Firstly, I’m no expert. Most of what I know about this issue is contained within the text below, in which there will be mistakes. I may get in a muddle on certain details but I think the broad thrust will be correct. It’s an issue I’ve been mulling over the past six months since I heard how quickly and completely the UK may end up exiting the UK. My immediate thought back then was: hang on, what about all the IT systems, the EU wide systems the UK uses and so will have to implement its own of, and UK systems’ integration with EU systems and the implementation of EU rules in UK IT systems which will no longer apply post exit? And then my next thoughts were: is there enough time for this work? And if failure results in a breakdown of these systems what are the consequences? And then I wandered what these systems might be? The most obviously impacted one I thought must be government customs, surely this isn’t paper based any more? And so the ‘mulling’ began, and I’ve been mulling since, so this is likely to be long. Apologies in advance... but like I say, I ain’t no expert - so if you are, or at least can counter any of the below then (well, generally as with most people I prefer to be right but in this case) PLEASE DO!
We'll take it as read that the UK will leave the customs union and single market two years post article 50 notification. And there’ll be no transitional period during which systems can be adapted to the new rules of trade between the UK and most of the rest of the world. The falling off a 'cliff edge' Brexit. Maybe that won’t be the case but it’s looking increasingly likely. If that were to happen then the biggest problem will not be the new, more cumbersome, slower, expensive etc routes to trade as a result of implementing whatever new rules there may be in terms of tariffs, quotas, customs checks. There is a much greater upheaval from the disruption caused in attempting to transition to that new and shittier state, in attempting to adapt customs systems and processes and facilities to the new rules in the extremely limited time there'll be available. Because there won’t be enough time.
I keep reading articles about ‘cliff edge’ brexit scenarios, where the UK falls on to WTO rules (although many of those rules will be undecided e.g. quotas), how there’ll be extra red tape, how much more expensive imports will be, and the added uncompetitiveness of UK exports due to tariffs and the disruption to supply chains due to the extra customs checks causing some manufacturers to move their production out of the UK and so on and so on.
Articles like this by Nick Clegg:
http://www.cer.org.uk/sites/default/files/Brexit_International_tradeClegg_8Sept16.pdf
...or this one from Richard North about the dangers of the ‘WTO Option’: http://leavehq.com/blogview.aspx?blogno=128
Richard North is a leave supporter who has always argued for a gradual exit by first re-joining EFTA through the UK’s existing EEA membership.
And here’s a typical one (an extract from a forthcoming book): https://inews.co.uk/essentials/news/politics/hard-brexit-cliff-edge-vision-leaving-eu-without-deal-imagined/
What none of them take into account, what no one as far as I can see is taking into account, is that in order to get to this new state, work needs to be done! There is not enough time to do this work. So as bad as those ‘worst case’ scenarios look, what will make them even worse will be a situation in which the UK government’s customs systems simply do not work as a result of failing to implement in time the changes needed for the UK’s new trading environment. No one is asking what the systems’ implications, dependencies, costs and timescales of re-introducing hard customs borders with the EU are, whether it is even possible to do this in the time available, and what the consequences of failure will be. Google it. Seek and you will not find. In a sense the arguments made in those articles by Clegg and Richard North and so on, and generally arguments for or against whatever trading arrangements there may be post hard brexit are all moot. It’s a bit like arguing the pros and cons of life on Mars when the only means of getting there is to stuff yourselves into a giant cannon roughly aimed at that red planet. There is no time to implement those new trading arrangements. You ain't gonna get anywhere near Mars however nice or not it might be to live there.
