British businesses that export to Europe could collectively face a multi-billion pound Brexit bill if the UK and the European Union are unable to agree a transitional customs deal, a think-tank has warned.
The Institute for Government (IFG) says that should the UK leave the EU without a negotiated agreement on customs, controls at borders "could be introduced overnight”.
It calculates that there are 180,000 business - most of them SMEs - trading with Europe who will need to make customs declarations following Brexit, landing them with a combined bill of at least £4bn in the first year alone.
“Traders who are used to moving goods freely to the EU will need to adapt,” the IFG said in its paper titled Implementing Brexit: Customs. “For the UK, ‘taking back control’ of its borders is likely to mean the introduction of checks for goods arriving from the EU.
“Businesses will have new requirements for paperwork and their goods could face significant checks at the EU border,” it continued. “Supply chains that are optimised for speed and fluidity will need to find the space and time for customs authorities to carry out checks and inspections.”
Customs checks for goods arriving from the EU could increase a "hundredfold”, the IFG said, meaning goods backing up in ports as authorities battle to clear them.
Sectors dependent on “just in time” supply chains - such as car manufacturing - could be particularly hard hit. Businesses in these industries often hold just a few hours of components in stock, relying on timely deliveries to keep production lines running.
They keep costs down by not having warehouses full of components, and the prospect of supplies being held up at customs could result in work grinding to a halt.
The IFG also said UK authorities will have to take responsibility for performing the customs duties that will have to be enforced under international treaties without a deal being agreed.
The think-tank said that the free flow of goods in the EU allows the UK to effectively outsource customs control to businesses.
“UK customs relies on private sector organisations,” the IFG said. “Government collects the duties on goods and conducts the checks, but it is the private sector that provides the infrastructure, logistics and paperwork. Port operators, clearance agents and freight forwarders are just a few of the players in the complex web that sits outside government.”
As well as business preparing for the potential upheaval in less than 20 months, the UK Government also has to prepare 30 departments and public bodies, as well as more than 100 local authorities for the change.
A new IT system for customs started long before the EU referendum was announced is also coming under intense pressure from the expected Brexit changes. IFG warned the new system’s “successful delivery is in doubt and has to contend with constricting timelines and huge changes in requirements". It added: "Non-delivery would leave the UK facing huge disruption from day one.”
Implementing Brexit and the customs changes it entails is fraught with risk, according to the report, which concluded: “Until there is agreement on transition, there will be continued uncertainty not only about what is required for customs post-Brexit but also about when it will be required.
“The biggest risk for Government is just how little of the process it controls.”