The New Customs Partnership would remove the benefits of Brexit
Comments made by the head of HMRC, John Thompson, created a feeding frenzy amongst the Remainer broadcast media, given the “shocking” news that leaving the Customs Union and adopting a maximum facilitation approach would cost British business up to £20 billion per annum in the provision of export documentation. This revelation even saw the British Chambers of Commerce declaring the news to be “shocking” in feigned concern especially given that the Chambers of Commerce actually make money out of this very process of producing export documentation, a system which currently covers the majority of UK exports (57% of our exports go to the non EU countries) and imports. The big difference being that we have a trade surplus with the rest of the world and a thumping trade deficit we the EU. Clearly export documentation does not hold back business from doing business.
It should also be noted that documentation is linked to the movement of goods, whereas 90% of the UK economy and half of exports are services.
Of course most export documentation these days is online rather than physical and, on average, only 2% of goods crossing the frontiers of developed countries are inspected according to the World Bank.
What is surprising about this old news trotted out by John Thompson is that everyone seems to have forgotten the facts and why we fought for Brexit in the first place. I guess two years of Leavers banging our collective heads against the establishment brick wall, a wall built to frustrate our exit from the EU, has caused some memory loss.
It is axiomatic that Brexit will cost some money and will create some disruption but the benefits of Brexit will far outweigh the costs.
The primary reason for Brexit was to take control of our law making and jurisdiction, to control our borders and our money. Thus we will be able, as a nation, to make choices about such things as which laws we want and have our courts make decisions consistent with the norms and values of our society. We can make choices about how much and what type of immigration we want and what we spend our tax money on. All of these things are facets of “sovereignty”. They are the reasons two thirds of Parliamentary constituencies in the UK voted for Brexit and in order to achieve them we must leave the Single Market, the jurisdiction of the European Court of Justice (ECJ) and the Customs Union, as these are the things that substantially make up and the EU. These matters are primarily not economic and even therefore, if there were a net cost to leaving the EU it would still be worth it and would be far less than our forbears paid in blood and treasure for liberty.
Happily however, I have always believed that there would be a considerable economic benefit from leaving the EU, provided the government adopt the correct policies. This requires the government, especially the Chancellor, to treat leaving the EU not as a damage limitation exercise but as a massive opportunity.
Nonetheless the benefits will far outweigh the costs. This is why the figure trotted out by John Thompson produces a meh! from me.
Firstly, the £20billion figure has clearly been calculated on the back of an envelope and seems high to me. This is because the majority of transactions should be at the lower end of the scale which would make the added costs considerably less than £20 billion. Similarly bearing down on the costs will be the digitisation of the system, eliminating the last vestiges of paper processes. The centralisation of all customs documentation into one centralised digital provider or network, would also reduce costs still further. This is not currently the case and there are vested interests in keeping a clunky system which must be overridden.
It is also curious that the alternative NCP system (the alternative to Max Fac favoured by Ollie Robbins and allegedly the PM) appears so cheap, after all the monitoring required by such a system would be in the minutiae down to serial number level, a very complex process indeed.
But this also misses the point. The benefit of leaving the CU, is that it will allow the UK to adopt positive economic policies. The NCP system would frustrate this.
Those benefits include the removal of tariffs, either unilaterally or via trade deals, will boost the UK economy by up to 4% of GDP, a whopping £105 billion (with compound growth on top of that), five times the supposed additional cost of customs documentation. There will also be the repatriated net contribution of at least £11 billion and the benefit of better regulation estimated at between 0.7% and 1.4% of GDP depending on how far and how fast we go, up to another £36 billion. Then we have the repatriation of fisheries and the ability to innovate and invest how we please.
Finally, the proper control of migration will reduce the tax burden of £3500 per annum, in benefits and additional public services, per migrant occupying a low wage job and the likely increase in productivity that will result from this.
All of this has real, practical benefits for the people of Britain, reducing the cost of living as food and consumer goods become cheaper. Increasing wages as productivity improves from cheaper components, a reduction in the unlimited supply of cheap labour and growth in the economy as a whole. A re-balancing towards manufacturing as a competitive currency boosts output and towards fisheries as we take back our fishing grounds. Both these will result in a boost for the regions, the areas strongly supporting Brexit.
John Thompson has previously stated that HMRC stands ready in March 2019 to handle the additional volumes of trade documentation with an enhanced system. It is now in the gift of the government to accelerate the pace of our leaving and crystallise the benefits of Brexit and to prepare to hold on to the £39 billion allocated as a withdrawal payment.
Brexit must be embraced as an opportunity rather than being seen by the dullards in Whitehall and Westminster as a damage limitation exercise. In order to avoid our current direction of travel of having to foot the costs and postpone or forego the benefits, our best hope now is that we leave in 2019, adopt WTO terms of trade and seek a conventional free trade arrangement. Only then should we hand over £39 billion.
May 25th, 2018: BrexitCentral