Parliament’s Brexit Committee checks UK readiness for a no-deal scenario
Theresa May is flying to Brussels tonight to meet the other 27 EU Leaders, it is now a certainty that she will not be working through a "fully formed", carefully negotiated and detailed ‘draft agreement’ on Brexit with her peers - as had been scheduled for delivery during this mid-October Summit.
Meanwhile in Westminster, the ‘Exiting the European Union’ committee met this morning, 17 October 2018, to check on how some key Government departments will cope if there is a no-deal Brexit on 29 March 2019.
Having heard of major concerns expressed last week from the National Audit Office, policy and business representatives, the Committee continued its work of examining Brexit preparedness and coordination across government departments – and in particular the scenario whereby the UK leaves the EU without a deal.
In a session lasting well over 2 hours, the Committee probed four senior civil servants on the practicalities of keeping the country going and trade running smoothly in exactly 163 days’ time.
In the session, the Committee asked questions of: Government’s Lead Non-Executive, Sir Ian Cheshire; Department for Transport Permanent Secretary, Bernadette Kelly; HMRC Permanent Secretary, Jon Thompson; and Health and Social Care Permanent Secretary, Sir Chris Wormald.
It became clear that all government departments have taken the NAO guidance seriously and are now preparing for no-deal on 29 March 2019 as the only prudent course of action.
All those questioned reported that their departments had worked the lead-times to implement decisions and a number of actions have begun – for instance, the stockpiling of medicines within the NHS, and approvals and licensing across the Transport sector.
Thompson, for HMRC reported that the lead times were such that it was already too late to implement some measures to ensure a smooth Brexit in March. He spoke at some length about the contingency plans for changes to VAT regime when trading between UK and EU and about how HMRC will cope with up to 5 times the volumes of customs declarations compared to today. The digital reporting system (CDS) that was due to implemented in 2020 – ironically part of an EU wide initiative to simplify and harmonise across the 28 countries of the bloc – had been considered for fast-tracking in the UK as a platform to handle the additional volume of reporting. This is now unlikely to be ready, and the present system – CHIEF – will have be amended to cope.
CHIEF has the capacity to process up to 100 million transactions annually – whilst the estimate post-Brexit, when all EU movements have to be reported – is estimated at over 300 million. Steps have been taken to increase capacity.
Asked about whether businesses will be ready for the new reporting, Thompson said that it was impossible to be sure, but on the facts that he presented - my conclusion is that it is unlikely.
A no-deal Brexit means completing a form with 55 fields for each sale. Assuming that the UK is treated as a ‘third country’ and the ‘EU Common Tariff’ regime is applied, there are 14,000 tariffs listed that businesses will have to select from.
He said that today there are today 77,000 businesses registered for VAT who trade with the ‘Rest of the World’ – who will continue as they do today. 73,000 businesses trade with RoW and the EU – who will have to expand their use of CHIEF reporting to the EU parts of their business – an extra overhead, but no new procedures to learn. There are 145,000 VAT registered businesses who trade only with the EU - and for whom there is a whole new regime of reporting and form filling to learn and apply. Beyond this, HMRC has no way of measuring or contacting non-VAT registered businesses to assist them with the new requirements. The Federation of Small Businesses last week estimated the number of SMEs trading with the EU as over 100,000.
HMRC has 19 Workstreams dealing with changes that will be required post-Brexit.
For the Department of Health, Sir Chris Wormald answered questions on reciprocal arrangements for treating patients freely across the Irish border – presently working to the benefit of the patient. It was not certain that a bi-lateral agreement would be in place between Northern and Southern Ireland by March – as this is a devolved responsibility.
It is not guaranteed that the European Health Insurance - EHIC – will survive Brexit. Wormald’s advice is that UK travellers will need to take out medical insurance when travelling to Europe “just as they do when visiting the USA”.
The Department for Transport has begun to implement no-deal contingency plans – whilst emphasising that every such activity is referred to and signed of by the appropriate Minister (a point which was later confirmed by the representatives of both HMRC and Health as standard practice across government) – including International Driving Permits.
The Transport Department reported bad news for manufacturers from across Europe. The UK has a an enviable reputation when it comes to testing and granting ‘type approvals’. There are European companies, such as Skoda, who use UK authorised testing and standards agencies recognising that if they pass UK standards, their products have achieved one of the highest standards in Europe. From Brexit, these UK standards will no longer be recognised and passported into the remaining 27 countries. UK manufacturers will have to have type approval from an EU authority - as will those organisations that rely on UK type approvals today. According to Kelly, there is no guarantee that UK type approval authorities will survive as manufacturers move to EU approval – which is likely to cover their sales into both the EU and UK – which will accept EU approval as a passport to the UK.
This echoes the views contained in a previous Brexit Partners report with respect to commercial shipping safety testing and approvals.
Type approvals for aircraft components – which presently, according to Kelly, favour use of British type approval because of its widespread acceptance – will also be jeopardised, risking aircraft being grounded because the part - which up until Brexit, had a stamp of approval for use – was no longer certified for installation.
The Committee asked about how realistic were the reports that a no-deal Brexit could result in border delays and risks to supply chains and manufacturing. The response was that it was difficult to answer as this was a theoretical scenario – that is, one that had not been passed into UK legislation – but it was clear that discussions had taken place with ports in France, Belgium and the Netherlands. It was reported that in each country, ports are both preparing for significant additional checks and delays – identifying space for lorry parks - and to make commercial advantage over their competitors by aiming to be the port of choice by virtue of their speed of processing and moving freight traffic through the formalities.
Their insight was endorsed later in the day when French Europe Minister, Nathalie Loiseau said: “We are working, with the object of the measures that will be taken, to put in place customs infrastructures that ensure our controls are the least penalizing possible at the entryway to the European territory.”
So how likely is a no-deal scenario? Donald Tusk has demanded a new proposition put on the table from Theresa May on Wednesday. But there is no deal on the cards that would get be acceptable to Parliament.
The worst case scenario for the UK is that EU leaders – who feel that the UK has brought this situation on itself and, in any event, have more important issues such as the very survival of the EU itself to address - are so fed up with the UK and what they see as the lack of reality, that on Thursday they formally say they will not hold a ‘no-deal’ Summit in November.
That would be a track that would be hard to get off once in motion. One EU source expressed disbelief that Theresa May thought she could turn up on Wednesday with nothing new. It was simply crazy, in their view, to suggest that the ball can be lobbed back into the EU court.
A UK insider views May’s ploy as a dangerous game of who blinks first: run the clock down to the last moment and then present Parliament with a ‘binary choice’ of ‘no-deal’ (unanimously accepted as disastrous for the UK) or ‘my-deal’ (unanimously accepted as just ever-so-slightly better than no-deal).
Neither choice, it has to be said, is what voters – whether ‘leavers’ or ‘remainers’ expected as an outcome back in June 2016.