The £5.25bn Brexit crisis that continues to escalate

Far from ‘bedding in’, the impact of Brexit seems to be escalating for online shoppers, couriers and retailers. ParcelHero’s Head of Consumer Research, David Jinks MILT, reveals the growing problems at UK/EU borders.

When the Brexit agreement was finally struck on Christmas Eve, Prime Minister Boris Johnson claimed he had secured a 'cakeist' Brexit deal, meaning Britain could have its cake and eat it. By mid-February it was looking increasingly likely that Britain’s consumers and traders had been left with crumbs.

The crisis at UK-EU borders is more than ‘teething troubles’. The latest figures from the Office for National Statistics (ONS) show an escalating problem. Businesses are reporting mounting transport costs, border disruption and spiralling customs duties.

For UK plc, this is extremely serious. The EU is the UK’s largest trading partner. In 2019, UK exports to the EU were £294 billion (43% of all UK exports) and UK imports from the EU were £374 billion (52% of all UK imports).

Around 11% of UK e-commerce sales usually involve products purchased from the EU. With the UK e-commerce market worth £141.33 billion, imports from the EU account for around £15bn of the overall e-commerce spend.

This year, the crisis around ‘proof of origin’ – where exactly an item was made and sourced - means 35% of UK retailers and traders importing from the EU are experiencing major problems. As the crisis unfolds, it’s likely we will see a corresponding 35% drop in EU-UK e-commerce imports, one that could cost UK importers £5.25bn in lost imports and extra costs.

Why has this huge £5.25bn hole been created? Proof of origin represents a huge burden for UK importers. Items sourced and made entirely in the EU attract no customs fees when entering the UK. However, if a British importer is bringing in goods to the UK from the EU that were made outside the Union, or even that have a number of components that originated beyond the EU, then the product does not qualify as duty exempt. The e-commerce fashion store ASOS, for example, estimates it will have to pay an additional £15m in tariffs under the country of origin rules this year.

How free is free trade?

The Government trumpeted its ‘free trade’ agreement but entirely failed to warn Brits shopping online with EU sellers that there are now duties of up to 25% to pay on many goods bought from EU sellers valued at over £135 (or 150 euros), To qualify for zero customs duties, items must meet the terms of the ‘rules of origin’ agreed in the Brexit deal. Therefore, the item must either have a statement of origin from the exporter, showing where all its components were sourced, or the importer must prove knowledge of their origin. Failing all that, the items will be hit by potentially sizable tariffs. The situation is mind-boggling.

Just supplying enough documentation to satisfy customs about where an item originated is slowing customs clearance checks dramatically. February’s ONS figures show 35% of businesses are now facing importing challenges because of disruption at the UK borders. Similarly, 25% of exporters recorded disruption at borders.

26% of UK importers experienced problems paying customs fees in early February and that number was expected to climb during the month.

In October 2016, as negotiations got underway, Brexit Secretary David Davis promised: “There will be no downside to Brexit, only a considerable upside.” Now the full impact of the UK’s trade deal with the European Union (EU) is becoming clearer, this seems a hollow claim indeed.

As well as the issue of proof of origin, the all-too evident downsides are escalating for UK importers, exporters, manufacturers and hard-pressed consumers.

Falling exports, rising delays

A survey of international hauliers carried out by the Road Haulage Association (RHA) found the volume of exports travelling from British ports to the EU fell 68% in January compared to the same period last year.

The research led its Chief Executive, Richard Burnett, to write to Cabinet Minister Michael Gove to call for assistance, particularly with increasing the number of customs agents from 10,000 to 50,0000 to help firms with extra, post-Brexit paperwork.

The RHA also found 65-75% of EU vehicles were leaving the UK empty due to a lack of goods, hold-ups in the UK and because British companies had halted exports to the continent.

ParcelHero’s own research found the burden of complex new paperwork on exporters certainly began to bite in January, with 20% of parcels and the same proportion of trucks being stopped at some ports. Incorrect or incomplete paperwork meant many returned parcels and lorries being turned away at customs.

Senders struggled to come to terms with the many new requirements. Individuals sending parcels gave too sketchy descriptions of the items being sent, while retailers and manufacturers failed to give proper proof of origin and EORI details.

As a result, one of ParcelHero’s courier partners saw up to 20% of its parcels being sent with incorrect or incomplete data attached. The company had to return all these parcels and, due to the escalating problems, suspended all its European road services.

Other couriers also announced strict new rules around automatically returning items with incomplete or inaccurate paperwork to the sender, including charging new fees for doing so.

During February, the crisis continued to mount, with many carriers’ warehouses filling with parcels rejected by the receiver or customs, which then had an impact on domestic UK deliveries as backlogs grew.

VAT: a taxing issue

VAT has also become a nightmare post Brexit. It has impacted on UK traders selling to the EU, European sellers shipping to UK customers and, most importantly, to UK online shoppers.

Many shoppers have been left entirely confused about whether VAT was charged when they bought an item online from an EU seller, or whether they must pay it when the goods arrive.

