Leaving the EU: Customs Arrangements — [Mr Gary Streeter in the Chair]

Backbench Business – in Westminster Hall at 11:27 am on 10th July 2018.

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[Mr Gary Streeter in the Chair]

Photo of Stephen Hammond Stephen Hammond Conservative, Wimbledon 2:30 pm, 10th July 2018

I beg to move,

That this House
has considered customs arrangements after the UK leaves the EU.

It is a pleasure to see you in the Chair this afternoon, Mr Streeter. I am particularly grateful to have been selected to lead this debate. I led a debate on the European Free Trade Association and the European economic area in February, which I believe has brought that argument and some of the arguments around it to the fore. I see this debate as very much part of an evolving evaluation of the necessary arrangements that our country will need to put in place to secure free trade with the European Union and the rest of the world post March 2019.

This debate on customs arrangements follows and builds on what I was saying in February, because in my view, EEA-EFTA takes us some way towards achieving the aim of frictionless trade with the European Union post-Brexit, but without the satisfactory customs arrangements there will still be barriers to prevent our achieving that. That has been demonstrated to anyone who has spoken to the Norwegians and the Swedes, the Americans and the Canadians, and the Swiss. Anyone who suggests that those borders operate frictionlessly at the moment would be under a misapprehension.

I recognise, as I said to one or two colleagues as I wandered in, that today’s debate takes place in a vacuum. On Friday, the Government announced their ambition, which I welcome, for an EU-UK free trade area for goods, with a common rulebook and a labour mobility framework. The vacuum on the other side is that we are yet to see the much-awaited White Paper. I hope the Minister will confirm, despite all the rumours that have been swilling around this morning, that the White Paper will be published on Thursday.

I want to concentrate on those customs arrangements. Much of the debate about our post-Brexit customs arrangements has been about style over substance. Whether it is “the” or “a” customs union, max fac, new customs partnership or a facilitated customs arrangement, frankly, I do not care what it is called. As far as I am concerned, it can be called anything you like. The test must be whether the customs arrangements that we put in place protect jobs and businesses, avoid a hard border in Ireland, allow for frictionless trade and reflect the realities of the ports of our country. That is why I have always supported the Prime Minister’s customs plan as stated in the Lancaster House speech, in which, I remind colleagues, she said:

“Whether that means we must reach a completely new customs agreement, become an associate member of the Customs Union in some way, or remain a signatory to some elements of it, I hold no preconceived position. I have an open mind on how we do it. It is not the means that matter, but the ends.”

That is clearly true. It is not the means that matter, but the end.

The risks facing businesses, if we do not get this right, are clear. First, and overwhelmingly, in terms of customs, there is “rules of origin” risk and the requirements that places on trade. Those are most significant for exporters, if we do not come up with a satisfactory solution. The rules of origin requirements prove the country of origin for a product and they are essential for qualifying for lower tariffs. They are established to ensure that a finished good, and anything going into it from the supply chain, comes from the area that it is stated to have come from. Only then will it qualify to move across the border, and qualify for the tariff regime that is established for it. They are also needed to ensure that tariffs are not avoided by shipping goods through a country with a lower tariff, which could undermine the tariff regime.

When it comes to exporting food, proving origin can be quite simple: it is either grown in a country or it is not; but when it comes to the export of cars, for example, it is extraordinarily complex. The composition of each nut and bolt needs to be assessed, to ensure that enough of the car’s origin allows it to qualify for the lower tariffs. That affects not only the car industry, but pretty much any industry with a complex supply chain.

Photo of Hywel Williams Hywel Williams Shadow PC Spokesperson (Work and Pensions), Shadow PC Spokesperson (Brexit), Shadow PC Spokesperson (Cabinet Office), Shadow PC Spokesperson (International Trade)

That is even more the case with aircraft wings. The Airbus plants in north-east Wales have a central part in the Welsh economy. Components cross EU internal borders several times before finally being assembled. The danger is extreme to our local economy, as well as our participation in the wider project.

Photo of Stephen Hammond Stephen Hammond Conservative, Wimbledon

The hon. Gentleman is completely right and he guesses my next point. I was about to say that rules of origin should not be underestimated or lightly dismissed with the usual line that these issues were not a problem before we joined the EU, or by the extraordinary assertion—heard last week—that manufacturers would somehow be able to get cheaper components from somewhere else in the world. To return to my fabled car, in the 1970s, before we joined the European Union—or the European Economic Community, as it was then—a car made in the west Midlands had its supply chain solely from that area. Now, as the hon. Gentleman is rightly pointing out about aircraft wings—it is true for cars, too—that supply chain has sources all over Europe and will usually see multiple cross-border movements before it is completed.

The suggestion that cheaper components could be sourced from anywhere else in the world betrays a fundamental lack of knowledge of the integrated nature of manufacturing in the 21st-century world. The response to someone making those assertions can only be, “Get real!” Moreover, the significance of this burden is shown by the previous Government’s balance of competence review into the EU, which highlighted that the costs associated with rules of origin ranged from 4% to 15% of the value of trade. That is why the chief executive of the Chemical Industries Association told the House of Lords Committee that rules of origin add a “substantial level of bureaucracy” as

“the cost of providing the technical proof that a chemical or any other manufactured product originates from the EU or the UK, bearing in mind that”— particularly for chemicals—

“there could be several stages of synthesis involved”,

would

“clearly outweigh the benefit of duty-free” or tariff-free sales.

Currently, exporters need to fill out one form, at most, for VAT purposes. If we do not come to a satisfactory arrangement, exporters would need to fill out more paperwork. Furthermore, the UK could use access to the EU databases and the e-customs systems, which make this processing even easier.

Photo of Antoinette Sandbach Antoinette Sandbach Conservative, Eddisbury

It is clear from the motor manufacturers’ association that Honda, for example, has 3.5 million parts per day coming in for its just-in-time manufacturing. One of the complications of these highly integrated supply chains is that we cannot roll over our existing free trade agreements, precisely because of the limits on rules of origin and the ways that those would apply. We cannot manufacture a car now to have the amount of British components that would allow us to roll those free trade agreements over.

Photo of Stephen Hammond Stephen Hammond Conservative, Wimbledon

My hon. Friend is absolutely right about the example that she gives—the car industry. Her Majesty’s Revenue and Customs has given us clear evidence on this, as well, in terms of the extra bureaucracy. It estimates that 180,000 exporters will now need to make a customs declaration for the first time, having not needed to do so previously. That is in addition to the 141,000 exporters that currently make a declaration for trade outside the EU. That extra bureaucracy is roughly in the small amount of £4 billion a year. Anyone who thinks that is a price worth paying, with the cost being put on industry, should think again.

Some have said that this is a price worth paying to pursue free trade agreements with new markets—markets that will bring us huge new rewards; but the supply chains that will be impacted by these new barriers cannot simply be removed from the EU market and integrated into a new market. The supply chains that will be impacted by those new barriers cannot simply be removed from the EU market and integrated into a new one—they have taken decades to build up and are facilitated by free trade in the EU. By most conventional expectations, it would take further decades for EU exporters to embed themselves in new markets and new supply chains.

The extra requirements would also require physical infrastructure at borders to deal with customs processes. Currently, few checks are required on EU goods at ports, so ports have customs infrastructure in place to deal with non-EU imports only. Given that less than 1% of the lorries arriving through the port of Dover or the channel tunnel require customs checks, there is very little infrastructure, and there is no reason for there to be more.

That is also true on the other side. When representatives from the port of Calais came to speak to the Treasury Committee, they made the point that they have so far made no investment in infrastructure. Whether they will be able to deal with the new customs arrangements by the end of the implementation period without more infrastructure being put in place, or indeed without substantial delays at the port, is not only open to question, but evidence to the Select Committee proved it to be so.

