On Friday 6 November, the official watchdog, the National Audit Office, published its fourth report scrutinising the state of the nation’s progress in implementing changes required to manage the border after the transition period ends – in 52 days’ time.
We have for several months reported the mounting concerns of haulage industry representatives that neither the necessary Government infrastructure, systems and personnel will be in place, operational and fully tested by the end of the Brexit ‘transition period’.
Then, last week, Parliament’s Treasury Committee added their voice in a formal letter to Chancellor, Rishi Sunak, in his role as Minister responsible for HMRC, expressing “a series of concerns”.
The NAO report highlights key risks around Government systems development, infrastructure and resourcing – and from the business perspective – lack of industry and trader readiness.
It found that Government departments have made progress towards implementing a “minimum” operating capability by 1 January 2021 for trade of goods between the UK and EU. Establishing transit arrangements – which enable traders to move goods using a simplified process – “will be challenging to deliver in their entirety”.
New import and export processes, IT systems, infrastructure and resources will come into operation – and will need to work together – for the first time from 1 January 2021. This is inherently complex and high-risk. Third parties, such as ports and community software providers, who were required to develop new software which integrates with new or changed government systems, have been given “very little time in which to prepare – and are unlikely to be able to do so in time for 1 January 2021.”
The upshot is that: “there is likely to be ‘significant’ disruption at the border from 1 January 2021 as many traders and third parties will not be ready for new EU controls.”
The situation for trading goods between mainland Britain and Northern Ireland is even more fraught. “Implementing the Protocol is very high-risk due to: the scale of the changes required; the limited time available; the dependence on ongoing negotiations; and the complexity of the arrangements. Delivery risk is also heightened by the need to integrate and manage changes across multiple projects and stakeholders…”
In all, the NAO reports in detail on 22 issues of concern. In their conclusion they find that: “It is very unlikely that all traders, industry and third parties will be ready for the end of the transition period, particularly if the EU implements its stated intention of introducing full controls at its border from 1 January 2021.”
“The government recognises that there will be disruption and is putting in place arrangements to monitor issues as they emerge. It will need to respond quickly to try to minimise their impact. It also needs to be alert to any increased risks of smuggling or other criminal behaviour which exploits gaps or inconsistencies in border operations. There is a risk that widespread disruption could ensue at a time when government and businesses continue to deal with the effects of COVID-19.”
The transition period is due to end at 23:00 GMT on 31 December 2020. This was set in law by the Government in February 2020. At this exact moment, the UK will leave both the EU single market and the EU customs union. From 1 January 2021 there will be changes in how the UK trades with the EU and in the customs, safety and regulatory checks required at the UK-EU border. The EU will also begin treating the UK as a third country and implement full controls on goods passing between the UK and the EU. The UK is in the process of negotiating its future relationship with the EU, including seeking to reach a ‘Free Trade Agreement – or FTA. Regardless of the outcome of the negotiations there will be significant change and friction at the border from 23:00 GMT on 31 December – ‘deal’ or ‘no-deal’.
This friction will be exacerbated if traders and others are not prepared. The Head of France’s Customs Service has stated that they are ready – per the European Commission’s requirement on them – to “apply full customs and regulatory controls from 1 January 2021.”
On 21 October 2020 a formal assessment of trader and passenger readiness was classified as “red”. The government’s latest ‘reasonable worst-case planning assumptions’ – as of September 2020 – are that 40% to 70% of laden lorries may not be ready for border controls. The government is using targeted support to help the estimated 10,000 high-value GB traders who currently only trade with the EU and to raise awareness of the preparations needed.
