Brussels has demanded that Britain pay billions of pounds in duties over an alleged customs fraud that risks further discredits Theresa May’s beleaguered Chequers plan for Brexit.
The European Commission announced on Monday that the UK had two months to pay £2.4 billion, plus interest, in unpaid VAT on cheap Chinese clothes and shoes or face huge daily fines at the EU’s top court.
The final warning before the UK is referred to the European Court of Justice was issued days after EU-27 leaders issued a humiliating rejection of the hard-won Chequers plan at an EU summit in Salzburg on Thursday.
Britain ignored repeated warning over the risk of fraud on Chinese shoes and textile imports, the commission said, and failed to take effective action, which meant customs duties were not collected and paid into the EU budget.
A British government spokesman said, “The UK does not accept liability for the alleged losses or recognise the estimate of alleged duty evaded. We take customs fraud very seriously.”
Olaf, the EU’s anti-fraud agency, has accused UK importers of evading a "large amount" of customs duties by using fictitious and false invoices and incorrect customs value declarations on cheap shoes and clothes from China travelling to the EU through British ports.
There was a "dramatic" increase in the scale of the fraud between 2011 and 2017, it said.
The case is particularly sensitive because the Chequers plan involved UK officials collecting VAT on goods travelling through Britain on the EU’s behalf after Brexit and passing on the revenue to Brussels. The EU has ruled out “outsourcing” EU duties collection to Britain.
The EU legal action was expected last week but was pulled to spare Mrs May’s blushes. The prime minister was about to address EU-27 leaders in Salzburg to try and sell Chequers but those efforts failed in spectacular fashion.
Mrs May declared that the Brexit talks were at "an impasse" on Friday before today’s announcement of the commission’s final warning.
"The United Kingdom is liable for the financial consequences of its infringements of EU legislation," the commission said on Monday. Britain was breaking EU law by not making the customs duties available to the EU budget, it added.
The UK argues that using the average EU clothing price to calculate the lost customs is not fair because clothes are cheaper in Britain and so the duties due would be less.