Trade barriers with the EU in the wake of Brexit have cost UK firms over £2bn in the first half of 2021.
£600m in costs alone have derived from issues surrounding Rules of Origin, where UK firms have to prove that products they’re exporting are over 50% derived from UK or EU components, or face tariffs.
As many businesses are starting to discover, free trade deals are not cost-free for UK firms.
The news comes as the Office for Budget Responsibility reported that leaving the EU would reduce the UK’s potential GDP by 4% long-term – twice the negative effect that the pandemic is likely to have.
Richard Hughes of the OBR commented to the BBC that: “In the long term it is the case that Brexit has a bigger impact than the pandemic.
“We think that the effect of the pandemic will reduce that (GDP) output by a further 2%.”
Read more: Complex Rules of Origin add £600m to duty costs
The OBR also suggested that shifting trading regimes following Brexit have been partly to blame for supply chain issues, which in turn is supporting above-average inflation.
Exporting businesses in the UK only have weeks remaining to get up to speed with new Rules of Origin procedures if they are to continue tariff-free trade with the EU.
Whilst there are variations, the majority rule to class a product as being of UK origin is that it is made from around 50% British or EU-sourced content, and the tariff-free access this delivers is the same for both UK firms exporting into the EU, and EU businesses exporting into the UK.
Businesses have so far been afforded a grace period to come to terms with the new trading arrangement. But from January 2022, all businesses will have to be able to demonstrate that they are compliant.
If they can’t, whether through lack of preparedness or exported products being less than 50% UK or EU-based, they will face duties. And many businesses are reportedly underprepared and unaware of just how much evidence they’ll have to provide in order to gain tariff-free access.
One trade expert from the Centre of European Reform noted that, if the EU was to step up enforcement in this area, the lack of preparedness from UK businesses could in essence become a way of the EU enforcing tariffs on the vast majority of UK exports.
Whilst larger organisations may have had more manpower to get to grips with the 50 pages outlining how Rules of Origin will work under the new trading arrangement, the fear is that smaller firms for which importing and exporting activity is maybe a smaller part of their operations, internal resource is simply not available to get to grips with the rules or find ways to comply with them. This, in turn, may put many SMEs off exporting altogether.
One study by The Guardian found one in four SMEs have already stopped exports to the EU due to increased costs as it is.
And this is against the backdrop of the ongoing fallout from the pandemic, plus the driver shortages in the UK.
Andrew Howie, managing partner at Grant Thornton LLP in Scotland said of the current situation facing companies: “Businesses have been on a roller-coaster ride of relief at the release from lockdown and the success of the vaccination programme, while constantly being buffeted by inflationary pressures and supply chain problems. In a just-in-time international economy, any issues with logistics can obviously escalate quickly. This winter is likely to test once again the resilience of business plans and contingency measures.
Read more: Complex Rules of Origin add £600m to duty costs
“It’s a very challenging scenario. We have seen examples at docks where container turnaround time is slower due to additional Brexit regulations and container pick up is slower due to a lack of drivers. It really is creating a perfect storm and the combination of the two is exacerbating delays and having substantial knock-on effects further down the supply chain.
“There is also the potential for things to get worse for businesses before they get better. Many businesses may not be aware that they are currently benefitting from a range of phased Brexit implementations measures, including grace periods around rules of origin. With this set to change from 2022, when further border measures come into force, businesses need to ensure that they are prepared and ready, to avoid a shock and even further disruption.”
Get up to speed with our free guide and workbook
The Rules of Origin in the new trade agreement between the UK and EU are complicated and vary for many products. Working out the origin of your products can be complicated and confusing with several competing rules.
We’ve created a free and comprehensive guide and workbook for UK businesses with a step-by-step process on how to work out the origin of your products.
A trade deal between the UK and New Zealand looks to be imminent following a sixth round of talks.
A deal would be a big boost for exporters in the UK, especially in the gun, chocolate, clothing and car markets as tariffs look set to be dropped across a wide range of goods. UK consumers can also expect a wider range of lamb and cheaper New Zealand wine too.
