Brexiters’ favoured “max fac” customs proposal could cost businesses £20bn, warns HMRC boss Jon Thompson

Brexiters’ favoured customs union proposal could cost businesses up to £20bn, the head of HM Revenues & Customs has warned.

And while Theresa May’s preferred option would cost a fraction of that, it could take up to five years to implement.

Jon Thompson, chief executive of HMRC, confirmed that the new customs partnership – in which the UK collects tariffs on behalf of Brussels for goods that are travelling via the UK on their way to the EU – could take five years before it is up and ready.

The “maximum facilitation” option, which allows so-called “trusted traders” to cross the Northern Ireland and other EU borders freely after Brexit, aided by technology, could take three years to deploy.

Although there could be a functioning border by January 2021, but not “fully optimal” as foreign ports might not be ready, he told the Treasury Select Committee.

Another issue is that repayment mechanisms might not be in place, not least because businesses would want to wait for a while to see whether reclaiming money under the customs partnership proposal would be worthwhile.

Thompson said it was “quite difficult” to give an exact deadline for when a decision was needed on which option would be taken forward, although told chair Nicky Morgan: “The quicker we get a decision, the quicker we can implement what the government wants”.

Jim Harra, deputy chief executive, pointed out that the options “do require third parties to start to act, and they will not do so just because a minister tells them to do so”.

Working on the basis of 200m trade consignments each year, at £32.50 per customs declaration, the “max fac” system could cost business between £17bn and £20bn.

If the UK were to cut all tariffs on goods to zero, the maximum amount that British firms would have to pay would be £3.4bn, Thompson said.

The new customs partnership would cost would be £700m to set up, he said, although added that ultimately it could be cost-neutral because firms would get a refund.

However both options as currently envisaged have been rejected by Brussels, and there is no consensus even within Cabinet, where the deadlock has forced May to put forward a backstop solution of a temporary extension to the customs union.

Pro-Brexit MP Bim Afomlami said the figures should give ministers pause for thought.

“Leaving the customs union is the right policy, but whatever the solution we come up with must not be hugely costly and burdensome to British business. That would not be a good outcome,” he told City A.M.