BRITAIN might be forced to remain in the EU's customs union beyond the end of the transition period in December 2020 because of the UK Government's failure to set out alternative plans, MPs have said.

The cross-party Commons Exiting the European Union Committee has issued a withering report on Theresa May's efforts to find a replacement customs system and concluded that extending the current arrangement was the only "viable option" left.

The MPs said it was "highly unsatisfactory" that UK ministers had yet to agree on the trading and customs arrangements they wanted to achieve after Brexit. The pressure is on for them to agree an option ahead of next month’s European Council.

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Existing rules are set to be extended during the transition period from the date of Brexit in March 2019 until the end of 2020.

But the Brexit Committee said the lack of progress on alternatives and the need to avoid a hard border between Northern Ireland and the Republic of Ireland meant ministers could have to accept an extension for the customs union beyond that date.

On Wednesday, it emerged that businesses could be left up to £20 billion worse off if the customs plan favoured by Brexiteers like Boris Johnson and Michael Gove is implemented.

The so-called "max-fac" plan to use modern technology to solve the Irish border question would leave firms facing huge charges for customs declarations and for EU "rules of origin", according to HM Revenue and Customs chief Jon Thompson.

In contrast, the second option - the new customs partnership, favoured by the Prime Minister, would cost a maximum of £3.4bn and may end up having "a net cost of zero or less".

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But neither model is expected to be ready when the proposed transition period expires at the end of 2020 and implementation could take until 2024 depending on which option was decided upon; meaning that the status quo of staying in the customs union could have to extend beyond December 2020.

No 10 made clear it was the Government’s “intention” that Britain would be out of the customs union by December 2020.

The Exiting the EU Committee's report noted that, while David Davis, the Brexit Secretary, had ruled out remaining in the customs union, it stressed that "in the absence of any other plan, such an extension will be the only viable option".

The cross-party group was split over a key paragraph of the report containing some of the most trenchant criticism of the Government with three Tory members on the committee failing in a bid to water down the language used.

The report noted that UK ministers had not yet agreed which customs model they preferred "despite this being absolutely integral to the future EU-UK relationship and the UK's trade relationship with the rest of the world".

It went on: "There is disagreement in Cabinet over which option to pursue, while it has been reported that the European Union has rejected both proposals on the grounds that they are seen as unworkable."

The report added that the Government "appeared to accept that each model is deficient as it has conceded that more work on both is required".

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The MPs also called for ministers to set out the Government's version of the "backstop" proposal to address the Irish border issue - which will come into effect if no alternative is found - as "a matter of urgency".

Labour’s Hilary Benn, the Committee Chairman, said: "We are rapidly running out of time to get new trade and customs arrangements in place.

"Given that ministers are indicating that neither of the two options being discussed is likely to be ready by December 2020, when the transition period ends, the UK will in all likelihood have to remain in a customs union with the EU until alternative arrangements can be put in place."

He added: "Twenty-three months after the referendum and 14 months since the triggering of Article 50, we still don't know what the UK's future relationship with the EU will be on trade, services, security, defence, consumer safety, data, broadcasting rights and many other things.

"The clock is now running down and Parliament will need clarity and certainty by the time it is asked to vote on a draft withdrawal agreement in the autumn. We wait to see whether the promised white paper next month will provide it," he added.

On citizens' rights, the report noted that the Government's handling of the Windrush Generation scandal had "undermined trust in the ability of the Home Office" to be able to handle the process of settling the citizenship status of EU nationals living in the UK.

But the MPs noted that, while the UK had at least set out the general structure of its settled status application process, there was "little sign" that the other 27 EU member states had engaged in the same level of organisational planning for UK expats.

Liberal Democrat MP Tom Brake, speaking on behalf of the pro-EU Best for Britain campaign, said: "What this report makes clear is that Brexit by March 2019 was a fantasy, Brexit by December 2020 is unachievable and actual Brexit might not be delivered until 2023. You have to ask what is the point?”

He added: "This is all a total and complete disaster. Brexit is proving costlier, more complicated and more disruptive than anyone had thought. That is why people are entitled to a final say on the deal."