Whilst the current amount of trade with New Zealand is quite small, just over £2 billion a year, it’s hoped that the deal would help to unlock access to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) – a key target for the UK.
Access to the CPTPP trading zone would enable businesses to access a £9 trillion market with nations including Canada, Japan, Chile and Mexico.
Read more: UK may move for USMCA membership in the absence of immediate US trade deal
Former secretary of state for international trade Liz Truss commented in August that: “We are working round the clock to get this deal done in the coming weeks. We are both big fans of each other’s high-quality products, so this could be a huge boost that allows British shoppers to enjoy lower prices and British exports to be even more competitive.
“New Zealand and the UK are natural partners united by modern values. An agreement would reflect those ideals and is a win-win for both countries.
“It would also be an important step towards our accession to CPTPP, helping the UK gain access to 11 of the world’s biggest and fastest-growing economies across the Pacific region and opening doors to dynamic markets across the world.”
The EU has released its plan to help fix the ongoing issues surrounding UK and NI trade in the wake of Brexit.
Whilst Northern Ireland has been kept within the EU’s single market to avoid a hard border with the Republic of Ireland, checks and controls have been in place for goods arriving from Great Britain.
The new plan proposed by the EU would remove around 80% of checks and cut paperwork in half.
The BBC reports that the EU is proposing:
- Most food products will not need to be physically checked when arriving into Northern Ireland from Great Britain.
- A cut to the required administration for Northern Ireland importers.
- Expanded trusted trader arrangements meaning more products and companies are exempt from customs tariffs.
- Change to current laws to ensure no disruption to moving medicines across the Irish Sea.
- Improved engagement with stakeholders in Northern Ireland including politicians and business groups.
The Northern Ireland Protocol was only introduced at the start of 2021, designed predominantly to prevent checks and the creation of a virtual border on the island of Ireland. But this has, in turn, created a trade barrier with Great Britain.
Read more: ‘Worker shortage down to Government’s lack of Brexit business planning’
However, businesses on both sides have warned of ongoing issues, whilst there have also been serious concerns that the current set-up undermines the Good Friday Agreement.
If your business continues to struggle with the changing business environment, especially trading with the EU, then we can help. Download our free post-Brexit planning checklist and see the 10 steps your business needs to take today.
The British Chambers of Commerce has called out the Government for lacking Brexit business planning, resulting in UK workforce shortages.
After a weekend of fuel supply shortages and retailer Christmans warnings, the BCC made clear in a statement that businesses were suffering the consequences from excluding non-UK nationals from the UK workforce.
BCC President, Baroness Ruby McGregor Smith said that: “Government has made clear its priority is to transition from a reliance on EU workers to a focus on the domestic workforce, and businesses have been ready to participate in this, but it is a long-term project.
“A managed transition, with a plan agreed between government and business, should have been in place from the outset. Instead, the supply of EU labour was turned off with no clear roadmap as to how this transition would be managed without disruption to services and supply chains.
“Now some action has been taken, but additional testing will take time and the low number of visas offered is insufficient. Even if these short-term opportunities attract the maximum amount of people allowed under the scheme, it will not be enough to address the scale of the problem that has now developed in our supply chains. This announcement is the equivalent of throwing a thimble of water on a bonfire.
“Government should be prepared to significantly expand the number of visas issued within this scheme and convene a summit that brings business and government together to find both immediate and longer-term solutions to the many challenges facing firms throughout the UK.
“Without further action, we now face the very real prospect of serious damage to our economic recovery, stifled growth as well as another less than happy Christmas for many businesses and their customers across the country.”
Read more: Complex Rules of Origin add £600m to duty costs
BCC Co-Executive Director Hannah Essex added that: “Chambers of Commerce have been warning Government about critical labour shortages for months now – not just in the food and haulage industries but in hospitality, construction, the care sector and elsewhere in the economy. Whilst businesses will welcome that government is finally taking action, this scheme does not go far enough.
“BCC data has shown that 76% of hospitality businesses, and 82% of construction firms have faced recruitment difficulties in recent months. At the same time, we found 3 out of 4 exporters reporting no growth in sales in Q2.
