. Arklow then had a change of mind, which caused us to judge that we should terminate the agreement.
Q63 Sir Geoffrey Clifton-Brown: So it was the latter—Arklow pulling out, rather than the Government having cold feet?
Bernadette Kelly: We remained committed to ensuring that, if Seaborne was making progress towards the milestones we had set, we would, in good faith, see that contract to a successful conclusion. That was our desired outcome. Arklow pulled out.
Q64 Caroline Flint: Two quick questions. You wrote to the Committee Chair at 5 pm on Friday 8 February. By 7 am the next day, the media were reporting that the Department for Transport had ended its contract with Seaborne Freight after Seaborne lost the support of its financial backer, Arklow Shipping. On Monday 11 February, the Secretary of State told Parliament that “Arklow Shipping suddenly and unexpectedly withdrew its backing from Seaborne.”
When you wrote that letter to the Committee, which was to update us ahead of this hearing, were you aware that Arklow was pulling out?
Bernadette Kelly: I signed that letter earlier in the day. I was aware that there was a question and a risk. The decision had not been taken or agreed, and it had not been communicated to the company. You can quite understand that, until this had been communicated by my Secretary of State, I was unable to communicate it to the Committee.
Q65 Caroline Flint: Would it be fair to suggest that the Department would likely have declined a contract involving such a significant amount of risk had the response to its invitation to tender not proven so disappointing?
Bernadette Kelly: I don’t know. You are asking me to speculate on a set of circumstances that didn’t exist.
Q66 Caroline Flint: The circumstances were that, as you have said, Seaborne was a new company that did not own or charter ships at the time. My colleagues have gone through and pressed on the arrangements to ascertain how concrete the relationship between Arklow and Seaborne was likely to be. Due diligence has been talked about. But along with that, the port of Ramsgate required a programme of infrastructure works before it could be made ready for sustained roll-on/roll-off use, and the mayor of Ostend said that they were not necessarily going to be ready to receive, either. That is a pretty long list of concerns and therefore I ask the question again: is it fair to suggest that you would likely have declined this if there had been a better response to the contract that was tendered?
Bernadette Kelly: We might well have continued to look at whether we thought this was—I think we would have continued, in any circumstances, to consider whether this was a sensible proposition on its own terms. There is actually a particular strategic value in a Ramsgate-Ostend route, and that was interesting to us. It is a hypothetical set of circumstances you are describing. I think that, had we had a much stronger market response to the invitation to tender, we might well have contracted for a higher volume, which might well have included Seaborne in those circumstances. But I can’t speculate, really, on exactly how we would have responded to a different set of propositions and responses from the market.
Q67 Layla Moran: Have you managed, Ms Kelly, another contract that had this many concerns about it and this many milestones at any point in this Department?
Bernadette Kelly: My Department manages many, many very challenging and difficult procurement exercises, so I am sure there have been many others that will, for example, have included milestones.
Q68 Layla Moran: Can you give us an example?
Bernadette Kelly: I would need to come back to you, but as I say, we do a lot of very complex procurement exercises. I think—
Layla Moran: No, that wasn’t my question. My question was about a contract that had very specific concerns about it and that—
Chair: Was a novel and exceptional—
Q69 Layla Moran: Yes, a novel and exceptional proposition, requiring careful judgment—that was said about it. How many times has this been done in your Department?
Bernadette Kelly: We talk a lot about the contractual processes here, and I understand, of course, why the Committee would be interested in those, but can I put it in a bit of context, because actually you are using my language now and I would like to explain why I use that language? My Department was actually taking steps, on behalf of the whole of Government, to secure capacity for essential goods—things like medical supplies—in the event of significant disruption, which we recognise is a reasonable worst-case scenario event in the event of a no-deal Brexit. That is a very novel and exceptional set of circumstances, and what my Department was trying to do, in that context, was act at pace to secure the necessary capacity, as part of a wider contingency planning effort. That did require, without doubt, some quite difficult judgments to be made about the balance of risk on one side versus the benefits we were seeking to secure, on behalf of Government, on the other side. In that sense, this is a very unusual procurement.
Chair: Which paragraph 2.20 lays out very clearly.
Bernadette Kelly: And actually, by the way, I think we acted reasonably and responsibly throughout when you consider the circumstances in which we were acting and the benefits we were trying to secure, against some of the challenges we were trying to deal with around delivery.
Q70 Layla Moran: Why did you not seek a ministerial direction for this particular contract?
Bernadette Kelly: Because my assessment, as an accounting officer, was that it met the requirements of managing public money and therefore a direction was not required.
Q71 Layla Moran: If you had had a contract like this outside Brexit, would you have sought a ministerial direction on it?
Bernadette Kelly: I cannot speculate on what I would do in a different, imaginary situation that does not exist.
Q72 Chair: Can I ask, while Ms Moran gathers her thoughts for the next question, about Ben Sharp, one of the directors? Did you do any assessment on any of the individuals to see whether they were fit and proper people to be running a company?
Bernadette Kelly: The general assessment that was done by Slaughter and May, of the usual sort, on the directors of the company to ensure that there was no reason to assume they were not fit and proper—that is my understanding of exactly the due diligence that was done.
Q73 Chair: Have you seen that due diligence yourself, or has Ms Chadwick seen it?
Lucy Chadwick: Yes.
Q74 Chair: And you are content that they did enough deep diving in that, given that, as Ms Moran highlighted, it was a brand-new company?
Lucy Chadwick: Was it appropriate for the circumstances of a brand-new start-up? Yes.
Q75 Chair: Were there any investors in Seaborne other than Arklow that you had to check out?
Lucy Chadwick: Yes, there were.
Q76 Chair: Can you tell us who they were?
Lucy Chadwick: That is commercially sensitive information still at this point.
Q77 Chair: Okay, but were they companies or individuals that gave you comfort that this was a—
Lucy Chadwick: Yes, they did.
Q78 Chair: So they were solid, well-established individuals or companies. Were they individuals or companies?
Lucy Chadwick: They were companies.
Q79 Chair: In the shipping industry, or other investment financiers?
Lucy Chadwick: These were backers of other shipping companies. They back other businesses, but they do back the shipping sector.
Q80 Chair: We look forward to getting paperwork on this. If we do not, I am sure the NAO will have a chance to look at this as well. Can I just ask about Thanet Council, which Ms Flint touched on? It was interesting timing that Thanet District Council refused to pass its budget on 7 February—last Thursday—then the contract was pulled on the Saturday. What comfort had been given? We know from the Report that the Treasury had asked your Department, Ms Kelly, to find the money to support Thanet District Council in getting the works done at Ramsgate—a rather big bill of £3 million for a small district council. How far had you got with that at the point you did the contract?
Bernadette Kelly: We continue to be in discussions with Thanet about the nature of—
Q81 Chair: “Discussions” is a nice word, but what contract—
Bernadette Kelly: There was no formal financial commitment to Thanet Council—I think that is correct—at this point.
Q82 Chair: According the press coverage, there was a conversation between the leader of Thanet Council and somebody from your Department. Was that a ministerial phone call?
Bernadette Kelly: I don’t know which press coverage you are referring to, I’m afraid.
Q83 Caroline Flint: It is actually an Isle of Thanet News report from 11 February. It says “the budget report was withdrawn following discussions between Thanet council leader Bob Bayford and Mr Grayling.” So I presume you must be aware of that conversation? Ms Chadwick is nodding her head.
Bernadette Kelly: Conversations have taken place at various points in this process.
Q84 Chair: They did not just withdraw the budget; they said, “We withdraw the budget, but we’ll bring it back in March.” Do you know if any pledges were given in that conversation that any money would be given to Ramsgate? It was a pretty big thing for a small district council.
Bernadette Kelly: There was not a pledge given of £3 million of infrastructure investment funding.
Q85 Chair: In your analysis of this whole contract—given that all this work needed to be done to Ramsgate, that it was a small district council with a small budget that had to cough up this money, and that there had been, as you have now confirmed to us, no guarantee that the Department would fund that—how did you expect Thanet District Council—
Bernadette Kelly: What I said was that we had not committed the funding. Obviously we had been in discussions with Thanet Council throughout this process. We fully recognise that it is a significant sum of money. Clearly, Thanet Council would not be able to fund that sort of infrastructure works itself. We had been in discussions to indicate that if this proposition were to go ahead, we would find a way to support the infrastructure investment needed, in order to make it feasible. Clearly, if the route is not going to go ahead—if there is not going to be an operating service—that investment would not go ahead.
Q86 Chair: But this was all still in play up to last Thursday—7 February. How long did you expect these works at Ramsgate to take?
Bernadette Kelly: They are relatively straightforward dredging and moderate infrastructure works; they are not very, very major works of the sort that would take a large number of weeks to complete.
Q87 Chair: So how long did you expect them to take?
Bernadette Kelly: They were on a timeline to be completed for the beginning of this service, had the Seaborne contract been concluded.
Q88 Chair: Was that March or April? We have had different dates.
Bernadette Kelly: The 26th of April was the point at which we were working with Seaborne to achieve the service.
Q89 Chair: So there had been no financial settlement with Thanet Council and therefore limited works done at Ramsgate port, yet as of 7 February there was still potential that the physical works would have all been done and the service could have been up and running by 26 April?
Bernadette Kelly: Yes.
Q90 Chair: Presumably going through a proper procurement process, or was there going to be another emergency procurement process?
Bernadette Kelly: There wasn’t a need for a procurement process for funding to be made available for Thanet to get some of this work done, as I understand it.
Lucy Chadwick: And any of that would have been handled by Thanet.
Q91 Chair: Somebody—not necessarily you—had to do the procurement. Thanet Council would have had to have done the procurement.
Lucy Chadwick: Thanet had been considering the exact routes through which it was going to be undertaking that infrastructure. They had set out that plan very clearly. We understood, as did Seaborne, the dependencies through this timeline.
Q92 Chair: Sorry, I’m just in a bit of a puzzle here. Thanet had no money but was planning to do the work on Ramsgate port. The money was going to have to come from the Department effectively, because the council could not afford it. It did not have the money, so it could not have commissioned the work. It had not commissioned the work as of 7 February and was going to delay its budget until 11 March—this is at the point when you did not know that it would all wrong and that Seaborne would be right out of the picture. From 11 March to 26 April—is it really going to be possible to do that work at Ramsgate?
