Examination of Witnesses

Taxation (Cross-border Trade) Bill – in a Public Bill Committee at 9:27 am on 23rd January 2018.

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Anastassia Beliakova, William Bain, Peter MacSwiney and Gordon Tutt gave evidence.

Good morning, witnesses. Thank you for coming along. We are now resuming our public sitting. We are going to hear evidence from the British Chambers of Commerce, the British Retail Consortium, Agency Sector Management and the Association of Freight Software Suppliers. I remind Members that all questions should be limited to matters within the scope of the Bill and that we have to stick to the timings set out in the programme motion, so we will have to conclude this session by 10.25 am. Will the witnesses start by introducing themselves for the record?

William Bain:

Good morning, Ms Buck. I am Willie Bain from the British Retail Consortium. It is very nice to be back.

Anastassia Beliakova:

Good morning, Ms Buck. I am Anastassia Beliakova. I am head of trade policy at the British Chambers of Commerce.

Peter MacSwiney:

Good morning, I am Peter MacSwiney from Agency Sector Management.

Gordon Tutt:

Good morning everyone, I am Gordon Tutt from the Association of Freight Software Suppliers.

Thank you very much. Can we start with Peter Dowd?

Photo of Peter Dowd Peter Dowd Shadow Chief Secretary to the Treasury

This is a broad question in relation to the concerns that your members may have expressed—any of you can pick this up—on the capacity of Her Majesty’s Revenue and Customs and UK Border Force to absorb changes to the customs arrangementsQ .

Anastassia Beliakova:

An issue that our members have raised—this was something that we heard from members even before the whole Brexit question arose—is staffing capacity and in particular the ability to help businesses with day-to-day questions that they may have. That is particularly important when businesses apply for various trade facilitations, such as inward processing relief, or for various forms of certification, such as to be an authorised economic operator. There used to be a helpline at HMRC that is no longer available. Businesses would find it helpful if that were reintroduced. Another concern they have raised is that there is an evidenced shortage of staff dedicated to goods checks. That has been ongoing for a number of years, and questions are being asked about whether there is sufficient resource and focus allocated to goods checks and support. Those questions will become much more acute with all the coming changes.

Peter MacSwiney:

There are always questions raised about the Customs Declaration Service, which is the replacement for the customs handling of import and export freight programme. I have said many times that I still believe that between CDS and CHIEF, the computer system will have sufficient capacity to handle the declarations. To pick up on Anastassia’s point, to enable goods to move freely through the border post-Brexit we will have to rely on advance information and bulk entries done with some form of simplified procedure. As far as I can see, Border Force is not engaging very much with trade. What it wants the processes to be and what data elements it wants are still unclear. Customs seems to be getting bogged down with the authorisation process. All of that could do with being streamlined.

Gordon Tutt:

Our association members have customers who cover a wide range of different trade sectors. One of the common problems we have is getting approvals processed quickly. That is particularly worrying. One of the recent changes that has been mooted is that before a trader can have their approval granted, they will have to have their software contracts in place. Most traders would not want to go to the cost and trouble of organising and paying a software contract if they did not know they would get the approval. It puts the cart before the horse. Having said that, we are expecting to have discussions with HMRC through the Joint Customs Consultative Committee sub-group on how we can best streamline the whole approval process.

William Bain:

One of the key things that our members have said to us is that the last big change they were asked to adjust to, which was the introduction of the Union customs code, took companies three years to get ready for. There is good engagement with HMRC, but there is concern about the capacity of the new CDS system to handle perhaps 255 million customs declarations a year, depending on the kind of deal that is or is not negotiated in the next few months.

Photo of Peter Dowd Peter Dowd Shadow Chief Secretary to the Treasury

Q I have one more question, if I may. What is your satisfaction level, on a level between one and 10, or your confidence that the Government will fully engage prior to making customs-related regulations once the outcome of the Brexit negotiations is clear? How confident are you that the lines of communication are actually in place?

Peter MacSwiney:

The lines of communication are in place. I do not think there is enough time to have any real meaningful discussions. I think the original view from the trade was that a five-year transitional period would be a minimum. Even if we get two years, it is difficult to see what we could achieve in that timeframe.

Gordon Tutt:

From a technical perspective, we always work on a general rule that it takes two years from the time that we have the full technical specifications to the time we can actually implement. That gives you an idea of where we are at the moment. We are working closely with HMRC’s technical teams on the CDS development. It is not an easy task. We are looking at a replacement to a service and a system that both the Government and the trade are highly dependent on. Clearly, we want to make sure that we get that absolutely right. We believe that Customs has taken some very sensible approaches, but we probably need to further mitigate the risk by enabling CHIEF to continue for a longer period, thereby allowing the transition from the current service to CDS over a longer period of time.