We are talking here principally about IT systems and the failure of a number of systems of vital infrastructural importance to the UK economy. Systems in the finance sector, supply chain systems, but particularly government customs systems. So before we begin I’ll just get one potential counter argument out of the way. This is not another Y2K scare story. Firstly Y2K was not just a scare story. It would have been a problem if the work hadn't been done. The work got done. It was a very widespread issue but you could have trained monkeys to make most of those code changes. It was basically the same simple fixes made over and over in loads of different places. OK, sometimes finding the problems (e.g. embedded systems) was hard, but there were no changes to business rules - just fixes to code. A programmer or analyst would not have needed to ask a domain expert (accountant, banker, tax consultant, or whoever the system is for) if some date in a calculation is supposed to wrap round to 1900. It was mostly all at the code level, and similarly, although to a lesser extent, so was the euro introduction. With Brexit though, the rules are changing... and no one yet knows to what, all we know so far is that Brexit means Brexit. This problem is fundamentally different to Y2K.
So to customs systems, what do they do? Customs processing in the UK is presently handled by a system called Customs Handling of Import and Export Freight (CHIEF). HMRC’s CHIEF system manages the declaration and movement of goods into and out of the UK, calculating and collecting revenue thereon. It is also (for the time being at least) a means by which UK traders communicate with counterpart customs systems in other EU states. It also (again for the time being at least) connects with the EU’s Import Control System (ICS), which allows the sharing of security and safety data regarding the movement of goods among member states. Furthermore, it is integrated with the goods scheduling systems at UK ports and airports (pause and ponder for a moment here… integrated with goods scheduling systems in every UK port). I’m told Dover has an average goods in waiting time of 40 minutes… well for the time being at least.
What is the current state of these systems? CHIEF was not written yesterday by teenagers in javascript using node js. You can’t download the source from Github. You can't run it on your phone. You look at it via special green screen terminals. It’s written in dun-dun duuuun… COBOL! Its communication protocol is EDIFACT. Its DBMS is IDMS(X), and OS is VME - both from ICL. ICL went out of business 15 years ago! This is 80s technology! It’s a completely different world to the one most developers nowadays are accustomed to. For several years HMRC had been throwing cash (around a billion maybe) at CapGemini and Accenture for a ground up rewrite (anyone who knows anything about large legacy IT systems should shudder at the phrase). It came to nothing. They are presently part way through another re-write attempt this time with IBM. This new system is called the Customs Declaration Service (CDS) and was made necessary due to CHIEF becoming unmodifiable and the wide ranging changes needed to implement the EU's new Union Customs Code (UCC).
UCC is a common set of customs processes to be adopted by all EU members.
https://www.gov.uk/government/collections/customs-handling-of-import-and-export-freight-chief-replacement-programme
CDS is due to come online early 2019, a few months before the UK's currently projected EU exit date. This is already an at-risk project. The risks of a ground up rewrite are enormous; an existing system will have had years of real life testing by users. Systems become increasingly difficult to change mostly due to the complexity arising from an accretion of fixes and enhancements so developers start crying for a re-write as most want to write new stuff - not fix some other chump’s work. The existing system would need to have been fully documented, and that documentation painstakingly kept up to date for all the years’ worth of subsequent modifications because that documentation is the source of truth for what the current system does, and so what the new ground up rewrite may need to do. Even without brexit we’re looking at a car crash here.
So what work would need to be done should the UK leave the customs union and single market after the two year article 50 period? With no replacement, EU-UK trade agreement tariffs will be applied by the UK on EU goods entering the UK. This it will have to do under the WTO's most favoured trading nation rules (MFN) unless the UK unilaterally drops all tariffs. Competition from third world countries would gut UK industry and agriculture so setting all tariffs to zero is unlikely. It also leaves the UK with nothing to bargain with in order to reduce the tariffs on its exports, so again, unlikely. And likewise by the same MFN rules the EU will be obliged to charge tariffs on UK goods being sold in the EU. This introduces a change in how the UK conducts over 40% of its international business. However it will result in a greater than 40% increase in the number of declarations being fed through whatever customs system the UK may have (CHIEF or CDS) once exit finally happens because many small businesses will have taken advantage of the ease and simplicity of trading within the EU as opposed exporting out of it (see also for example how VAT works for inter-EU trade as opposed importing in to the EU from out). However as well as the change in rules for UK/EU trade and the necessary scaling of the system to meet the increase in data throughput, there are also changes needed for trade between the UK, and other trading blocs and non-EU countries. This is because the EU, over the decades, has negotiated, on behalf of its members, 40 or so trade agreements, which on exit the UK will no longer be a party to (it will have no trade agreements). So basically the rules which govern how the UK trades with the entire world will change. That’s quite a wide ranging set of changes, it kinda looks like everything this system does will need some sort of amendment.