The port of Dover estimates that even a two-minute delay in customs processing would lead to a 17-mile queue from Dover. Even short delays would have an impact on the just-in-time production lines that my hon. Friend Antoinette Sandbach mentioned, with costs compounding each time a component crosses from the EU to the UK or vice versa. As I said earlier, in the car process, that usually happens between three and four times.

Photo of Hywel Williams Hywel Williams Shadow PC Spokesperson (Work and Pensions), Shadow PC Spokesperson (Brexit), Shadow PC Spokesperson (Cabinet Office), Shadow PC Spokesperson (International Trade)

A great deal of attention has been paid to Dover and Calais and the east-west, north-south routes, but much less has been paid to the Dublin-Holyhead route, although Holyhead is the second-busiest roll-on roll-off port in the United Kingdom. In the Exiting the European Union Committee, when I asked the now former Secretary of State for Exiting the European Union, Mr Davis, what consideration had been given to Holyhead, he said that none had been given. That was some time ago. I asked the Secretary of State for Wales when he had last visited Holyhead, and he said it was in April 2017. Does the hon. Gentleman share my despair that that route has not received the attention that it requires?

Photo of Stephen Hammond Stephen Hammond Conservative, Wimbledon

Again the hon. Gentleman guesses what I was about to say next. I was using the ports of Dover and Calais as examples of ports across the United Kingdom. Of course, it would also require restrictions and a border infrastructure to be in place between the two ports he mentions.

Over the last few years, some people have called that project fear, but the reality is that we are facing risks to our economy and to people’s jobs. In the last two weeks, businesses such as Airbus and Jaguar Land Rover have been increasingly vocal about these events and the risks. A recent Institute of Directors poll found that business leaders want a post-Brexit customs arrangement that avoids the new customs processes and maximises EU market access by minimising regulatory divergence. Warnings from big employers and investors in the UK should not be ignored, and certainly not by a Government who are committed to protecting jobs and enhancing employment opportunities.

Photo of Heidi Allen Heidi Allen Conservative, South Cambridgeshire

On that point, it is important for everyone to recognise that although big businesses can be noisy and have press contacts, the way that business filters through like a food chain means that they provide work for medium-sized businesses, who provide work for small businesses. As a country, we would be completely foolish to risk fundamentally changing the way we deal with our existing EU customers without having a clue about what the new customers in the rest of the world might want. We have to find a way to preserve frictionless trade with our existing customers if we want to protect our economy.

Photo of Stephen Hammond Stephen Hammond Conservative, Wimbledon

My hon. Friend is right. The supply chain provides jobs in all sorts of areas across the country. It is not just the big employers, but the thousands of people who are employed in their supply chain. For a small firm, the bureaucracy of restrictions such as rules of origin requirements and certificates, will be so extreme that some of them are likely to go out of business. We need to realise that.

We need a solution to those problems that protects jobs and businesses, that reflects the realities at ports, that avoids a border in Ireland and that can be fully enforced by the end of the implementation period. It is no good just relying on the technology being there, because at the moment it does not exist or it has never been tested on anything like that scale.

I am not sure that I am in universal agreement with all hon. Members, but I welcome the Chequers plan as a sensible proposal. As with everything, it will be in the detail, and as I said earlier, we are in a slight vacuum at the moment because the White Paper’s timely publication will be important, but it is not yet with us. One ambiguous area is the suggestion that maintaining frictionless trade with the EU will limit our ability to pursue new free trade deals. I will leave it to the Minister to explain exactly how those proposals will ensure that we can keep the option of free trade open.

The Government’s proposal is a welcome step towards at least recognising the economic reality that will hit us. I do not want to say that the debate has secured all the answers yet, because we will have the White Paper, but I will say that the Brexit debate has not yet faced up to some of the inevitable trade-offs between different rules around the world. If barriers are removed somewhere, they will almost certainly be put up somewhere else. That is the consequence.

Photo of Gregory Campbell Gregory Campbell Shadow DUP Spokesperson (International Development), Shadow DUP Spokesperson (Cabinet Office)

The hon. Gentleman talks about inevitable trade-offs across the world. Up to now, we have talked about the UK’s fluidity in terms of trading with the EU and beyond, but does he agree that we must not lose sight of the massive political and trading changes that might take place in remaining EU countries such as Hungary, Poland, Germany and Austria after we have left?

Photo of Stephen Hammond Stephen Hammond Conservative, Wimbledon

The hon. Gentleman may well be right. We cannot know what will happen. We can see tensions already and they may result in different outcomes. We have some certainty about various procedures with those nations because they are members of the EU, but we cannot have the same certainty with other countries that present that fated opportunity.

Whether we like it or not, our economy is extraordinarily and almost inextricably interlinked with the EU’s, with manufacturers benefiting from the complex supply chains. If we were to put up barriers between the UK and the EU by leaving the single market, or by having no comprehensive customs arrangement, we would have to be sure that any new trade deal could make up for putting those barriers in place.

Photo of Stephen Hammond Stephen Hammond Conservative, Wimbledon

A panoply of choice! I will give way to the hon. Lady and then the hon. Gentleman.

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

To return to the hon. Gentleman’s welcome of the Chequers plan, could he give more detail about that and how he thinks it will actually work? I have concerns that it may not be workable at all.

Photo of Stephen Hammond Stephen Hammond Conservative, Wimbledon

As I have said several times, we do not know the detail, but we should welcome three things: first, that there is a plan, because we are a long way into the process; secondly, that it attempts to put in place a UK-EU free trade area; and thirdly, that there is a common rulebook. As I explained earlier, we cannot just solve the customs part; we need to solve the standards issue as well, because if we do not, we will not be able to trade the products that we want to trade even if we have the best customs arrangements.

None of us has yet seen any of the detail. Some of us will cautiously welcome the plan as a starting point for establishing a free trade area, and some of us will be a bit more positive. We have not yet seen the reaction from others, but I hope they realise that it is an opening offer from the Government that needs to be looked at sensibly.

Photo of Paul Girvan Paul Girvan Shadow DUP Spokesperson (Education), Liberal Democrat Lords Spokesperson (Transport), Shadow DUP Spokesperson (Transport)

This a two-way traffic issue and there needs to be flexibility from Europe as well. The UK Government have made some movement in relation to what happened at Chequers and in showing willingness to accommodate, but that needs to be reciprocated by Europe. They can allow us to have that access to the open market in Europe.

Photo of Stephen Hammond Stephen Hammond Conservative, Wimbledon

The hon. Gentleman is right, but I say to him, and I am sure that he will accept it, that until we actually put a proposition down to negotiate with, there was nothing to negotiate with. Until the Chequers proposal, it might well have been said by a number of our soon-to-be former EU partners that there actually was not a deal to negotiate on. There were the Prime Minister’s principles: no hard border in Ireland, frictionless trade and the ability to do free trade deals. Those are principles and there is nothing wrong with those principles, but they were not an executable plan. Until they were an executable plan, there was nothing to negotiate on.

Photo of Dominic Grieve Dominic Grieve Conservative, Beaconsfield

Is it not also the case that if we are going to approach this negotiation, we have to look at it—as in any good negotiation—from the other side’s point of view? For the other side, the issue is that they are part of an international treaty that is underpinned by a rulebook. If we are going to ask them to adjust their rulebook to accommodate us, we will have to show that we can do that in a way that is likely to promote certainty for the future, and furthermore does not undermine their own cohesion.

Photo of Stephen Hammond Stephen Hammond Conservative, Wimbledon

My right hon. and learned Friend is correct. I think that he has made the point several times in this place and in others that there has been a misunderstanding and a failure to comprehend exactly what the EU Commission is. It is a legal body that takes its instructions from others, and therefore its ability to deviate too much in those negotiations until its instructions are changed means that we have failed to understand how we should have been negotiating initially. Now that the plan is there, I am hopeful that we will see more progress.