Photo of Chris Davies Chris Davies Conservative, Brecon and Radnorshire

Would you not agree that the essence of the Bill is as an enabling Bill for when we leave the EU? All the Bill is trying to do is put arrangements in place. Would you not agree that the whole framework and the essence of the Bill is correct in that respect?Q

Gordon Tutt:

First, yes, you are right—it is an enabling Bill. It is very good that much of it is already contained in the Union customs code, so it actually provides a really good basis for future UK legislation. It also avoids an awful lot of new requirements on trade, particularly on our side of the systems, because it adopts much of the concepts of the technology and the data that are already maintained in the UCC legislation.

Anastassia Beliakova:

To add to that, yes, of course it is an enabling Bill. We and our members welcome the fact that it aims to replicate the UCC as much as possible because, as has already been mentioned, a lot of effort and time have been put into adhering to the new aspects of the Union customs code. However, what we have noticed is that some elements of the code have not been addressed in the Bill.

For instance on origin, the means of defining origin have been set out. However, origin declaration has not been mentioned. That is just as important, if not more so in some aspects, than rules of origin, when it comes to international trade. There are various means in which businesses now declare origin. Sometimes it is through sub-certification; sometimes it is through certificates of origin. We published a paper last week—there are copies available for the Committee—that shows that businesses are worried about compliance issues after Brexit. They want to know that there will be certainty going forward and support for them with that. We would view it as quite important to have at least one clause in primary legislation ensuring continuity in the means of origin declaration, which is further elaborated in secondary legislation.

Photo of Chris Davies Chris Davies Conservative, Brecon and Radnorshire

Do you not think there is enough flexibility in the Bill already?Q

William Bain:

It is a very flexible Bill—it has extensive powers to make delegated legislation. It does throw up some other issues that the BRC would like to see resolved during this process. For example, to get as free a flow of goods as possible, we not only need a deal with the EU on customs arrangements, we also need it on things such as transit, security, haulage and particularly VAT.

One of our concerns is that the way the Bill is drafted at the moment throws up some issues about doing business in the future. For example, companies may have to register in every EU member state in which they provide services and in many member states in which they take goods to and from the UK. That is something that we would strongly urge the Committee to look at as the Bill proceeds.

Peter MacSwiney:

I will stick to the system issue, if you like. I echo what Anastassia has said. The phrase “free circulation” is still in there. I do not see how that applies. Origins should be the criteria. You said it is a very flexible Bill—it is. Our members have some concerns that it allows HMRC to make it up as it goes along. That is a worry.

I am also concerned about some of the references to electronic systems and to things being delivered by a customs information paper or a public notice. At Heathrow, for instance, public notice 216 applies, which I think was written in the mid ’80s. We have been trying to rewrite it for the last 10 years probably. It suddenly popped up last year having been rewritten with no consultation and did not show any significant changes.

I have a real concern about who will be responsible for determining day-to-day processes such as the presentation of goods, which the Bill mentions—what is that? It cannot be the physical presentation in the post-Brexit world, because there will be too much of it, so the inventory systems have the concept of presentation against an electronic record. Those things really need to be thought out.

Photo of Kirsty Blackman Kirsty Blackman Shadow SNP Spokesperson (Economy), SNP Deputy Leader

Around the VAT issue, do you have concerns about moving from acquisition to import VAT? What do you think could be put in place to mitigate the issues that you see comingQ ?

William Bain:

Yes, that is a huge concern because companies will have a big cash flow hit. The movement of goods within the European Union has been treated as VAT-free up to now. If the UK is treated as a third country afterwards, companies ostensibly will face an up-front cash payment. There are policies—domestic and in terms of the negotiations—that could mitigate that. The Government could introduce a deferment scheme, as is the case in Spain. They could look at other domestic policies to tackle it. More fundamentally, they could look at a form of self-assessment for VAT, which would obviate the need for up-front payments.

Some international solutions could be looked at. As I pointed out earlier, whatever happens domestically, UK companies will still face the burden of having to register for VAT purposes in each member state where they offer services and in most member states where they provide goods. That requires an international solution such as staying in the EU VAT area—even though that might involve treaty change—the establishment of a new common VAT area, or some other strong VAT co-operation. The domestic element and the negotiation element are both required to sort the problem out in the round.

