The boss of HMRC has told MPs the post-Brexit customs option favoured by Brexiteers would cost businesses up to £20bn per year.
Theresa May’s Brexit “war cabinet” is divided in its support for two different options for when the UK leaves the EU’s customs union.
The prime minister has ordered her top ministers to split into two groups to work on the competing models.
Video: HMRC warns of £20bn bill for ‘max fac’ Brexit
These are a “max fac”, or “maximum facilitation”, proposal supported by Brexiteers, and new customs partnership said to be backed by Chancellor Philip Hammond and Mrs May herself, but branded “crazy” by Foreign Secretary Boris Johnson.
The warning came as it was revealed the government will bring key Brexit legislation back to the House of Commons next month to set up crunch votes on post-Brexit customs arrangements.
This includes the EU Withdrawal Bill, on which MPs will have to decide whether or not to scrap 15 House of Lords amendments, such as peers’ demand for the government to negotiate a customs union with the EU – despite the prime minister having previously ruled this out.
Customs and trade bills will also be brought before MPs next month, the government is expected to announce on Thursday.
It had previously been thought the prime minister would delay returning Brexit legislation to the Commons in fear of Tory rebellions from both the Leave and Remain sides of her parties.
:: What are Theresa May’s customs options?
Appearing before the House of Commons Treasury Committee on Wednesday, HMRC chief executive Jon Thompson set out significantly different costs for businesses between the two models.
Detailing how there were almost 200 million intra-EU consignments in 2016, Mr Thompson described how the “max fac” model – known as a “highly streamlined customs arrangement” by the government – is estimated to add £32.50 in costs per customs declaration.
That would add a £6.5bn cost to businesses on the UK side of the customs border, with Mr Thomson saying this figure would be double to take account of declarations on the EU side.
NEW: Government to announce tomorrow it will bring back all the Brexit Bills next month to put to the Commons – facing down the (a?) customs union rebels… rebels though are confident they will win. ERG wanted it, now we get considerable fireworks in June. 1922 told today
— Faisal Islam (@faisalislam) May 23, 2018
Along with EU rules of origin requirements, for example proving Cheddar cheese is actually produced in Cheddar, Mr Thompson told the committee the total cost to businesses of the “max fac” model is “somewhere between £17bn and £20bn” per year.
The “max fac” or “highly streamlined” model proposes the use of technology and a “trusted trader” plan to reduce post-Brexit customs checks.
A new customs partnership would see the UK collect EU tariffs for goods coming into Britain on behalf of Brussels.
In the event the UK sets a trade tariff below that of the EU, companies would then have the difference refunded.
It is argued the customs partnership would allow goods to pass freely between the EU and UK and prevent a hard border on the island of Ireland; although Brexiteers fear the plan would hinder the UK’s chances of being able to sign new trade deals.
Mr Thompson told MPs: “To be crystal clear about that, the highly streamlined [model] is somewhere in the £17-20bn and the cost of the new customs partnership, the estimate of the set-up cost of around £700m and then the reclaim would pay for itself.”
Video: What are Theresa May’s customs options?
Mr Thompson’s deputy, Jim Harra, added: “Obviously the work that we’re doing on the new customs partnership, if the administrative costs came out equivalent to the tariffs, then there’s not much of an incentive for businesses.
“So a lot of the work that we are doing is about keeping that administrative cost of the repayment mechanism as low as you can possibly make it so the tariff differential is as valuable as possible.”
Mr Thompson also told MPs the running costs to HMRC of the “max fac” model is around £250m per year, compared to £180m per year for the new customs partnership.
Commenting on HMRC’s revelation, Labour MP Stephen Doughty, a supporter of the People’s Vote campaign for a referendum on the final Brexit deal, said: “The admission by UK’s most senior customs official that the Brextremist’s fantasy ‘max fac’ option could cost British businesses up to £20bn should finally put this ridiculous idea to bed.
“Businesses are growing increasingly restive over the government’s ideological insistence on wrenching the UK out of the customs union and the single market, as they know it will be a bombshell of bureaucracy for British businesses and will cost jobs.”
Downing Street dismissed “speculation” about the impact of different post-Brexit customs models, with the prime minister’s official spokesman saying the £20bn cost was “not a figure that I’m aware of”.
He said: “The Prime Minister has asked for work to be done on both customs models, that work is ongoing and therefore any speculation about implementation is just that.”
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Earlier, it was revealed Mr Thompson had written to the House of Commons Exiting the EU committee to warn elements of the “max fac” model could take three years to put in place – beyond the Brexit transition period, which ends in December 2020.
Asked if the prime minister was confident a new customs model could be in place by the end of 2020, Mrs May’s spokesman said: “We have been clear on a number of occasions that our intention is to be ready for the end of the implementation period.”