So a lot of work to do but what track record does the UK government have for delivering large IT projects in time and within budget? As per IT projects for most governments and large companies, pretty appalling! We’re talking years of overrun and manned mission to Mars scales of money wasted.
UK government IT project fails:
- E-Borders:
- Half a billion spent over several years.
- Abandoned.
-
The BBC’s digital media system:
- A billion spent over several years
- Abandoned due to becoming obsolete, while still being developed!
-
NHS Connecting for Health:
- Mostly abandoned but some parts continued.
- Ten years.
- 12 billion spent.
- 10 billion over budget.
-
The Universal Credit System (Brexiteer extraordinaire Idiot Dumb Dumb Smith's baby):
- A whopping 12.8 billion since 2013.
- 2.2 billion originally planned.
So, a lot of work to do and not a great track record when it comes to delivery on time, and within budget. So what time might be available to complete this work? On the issue of scaling for the increase in declarations HMRC have said they are already doing this. It is after all something they can do now and adapting a modern system (the CDS system currently under development) for a greater load is not so much of a problem, servers can be added to meet the demand as and when. Scaling the existing CHIEF system would probably be a non-starter. However it’s likely that CDS will overrun and not be ready in time for brexit, in which case HMRC may have to start looking at updating CHIEF. Oh boy. The single article I’ve seen on this topic area (and I check everyday) in the mainstream media was in the FT, and the problem was couched solely in terms of this (i.e. the need to scale the system for the increased load). The reason being is that HMRC have announced that this is work they are doing and so the FT dutifully reported it. What HMRC haven’t said is what work they are not doing. The work they are not doing is modifying systems for the changes that will come in terms of tariffs, quotas, customs checks for valuation, rules of origin and security - particularly if the UK is no longer a participant of the EU’s ICS. And of course being journalists it hasn’t entered their pretty little humanities degree heads that this is work that will need to be done... or perhaps they imagine the magic code fairy will descend from the heavens on exit day’s eve and with a wave of the wand all this work will be finished in an instant.
Work relating to the new rules of trade can only start once negotiations are complete. It isn’t until the negotiations are done and any agreements signed that there can be any surety and clarity on what those new rules are then, from which technical specifications can be drawn up (i.e. scribble something on the back of a fag packet to hand to the programmers). So if those negotiations take no time at all then the developers would have the whole two years allowed by the article 50 process (which would still be suicidally tight). If on the other hand, negotiations use up the entire two year period, then they have a remaining zero seconds to complete the work. I would tend toward the latter. Quite a challenging deadline, and particularly so for a government IT project.
What is the likelihood of failure? Doh! The situation is analogous to an army on the move (i.e. customs systems are being moved from the old CHIEF system to the re-write that is CDS). This army on the move is about to be ambushed (because there is no time to prepare) by an overwhelming force, because there doesn’t appear to be much that this system does which won’t in some way need changing (i.e. every function point will be under attack from a hail of change requests). There is no fallback system in the case of failure. In those other examples of failed government IT projects the existing system could continue to be used, but in this case not so, unless perhaps the UK accepts Schengen, the euro currency, and pays the full EU dues. Also in those other IT failure cases, if the project overran then they have the option to continue plugging away until the money runs out. Hard Brexit on the other hand delivers a hard deadline. Once you are out you are out, pencils down, times up, whether you’re finished or not. Which all makes failure more assured.