Anastassia Beliakova:

VAT and future potential VAT cash flow issues are a serious concern for our members. To echo the points already made, international measures that are not contingent on negotiations could be adopted. Deferment schemes are one. There are already deferment schemes in the UK, but they could be more generous. For instance, they ask businesses to provide bank guarantees, which is yet another cash flow issue for businesses. Some companies can waive it, but only after they have had a clean record of VAT payments for three years, which not all SMEs, for instance, could provide.

Another potential solution is to consider postponed accounting, which in effect is what we already have as members of the EU VAT area. The Government could consider setting out policy that would introduce postponed VAT accounting for imports from all third countries. That would alleviate future concerns in relation to Brexit and simplify existing procedures quite significantly.

Peter MacSwiney:

The Joint Customs Consultative Committee has requested a return to postponed accounting; that is not popular with the Treasury, of course.

Photo of Kirsty Blackman Kirsty Blackman Shadow SNP Spokesperson (Economy), SNP Deputy Leader

Q A couple more questions. On the division between primary and delegated legislation in the Bill, are you happy with how much is being done with secondary legislation or do you feel that the balance is not right?

William Bain:

We are less concerned with the process than with the outcomes. The reality is that we need an operational statute book on 30 March 2019. As I say, some issues not dealt with in the Bill are very relevant to the process of getting goods in and out of the country and to the customs process in the round. We would appreciate some further treatment of those issues, such as haulage permits or what you do with people driving trucks into the country, who need permission to move from Belgium into the UK. Some issues that we think are important in the customs process could be addressed by the Bill.

Peter MacSwiney:

The JCCC was keen that the legislation should reflect how business actually works. That was why we requested some input into the primary legislation, which was refused. The problem you have potentially is the interpretation of the law. You have two options: if the law categorically states, “You can do this”, that is fine—but if the law does not categorically state that you cannot do it, can you still do it? Those may sound like very similar points of view, but actually they are not. It depends very much on the interpretation of the authorities as to how much flexibility they will allow trade. There could be a clearer guide on the facilitative, rather than being prescriptive of the letter of the law.

Photo of Kirsty Blackman Kirsty Blackman Shadow SNP Spokesperson (Economy), SNP Deputy Leader

Q Finally, given the information that you have had from the Government and this Bill, do you feel that businesses are adequately prepared for what will happen in March 2019?

Anastassia Beliakova:

The Bill, as has already been said, is very facilitative of all possible future options. Because none of them seem to have been narrowed down at the moment, it is very difficult for businesses to prepare. There is the working assumption that imports VAT is something that they will have to deal with once we leave the EU VAT area, but again that has not been fully clarified. Hence, with this kind of situation, businesses are still waiting for further clarity.

Gordon Tutt:

On a technical level, when it comes to having the legislation and the systems ready, the time period to take on not only the technical changes but the additional volume and participants that may be required is very challenging. We should learn a lesson from the implementation of the UCC, which was introduced without very much thought about how it could be introduced within the timescale; subsequently, the concept of transitional regulation was introduced to allow trade and the member states—the customs authorities—to have time to adopt the changes. Our legislation in the UK perhaps needs to reflect better the ability to introduce transitional elements, where required, in a controlled manner.

Peter MacSwiney:

Our concern, on behalf of our customers—predominantly freight forwarders—is that they are only just beginning to realise the extent of the changes. They are also just beginning to wake up to the fact that they are going to have to talk to their customers. From that point of view, I do not think they are particularly prepared at all.

William Bain:

We have good lines of engagement with HMRC. We are having a meeting at the BRC with customs and tax experts from our member companies on Thursday, so we welcome that, but clearly there is only so much you can do when you do not know what the trading conditions will be the day after Brexit. We do not have clarity as yet on the transition. That is critical for business, in terms of the investment decisions being made in the first quarter of this year, and it is also about getting enough staff trained up and the IT systems changed and ready. All of those things take time, and getting the earliest possible clarity on as much of the terms of the transition as possible would be welcome—as early as possible.

I would love to call Grahame Morris, but I cannot, because he has lost his voice. Anneliese will ask a question for him.

Photo of Anneliese Dodds Anneliese Dodds Shadow Minister (Treasury)

Thank you, Ms Buck. The question that Mr Morris asked me to ask on his behalf is, if anything, even more pertinent after something that Mr Bain said. In the general area of customs—we are talking not only about duties, charges and processes strictly for customs, but about issues to do with migration, security, veterinary checks and haulage—I wondered, on behalf of Mr Morris, whether members of the panel would expand on what changes might be needed there. Are those being taken sufficiently in the round with matters strictly dealt with in the Bill?

