Brexit: The Customs Challenge (European Union Committee Report)

Baroness Hayter of Kentish Town Excerpts

Monday 1st April 2019 Lords Chamber

[Lord Stevenson of Balmacara (Lab)]

I am very grateful to the noble Lord for not being polemical, but being very precise in helping us with our arguments. It also gives me a chance to share with the House my favourite moment of the march last Saturday, which was more than 1 million strong as far as I could see—certainly if you counted the people who were not able to get on to the march without wandering around and making London their home for the day. There were many placards, many of them very witty and erudite, some rather clever, and some a bit rude and certainly not to be repeated in polite company. My favourite, because I am sure that we all have one, was one I saw just about half way round. Of course, stupidly, I managed to drop my camera and could not pick it up in time to take a picture of it to give it to the noble Lord, Lord Kerr. It said very simply, in bold Times font: “I concur with John Kerr”.

[Baroness Hayter of Kentish Town (Lab)]

He was holding it!

[Lord Stevenson of Balmacara]

I hear calls that it was he himself; it was not. I actually have no idea what it means, but it says quite a lot about the debate. I thought it was rather good.

This has been a useful and helpful debate on a report that probably had its peak impact a few months ago, but is nevertheless important. I want to explain why as we go through it.

Today we have been reminded of what was in that report and heard speeches from four of the committee members. These helped to explain why it was such a good report. They all said that it was a well-run and well-organised series of sessions with good evidence. Out of that, a fine report, crafted by the staff but signed on by the committee, was done.

We have also attracted an equal number of external Members who have contributed to the debate. That is always to the good and does not always happens in these debates on committee reports. Our committee system is one of the strengths of your Lordships’ House. It is a source of tremendous information, evidence and good and important things that we need to consider. It is therefore very sad that the Government have not honoured it here with a response. That is disrespectful to the committee itself, to the House and to the country. I hope that when the Minister comes to respond, he will have a satisfactory explanation as to why we have been let down in this way. Unless the Government are prepared to support the committee system by providing timely responses to its work, we will lose the quality which we currently have.

The debate today has ranged far and wide, because I think we all share a worry about how to respond to a report that was of its time and is perhaps no longer quite so on the debate. With events happening only a few yards away in another place, it is difficult to be precise and draw conclusions from this report in relation to what we might hear later and which is probably pinging out on the news channels as we speak. However, the evidence that was presented to the committee from those who wrote in to submit it, as well as those who attended, provided a very interesting narrative about the situation described in the report. We would be foolish not to learn lessons from that for any scenario going forward. There has been a tendency in some speeches to use the committee report for a wider debate, but I will try to restrict my comments to the report itself, and hope that the Minister will respond in kind when he comes to reply to the debate as a whole.

The first section is about what happens if the UK fails to secure a deal with the EU. This is still relevant, and therefore it is quite important to understand what the committee was saying. It would be interesting to get a response from the Government to the recommendation in paragraph 86, regarding the administrative burdens that businesses involved in trade will have. Have the Government made any assessment of that and, if so, where might we find consideration of it? There will be considerable extra work for anybody involved in trade, whether or not it is on WTO terms. These burdens need to be assessed.

In paragraph 88, there is a familiar point for the Minister, who I think has had to answer this question on a number of occasions. I am sure he is well briefed on this occasion. Of 145,000 VAT-registered UK businesses trading only with the EU, and 100,000 businesses under the VAT threshold who may be trading—we do not know that—how many have now registered on this magical form which will give them all the answers they want? I think the last number was just 52,000. I am sure that it has gone up, and that he will be able to update us. This is important.

In paragraph 90, the report records that HMRC has estimated that the cost to UK businesses under no deal would be about £18 billion per year. I would be grateful if the Minister could respond to the point made in the report that HMRC could provide an itemised breakdown of those figures. The committee was keen to see it but were unable to get it. It would be helpful if we had that read into the record. If it is not possible to provide it today, perhaps he could write to those who have spoken in this debate.

In paragraph 92, there is a question about technological solutions. This comes up a number of times in the report, here with reference to the Northern Ireland border, where trade under any sort of rules requires, or at least might imply, the reintroduction of a hard border. At the time the committee was meeting, technological solutions were being prepared. Could the Minister update us? Is it still the Government’s assertion that in the event of no deal a technological solution is available to help with that problem? In relation to the points made on paragraph 93 by a number of members of the committee—including the chair—about the impact of checks at ports, particularly the Port of Dover, we all understand that there has clearly been further work on that, including various trial runs. Again, it would be helpful if the Minister could support that.