The Government is triggering ‘contingency plans’ on the basis of its reasonable worst-case scenario assumptions for disruption at the border from 1 January. These focus on mitigating the short-term, severe impacts of any disruption. This includes securing additional freight capacity outside of the short Channel crossings and working with pharmaceutical and medical equipment companies to try to ensure the continuity of the supply of medicines in the event of disruption to supply chains. However, the context in which these plans were prepared versus the reality today has changed. The emergency response to COVID-19 has placed strain on local authorities, industry and supply chains’ ability to plan and put in place contingency arrangements. Disruption at the border may be harder to manage if it also happens alongside further COVID-19 outbreaks and a background of economic uncertainty.
In response to the NAO’s report, a UK Government spokesperson is reported as saying that it had invested £705m to ensure the “right border infrastructure, staffing and technology is in place”.
“With fewer than two months to go, it’s vital that businesses and citizens prepare too.”
“That’s why we’re intensifying our engagement with businesses and running a major public information campaign – so they know exactly what they need to do to grasp the new opportunities available as the transition period ends.”
219.5 million tonnes of freight crossed the border between the UK and the EU in 2019
An unknown amount freight crosses the border between GB and Northern Ireland – it has never been necessary to report or record such goods movements
Using the Government’s own ‘reasonable worst-case scenario’:
HMRC estimate 270 million customs declarations to be completed and processed in 2021 – compared to 55 million this year;
Up to 70% of laden lorries travelling to the EU will not be ready for EU customs requirements;
Up to 7,000 lorries may need to queue at the short Channel crossings;
Reduction of up to 60% in the flow of lorries at the short Channel crossings in the weeks following the end of the transition period – with massive impact on supplies and supply chains
Extract from NAO Report Summary
In Part One we set out the background to preparations for the end of the transition period and government’s planning assumptions.
In Part Two we report on progress with implementing the arrangements required to manage Great Britain’s (GB’s) border from 1 January 2021.
In Part Three we report on progress with implementing the Northern Ireland Protocol for 1 January 2021.
In Part Four we report on progress with implementing the arrangements required to manage the GB border from 1 July 2021. In this part we also consider some longer-term issues relevant to the management of the border.
While the UK has now left the EU, preparations to manage the border at the end of the transition period remain very challenging and have continued to be significantly affected by the ongoing negotiations and wider political context, and by the impact of COVID-19 on both the government’s and businesses’ ability to prepare. The end of the transition period is unlike any previous EU Exit deadline in that, regardless of the outcome of negotiations on the future relationship between the EU and the UK, things will change. The government is planning for significant change at the border from 1 January 2021. Departments have built on their no-deal planning and, although hampered by the challenges of the COVID-19 pandemic, have made progress in recent months implementing the changes required to systems, infrastructure and resources. However, significant risk remains, in particular in relation to the arrangements required to implement the Northern Ireland Protocol. The government must continue to focus its efforts on resolving the many outstanding practicalities relating to both the Great Britain and Northern Ireland operating models and developing robust contingency arrangements if these cannot be resolved in time.
It is very unlikely that all traders, industry and third parties will be ready for the end of the transition period, particularly if the EU implements its stated intention of introducing full controls at its border from 1 January 2021. The government recognises that there will be disruption and is putting in place arrangements to monitor issues as they emerge. It will need to respond quickly to try to minimise their impact. It also needs to be alert to any increased risks of smuggling or other criminal behaviour which exploits gaps or inconsistencies in border operations. There is a risk that widespread disruption could ensue at a time when government and businesses continue to deal with the effects of COVID-19.
The increasing time pressure and risks mean that the government is committing a lot of money to progress preparations in areas, such as port infrastructure and customs intermediaries, which would traditionally be provided by the private sector. The unique situation in which departments are operating makes some element of additional spending inevitable, and it is right that the government does what is appropriate to mitigate the risks. However, despite the funding being committed by government, there remains significant uncertainty about whether preparations will be complete in time, and the impact if they are not. Some of this uncertainty could have been avoided, and better preparations made, had the government addressed sooner issues such as expanding the customs intermediary market, developing a solution for roll-on, roll-off (RORO) traffic, upscaling customs systems and determining the requirements for infrastructure to enforce a new compliance regime