Lucy Chadwick: This is not a set of novel plans that we are talking about here that Thanet have had around Ramsgate. For a number of years they have had ambitions to undertake this infrastructure work, so that it could do much more extensive ferry operations. This is not something that has emerged out of nowhere. They have been considering this over a number of years, as much as they have been considering options to moth-ball the port. Both of those were serious propositions that they were looking at in their budget discussions. I think your question is one to ask of Thanet. We have had numerous discussions—
Q93 Chair: Sorry, but this was a major part of your Brexit planning. You needed to be sure what was going to happen, and you relied on Thanet District Council.
Lucy Chadwick: And we have done a lot of assurance throughout this process to understand that that could credibly happen in time.
Q94 Layla Moran: Thanet District Council is going to go into purdah because it has local elections at the beginning of May. At the point when all this was going to be finally—
Bernadette Kelly: It would have been completed before that.
Q95 Layla Moran: Before purdah? So the date by which all this had to be done and sorted out would have been before purdah?
Lucy Chadwick: It would have been 26 April.
Q96 Layla Moran: And you feel confident that they would absolutely have been able to deliver to that deadline?
Lucy Chadwick: Yes, and we had assurances from Mott MacDonald—a major infrastructure company—that this was quite simple work that could be undertaken. We understood those dependencies and independences.
Q97 Caroline Flint: Can I touch on what was happening on the other side of the water? The mayor of Ostend expressed concerns about the proposed route soon after its announcement by the Department. Did your risk assessment flag up Ostend’s lack of readiness to host ro-ro ferries?
Bernadette Kelly: We had had much more positive discussions with Ostend port than were reflected in mayor’s comments. I think, Ms Chadwick, that you might be able to say a bit more about that. Our discussions at a working level were reflecting a different state of readiness.
Q98 Caroline Flint: Who was expected to fund the development of Ostend port?
Lucy Chadwick: This was all a matter of commercial arrangements between Seaborne, in terms of the operations, Ostend and Thanet. Seaborne is an operator that is bringing in revenues and paying ferry dues, and is a critical entity in agreeing all that. We looked at that, in terms of the plans and discussions they had had, and we undertook some of our own, separate discussions. The mainstay of them were done by Seaborne. We had reassurances. We have listened to the same conversations from the mayor of Ostend, and they are different from those we have heard from his officials and the port.
Q99 Sir Geoffrey Clifton-Brown: Given that getting goods in and out of this country by road and sea is probably the most important aspect of Brexit, this question is designed to probe when you actually thought about this specific aspect. Was it in your March workstreams and the RAG ratings that you were reporting through DExEU to the Cabinet Office? Was it in the May critical path analysis? If not, why not?
Bernadette Kelly: I may not be able to give a detailed answer on exactly those timelines, because I don’t have that information in front of me. Certainly from March, if not earlier, we had been looking at what our planning assumptions were about movement across the border, and what the impact might be of a no-deal Brexit. I can’t remember when we first started formulating those planning assumptions, but certainly through the summer, and possibly earlier than that, we were looking hard, given the information we had, given what we knew was happening on the ground and given what we know about modelling flows of traffic, at reasonable planning assumptions about the potential levels of disruption that we might need to plan for. As I said earlier, until rather later in the autumn, those assumptions were leading us to conclude that the level of disruption would not be as great as that which we subsequently thought we might need to prepare for.
Q100 Sir Geoffrey Clifton-Brown: Perhaps it might be useful if you could write to the Committee to give us a precise timeline for when you started to think about this matter, when it was in the reporting process for DExEU, and whether it was in that critical path analysis in May.
Bernadette Kelly: I will write with some more details. I don’t have the precise answer to your precise question. I am just trying to communicate the fact that we were certainly thinking ahead, and looking at and developing some planning assumptions around which to work from an earlier point.
Lucy Chadwick: What I would say is that we have always had a workstream around border disruption.
Q101 Chair: We are coming on to that.
Lucy Chadwick: As Ms Kelly said earlier, the context of this moved, in particular in terms of our understanding of where the French preparations were. As we looked at the reasonable worst case, and as we were war-gaming where we could find ourselves, that led us to consider whether there were further workstreams. We were already planning.
Chair: We are going to come on to the transport in a moment.
Q102 Layla Moran: Moving on a bit to the future, you had hoped that 11% of the capacity would be covered by the three. Am I to understand that the two contracts that are left would cover 7%? Is that correct?
Bernadette Kelly: The two contracts that are left will give us 6% of Government reserved capacity, if I can describe it in that way—i.e. we will determine how that capacity is to be used—and probably another 1% or 2% of market capacity on top of that.
Q103 Layla Moran: So up to 8%. The hope was up to 25%, so there is a bit of a gap.
Bernadette Kelly: That was a business case modelling assumption, and there was then a process of consideration about what was an appropriate level versus what was—
Chair: Which, I suppose, is what Ms Moran is asking.
Q104 Layla Moran: Yes, what do you need? What are you looking for?
Bernadette Kelly: Well, there was a debate. We needed to consider both what the market was prepared to bring forward and what the Government thought it was appropriate for them to procure. In the end, we were led by the market on this, probably because it came in at a lower level than our business case assumptions.
Chair: We are going to come on to Ms Moriarty, who has sat very patiently—my apologies to her. She could have had a cup of tea if we had realised we were going to take so long to get these answers, but there is a need for other Departments to have this capacity, which we are going to come on to. I will come to Ms Moriarty in a moment.
Q105 Layla Moran: Where are you going to get the rest of the capacity that you need? Is it going to be from Eurotunnel, for example?
Bernadette Kelly: We are still looking at options for whether Government could secure any further capacity, whether by ship or through the tunnel.
Q106 Layla Moran: Freight is where it is, so what is the plan?
Bernadette Kelly: As I say, we are looking at options, but it is fair to say that I do not think at this point in time it is likely that we will be able to secure a large amount of further Government reserved capacity. Precisely the reason we went through an emergency accelerated procedure before Christmas was because of the lead times and so on that we need to do this, so I would not want to mislead the Committee into imagining that there is a plan now that will lead to the Government securing a very large amount of further additional capacity.
Q107 Layla Moran: Can I just clarify: is that maritime freight specifically, or is it rail and air as well?
Bernadette Kelly: No, we are looking at rail and maritime.
Q108 Layla Moran: So what has happened with Eurotunnel? Why are they suing you?
Bernadette Kelly: There is obviously a legal challenge from Eurotunnel. I am afraid that I need to be quite circumspect in what I am able to say, given that it is a live case before the courts.
Q109 Chair: Well, it is not sub judice, so—
Bernadette Kelly: They are raising a legal challenge against our procurement process. That is obviously a matter for them to do. I am confident that our process was lawful, and obviously the Department and I acted on legal advice in determining how to take that process forward and what mitigations are needed. It is now up to the courts and Eurotunnel to determine what the next steps are. I am afraid that I cannot really say a great deal more than that while there is a case ongoing.
Chair: But it is not sub judice.
Q110 Layla Moran: It is not sub judice, but before that, is this not a catastrophic failure of stakeholder management?
Bernadette Kelly: I do not agree. In the end, Eurotunnel is a commercial entity. Many commercial entities will take whatever steps they can to seek legal redress when they see those opportunities arise.
Q111 Layla Moran: Yes, but all along, you have been saying that you understand the market—okay, freight, but I am assuming that you equally have an understanding or a communication with other markets that you are relying on. This is the main plan, so why have Eurotunnel taken these steps? It sounds to me like you waited to engage with them because the lead time was shorter.
Lucy Chadwick: No.
Q112 Layla Moran: That is not what happened?
Lucy Chadwick: No. We have regular discussions with them, and our assessments in terms of the market—going back to what we were looking at, it was those players in this market who are current operators. It is particularly ro-ro capacity, away from the short straits, that is important here. They are not currently players in that, nor do they have current plans to enter into that market. We talked with those individuals and we understood where they were. They may have aspirations, but getting operations in place in time for 29 March was the critical thing that we were looking for.
Q113 Layla Moran: Why did you not do procurement across the board? Why did you just do freight? I understand the lead time, but why just maritime freight? Why not freight across the board?
Lucy Chadwick: Because the equivalent ro-ro freight goes through the same short strait. It operates on the Eurotunnel arrangements; it goes through precisely the same routes that could potentially be disrupted by French action or inaction, and that was the thing that we were concerned about here. We were trying to make sure that we could look at routes—indeed, part of our procurement was looking at routes—that were away from those straits and did not have the same risks of French inaction causing difficulties.
I should say that the French are now taking action, and there is a different context in which we need to consider whether there is any further need. Since December, particularly at the port of Calais—you will hear news coverage—they have undertaken, and are undertaking, quite a serious programme of work. It is in that context that we will need to consider whether we need to replace any of this.
Q114 Layla Moran: But at the moment you are not planning any large procurement with Eurotunnel or anyone else.
Lucy Chadwick: It would not be possible to complete a procurement and make it operational for 29 March.
Q115 Layla Moran: You have run out of time.
Bernadette Kelly: What we are focusing our efforts on now are—
Q116 Chair: You have run out of time, though. Just to be clear, you have run out of time.
Bernadette Kelly: To be clear, this freight capacity has always been part of a contingency measure—a suite of mitigations—but we are also working extremely hard through the border delivery group, with HMRC and with colleagues to ensure that the flow of traffic through the short straits is as smooth and effective as it can be. As my colleague was beginning to explain, we are now seeing positive evidence that on the French side arrangements are being put in place, which will ensure that some of our assumptions back in the autumn about a reasonable worst-case scenario do not materialise. So a lot of our effort is about minimising friction and disruption.
Chair: We will come on to that in the next bit of the session.
Q117 Caroline Flint: On page 8 of the memorandum from the NAO, under figure 1, it states: “In November 2018 the Department assessed nine options for intervention”. Under “Create new freight capacity on new and existing routes”, we see maritime. Yes, we have to make a decision on that, because to delay would “reduce chances of securing capacity for day one no deal.” And under “Rail and air freight” it says, “Recommended, but reserve for decisions at later date due to shorter lead times.” As a result of a risky procurement process and all the uncertainty around Seaborne, you are now saying, if I heard you correctly, that it is not that you don’t want to, but that it is just too late to run the procurement for more capacity through rail, or, for that matter, air.
Lucy Chadwick: We are considering very carefully the air freight and rail propositions. What I was trying to describe is that they can achieve very different outcomes. There is a set of outcomes that they achieve, as much as “Can you manage the procurement in the time?” My apologies; what I was trying to say was that they achieve quite different outcomes, and we are assessing those very carefully at the moment in the case of air freight.
