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Analysis

Max Fac is really Max Fantasy

by Quentin Peel | 24.05.2018

If anyone needed confirmation that an Alice in Wonderland world has consumed the UK’s Brexit negotiations, they need look no further than the “Max Fac” model of customs collection favoured by leading Brexiters. It is time it was rechristened Max Fantasy.

Jon Thompson, chief executive of HM Revenue and Customs, told the House of Commons’ Treasury Committee that the model would cost UK businesses between £17 billion and £20 billion every year. There is little doubt he was dying to spill the beans, because he kept hinting he had done the sums. The net cost of the alternative model – the “new customs partnership” favoured by Theresa May and her top advisers – would be zero, or less, he said.

The Max Fantasy calculation comes from multiplying 200 million new customs declarations by a cost of £32.50 – times two, for doing it on both sides of the future UK-EU customs border. Plus an extra few billion for the cost of complying with rules of origin – “does this cheese come from Cheddar?” was the helpful example.

It does not take into account the extra costs for HMRC, estimated at a mere £250m a year, and the 5,000 extra staff the department needs to run the system. And that does not include the extra border force officers needed at all UK ports, to be employed by the Home Office.

Quite apart from the cost, the technology does not exist yet to ensure that Max Fac will work on January 1, 2021, when it is supposed to come into effect. Nor does Thompson know if everyone will be ready.

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“We cannot guarantee that all (UK) ports, all traders and all other ports will have undertaken all the necessary action,” he admitted. “We might be ready, Dover might be ready, but Calais might not be.”

The trouble is that the alternative NCP model is also regarded as “magical thinking” by both EU negotiators and most of the companies that would have to comply with it. It depends on the introduction of a “dual tariff” system at UK ports, where traders will be required to pay either EU tariffs or UK tariffs, depending on which is higher – and reclaim the difference later. If the difference does not justify the bother, they will be expected to forget it. That is what the “zero cost” is based on.

When asked if his department was looking at any other models, Thompson revealed he had 1,100 civil servants working on Max Fac and NCP alone. “Two variants are enough”, he admitted.

The trouble is that neither looks remotely likely to provide a solution, which leaves all UK traders – precisely those who were supposed to reap huge benefits from Brexit – entirely in the dark about what the outcome will be. And until they get clarity, businesses – including the ports – can hardly be expected to get ready. “When it come to their having to spend hard cash, they may well need a greater degree of certainty than they currently have,” Thompson said.

So was there really a target date? “The real question is when are you starting.”

Alice could not have put it better.

Edited by Luke Lythgoe