“Businesses are facing the most difficult environment for a generation. On top of labour shortages – border delays, increased debt and the rising cost of materials, shipping and energy are all putting huge pressure on firms struggling to recover from the pandemic. All of these issues are hitting smaller firms the hardest.
“Attempts to address the deficit of HGV drivers and poultry workers is a step forward, but these industries are only the tip of the iceberg when it comes to the huge impact of the current labour shortages. Without a comprehensive plan to tackle this issue across the board we are facing a winter of lost opportunities for our businesses, hampering the UK’s economic recovery.”
If your business is still coming to terms with a post-Brexit trading environment, we can help. Our Brexit FastTrack service can quickly and affordably assess the threats to your businesses and help shine a light on the pathway forward for your organisation. Find out more here.
The UK is looking at alternatives to strengthening trade ties with the US as the chances of a quick turnaround on a bespoke trade deal look slim.
Prime Minister Boris Johnson is in Washington to meet US President Joe Biden, with the latter saying that a dedicated trade deal is unlikely in the immediate future.
Two core issues for Biden are the Northern Ireland protocol – something he has been vocally against over the last 18 months – and a deprioritisation on the US side to develop new bilateral trade deals, instead focusing on helping their economy recover from the pandemic from within and aiming to develop multilateral agreements instead.
Instead, the government could look to join existing trade pacts which would strengthen trade ties, namely the agreement already in place between the US, Mexico and Canada (USMCA). A series of mini deals could also be struck, including some British meat products now allowed to be exported to the US once again.
Johnson told reporters during his US visit that: “On the FTA [free trade agreement], the reality is that Joe has a lot of fish to fry.
“He’s got a huge infrastructure package, he’s got a build back better package. We want to do it, but what we want is a good FTA, a great FTA.
A back-door approach to stronger US trade ties could also be sought through the CPTPP trade agreement which also includes Australia and Japan – a pact that the US could join in the future too.
Read more: Complex Rules of Origin add £600m to duty costs
“We will keep going with free trade deals around the world, including in the United States,” Johnson continued.
“I have plenty of reason to be optimistic about that. But the Americans do negotiate very hard.”
Complex regulations surrounding Rules of Origin following Brexit has seen British businesses pay an additional £600m in customs duties in H1 this year.
The UK’s trade agreement with the UK, which was geared towards removing tariffs for all goods, has actually seen costs related to export and import activity increase for a swathe of industries.
Rules of Origin, which the UK government states are ‘some of the most important provisions that your business needs to understand and meet under the UK’s deal with the EU’, are still being adapted to by UK forms, with many saying they weren’t given enough time to fully understand the new regulations and trading conditions.
Fergus McReynolds at Make UK commented that: “We didn’t actually see the black and white of the text until Christmas Eve, and that didn’t give companies a lot of time to understand the implications.”
One of the most notable examples of how Rules of Origin are impacting UK firms is Marks & Spencer’s ever-popular Percy Pigs. Although they are manufactured in Germany and then imported into the UK (a pathway which wouldn’t induce a charge under the primary trade agreement between the EU and the UK), the re-exporting of the product from the UK into Northern Ireland is now a step in the supply chain which is subject to import taxes with the tariff exemption falling away.
Read more: ‘Disastrous drop’ in UK food and drink exports into the EU
Michelle Dale from accountancy firm Hacker Young noted that: “UK businesses weren’t given enough time or help to prepare for the cost of Brexit or the masses of paperwork.
“The result is that the cost of tariffs and extra paperwork is now causing serious difficulties for many businesses who are already struggling to stay profitable in the face of mounting pandemic-induced costs.”
Download our free Rules of Origin guide
If your business, like so many others, is still working to adapt to the new trading environment with the EU, we can help.
Our free Rules of Origin guide and workbook has everything you need to work out what customs duties may be due on your products, with a step-by-step process through the rules in the TCA and a template for you to complete to calculator their origin.
A chief executive at Maersk has said that the ongoing shipping crisis won’t end until consumer demand falls.
Morten Engelstoft, who manages APM Terminals which is owned by Maersk, said that the sector needed to break out of a vicious circle of high consumer demand married with the ongoing pandemic.