Photo of Chuka Umunna Chuka Umunna Labour, Streatham

I am very grateful to my fellow south Londoner for giving way. I know this is a debate about customs, but my biggest issue with the Prime Minister’s proposals is that they do not cover most of the economy, which is services. On customs, however, I have a couple of questions.

First, does he know of any example of where the EU has allowed a third county to collect customs duties on its behalf? The hon. Gentleman has talked about the importance of the rules. Secondly, although I appreciate his comments welcoming the proposals, they are also based on “to be invented” technology to resolve the Irish border issue. Unless that technology is invented and can work, I do not see how it will be able to resolve that conundrum.

Photo of Stephen Hammond Stephen Hammond Conservative, Wimbledon

I will deal with my fellow south Londoner’s latter point first. I agree with him on technology. There needs to be a system in place. We may move to a technological solution, but, as I said a few moments ago, it is clearly not there at the moment, or it has not been tested on this sort of scale yet.

Secondly, I do not know of any such example, and that will obviously be challenging to the rulebook, but that does not mean that we should not put the proposition forward and therefore I respect what the Government are trying to do in that regard.

As for services, which the hon. Gentleman was clearly talking about and is 80% of the UK’s exports and economy, my hope is—I am not sure whether the Minister will be able to say so today, but it is my hope—that the White Paper may give some hints about how the Government will put in place their enhanced equivalence regime, and the proposals for that, which the Chancellor mentioned in a speech at a different Mansion House event just recently. So I hope that we will hear some news on that in the near future.

Let me go back to the idea of free trade arrangements and free trade agreements. The Treasury Committee had the privilege of going to Washington in April and we met a number of American free trade or trade arrangement negotiators. Everybody I spoke to was excited about doing a deal with the United Kingdom, which is good news. Why were they so excited? Because they told us, frankly and openly, that they can dictate the terms they want, they will get whatever they want and any agreement will give their producers unfettered access to our markets.

We have to be careful, because no one is asking the right question. Of course people want to do deals with us; why would they not want to? The question is this: on what terms of trade will those deals be done? If someone can tell me the answer to that question, I will happily sit down and conclude my remarks now.

Photo of Stephen Hammond Stephen Hammond Conservative, Wimbledon

I look forward to the hon. Gentleman’s expert intervention.

Photo of Stephen Hammond Stephen Hammond Conservative, Wimbledon

Were that so, I would sit down now, but there is no indication from any of the negotiators to whom I have spoken that that is the case. I will not go into the lurid details of how exactly they have described the prospective arrangement, because this debate has far too genteel an audience. However, I say to the hon. Gentleman that there will clearly be areas of mutual advantage, but it is very clear that those terms of trade in the short term—they may change in the future—are likely to be less advantageous.

Photo of Stephen Hammond Stephen Hammond Conservative, Wimbledon

In one moment. I just want to make this point, because it is pertinent to what Mr Campbell was saying. Free trade with the Commonwealth is a goal—an announced goal—for a number of the Brexiteers, but the key question again is this: on what terms will those deals be done?

The economic modelling done for the Whitehall papers shows that a free trade agreement with America would provide a UK GDP benefit of about 0.2%. That is because the average weighted tariff with America is only 2%. So if we get rid of all the tariffs with America, it would add 0.2% to our economy. If we reach agreements with China, India, Australia and New Zealand, of course they would add benefit to the economy—somewhere between 0.1% and 0.4%. I just ask Members to bear that in mind, given the scale and the benefit of the trade that we do with the European Union.

Photo of David Simpson David Simpson Shadow DUP Spokesperson (Environment, Food and Rural Affairs), Shadow DUP Spokesperson (Business, Energy and Industrial Strategy)

I thank the hon. Gentleman for giving way. Does he not agree that, in relation to trying to get a deal and to how we conduct the negotiations, the perception out there among the general public is that Europe keeps changing the goalposts and therefore we cannot get to a definitive position?

Photo of Stephen Hammond Stephen Hammond Conservative, Wimbledon

The hon. Gentleman is clearly a learned man and I take his view that the great Shakespearean themes are perception and reality, and reality becomes perception and the other way round. But that is not true of course, and it is for those of us who are in this place to stand up and base our decisions on evidence, and to speak the truth. So it is absolutely clear to me that, as we need to protect jobs and businesses, and if we are ready to protect them as they are now, we do not need to sacrifice them for potential gains, if those gains look small and potentially unrealisable.

Photo of Hywel Williams Hywel Williams Shadow PC Spokesperson (Work and Pensions), Shadow PC Spokesperson (Brexit), Shadow PC Spokesperson (Cabinet Office), Shadow PC Spokesperson (International Trade)

The hon. Gentleman is being very generous in giving way. On the point that he has just made, Michel Barnier gave evidence to the Brexit Committee last year and he said that there is a cultural difference here. He said, “Your side seems to think that this process is, ‘You give us a bit of that and we’ll give you bit of this’, whereas on the European Union’s side it is a matter of fitting our mutual desire for the most favourable terms into the rules that have been agreed by the UK Government over many years”, and until that difference in cultural perception changes we are not going to get very far.

Photo of Stephen Hammond Stephen Hammond Conservative, Wimbledon

I thank the hon. Gentleman for that point; I hear him and I will look carefully at the Select Committee’s report on that point.

In concluding, I will make a few remarks to the Minister. I hope that he will be able to outline how the Government’s proposals will overcome the costly non-tariff barriers that I spent some time outlining and took a number of interventions about earlier. I also hope that he can reassure us about the steps the Government will take to ensure that the new customs arrangements will be fully ready and tested by the end of the implementation period. I would obviously like to be assured that the Government, and in particular the Department for Transport, have a plan to ensure that our ports and ports on the EU side will be ready for any changes.

Governments should always put the creation and protection of jobs and livelihoods first. While we are leaving the EU, we should not sacrifice people’s livelihoods. That is not what people voted for; whatever they voted for, they certainly did not vote for that. Therefore, it is important to listen to the voice of business.

As I have said, I drafted this speech on Friday and it has gone through one or two reiterations since, on the basis of what has happened, and it will probably go through another one when I see things on Thursday. Nevertheless, I welcome Friday’s agreement. Clearly, we should welcome the fact that it aims to remove the need for tariffs, customs checks and controls. It will be called a facilitated customs arrangement. I understand that the White Paper was going to be published on Thursday; perhaps the Minister might care to give us some detail on how a facilitated customs arrangement is intended to work.

I have taken a number of interventions because this is an extraordinarily important subject. It goes to the essence of what we need to put in place before we leave the European Union and why. Many of us would say that these issues should have been sorted a long time ago, but we are making a good start now. I hope that this debate will contribute to people’s understanding of some of the issues that this country’s businesses will face as we leave the European Union.

Several hon. Members:

rose—

Photo of Gary Streeter Gary Streeter Conservative, South West Devon

We have 30 minutes until the Front-Bench speeches begin and three people are seeking to catch my eye. Even I can do the maths: there are no more than 10 minutes each, including interventions.

Photo of Helen Goodman Helen Goodman Shadow Minister (Foreign and Commonwealth Affairs) 3:00 pm, 10th July 2018

It is a pleasure to serve under your chairmanship, Mr Streeter. I congratulate Stephen Hammond on securing the debate. We serve together on the Treasury Committee and he has presented a typically thorough and well-grounded case for our having frictionless trade and preferably for being in a customs union. I will make a few remarks based on the experience of businesses in my constituency and then ask the Minister a couple of questions.

