Defra still faces enormous Brexit challenges says Public Accounts committee

- The Department is too complacent about potential disruption or interruption to trade

- Fundamental issues for food, chemical and animal importers and exporters remain

- Inadequate engagement with businesses means SMEs in particular are ill-prepared

REPORT SUMMARY

The Department for Environment, Food & Rural Affairs (the Department) faces enormous challenges in the lead-up to EU Exit and, with the deadline of 29 March 2019 looming, still does not know which scenario it is preparing for. 

There is a high level of risk in the Department’s portfolio, with many of its plans dependent on co-operation from other departments, the devolved administrations and agencies and the goodwill of EU member states. 

The Department is too complacent about the levels of disruption or interruption to trade that may be faced. Fundamental issues for food, chemical and animal importers and exporters are yet to be resolved.

Many businesses have not been given detailed advice on what is required by EU Exit, as the Department has had very limited engagement with stakeholders until recently.

Six months since we last reported in May 2018, the situation for the Department’s stakeholders has changed very little, as the Department’s preparation for EU Exit continues to be complicated by its need to work on a range of solutions for different scenarios.

It has now established a new directorate for business readiness and engagement but its focus has been on industry and representative groups which means that individual businesses and organisations, in particular SMEs remain unaware and ill-prepared.

This is all too little, too late and it is particularly concerning that the Department’s ability to impart specific information has been hampered by excessive secrecy at the centre of government and continuing uncertainty over the outcome of the negotiations. 

The Department has made good progress in drafting the 86 statutory instruments it must prepare, with three-quarters of them either fully drafted or near completion. But in its efforts to rush through the drafting, we remain concerned about risks to quality. 

The amount of parliamentary time that these, and those of other departments, will require is daunting. Cabinet Office needs to ensure that those of the highest significance across government receive greatest priority but that all receive adequate parliamentary scrutiny ahead of EU Exit. 

With the pace at which new legislation will have to be agreed we are seriously concerned about the level of scrutiny.

We need the Department to be clear about the impact of not being able to make the necessary legal changes in time. Muddling through in the hope of goodwill is highly risky and means many businesses are left not knowing what the future will bring.

COMMENT FROM PAC CHAIR MEG HILLIER MP

“Brexit looms but the Department for Environment, Food & Rural Affairs is a long way from being ready.

“In the continued uncertainty about the UK’s future relationship with the EU, Defra’s civil servants must prepare for multiple and in some cases ill-defined scenarios.

“Anyone working in the dark is prone to stumble but in Defra’s case I am concerned that the Department has lost sight of its priorities. 

“The risks associated with ‘no-deal’ in particular are severe, and it is alarming how little specific information Defra has provided to enable individual businesses and organisations to prepare.

“Brexit border planning is not sufficiently developed, six critical IT systems are still to be tested and there is a risk that in the Department’s rush to prepare necessary legislation, the quality of that legislation will suffer.

“Defra is up against it but there is more it must do to assure Parliament, businesses and the wider public that it has a firm grip on its responsibilities.”

CONCLUSIONS AND RECOMMENDATIONS

In a no-deal scenario there is a risk of UK exports of animals and animal products being delayed at borders because of a shortage of vets. In the event of a no-deal Exit, the UK’s continued exports of animals and animal products to EU member states will for the first time need to be accompanied by export health certificates. These certificates currently have to be signed off by vets and the Department estimates that the equivalent of around 50 additional full-time vets will be needed to cope with the extra volume. Individual vets would probably take on such work on an ad hoc basis alongside their existing work, so the actual number of people required will be many more than 50 and the Department is cavalier about enough suitably qualified staff to take on this work being available. It believes that the training investment of around six hours online would not be a barrier to uptake, and that its requirements can be easily sourced from a pool of over 6,000 potential candidates in the private sector. However, the Department has failed to consider the geographic distribution of vets and their willingness to take on this additional work. At present the UK only allows this work to be undertaken by vets and although the Department is discussing this with the Royal College of Veterinary Surgeons no resolution has been reached that would extend the candidate pool. We are concerned that the increased demand for veterinary services will increase costs to UK exporters.

Recommendation: The Department needs urgently to develop a credible plan for increasing vet capacity for export health certificates that does not add to exporters’ costs including addressing concerns around coverage across the country and whether it is appropriate or possible for non-vets to sign off health certificates.

The Department is too complacent about the risk of disruption that UK chemical exporters could face in a no deal scenario. It is relying on the EU’s goodwill to help minimise any interruptions to trade. Under a no-deal Exit the registration of UK chemical products on the EU’s REACH system will no longer be recognised. Companies would not be able to continue exporting their products to EU member states until they had re-registered their products with the EU. We are concerned that the Department has underplayed what re-registration involves. It is dependent on the European Chemicals Agency delivering on its promise to open up the registration process to allow sufficient time to process the re-registrations without creating a hiatus in trade. The goodwill that this relies on may not be forthcoming if there is no deal, particularly if no deal results in a dispute over the financial settlement. There is also likely to be a spike in re-registrations following EU Exit, as UK manufacturers all seek to re-register their products as quickly as possible. In addition, manufacturers will incur costs for re-registration that the Department estimates at between £200 and £1,200.

Recommendation: The Department and the Health and Safety Executive need to provide realistic, honest advice to chemical manufacturers about the implications of a no-deal exit, including the steps manufacturers need to take to re-register their products with the EU, and the possible interruption in their ability to trade with EU-27 countries.

