The morning when Theresa May is about to unveil the first installment of her Great Repeal Bill, the press is reporting on full bore alarms from the National Audit Office about a Brexit disaster in the making: a sure to be failed Customs systems upgrade that will tie UK ports in knots.
For Whitehall, NAO is using strong language. Serious alarm bells. Even for those not already alarmed by the words "large Govt IT project". https://t.co/73NPtydL59
— George Peretz QC (@GeorgePeretzQC) July 13, 2017
Richard Smith flagged the Independent’s account:
The UK’s spending watchdog has warned the Government’s post-Brexit IT system for customs is heading for a “horror show” that could risk £34bn of public income.
In a scathing assessment, the National Audit Office said the computer system might not be ready by the time Britain leaves the EU, potentially plunging the UK’s ports into chaos.
The £157m system is due to be completed just two months before Brexit in March 2019, but the NAO says delays common to new IT would cause massive disruption.
In unusually tough language, auditor general Sir Amyas Morse said ministers were only beginning to understand the momentous task of Brexit and that without further resources would find that “at the first tap, this falls apart like a chocolate orange”…
Publishing his report on the Customs Declaration Service, Sir Amyas said the IT system to record declarations on imports and exports threatened to become “a horror show”….
Among risks outlined in the NAO’s report is the possibility that Britain’s final deal with the EU might require features in the IT system not yet anticipated by its designers – requiring last minute changes and causing more delays.
Recall that during Obamacare, the reason the rollout was such a disaster was specs being changed six months before the launch date. Lambert was first to recognize the significance of that and correctly predict an IT disaster. And mind you, that was in the context of a presumably largely settled development plan.
Based on a Financial Times story last November that didn’t get the attention it merited, we similarly predicted that the Customs rollout would be a mess and Brexit would only compound the magnitude of the damage in Another Huge Brexit Spanner in the Works: UK Faces Customs Train Wreck With Need for IT Upgrade:
As the preceding discussion shows, if UK loses access to the single market, that means tariffs. And for US readers, the UK is now on this path with its plan for a “hard Brexit”. Theresa May and her Brexit boosters have committed themselves to restricting immigration. The EU has insisted from Merkel on down, from the very day the referendum results were in that if the UK wanted to continue to have access to the single market, it had to accept the “four freedoms,” which includes movement of EU nationals in and out of the UK and vice versa.
What has escaped the notice of many observers is that “tariffs” for manufactured goods means that the charges are levied based on the country of origin of the constituent parts. This means a very elaborate customs declaration and tariff computation for goods of real complexity. And yes, there are customs inspections too (I assume on a sampling basis; readers can clue me in).
The amount of extra hassle constitutes a non-tariff trade barrier in and of itself. And that over time will encourage manufacturers to simplify their supply chains. Auto-makers, for instance, will find it less attractive to send parts into the UK for further assembly to be re-exported to Europe; they’ll presumably over time restructure production so as to have manufacture for the rump EU market in the EU, and have parts made in the UK mainly to be included in any final assembly there.
While that is bad enough, a looming problem is far worse. All this border documentation is managed by computer systems. The UK’s present system for handling non-EU-related trade is almost 25 years old and was set for replacement. The new system, called CDS for Customs Declaration System, to be ready by 2018 and to have the capacity to handle 100 million transactions,. At double the current level of 50 million, that would have seemed to be ample headroom.
Reading between the lines of the Financial Time story, there seems to be some doubt as to whether the original spec could have been pulled off in time. But now with Brexit, the project suddenly has a major spec change: it has to handle 350 million transactions.
And what the story does not mention, but seems likely to be the case, is that there are tons of other spec changes that have yet to be identified and documented related to EU and UK tariffs on specific goods. And if the system tracks things like port of embarkation and disembarkation, more data fields need to be added for all the EU ports and air cargo locations. And of course, the Euro currency data field needs to go in too.
In addition, since the negotiations will be in progress, the levels, and potentially even some of the categories are likely to be in flux. Given that olives are a very important export good for the EU, how will olives be treated versus olive oil versus products made from olives, like olive paste? Will green olives be treated differently than ripe ones? How all this sorts out affects the coding…
As Richard Smith said by phone, “Even if the UK government had a full team of top-drawer developers, crackerjack managers, a completed project specification, and enough budget, this wold be daunting to complete by 2018. And the reason most big IT projects founder or fail utterly is that the project parameters almost never stay static. They wind up changing as the developers turn over rocks and the client has a further think about what it needs.”
Needless to say, UK industrialists are fretting. From the Financial Times:
Industry is seriously alarmed by the administrative test of applying customs checks and separate tariffs to EU trade. Noting the danger of “major disruption at the border”, the paper to the joint committee argued it was “difficult to see” how CDS or Chief would cope by 2019 with “any substantial changes to what we do now”.
Desmond Hiscock, director-general of the UK Association for International Trade, said there was growing frustration among his members over the uncertainties and risks. “The existing system will be not be able to cope and there is not much confidence that the untested and still incomplete replacement, CDS, will fare much better.”…
Listing a range of additional administrative requirements, uncertainty over duties, databases, security checks, listings and rules of origin procedures, Mr Hiscock said his members had “a very real fear HM Revenue & Customs have neither the infrastructure nor the trained personnel to cope”.
And there do not appear to be good kludges. From the same article:
The most effective workarounds would require EU countries to establish a separate, streamlined customs system for UK trade. But most EU countries will be loath to invest in a huge overhaul of systems; EU officials expect Britain to be treated like any other non-EU country outside the customs union.
The only sort of good news is that because a replacement trade deal is very unlikely to be concluded two years after the UK pulls the Article 50 lever, the developers will have more time. But that really isn’t a solution, since much of the coding will depend on having final specifications, and a good deal will be in play as talks are underway.
So the UK continues to lumber towards a cliff with no intent of turning back. This can’t and won’t end well. Perhaps someone will devise a way to retreat, but too many influential people seem to think that’s politically dangerous, and perhaps more important, the press barons haven’t changed their tune. The flip side is America is demonstrating how well a full bore media campaign can succeed in moving public opinion. If Fleet Street were to come around, a political rethink might become possible, but if not, UK citizens should expect they’ll need to assume the brace position in 2019.