My constituency in County Durham has a lot of manufacturing and some agriculture, and people in both those areas are interested in the customs arrangements. We do not have significant service sector exporting. I have people who work in the Nissan factory in Sunderland and in small engineering firms that supply the factory. I have a GlaxoSmithKline pharmaceutical plant, which employs 1,000 people, and PPG, a supplier of coolants and sealants to Airbus, which employs 200 people. What north-east manufacturers are concerned about is frictionless trade and regulatory alignment. Those are their top two priorities.

The north-east chamber of commerce has done a great deal of work with the Department for Exiting the European Union and I am sorry to say that up until now it has been disappointed with the Department’s response. The chamber sent people to train departmental officials, and as the process of the last two years has gone on those officials have become so demoralised that more of them have left the Department than have used the knowledge the chamber gave them. A fortnight ago, the chamber’s chief executive, James Ramsbottom, said that political chaos was reducing business confidence.

We all hope that the Chequers agreement is a step forward—I think it is—but we would like to see a few more steps taken in the north-east. The Government’s assessment has shown that the region would be the part of the country worst hit by a hard Brexit, with a 16% fall in output and unemployment shooting up to a quarter of a million. That would be more people unemployed in our region as a result of a no-deal Brexit than we had in the depths of the recession in the 1980s, when the steel industry and coal mining were being closed left, right and centre.

The hon. Member for Wimbledon pointed out very well the reality. This is what my constituents say to me about the significance of the gravity model: it is expensive to move components around the world. People cannot start importing from Thailand at the same cost as they import from the Netherlands. I urge the Minister to go back to his colleagues with the message that we have to get away from this unicorn Brexit.

As well as wanting frictionless trade, people want no disruption to current systems. I will use examples from each of the firms I mentioned in asking the Minister to explain how a system using one bureaucratic set of rules for imported goods and another exported goods will work. I simply do not understand how that distinction will be made.

Nissan gets components in as part of its integrated supply chain and makes cars. It sells some cars in the UK, some into the European Union and some into third countries in Eastern Europe beyond the EU. When it gets the components, how will it know which will go into which cars to be sold in which places? I just cannot grasp that.

We have the same situation with GlaxoSmithKline pharmaceuticals. The company makes drugs with inputs from Ireland—it is a big multinational with plants all over the world—and sells them across the channel in France. How will it know which packets are being used in England and which in France? Or is it the Government’s idea to just sort of pro rata the sales? How would that work if, for example, there was a flu epidemic in France and not in England? Prediction would not be possible—the figures would have to be worked out post hoc and then people would have to claim money back. I simply do not understand how that would work.

Let me give the third example, of PPG. The company makes a component that goes into an Airbus product but has no control over what Airbus does with its outputs. It does not know whether Airbus is selling into Britain or France or Germany, so how will that work? Ministers are doing their best but that they need to do better, and I very much hope that this afternoon the Minister will enlighten us a little more about how precisely this will work.

Photo of Antoinette Sandbach Antoinette Sandbach Conservative, Eddisbury 3:07 pm, 10th July 2018

It is a pleasure to serve under your chairmanship, Mr Streeter. I am grateful to my hon. Friend Stephen Hammond for securing the debate. We applied for the ballot on the same day and he has twice been luckier than I have. He clearly carries the luck with him.

I will focus my remarks on three areas: what the public voted for, the agreement made at Chequers last week, and rules of origin. It is vital that we respect the referendum result. However, I argue that far too much has been read into it. The public gave us a direction of travel, not a road map.

It will be instructive for my constituents if I cite statements made by Vote Leave and its leadership. Not only did they not describe the end state during the campaign, but they refused to do so as a matter of strategy. The brains behind Vote Leave, Dominic Cummings, asked of the campaign: does it

“need an exit plan, or does that simply provide an undefendable target and open an unwinnable debate”?

The Vote Leave application for designated campaign status went even further, stating that the sole purpose of the organisation was to campaign to leave the European Union in the referendum. In other words, no plan for how to approach our customs arrangements was put to the public, only the high-level objective of leaving the EU. The application continued to state that the full range of options for leave deserved to be heard and that they were “legitimate” and “equally valid”. That hardly sounds like a campaign with a solid plan to put before the electorate. None of those statements suggested for a moment that leaving the customs union and the single market would be the clear consequence of voting to leave.

Some of my constituents in Eddisbury voted to leave the EU, the customs union and the single market, but for every email I get pointing that out, there are others that say their vote to leave was not a vote for a hard Brexit. My suspicion is that there is a majority in Parliament and the country for a soft Brexit, but no majority anywhere for the kind of Brexit supported by the European Research Group members of my party. The Government’s analysis is an effective admission that some leave campaigners have overstated the economic benefits of free trade to justify taking us out of the customs union. That is why I am pleased that the Government have come to an agreement about their negotiating position. It is a welcome dose of reality and a concrete plan, which has eluded DExEU to date.

I support the outline of the plan and look forward to the publication of the White Paper, which I hope will come this Thursday as promised, because Parliament needs time to examine the document in advance of the Taxation (Cross-Border Trade) Bill and the Trade Bill next week. The outline, however, contains much that I can support. A common rulebook for goods and agriculture and a combined customs territory with the EU will go a long way to resolving both the concerns about the Irish border and more generally about ensuring free and frictionless trade. The major industry sectors in the north- west are car manufacturing, chemicals, pharmaceuticals, aerospace, and energy, particularly nuclear energy.

I have spent five hours a week pretty much every week since we have been sitting in this place listening to evidence to the Business, Energy and Industrial Strategy Committee. Business after business has come and said that they do not want to apply under different rules. They say that very often the rules have been British rules that we have taken to Europe—rules on consumer protection, on airline safety, and on how to safely test pharmaceutical products. We have been setting the standards and exporting them not only to Europe, but globally. It is clear that the move forward at Chequers has much to support it in terms of the common rulebook. Frictionless trade is not only about customs and tariffs, but about non-tariff barriers, and it seems sensible and pragmatic to say that there are many areas—vast areas—where we do not need to diverge. We have set the standards. Very often we have higher global standards than other nations. We have much to be proud of as a nation in how we have led the way in Europe.

As for getting the detail right, I did not stand to get elected as a Conservative to increase costs on my businesses or to tie them up in further bureaucracy. Far from it. As my hon. Friend the Member for Wimbledon has described, 180,000 firms would need to have additional paperwork and fill out additional customs requirements. If we can reduce that, and if we can get and preserve frictionless trade in our negotiations with Europe, it has much to benefit both the European side and ours.

I am very familiar with the port of Holyhead. We have only one World Trade Organisation-compliant port in this country—Southampton—so all the other ports would need major infrastructure. At the moment, the technology for filling out manifests means that it takes a minimum of four hours from loading goods on to a ferry for them to be processed before they can come off at the other end. Crossings such as Dover do not last four hours, and we can immediately see the problems caused.

I, too, have concerns about services and the fact that many goods are sold with services. An iPad, as my researcher would say, is an expensive paperweight if it does not have the software that comes on it. We need to look at how we can include services, because they are so important for our economy. The loss of access to European markets would be devastating for the many people in Eddisbury who work in the service sector.

Although regulatory alignment on goods is important, it is not enough on its own and this is where we have to look at the impact on our trade of rules of origin. My hon. Friend the Member for Wimbledon was not aware of my speech and I was not aware of his, but we have both picked on the same point about the threat that rules of origin potentially pose for us. Outside a customs union, the UK’s exports to the EU would no longer be exempt from the EU rules of origin. A detailed analysis of supply chains and the cost of obtaining a proof of origin certificate would be required. A complex motor, for example, has many different parts, and every nut, bolt and screw has to have a rule of origin certificate. It is not a simple and easy process to undertake.

