LONDON — One of the governments proposed models for a new customs arrangement with the EU would cost British businesses up to £20 billion a year, the head of the U.K. tax authority said.
Jon Thompson, chief executive of Her Majestys Revenue and Customs, told MPs that ministers had been briefed on estimates, which suggested that under the maximum facilitation or “max fac” customs model, the burden of carrying out customs declarations and rules-of-origin checks on imports and exports with the EU would be between £17 billion and £20 billion.
The model would mean the U.K. leaving the EU customs union but making borders as frictionless as possible by using technology and other administrative methods such as assigning authorized economic operator status to more traders.
The estimate is based on a base line of 200 million trade consignments with the EU, based on 2016 figures, at an estimated cost of £32.50 per customs declaration. Thompson said this should be doubled because declarations would be required on the EU side as well, and then “several billion pounds more” added depending on what kind of rules of origin checks would be required under the U.K.-EU trade arrangement.
“Max fac” is favored by Brexiteer Cabinet ministers including Foreign Secretary Boris Johnson, Brexit Secretary David Davis, Environment Secretary Michael Gove and International Trade Secretary Liam Fox.
Anastassia Beliakova, head of trade policy at the British Chambers of Commerce said that the prospect of extra costs was not a “happy prospect” for companies. “Having to do customs declarations is the logical consequence of not being in a customs union with the EU — but news of the cumulative cost is now coming as a shock, as we have not yet had anything close to practical guidance explaining what either of the governments proposed customs options will mean for businesses.
She said businesses wanted time to plan. “Many firms will have to rethink their logistical and financial arrangements, or accept absorbing these costs — none of which is easy — but above all, they want to know what to start planning for. Until there is a firm decision on the future customs relationship, this is impossible to do.”
A Downing Street spokesperson said the figures outlined by Thompson are “speculation.”
Thompson added that under the governments alternative proposal, a customs partnership with the EU, which Prime Minister Theresa May is reported to favor, the net cost to businesses could be “zero or less.” That option would involve the U.K. collecting tariffs on the EUs behalf and then refunding some importers depending on where the goods were destined.
The HMRC official also told the committee that the max fac model would take three years to implement from the moment a final decision was made by ministers on whether or not to pursue it. The customs partnership model, he said, would take five years to put in place.
However, he said that the U.K. would be able to operate a “functional border” in January 2021, the time at which the post-Brexit transition period is due to end. During that period, the U.K. will remain subject to EU rules and will effectively remain within the single market and customs union.
If neither customs model was fully implemented by the end of the transition — which according to Thompsons timescales neither could be — ministers would have to “make some choices,” he said. In the initial months post-transition there would be trade-offs between “three fundamental objectives” at the borders, he said, adding that those were “free flow [of trade], revenue [from customs] and security.”
Summing up, committee chair Nicky Morgan, a former Cabinet minister who is a leading advocate of agreeing a customs union with the EU after Brexit, asked Thompson whether it would be “a relief” if parliament voted for such — avoiding the need for a new customs arrangement.
“Thats for parliamentarians to decide,” Thompson said.