Q118 Caroline Flint: What do you mean by “different outcomes”? Can you give me a specific example, please?
Lucy Chadwick: I mean what goods you can carry on them, and how easy they are to operate. In terms of the Eurotunnel shuttle services, those are very much roll-on, roll-off, but, as I said, those do not actually achieve some of the strategic objectives of relieving the pressures that we looked at. If you look at some wider rail freight, they operate on different routes, but they are more complex to operate. You have to have haulage companies effectively pick up from freight distribution centres at either end, and that is a more complex supply chain to manage. At the moment we are continuing to have very clear discussions in terms of whether they could work, and we have not yet concluded on that. In terms of air freight, we have looked very carefully at that. Indeed, a judgment and decision has been made by the Department of Health that they will consider their own contracting arrangements around that. So these have been considered in terms of options; and actions, as appropriate, are or are not going to be taken. But they are different questions.
Chair: We will come to that in a minute.
Lucy Chadwick: I was talking about the ro-ro style output, and that has a set of particular timescales and constraints around it.
Q119 Layla Moran: Finally, my last question. Ms Kelly, how much has this cost the taxpayer? Please don’t say “nothing”.
Bernadette Kelly: The important thing is that Seaborne have received no money.
Chair: That is not the question Ms Moran asked.
Bernadette Kelly: I know, but I none the less put it on the record. The money that this will have cost the taxpayer is the cost of the procurement exercise that we have carried out and the work leading up to it, so that will be the work, time and effort that colleagues in my Department have put into this, plus the legal and other independent advice that we have sought in order to support our decision making. I don’t have a precise figure for that, but it will be the cost to my Department of carrying out a procurement exercise. That is the principal cost.
Q120 Chair: And there was the potential cost of major works at Ramsgate.
Bernadette Kelly: At the moment, we have not concluded that those major works will go ahead and that we will pay for them. That decision gets taken at the point—
Q121 Chair: If the contract with Seaborne had not been dropped on Saturday, you would have still been looking at paying money—
Bernadette Kelly: We absolutely would have been doing so.
Q122 Chair: So add that to the bill.
Bernadette Kelly: And in due course, if other operators come forward, we might yet consider whether we would support investment in that port. That is a slightly separate decision from the procurement decision; it was obviously interlinked with it, but it is a slightly separate decision. But clearly we have not committed now to the spending of that money.
Q123 Layla Moran: Would you be able to write to us with the estimate for exactly the points you have raised and the apportionment?
Bernadette Kelly: I could probably give you a broad-brush estimate, apportioning time and therefore money to the totality of the procurement exercise.
Layla Moran: A broad-brush apportionment.
Q124 Chair: I am going to bring in the Comptroller and Auditor General, but what we have seen unfolding since the contract was quietly awarded in December is an extraordinary tale. The fact that nobody got through the first round of bidding and then in the second round three got through and two of the three did not manage to comply, but all still went ahead because DFDS sorted it out fairly straightforwardly, makes us worry as a Committee about some of the preparations for Brexit. Are there any other issues like this that will be coming up from your Department, Ms Kelly?
Bernadette Kelly: You can talk to me and ask me questions now on all the other aspects of our Brexit planning.
Q125 Chair: We will come on to some of the other aspects.
Bernadette Kelly: I go back to the argument that I will continue to go back to: yes, it was an accelerated process, because we were acting in novel and exceptional circumstances and doing something that was novel and exceptional in terms of a Government intervention. That did require judgments to be taken about a balance of risks and benefits, but we believe the benefits of capacity were appropriate therefore for us to proceed.
Q126 Chair: And the benefits, as we see, came nowhere near materialising.
Bernadette Kelly: We still have two contracts in play.
Q127 Chair: Two out of the three, but the one that was difficult—the one we are talking about—did not manage to get through. I will bring in the Comptroller and Auditor General very briefly.
Sir Amyas Morse: I understand there has been some dredging at Ramsgate. For whose account, ultimately, will that be?
Bernadette Kelly: A degree of dredging has already taken place.
Sir Amyas Morse: At whose cost?
Bernadette Kelly: Seaborne’s.
Sir Amyas Morse: And that will remain at their cost?
Bernadette Kelly: We have not entered into any agreement otherwise.
Chair: We are going to move on now to the wider issues.
Q128 Caroline Flint: Ms Kelly, is it still the case that the Department has 28 internal projects under way to ensure that the UK transport system will remain fit for purpose in the event of no deal?
Bernadette Kelly: We have never had 28 projects under way, or certainly not in any recent time. I think that was how they were described in an early NAO Report. We have 17 workstreams.
Q129 Caroline Flint: Could you tell us something about those workstreams, how they are going and what contingency plans are arranged if there is a problem?
Bernadette Kelly: In effect, a lot of those workstreams are contingency plans; they are planning for a deal and a no-deal scenario. I would say we are making good progress on the delivery of our 17 workstreams, although, as ever, that is an awful lot of work to do to have them all in place for 29 March. We can talk you through where we are on those workstreams both individually and collectively. It is also worth commenting that we have seen positive developments on the European Commission side, in particular on air service and road haulage agreements, which give us a degree of confidence that there is also a real desire on the Commission side to ensure that disruption to transport services is minimised at the point of a no-deal Brexit, should we reach one.
Q130 Caroline Flint: What workstreams do you consider to be most at risk?
Bernadette Kelly: Of the 17, one that remains most challenging is probably Operation Brock, although that has improved—I think our delivery confidence in Operation Brock has improved since I last appeared before the Committee. We now have the infrastructure largely in place and work on Manston is well advanced. I hope that either today or tomorrow we will receive a letter from the Kent Resilience Forum telling us that the operational plan for putting into action those three sites for lorries has been agreed between the local partners, Kent County Council, the police, the port of Dover and others. We expect that confirmation imminently. However, it is a complicated, difficult and sensitive project and an important part of our planning, so we continue to keep that one under very close watch. The other one is probably the statutory instruments. I think we are making good progress on statutory instruments; we have now laid 53, but obviously the availability of parliamentary time means that we have to look continually at whether there are some more that we can de-prioritise and/or things we may need to make contingency arrangements for.
Caroline Flint: I might come on to that a little bit later, if I may.
Chair: We have a vote that will interrupt us, so it would be helpful if we could have just questions and answers.
Q131 Caroline Flint: What about the status of IT systems?
Bernadette Kelly: We are putting in seven IT systems, in total, as part of our 17 workstreams to deal with ECMT permits, trailer registration, our marine arrangements and vehicle emissions. They are, again, broadly in good shape. We have had some challenges in testing our trailer registration scheme, but even there we are now starting to see that scheme work.
Q132 Caroline Flint: How many IT systems are in play here?
Lucy Chadwick: There are quite a number—
Caroline Flint: More than five, or less than five?
Lucy Chadwick: More than five. Directly in the Department, I do not believe that there are more than 10. As Ms Kelly was describing, there are at least seven major IT systems. There are some others, which other parties are building on our behalf, to manage some of the information flows that they are looking after, but those are the main ones, within the Department.
Q133 Chair: Similarly, Ms Moriarty, how many IT systems are there? I know you have delayed some and put some into paper processes. How many IT systems have you got that need adjusting?
Clare Moriarty: In terms of our no-deal planning, we need to have six IT systems up and running. Two of them are functioning, and four of them are in private or public beta.
Q134 Chair: Do any of those interact with each other, or between the two Departments?
Clare Moriarty: No.
Q135 Caroline Flint: It would be quite helpful if you could write to us outlining those different systems, and perhaps give us an indication of what their status is in terms of risk—
Lucy Chadwick: They are all on track and some are live.
Caroline Flint: That is good. We would like to have that.
Lucy Chadwick: Things like the ECMT permit system are live. We have a beta version of our trailer registration system, and one of the maritime EMSA systems is live—there are a number of those. We can happily make sure that you understand that all the others are on track at this stage.
Q136 Caroline Flint: You mentioned Operation Brock between Manston and Dover last month. It drew quite a lot of criticism and media attention, but it also drew criticism from road hauliers. What lessons have you learned from the test?
Bernadette Kelly: More importantly, in my understanding, Kent County Council and police force thought that the live testing was actually a very useful exercise. It was designed specifically to ensure that the flows of traffic from Manston to Dover would work and were viable, so that we knew the assumptions being made were reasonable. What the testing did was sufficient to confirm that those assumptions and plans were right. From that point of view, whatever the media might have made of it, it was quite a successful exercise. Clearly, we continue to work on ensuring with the Kent resilience forum—
Q137 Caroline Flint: What has changed in your assessment as a result of the test?
Bernadette Kelly: I would have to ask the Kent resilience forum to give us exact details of whether any particular points came out of the exercise which they have now decided to change, but my understanding is that broadly what it did was to confirm that the plans that they had developed were workable.
Lucy Chadwick: It was even suggested that there could be some higher throughputs, but I don’t believe that they have utilised any of those.
Q138 Caroline Flint: It would be useful, as with any exercise, to bear down in a bit more detail on what came out of it, and on whether it has changed any assumptions.
Bernadette Kelly: Absolutely.
Q139 Caroline Flint: Are you confident then, Ms Kelly, that plans to keep ports across the UK open for business, whatever the outcome on 29 March, will happen?
Bernadette Kelly: Yes. I will ask Ms Chadwick to say a little about that. We have been working with other ports across the UK, beyond Dover. I don’t think we see that any of those present the same challenges that we see at Dover, in terms of the potential for disruption, but I am sure that Ms Chadwick can say more.
Lucy Chadwick: We have done a range of modelling, and we have some further detailed modelling that we are just about to complete. Our view in all of them is that they certainly do not have major knock-on consequences on anything like the scale you see around Kent. Some, in the very worst case, could see some minor backing up, but there are some options for managing the distribution and schedules of ferry services from some of those ports. That is a discussion that we are making sure ports and local resilience forums, involving us, continue to work through. I cannot say that there would not be any disruption on any parts of the local road network leading into any other ports—there are scenarios in which that could happen—but nothing would create the kind of backlogs that we see in Kent, with those kind of consequences as a result.
Q140 Caroline Flint: Moving on to the SIs, the figures before showed that you have 65 SIs, over half of which—39—have been delivered to date. Five have been seen that could be done post 29 March. I think that is correct. What is the current status of the SIs and what would happen if you do not deliver the required SIs in time?