It would be a substantial burden to exporters and would act as a significant non-tariff barrier even in a free trade area. The Centre for Economic Policy Research even suggested that the cost of proving the origin of a product could be between 4% and 8% of the value of the goods. That would have a knock-on impact on our ability to roll over trade deals that we currently benefit from as a part of the EU, because the trade agreements treat the EU as a whole when considering whether rules of origin apply to goods that are

“sufficiently processed in the EU” so as to qualify for the preferential tariff rates.

Japan identified “cumulative rules of origin” as an issue in its letter to the UK and the EU. That is why I have raised questions about the Government’s plans to retain membership of the regional convention on pan-Euro-Mediterranean preferential rules of origin. I hope the Minister has something to say about that. I look forward to further detail in the White Paper, but I welcome the steps forward made at Chequers.

Photo of Jim Shannon Jim Shannon Shadow DUP Spokesperson (Human Rights), Shadow DUP Spokesperson (Health) 3:17 pm, 10th July 2018

It is always a pleasure to speak in debates, Mr Streeter, no matter what the issue may be, but, as a Brexiteer, I will give an opinion that might not go down well with others in this Hall. However, it is my opinion and that of many in my party. We are where we are and we have to try to find a way forward. I am very much one of those guys who tries to find a way forward. Coming from Northern Ireland and from a political background, and understanding the political process of where we have got to, I feel that if there is a will to find a way forward, we can find it. I want to express my thoughts in a constructive fashion, and hopefully other Members will appreciate what I try to say.

First, I thank Stephen Hammond for securing this debate and allowing me the opportunity to speak in it. He succinctly and purposefully put forward his viewpoint, as other Members have done. With the increased uncertainty regarding the bill for our leaving Europe, it is more important than ever that we remember what people voted for when they voted to leave in June 2016. I am clear about what I and the constituency of Strangford voted for: we voted to leave by 56% to 44%. I am very clear about that.

I asked the Prime Minister a question yesterday on fishing, which is important for my constituency, and she answered it. I hope Members get a chance to read it. One could not be anything but clear about what the Prime Minister said in relation to fishing. I am reassured by her response to my question. The Minister’s Parliamentary Private Secretary, Scott Mann, is interested in fishing issues and I know he will have taken note of that.

That is something on which he and I would be on the same wavelength; we are probably both encouraged by it.

People did not vote to straddle the EU and the UK, for outside influence in law making to be countenanced, or to retain residual membership of Europe. They voted to leave. I voted to leave, and my constituents voted to leave. That is the principle on which everything we do must be based. I understand that the complexities are incredible. I look on everyone in the Chamber as friends and colleagues, and sometimes we differ in our opinions and the way we look at things, but the right hon. and hon. Members present want, as I do, to find a way to an agreement and understanding with Europe.

Photo of Heidi Allen Heidi Allen Conservative, South Cambridgeshire

The hon. Gentleman is right that a 52% to 48% result has to look like a compromise that the whole country and Parliament can somehow find a way to get behind, so does he agree that the Prime Minister’s outline proposals from Chequers go some way towards that? They would satisfy him as to what is needed for the fishing industry; but I will never forget the unemployment figures given by Helen Goodman. Surely the hon. Gentleman must agree that the right proposals will safeguard all the industries in question, and that they must include close alignment to something like the customs union.

Photo of Jim Shannon Jim Shannon Shadow DUP Spokesperson (Human Rights), Shadow DUP Spokesperson (Health)

I have some concerns about the customs union; but the hon. Lady will know that. We need to focus on how to get a workable relationship with the EU, where it understands that it needs us and—I have to say—that we need it. There is a need for us both to find a suitable—perhaps complex—way forward, ensuring that trade can continue. Like the hon. Lady I am concerned about how business will be affected. We cannot ignore the comments made by big business this last while; but many other businesses are quite confident about the future. I would rather there was a clear agreement and understanding. I take my opinion from Northern Ireland and the Republic of Ireland; I am conscious of that perspective, and where we are.

Photo of David Linden David Linden SNP Whip

I am grateful to my hon. Friend—he is truly a friend. He speaks about the importance of listening to business. Last week the Financial Times carried a report suggesting there were fears about food rotting in ports as a result of the Government pursuing a no-deal Brexit. The hon. Member for Strangford and the small group of 10 MPs that he is in have considerable power with the UK Government. Will he use that to impress on the Government the view that we cannot have a no-deal Brexit, as it would be so bad for ports, including those of Northern Ireland?

Photo of Jim Shannon Jim Shannon Shadow DUP Spokesperson (Human Rights), Shadow DUP Spokesperson (Health)

I do not believe there will be food rotting at the ports. I am more of an optimist about the future. Forgive me for saying it, but I always see the glass as half full rather than half empty. I look positively for the way to achieve our goals. I read the same press report as the hon. Gentleman, but we need to focus on where we are.

The Prime Minister has set out her stall clearly. I am a confirmed Brexiteer—it is not a secret, and hon. Members will know it. I feel that we would be better out of the EU, and I want to be out of it. The Prime Minister has made it clear where we are going; but I feel we need an agreement with the EU, to move forward. I hope that the Prime Minister can achieve that and I support her in trying to do it; but I am a single voice in the Democratic Unionist party. There are 10 of us, with a collective voice, and the 10 of us together will support the policy we agree on. I suppose that at this moment we may not be altogether sure what the Prime Minister’s policy is; but I hang on to the assurance that she gave me yesterday about fishing. I want to hang on to her other assurances as well.

I understand that the divorce settlement is onerous and acrimonious, but there is a way forward and we must find it. How are we, in the Republic of Ireland and in Northern Ireland, to achieve it? Last year I spoke at Irishfest in Wisconsin. It was a very good event. The Culture Minister of the Republic of Ireland spoke about Brexit from the Republic’s perspective, and I spoke about it from the Northern Ireland perspective. When the debate was over there was not that much difference between what we were trying to achieve. It meant we both had a mind to find a way forward. I want the border as it is. Administratively there must be a way we can get that.

We must also be ever conscious and mindful of the security and safety of the United Kingdom of Great Britain and Northern Ireland. As is true anywhere, the Government have a responsibility for the safety of every citizen. How are they to go about that? It will be done in the same way as the Garda Síochána, the Police Service of Northern Ireland—and before that the Royal Ulster Constabulary—MI5, MI6, and all the other bodies involved have done that work over the years. That is quite easy. Vehicle number registration is something that perhaps we have not done much with. The agri-food sector is very important for my constituency and it can be considered as an example, administratively; milk products cross the border three times and that happens easily because we are in the EU. However, we will be out of the EU on 31 March, so we must look towards that time.

Photo of Hywel Williams Hywel Williams Shadow PC Spokesperson (Work and Pensions), Shadow PC Spokesperson (Brexit), Shadow PC Spokesperson (Cabinet Office), Shadow PC Spokesperson (International Trade)

The Exiting the European Union Committee visited south Armagh at the end of last year and of course the border we saw then is the one that the hon. Gentleman wants. Everyone we spoke to in the north and the south wants it—that is, virtually no border. Does the hon. Gentleman agree that it is also desirable to have a similar border between Dublin and Holyhead?

Photo of Jim Shannon Jim Shannon Shadow DUP Spokesperson (Human Rights), Shadow DUP Spokesperson (Health)

I am sure that the Government will respond in relation to the arrangements that are already in place. I do not have the knowledge of Holyhead and what is going on there to comment; but I am fully aware of what happens in south Armagh and in the Republic of Ireland and Northern Ireland, and I think I speak with some authority about that.

I want to be careful about the time, Mr Streeter; am I allowed some leniency as to extra time?