William Bain:

It is particularly important for food retailers because we deal with perishable items. I will use the anecdote, which is true, that a retailer can put in an order for orange juice. It comes via Zeebrugge and Dover and is on the shelves the following day. Our companies deal with just-in-time supply contracts and sourcing mechanisms. If you put friction into that process, you can introduce a day’s delay. For example, at Tilbury, I understand that if your crate has not arrived by 3 o’clock, it is processed the next day. You have to refrigerate it overnight. Those things add extra costs. They increase the possibility of food waste. They increase the possibility of having gaps on the shelves and products not being there when consumers want to buy them.

Meat products are a particularly huge issue. If we leave the European Union sanitary and phytosanitary rules system, you have to check meat items as they leave the country they are being exported from—let us say from France—and you also have to check them when they arrive in the UK. That will add huge friction into the process, and that is something that the food retail sector in particular has been very critical of. It also affects non-foods.

There are many furniture stores among our membership that import items—flat-packs—from the rest of the EU. If there are long delays at customs, that affects the ability of those goods to get to consumers as well. So non-food and food are concerned about the possibilities of more friction in the system.

Anastassia Beliakova:

There are two considerations here: what businesses need to prepare for and what happens at the border. A lot has been said about CDS, which is a critical part of the picture, but that is just one element. We have been trying to draw attention to the fact that origin declaration, which is separate from customs declaration, also needs to be clarified.

When it comes to getting goods through the border—the just-in-time, the ferry coming in and so on—you need several systems working together. You need the customs declaration in place and already authorised. That needs to happen before the truck arrives and rolls off. There needs already to be an interlink with the relevant agencies—whether for food, plant and so on—who have already approved all this. This needs various means of declaration, and several IT systems need to work together and be integrated with the relevant port systems and make sure that there are no further delays. So we think there are some other elements that have not been covered sufficiently in the debate.

Peter MacSwiney:

We have some pretty slick systems in place now for traditional freight. We do not really have any port systems in the ro-ro ports. We do not have any space and any procedures that lend themselves to goods being stopped and looked at this side of the channel. I think absolutely it has to work on advance information on a permission to load basis on the other side. Once you have that, the goods would have to roll freely through the ro-ro ports specifically on the basis that they are eligible to be entered into the UK, and the fiscal processes should take place after that. After they have gone through the border, they are accounted for separately.

Gordon Tutt:

In terms of the systems we have currently for undertaking customs procedures, we probably have some of the most advanced systems in the world for doing these transactions. We have a lot of advantages over other countries in that we have got integration with our community systems providers in the ports, who can provide advance information. Customs and the Border Force to some extent use that information now. We have advance notification through the various systems internationally.

Where we seem to fail in this country is not with the revenue and the customs systems; it is actually with the other Government Departments. It might surprise you that within the airline arrivals, some of the notifications are still done on paper. That is not because trade and the port and community systems do not have the systems to provide this information—it is purely that those Departments do not have the ability to accept that information electronically. If we are to avoid delaying goods unnecessarily, where we have known, trusted traders bringing goods which present no risk fiscally or from a security point of view, that information should be passed freely to these other Government Departments, thereby avoiding any unnecessary delays.

Peter MacSwiney:

The processes at Heathrow and Gatwick—both are run by the same community system provider—are different, and within the specific airports the transit sheds operate different procedures as well, so it absolutely could do with being streamlined.

Photo of Julian Sturdy Julian Sturdy Conservative, York Outer

MsQ Beliakova, I want to take you back to an earlier comment that you made, and which you put in your written evidence as well. You said that no clarification on the continuity of country of origin declaration is a concern. Could you outline the potential implications of that, as you, or your customers, see it?

Anastassia Beliakova:

There are two considerations. The first is ensuring that businesses know that in future they can continue to rely on what they currently use to declare origin. At the British Chambers of Commerce, we facilitated 650,000 shipments through the use of certificates of origin last year. That is worth £22 billion to the UK economy—it is really critical. In the future, we do not know whether the existing means of declaring origin will continue. It is really important that businesses are told that they can.