Bernadette Kelly: I recognise the five that we have consciously decided, given the pressures on parliamentary time, could be delayed and dealt with after 29 March. I must admit that I thought we had laid 53. Of course, it is a moving target—every time I ask, the figures change—but I think we have currently laid 53. I think there are a small number that we are still very keen to lay, because we believe that there would be impacts if they weren’t in hand before 29 March.
Q141 Caroline Flint: How many?
Bernadette Kelly: All the ones that we are still prioritising are obviously ones that we believe are needed before 29 March. We are de-prioritising SIs whenever we can. Equally, given that we know that there are pressures on parliamentary time—my colleague Ms Moriarty and other colleagues also have SIs to get through Parliament—we are developing contingency plans in the event that some of those do not get concluded by 29 March.
Q142 Chair: How many does Ms Moriarty have?
Clare Moriarty: We have 100 EU exit SIs. We now have our own mini-programme for SIs, which covers 152 SIs, of which 100 are EU exit, 27 are business as usual and 25 are Northern Ireland EU exit. We have put 109 of them before the sifting Committee to date. We are managing them unbelievably tightly and we are confident that we will get them through.
Q143 Chair: To be clear, you have done 109 of 152. What percentage of those are EU exit SIs?
Clare Moriarty: That is a figure that I knew you would ask me for, but I cannot see it in front of me.
Chair: If you can find it before the end of the session, tell us. If not, please write to us.
Q144 Caroline Flint: On the transport side of things, for the record, of 65 statutory instruments to be delivered by 29 March—
Bernadette Kelly: Sixty-six.
Q145 Caroline Flint: I am sorry. Of those 66, 53 have been laid. That leaves us with 13. There are another five, which you have put to one side, and which can be done afterwards. Of the remaining 13 SIs, which is the most complicated or the most difficult?
Bernadette Kelly: I am not sure that I have that exact assessment in front of me at the moment.
Q146 Chair: Ms Chadwick?
Lucy Chadwick: I fear that you are going to make me fall into the trap that I fell into the last time I appeared before the Committee.
Chair: We are not trying to make a point; we are just asking questions.
Lucy Chadwick: We regard all of these as important SIs, which we would like to see through. Last time when I said that there were some that we could de-prioritise, I felt that that was the trap I fell into. We would regard these as important.
Q147 Caroline Flint: I suppose what I am trying to understand is whether those 13 are outstanding because they are more difficult than all the rest.
Bernadette Kelly: No, we have tried to get the most important and difficult ones into the system earlier, obviously. That has always been our strategy. We are not leaving the most difficult ones until the end. There are nonetheless some quite important and difficult ones, and we are trying now—working very hard, as Ms Moriarty is—to get them done.
Lucy Chadwick: We are focused on those that have been laid and are going through the House, in terms of contingency plans, because some of those are as important as, if not more important than, some of the remaining ones, if you see what I mean.
Q148 Sir Geoffrey Clifton-Brown: Ms Kelly and Ms Moriarty, in each of your respective Departments, how many SIs are yet to complete their drafting?
Bernadette Kelly: I do not think that the drafting of ours is a constraint at all.
Chair: They are all drafted, in other words.
Bernadette Kelly: Yes.
Clare Moriarty: They are all drafted, but there are a number of processes that we need to go through post-drafting. In particular, in our case, most of our SIs need to be agreed with the devolved Administrations.
Q149 Chair: Could that change the drafting slightly? They are drafted from the English end.
Clare Moriarty: Yes, it might, but we are very far advanced in the process. I would happily invite the Committee to see what we call our SI control room.
Chair: It sounds very exciting.
Clare Moriarty: It is very exciting indeed. We recognise that this is a very big and potentially high-risk area for us, because of the need to avoid air gaps. We are tracking every single SI through the process.
Q150 Caroline Flint: Are any of your SIs being dealt with next week, in what would have been the recess?
Clare Moriarty: Yes, but they were planned for before that.
Chair: We will make sure we go on those.
Clare Moriarty: They are some very exciting SI debates, I can promise you that.
Chair: We are looking forward to that. Sir Geoffrey and I will be batting for the PAC.
Q151 Caroline Flint: What are the contingency plans here? Are we going to be sitting at Easter?
Chair: That’s after—it’s too late.
Lucy Chadwick: Shall I illustrate with an example? It is very easy to think what these are. We have one, for example, around rail safety. We would like to make sure that companies have total confidence with the legislative framework for doing that. As a contingency arrangement, what we have asked is for the ORR to prepare and have ready guidance that can be issued to the industry that provides at least interim assurances to them before the statutory instrument is passed. For every single one of these, we have looked at what those kinds of contingencies are, but each one is different in its nature.
Q152 Caroline Flint: I want to move on now to informing the public of what they need to do when travelling to the EU after the UK’s exit. What work has been done there? How many international driving permits have been issued so far?
Bernadette Kelly: We have done a huge amount of work in terms of communication with businesses, because we need them to be ready, but also increasingly now with the public. We are now playing a part in two audience-based communications projects across Government, one of which is based on ensuring that citizens have the information that they need to take the actions that they need to travel.
IDPs are up and running now. They have been issued at a rate of 2,000 to 3,000 a day since the system went live on 1 February. You can do the maths on that. I’m afraid I do not absolutely have today’s figure on how many have been issued, but it is in the order of 20,000—that sort of number. As I say, they are now being issued at a 2,000 to 3,000-a-day rate.
Lucy Chadwick: We are using all sort of influencers and third-party endorsers to make sure that the information goes out. Martin Lewis, who has 13 million followers, put out material on IDPs and green cards. All channels are being used to make sure that it gets through to individuals, rather than just presuming that Government communications from the centre can make it all work.
Q153 Chair: How are you managing to co-ordinate with other Departments? It used to be the case that you could take nine months unexpired passport time and renew your passport early, which helped passport flows at the Passport Office, but is obviously also major for transport. That is the Home Office. How are you linking up with other Departments on issues where you have to communicate with people about their travel arrangements?
Lucy Chadwick: Some of that linkage actually happens through gov.uk. Those things that are individual actions that we require will be there and individual actions that DEFRA will require will be there; it also links to the Home Office. We are co-ordinated in terms of communications professionals in terms of what gets hooked into, so our influencers can help and share. There are a range of ways in which we are doing that.
Bernadette Kelly: That is why I described our participation in an audience-based campaign. Obviously, as a Department we have been communicating with our stakeholders and our industry players directly, but now what is happening across Government is very much a broader based communication, of which we are a part, aimed at what citizens need to know and need to do and what businesses need to know and need to do.
Q154 Caroline Flint: I appreciate that, but you wrote to us about a considerable amount of activity in December that was being undertaken. I think there were four roundtables and various Ministers’ meetings with different organisations. Can you tell us more specifically about what you have learned from those encounters that have influenced any change in the communications strategy? Is there any work you need to do with third parties or anyone you are relying on to impart information that is different from what you had before that engagement in December? How is that playing into further engagement up to 29 March?
Bernadette Kelly: This is absolutely playing a part. It is a very iterative process really. It is playing a part all the time in how we are preparing. If I think about something like our ECMT permits system, a huge part of how we designed it and how we are now operating it reflects the discussions we had with our road haulage sector in the roundtables that we had with them. It is an integral part of how we are now trying to deliver some of those workstreams. I am sure there are other examples we could give on the aviation side, but it is not one thing; it is a constant consideration of whether we are communicating well.
Q155 Caroline Flint: Give me an example from the roundtables of where people thought the communication was poor. There must have been something—some push-back or challenge.
Bernadette Kelly: I would say, in general, the aviation sector—Ms Chadwick can say more—believe that we have done an extremely good job as a Department in communicating with them on all aspects of Brexit relating to them. Indeed, I was at a large industry event very recently where the industry leaders thanked the Department, and Ms Chadwick in particular, for the quality of communication and engagement that they had had with us on Brexit.
Q156 Caroline Flint: I take that—they are happy. Who is unhappy?
Bernadette Kelly: By and large, the road haulage sector has been more unhappy at various points in this process, and has been more critical and challenging at various points in this process. Equally, I would say that recent roundtables have been very much more constructive, and I hope that it is true to say that the sector now has a more positive view of some of the engagement that it has had with us, and the communication that it has had from us.
Q157 Caroline Flint: Presumably that is partly because the haulage sector represents quite a lot of SMEs.
Bernadette Kelly: Yes, there are a lot of SMEs. They have been more critical and more challenging. That is absolutely fair, and we have worked doubly hard to address some of those concerns in our communication.
Q158 Caroline Flint: Finally from my section, a question on cost. How much do you estimate you will spend in 2018-19 on EU exit work?
Bernadette Kelly: I am just trying to find my numbers, because I anticipated this question. For 2018-19, we currently have a budget of around £81.6 million for our Brexit work. We expect, on current forecasts, to spend pretty much all of that. I can talk you through some of the key elements, but it includes £29 million for Kent County Council. That is probably the single biggest ticket item in there. It includes £8 million for DVLA; trader registration system, £5 million; for our road haulage permits and so forth—
Q159 Caroline Flint: If you could write to us with those breakdowns that would be really helpful.
Bernadette Kelly: I can. What is outside those numbers, I would say, is about £30 million that is being spent as I described last time I was at this Committee by Highways England on some of the M20 and M26 works, because those were works that had previously been planned and budgeted for by Highways England.
Q160 Caroline Flint: How much have you spent on Operation Brock so far, and what do you estimate the total cost will be?
Bernadette Kelly: I can give you a sense of what we are budgeting for it. There was the £30 million that was in Highways England’s budget to start with; I have talked about £29 million for Kent County Council. That is largely covering this. There is another £5 million that I think we are using our Brexit budget for to cover some of the works around the M26. Those are the main items, but I can confirm what the total cost of that is.
Q161 Caroline Flint: In 2019-20, what is the £25 million funding for, and are you likely to require funding for anything else?
Bernadette Kelly: Obviously, there will be costs of some of these workstreams that spill over into 2019-20, and £25 million is what we currently have budgeted and allowed for by the Treasury. I cannot give you an exact breakdown of how we expect to spend that.
Q162 Caroline Flint: On that £25 million, do you have any sense of how much you will need to spend will vary depending on a deal or no-deal scenario? If you get a deal, is it 10p and there will be lots of money going back, or what? Do you have a sense of what the ratio will be?