Photo of Jim Shannon Jim Shannon Shadow DUP Spokesperson (Human Rights), Shadow DUP Spokesperson (Health)

My goodness! Then I will go on to mention that the Prime Minister said at Prime Minister’s Questions that we are working towards a

“Brexit that ensures that we are out of the customs union, we are out of the single market, we are out of the jurisdiction of the European Court of Justice, we are out of the common agricultural policy, we are out of the common fisheries policy, we bring an end to free movement, we take control of our borders, and we have an independent trade policy, but we are also able to have a good trade arrangement with the European Union, protecting jobs and prosperity for the future.”—[Official Report, 4 July 2018;
Vol. 644, c. 315.]

That is what I wanted to hear, and I will support her to achieve that.

My party’s leader, Arlene Foster, has said:

“People voted to take back control of their laws, borders and money, not to make Northern Ireland’s constitutional framework resemble the backside of a tapestry.

To create some kind of hybrid status for Northern Ireland where we would be subject to laws and regulations set by others over which we would have no say, whilst setting us apart from our biggest market in the rest of the UK, is sheer madness. It would be the road to economic ruin and the beginning of the constitutional break-up of the United Kingdom.”

People cite the Belfast agreement as a reason to retain a special status in the Union. They say that the terminology that asks for the encouragement of cross-border trade means that we must continue the status quo. That is not the case. The only say that the Belfast agreement has in the matter is the fact that any calls for unification with Ireland must be done through a border call. That has not been done. A back-door unification through a segregated UK is not acceptable. Let us make it clear what we are saying. I look to the Minister in this matter. This customs arrangement must ensure that the integrity of the UK is retained, and that is not simply for the benefit of Northern Ireland—it is for all of us, the United Kingdom of Great Britain and Northern Ireland. As I often say to my Scottish National party friends, we are better together.

Photo of Kirsty Blackman Kirsty Blackman Shadow SNP Spokesperson (Economy), SNP Deputy Leader 3:29 pm, 10th July 2018

On that note, Mr Streeter, I thank you for chairing the debate and congratulate Stephen Hammond on securing it. I also want to mention the fact that there are quite a lot of people in the Public Gallery, which is unusual. It is good for people to see that debate in this place can be respectful and that it can be conducted without shouting as we perhaps do at Prime Minister’s questions. It might be fairly dry, but the issues we are debating are important to businesses in our constituencies. I will save most of the particularly lengthy speech that I could make for the debate on the Taxation (Cross-border Trade) Bill next week. I am sure that the two Front Benchers have heard most of it already anyway. As repetition is encouraged in this place they will be delighted to hear it again next week.

You will not be surprised to hear, Mr Streeter, that the SNP’s position is that we should stay in the EU. Scotland voted to stay in the EU, and I believe that is in the best interests of people in Scotland. That is not just because people voted to remain, but because I passionately believe that being a member of the EU has helped us culturally, and also had a huge economic benefit. If we cannot stay in the EU, I think we should stay in the single market and customs union. A number of issues about staying in the customs union have been rehashed and discussed in this debate and I will mention a few of them, but first I wish to comment briefly on the Chequers plan.

The Chequers plan should have been published before article 50 was triggered, and we should have had this level of certainty about the UK Government’s future plans at that stage. Businesses are worried about what will happen—in a recent poll, mainly small businesses said that they are using only in-house expertise to plan for what will happen post-Brexit. They are not bringing in any specialist knowledge, which is a problem. At this point, however, they cannot bring in specialist knowledge to help them plan, because we do not know what will happen. Even the plan from the UK Government—the Chequers agreement, as I am sure it will be known—provides no certainty because we do not yet have an agreement with the EU, which is fundamental. This is a negotiation, and we need certainty for businesses so that they can work out what customs arrangements will look like.

The hon. Member for Wimbledon spoke at length about some of the bureaucracy involved, and that is a key issue in leaving the customs union. He gave the statistic of £4 billion a year in extra bureaucracy, which is a phenomenal amount of money. If a two-minute delay at Dover becomes a 17-mile queue, that would be totally unmanageable, but there are not yet any plans. The UK Government issued a written statement about the possibility of creating extra lorry parks, but that will not cut it. We will need significant infrastructure investment for any delay to be manageable, which is a real issue.

I will come on to rules of origin checks, but phytosanitary and animal health checks will also be required at the border, which is a particular issue for the agricultural industry. As everybody knows, Scottish food is the best in the world, and being able to export it to the EU is incredibly important to us. Someone who is exporting langoustine to the EU does not want it to sit in a lorry for even an extra hour, because it will not be in a very edible state once it gets there. There is therefore a real concern about the possible impact on the quality of our exported food if there is any sort of delay.

Non-tariff barriers and rules of origin are important. Antoinette Sandbach raised a point about rules of origin that I have mentioned previously, and in particular the rolling over of the EU’s current free trade agreements with third countries. It is incredibly important to ensure that those free trade agreements include cumulation, so that when cars are sold that do not meet the 65% content rule—for example, if they are being exported to South Korea—cumulation of EU content with UK content can be included to allow that free trade agreement to continue. If those free trade agreements are not rolled over with an element of cumulation, on the day that the UK leaves the EU we will no longer be able to export cars to South Korea. That will be an issue for other countries as well, but the car industry has that 65% figure, which is important.

Although the UK has a system of authorised economic operators, its system does not have the same flexibility to allow someone to become an AEO that exists in some other countries. The UK Government have said that being an authorised economic operator will help with exporting, which it will. However, that AEO system needs to be more flexible and ensure that people can more easily fulfil the requirements to become an AEO. If there are any additional customs barriers to those that currently exist, many more people will need to apply to become an AEO and have less friction in their trade.

There is not yet clarity on how rules of origin will look, or on filling in the form, and I am slightly concerned that that was omitted from the Customs Bill. At the moment, the British Chambers of Commerce has things such as certified rules of origin, but the Bill does not state what our rules of origin form will look like, or whether the UK Government will create a form that business can fill in to replicate the EUR 1 form. Obviously, we cannot continue to use the EUR 1 form because we will be outside the EU, but the Government need to copy and paste it in, and it would be good if they could give certainty to businesses about what that form is likely to look like, so that they know with what they will be expected to comply.

We are told that the benefit of leaving the customs union is that we will be able to strike free trade agreements, but earlier the point was made pretty comprehensively about how low those free trade agreements will be. Earlier this year The Sun published an article called “Vote for bargains”, which it later corrected. It was put out by members of the European Research Group, and it stated that there would be a £1 reduction in the price of butter as a result of us leaving the EU and being able to reduce our tariffs. In reality, only 0.23% of the butter that we import comes from outside the EU, and that comes from New Zealand. It does involve a tariff, but it is only 0.23% of the butter that we import. Crashing out without a trade deal and having tariffs on EU butter would be a real problem for the UK. My best guess is that rather than £1, we are looking at a saving of a couple of pence, but that would be only for companies that export butter from New Zealand because it is not sold in any retail way that I could find.

The article also stated that there would be a £44 saving on a TV from South Korea. Given that the EU has a trade deal with South Korea that includes zero tariffs on such goods, it is important for us to challenge such assertions when they are made. Misinformation is being spread about the cost of tariffs, but in reality that cost is minimal compared with the huge cost of non-tariff barriers. As Helen Goodman said, if the gravity model comes into play, we do far more trade with the EU than with anybody else. If a country has a free trade agreement with another country, it will have some regulatory alignment with that other country; it will not be free to make all its own rules because it will have to sign up to some of that country’s regulations—we have already discussed chlorinated chicken, for example. It is not the case that the UK will be a sovereign nation that is able to make all its own rules; that is not how free-trade agreements work—they involve give and take.

I think the customs union is vital. The Chequers agreement does not solve many of the issues that we have been discussing, or give certainty to businesses. It is also likely to be unacceptable to the EU and it does not solve the problem of Northern Ireland because of issues with technology. Next week, during discussion on the Taxation (Cross-border Trade) Bill, we will have the opportunity to vote on an amendment tabled by Anna Soubry, which states that the UK’s negotiating position should be that we stay in the customs union. It is vital that Members support that amendment, and I think we have a majority in the House of Commons for that. If that is not the will of the people, I do not know what is.