It is also important from a strategic perspective for the UK Government, when we perhaps enter into new negotiations. If other countries ask for their means of declaring origin to be written into the agreement, that would cause significant compliance issues and would mean that there were far too many complicated rules for businesses to comply with. If there were provision in the legislation for the existing means of declaring origin, there would be a much stronger basis for the UK in future negotiations to make a case for the existing means to continue.

Photo of Julian Sturdy Julian Sturdy Conservative, York Outer

Q I understand about the agreements, but if that existing means did not continue what implications do you feel that would have on potential trade?

Anastassia Beliakova:

The intention of the Department for International Trade is now to roll over existing EU trade agreements, most of which accept preferential certificates of origin as a means of showing that the goods come from the EU. If in the future those agreements are not rolled over and there is not the same provision for the same means of declaring origin, that means that companies will not be able to get the reduced duty rate when they export to that market—or, indeed, import from it.

Photo of Emma Hardy Emma Hardy Labour, Kingston upon Hull West and Hessle

Good morning—it is nice to see you all here. Earlier this week, the director general of the CBI said that the UK should seek to negotiate a comprehensive customs union with the EU. Having listened to all the complications that you have just outlined, would you support that proposal?

William Bain:

The BRC is less concerned at this stage with the means of delivering frictionless and tariff-free trade with the EU, but what we do see is the overwhelming priority of the Government to focus on securing that. Our biggest market is the European Union, and it is likely to remain so for many decades to come.

To put it into perspective, our members say that 79% of food imports come from the European Union. That shows the sensitivity of sourcing contracts and supply contracts. For example, some retailers offer ready meals with cheddar from the Republic of Ireland in them, so it is used as an ingredient in products. If we do not get a deal that ensures tariff-free trade with the EU, the tariff on Irish cheddar is 44.5%. On beef from Ireland, it is 38.9%. On Dutch tomatoes, it is nearly 29%. That will have a serious impact on consumers, which is why we have said that, above all, by whatever mechanism they achieve it, the Government should aim for frictionless trade and zero-tariff trade with the European Union. Otherwise, consumers will face a big hit to their living standards.

Anastassia Beliakova:

The same principle of having as little friction as possible in future trade with the EU is, of course, very critical for our members. On the specific question of the customs union, we are currently surveying our members—literally as we speak, or at least in the next few days—so, as and when those results are available, I will be very happy to share them with the Committee.

Peter MacSwiney:

All the efforts over the last few years have been to remove bureaucracy. SITPRO made it its mission in life to try and simplify trade, and now we are introducing an inhibition to trade in the form of a customs entry. Taking what William said, of course duty plays a part, but even if there is a duty-free element you still have to do a customs entry, and it is hard to see where the benefit of that is. So, I would say that some form of customs union would be useful and beneficial.

Gordon Tutt:

From a systems point of view—obviously, we are a vested interest here—the more declarations that are done, the more money for our members. That is why we take a very neutral position on this. But clearly, as my colleagues have said, there are a whole range of issues here, particularly in the movement of goods, which traditionally posed no threat. That goes in both directions—both into the UK and leaving the UK. We need to find a mechanism to allow those goods to move freely, without hindrance and without additional cost to trade.

Photo of Nicholas Dakin Nicholas Dakin Opposition Whip (Commons)

Can I follow upQ Kirsty Blackman’s question about statutory instruments? Is it helpful or unhelpful to business confidence, including the confidence of your members, that so much of the detail—some people estimate that there will need to be about 1,500 statutory instruments—is left to secondary legislation? Is that helpful or unhelpful to business confidence?

Gordon Tutt:

Having experienced some of the European legislation in recent years, particularly the way the UCC was written, I do not see that the current UK proposal is any more onerous than what we have seen coming out of Brussels—in fact, in some ways it is a lot clearer. And we do have the confidence here in the UK; again, I can only speak on behalf of my members. We have a very good rapport with customs and with other Government agencies, in that we can actually discuss the detail and get clear understanding, and intervention where it is necessary. So, I am not unduly concerned with what is being proposed.

Peter MacSwiney:

I think of the point we made earlier. As Gordon has just said, the engagement is good but the timescales are not.

William Bain:

The key point, Mr Dakin, is that obviously companies want to know what the impact on them and the wider industry will be. Having legislation with an impact assessment is very helpful, in being able to explore the pinch points—whether on customs, VAT or the staffing implications. The retail industry wants to see this legislation as early as possible, and to engage with Government about it. We know that this legislation is not amendable in this House or in the House of Lords, so it is even more important that industry has a very strong engagement with it at the earliest opportunity.

