The Government’s gift to British businesses in the new year is another dose of pain, courtesy of Brexit. Firms have barely had a chance to breathe under the multiple crises hitting the economy – from inflation, to pandemic chaos, to labour shortages. And now they’re going to be put in another chokehold with a new barrier to trade.
Until this month, Brexit trade checks were only really imposed on British exports to Europe. But now the final components of a hard border are being applied in the other direction. On 1 January, checks were installed on European exports to Britain, meaning more costs, more form-filling, more red tape, more man-hours wasted on the pointless dated burden of bureaucratic mandates.
There are four key aspects to what is happening. The first are customs declarations. During 2021, British importers bringing in goods from Europe could delay the submission of their customs declaration for six months. Now they must submit them at the border, filling in a complex, laborious document, with multiple data fields, crammed full of technical detail.
Most goods only face low or non-existent tariffs because of the trade agreement the UK and EU signed. But even here, the dreaded shadow of bureaucracy raises its head. To dodge the customs payment, you have to show that the product originated in Europe. This is called a country of origin check. If a company is importing an Italian sausage from Rome, say, they need to forensically demonstrate that all the ingredients came from Europe.
The most demanding of all requirements are sanitary and phytosanitary checks (SPS), which are intended to protect against disease in plants and animal products. The true nightmare of these checks, which often involve on-the-spot physical inspections and extensive documentation signed off by vets, has been deferred until later in the year. But the initial requirement of pre-notification was imposed last week.
The final piece of the puzzle involves the Goods Vehicle Movement Service (GVMS). This wraps all the declarations together and attaches them to a vehicle so that customs authorities know everything has been completed. We’re already seeing teething issues with the system. Some firms have put the trailer registration number on the system rather than the vehicle’s. Several companies have reported error messages even when they fill it out correctly. Hauliers are warning of queues developing in Calais due to the system – either because of mistakes on the form or because it isn’t working properly.
This is the picture across the trading network: decreased flexibility, increased costs, jacked-up bureaucracy and pointless delay. It’s a functional definition of how Brexit operates. All the old obstacles to trade which used to stifle the continent before the creation of the customs union and single market have been reintroduced for the UK. It’s like going backwards in time.
No-one is expecting any explosive delays this week. Trade is still very quiet after the festive period and exporters will anyway try to avoid sending over products in the first days of the new system. But anecdotally, the hauliers, logistics companies and business representatives I’ve spoken to say there are early signs of problems, including turnback of lorries at Calais.
The UK government will be keen to make sure there are no massive queues of lorries appearing on the evening news. They know the politics of how this works. That image would make them look ridiculous. If it threatened to come true, most customs experts expect them to ease the checks to make sure traffic flows, regardless of the lack of control it would imply. This, after all, has largely been the approach so far – repeatedly delaying the imposition of controls for fear of what would happen if they initiated them.
Their real tactic to prevent a public relations nightmare is to localise the delays. Instead of taking place at the border, they take place at depots, where lorries are held up until all the documentation is correctly filled in. Freight forwarders and logistics firms, the people whose livelihood relies on moving goods, have become the unpaid policemen of Brexit.
But hidden away as it is, we have a good idea of what these new impositions will do to trade, because we’ve spent the last year watching it happen in the other direction. A survey by the British Chambers of Commerce in October 2021 found that 45 per cent of companies found it very or relatively difficult to trade goods with the EU. The Food and Drink Federation concluded that sales to Europe were down 23.7 per cent in the first three quarters of 2021 as a result of Brexit trade barriers. The UK Trade Policy Observatory reported a £44 billion hit to the UK economy. The Government’s own Office for Budget Responsibility admitted there would be a four per cent structural lowering of long-run potential productivity as a result of Brexit.
When the British Chamber of Commerce conducted a survey recently of the impact of Brexit on British businesses, eight out of ten of them reported increased costs, half reported employee shortages and two-thirds of exporters reported problems in trade. A medium-sized manufacturer in Ayrshire replied to the survey by saying: “I don’t have the time to relate all of the difficulties we have experienced. Brexit has lost us business, increased our costs dramatically and killed our sales expansion in the EU. […] My anger and frustration cannot be properly expressed.”
Of course, businesses were already being hit by the chaos the pandemic imposed on trading networks, particularly in supply chains and demand volatility. But the Government knew that when it decided not to extend the transition period. It decided to impose the chaos of Brexit on top of the chaos of Covid. Now inflation is rising, worker shortages are grinding us down and consumers are hurting. But instead of helping, No.10 is introducing measures which will make the situation worse. And many of the businesses affected will eventually have to pass on the costs of all these changes to the consumer, worsening the cost of living crisis.
It’s been a long time since those sun-kissed days of the Brexit referendum, when Boris Johnson and his allies made all sorts of promises about how glorious things would be outside the EU. Today, we’re seeing the reality of it: a feckless punishment mechanism, imposed for reasons people can barely remember, hitting the British economy when it’s at its most vulnerable.