Leaving the EU: Customs Arrangements

Mel Stride Excerpts

Tuesday 10th July 2018 Westminster Hall

[The Financial Secretary to the Treasury (Mel Stride)]

I will certainly leave two minutes for my hon. Friend the Member for Wimbledon (Stephen Hammond).

It is a pleasure to serve under your chairmanship again, Mr Streeter. It is also a pleasure to follow the hon. Member for Stalybridge and Hyde (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.

[Kirsty Blackman]

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?

[Mel Stride]

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.

[Helen Goodman]

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.

[Mel Stride]

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.

[Stephen Hammond]

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?

[Mel Stride]

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.

The hon. Member for Streatham (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 the hon. Member for Bishop Auckland (Helen Goodman). I am grateful that she said that initially she broadly welcomed the proposals, and we should all do.

My hon. Friend the Member for Eddisbury (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.

[Mr Gary Streeter (in the Chair)]

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