Photo of Nicholas Dakin Nicholas Dakin Opposition Whip (Commons)

Q What role could trade associations—as in chambers of commerce—play in facilitating overall custom co-ordination, both with the EU and more broadly? What are the opportunities?

Anastassia Beliakova:

We already provide a lot of advice to businesses when it comes to trade. That is due to our role in trade facilitation with certificates of origin, but we also help with any queries that companies have regarding compliance with origin or local regulations in other markets. We also support businesses with any questions regarding taxation.

We hear from our members that they want to know what they should be preparing for. At the moment, the kind of guidance that we can provide is not prescriptive. It is more, “These are the various areas that you could consider”. One of them, of course, is VAT; another is origin declaration; and a third one is various rules of origin and existing trade agreements that the UK has by its membership of the EU. But because businesses don’t know what they don’t know, and we are working between assuming that everything will continue as it is and anticipating further changes, we would like to work even more closely with HMRC and Government more widely to provide support as and when changes become clear.

Peter MacSwiney:

The current infrastructure is good. The Joint Customs Consultative Committee and the sub-groups are a decent forum. We are all members of one or more of those groups, and that works pretty well. I would like to see more engagement from the Border Force with the end user. It seems to be more focused on intergovernmental negotiations and discussions, rather than coming out to the wider trade.

Gordon Tutt:

Most trade associations attending the JCCC are also, through either their own trade associations or affiliate trade associations, part of the trade contact group that discusses arrangements with TAXUD—the taxation and customs union directorate-general—for customs legislation in the EU. We are working closely with our European trade associations to try to ensure that there is a commonality in approach, to avoid unnecessary disruption to trade both from the UK and from the EU.

William Bain:

The practical benefit is the experience across different industries and sectors in dealing with the movement of goods and services and being able to identify the potential difficulties with compliance.

One further point on the movement of goods is that at the moment there are 30 separate Government agencies that deal with this process. We are not expecting the Government to rationalise those or shuffle them in some way, but we would urge that the level of integration and co-operation between them should increase as we move towards Brexit day and, if there is a transitional period, any expiry of it, because dealing with 30 separate agencies is onerous for business.

Photo of Anneliese Dodds Anneliese Dodds Shadow Minister (Treasury)

Q I will be quick and roll two things into one because I see that we are running out of time. We touched on the issue of trusted trader schemes and potential new impediments to that given the need for pre-approval of software. Is there anything else that prevents the further expansion of those trusted trader approaches? Some have suggested that they would be one way of facilitating processes.

Secondly, regarding HMRC capacity, we have obviously seen a big reduction in headcount and changes with all the offices becoming regional hubs. Are there other alterations that you would make to HMRC’s set-up to facilitate the big challenges coming down the road with these new systems?

Gordon Tutt:

May I begin by answering the first question? Within the UCC legislation, which is carried over into the new UK legislation, there is a recognition of the role of the authorised economic operator. That is quite important, but it means that there will be potentially hundreds, if not thousands, of UK companies that may wish to become AEOs to gain the benefits once we leave the EU.

The problem is that unless you have a proven record of customs transactions, you cannot apply to become an AEO, so in some ways we are going to disadvantage traders that are probably acting completely in accordance with regulations, are good taxpayers and are honest and trustworthy companies. None of that is taken into consideration. We have had some discussions with HMRC and it is almost as though we might need something like a provisional AEO status so that those companies, which pose no risk, can take on some of the benefits, such as guarantee waivers and being able to operate the self-assessment schemes, where there is no risk either to the Treasury or to the safety and security of the country. That is a key point.

I would add that the provisions of the self-assessment scheme, which are part of the UCC regulations and will be carried over into UK law, can also perhaps provide some answers to some of the problems that we have not successfully been able to find solutions to.

Anastassia Beliakova:

On AEO, the issue is actually your second point of HMRC capacity, and the way the process is run in the UK. AEO is an international system. It is recognised by standards at the World Customs Organisation, so there are certain aspects that a country that has this scheme must adhere to.

However, the process of approving companies—just how long that takes, and all those practical aspects—is up to the customs authority of each country to implement. We have heard time and again from our members that that takes far too long. I have an example of a company that had already been approved for AEO but it took 12 months for them to get the re-approval, although they did not have to go through the exact same process again. It should have been much faster.

I have spoken to customs authorities in other countries such as Austria. There, owing to their much more customer-service-focused approach—and, it has to be said, they do have many more customs officers—it takes a company about three months from the start to the very end of the process. Yet they are no less rigorous than we are. We are very stringent in our approach, and if we want to help more companies achieve this status, the practicalities need to be re-thought.