Lucy Chadwick: We do. I apologise that I do not have both those numbers with me, but it would be very easy for us to extract those, because we have a range of those figures. Clearly, no deal is the much larger number, because communications continues as a very major item, as much as some of the ongoing operational costs of running some of the things that we are talking about.
Q163 Chair: While we are on the numbers, may I ask you, Ms Moriarty, the same questions for your Department?
Clare Moriarty: For 2018-19, the Budget that we received from the Treasury was £320 million, and our current estimate as we near the end of the financial year is that we will spend pretty much that.
Q164 Chair: It was less than what you asked for, wasn’t it?
Clare Moriarty: It was less than what we asked for, but we have managed very prudently. For 2019-20, the budget we have is £410 million.
Q165 Sir Geoffrey Clifton-Brown: Simon Stevens, the chief executive of NHS England, told this Committee on 19 January that “if everybody in that no-deal scenario does what they are supposed to do, the NHS will continue to see the goods and supplies flow.” He went on to say: “But we are critically dependent on the transport infrastructure: freight, channel tunnel and air. That is something outside the control of the NHS and will be the critical variable in whether we are able to continue operating normally.” Will the NHS be able to operate normally in the event of no deal?
Bernadette Kelly: I still think it is for the Department of Health and Simon Stevens to answer those questions, because there may be many issues that they need to consider.
Chair: But on the transport infrastructure particularly?
Bernadette Kelly: On transport infrastructure, this takes us back—I had rather hoped we might have moved on—to our freight capacity contracts. A key reason why we have entered into those contracts is to ensure that we have a guaranteed way of being able to prioritise medical supplies and medical goods in the event of a no-deal scenario.
Q166 Sir Geoffrey Clifton-Brown: There are other ways of getting drugs and medicines into this country.
Bernadette Kelly: There are.
Q167 Sir Geoffrey Clifton-Brown: So what discussions have you had with the NHS and the Department of Health?
Bernadette Kelly: We work very closely with the Department of Health on what support they need from us. I should say that, in these freight capacity contracts, I very much see us as almost acting on their behalf, as an agent of wider Government, to secure capacity, so we have those discussions all the time. As Ms Chadwick has indicated, for example, those discussions have also covered air freight, where they have decided that there are arrangements that they can make that meet their needs. But we talk to them very closely and in particular they have been very closely involved in our work on freight capacity.
Q168 Sir Geoffrey Clifton-Brown: If you have had those discussions with them, I pose the question again: are you confident the NHS will be able to get the drugs and supplies they need to—?
Bernadette Kelly: I believe that is a question for the Department of Health and the NHS. I do know, however, that in terms of the part that my Department plays in that, there is about to be an exercise to write around to key stakeholders in the health service, to assess how they wish to use the capacity that we have now secured for freight—but that is something that is being done, and rightly, by the Department of Health. We are not directly engaging with health providers. We are working with the Department of Health to ensure that what they need is linked to the plans that we have been able to put in place.
Q169 Chair: How are you going to make sure that you have the right licences in place for the right freight operators to get perishable goods, such as the drugs and some of the goods that Ms Moriarty’s Department has to deal with, through in time?
Bernadette Kelly: We have a certain amount of capacity, as I have discussed; that is about 6%. We are obviously prioritising across Government—it is a cross-Government decision—how we make best use of that capacity. We have identified medical supplies and medical goods as a key priority, and therefore something that we would expect that capacity, if it is needed, to be used for. That capacity is not sufficient to cover all foodstuffs.
Q170 Sir Geoffrey Clifton-Brown: Given that the permit process is now closed—there were 11,392 permit applications and only 984 were granted for HGV lorries, and 2,832 short-term permits—doesn’t this give rise to the likelihood of a serious problem of getting lorries into the continent with proper paperwork in place?
Lucy Chadwick: Not necessarily. I think it is really important in terms of what the Commission has actually put out as a regulation around road haulage. If you remember, there were several tiers at which we wanted to manage this. One was a kind of overarching agreement; they have proposed a regulation to do that. Then there were a series of bilaterals that we could have, and then ultimately the fall-back in terms of permits.
The permits were always going to be the fall-back and were always going to be somewhat sub-optimal. The good news in terms of the top, which is a regulation, is that it is progressing well—indeed, the European Parliament was considering it today That and the equivalent regulation on aviation is giving us a far higher degree of confidence than I think we had when we last appeared in front of the Committee, back in October. We always said that there were some actions that they could take and they have taken a very considerable one in terms of looking for a legal regulation to do so. That still needs to pass through. The amendments from the European Parliament look very light. Council, in terms of COREPER, will happen this week and this will all run through over the next one to two weeks—actually, we will probably complete around 11 March.
The confidence that we not will have to rely on that fall-back is much, much higher, and indeed you hear it in the tone from the haulage associations and others. The fall-back is sub-optimal and that is the area where they feel very uncomfortable, and I think we could understand why they do.
Q171 Sir Geoffrey Clifton-Brown: Ms Moriarty, I think I heard Ms Kelly say that there is not going to be sufficient capacity in the short term to get all the food that we need in and out of this country. Is that correct?
Clare Moriarty: What Ms Kelly said was referring specifically to the freight capacity that the Government have procured in order to have capacity away from the short straits. That is being prioritised for the things where there is the highest need and the greatest risk of shortage. When you match up the amount of, for example, medicines and medical devices, we do not expect that food will be carried on that Government-procured freight capacity.
As my colleagues have been describing, it is a dynamic situation, so the most useful thing we can do is improve the flow through Calais, working with the French to make sure that the delays are less than the worst-case scenario that has been described. We are looking at this in the round, and the Government-procured freight capacity is one element. That is not an element which we expect to be used for food, but we are working in all the other ways to make sure that food continues to enter the country, including all the ways that I previously discussed—making sure that we are not holding it up at the border ourselves.
Q172 Sir Geoffrey Clifton-Brown: Ms Kelly, it looks as if you are going to have to do some prioritisation of which lorries get through the ports. Can you give us an insight into the Government’s thinking at the moment as to how that prioritisation is going to be? There is a divergence of thought on this matter. Some people say that you should prioritise empty lorries because they are the ones that have got the correct paperwork, and they can get through the ports quickly. On the other hand there are things, as Ms Moriarty has just said—critical goods—that need to come in and out of this country: drugs and perishable goods, food and live animals. How are you going to prioritise this if real problems start?
Bernadette Kelly: What we can prioritise—and what we will prioritise—is how the capacity that we have now procured and reserved will be used. What we do not expect to be able to prioritise, as a matter of practical handling, is the exact order in which all lorries going through the border will be able to proceed; it is simply not practical. We have not identified a practical arrangement which means that we can prioritise all traffic flows. What we can prioritise, as I say, is the use of the capacity that we have secured.
Lucy Chadwick: The most important priority, therefore, that we have in terms of our actions is making sure that flow works. An empty truck, a truck that has actually got its transit documentation, a truck that has got its pre-declarations when going out, can flow through very smoothly. That is where our energy is. As Ms Moriarty has described, it is absolutely focused. How do we make sure that all the hauliers who turn up have that paperwork, are what we would call Brexit-ready, and can flow through? That has to be the priority. It is the movement of that that is the critical thing. We simply cannot determine what someone has got in a truck, and indeed—
Q173 Sir Geoffrey Clifton-Brown: Well, I wonder whether this answer is sufficient. If we end up in a really bad situation where there is a huge snarl-up either side of the channel and important goods are not getting into the country, frozen food is going off, live animals are still in their trucks, critical drugs and services are not getting in and out of this country, surely a responsible Government will have to act, and it will have to act with some very draconian powers to make sure that the right things are prioritised?
Bernadette Kelly: The way we are acting at the moment is to ensure that that flow is sufficient to avoid the situation you describe.
Q174 Chair: But, Ms Moriarty, how are you going to prioritise?
Clare Moriarty: A lot of the work we are doing at the moment is trying to separate out the different categories. Being very clear, live animal movements can happen only if they are authorised by the Animal and Plant Health Agency. The Animal and Plant Health Agency will not give licences for transport of live animals unless they are satisfied that the right arrangements are in place and that there are contingency arrangements if necessary. The likelihood is that if they are worried about the risk of live animals being caught in significant queues, and if those materialise, then they simply will not give the permit to travel. Live animals are a particularly important category from the point of view of animal welfare, but for precisely that reason that is the area where we have the greatest control and where we know we have all the levers to make sure we do not have animals suffering in queues.
Medicines, as my colleagues have said, are in a sense the top of the tree of very high priority goods where we would have a shortage, and therefore as we look at the bit of the system over which we do now have complete control, which is the Government-procured ferry freight capacity, they will certainly take a high priority in that space.
Q175 Chair: Just to be clear, that is Brittany and DFDS—just those two we were talking about earlier.
Clare Moriarty: Yes.
Sitting suspended for a Division in the House.
On resuming—
Chair: Welcome back to the Public Accounts Committee after that brief adjournment for a vote. Back to Sir Geoffrey Clifton-Brown.
Q176 Sir Geoffrey Clifton-Brown: Given that there is uncertainty around the short straits route, can we examine the alternatives? The alternative port arrangements are, in some cases, considerably less attractive. To get a 1% to 2% replacement of short straits freight requires about a 10% increase on the Zeebrugge-Rotterdam-Felixstowe route. What alternative arrangements have you considered, and have you assured yourselves that in those alternative ports the infrastructure—the roads—are capable of dealing with any increased freight that you might envisage?
Lucy Chadwick: The particular focus we have had on looking at where displacement can occur is in assuring ourselves around the capacity that we have procured. As you can imagine, given that we want to use that for very important, high-priority medical products, we want to be absolutely confident that that can flow.
We have certainly looked at a range of scenarios for what the market response might be. That is why we continue to stay very close in terms of the market and what they are putting on in terms of new or alternative routes. At this stage, there are quite limited private sector propositions that have come forward, which is why we had to get into freight capacity ourselves.
What we certainly have done is to look at scenarios in terms of understanding what we think could be the ranges—that is certainly the analysis that we have done for the local resilience forums—in order to understand, in a worst case, what some of the peaks that could occur could be, as much as what the effects could be on either end.
Q177 Sir Geoffrey Clifton-Brown: Having found the correct piece of paper, I have the definitive backing for my question. Even if Felixstowe traffic went up by to 10% to 20%, that would only equate to 1% to 2% of traffic to Dover. If there is a problem at Dover, it is going to require quite a considerable displacement to other ports to make up the capacity that we need.
