Conclusions and recommendations
1.Due to the continuing uncertainty over the future relationship with the EU, departments have to plan for several different scenarios and are unable to provide business and other stakeholders with the information they need to help them prepare for Brexit. Although the Draft Withdrawal Agreement includes a transition period, both the Department for Environment, Food & Rural Affairs (Defra) and the Department for International Trade (DIT) will need to continue to plan for a “no deal” scenario as well as a negotiated settlement with a transition period. Defra is looking at the functions it needs to perform and is planning a number of different ways of ensuring those functions are in place when they are needed. This could involve manual processes if IT systems are not ready in time. DIT needs to set up a new trade remedies body, including recruiting and training its staff, but does not yet know when this will need to be in place. Both departments recognise the critical importance of engaging with stakeholders to deliver a ‘smooth and orderly exit’ from the EU, but are still having to consider the most appropriate messaging for stakeholders at this stage, given the uncertain outcomes. DIT acknowledges that the uncertainty that exists is unhelpful for business and it aims to keep communication flowing and provide assurance where possible, but there are areas where it cannot do so.
Recommendation: Defra and DIT must, by July 2018, publish on their websites information and timelines setting out how and when they anticipate being able to provide more explicit guidance for businesses and key stakeholders on what they need to do to prepare for Brexit.
2.We are very concerned that, less than a month before the start of the financial year, HM Treasury had still not informed departments of the level of funding approved for their EU Exit programmes in 2018–19. At the time we took evidence in early March 2018, neither Defra nor DIT had been informed of their EU Exit funding for 2018–19, although both had submitted bids and were in discussions with HM Treasury. This undermines Departments’ ability to plan activity effectively. Defra was confident that the element of the funding requested that relates to rolling forward the costs of people already recruited would be covered. Since our evidence session, HM Treasury, in a written statement accompanying the Spring Statement on 13 March 2018, has allocated funding of £310 million to Defra and £74 million to DIT for 2018–19.
Recommendation: HM Treasury must improve its processes for approving EU Exit funding so that departments have certainty about their funding at a much earlier stage and are therefore able to plan their activity more effectively.
3.The devolved administrations have a crucial role to play for both departments and failure to engage successfully will cause disruption to the UK’s internal market. Defra estimates that 80% of its functions are in devolved areas of policy. Failure to reach timely agreements with devolved administrations in these areas would have a far-reaching impact across its EU Exit programme. For DIT, trade promotion is a concurrent power. It has no offices in the devolved administrations, and works with their respective development offices on trade issues. The reformed Board of Trade covers the whole of the UK and the Secretaries of State for the devolved administrations are advisors to the Board. DIT is still working with the devolved administrations to establish which business sectors and geographic regions in the UK as a whole might benefit most from trade, prior to beginning any negotiations.
Recommendation: We expect both departments, by July 2018, to report to us on progress in their engagement with devolved administrations, setting out what has been achieved and the risks and challenges that remain.
4.Despite departments’ optimism about delivering the post-Brexit functions required, there are already signs of delay to key primary legislation and work towards future trade deals. Both departments expressed their confidence that they are ready for a “no deal” scenario in March 2019. Defra said that it has solutions that will enable it to perform the functions that will be required and DIT that it is in a strong position to deliver an operational trade policy from day one. However, Defra’s White Paper on Fisheries that was promised by the Secretary of State in December 2017 has been delayed due to discussions with devolved administrations and across government. This will leave little time for consultation between publication of the White Paper and the introduction of the Bill. On trade issues, DIT is prioritising the transfer of the 40 EU/third country trade deals to UK/third country trade deals. No decisions have yet been made on the nature of any trade deal with the US but DIT says it would be possible to do a deal in 18 months if there was genuine political commitment on both sides. We took evidence on 7 March 2018, before publication of the Draft Withdrawal Agreement proposing a transition period to December 2020. As a result, the Departments may feel they have some breathing space, but this does not mean that they can take their foot off the gas.
Recommendation: Departments must ensure realistic plans and key milestones are in place for all of their workstreams by the end of July 2018.
5.We consider it unrealistic to expect Defra to achieve the efficiency savings needed alongside delivering Brexit and its extensive portfolio of non-Brexit work. Defra is responsible for 43 of the 300 plus Brexit-related workstreams across government, including high priority projects that impact on key industries and the safety of our food. It also has an extensive portfolio of non-Brexit work to deliver, including protecting us from floods and animal and plant disease outbreaks. Despite this demanding workload, Defra remains committed to saving £138 million in 2018–19 to meet its spending review settlement. Without robust prioritisation to postpone or descope some of its workload, we consider it unrealistic to expect Defra to be able to deliver on all of these competing demands.
Recommendation: Defra should acknowledge that it cannot continue to do everything it is currently doing, and write to us by the end of June 2018 setting out its processes for prioritisation and a list of programmes and areas of activity that it is stopping, postponing or descoping.
6.There are substantial risks, including disruption to the agri-food and chemical industries, if Defra’s IT systems are not ready in time. 20 of Defra’s 43 workstreams have an IT component, four of which have a ‘build’ element in the event of a ‘no deal’ scenario. These include an import control system to facilitate trade in animals and animal products, and a system for the registration and authorisation of new chemical products. We took evidence on 7 March 2018, before publication of the Draft Withdrawal Agreement proposing a transition period to December 2020. Defra told us that it has made good progress in developing these systems, but also told us that its contingency plans if systems are not ready in time include ‘manual workarounds’. With only a year to go until the UK leaves the EU, and in light of Defra’s poor track record in implementing new IT systems in the past, we have concerns over the potential for disruption to the agri-food and chemical industries if these IT systems are not ready in time and contingency plans have to be enacted. If the transition period goes ahead, it will give the Department more time to develop these systems, but the Department needs to make sure that it doesn’t let progress on their development slip, in case negotiations break down.
Recommendation: Given its poor track record on IT delivery, Defra must ensure it has the necessary resources in place to complete its IT programmes on time and avoid costly and embarrassing contingencies involving manual completion and submission of forms. We expect Defra to update us on its progress by the end of June 2018.
7.We are not convinced that DIT yet has the right mix of skills and experience in its workforce to deliver effective trade deals. DIT told us that it is building up its trade negotiation capability and its Trade Policy Group has expanded rapidly from 100 when the Department was formed to 500 now. When challenged on whether these staff had the skill and expertise to deliver successful trade negotiations, DIT expressed the view that it had world-class staff with talent, strategic capability and the ability to learn. However, it also acknowledged that ideally it would like to be able to recruit more staff with negotiation experience.
Recommendation: DIT should write to us within two months setting out how its existing capability, together with any further recruitment plans it has, will enable it to have the skills needed to negotiate trade deals.
8.DIT does not yet have an adequate understanding of the regional and sectoral impacts of Brexit on inward investment and jobs and industry’s ability to trade smoothly. DIT told us that it is working closely with HMRC, BEIS and other departments on preliminary sectoral impact analyses of different Brexit scenarios, including the implications for inward investment and exports. DIT also described a wide range of ways in which it seeks to engage with industry and business, including the creation of great.gov.uk, a one-stop shop for exporters. However, DIT acknowledged that it needs to understand the needs of small businesses better and improve its offer for medium-sized businesses.
Recommendation: DIT should write to us, again within two months, explaining how it is using strong analysis of the impact of different options on sectors and regions to inform its decisions about trade and inward investment policy.
Published: 4 May 2018