William Bain:

That is a key issue. AEO status is part of the solution, but it is no silver bullet for the customs issues that companies are likely to face. There are 10 times fewer AEO companies in the UK compared with Germany; penetration among small and medium-sized enterprises is particularly low. There is a lot of work that Government could do to make the process of applying easier but, as was said earlier, there has to be a history of previous customs transactions. I believe it is three years before companies can apply.

The other thing that is necessary in any withdrawal agreement solution is that there should be mutual recognition between the UK and EU AEO systems. The EU has already done that with America, China and some other countries. That is critical.

On HMRC resources, I revert to an earlier point: that Dover and Eurotunnel do not have capacity to conduct SPS—Sanitary and Phytosanitary Certificate—checks. If we end up outside of the EU SPS regime and we have to check fresh meat and plant products coming into the country, there is not the capacity to do that at Dover. You have to find an offsite solution and that will draw further on HMRC resources—to have veterinary staff in position to perform these checks. That will increase the burden on the HMRC budget.

Emma Hardy has a quick, mini-supplementary, four people want to ask another question, and we have 14 or 13 minutes—just to give you an idea of how to manage the time.

Photo of Emma Hardy Emma Hardy Labour, Kingston upon Hull West and Hessle

Q A quick question. You talk a lot about the need for clarity and time. Even if you were given the clarity you needed in the next couple of months, how long would you need a transition period to be to swap over to any new system?

Peter MacSwiney:

It is hard to see the transition period being less than five years, in all honesty, based on experience of introducing systems over the past 20 years. Introducing a system is one thing, but educating the trade and getting the processes in place really does take a long time. It is hard to see that being done in much less than that.

Gordon Tutt:

I would support Peter on that. We should not make the same mistakes as with UCC. There are elements of that that cannot be introduced, even within the current transitional arrangements. We need to be mindful that it takes a long time to get the systems in place and, more importantly, to make sure that they have the connectivity to other trade systems around the world that are often providing this information. Five years sounds awful—and that is the worst case scenario. But if you work on a basis of five years, you can introduce elements much quicker, but some elements could take up to five years to introduce.

Photo of Jonathan Reynolds Jonathan Reynolds Shadow Economic Secretary (Treasury)

I will try to be brief. The fundamental issue for this Committee is that we must have Bill that will cope with any scenario we face. It is unfortunate, but one of those scenarios could be a relatively hard border around UK and a big increase in friction in our trading relationship with the EU. If that were to happen, listening to the very good evidence you have given, will this Bill give us the powers and framework required to deal with that and then try and reduce as many of those barriers as Q possible? Alternatively, will some of these many known unknowns need to be addressed in our proceedings if we are to do that?

Peter MacSwiney:

I think it would probably do the job. I have said it before and I will say it again: on this side of the channel, we will get our systems and processes sorted out, because that is what we do. I do not think it will address the issues on the other side of the channel. That is likely to be a bigger problem than what happens in the UK.

William Bain:

The key issue for moving goods between the rest of the European Union and the UK is partly customs, but also regulation. The Bill puts in place different eventualities on customs, but it does not answer the questions on the regulatory framework, so that has to be dealt with. Also, these other issues about what happens to the common transit convention, to security agreements and to haulage permits and driver permits all affect the flow of goods. If those are not dealt with in this Bill, we encourage the Committee to explore how they can be dealt with otherwise.

Q I can get everybody in if they are really quick. Does anybody else on the panel want to quickly respond to that?

Gordon Tutt:

There is everything in the Bill that we need in terms of whatever the solution is. There are already provisions within that legislation to allow flexibility, to prevent goods from being detained at the border and to allow them to be moved up into inland examination points under controlled mechanisms. That already exists within that legislation.

Photo of Mike Hill Mike Hill Labour, Hartlepool

You have already answered the question I was going to ask; I represent the port town of Hartlepool. A quick question: do you have an estimate of how many retail businesses will be drawn into customs arrangements for the first timeQ ?

Anastassia Beliakova:

I believe the figure has been cited as being 130,000 businesses who are dealing with customs declarations for the first time—that is, those estimated to be currently trading just with the EU. Of course, there will be businesses of different sizes. If you are a very large business, you will be working directly with the new system’s CDS and then you need time to integrate into that. If you are a smaller business, you are dependent on the provisions that your intermediaries, your freight forwarders, have put in place. A whole host of businesses will be affected that depend on a number of different bodies and Government putting the right measures in place with sufficient notice.