Photo of Jonathan Reynolds Jonathan Reynolds Shadow Economic Secretary (Treasury) 3:38 pm, 10th July 2018

It is a pleasure to see you in the Chair, Mr Streeter, and I congratulate Stephen Hammond on securing this debate. I do not wish to do him any harm, but I can say honestly that I am always prepared to listen to him, and I found his speech lucid, informed and persuasive.

You will understand what I mean, Mr Streeter, when I say that when I was sitting in the Library yesterday, this was not an easy debate to prepare for. Major issues within the Cabinet were being resolved in public, and it was not clear whether today would begin with the Prime Minister being in a position to say that she can go forward and deliver the Brexit deal that protects jobs and the economy that we all want. I do not say that with any pleasure or partisanship, because as I listened to the hon. Gentleman, I could not help thinking that at this stage we should not even be having this debate. We should know the answers to many of the questions he raised, or at least we should know the UK’s preferred answer to those questions.

We cannot deny that, since the referendum result, there has been a lot of delay and dithering, and the lack of clarity that that has caused has put jobs and living standards at risk. That delay and lack of clarity is operating within an economy that still faces many significant challenges, such as the collapse in growth, huge problems with productivity, and the fact that many of our constituents live very difficult lives—those on both Front Benches agree about those challenges, even if we propose different solutions.

It seems reasonable to say that the Government by now should have come up with a credible and comprehensive customs plan for post-Brexit. Recent events at Chequers indicate that the Government are moving away from the type of Brexit advocated by many Tory Brexiteers and towards what we might call a soft Brexit—I would simply call it an economically realistic Brexit—but the Government’s proposals at Chequers stop short of the comprehensive customs solution we feel is needed. Meanwhile workers, businesses and everyone who voted in the referendum, no matter how they chose to vote, are reasonably seeking reassurance and security over what Brexit is likely to mean for their future and that of the country.

As the Opposition, our message has been clear and consistent: we respect the result of the referendum, but we still want to work with European partners in the economic interests of the country. Our priority is simply to get the best deal for jobs, living standards and the economy, and we are pragmatic about how that should be done. We will reject any race to the bottom in workers’ rights, environmental safeguards, consumer protections or food safety standards. We want people in this country to continue to enjoy the same protections as our cousins on the continent. That is why Labour proposes to negotiate a new comprehensive UK-EU customs union to ensure frictionless trade between the UK and EU. In particular, we want to ensure that there are no tariffs with Europe and the continuation of advanced supply chains, particularly in manufacturing, which was well described in speeches today. Crucially, we want to help avoid a hard border in Northern Ireland.

Photo of Alex Sobel Alex Sobel Labour/Co-operative, Leeds North West

A number of northern businesses have come to me. They are all globally owned, global manufacturing and exporting businesses that use the port of Dover. They have said they are now looking at contingency with other ports because of the proposed customs arrangements. They are concerned that every port will have the arrangements and their businesses will have to move outside the UK. Are the proposals that my hon. Friend is outlining not exactly the sort of proposals that will alleviate the fears of those businesses?

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

My hon. Friend is absolutely right. I say to all Ministers that, for many of us, this matter is not an abstract question. I am a little younger than my hon. Friend Helen Goodman, but I grew up in the north-east in the 1980s, not far from her constituency. It was clearly a time of substantial turmoil. We had the miners’ strike and the shipyards closing. The modern prosperity of those areas has been built around a relationship with the single market, the European Union and inward investment. Many of my schoolfriends work in that Nissan plant, which is the most efficient car factory in the world. There is a plant in Mexico that disputes that, but we are pretty sure we have got it. The Government should not underestimate just how willing many of us are to fight to ensure that the next generation do not have to undergo the kind of economic turmoil that many of grew up within. They should recognise the benefits that have been brought from that relationship.

The Taxation (Cross-border Trade) Bill—many of us here are veterans of its Committee—ostensibly sets out from the Government’s point of view how we will create a functioning customs framework for the United Kingdom once we leave the European Union. Many of us have read all of that Bill, and there is nothing in it that guarantees frictionless trade through UK ports from the moment of exit. There are no measures that properly resource Her Majesty’s Revenue and Customs for the task ahead. There is nowhere near sufficient detail on the powers and provisions of the Trade Remedies Authority, which will be charged with securing vital British interests.

Frankly, it is just an enabling Bill. The political decisions that will be required to decide whether we use the powers within that Bill have not yet been taken. They may have been taken at Chequers, but we will need to see more detail on that and the political fallout. It is still fair to say that the Government have failed to offer specifics on what the new customs system will look like, how it will work and, crucially, whether it will be ready on time. Huge underlying questions remain about whether the current customs declaration service programme can deal with the sheer workload and pressure coming its way post-Brexit.

Everyone in the House agrees that we must avoid the nightmare scenario of gridlock at UK ports with lorry queues stretching as far as the eye can see, yet the Government continue to refuse to acknowledge that HMRC has had its staffing levels cut substantially—they have been cut by nearly a fifth since 2010. There are still plans to close 137 HMRC offices across the country. HMRC has 2,000 less staff today than it did on the day of the referendum. That has to bring into question our ability to deal with a future customs regime.

In contrast, we recognise the urgent need to hire and train more customs officers and HMRC staff, particularly if the Government are to meet their ambitious target of a fully operational customs system by 2019. In addition, the Public and Commercial Services Union only last week warned that strike action looks increasingly likely after the Treasury announced without consultation that the pay cap would be lifted only through cuts and increased workloads across Departments. That is not an ideal position to be in, based on where we are today.

Post-Brexit, we will need the ability to enforce against the dumping of unfairly priced goods. At the moment, those remedies are provided in conjunction with the EU, but on leaving the UK will have to enact and manage its own trade remedies. The measures are spread across a number of pieces of legislation and are of great interest and importance to UK manufacturers. The manufacturing industry remains an indispensable part of the UK economy. Some of the speakers today, particularly my hon. Friend the Member for Bishop Auckland, articulated just how specific and detailed the questions are that we are receiving from constituents on how the system will work. The complexity of modern manufacturing does not seem to tally with some of the Government’s aspirations for how the system will work going forward.

We want the Government to set out a clear path to our mutual objective of creating a functioning institutional framework for the handling of customs once we leave the European Union. Crucially, we must recognise that the final customs regime post-Brexit will be a result of the deal we strike with the EU, not the deal we strike among ourselves in Parliament or between different factions of the Conservative party. We must be ready for that regime, but we feel that the overwhelming evidence favours the UK entering into a continued and renewed customs union with the EU. The Government perhaps moved some way towards that last weekend. Perhaps they will go just that little bit further to get us the post-Brexit customs regime that this country needs.

Photo of Gary Streeter Gary Streeter Conservative, South West Devon

Before I call the Minister to respond, I ask him to leave two minutes for Mr Hammond to have the final word.

Photo of Mel Stride Mel Stride Financial Secretary to the Treasury and Paymaster General 3:46 pm, 10th July 2018

I will certainly leave two minutes for my hon. Friend Stephen Hammond.

It is a pleasure to serve under your chairmanship again, Mr Streeter. It is also a pleasure to follow Jonathan Reynolds. I believe we might be facing each other next week on another occasion. There seems to be a sense that something is happening on Monday or Tuesday next week. I also congratulate my hon. Friend the Member for Wimbledon on securing the debate.

As many have suggested, it might be worth me injecting as much clarity as I can on the Government’s position. While Members made extremely valid and well-put points about the downsides of an arrangement in which we perhaps have no deal and there is a hard border between us and the EU27, I am not so sure that the merits of the proposition that the Cabinet agreed at Chequers have come through.

