U.K. Spends $1.4 Billion on Brexit Border But Trade Still Slumps

(Bloomberg) -- U.K. investment of more than 1 billion pounds ($1.4 billion) to smooth the passage of goods over its new post-Brexit border failed to prevent a slump in trade with the European Union.

The figure, equivalent to about a third of what Boris Johnson’s government plans to spend on new hospitals over the next three years, includes the cost so far of border facilities, support to help companies adjust and funding for businesses in Northern Ireland, the National Audit Office said in a report Friday.

Meanwhile Britain’s trade with the EU, its largest commercial partner, fell 15% in the second quarter of this year compared to the same period in 2018, the NAO said. Businesses have had to grapple with new red tape since Britain left the EU’s single market and customs union, including extra forms and hiring customs agents to handle additional processes.

The data are likely to add to pressure on Johnson to show the benefits of leaving the EU, his signature policy, after his government chose to erect new trade barriers to ensure maximum distance from the bloc after Brexit.

Johnson has repeatedly argued that gaining total trade freedom would be more valuable than remaining close to the EU, by enabling the U.K. to pursue other global opportunities. But the NAO said in the same period, Britain’s trade with the rest of the world rose just 1%.

Since fully quitting the EU in January last year, Britain has yet to finalize a trade agreement with a partner with which it didn’t already have an accord as a member of the bloc.

Lack of Deals

So-called agreements in principle have been reached with Australia and New Zealand, but not final legal texts. The government’s own impact assessments forecast that the benefits of those deals will be orders of magnitude smaller than the economic damage from leaving the EU. 

The U.K. is also seeking accession to the CPTPP trading bloc, which is forecast to boost Britain’s economy by 0.08% over 15 years, and talks on a trade agreement with the U.S. have stalled.

The U.K.’s border costs are set to rise further because the U.K. has yet to fully implement its post-Brexit plans. Full import checks on goods arriving from the EU have been delayed to July 2022, a move criticized by the NAO for putting U.K. firms at a disadvantage and leaving Britain exposed to smuggling.

In a sign of the new bureaucratic burden facing U.K. traders since Brexit, companies filed 48 million full or simplified customs declarations to the government’s tax authority between January and August for both EU and non-EU trade, compared to 44 million during the entirety of 2020. Both periods were impacted by the pandemic.

The declarations cost about 30 pounds each, adding billions in charges for companies doing U.K.-EU trade.

“Much more work is needed to put in place a model for the border that reduces the risk of non-compliance with international trading rules,” Gareth Davies, head of the NAO, said in a statement. The system also needs to be “less complicated and burdensome for border users,” he said.

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