Photo of Peter Dowd Peter Dowd Shadow Chief Secretary to the Treasury

Q Just a very quick one. There are quite wide-ranging issues here today. How about the actual hard costs for your various organisations and the companies you represent of the introduction of the new processes, new liaison arrangements and new engagement processes?

Anastassia Beliakova:

It would be very difficult to assess, because there are a number of factors. One is just the cost of a customs declaration. That will perhaps be more challenging for a smaller business that is trading ad hoc. If you are a large business trading at big volumes, the cost will be quite marginal for you.

But then there are other considerations. There is the time issue. Are you going to factor in any potential delays? If so, does that mean you have to provide for more warehousing facilities? Does that mean you have to keep an inventory? All those things are very difficult to quantify for a median figure, but they are things we know our members are starting to consider—some quite actively.

William Bain:

If you move away from a just-in-time supply and sourcing mechanism, you have to look at stockpiling. That means you have to look at extra warehousing capacity. You have to change IT systems in terms of VAT and customs. All that comes at a cost for businesses, at a time in which we see the pressures in terms of footfall and retail spending.

Peter MacSwiney:

As a software supplier, we support about 350 companies in probably 800 locations. We estimate that making the necessary changes, just to roll out our system, is going to cost in excess of £250,000 over the next two years. I do not know whether that is any help to you.

Gordon Tutt:

One of the other issues is underwritten by the fact that some of the changes being introduced to the software systems would have been required anyway as part of the requirements to meet the UCC—new data set, new message types, more engagement in terms of electronic transactions. In addition, we are already working on CHIEF replacement, so the costs of that are already borne as part of the decision to replace CHIEF. As high as these costs are for some of the software suppliers and some of the trade sector, some of that cost would have already existed had we decided to remain within the EU.

Photo of Kirsty Blackman Kirsty Blackman Shadow SNP Spokesperson (Economy), SNP Deputy Leader

Q Customs and immigration forces were put together in the Border Force. Given the Government’s political priority around immigration, do you feel that there is a resourcing issue with customs staff or do you feel that it is a structural issue and that decoupling customs and immigration would fix that?

Peter MacSwiney:

I think there is a structural issue. It is the view, certainly at the airports, that freight is the poor relation where the Border Force is concerned.

Anastassia Beliakova:

I would say it is both. It is very difficult to assess within the Border Force how much emphasis is given to goods checks versus checks on people. We have heard from members that it seems as if the focus has definitely shifted over the years. It is therefore an area that would require either a change of focus with more focus to goods, or more people dedicated just on goods checks, from our perspective.

Photo of Mel Stride Mel Stride Financial Secretary to the Treasury and Paymaster General

Q First, thank you very much for coming. It has been a really helpful session. I have two questions, which you have two minutes to answer; if you can give me a one-word answer for each one down the line, that would be perfect.

Would you describe HMRC’s engagement with yourselves—your own organisation, in the context of the discussions and the issues we have gone over today—as having been good, average or poor? Starting with Gordon.

Gordon Tutt:

Very good.

Peter MacSwiney:

I endorse that.

Anastassia Beliakova:

Very good.

William Bain:

Good, but we need answers on what is going to happen.

Photo of Mel Stride Mel Stride Financial Secretary to the Treasury and Paymaster General

That is more than one word—you can tell who the former politician is. My final question has clearly been identified. Naturally, there are many challenges and uncertainties out there. Some come from the sheer fact that we have decided to leave the EU and the short time frame, for example, for decisions. Many of the issues we have described come out of the negotiations and the uncertainty about where we may land in that respect.

However, what the Bill is doing and the focus of this Committee is to make sure that we are as close as we can be to existing arrangements and, secondly, that we have the flexibility to be nimble enough to move and adjust our configuration to accommodate wherever we land on day one. Very quick answers down the line: in essence, in broad terms, do you think the Bill is about right?

Gordon Tutt:

Yes, I do.

Peter MacSwiney:

I think it probably is, but it needs to focus on implementation and people must have the attitude that they are using it to facilitate trade and not to inhibit it.

Anastassia Beliakova:

Yes, but more clarity on policy is needed, particularly on VAT.

William Bain:

We would advise that it also deals with the other issues we have spoken about today which affect the flow of goods in and out of the UK.

I also thank the witnesses very much for their attendance. We will now close the session and move on to the next panel.