Backstop Plans For Irish Border

The Committee for Exiting the EU heard from representatives of industries operating on both sides of the Irish border, such as food and drink, retail and manufacturing. They looked at what the impact of the various backstop proposals would be on trade between Northern Ireland and the rest of the UK, as well as trade with the EU.

I asked about the systems to track and examine goods crossing the Irish border, about organised crime exploiting loopholes in those systems and VAT.

Stephen Kinnock: Thank you very much for coming in today, gentlemen. You may well be aware of the National Audit Office report that was published this morning, which confirms that 11 out of the 12 critical systems that would need replacing or changing in time for next March in the event of no deal are not yet up to acceptable quality. It also says that new systems needed to help track and examine goods crossing the UK border cannot be built by March 2019. Are you worried by those comments, and would you agree with them?

Declan Billington: I thought it was interesting, when we read the technical notice about customs clearance, that it stated that they would recommend businesses that trade across the border hire their customs agents and start to develop their skillsets, including customs declarations. A substantial number of cross-border businesses are owner-managers. They do not have the resources to hire experts in customs declarations, and there are not enough customs businesses in Northern Ireland capable of handling those declarations for cross-border trade in Northern Ireland.

In addition to that, a number of businesses are applying for trusted trader status or authorised economic operator status. There is no facility in Northern Ireland to help businesses with that. They have to work with HMRC in the UK, and there is probably about a nine to 12-month waiting list to go through the AEO status in the normal course, but I know a number of businesses that are now applying for that, to manage risk. There is not even, in the existing system, capacity to manage existing mechanisms for trading into a third country. SMEs will not be able to afford the IT, the skillset, the resources, and there are not enough customs clearance agents in Northern Ireland capable of handling cross-border trade on the island.

Stephen Kinnock: I also just wanted to touch on this issue of organised crime. Rebecca Sheeran of the National Audit Office gave an interview on the radio this morning where she said that any weaknesses or gaps could quickly be exploited by organised criminals. I am sure that would be an issue that would concern all of you.

Aodhan Connolly: The Northern Ireland Business Crime Partnership’s aim is to make Northern Ireland not only more competitive but a safer place to do business. One of the things we have seen over recent years is an increase in cross-border smuggling of things like counterfeit goods and cigarettes. This would be the tip of the iceberg, as we see it, and there is a real concern that over the past 20 years there has been growing co-operation between Garda Síochána and the Police Service of Northern Ireland. They are to be lauded and commended on that. They have even completely changed their minds on business crime; they no longer see it as a victimless crime, and are putting resource into supporting businesses, so that we do not feel the effects of business crime.

It is another tangible example of how Brexit could make things harder to do business in Northern Ireland. We are very clear, in both the British Retail Consortium and the Northern Ireland Retail Consortium, that we want to make sure that the resources are given to the police and that the co-operation that there is between the Garda Síochána and the Police Service of Northern Ireland continues unabated after 1 April.

Declan Billington: First of all, there was a report by the Northern Ireland Affairs Committee—I think it was in 2012—that stated there was £70 million of duty fraud on this island lost to the UK Exchequer. That was fraud run by former paramilitaries. I would also point the Committee to the events around the dioxins. We may recall that several years ago there were dioxins discovered in pigs at the border, and that resulted in the loss to one business of about £6 million and a €25 million cost. The root cause of that was fuel laundering of transformer oil blended into heating oil. An innocent farmer used it to dry animal feed that was fed to six nearby farms. It created a €25 million cost to the industry. Worse still, there is a huge reputational damage.

If we had a border with tariff differentials, you could see, for example, cheap meat coming in from Brazil and being repackaged—remember horse-gate—to be passed off as Irish into the market at a higher price. I do not think those people would be too concerned about food hygiene standards in the process of doing it. Our anxiety is that honest businesses will work the systems that are tabled. Dishonest businesses will take advantage of any loophole. At the moment there are only three duty differentials that exist: fuel, tobacco and alcohol. If we bring a whole larger portfolio of things in due course, then without strong enforcement we are at serious risk of having a serious fraud issue.

Stephen Kinnock: Thank you; that is very helpful. If I may ask just a final question, it is focusing on VAT. The European Union, when it talks about a UK-wide backstop, is of course talking about complete alignment on EU excise and VAT law on goods. However, amendment 73 to the Taxation (Cross-border Trade) Bill that was passed by this House prevents the UK from continuing its participation in the EU VAT area, which of course would be a key pillar of the current frictionless movement of goods and services. Can you see any way in which the European Union’s definition of a UK-wide backstop is compatible with the way in which this Parliament has tied the Government’s hands on VAT? Mr Connolly, I know you have some comments on this.

Aodhan Connolly: In the best-case scenario, our position in the NIRC is completed the same as the British Retail Consortium, and that is that, for businesses and consumers in NI, the whole of the UK and throughout the EU are better off in the common VAT system, and that would be underpinned by alignment to the EU VAT directives in full, with full participation in VIES and full participation in MOSS. That would mean—and this is where we come to the contentious part—that there would be continuing jurisdiction with some part of the ECJ in all of this.

Like I said, that is the best-case scenario. From the UK Government, on VAT within the backstop, we have not really seen anything other than the 2018 statement on common processes between both jurisdictions. I think that you are quite right to say that one opinion would be that our hands are tied. While I do not have the complete solution, I would stick with what our assertion would be, which is that to remove costs and to remove that friction, whether at a UK-wide level or a Northern Ireland level, there needs to be alignment to the EU VAT directives in full. Otherwise it is going to be costly.

Stephen Kinnock: Given that amendment 73 was passed, the UK Government promise no checks for VAT or excise purposes, but we passed a piece of legislation in this House that makes that utterly impossible to achieve. What are your views on that?

Declan Billington: My view has always been that we in industry cannot table solutions that address issues like that, because it is beyond our scope to do it. All we do is, you tell us what you plan to do, and we will tell you the consequences of it, to the best of our ability, and we will hope to influence better policy than would otherwise be the case. It is a challenging question, because it is a question, in my mind, for the UK Government to resolve in their negotiation with Europe. It is beyond our ability to engage in this. We will try to work with whatever the consequences are.

Stephen Kinnock: Have any of you pointed out to the UK Government that there is a fundamental incompatibility between their objective to have a common VAT area, as set out in their White Paper, and the legislation that was passed by Parliament.

Aodhan Connolly: Our colleagues in the British Retail Consortium have been in almost constant contact with the Treasury, HMRC, DExEU and BEIS. It is one of the key concerns that national retailers have, and the Northern Ireland Retail Consortium is part of the BRC, so we feed into that, and our voice is heard through the BRC.

Stephen Kinnock: Have you received any feedback?

Aodhan Connolly: I will look into that and I will reply to you.

Stephen Kinnock: That would be very kind. Thank you very much.