Public Services > Central Government

The government’s unclear Customs thinking rings early IT alarm bells

David Bicknell Published 17 August 2017

Despite tech suppliers’ call for a Customs 2020 plan, Whitehall seems nowhere near providing one, leaving HMRC exposed, despite the department’s best efforts at delivering CDS

 

You might have hoped that the government’s publication of a position paper on future customs arrangements post-Brexit would have offered some clarity of thinking on the design and implementation of future customs IT systems. After all, the government’s only had 14 months since June 23rd last year to think about it.

Well, you’d be wrong. Because the first of Britain’s Brexit position papers – the second on the Irish border was published yesterday – offered little clarity, only platitudes, Brexit propaganda, and a request for a life ring – or was it a lifeboat? – from technology suppliers.

Of course, technology suppliers would always be delighted to help the government out when it comes to delivering solutions - provided the opportunity has some basis, some structure, and a business plan on which to deliver those solutions. Unfortunately, the government’s paper offers few such foundations, either for technology suppliers, or even for its own departments, notably HM Revenue & Customs (HMRC) which could rather do with a dose of some customs clarity from the government it is part of. Instead, the paper only offers the structure and permanence of a house built of straw.

That is not to say technology wouldn’t help. Tech suppliers, through their organisation techUK, have already offered a way forwards on customs through the paper, “Leaving the Customs Union  - Challenges and opportunities for a Digital Global Britain.”

The techUK paper points out that customs arrangements matter for the UK tech industry. Half of digital sector goods exports, and one-third of services exports, are with EU countries. The UK’s digitally-intensive industries, the ones that produce digital goods and services or use them intensively, have highly integrated supply chains across European and global markets. And 22% of all the goods and services produced by these firms are bought by businesses and consumers around the world; two-fifths of these in the EU.

In its paper, techUk had called on the government to take the “unique opportunity” to design a “smart” customs system where the UK can be a world-leader.  It wants the government to produce a revised Customs 2020 plan, outlining planning for various EU exit scenarios, and “channelling the spirit of the recent Government Transformation Strategy and Digital Strategy.”

It has suggested the government should make a bold commitment in a revised Customs 2020 plan to be recognised by start-ups, scaling SMEs and large businesses as a world-leading digital customs authority in the use of new technologies, with a particular emphasis on first time exporters.

techUK has also argued that HMRC and the Department for Exiting the European Union should work with the tech sector to develop new technology solutions to ensure that UK businesses and consumers do not suffer from new customs delays and costs as a result of leaving the Customs Union.

It believes new digital technologies such as blockchain and machine learning can play a role in delivering a “world-leading, data-driven and frictionless customs system,” and it argues that leaving the Customs Union represents an opportunity to, in addition to implementing new technologies, also act as a “market stimulus to the UK’s thriving govtech market as part of the ongoing Industrial Strategy.”

I’d expect suppliers to want to make the most of every opportunity, and so they should. And let’s face it, the madness of Brexit – I make no apology whatsoever for calling it madness - offers such an economic opportunity for vendors. But there is a risk of putting the cart before the horse if government, egged on by tech suppliers, is producing white papers advocating vague proposals incorporating even vaguer “technology-based solutions”.

Government must surely be seen to be leading on policy matters, and then, when it has a credible direction, plan and policy in place, calling on those suppliers to help implement the policy by creating workable systems. But perhaps, on Brexit, the government needs the benefit of some tech clarity of thought because it certainly seems unable to provide any clear thinking itself.

But you can already clearly see that the government’s idea of a “highly streamlined customs arrangement between the UK and the EU, streamlining and simplifying requirements, leaving as few additional requirements on EU trade as possible, and developing new innovative facilitations to deliver as frictionless a customs border as possible” is a pipedream, as is the alternative approach of the UK “mirroring the EU’s requirements for imports from the rest of the world where their final destination is the EU.”

When the government itself is describing the proposed approach as “unprecedented” and “challenging”, that should ring alarm chimes as loud as a working Big Ben. You already know where this is headed: towards future Public Accounts Committee hearings and potential legal wrangles over an overambitious, ill-defined failed system. It is already as clear as night meets day that this customs plan is not going to work.  And inserting the magic word ‘digital’ in any plans is no guarantee of success either.

We have written extensively in Government Computing about the Home Office’s Emergency Services Network (ESN), which, the department has now recognised, requires complex technology and a greater scope and scale of testing than originally anticipated. The timetable has always been much too tight, given the complexity and the emergency services’ understandable safety concerns. But even with ESN, there is a clear direction of travel, a goal and a plan to achieve it. It is streets ahead of the government’s customs thinking, which has no such goal, plan or direction.

