Chicks‚ and balances on new border regime

There were five witnesses at the PAC’s session on Monday 23 November 2020:

Alex Chisholm, Permanent Secretary, Cabinet Office
Emma Churchill, Director General, Border and Protocol Delivery Group, Cabinet Office
Jim Harra, First Permanent Secretary and Chief Executive, HMRC
Tamara Finkelstein, Permanent Secretary, DEFRA
Bernadette Kelly, Permanent Secretary, Department for Transport

The Border Delivery Group has been moved from HMRC to the Cabinet Office, where it sits alongside the transition taskforce.

MPs on the committee are nervous about the preparedness for the end of the Brexit transition period. They asked about IT projects, Northern Ireland Protocol and staffing levels – as well as learning that chicks and fish will get priority.

Committee chair Meg Hillier (Labour) wanted to know why there are so many unanswered questions about preparedness, this late on. The Cabinet Office’s Alex Chisholm countered that only one of nine programmes is still high risk (in the ‘red’ category), which is trader readiness, particularly in relation to people looking to trade with and export to Europe.

HMRC’s Jim Harra told Sir Bernard Jenkin (Conservative) that parking areas for trucks are not being neglected. Harra said sites for such transit movements are on track and he expects to have capacity at those that actually exceeds the requirements on the day the Brexit transition period ends. Jenkin said there has always been the possibility of a no-deal Brexit, ever since day one of the invocation of article 50. What is the point of having a permanent and impartial civil service if it does not plan for contingencies? Harra replied he is confident that the sites that we need for transit in January 2021 will be ready, as will any further infrastructure that is needed for July.

Chisholm told Sir Geoffrey Clifton-Brown (Conservative) that his gut feeling is probably still that there is a Brexit deal to be done that is in the interests of both parties. Chisholm said that almost all the high-value traders have applied for an EORI number because if you are VAT-registered it was automatically generated and given to you. Harra said there could be about another 100,000 micro-businesses below the VAT threshold, who will also need to get an EORI number if they wish to continue trading with the EU (but he cannot say how many have not applied).

DfT’s Bernadette Kelly said there is now a very extensive suite of action in place to reach hauliers and ensure that they are ready. The DfT’s Brexit haulier handbook is being translated into different languages, for example. We have 44 of our 45 information and advice sites up and running, she said, adding that DfT are using the DVSA’s database of 80,000 hauliers to give them regular updates and information feeds.

Hilary Benn (Labour) is chair of the Exiting the European Union Committee and was a PAC guest for this session (pictured thanks to Parliament UK). Benn asked if bits of a draft agreement will require legislation to be passed by Parliament, and if so, will that legislation have to be on the statute book by 31 December, or can it be done slightly slower than that? Chisholm said some legislation will be required but he is unsure which parts Whitehall could get by without having on the statute book by 31 December 2020.

Sir Geoffrey Clifton-Brown asked about the Mitie-Interserve merger. Chisholm said he is looking at the overlap, and the impact on the future contestability of that market. We are also looking at their financial standing before they are merged and the effect after merging, he said. He added: “We take a properly sceptical, careful look at the impact on companies’ ability to perform their public contracts. Particularly, as you say, post-Carillion, that scrutiny has been especially tightly applied.” Dame Cheryl Gillan (Conservative) worries about the Government getting into Brexit-related contracts with suppliers who are ‘too big to fail’.

SNP’s Peter Grant asked why with 38 days to go the Cabinet Officer/Border Delivery Group is still so far away from having everything prepared for a smooth end to the transition period. Chisholm countered that huge advances have been made in the UK’s readiness and ‘getting to 100 per cent is extremely difficult with something of this scale and magnitude’. He added that BPDG research over the summer found that over 90 per cent of high-volume traders were confident they would be ready. We have seen about a 60 per cent increase in accesses to our online information about imports and exports on Gov.UK, he added. All the areas within the Government’s own responsibility that had been at red’ (high risk) have now moved to ‘amber’ (medium risk), he said. He thinks we will be ready for the end of the year, and that applies not only to IT systems but to those key bits of infrastructure. He expects about a fourfold increase in availability of expert customs intermediaries for the early part of next year, too.

Border and Protocol Delivery Group’s Emma Churchill said feedback from businesses is that there are two current barriers to their ‘completing their readiness journey’. First, a large number of businesses tell her that of the things that they are currently grappling with COVID-19 comes higher in their priorities. And businesses tell her that they are waiting to see what happens in relation to the free trade agreement. Traders will need to do the vast majority of the things that we are asking them to do whether or not there is a free trade agreement, she said. She added that it is the businesses that are actually moving goods on or after 1 January 2021 that need to be ready; it is not the case that 100 per cent need to be ready on 1 January. Chisholm said it was only on 13 July that they launched the get business ready ‘Let’s get going’ campaign because of the need to give businesses time to adapt to COVID-19 in the Spring. The testing of Brexit-related systems was probably held back by a few weeks because of COVID-19, but not by months, he added.