Lucy Chadwick: Our assessment, and the reason we went into the freight capacity, was that that was so important, in terms of preserving it for those priority goods. It is very hard to see that there is displacement that could achieve all of some of the worst-case displacement, and that is just the position that we are in. You are right in assessing that you can’t take all the short strait capacity and move it elsewhere in the country and have the same consequence and effect. That is why we entered into the contracts that we did.
Q178 Sir Geoffrey Clifton-Brown: We have spent a lot of time in the Committee today examining the capacity that has been bought by the Government into Dover and the short straits. Have you bought any capacity elsewhere?
Lucy Chadwick: Because of the importance of the short straits, that is the capacity that we have been replacing, by operating that side of the short straits. We were not interested in any others because, actually, there is flexibility in those routes to take more. The dependency of the UK economy on the short straits is the critical thing that we have been focused on.
Q179 Sir Geoffrey Clifton-Brown: We have concentrated on getting goods into this country from the continent. What discussions have you had, Ms Kelly, with the French at Dover and Calais? It is very easy for them, under the guise of more rigorous inspections, to quite rapidly build up congestion at Calais. What discussions have you had with the French to make sure that we keep those ports open and flowing?
Bernadette Kelly: I might well ask Ms Chadwick to say more. Principally, that discussion has been happening through the borders delivery group, which is obviously a cross-Government effort to work with the French to encourage and persuade and support them in taking steps on their side of the border.
I said at the beginning of the hearing that one of the reasons and catalysts for us thinking about securing capacity back in the autumn was a sense that, at that point, we did not see a very active French response to thinking about what infrastructure they would need to put in place to manage the flow of goods and lorries through the port. Actually, that has now changed quite materially, and we do now see encouraging signs—as I say, Ms Chadwick, who sits on the borders delivery group, can say more—that preparations are being taken seriously on the French side for a no-deal Brexit.
Lucy Chadwick: I had meetings before Christmas with the French co-ordinator around all this. Those discussions have now concentrated in on the border delivery group, who do that on behalf of DEFRA, ourselves, the Home Office and others. We keep very close co-ordination around that, with weekly meetings to check what we understand is going on. There is an awful lot of intelligence going in now in terms of activity and physical infrastructure. According to our best-case analysis, we thought they could get up to about 10 additional checkpoints. They currently have two in Calais, and they look like they are putting in infrastructure for up to 12.
Q180 Chair: “They look like”? Are you talking to them?
Lucy Chadwick: No, physically. When I say, ”Look like,” I mean we see building. It looks like they are building.
Q181 Chair: But surely you are having more than a look at it. Surely you are talking to the French.
Lucy Chadwick: Yes, absolutely.
Q182 Chair: So they are telling you—they are assuring you—that they have?
Lucy Chadwick: Yes, they are. Apologies if my language was not precise enough there.
Q183 Chair: I thought maybe you were sending spies over to have a look.
Lucy Chadwick: No, they are quite explicitly sharing. Clare will be able to comment on the border inspection points, which they are also looking at. The degree of activity is at a quite different level. Going back to the questions about what options we have, the biggest option available to us is the flows potentially being far better managed than we anticipated or were looking at back in September, when there looked to be no French action. The context is quite different.
Q184 Sir Geoffrey Clifton-Brown: One wants to be careful about giving hostages to fortune, but if hauliers face long delays, for all the possible reasons for disruption we have discussed today, is it likely that haulage rates will go up?
Bernadette Kelly: That costs will go up, sorry?
Q185 Sir Geoffrey Clifton-Brown: Yes.
Bernadette Kelly: It is. I would say it would be a natural market response that they would seek to pass some of those costs on to customers. In a normal market response, you might well see some of that happening.
Lucy Chadwick: That was part of some of the business case analysis we were looking at. It was those sorts of responses we were looking at in terms of the assessment of why, certainly, back in September, trying to maximise capacity as much as we could was actually a sensible and appropriate thing to do.
Bernadette Kelly: I would say another natural response that you would expect to see is hauliers looking at other routes and taking opportunities elsewhere rather than going through the short straits, if they see the prospect of delays there. You could see a number of dynamic things happening in the market in response to disruption, if it happens.
Q186 Sir Geoffrey Clifton-Brown: Can I come back to the really important question we asked before the break about a situation in which there was considerable disruption to the Dover-Calais route, lorries were piled up for miles around on one side or the other and critical goods were not getting into this country? Have you gamed that, and are you prepared to introduce emergency legislation if you need to do so to deal with that?
Bernadette Kelly: I suppose the question in my mind is, what would the emergency legislation be doing? Clearly, Operation Brock—
Q187 Sir Geoffrey Clifton-Brown: Well, you say you do not have powers over the commercial market to prioritise lorries.
Bernadette Kelly: What I am saying is, first, Operation Brock is all about managing that on our side. It has been entirely designed to enable us to do that, to manage the disruption and to keep Kent open for business, as we have always said we intend to do, if there is significant back-up of lorries on our side of the border. What is more challenging—either of my colleagues might want to say a bit more—is the idea that there is what I do not think is an absence of power so much as a practical challenge around how you would pick and choose exactly which lorries you take out of a queue and allow to move through the system.
Q188 Sir Geoffrey Clifton-Brown: So I am a haulier with a load of bricks. I have been there for 24 hours. Somebody else has been waiting for a very short time, but his goods—frozen food, for example—are going to run out of time. Do you have the power to direct one over the other?
Lucy Chadwick: We don’t believe that we do, because what you would be doing is playing in markets and picking winners and losers. Genuinely, you are picking market winners and losers.
Q189 Sir Geoffrey Clifton-Brown: I’m sorry, I don’t accept that, Ms Chadwick. If it is critical in the national interest that we get food or drugs in and out of this country quickly, because there are shortages building up and the shelves in the shops are emptying, surely there is a need for a responsible Government to act pretty quickly.
Clare Moriarty: Perhaps I can go back to where we were before the vote. We believe that the solution for drugs is to use the Government-procured capacity. On the basis of our best understanding, we do not believe that we will need to take specific action in relation to food. We do not believe, even in the reasonable worst-case scenario, that we will have a shortage of food. We expect that there would be a reduction in choice, but we do not see that—
Q190 Sir Geoffrey Clifton-Brown: I hear all of your comforting answers, but as a responsible Government, surely you have got to plan for the very worst-case scenario. I am asking you about that very worst-case scenario and what you would do in the instance that I have outlined.
Clare Moriarty: The Government clearly have emergency powers. We have looked at this and are gaming it, as you would expect. We have looked at what we think might happen. We think that now there is actually a much lower probability that it will happen, for exactly the reasons that we have been talking about. Our best understanding is, from the things that we can see, that we would not need to take emergency powers. The Government clearly have emergency powers for the situations when they might be needed.
Q191 Sir Geoffrey Clifton-Brown: Can we just be absolutely clear? From the figures that I read out earlier about the offset with the other reports, are you saying that if there is a real problem in the short straits route, there is really no chance of the other ports being able to offset that capacity, because of the sheer amount that goes through the short straits, and that if there is a real problem with Dover-Calais, we have a serious national emergency?
Bernadette Kelly: We have said that we have taken steps—through the procurement of our capacity directly by Government—to ensure that we have a means of getting absolutely top-priority goods into the country in a guaranteed way. That is the principal step. We have said that a huge amount of work is happening now, both on the UK side and with the French, to ensure that the flows are such that some of the worst-case scenarios that you might otherwise imagine will not emerge. Indeed, there is evidence to suggest that steps are now being taken to secure flows of traffic in that way.
We do not currently have a plan to do exactly what you are describing, namely to pick and choose every single lorry in terms of its priority in coming through the Dover straits.
Q192 Sir Geoffrey Clifton-Brown: Don’t you think, Ms Kelly, that you ought at least to have a plan?
Bernadette Kelly: I think a plan has value only if it can be executed with confidence and in a secure way. The judgment that we have taken, having looked at that, is that there is not a practical and safe way of actually doing that.
Q193 Chair: Can I go back to the point about the non-emergency? Sir Geoffrey raised the point about the number of haulage permits—the ones that let people operate in the EU? Ms Moriarty, the to and fro on a number of the items has a big impact on your Department. You said earlier that animals will not be allowed to travel if there was not a route through. I have paraphrased you slightly, but is that correct?
Clare Moriarty: Broadly, yes.
Q194 Chair: That has an impact on what we have just heard. If there is no route through, what happens to those animals that would otherwise be exported for whatever—whether for sport or food purposes?
Clare Moriarty: The amount of live animal exports is very small—it is under 20,000 of all types a year.
Q195 Chair: It is certainly not what it used to be because of the restrictions—absolutely. Have you worked out what the impact will be on the welfare of those animals? They may have to be moved for good reason or there may be an issue for farmers.
Sir Geoffrey Clifton-Brown: Like sheep farmers.
Clare Moriarty: I don’t think the issue is about animals that would otherwise be live animals exports, because the numbers are microscopic in the context of the overall exports.
Q196 Chair: What other areas would be at risk if there are not enough permits for the right freight companies and hauliers to deal with the goods that your Department deals with? What are the biggest worries for you?
Clare Moriarty: We are obviously looking at the impact on the sectors that we deal with rather than a single issue of the availability or otherwise of haulage permits. We are looking at a combination of factors that would be present in a no-deal scenario, where, in relation to exports of products of animal origin—meat rather than live animals—there will be a requirement for export health certificates and for exports to travel through border inspection posts. We would face tariffs in that situation. There are combinations of circumstances, of which border disruption is only one part, in which we might expect certain sectors to see a reduction in exports.
Q197 Chair: Has your Department done an analysis of the number of freight companies that have had challenges getting the right permits, which would affect the sectors that you are talking about? Which one of you does that? Ms Moriarty first.
Clare Moriarty: I don’t think the question of permits is going to be the determining factor, for the reasons that Ms Chadwick was outlining earlier. We think there is a solution to permits. We are hearing some anecdotal evidence about permits, but it is a much broader picture. The presence or absence of a haulier permit will not make the difference to whether sectors experience disruption.
Lucy Chadwick: I completely agree. The other thing I would add is that we have assessed whether the goods that we have looked at—the most critical goods—need to go through the short straits or elsewhere. We have looked at this across the energy sector, the water sector and health. We have gone across Government. In terms of the priority good that we are talking about using the very precious additional capacity that we have got, that is what has been driving those volumes and the scale that we have got there. There is a strong match between the two. The things that would be most critical to the UK, in terms of continuing operations, either come in through other routes and can go to those, or we have found alternative capacity for them to operate through. That has been a comprehensive, cross-Whitehall piece of work.
