During recent questioning by the Treasury Select Committee, the Chief Executive of HMRC, John Thompson said that if ministers opted for the “Max Fac” solution, it could cost the UK and European businesses between £17bn and £20bn each year, reflecting the cost of customs declarations and complying with rules of origin requirements. He went on to say, to stunned MPs, the “smart technology” border solution championed by Boris Johnson would trigger a huge bill for companies in customs declarations and red-tape.
What is the ‘Max Fac’ solution? A “maximum facilitation” arrangement would minimise customs checks rather than getting rid of them altogether, using new technologies and things like trusted trader schemes, which could allow companies to pay duties in bulk every few months rather than every time their goods crossed a border. Basically, it is a Brexit customs plan which uses tech to patrol the border.
However, Mr. Thompson warned the Prime Minister’s s plan wouldn’t be ready by the time we fully quit the EU in 2021 and the plan would cost business £20billion a year, delivering another blow to Brexit cabinet ministers.
Ministers have been considering two options to replace the existing customs union with the EU, which involves minimal checks, and which the government is committed to leaving. The second option being a customs partnership.
What is a ‘Customs Partnership’? This would remove the need for new customs checks at the border. The UK would collect tariffs set by the EU customs union on goods coming into the UK. If those goods didn’t leave the UK and UK tariffs on them were lower, companies could then claim back the difference.
Mr. Thompson told Treasury Select Committee that the cost to business from this scheme would be a “net zero” as it replicates much of the current arrangements with the EU
He went on to say there were about 200 million exports to the EU each year that could require customs declarations – and a similar number of imports.
Citing research by the University of Nottingham business school and by KPMG, he said the likely cost of individual declarations was between £20 and £55 – and while an average could not be authoritatively calculated, ministers had been advised a figure of £32.50 was plausible.
Payments on either side of the border could cost £13bn a year in total while it was “reasonable” to assume any rules of origin requirements demanded by the EU could add “several billion pounds”.
“You need to think about the highly streamlined customs arrangement costing businesses somewhere in the late teens of billions of pounds, somewhere between £17bn and £20bn,” he said.
“And the primary driver here is the fact that there are customs declarations.”
In contrast, he said the customs partnership option – which has been described as “crazy” by Boris Johnson and “flawed” by Michael Gove – would cost business a maximum of £3.4bn a year – depending on how much firms chose to claim back in differential tariffs.
It would, he said, take between three to five years to fully implement any new system after Brexit.
Under either scenario Britain may not have a new border in place for January 2021, he warned. “It may not be fully optimal,” he said.
Brexit supporters dismissed the idea of a £20bn bill as “speculation”.
But pro-EU campaigners said it was another reason to stay in the EU’s current custom union.
Lib Dem MP Layla Moran said: “Let’s be honest – both of these options aren’t up to scratch and neither are what people voted for.”
Pro Brexit MP John Redwood admitted the £20bn bill suggested ‘Max Fac’ was the “wrong system”.
The Cabinet has been split over a post-Brexit customs plan for months. Boris Johnson and other Brexiteers prefer ‘Max Fac’ where goods are tracked as they enter the UK by smart technology and cameras.
Under a Customs Partnership, the current system would essentially remain in place with the UK collecting duty on behalf of the EU as goods enter. Brexiteers complain this would tie us to Brussels indefinitely.
The EU has expressed doubts about whether either option would work, with its chief negotiator ruling out allowing the UK to collect customs duties on its behalf. Michel Barnier said the UK wanted to “take back control” of its money, law and borders – but so did the EU.
The EU would not delegate “excises duty collection to a non-member”, but retaining control of the money, law and borders also applied to the EU’s customs policy, he said.
“The EU cannot and the EU will not delegate the application of its customs policy and rules and VAT and excises duty collection to a non-member who would not be subject to the EU’s governance structures,” he said. Any customs arrangement or union “must respect this principle.”
The UK is leaving the EU in March 2019, which is currently expected to be followed by a 21-month transition phase before the longer term post-Brexit system kicks in.
The Manufacturers trade body, business group EEF, has slammed the governments ‘Max Fac’ Brexit plan. Formerly the Engineering Employers’ Federation, EEF now works with manufacturing, engineering and technology-based businesses in the UK. It is the largest sectoral employers’ organisation in the UK. It delivers services at national level and local level through a network of regional offices throughout England and Wales.
EEF said the government should abandon any further exploration of the ‘Max Fac’ idea. MPs had previously claimed the ‘Max Fac’ option could be up and running by 2020 – EEF said this was “naive” and “wholly unrealistic”.