With a Whimper

Feb 04, 2019

Sunday Business Post, 03 February 2019, As the drama of another Brexit debate was taking place in Westminster this week, more realistic business was happening quite literally across the street.  While the UK Parliament is seemingly oblivious to the fact that its 27 EU partners have ruled out the prospect of renegotiating the existing Withdrawal Agreement, its civil service is more pragmatic.  The UK Revenue Authority, HM Revenue and Customs (HMRC), last Tuesday convened a briefing for business organisations to set out exactly what they plan to do in the event of a no-deal Brexit. 

HMRC's plans are important, because it is the tax system which enforces the mechanics of the customs union and much of the mechanics of the single market.  Customs duties, excise duties and VAT operate to ensure that countries within the EU trade with each other in the most favourable terms.  Whoever pulls the strings on these taxes is in effect working the drawstrings of Brexit.

Nor was this a routine briefing.  The proceedings were opened by the UK’s minister for taxation, the Financial Secretary to the Treasury, Mel Stride MP.  The attendees were told that the briefing would cover what would happen with the trading arrangements between the UK and the 27 other EU countries.  Except for Northern Ireland, that is.  The briefing would only cover the trading relationship between Northern Ireland and 26 other EU member countries.  The enforcement of trading arrangements between Northern Ireland and Ireland in the event of a no-deal Brexit would not be presented.  The North is indeed a special case, but perhaps not in the way its politicians would like.

It is quite clear that the priority of the UK revenue authority is to keep trucks moving after 29 March, and give priority to key links between Britain and Europe – via Holyhead, via Dover and via the Channel Tunnel.  The amount of new paperwork to comply with WTO rules will be phenomenal.  Existing customs arrangements and the rules for rapid transit, under what is known as the Common Transit Area, will be pushed to the limit.  The Common Transit Area is significant for this island because its smooth operation offers the possibility of Irish importers and exporters using Britain as a land bridge to Europe without multiple customs checks and charges. 

All of the plans outlined in the briefing can, in theory, work.  But for them to work, every single trader using UK ports, whether in Britain or overseas, will have to cross all the t’s and dot all the i’s in their paperwork, declarations and payments. 

Will this happen?  Not a chance.

Up to now, the UK authorities had been operating on the basis that approximately 135,000 British businesses with EU customers and suppliers would be dealing with customs regulations for the first time.  We learnt on Tuesday that that estimate has been revised upwards to 250,000.  If even a small proportion of these businesses fail to do their customs homework right, their lorries will be stopped.  Once that starts to happen, queues at the ports will start to form.  And once that happens, supply chains will break down, deliveries will be missed and perishable goods will not be fit for market.

There are two sides to every border.  The British “no deal” arrangements seem to assume maximum goodwill on the part of the remaining 27 EU countries.  I wonder.  Might, for example, the French authorities jib at goods coming in to French ports from the UK delivered on pallets which have not been properly certified?  That might sound like a trivial quibble, but the EU already insists that goods coming from EU friendly Norway (a member of the single market and a significant contributor to the EU budget) are delivered on approved shipping materials.  This is just one example of how it will be so easy for EU customs officials to find fault on the basis of paperwork and standards on anything moving out of the UK.

The UK authorities are promising to implement some special tax measures for British traders on imports from the EU (and elsewhere) in the event of a no-deal Brexit.  There will be new rules allowing British traders to spread VAT payments on EU imports.  VAT and customs will be charged on many low-value parcel deliveries coming into the UK from abroad which were previously exempt.  The British government's notion is to protect retailers on their high streets.  That kind of protectionism won't endear the UK to suppliers from the rest of Europe.

The UK will not “crash” out of the EU on 29 March without a deal as EU Brexit negotiator Sabine Weyand suggested during the week.  It will instead grind to a halt.  Those of us who attended that HMRC briefing were asked to spread the word about the information and resources on the various UK government websites which provide for a no-deal Brexit.  The briefing was neither foolish nor ill-advised.  These plans are devised by committed and talented civil servants, but who are facing an impossible task if their parliamentarians just 200 yards up the road continue to make reckless demands.

A no-deal Brexit will end not with a bang, but with a whimper.

Brian Keegan is Director of Public Policy and Taxation at Chartered Accountants Ireland