As we all know, the main problem with a hard border or even with the maximum facilitation arrangements is that we would have a border between ourselves and the EU27. We would have various degrees of friction that we would seek to reduce under the max fac model through various facilitations and the use of technology, but we know there would be costs associated with that kind of arrangement. That is why at the Chequers meeting we wisely moved towards something that works much better in that respect. In terms of the cost of the kinds of frictions we might have with some of the scenarios that have been conjured up this afternoon, the head of HMRC tallied the cost of the additional customs declarations that would have to be entered into as a consequence of a border between ourselves and the EU27 at about £20 billion a year. Those are not insignificant costs to business, which the Government most certainly recognise.

The model we are now looking at is a facilitated customs arrangement, where we will act effectively as the agent for the European Union at our borders when it comes to goods coming through the UK into the EU. We will be collecting the European Union’s tariff at that point. For goods going directly into the United Kingdom for consumption or end use in our jurisdiction, we would apply the UK tariff at that point.

We would also have a common rulebook, which means that for regulation pertaining to goods and agricultural products, we would not, at least initially, have any regulatory misalignment between ourselves and the EU27. The significance of that is that we will therefore not require border and customs arrangements between ourselves and the EU27, and indeed between Northern Ireland and the Irish Republic.

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

On goods that are coming in from a third country, how will the Government work out on which bits of a shipment to charge the UK tariff, and on which bits to charge the EU tariff?

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

I point the hon. Lady to her question about the White Paper. There will be more detail to come on just those kinds of questions, and of course much of this will remain to be negotiated. Our estimate is that the vast majority—well in excess of 90%—of goods coming in could be charged directly at the border as an EU good, or would be non-tariff anyway under both EU and UK arrangements, or face the UK tariff accordingly. A very small proportion might fall into the category to which she refers.

Photo of Helen Goodman Helen Goodman Shadow Minister (Foreign and Commonwealth Affairs)

That was the crux of my questions. Listening to the Minister, I realise I perhaps did not formulate it quite as accurately as I should have. The question is not how much comes for one purpose and how much comes for another purpose. The question is how the person importing knows what the purpose will be, and where the final user will be. That is the tricky question. I can see the Minister frowning, so he knows it is tricky as well.

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

When goods come in and the end-use cannot be determined, we foresee a situation where we might have to charge the higher tariff, with a rebate mechanism in place once the end-user can demonstrate that those goods have indeed been consumed, or found their end-use, in the United Kingdom. As I say, some of those matters will be addressed in the White Paper that will be with us this week.

Hon. Members have rightly mentioned supply chains and the importance of goods and components going in and out of the EU27. The points raised by the hon. Lady in the context of Nissan will be accommodated substantially by the model we are putting forward. My hon. Friend the Member for Wimbledon mentioned VAT systems. We have made it clear that we are looking in the negotiations to ensure that we have the best of the arrangements that are there at the moment, in terms of systems and making our VAT interactions as smooth as possible, albeit we will look to control rates of VAT. In the recent Budget the Chancellor commented on the abolition of acquisition VAT and the move towards import VAT. We recognise that there are certain cash-flow impositions on the part of business that we will want to take into account.

A number of hon. Members rightly mentioned ports, and I think a couple specifically suggested that a two-minute delay could lead to a 17-mile tailback at Dover. We are, of course, extremely cognisant of that risk, but once again, it applies if we need border and customs arrangements in place at the port of Dover, Holyhead and the other ports that have been mentioned. Under this model, that would clearly not be the case.

My hon. Friend the Member for Wimbledon also made a point about free trade deals and how the approach of the facilitated customs arrangement would facilitate them. Most importantly, as distinct from being in “the” customs union, or in a customs union with the customs union, we would not operate a common external tariff, so we would be free to set our own tariffs. The fact that we have a common rulebook between ourselves for goods and agricultural products means that the issue of regulatory barriers, which might otherwise be in place for us in doing FTAs and bringing goods into the UK that might then go on to the European Union, would also be substantially resolved.

Photo of Stephen Hammond Stephen Hammond Conservative, Wimbledon

The Minister is obviously right in what he has just said about tariffs. Does he also accept that the rulebook and some of the standards in it are likely to restrict our ability to have free trade with certain countries if they do not meet those standards?

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

My hon. Friend is right inasmuch as that is potentially the case if there are any inconsistencies—we might otherwise have varied our rules accordingly to accommodate an FTA. However, the Government have made it clear that although we will have total alignment at the start, we will not seek an arrangement where we will be unable to deviate from that in the future, albeit we recognise that there will be consequences for doing so.

A number of hon. Members raised the issue of preparedness, and I assure them that we will be in a good position and ready on day one if we have a no-deal situation. The Chancellor allocated £3 billion for Brexit preparations in the last Budget. Her Majesty’s Revenue and Customs received £46 million last year and around £250 million in this financial year. We have already recruited, or have in train the recruitment of, around 1,000 new staff going into HMRC with a focus on borders. We have said that we will move that figure up to between 3,000 and 5,000. Some Members mentioned the customs declaration system. The National Audit Office has suggested that we are broadly speaking where we need to be to ensure that that system comes online and live before March next year.

Chuka Umunna asked why the EU would allow us to collect EU tariffs when there are no such arrangements with any other trading partner. We are in a unique situation. We are a very large trading partner with the European Union. We have complete alignment at the moment in regulations with that market, so we start from a position that is not occupied by others.

I think I have gone through most of the points raised by Helen Goodman. I am grateful that she said that initially she broadly welcomed the proposals, and we should all do.

My hon. Friend Antoinette Sandbach made the very important point that we are seeking an arrangement that can command the broad support of the British people—an arrangement that ensures that the UK and the EU have frictionless access to each other’s markets for goods; that provides regulatory flexibility in the way that I have described; that enables commitments to Northern Ireland to be met and the Good Friday agreement to be honoured; that sees us leave the common agricultural policy and the common fisheries policy; that allows us to deliver an independent trading policy; that ensures that, in future, all laws in the UK will be legislated for by our Parliament; that restores the supremacy of UK courts; and that ends the free movement of people and vast payments to the EU. The broad majority of people in our country will welcome that achievement.

I hope that, particularly in the debate on Monday, Parliament as a whole comes together. This is a moment in our history where there are undoubtedly significant opportunities, but also a number of challenges. I hope we see the debate through that prism, rather than through anything that is rather more narrow and party-political. On that note, Mr Streeter, I gladly give the Floor to my hon. Friend the Member for Wimbledon.

Photo of Gary Streeter Gary Streeter Conservative, South West Devon

Thank you very much. Mr Stephen Hammond will have the final word.

Photo of Stephen Hammond Stephen Hammond Conservative, Wimbledon 3:58 pm, 10th July 2018

Mr Streeter, you will be pleased to hear that my final words will not be as long as my starting words. Thank you for being in the Chair this afternoon. I think you will agree that, although we did not have as many contributions as we sometimes have in such debates, they were of exceptionally good quality. I thank all hon. Members for contributing.

The Minister said at the beginning that he had hoped that we would set out a little more ambitiously some of the potential opportunities that the Chequers plan will afford. Today, he has heard everybody welcome that plan, but some hon. Members set out some of the considerable risks if we do not achieve the ambitions in it. We are grateful to him for setting out in his 10 minutes some of those ambitions in a little more detail, because they overcome some of the issues if they are enacted. He is right to make that entreaty.

I hope that after we have seen the White Paper this week, we can all join the Minister next week in supporting the customs arrangement. However, there are significant issues about rules of origin and the cost of bureaucracy. I know he knows that, and I hope the Government keep it in mind as they move forward.

Question put and agreed to.

Resolved,

That this House
has considered customs arrangements after the UK leaves the EU.