Q198 Sir Geoffrey Clifton-Brown: Ms Chadwick, I’m afraid that that was quite a woolly answer, and I am going to challenge it. Given the displacement figures that I gave earlier, the opportunity to displace the sort of quantity of goods—particularly foodstuffs, which are quite bulky—to other ports to meet the demands of the United Kingdom is surely pretty improbable.
Lucy Chadwick: I am referring back to what we regard as the top and highest priority. As Ms Moriarty described, the freight capacity deals are the very top priority, and we have a degree of confidence around that. I just wanted to make sure you understood the comprehensive process we have gone through to identify and understand those.
Q199 Sir Geoffrey Clifton-Brown: I am sorry to labour this point, Ms Moriarty. When the beast from the east came last year, it emptied my Tesco shelves pretty quickly of the essentials—bread, milk and so on. You wouldn’t want that to go on too long; otherwise, you would start getting panic buying and so on. This is a fairly critical issue.
Clare Moriarty: Yes, and one of the issues we are looking at very closely is the actual availability of food, versus the perception. Our best understanding is that, in the event that there were significant disruption on the short straits, there would be a reduction in availability and choice, particularly of those perishable, just-in-time goods that come through the short straits.
There would not be an absence of food. We would not face a food shortage as a country, given all the other places from which food comes. We have very wide and diverse supply chains for food. Food comes from Europe, but it also comes from other countries. There are all sorts of opportunities for substitution. Our best assessment—as with anything else, this is only an assessment—is that there wouldn’t be a food shortage. However, there are potentially issues for geographically vulnerable communities. We are working with our partner Departments to understand where those issues might arise.
There is clearly a potential impact on vulnerable groups if there is an increase in food prices. We have had a discussion with a range of Departments that we would need to look to to help manage the situation. There are Departments that are significant buyers of food for the sectors that they serve—the Ministry of Justice, the Department for Education. There are Government Departments that depend on being able to buy food. We are working with a whole range of partners.
Q200 Chair: Sorry, the Department for Education doesn’t buy much food itself. You are talking about schools.
Clare Moriarty: For schools, yes. We are working with other parts of Government in order to have a sensible, joined-up approach and to think about the places where we might need to act—the sort of planning you are talking about. We are thinking about where problems might arise, although we hope that they do not.
We are also working very closely with the retail sector, because we know that the voice of retailers is more immediately trusted by consumers than the Government’s saying, “Please do this, please do that.” We are absolutely looking at all those issues to make sure that we not only have an adequate supply of food but that people feel enough confidence in that supply.
Q201 Sir Geoffrey Clifton-Brown: With your indulgence, Chair, I will ask Ms Kelly a question about our earlier discussion on Seaborne Freight. Can you confirm, for the record, that Arklow had actually produced paperwork on two ships to the Government? You had identified two specific ships as part of that contract?
Bernadette Kelly: We certainly understand that Arklow had identified two named ships; we knew exactly which ships they were looking at procuring. I could provide further details. I do not have here the details on the paperwork and so on. To be clear, there were tangible plans. These were not—
Chair: But there was no legal—
Bernadette Kelly: A legal, contractual arrangement was not entered into. That was all built into the milestones process of trying to drive this through to delivery.
Chair: And no letter until 14 January.
Q202 Sir Geoffrey Clifton-Brown: That is helpful. Ms Moriarty, can I go through a few things quite specific to your Department? First, on export health certificates and vets, how can you be so sure that the market will meet the demand for vets without your intervention?
Clare Moriarty: We have talked about vets on several previous occasions. We talk regularly to the veterinary sector and to some of the larger businesses that would need the services of vets on a larger scale than at the moment. The action we have taken is to fund 450 places for vets to acquire the specific animal exports certification that they will need in order to sign export health certificates. That 450 plays against an estimate of about 50 full-time equivalent vets needed to do the signatures.
We have also agreed with the veterinary profession the creation of a certificated support officer role, and we are funding the first 200 places for people to become qualified CSOs who can then do quite a lot of the administrative work, allowing the official veterinarian to spend a smaller amount of time on providing their assurance. I think we have 70 people registered for the CSO training, and we have about 25 or 26 starting to come out of that training. The veterinary qualification offer went out in the last few days, and we are hearing reports of good take-up.
That will give us quite a significant increase in capacity. Ultimately, we are talking both to the supply side—the veterinary profession—and to the demand side, namely, the processors, to try to understand. Our best understanding is that, while enabling some additional vets to have the qualifications is helpful, the Government’s intervening otherwise in the market would not be helpful.
Q203 Sir Geoffrey Clifton-Brown: So you have funded these 450 vets and 200 certification officers, yet you have only started training a comparatively small number. Are you confident that you will have enough people able to certify these certificates in the next month or so?
Clare Moriarty: Yes. For example, the CSO training is a six-hour online training programme, after which people sit an exam. It is then takes 10 days or so for the Animal and Plant Health Agency to give them the evidence of qualification. The veterinary qualification is an upgrade on a general export qualification, which again is a matter of a relatively small number of hours, so we think it is entirely feasible to add to the numbers in that way. We know that 500 or 600 vets have recently refreshed their animal export qualification.
Q204 Sir Geoffrey Clifton-Brown: And the cost to exporters is not going to rise?
Clare Moriarty: At the moment, if you are an exporter exporting only to the EU, you do not need an export health certificate, so you do not need an OV to sign it. You will incur a cost that you did not before, simply because you have to get a process done that you have to pay for.
Q205 Sir Geoffrey Clifton-Brown: Can I move on to the vexed subject of chemicals? You have been establishing a computer system that allows chemical manufacturers to register. Is the idea that that computer system will be compatible with the French REACH IT system, so that the information you require on UK IT systems will be compatible for transfer, to enable manufacturers to register on the REACH system?
Clare Moriarty: At the moment, everybody is registered on the REACH system, but from 29 March, if we leave without a deal, we will not have access to the REACH system and the data that it holds. Essentially, we are building a mirror-image copy of the REACH system on which the same data can be entered. It is not a system that holds data in a very granular form; companies upload documents that contain the data they require in order to have access to the market. Our system will certainly allow them to produce the data once and upload it to different systems. We are grandfathering all of the existing REACH registrations of UK companies, so they will automatically become part of the UK REACH system. We are giving people quite a reasonable period of time: six months to make sure that their details are registered on the system, then two years to get the actual data on to the system.
Q206 Sir Geoffrey Clifton-Brown: Yes, but aren’t we talking about two different things here: registering on the UK system and registering on the EU REACH system? If we leave the EU with no deal, surely all chemical manufacturers will be required to register with the EU REACH system.
Clare Moriarty: It depends what they want to do. There is now quite a detailed set of guidance on the Health and Safety Executive website, which takes people through exactly these different permutations. As we have discussed, there are quite a range of permutations, depending whether you are a UK company wishing to access the EU market, a UK downstream user or a UK company wishing to access the UK market. If you are a UK company that currently has a REACH registration and you wish to continue accessing the EU market, you need to transfer your registration either to a company based in the EU27, or to an only representative.
ECHA, the European Chemicals Agency, issued guidance last week. It has created what it calls a “Brexit window” from 12 March to 29 March, in which companies will be able to do that switch-over so that they can maintain their registration in the EU. If they are UK companies, we will simultaneously grandfather them into the UK system.
Q207 Sir Geoffrey Clifton-Brown: Two important questions arise from that. First, is the industry now fully aware that it has that window in which to register with the EU system? Have the Government, through their website, widely disseminated that information?
Clare Moriarty: Yes. We have put information on the Health and Safety Executive website that is signposted from a whole variety of different places. The ECHA guidance, which is their guidance rather than ours, was published on Friday of last week and is now available. We are in very deep and regular contact with all the various chemical industry bodies, which in turn are communicating this.
Q208 Sir Geoffrey Clifton-Brown: What assurances have you had from the EU that chemical exporters who need to register within this window will have their registrations processed in a reasonable time, so that there is no hiatus in their being able to export to the EU?
Clare Moriarty: They are not registering on the REACH system; they have a registration. For a UK company that is currently exporting from the EU, there will be a registration on the REACH system, but in order for that registration to remain valid, it needs to be attached either to a company based in the EU or to an only representative. What the window allows companies to do is transfer their details, so that the registration remains valid. They are not starting again; they are simply changing the location of the registration.
Chair: Which I think we covered in the last session.
Q209 Sir Geoffrey Clifton-Brown: Can I get back to the Chair’s question on live animal exports? I come from a strong sheep-producing constituency that relies heavily on live animal exports, and a number of others’ constituencies will be the same. While they may be able to make alternative arrangements for a month or so, we do not know how long any disruption might last. There will come a point where it will become very serious because, particularly at this time of year, there will not be enough feed for them and we will need to slaughter large numbers in the UK in that unlikely and unfortunate event. What planning have the Government done for that?
Clare Moriarty: I am sorry to be boring about this, but we are not actually talking about live animal exports. We are talking about carcase-weight exports. The number of live animal exports is very small. I think, in your constituency, people are exporting sheep that have been butchered. We recognise that the sheep industry is the industry that is most reliant on exports and the most reliant on exports to the EU. It is certainly something that we are taking seriously. We do not have mass slaughter of sheep as any part of our planning at the moment, but we are looking at how we can support the industry in that eventuality.
Q210 Chair: I have a couple of quick questions. On the workarounds that you have talked about a number of times, Ms Moriarty, can you give us an example of one strand of your work and how, if the flow of goods reduced by 60% for six months, which is the risk scenario, you would deal with that and get it through the system?
Clare Moriarty: Are you talking about our IT projects?
Chair: Yes.
Clare Moriarty: The IT projects are, generally speaking, not dependent on the volume of traffic going.
Q211 Chair: So that will not be a problem for our IT at all. There is no risk there.
Clare Moriarty: I was going to make the offer, which we have made and had taken up by the EFRA Committee, that if anyone from the Committee would like to come over to the Department, we have done a show and tell of walking through the systems. It is a lot easier to explain the systems when you can see them in front of you.
In headline terms, there are six systems. One of them is a relatively straightforward upgrade of the system for getting an export health certificate. It is not an all-singing, all-dancing system, but it makes it easier for people to access the information they need. With that system change, and with some additional people in our Carlisle office, we are confident that we will be able to maintain the current time for issuing an export health certificate, even with significant increases in volumes. We have a system for f-gases and ozone depleting substances, which is also live.
