The UK has seen its global international trade activity fall since Brexit, despite aims to become ‘global Britain’.
Data from the Bank of England shows how trade flows, imports plus exports, as a percentage of GDP has fallen for the UK, whilst they have continued to rise for EU main countries including Germany, France and Spain.
Despite the global Britain rhetoric, the UK has become a *smaller* international trader since Brexit.
— Ben Chu (@BenChu_) December 8, 2021
Chart shows trade flows as share of GDP – it's holding up for main EU countries, but has declined sharply for UK in recent years 👇https://t.co/51RGZOO2MQ pic.twitter.com/FpT1epRb0b
The data was released as part of the Bank of England’s recent speech by Michael Saunders reporting on the outlook for inflation and monetary policy.
In a wide-ranging speech, Saunders noted how the UK economy has become less globalised ‘with effects from the pandemic exacerbated by Brexit’.
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For example, trade flows compared to 2019 have fallen by more than any other G7 country, whilst Q3 trade flows this year has a share of GDP were the lowest for 12 years.
The UK labour market has also become less global with the number of EU nationals working in the UK dropped markedly, contributing to worker shortages in haulage, farming and care industries to name a few.
Earlier this month we joined Deloitte on a panel discussion with Enterprise Nation.
Part of Enterprise Nation’s new international trade hub, the panel discussed what’s changed for businesses in the 10 months since the end of the Brexit transition period, what support SMEs need in particular and what’s to come in 2022.
Learn more about the international trade hub and listen in to the panel discussion here.
Britain’s export performance has slipped behind that of other developed nations as the recovery from the pandemic continues.
According to a report in the Financial Times, sluggish exports have become a ‘worrying trend’ as UK firms struggle to attract overseas markets.
By August this year, global goods trades rebounded well following the economic slowdown brought about by the pandemic. But whilst export volumes are well above pre-pandemic levels, the UK has struggled to get in on the action with export activity significantly lower than before Covid-19 hit.
In the three months to August, UK goods exports were down 13% whilst services dropped 14% too, whilst a longer six-year trend also shows UK bottom of a list of the world’s most advanced economies, including Canada, Spain, France and Greece.
Brexit hasn’t been the only factor either, with trade data showing sluggish activity with non-EU nations with a 20% drop in export activity compared to 2019.
“Supply disruption associated with both Covid and Brexit has weighed on UK competitiveness in general, not just on trade flows with the EU.”
Benjamin Nabarro, Citi Research
There are some nuggets of optimism though, with export activity showing strong growth with the Netherlands, Belgium and Ireland.
Small firms in the UK have received less than half of a £20m pot promised by the government which was designed to make up for any shortfall in EU business following Brexit.
Treasury figures show just £8.4m has been allocated so far, with just over 5,000 out of an eligible 113,000 SMEs benefiting from grants worth up to £2,000.
Businesses in Northern Ireland and Wales have claimed less than £670,000 combined.
Opposition politicians have called for the fund to be relaunched and the budget to be significantly increased to support the nation’s smallest businesses.
Liberal Democrat spokesperson Sarah Olney said that: “Smaller firms have borne the brunt of both the pandemic and the government’s botched Brexit deal.
“But instead of offering business owners support to help them get back on their feet, ministers are clobbering them with a manifesto-breaking tax hike.”
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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.
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.
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.
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.”