Fortunately, techUK has also spotted the problems with the government’s approach. I had a chat with its chief executive Julian David yesterday and he is absolutely right to describe the government’s paper as a mix of the good, the bad and the intractable . techUK also rightly argues that while the paper gives some further detail, the picture for what the future holds remains murky. It is also correct in its view that a soft landing for Brexit will require a long runway. Actually, a very long runway almost as far as the eye can see.

The good, techUK suggests, is that the paper, for the first time, officially confirms that the government plans a transitional arrangement (though the government calls it an ‘interim period’).

It says the paper also sets out in more detail what the UK would want from this transition deal, proposing “close association” with the EU Customs Union. In many ways this would replicate the Customs Union in all but name, something that would make sense for business.

However, it says, there is one major difference with full Customs Union membership.

techUK argues that the paper states that, during this interim period, the UK wishes to be able to begin negotiations with other partners about trade deals post Brexit. While the government would not sign any deals that cut across the UK/EU agreement during this phase (most likely almost any trade deal), it is not clear that the EU would accept such an arrangement.

“Should the UK be forced to choose between negotiating trade deals or retaining frictionless customs during this interim period it remains highly uncertain what the government would do. Given the dominance of the EU market for UK tech exports, from the sector’s point of view the latter option seems preferable,” techUK says.

The bad, as techUK describes its main concerns, is just how far away the paper is from “a set of concrete.”  It says that a whole range of post-Brexit issues, including the customs question, remain unclear 14 months after the Referendum. For something as complex and potentially time consuming for business as customs processes, there is little time to waste. The sooner the government confirms which of the two proposed options it actually intends to pursue the better for business, it says.

techUK also has concerns about increased complexity, with the proposed ‘customs partnership’ system fundamentally relying on the idea that goods intended for the UK from outside the EU would not be able to enter into the EU. The paper proposes a range of options to prevent this, but, tech Uk says, all risk creates significant additional burdens.

For example, as the group points out, the paper suggests that goods could be “tracked until they reach the end user”.  Yet how this would work in practice is unclear and risks products being sold to UK customers having to jump through huge regulatory hoops (or even being individually tagged) in a way that raises complex questions about consumer rights and, possibly, even consumer privacy.

Arguably techUK’s biggest concern is over timescales. This is particularly the case where new systems need to be built. The government’s acceptance of a transitional deal is welcome, but it continues to focus on the needs of government, not businesses.

The initial victim here is HM Revenue & Customs, which through scarcely any fault of its own, has  had to suffer its room for manoeuvre in introducing a replacement for the CHIEF system being cut to the bone.  The new Brexit-focused timetable has significantly reduced the testing time for its new Customs Declaration System (CDS) currently being built to handle UK customs processes.

During its original planning, a testing phase of two-three years was envisaged.  Now the project will go live only two months before ‘Day 1’. As techUK points out, while significant work is being done to make sure this major tech project is ready on time, the training of staff, tweaking of processes and back office function changes needed by businesses interacting with the new system will be severely curtailed. It argues that there will almost certainly be a need to re-scope the CDS project in the next eighteen months or so as details of the UK-EU customs arrangement are confirmed and HMRC will need to consider a range of models.

I suggested a couple of days that the government’s paper might give HMRC at least a sense of direction for the future.  It’s a comment on the paucity of the government’s ideas that HMRC might justifiably argue that the government’s paper hasn’t changed its plans for the CDS project.

An HMRC spokesperson said this week, “The Customs Declaration Service (CDS) is on track for delivery by January 2019 and will support international trade once the UK leaves the European Union. 

“We took the decision to bring in a new declaration system before the EU referendum, but the service remains fully capable of dealing with how the UK’s exit from the EU will impact on customs declarations at the border.”

It’s easy to criticise government departments over their IT plans, but HMRC has my sympathy for having been left in a very difficult position that is not of its making.

techUK’s final concern covers what it describes as “the Intractable.” The European Court of Justice (ECJ) does not appear anywhere in the document.  techUK asks whether the government will accept ECJ oversight for the ‘close association’ of the interim period?  And will it do so for questions of mutual recognition of authorised economic operators (AEOs). AEO status is an internationally recognised quality mark indicating that an organisation’s role in the international supply chain is secure, and that its customs controls and procedures are efficient and compliant.

Given the importance of securing a clear, well understood transition, techUK argues that the path of least resistance would be to accept the ECJ having continued oversight during the interim period, though it points out that whether this is politically palatable is a very different question.

Another key issue for the interim period is how long it will actually be. The paper does not give a timetable, though it is likely to end before the next General Election, giving a window of three years. Some ministers – no doubt the more Brexit-driven ones - reportedly favour no more than 12 months of transition. But as techUK points out, depending on the complexity of the system to be put in place this could create a very challenging timetable for government and businesses to adapt.

We have several more government Brexit position papers to come over the next few days and weeks. The one on data will certainly make for interesting reading. Let’s hope they’re a deal more coherent than what we’ve seen so far.








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