On the impact of COVID-19, Jim Harra said it meant import controls will now be staged-in over a further six months. He added: “There is a major reduction in the risk to the border on 1 January 2021, because that simplifies the procedures that importers will need to follow.”

Sir Geoffrey Clifton-Brown asked about the integration of different IT systems needed for Brexit.  Harra explained that HMRC are concentrating on seven key systems that need to be changed or built from new to enable GB-EU trade and to enable them to comply with the Northern Ireland protocol. Also, joint projects in place with other government departments, such as the Department for International Trade, recognising that from 1 January 2021 HMRC’s systems take their tariff information from that department, rather than from the European Commission, as it did before. On potential issues, Harra remarked that there are probably fewer than 20 key software developers that develop the business systems that traders and hauliers use. As well as staging import controls over six months, another solution is the major intervention to procure a government-provided trader support service for compliance with the Northern Ireland protocol, so that if a business finds that its software is not ready, or that the community system it uses is not ready, there is a free-to-use government service available.

Harra went on to say one of the advantages of using CHIEF for EU-GB trade from 1 January is that it is an existing system, with existing links to some of the main systems, with which many traders are familiar and which has software products already out in the market for people to use.

DEFRA’s Tamara Finkelstein said DEFRA has done some desk-based testing of the chains in which products will move, but they are now moving into doing end-to-end testing. In terms of queues at Dover, the two areas that there is an agreement to prioritise are day-old chicks and fish. If you look to prioritise a vast number of other goods, you reduce the impact of prioritising at all, she said. DFT’s Kelly added that a narrow, targeted prioritisation of this sort can be delivered physically at the site. Cabinet Office’s Churchill intervened to explain that should the prioritisation need to be enacted because we have got to that phase of Operation Brock, which is the traffic management system, those lorries will be directed to Ebbsfleet. At that point, they will be given a very visible permit to put in the window and they will be taken straight from Ebbsfleet across the Channel.

Sir Bernard Jenkin asked for an update on REACH. Finkelstein answered that UK companies will not have access to the EU REACH. She said: “We have developed a UK REACH system, but for those using chemicals in the UK, effectively we will be relying for a period on a sort of grandfathering of their registration in the EU REACH.” In terms of that expensive requirement of having the full dataset on UK REACH, we have now said that we will give people two years to do that, but actually two years, four years or six years, depending on their tonnage, so that the smaller companies will have six years to do it, she said.

Benn asked how many additional customs agents have been trained out of the 50,000 that were identified earlier this year as being required. Harra said 50,000 was a figure that an organisation in the freight industry came up with. Harra went on to say HMRC’s aim is not to increase customs agents by a certain number, but to increase the capacity of the customs intermediaries to deal with declarations. He cited research HMRC did with Ipsos Mori (published this week) which found quite encouraging signs that the customs intermediary market has increased its capacity about fourfold, which brings it into line with the number of declarations that HMRC think they will need to make from January, although Harra believes that will need further scaling to cope with the staged introduction of import controls over the subsequent months.

Benn then asked for an update about GVMS, to which Harra said HMRC have completed their build for the ‘release 1’ functionality that is required for January 2021 and that is in testing. It will not be implemented live until December 2020, however.

Is CDS in the same stage of testing and development? asked Benn. The functionality of CDS to handle all declaration types was completed last May, said Harra, adding that there is a high level of confidence that CDS will be there and able to support the Northern Ireland protocol in January 2021. Harra continued: “Because there is a much lower level of confidence that everyone will have the software and business processes to be able to interact with it directly, we have taken the decision to introduce the free trader support service as an alternative to their having to do that.”

Emma Churchill explained that the ‘Check an HGV is Ready to Cross the Border’ service will be mandatory for those using the short straits and that is how lorries will get their Kent access permit. There will be ANPR cameras to enforce this while Operation Brock is in free flow. How will lorries entering Kent that are not heading for the EU be identified? Kent Country Council is going to issue access permits for locally registered traders. For haulage firms that are not based in Kent, if it is a distributor and operator that is solely based in the UK and therefore would not be making international travel, that information will be available to the DVSA officer and they would know not to pull them over.

Churchill said the level of disruption will depend to a large extent on the level of trader readiness. The levels of trader readiness that are assumed in the reasonable worst-case scenario are the ranges correctly set out in the NAO Report: 20 per cent to 40 per cent for small and medium-sized enterprises and 50 per cent to 70 per cent for larger businesses.

Jim Harra explained to Geoffrey Clifton-Brown that GVMS will gather together all the declarations that a haulier needs for the goods on their lorry to get into the UK, and then there is an equivalent French system that contains all the declarations they need to get into or out of France.