There are further exacerbating factors which make failure all the more likely. E.g. the time constraint imposed by not being able to start work on the changes, which won’t be known until negotiations are complete, which are unlikely to leave enough time (or indeed any time) for those changes to be made. This somewhat challenging zero seconds time constraint won’t just apply to government customs systems. Other government systems e.g. immigration and business supply chain and transport systems might be affected too. Crucially though, financial systems. If you google news about Brexit with the word ‘transition’ (i.e. a transition period to give time to implement the required changes), you will find it is nearly always financial services doing most of the crying here, and it is mostly that crowd who have the treasury’s ear. The rules will change and I think part of the naiveté from many people is that they seem to believe that all is required is a change of rules. A new contract with the EU. Negotiations to arrive at those new rules. Write them all down in a new contract. Tear up the old one. Job done. But not job done. A bit more work needs doing here. The machine that civilisation now runs on is made of rules. Those rules need to be encoded into the systems which run an economy. Civilisation runs on working code (though in many cases no one is quite sure what a lot of it does anymore lol). Finance nowadays is almost wholly composed of IT. Financial service companies do not spend their time counting physical coins and notes then arranging them into neat little piles. So, the IT systems in these businesses are somewhat prone to rule changes. And these businesses are more able to pay a higher price to get whatever work needs doing done. Obviously government IT isn’t going to be a winner in the competition for resources here, so that’s the exacerbating problem.
But another thing that makes failure more likely is the apparent invisibility of this issue. This isn't in the news because of some conspiracy. The main reason it doesn’t appear in the media is largely due to the kinds of people (either for or against Brexit) involved in the public discussion. Journalists, economists, politicians, business leaders. These people do not do not do detail, they only see the ‘bigger picture’. Very few will have written a line of code ever. IT systems are rarely part of anyone’s bigger picture regardless as to how fundamental they are, and for some problems if you only see the bigger picture, you are not seeing the problem at all. The devil isn’t so much in the detail but a whole screaming horde of them are waiting for the gates of article 50 to open. If no one in power, or no one in the media, can see or understand the problem then nothing will be done to prevent or ameliorate it. Further, those in power are unable to accept there may be problems in implementing Brexit - they only want to hear good news about the opportunities it will deliver, and their underlings do not want to be the bearer of bad news for fear of being branded as against ‘the will of the people’ (there was an article in the guardian about that very thing recently).
What are the consequences of failure? A broken customs system. A broken system which plays a key role in coordinating the flow of goods through every one of the UK’s ports and airports. From what we have to go on here, gridlock and total chaos for however long it takes to get things fixed because there is no possibility of reverting to the ‘earlier build’ unless you go begging to the EU to be let back in. And it doesn’t take much in terms of additional delay to each container in order for a queuing system to gridlock... and it won’t take long for a gridlock on this scale to lead to some very dire circumstances. When the UK lorry strike occurred in September 2000, it emerged that due to the highly efficient just-in-time logistics, hardwired into the UK food system, supplies were an estimated 3-5 days at any one time.
The most dire consequences of a prolonged breakdown in customs IT will be to the UK food system. There isn’t anything more fundamental to the life and well being of a population than its supply of food. Obviously. This system failure will be one contribution of five in a perfect storm. The UK is 40% dependent on imports for its food. For some food stuffs you’re more dependant on imports than others, particularly the good stuff for health - fresh fruit and veg. The UK exports whisky, biscuits, fat and meat... but the combined Brexit related blows to the UK food system, I’ve seen many articles on them individually but few on their combined effect, they are as follows:
Sterling took a hit and a rather sustained one after the referendum. So it doesn’t seem unreasonable to predict another step drop on triggering A50 and again once you actually... finally... leave. The full effect of a currency drop takes time to work through supply chains before hitting consumer prices. As stocks bought when the pound was higher run out, as currency hedge funds deplete, and as the first among competing suppliers blinks and raises prices before the rest follow suit. Higher prices for imported goods over months are slowly inching their way from the price of containers at one end of the world to the prices on the supermarket shelves at the other. And that includes the price of food, or at least the 40% of it the UK imports. However the homegrown 60% is not immune as costs of imported machinery, fertilisers, and fuel rise. Sterling has so far proven to be very sensitive to the Brexit issue, whenever it looks like the idiocy will be soft the currency goes up a little and whenever a hard idiocy looks likely it goes down. And as the penny drops that a hard brexit will be more calamitous than anyone so far has predicted then… the penny will drop even further.
