Breaking free of Brussels bureaucracy was meant to herald a bonfire of red tape for Britain. In the first 100 days of Brexit, the only thing many businesses burned was money.
Customs checks, paperwork and border delays since Britain completed its withdrawal from the European Union at the start of the year are sucking cash and time out of firms from big-name retailers to small family-owned businesses. Companies, which warned for years that this would happen, take no pleasure in saying "we told you so," but the frustration is clear as they grapple with the long-term reality.
For many businesses on tight margins, every pound spent on documentation means less for wages, hiring and investment. While the impact will be far less dramatic than the short-term shock of the Covid-19 lockdowns, over time it will add up, hobbling the economy and eating into sales, earnings and incomes.
Fresh food is particularly complex, but the issues are widespread. It's been especially dire in Northern Ireland.
Ashley Pigott, managing director of AJ Power, a maker of diesel generators in Craigavon, says charges to bring components from Britain will add about £100,000 a year to his bills.
“By the time we get through to July, we’ll start to see those costs really starting to bite,” he says.
Rerouting supply chains isn’t simple, so instead AJ Power is outsourcing component assembly to another firm at an added cost, but still cheaper than the import surcharges.
Economic damage in Northern Ireland is particularly worrying, given the region’s troubled past. Violent riots this month have been linked to Brexit, but they’ve been fomented by boredom and lack of economic opportunity in one of the UK’s poorest regions.
“The question that really has to be asked in three or four years’ time is: What’s the manufacturing landscape in Northern Ireland going to look like in respect of its competitiveness?” Mr Pigott said.
The story of unwanted hassle is one repeated across the UK. One in four small exporters have halted sales to the bloc because of red tape, and a survey on Monday showed more than 40 per cent of businesses had lower export revenue in the first quarter. In January and February, total goods exports were down 27 per cent compared with a year earlier, and imports also declined.
Some of the drop reflects stockpiling late last year and will be temporary. There may have also been initial teething problems with the new customs rules given the UK-EU trade deal went down to the wire before the final divorce date of December 31st. But Credit Suisse says the decline in exports will probably persist and net trade will drag on economic growth in the near term. It's warned that the trade deficit could hit 5 per cent of output next year, a record gap that would put downward pressure on the pound.
Amid a successful vaccine roll out in the UK, Brexit has toppled down the political agenda. The B-word didn't appear in the more than 6,000 spoken by chancellor Rishi Sunak in his budget speech last month. With the UK relaxing its lockdownto non-essential retailers and some pubs and restaurants opened this week as the economy is set to grow about 5 per cent this year. The boom in demand as normal life resumes means headline numbers will overshadow much of the fallout from trade disruption that companies are dealing with on a daily basis.
One question is how long those difficulties persist. A Bank of England measure of uncertainty has eased in recent months, suggesting while things will be bumpy for a while, it should improve in time. Companies are thankful there at least is some type of deal in place. The uncertainty index jumped in 2020 when it looked at times as if the UK and EU would never be able to find common ground on the most contentious issues and reach an agreement.
If companies are frustrated, so too are their customers across the EU. Delays and costs mean some could swap suppliers. Anna Stellinger, deputy director of the Confederation of Swedish Enterprise, says a fifth of Swedish companies have had problems trading with the U.K. since January.
“With the higher costs, more red tape, the delays to deliveries and problems in logistics, Swedish companies say they will be looking for other companies to source from,” she said.
And other companies are looking to set up sites in the EU to make distributing and selling to the union easier and cheaper. Sportswear chain JD Sports Fashion is opening new warehouses in the EU to avoid duties and disruptions from customs checks, and executive chairman Peter Cowgill says competition for sites is tough as other businesses also seek space.
All that adds up to more losses for the UK that will need to be made up elsewhere.
“Brexit has certainly brought about its challenges, and I think the whole concept of free trade should be considered with very heavy inverted commas,” Mr Cowgill said Tuesday. The issues “will alleviate as we adapt. But Brexit has been annoying, costly and time consuming.”
- Bloomberg
