My Lords, I have tabled an amendment to this Motion, and speak very much as the chair of your Lordships’ EU Energy and Environment Sub-Committee. We deal with Defra issues. We issued a report on Brexit and the chemicals industry which has not yet been debated on the Floor of the House, so that is why I want to bring up some of these issues here.
I will give a little background about the chemicals industry, because it is key to this debate. It is the second-largest manufacturing industry in the UK, after food processing. It has a total gross value added of something like £12 billion. It is extremely dependent on trade: some 60% of its output goes to the EU and some 80% of our chemicals imports come from there. It employs half a million people. Not just the chemicals industry but a huge proportion of industries in this country use chemicals in their supply chains. Therefore, it is not just the chemicals industry that is affected by this but all those other businesses that use chemicals in their processes, particularly those that are downstream in the manufacturing process. They do not import, export or manufacture chemicals themselves but they use them, so they are affected by the REACH regulations.
I will be more critical than I usually am, as chair of the committee. The committee found—and felt very strongly, if I am honest—that Defra was not on the front foot on this issue. Understandably, Defra focuses on agriculture, fisheries, flooding and stuff looked at by the Environment Agency; the EA obviously has a role in this. When we had Ministers and senior department officials in front of us, we felt very strongly that they did not understand the gravity, timescale and effect on industry of coming out of REACH. That is not the case now, but perhaps this SI is an example of trying to catch up and lay a statutory instrument that is sufficient for the industry’s needs, but not being able to do that quickly enough.
I will talk a little about the European Chemicals Agency. To give your Lordships an idea, it has 500 staff, a budget of around £100 million, and 21,000 registered substances, of which only about 5,000 are registered by UK companies and organisations. That is a serious
operation. What I want to come back to is that all of its functions will now have to be replicated in the United Kingdom. That is essential after Brexit. There will still be 21,000 chemicals that the UK will want to use, which will have to be authorised, recorded and checked up on, to make sure that the regulations are applied.
The committee very much welcomed the Prime Minister’s view that we should remain part of the European Chemicals Agency. We agreed with that very strongly. But of course that is not possible if we are not in the single market or a member of the EU or EEA. That is just not on offer. We asked many times what the Government have managed to negotiate further with the EU on this. They are not able to, because the EU will not do that. It is not in the Government’s power to arrange that pre-Brexit, unfortunately. That is the situation: we cannot be part of the chemicals agency and the REACH regime if we are not part of the single market.
The committee was also struck by the absolute unanimity of the whole industry, NGOs and the scientific community—far more than on any other subject we have looked at, whether fisheries, biosecurity or food supplies—that we should try still to be part of the European Chemicals Agency; or, if not, we should have total alignment with its decisions, however we manage to do that.
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My first question, coming back to those resources, is: how on earth can the HSE actually cope with this demand and need, this way of keeping the chemical industry and all those that are part of the supply chain actually moving? I understand that there is an extra budget of £13 million and that some 35 to 40 extra people are being recruited, but that is minuscule in comparison with the resources of the ECHA as it is at the moment. I would be very interested to hear from the Minister how that recruitment is continuing.
The committee has found from other areas that IT systems are often thought about rather late on in the Brexit process. I welcome the fact that the systems are in place, as I am sure the committee does, but in effect all we have is an empty spreadsheet. It cost us 5.8 million quid, but hey, we have a spreadsheet that is ready to operate but, I presume, completely empty. Industry has two years to fill it up, but one of the naive points that came over from the department was that it seemed to be under the impression that, on Brexit day, you could just paste all the information off the European system on to the British system and it would work. That was what the Minister and senior officials talked about. That forgets commercial copyright and intellectual property. In the end they agreed that this just could not happen. Yes, we have a two-year grace period, but it still means that all those businesses inside and outside the UK will have to fill that spreadsheet with the full details of those chemicals. That might be okay for those that are UK-owned, but a number of them are owned by more than one company, so all the UK registrations probably have EU companies as well where those intellectual property rights will be equally important. Reregistration will be a very difficult and expensive task.
I will quote one thing from our report, from a witness who approached a Conservative member of the committee. Their company has 50 products on the EU market and they set out the cost indications of leaving REACH:
“‘Even under a soft Brexit costs will increase because of a duplication of work to comply with REACH and BREACH [British REACH] even if this is simply in administration costs. Significant costs will occur if duplication of registrations and testing is required within the UK. Where the company sells into the EU costs will further increase due to the need to have either an [EU representative] or a subsidiary presence. Raw material costs and/or availability after Brexit will be a challenge and will also incur cost increases’”.
They stated that there would be,
“‘an initial annual cost of between £3m to £4.5m, with ongoing annual costs of between £0.5m to £1m’, adding that this could also have implications for the company’s continuing involvement in the EU market, potentially leading to the loss of 75–85 jobs”.
That is an actual quote that came to us from a medium to large business, because it was so concerned about the way this was going.
The timing is difficult in terms of two years. To get REACH to where it is at the moment took something like 10 years. The EU gave a Brexit window for British companies to register in the EU—between 12 March and 24 March—which has now ended. Does the Minister have any information about how many UK companies have been able to take up that opportunity, the EU being concerned about its own supply chains?
Animal testing has come up. I understand the Minister’s assurances, but many of these products are going to have to be retested—there is no question about that. In one of our evidence sessions, the noble Lord, Lord Krebs—who is in his place and, I hope, will speak soon—asked Thérèse Coffey, the Minister, about animal testing. She said, in the end:
“We would have to undertake a regulatory approach, and if that required animal testing that would require animal testing”.
I think the Minister agrees with us on that, and that to me is the logic.
This is a key sector of industry, which was neglected in the early days of Brexit. I am very pleased that Defra, as a ministry, has tried to catch up, but this is still an inadequate and weak SI. Our committee was very critical of the way in which this had been handled. Some of it has moved forward and improved, but I have to say to the Government that we are far from having a satisfactory regime at this time.