Separately, Harra said HMRC are taking a certain amount of fiscal risk in order to prioritise flow over collection. He said: “We have put in place a number of measures to mitigate those risks. First, we have excluded from the staged import controls controlled goods such as excise goods—alcohol and tobacco. We have also excluded high-risk traders. We are currently contacting traders individually to say, “You are excluded from the eased procedures because you have a record of non-compliance, which means that we expect you to make full declarations. [And] we have excluded from staged import controls non-UK established traders, unless they have signed up with an approved customs intermediary who has accepted joint liability for their duties.”

James Wild (Conservative) asked how Harra would characterise preparations to be ready by July to have full import controls in place. Harra said the decision to introduce staged import controls did not relieve the burden on HMRC very much in terms of the systems changes they needed to make, because they had to be customs-ready for the Northern Ireland protocol in any event on 1 January. The extra time is really for ‘external readiness’ to give traders, hauliers and software developers more time to get their products in place. Harra did not rule out recommending an extension if COVID-19 needs even greater attention than now.

The Government have launched a £200 billion fund for infrastructure at ports and the Cabinet Office’s Churchill said she is working through those applications and hopes to make some announcements in the week commencing 30 November.

Jim Harra confirmed that 95 per cent of the largest businesses (by trade receipts) are ready for Brexit and 96 per cent of those who move controlled goods are ready. He added: “That is the very largest. Once you go down that list a bit into those that are not in the top 2,000 businesses, the level of readiness falls to about 48 per cent.”

Sir Bernard Jenkin asked about the collection and payment of excise duties. Harra said electronic movement control system (EMCS) is actually a UK system and they have made changes to it so that it will now operate on a UK-only basis and will not now track duty-suspended goods in the way it did when we were members of the EU, but HMRC have also kept a version that will work in relation to the Northern Ireland protocol for movements between Northern Ireland and the Republic of Ireland.

Customs intermediaries is an unregulated market. But Harra told Peter Grant that there is no intelligence that what Grant called ‘cowboys’ are setting up as intermediaries despite having no knowledge of the subject. Harra said: “However, as a fail-safe we have published a list of existing customs agents and intermediaries on Gov.uk.”

Harra said HMRC have paused the work to migrate traders from CHIEF to CDS, because the priority was to retain CHIEF as the primary platform for EU-GB imports and exports. That means that HMRC do not currently have a planned date for when they will carry out that migration. HMRC are therefore committed to continuing with dual running, which was already part of the CDS programme’s plan but is now extended for a much longer period, he said. He suspects that dual running two platforms is going to cause excess costs. Although CHIEF is a very old system, it is actually very stable, he added.

Harra said that it is possible that a trader would import goods into the UK from the EU or elsewhere in the world and use CHIEF, and that same trader might move goods from Great Britain into Northern Ireland, in which case they would have to use CDS. The only instance when it is mandatory to use CDS is if you are moving goods from Great Britain into Northern Ireland that are subject to the Northern Ireland Protocol.

Meg Hillier led on a question about the Northern Ireland Protocol. Alex Chisholm is absolutely sure it will be delivered. Tamara Finkelstein said DEFRA are looking at what a potential trusted trader status for large supermarkets might look like. She hinted to Hillier that there is a conversation going on about delaying it for agri-foods.

Peter Grant asked how confident Bernadette Kelly was that the transport network leading into these other ports is able to cope with that additional demand? Kelly said: “Part of the process of determining which routes to procure has included assessment of where the resilience is around ports, so I think we are confident that the volumes of additional capacity that may be going through those ports can be coped with and that the local transport networks will be able to cope with that too. As I say, we are talking about eight ports, so we are spreading this capacity quite widely across the UK and through our ports network.”

One of the advantages of the Northern Ireland Protocol from the point of view of Northern Ireland businesses is if they have cross-border processes, those operate completely unimpeded, said Jim Harra.

HMRC estimate that it will need about 8,600 full-time equivalent staff in place for 1 January 2021 and  Harra is confident that all slots will be filled. In relation to Border Force, 900 additional officers were already recruited for last October. They are now recruiting an additional 1,100. Some will be needed for January 2021 and others for July 2021. About 670 of those are required for January and the remainder for July. Of those 670, more than half are already in post, trained up and ready to go and the rest are being brought on board now. Border Force colleagues are reporting as amber-green that they will have the remainder recruited and through the training pipelines in time for July.

'Check a HGV’ is through its BETA testing and is now being refined.

On whether the M2 will turn into a car park, DfT’s Kelly said the reasonable worst-case scenario assessed in the NAO Report suggests that a capacity for 7,000 lorries would be the upper limit in such cases, which is fine because DfT expects to have sites available on 1 January capable of queuing up to 9,700 lorries.

The full session is here.

By Hamant Verma.