The UK’s food system is migrant labour dependent. There wouldn’t be much UK fresh fruit and veg if it wasn’t for foreign pickers, storage, and distribution workers. Some crops are more labour dependant than others - for example picking soft fruits like strawberries; not an easy thing for a machine to do. The restrictions that will be placed on EU citizens' ability to work in the UK will lead to a labour shortage which in turn puts a further upward pressure on food costs. The slump in currency is already making the UK a less attractive place for EU workers as they ain't getting a lot of zloty for their pound sterling like what they used to leading to... labour shortage... further upward pressure on food costs. And on top of that people aren’t too keen on having the shit kicked out of them for speaking in their own language, making the UK an even less attractive place to migrate to for work, or just to visit, or even look at.
EU subsidies make up 55% of UK farming income. Will subsidies stay? Most pro-Brexit politicians are ideologically opposed to subsidies strongly believing in the “free market” i.e. no subsidies - if an industry fails, let it. Secondly, the UK needs to negotiate new deals - not just with the EU but with all the countries and trading blocs the EU had negotiated accords with on behalf of its members over the past four decades. The UK is just a tad smaller than the rest of EU (and consequently so is its bargaining strength), will be rather desperate for trade deals (because it won't have any), and a little out of practice and under resourced when it comes to negotiating such things (because the EU has been doing that work for its members). And farm subsidies might be seen by any negotiating partner as giving your industry a bit of an unfair advantage so there may be some (i.e. a lot of) pressure to drop them. So the 60% of home grown food the UK produces may take another bit of a hit when the loss of subsidies makes a lot of farms no longer a viable economic option.
The imposition of new tariffs but also the disruption to supply chains caused by non-tariff barriers (NTBs). NTBs such as goods inspections to check for regulatory compliance. Security checks which there may need to be more of if the UK is no longer part of the EU’s ICS. And to ensure right amount of duty is charged there now needs to be the systems and processes and infrastructure and people in place to value and determine the origin of goods (and origin checks are not a small task given stuff tends to be made of parts from a variety of places). Granted, these things are already being done, but aren't and haven't been done for trade between the UK and other EU countries for some decades. And given the volume of that trade this amounts to a big change, a huge new source of disruption and delay. Supply chains snake back and forth across national boundaries over the EU in many industries and food is no exception. Millions of food contracts depend on cross continental supply chains. It’s why roads are clogged with food wagons. Extra checks and administrative hurdles between the UK and EU will disrupt or even destroy many supply systems particularly so for time critical consignments like fresh fruit and veg. How will, for example, cabotage arrangements survive post UK exit? I just wanted to throw that word in there because I like it, cabotage. It sounds like a portmanteau of cabbage and sabotage so kind of apt.
The subject of this article. The disruption as a result of system failure brought about in attempting but failing to implement changes that will bring about the situation outlined in point 4. The fifth and final blow. The knockout punch.
However it gets worse. I keep reading articles and quotes about how idiots who voted for idiocy may react if they don’t get the stupidity they voted for. A related question that hasn’t been asked is this: how will those who voted against it, who have had to put up with ‘shut up and accept you lost’, and been told how wrong they are because the most dire predictions didn’t come true post referendum, told by by people seemingly unaware that those predictions were predicated on an immediate article 50 notification etc... what might the reaction be here particularly towards leave supporters if things turn out a lot worse than anyone imagined?