Brexit customs paperwork to cost firms up to 20 billion pounds a year, tax official says

LONDON (Reuters) - Businesses will face a cost of up to 20 billion pounds ($27 billion) a year to comply with the customs arrangement favoured by the keenest Brexit supporters within the cabinet, Britain’s most senior tax official said on Wednesday.

Anti-Brexit demonstrators wave EU and Union flags outside the Houses of Parliament in London, Britain, January 30, 2018. REUTERS/Toby Melville

“You need to think about the ‘highly streamlined customs arrangement’ costing businesses somewhere in the late teens of billions of pounds, somewhere between 17 and 20 billion,” Jon Thompson, permanent secretary at Her Majesty’s Revenue and Customs, told lawmakers.

It appears to be the first official cost estimate for the customs arrangement known as “max fac” or “maximum facilitation”, and could be a setback for supporters such as Foreign Secretary Boris Johnson who favour a clean break with the EU after Britain leaves the bloc next year.

Prime Minister Theresa May has pledged to take Britain out of the customs union with the EU, a step she argues is necessary so that London can strike its own independent trade deals with countries around the world.

But May’s government has yet to set out to the EU’s satisfaction how it would achieve that without erecting a land border to control goods between the British province of Northern Ireland and the Republic of Ireland, which Britain has promised it will not do.

The government is considering two possible options in a debate that has exposed a deep rift within May’s cabinet between those who favour a clean break with Europe and those willing to accept closer cooperation with Brussels.

One option is “max fac”, in which Britain and the EU would be entirely separate customs areas but would try to use technology to reduce friction and costs at the border. The other is a “customs partnership”, in which Britain would cooperate with the EU more closely and collect tariffs on its behalf, so declarations are not required for goods crossing the border.

Officials had not previously estimated a cost to businesses for either of the two customs options, and the potential 20 billion pound price tag for “max fac” is likely to increase pressure on May from businesses and more pro-European ministers to go for the customs partnership.

A spokesman for May said the 17-20 billion pound cost was not a figure he was aware of.

“The key point here is that work is ongoing,” the spokesman told reporters.

The “max fac” arrangement is preferred by members of May’s government who favour a cleaner break with the European Union, such as Johnson, who say that without a separate customs area, Britain will not be able to set up independent trade deals.

Others, such as business minister Greg Clark, back the customs partnership, arguing that it is worth maintaining closer relations with Brussels to reduce costs to business.

Thompson said the bulk of the administrative costs for business under any customs scheme was making declarations. As this would not be necessary under the customs partnership, the compliance cost of that option would be close to zero.

Around 200 million consignments of goods went back and forth between Britain and the EU in 2016. Each customs declaration, which would need to be made in both Britain and the EU, would cost businesses between 20 pounds and 55 pounds, he said.

Businesses would also face extra costs of several billion pounds a year to meet EU rules of origins requirements, he added.

On Tuesday, Bank of England Governor Mark Carney said slower economic growth since the June 2016 referendum meant the average British household was 900 pounds poorer.

Additional reporting by Elizabeth Piper; Editing by Peter Graff