There are increased risks to food safety and of smuggling as a result of the Department’s plan to allow food imports to pass through UK ports without checks following EU Exit. In the event of a no-deal Exit the Department intends to prioritise the flow of food imports in the first instance. This means that it will for a period following EU Exit continue to allow food imports from the EU to pass through UK ports without checks, and hopes that the EU will reciprocate this arrangement for UK exports.  The Department concedes that its approach will add to biosecurity and food safety risks but says it has to balance the need to preserve the flow of goods against maintaining food standards and safety. This approach may also lead to an increased risk of smuggling if unscrupulous traders take advantage of the lax approach to border control.

Recommendation: The Department needs to commit to a timeframe for implementing pre-notification and full checks of EU food imports at UK borders.

The Department’s engagement with industry stakeholders has been too little, too late, insufficiently focused on SMEs and hampered by excessive government secrecy. The Department argues that engaging with stakeholders at an earlier stage, whilst there were still a wide range of possible scenarios in play, would have been confusing and counter-productive. The Department sought permission on several occasions from the centre of government to communicate more freely but was prevented from doing so. It now has detailed plans for engagement to be rolled out, but many businesses feel it is “too little, too late” and that opportunities to keep businesses informed have been missed. The Department acknowledges this, but claims to have provided coherent messages, based on what is likely. The Department has used the staged release of government technical notices from August as the starting point for more detailed communication activities as these remove government constraints that have restricted its ability to talk openly with stakeholders. In previous discussions, the Department has been limited by confidentiality concerns and has even used non-disclosure agreements in discussions with, for example, the British Retail Consortium on areas where there are commercial or government sensitivities, such as border arrangements. The extent to which such agreements have been used is not clear. In response to concerns, the Department has recently established a new directorate for business readiness and engagement, but this step-up may not be sufficient as it is planning to produce guidance on re-registering chemical products in November 2018, only four months before Exit. We are concerned that the Department has been over-reliant on engaging with industry and sector groups rather than individual businesses and organisations and that SMEs in particular may be disadvantaged by this approach.

Recommendation: The Department needs to limit the use of non-disclosure agreements to commercially sensitive discussions. It should urgently step up its communications with businesses and other stakeholders on what they need to do to prepare, particularly with SMEs that are not affiliated to industry bodies.

The Department has very little time left to get the necessary statutory instruments (SIs) on to the statute book in time for EU Exit, putting quality and parliamentary scrutiny at risk. The Department faces a huge challenge to have in place all of the necessary legislation to prepare the UK for EU Exit. It is one of the most affected departments and must lay 86 SIs by the end of January. The Department is confident that it can meet this challenge and has made a lot of progress since June, with over three-quarters of the SIs fully drafted or close to completion. However, this leaves around 20 that still require considerable drafting effort. The Department tells us it has worked hard with the devolved administrations over the summer to overcome hurdles and has set up an operations room that aims to unblock issues within 24 hours. It claims this has accelerated the drafting process without compromising on the quality of decision-making. The Department has recruited staff into this area of work from external and internal sources to ensure the deadline can be met. However, we remain concerned about risks to the quality of drafting given the speed at which the Department is having to act. We are also concerned about the amount of time available for parliamentary scrutiny given the volume of legislation across government that needs to go through parliament. The Department reports that most of its SIs are relatively straightforward – only two contain changes that require consultation – but very long (some up to 150 pages) with a lot of technical detail, so a backlog could build up very quickly. 

Recommendation: The Cabinet Office should prioritise EU statutory instruments across government to ensure the drafting of those of highest priority is completed to the proper quality standard, and that there is time for proper parliamentary scrutiny ahead of EU Exit.

The Department is continuing to expand its workforce rapidly and, with time running out, is now having to take shortcuts in its recruitment and training of staff. For example, the Department needs to strengthen its capacity to patrol English fishing waters. The training programme needed for Marine Enforcement Officers has been front-loaded to a three-month intensive period rather than being carried out over the usual twelve months. In addition, given the need for increased veterinary capacity to process export health certificates in a no-deal scenario, the Department is looking into using non-vets to do some of the certification work.  The Department recruited 1,300 staff in 2017-18 and aims to recruit a further 1,400 during 2018-19. It said it is about halfway through this process. We are concerned by the numbers needed and the availability of suitable staff. Many of these staff are relatively new and inexperienced graduates. The Department says that it is bringing experienced staff in from its agencies and that new staff are being deployed for less challenging ‘business as usual’ work, whilst experienced staff are focused on EU Exit work. This approach raises the risk that the agencies may become exposed if their essential skills and experience are depleted.

Recommendation: In its response to this report, the Department should set out how it will ensure that all posts, including those unrelated to EU Exit, are staffed by people who are fully trained and with the right skills and experience to maintain quality of work and workforce well-being.

The Department still has an enormous task leading up to EU Exit, including completing six critical IT systems that have not yet been tested.One of the six IT systems is the new import notification system, which will be used to manage food imports after Exit. The Department is confident that it will have a functioning system in place for a potential exit without a deal in March 2019, although it says manual workarounds may be needed. It is planning to start testing this system in January 2019 and this will inevitably throw up new issues and put increasing strain on the likelihood of it working in time. The Department is planning to test a number of its systems simultaneously early in the new year, so there is a risk that a high volume of issues will arise that the Department will have little time to address. The Department has been pragmatic in prioritising the most essential functions for March 2019 but has left building more enduring systems to the longer term.

Recommendation: The Department should provide us with an update by the end of December 2018 on whether the key IT projects are on track for testing in the new year and a further update in January on the results of the testing.