The other systems we have are at various stages of testing. We are moving them through and testing them with users. Some of them have been through the private beta, so they have had actual users using them, and some of them are just getting to that point. We do have contingencies if we find that the systems fail or there are any issues that make it difficult for people to use them.
Q212 Chair: What is the biggest risk for all or any of them?
Clare Moriarty: The biggest risk is that a number of them depend on a common registration module, and we need to make sure that the registration module is sufficiently user-friendly for people to be able to get on to it. There is an IT element to that. It is a relatively straightforward thing, if we need to, and there is a workaround that says, “If the only way you can register is by ringing up somebody to register, but then you can use the system, we are in one position.” We have plans for manual fall-backs, which are mainly—
Q213 Chair: Even on TRACES?
Clare Moriarty: On the TRACES replacement, what it comes down to is the difference between sitting in front of a screen, which has a nice display of radio buttons that you fill in, and you fill in the information directly on to the screen and it pushes it straight in, and the fall-back, which is that you are presented with a form that you fill in on screen with exactly the same information and you email the form to somebody else and they input the data. We have worked out what that is going to involve—
Chair: A lot more people.
Clare Moriarty: Not a huge number more people, but some more people, and we know exactly where those people would come from, so we are prepared.
Q214 Chair: It will be a lot slower, though, than the TRACES system.
Clare Moriarty: What it loses is the integration with other systems. It would be slower, but because we are talking about goods coming in from third countries into container ports, where we are not talking about just-in-time in the first place, we do not think it would materially add to the amount of time taken to process the goods.
Chair: I will bring in a quickfire round from Sir Geoffrey, Layla Moran and Caroline Flint.
Q215 Sir Geoffrey Clifton-Brown: May I move on to another vexed subject—food inspections? As I understand it, you are not planning any increase in the amount of food inspections—you are relying on the fact that pretty little food is inspected already when it comes to this country—but have you thought about behavioural changes by continental food suppliers in the event of no deal?
Clare Moriarty: Yes. What we are doing is broadly the same plan that we had before. Third-country goods will be subject to exactly the same regime as they are at the moment, but we will be using a different computer system to capture the information, because we will not have access to the EU system. In the first instance, we will not be requiring pre-notification of goods coming from the EU, but the system is capable of dealing with them and from June we would expect the Food Standards Agency to be starting to introduce pre-notification requirements for food coming in from the EU if it is high-risk food. That is either products of animal origin or certain high-risk foods of non-animal origin. We will move to a different system over time, but we are aware of the risks around food security, and the National Food Crime Unit has been given an additional £2 million to ensure that it is in a position to act quickly. A lot of this work is intelligence-led rather than inspection-led, and we need to ensure that we are in a position to follow up on issues as they arise.
Q216 Sir Geoffrey Clifton-Brown: But surely, in the event of this quite significant change, there must be a danger that more non-contract-specification food will come into this country—that is, another horsemeat scandal? There must be a greater danger of that sort of thing happening.
Clare Moriarty: Again, there is a risk, as we have discussed on several previous occasions. We are alive to that risk. There is a relatively short period when we are running a system where we are not applying pre-notification to products from the EU, because the alternative would be to introduce a massive further blockage at Dover and cause a big problem for our food supply. The judgment that we made was that, in the very first instance, we need to prioritise the flow of food into the country over having additional checks, given that the underlying risk profile does not change. As you say, there is the potential for criminality and we are alive to that; it is an area where Border Force and the National Food Crime Unit can—
Q217 Sir Geoffrey Clifton-Brown: A last question from me: are you confident that, in the event of no deal, you have the resources to do the additional inspections, such as CITES, that you do not have to do now?
Clare Moriarty: We have been in discussion with Border Force about that; they are the people who do the CITES inspections, and they are increasing their numbers at six points of entry, specifically to ensure that they can deal with the additional CITES inspections. We have put out our communications about that. There will be 25 points of entry for CITES goods and you will have to bring in your goods to one of those points of entry. We estimate that for some of them, there needs to be an uplift in the number of Border Force staff who can process those inspections, and that work is in hand.
Q218 Caroline Flint: My question was also on CITES. Just to double-check, are we adding on any additional bureaucracy in relation to this? A parliamentary colleague suggested that, even though we are all under the same arrangement at the moment, if something was brought in from, say, France we were asking for additional stamps and permits to be done. Is that the case, or is that wrong?
Clare Moriarty: At the moment, because the EU is treated as a single unit for CITES purposes, no permits are required. If you bring a CITES good from France to the UK, you will need a permit—including if you are buying orchids in the Netherlands, which is a major source, and bringing them into the UK. They will need a CITES permit, because that is how the international regime works. What happens is that instead of being part of a big bloc and being able to move anything we like within that bloc, we become a separate country.
Q219 Caroline Flint: Even though we know these countries are all signed up to the same international agreement.
Clare Moriarty: Yes. The terms of the international agreement are that, as a country that is not part of a recognised bloc such as the EU, we have to apply the rules ourselves.
Q220 Layla Moran: A quick question for Ms Moriarty: how many civil servants have been seconded to your Department to help you with the extensive work we have explored today?
Clare Moriarty: Well, we have—
Layla Moran: Or is that the wrong word?
Clare Moriarty: We have recruited about 2,500 people. We have had some people seconded in from our own delivery bodies, who obviously have particular expertise in the areas we work in. We also have, at the moment, about 100 people who are coming in on a temporary basis from the Department for Education to support the no-deal planning.
Q221 Layla Moran: Ms Kelly, does that apply to you as well? Are you getting help from other Departments?
Bernadette Kelly: Our numbers are slightly less significant in scale relative to the Department’s size than they are for Ms Moriarty. At the moment, we have about 260 full-time-equivalent people working on Brexit-related business. In the event of a no-deal exit and us having to exercise all of our contingency plans, we would see a very significant increase in those numbers for a period of time.
Q222 Layla Moran: To what sort of level?
Bernadette Kelly: We could see that going up to between 600 and 700 at the point of peak activity, dealing with disruption. That is what we are planning for, because we are planning for reasonable worst-case scenarios and round-the-clock shift working, and so on.
Q223 Layla Moran: Has it been identified where they will come from?
Bernadette Kelly: Yes. A significant proportion of these—most of them, in fact—are people being redeployed within the Department. We are actually recruiting some staff—well, we are making some external recruits, but we are also receiving some staff, in particular from the Ministry of Justice. They are being redeployed and sent to us for a period of time.
Q224 Layla Moran: How many of them?
Bernadette Kelly: The current plan is for about 40. We are principally relying on redeploying people within the Department, though with some additional people being brought in from other Departments or externally to help us through a period of contingency planning, if needed.
Q225 Layla Moran: Ms Moriarty, if no deal happens, does the same apply for you? Do you have a plan for many more people coming in?
Clare Moriarty: We have been through successive internal reprioritisations since September of last year. We have reprioritised something like 250 people on to no-deal work. To a quite significant extent, that is to make sure that we have greater resilience and that we are not overloading people. We now have some roles where two people are doing the same job in order to provide that resilience.
We have looked at what we would need in the event of a full no deal. We are currently standing up our emergency centre, so again, you would need a lot of people per post in order to make sure we can run 24-hour cover. If we are likely to have further tranches of people coming on loan from the Department for Education—
Q226 Layla Moran: The Department for Education is sort of your buddy.
Clare Moriarty: It is our buddy Department, yes.
Layla Moran: Is that how it is working?
Clare Moriarty: It is, yes.
Bernadette Kelly: And the Ministry of Justice and the Ministry of Defence are our buddy Departments, so that is how we are doing this.
Caroline Flint: This could completely reorganise Whitehall.
Q227 Sir Geoffrey Clifton-Brown: Are both of your Departments recruiting people from the emergency exit unit—I think that is what it is called—that the Government are setting up to employ people to deal with an emergency?
Bernadette Kelly: I think you are describing a clearing hub, if I have correctly understood the description. What has happened is, in order for these loans to happen rapidly and with minimum bureaucracy, the Government have set up a kind of hub at the centre that is basically trying to match people from Departments that are putting resources into the pot to Departments that need additional resources as rapidly and effectively as possible. I think that is what you are describing—is that what we think is being described?
Clare Moriarty: It makes sense, yes.
Bernadette Kelly: So it is more a clearing hub than a centre of expertise.
Q228 Chair: We will look forward to getting a letter from you. My last question, though, is this: what are the critical cut-off dates for each of your Departments if we were to leave without a deal? When is the last date you could actually get everything ready by, if there were no deal? Have we gone past that date now?
Bernadette Kelly: We are working to get everything ready by 29 March.
Q229 Chair: So you are now on the path to have everything ready for no deal on 29 March, if that is what happens.
Bernadette Kelly: We are ready to have the plans that we have in place ready.
Q230 Chair: But we could find out that we have no deal on 27 March, so is there a cut-off date? We do not know when the final decision will be made. It could be 27 February—that is a date that has been mooted. It could be a month later.
Bernadette Kelly: We just keep going, focused on 29 March, until—
Q231 Chair: Keep going as though there is going to be no deal. You are going like that.
Bernadette Kelly: I think we have to do that until we have confidence that there is no prospect of no deal.
Q232 Chair: We know you have been working on three options all this time, but just to be clear, you are now working towards no deal on 29 March. It could change, but you are working towards that.
Clare Moriarty: We have some specific cut-off dates or contingency decision dates on our IT systems, working back from 29 March and bearing in mind that people need to be able to work with the systems. If we are not absolutely confident in the systems by a couple of dates at the end of February, we would then switch to our manual contingencies, but broadly speaking, we are planning for—
Q233 Chair: You are now working for no deal.
Clare Moriarty: Yes.
Chair: While simultaneously working for a deal.
Clare Moriarty: While we are doing that, we have a lot of people—
Bernadette Kelly: And these are still contingency plans.
Q234 Chair: I should think the NAO will spend the next 20 years working out what it has cost to do it in this particular manner, but that is something that the current Comptroller and Auditor General will not have to worry about—lucky him. Thank you very much for your time; apologies that it took a bit longer than expected, but the vote obviously got in the way. Ms Moriarty, did you want to say something?
Clare Moriarty: I will just repeat my offer.
Chair: I am quite keen to come. Some of us are around next week, apart from looking at interesting SIs from your Departments.
Caroline Flint: How long would it take? How long would you need?
Chair: We can take this offline.