Brexit trade barriers to cost UK e-commerce firms £5bn a year, report warns

New red tape and charges causing ‘major problems’ to 35 per cent of traders relying on parcel deliveries

Barriers to trade caused by Boris Johnson’s Brexit deal are set to cost UK e-commerce importers more than £5 billion a year, a new report has warned.

The introduction of new Brexit red tape and VAT charges from 1 January has already caused “major problems” to 35 per cent of retailers and traders importing from the EU, with large numbers of parcels blocked or returned and deliveries cancelled, said the report by international delivery company ParcelHero.

And the crisis also affects parcels travelling between mainland Britain and Northern Ireland, with 38 per cent of companies which send goods on the route reporting reduced deliveries in the run-up to the scheduled 31 March expiry of awaiver agreed with Brussels on customs declarations on parcels, the report found.

The warning came as the UK faces the threat of legal action from Brussels for declaring it will breach the Northern Ireland Protocol by unilaterally extending the “grace period” for checks on parcels and supermarket deliveries to October.

The announcement prompted the European Parliament to postpone the planned ratification of Mr Johnson’s Christmas Eve Trade and Co-operation Agreement (TCA) with Brussels. And European Commission vice-president Maroš Šefčovič, has said that “infringement proceedings” are being prepared and are “coming to our table very soon”.

But challenged over the crisis by The Independent, Mr Johnson told a press conference on Monday that he was “optimistic” that the row over grace periods could be “sorted out  … with goodwill and with imagination”. He continued to describe the obstacles faced by traders as “teething problems”.

The new report found that unless barriers to e-commerce between the UK and EU are overcome, a 35 per cent drop in e-commerce imports is “likely”, equating to a £5.25bn hit to UK importers in lost sales and extra costs.

Problems include new tariffs on items made outside the EU which are brought into the UK from the 27-nation bloc; onerous new requirements to provide “proof of origin” documentation; the rejection of consignments at customs due to incorrect paperwork; and confusion over VAT rules which can see recipients of parcels charged 20 per cent tax.

The report found growing stockpiles of returned items, such as clothing, building up because it is now cheaper to write them off than take them back if rejected by consumers.

And it said that most international couriers have introduced charges of £4-£11 a parcel for any shipment crossing the EU/UK border to cover the additional cost of trading, “dramatically” pushing up the final price paid by UK shoppers.

It recommended the removal of a 12 per cent tariff on all clothing with a value of £135 originating outside the EU or UK, currently imposed when the parcel is moved between the EU and UK.

ParcelHero head of consumer research David Jinks said: “The government’s Brexit rollout is going to hell in a handcart. The prime minister must return to the negotiating table to sort out the escalating issues facing the UK’s beleaguered retailers.

“ParcelHero’s new report reveals that the crisis around ‘proof of origin’ – where exactly an item was made and sourced – means 35 per cent 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 per cent drop in e-commerce imports, which will cost UK importers £5.25bn in higher prices on goods, lost sales and border fees.

“To add to Britain’s Brexit woes, the government is now facing legal action by the EU after it unilaterally decided last week to extend the grace period on parcel checks and agri-foods at Northern Ireland borders until October.

“Clearly, the introduction of new checks and potential tariffs on parcels sent within the UK itself is ludicrous. What we did not envisage was that the government would simply kick the problem into the long grass, without even agreeing to a delay with our EU trading partners.

“The EU could now take the UK to the European Court of Justice or push for arbitration under the terms of the EU-UK trade deal. Either action will do little to smooth the increasingly testy relations between Britain and Europe.

‘In the case of both EU-UK e-commerce imports and Great Britain-Northern Ireland parcel shipments, the big problem is new tariffs on products originating outside the EU or UK. Clothing valued at over £135 is likely to incur tariffs of around 12 per cent, for example. This is certainly not free trade. Axing this requirement would eliminate the need for checks on the majority of parcels and resolve most of the areas of disagreement between Britain and the EU.”

A UK government spokesperson said: “The figures in this report are outdated, however we know that some businesses are facing challenges with specific aspects of our new trading relationship. That’s why we are operating export helplines, running webinars with experts and offering businesses support via our network of 300 international trade advisers. 

“We have set out temporary, operational steps, which largely continue measures already in place, to provide more time for businesses such as supermarkets and parcel operators to adapt to and implement the new requirements in the Northern Ireland Protocol. These are lawful and entirely consistent with a progressive and good faith implementation of the protocol.”