The case for a post-Brexit transition period has yet to be made

The case for a post-Brexit transition period has yet to be made

Back in January in her Lancaster House speech, Mrs May first aired the idea that, at the end of the two year Article 50 period, there should be ‘a phased process of implementation’. It sounded reasonable enough, albeit rather vague both as to its purpose and duration.

Nearly a year later, though the idea has gathered considerable support from business and is even taken for granted, it is still no clearer, and no evidence has been published to show why it is necessary. The CBI and other trade associations pressing for such a transition period seem to think that HMG and the rest of us should simply take their word for it, which was their approach during the Balance of Competences Review in 2013, and again during the referendum debate. On both occasions, no trade association or business presented evidence to demonstrate that EU membership had enabled member companies to outperform their non-member competitors in trading with the Single Market. They still haven’t.

So far at least, their campaign for a transition period suggests they intend to try the same approach again. No trade association or business has described what is going to be implemented or transitioned, by whom, in what way, with what resources, or explained why an extension beyond the Article 50 period is required. It follows that no one can sensibly judge what period of implementation or transition is required. Two weeks, two years or twenty, everyone must guess wildly, including Mrs May.

Remainer media have added their support for their own reasons. The Financial Times enthusiastically reported that Mrs May’s reference to an implementation period of ‘around two years’ in her Florence speech ‘amounted to a plan to keep the UK in the EU in all but name until 2021’. It thought her speech had won applause in Brussels for its ‘constructive spirit’ but the FT expressed no interest in what might be implemented during these two years. For them, as for other Remainers, they seem to deserve support solely because a transition period provides an opportunity for unforeseen events to intervene and frustrate Brexit altogether.

Supporters of a transition period do not appear to have been discouraged by the legal uncertainty surrounding negotiations on the subject. Martin Howe QC has pointed out that EU negotiators only have the power, under Article 50 of the Treaty on European Union, to agree transitional or interim arrangements once the destination to which the transition leads has been agreed, at least as a framework. He thought that EU negotiators might well make ‘warm noises’ about a transition, without ever actually committing themselves to it, and hence set an extremely ‘dangerous trap’ for the UK, especially if it waited and deferred preparation for a no deal exit. It might then feel obliged, when pressed against another deadline in another set of theatrical late night negotiations, to agree to some more less than attractive EU proposals.

The trap may well have already been set since the Joint Report of the Negotiators of 8th December makes several references to the transition period that might be agreed, and looks forward, in its final words, to ‘an agreement as early as possible in 2018 on transitional arrangements.’

If it is to be the subject of negotiations early in 2018, Mrs May or Mr Davis might now explain who it is for, and why they need it. Everyone understands why Remainers need it, and hope that it might be lengthy, or even interminable. The EU negotiators will also be pleased to concede a prolonged period of transition, since that will entail further years of UK alignment with the rules of the Single Market and Customs Union, and further UK payments as well. It is the arguments of those who persuaded Mrs May to adopt the idea that must now be heard, so we can see if they still need it. It would be helpful if they include the arguments of some committed Leavers, since it seems as if only Remainers, or those at best resigned to Brexit, who need an implementation period or a transition.

The first matter to be clarified is what is to happen during it. Is it implementing what has been agreed? Or is it, as a retiring ambassador setting out the official FCO line suggested on November 24th, simply to complete negotiations? Mrs May seems to have been paying most attention to business interest groups. On one occasion, she mentioned that they would need to adjust their IT systems. Business should, however, be able to explain more convincingly what could not be done over the 32 months between the referendum and March 29th 2019, and therefore required a further transition period. They should also be able to give a reasoned estimate of the duration required without assuming that everyone else will take their word for it. They might also explain why the UK taxpayer should bear the considerable costs for the period they have in mind.

Only one national organisation has provided appropriately detailed and relevant evidence about its preparations for Brexit: HMRC. It deserves consideration before that of the CBI or any trade association, since it is involved in Brexit, more directly than most, and on a uniquely large scale. It also happened to be one of the concrete examples given by Mrs May in her Lancaster House speech. Its chief executive and senior managers have regularly interrogated by Select Committees, such as the Public Accounts Committee, on October 25th, and the Exiting the EU Committee on November 28th.

Several members of the Remain-dominated Public Accounts Committee raised with them the familiar nightmares of trucks with perishable goods or time-sensitive supply chain deliveries tail backed along the M20 because the customs at Dover would be unable to cope. In effect, they were inviting their HMRC witnesses to identify insuperable problems and to request a transition period. They declined to do so. The similarly remain-dominated Brexit Select Committee tried a similar tactic, and similarly failed.

HMRC senior management started discussing and planning for a no-deal Brexit, and for trading under WTO rules, just a few days after the referendum. They have had time therefore to assess the scale of their task, and have estimated that the number of declarations will increase from about 55 million to a maximum of 255 million per annum, and the number of traders seeking them to increase by 132,000, since this number have previously been trading only with the EU.

However, they pointed out that most customs declarations from non-EU countries were now pre-cleared electronically and that currently they physically inspect only about one half of one per cent of imported consignments. Whilst the absolute number of physical interventions would therefore increase sharply after Brexit, and require a corresponding sharp increase in staff, they would increase pro rata only if HMRC stuck to the same level of risk assessment. Since EU exporters include a larger proportion of AEOs (authorized economic operators) than those from the rest of the world (e.g. some 600 in the UK, compared to about 6000 in Germany alone) such a staff increase might not be realised.   

The committee members were mainly concerned that the IT systems of HMRC would not function effectively, especially the EU-inspired CDS (Customs Declaration Service), which is still being developed. HMRC were unwilling to give the committee a cast-iron guarantee that it would be fully functioning on the day, on the grounds that all new IT projects inherently carry risks. However, they believed that they had identified the most likely risks, were ready to respond to them, and therefore reasonably confident of it being online and tested by January 2019, three months before Brexit day on March 29th 2019.

If they were wrong, they had long since been simultaneously preparing a Plan B, an upgrade of the existing CHIEF (Customs Handling of Import and Export Freight) system so that it could cope with the massive increase in workload. As Mr Thompson alluded in testimony and as has been subsequently verified in a public meeting with users of the systems, they also plan to have the two systems tested, and dual running for six months from July 2018.

One member of the PA Committee was still not satisfied and wondered what they would do if both CDS and CHIEF failed, but alas, HMRC would not oblige with a Plan C. However, even if CDS and CHIEF fail simultaneously, the calamitous queues at UK ports that many Remainers have long imagined, and seemingly relished, are unlikely ever to occur. Trucks would, it seems, simply be waived through without physical inspection, as 99.5% currently are. There might be some loss of revenue during this involuntary episode of unilateral free trade, and maybe a few more illegal immigrants, but no national humiliation and embarrassment. No one would even know that anything untoward had happened.  

Thus it seems that an organisation whom Mrs May and others have assumed would be most in need of an implementation period or transition doesn’t need one. One must therefore wonder whether the less plausible candidates clamouring for one really need it. Maybe, it is no more than a way of postponing changes they didn’t want in the first place? Or perhaps they are hoping that unforeseen events will make Brexit unnecessary?