The main issue in this part of the report was a bit difficult for the committee to get into because it did not know what the tariff regime would be. Many of us in this House have been asking for a number of weeks and months for such detail; it is now available and has been published. I cannot remember the total number of pages but it is very large and there are 4,000 lines of tariff information, which have to be read and understood if one is to get to its basis. Luckily, most of the tariffs are zero so it is a relatively straightforward issue but the reason that they are zero is sometimes elusive. I am sure that the Minister will want to respond to that.

The best comment I have seen on that issue is from the UK Trade Policy Observatory at Sussex University. That organisation has done a number of pieces of work on the customs impacts that are likely to arise from deal or no deal. Its conclusion on the tariffs—I will not quote it but put it in general terms—was that even these tariff arrangements, which I think most commentators have broadly welcomed, will result in a negative impact on the UK economy. Although there are some positives in having a more liberal policy with regards to tariffs, there will still be additional costs, competitive pressures on firms and difficulties. The results also highlight that the policy means that with zero as the main tariff line, even though there are exceptions for certain goods which are protected, the scope for using those tariff lines for any future negotiation in any trade is very limited.

One wonders why we go on and on about how tariffs in relation to goods are going to be so important to any future negotiations when it is quite clear that, when all tariffs are at zero or close to it, you have no room for negotiation as far as goods are concerned. That has always been the case in the UK’s economy; the issue is about non-tariff regulations in services, about which the Government are still very quiet. No doubt this agenda item might be recommended to the chair of the committee as something that it might want to look at in its next workload.

Having dealt with that I can move on to mitigations, where there is only one issue which I wanted to ask the Minister to respond on. It is to make sure that, as in paragraph 120, there is some sense of what the Government’s plan will be,

“to ensure fair and equal treatment of all imported goods coming in on most-favoured nation terms”.

If he is able to respond on that, it would be helpful.

On the third and final part of the report, which is the broader discussion about the facilitated customs arrangement, two points need to be answered. First, when Ministers were giving evidence to the committee, the information from the Government was predicated largely on the role that was to be played by authorised economic operators. I think that scheme is not yet fully developed so I would be grateful if the Minister could give us a bit of an update on where it has got to, in particular whether there is any chance that special arrangements will be made for SMEs. It is argued in the report that SMEs will have difficulty accessing that scheme. Clearly, if they are to be successful—they may well be the way forward—AEO schemes will need a lot more support from government. Where is that going to come from?

Secondly, in paragraph 189 there is a very important question about the rules of origin, which perhaps do not get as much discussion as they need in the customs debate. In that paragraph there is the suggestion that the Government should elaborate on their intended definitions for the “sufficient transformation” of intermediate goods. Again, I would be grateful if the Minister could help us on that.

It is clear that the majority view in the debate today, at least for those who have participated in it and possibly in the House, is that we should be staying in the EU. I do not dissemble from that but it is not an option that this House will be able to exercise much influence on, given that the responsibility must lie with the elected House. For instance, the noble Lord, Lord Horam, and others made the point that even if we are leaving the EU we should stay in a customs union because of the need to maintain frictionless trade, because of the way that it solves the Irish problem, because of rules of origin difficulties and because, as he put it, we actually benefit from the ability to secure deals with other nations based on being within a market of over 500 million people, compared to that of our own.

These are all crucial points, and I end with one thought to which I invite the Minister to respond. As was said by the noble Lord, Lord Dykes, and others, the ambition of the Government in their deal is to have a free trade agreement with the EU that is sans pareil. It is the best, most inclusive and intensive deal, so much so that it would appear able in many ways to be judged by the WTO as a customs union. If that is the case, why is it not possible for the Government to accept that that is where we need to be? A customs union and the ability to be part of the single market are what industry wants and what the trade unions have argued for. It is clear to just about everybody in the country now that that is what we want. There is little point in trying to argue whether there is a difference between a fully-fledged FTA plus engagement with the single market and staying in the EU, but if we are moving out that must be the way forward. Perhaps the Minister could respond.