For goods under £135, the EU seller should charge the VAT at the point of sale; for goods over £135, the UK buyer pays the VAT at the point of delivery. If that isn’t confusing enough, EU sellers should have registered with UK Customs in order to pay back the VAT they charged on goods under £135. Many have not done so because of the vast amount of red tape involved. It’s all a huge mess.

To add a further twist to the VAT shenanigans, if the item was purchased through an online marketplace such as eBay or Amazon, it’s the marketplace itself that is responsible for charging and reporting the UK VAT. Confused yet? Some shoppers have ended up paying 20% VAT twice.

It’s no wonder the European Consumer Organisation (BEUC) is demanding that the EU, its Member States, and the UK clarify immediately what the Brexit agreement means for consumers when it comes to paying customs duties. We entirely back the BEUC’s call for action.

Many unhappy returns

One escalating problem facing shoppers and sellers is that of returning items to the EU – particularly if they are being rejected because of unexpected taxes and duties.

Strictly speaking, the cost of returns for unwanted goods purchased online from the EU should be paid for by the receiver. However, many shoppers are simply refusing to .pay these unexpected fees and refusing to take delivery. If the item is rejected at the doorstep, it is left to the courier to take them away and store them

It’s a problem that also applies to UK-based sellers shipping to EU buyers, of course.When rejected goods arrive back at depots on the Continent, they face significant new customs paperwork and potentially new fees. "Lots of large businesses don't have a handle on it, never mind smaller ones," says Adam Mansell, boss of the UK Fashion & Textile Association (UKFT).

For UK exporters receiving back items from the EU this is a costly exercise. Mr Mansell told the BBC it's "cheaper for retailers to write off the cost of the goods than dealing with it all, either abandoning or potentially burning them."

Currently at least four major UK High Street fashion retailers are stockpiling returns in Belgium, Ireland and Germany. One brand will reportedly incur charges of almost £20,000 to get the returns back.

Courier ‘surcharges’

International couriers have a very different approach to shipping beyond trading blocs such as the European Union. Where a single market ends there are always considerable customs difficulties. That represents wasted time and the expense of red tape and rejected items.

As soon as the UK left the EU most international couriers introduced an additional surcharge on all shipments between the EU and the UK. These are averaging a minimum charge of at least £4 on parcels crossing the EU-UK border, climbing as high as £11 for some delivery companies, and with rising fees for heavier packages.

That is dramatically pushing up the final price UK shoppers pay for purchases from EU sellers and increasing costs for UK exporters to the Continent.

Consumer rights and wrongs

There’s further bad news for the UK’s beleaguered online shoppers. Unfortunately, under the Brexit deal, it’s now really difficult to claim money back from the EU-based seller if there is a problem. The UK was forced to leave the excellent ODR (Online Disputes Resolution) system following Brexit. Consumer Centre UK, the body now supposed to mediate in consumer disputes with EU sellers, seems largely toothless, as it is unable to act against companies.

Furthermore, the Centre acknowledges that, just because a website has a “.co.uk” address, this does not automatically mean the trader is based in the UK. Neither does a UK telephone number mean that the company is British. That means shoppers could be buying from an EU store without even knowing it and face unexpected taxes and duties. That is a ridiculous situation that must not be allowed to continue.

The Northern Ireland disagreement

One final concern for everyone is the looming issue of parcels shipped to Northern Ireland. The British Government granted a three-month grace period on the need to complete customs declarations when sending parcels to customers in Northern Ireland from the rest of the UK. That period is nearing its end.

Some GB retailers have already suspended sales to Northern Ireland in anticipation of further red tape and B2B shipments of goods valued at over £135 are already subject to the new procedures.

The Government says it “Recognises the unique circumstances of Northern Ireland, the impacts of any disruption to parcel movements in the context of the Covid-19 pandemic and specific challenges for operators moving express consignments… HMRC is engaging with operators to finalise arrangements.’

So far, we have seen little signs for optimism. In fact, the Northern Ireland Protocol is in danger of unravelling entirely if these trends continue.

A massive 44% of retailers and wholesalers reported the volume of goods they shipped to Northern Ireland decreased in the latest two-week period, compared to the previous fortnight. 31.5% of manufacturers reported their export volumes to Northern Ireland fell during the latest period. Of all businesses who had sent, or intended to send, goods from Great Britain to Northern Ireland in the last two weeks, 38% reported sending fewer goods.

These problems will only escalate as a waiver on customs declarations on parcels sent from the rest of the United Kingdom to Northern Ireland runs out on 31 March, and certification requirements ramp-up on supermarket goods in April. The Government urgently needs to renegotiate these deadlines with the EU.

The real deal

The Government needs to issue clear advice to UK shoppers and importers now, give the Consumer Centre UK some teeth and, ideally, introduce a six-month waiver on proof of origin requirements until the details of this rushed and flawed agreement are properly ironed out.

It’s also clear that Consumer Centre UK needs teeth if it is to defend the rights of UK shoppers buying from EU online sellers. It must be granted the equivalent status to the EU’s ODR (Online Disputes Resolution) system that formerly covered UK citizens. If not, British shoppers will be too anxious to shop in the EU and will miss out on thousands of products in the future.

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