He told the Financial Times that: “We need lower [consumer demand] growth to give the supply chain time to catch up, or differently spread out growth. Over a long period of time, we will need to recover efficiency.”
Whilst noting that ports need larger investment to improve and grow infrastructure, he added that soaring consumer demand from the US, in particular, was placing strain on the entire system.
“It’s a percentage of an enormous volume. The sheer size of business going through is so enormous that the amount of port capacity, truckers, warehouses and even labour to man all the equipment has created a bottleneck.”
Read more: Driver shortages, health certificate delay & post-Brexit FastTrack reviews
The port operator’s comments come days after UK retailers warned of expected Christmas shortages amid ongoing supply issues with supermarkets and large brands including Ikea and Halfords all saying they have shortages of certain in-demand products, from mattresses to bikes.
Increased consumer demand is being confounded by a global shortage of truck drivers, a lack of warehousing space and delivery delays due to the ongoing pandemic.
Exports of food and drink from the UK into the EU are in freefall.
That’s according to new figures released this month by the Food and Drink Federation, showing that exports to the EU have fallen by over 27% in H1 2021 compared to the same period two years ago. Overall, lost revenue totals around £2 billion.
Exports to Spain, Italy and Germany have fallen by almost half.
However, some export categories are still seeing growth. Whisky, soft drinks and salmon exports have all increased. And whilst the drop in export activity into the EU has been stark, the total loss of export revenue has been buffered by an increase in non-EU sales of 13%. The share of UK exports moving outside the EU has now risen from 40% to 47% as a result.
Dominic Goudie, head of international trade at the FDF, commented that: “The return to growth in exports to non-EU markets is welcome news, but it doesn’t make up for the disastrous loss of £2bn in sales to the EU.
“At the same time, we are seeing labour shortages across the UK’s farm-to-fork food and drink supply chain, resulting in empty spaces on UK shop shelves, disruptions to deliveries and decreased production. Unless steps are taken to address these issues, the ability of businesses to fulfil vital export orders will be impacted.”
Read more: Post-Brexit trade imbalance as exports from Ireland to GB soar
John Whitehead of the Food and Drink Exporters Association said that there are a number of factors at play, including challenges in the supply chain and the inability to meet customers in person due to the pandemic.
“There is growing evidence that the complexity of trading with the EU has led to businesses moving operations into Europe and of importers looking for alternative suppliers, contributing to the ongoing decline in both UK exports and UK jobs.”
The huge shortage of HGV drivers in the UK is pushing up pay as hauliers start introducing retention charges on bills.
Tensions are said to be rising within the industry with the low numbers of available, trained drivers playing ‘musical chairs’ – something hauliers are looking to head off by adding ‘driver retention surcharges’ of around £65 per load to customer bills to directly boost employee pay.
One provider, speaking to Loadstar, said that the extra charges were on top of a 20% pay increase to his drivers. Smaller firms are warning that they’re being priced out of the market, whilst others have forewarned that the busy Christmas period could see huge disruption.
“Despite this increase, every haulier we deal with told us that from September there would be surcharges of between £50-65 per load,” the forwarder said.
“I cannot bear to think what December and peak season build-up will be like for container haulage when it is already this bad. Our hauliers told us this was a purely non-profit move, the money going directly to drivers to stop them taking more lucrative offers from larger firms.”
The government has this month urged UL firms to train and hire British drivers to fill what’s estimated to be 100,000 vacancies in the sector, driven by a combination of EU workers returning back to mainland Europe following Brexit, and a lengthy delay in driver training brought on by the pandemic.
Read more: Post-Brexit trade imbalance as exports from Ireland to GB soar
They are also considering bringing forward a review of its Shortage of Occupation list to tackle the issue by assessing which jobs the UK will be more lenient in allowing overseas workers to apply for visas for.
Morrison’s CEO David Potts noted to the BBC that: “Maybe look at a list of people who come into the country to work, maybe add the drivers to that list for a while, see how we get on with that, because we need to break the back of the issue in order to keep what is a great supply chain working in Britain.”
