As lockdown restrictions in the UK begin to ease, a new report suggests the realities of Brexit for many businesses are only now beginning to bite as the full impact of the TCA becomes clear.
The report by law firm Irwin Mitchell and the Centre for Economics and Business Research (Cebr), analysed the impact of Brexit on exporting businesses in the 12 regions and countries of the UK and found exporting services to the EU was worth £23bn to London alone.
With no agreement in the TCA that covers finance, Cebr research suggests that, for some regions and sectors, the future direction of “levelling” may not be “up”. Brexit and consequential Government decisions arising from it could result in losses of £9.5bn in Greater London, with £2.2bn of this coming from financial and professional services industries.
Share of SMEs exporting services, by region, 2019 and difference between share in 2016 and 2019. Source: Small Business Survey, Cebr analysis
The report’s deep dive into Brexit reveals the projected impact on all areas of the UK and while the capital looks vulnerable in terms of services, over a quarter of SMEs in Northern Ireland export to the EU; while regional business turnover in the UK sees EU exports featuring strongly.
The report shows a mixed impact across the country, with regions of the UK from Yorkshire and the East of England to Scotland experiencing Brexit in different ways. With an EU border with the Republic, Northern Ireland has one of the highest shares of SMEs exporting to the EU, while on 15%, Scotland and Wales are among the lowest.
However, Scotland has the second highest average turnover generated by exporting to the EU, at £242,700 per business per year. With 96,000 SMEs, this suggests £3.8 billion is generated across all Scottish SMEs exporting to Europe – revenues at risk as a result of leaving the EU.
|Average turnover generating by exporting services, 2016 – 2019, SMEs|
|Yorkshire & the Humber||£179,200|
|East of England||£138,500|
Average turnover generated by exporting services between 2016 and 2019 for SMEs which export services, per year, per business. Source: Small Business Survey, Cebr analysis
ONS figures show goods exports to the EU rose 8.6% in March, but the first quarter of 2021 was the first since records began where imports from non-EU countries were higher than from the EU.
A London School of Economics study based on CBI data also found 61% of firms reporting Brexit difficulties, resulting in rising costs, higher prices for consumers and reduced competitiveness.
The Irwin Mitchell/Cebr report calls on the government to negotiate a smoother trading relationship with the EU to protect this export business. Firms hoping to return to a ‘new normal’ as lockdown restrictions ease, will have to factor in the realities of the TCA agreement, with the knowledge that several grace periods with respect to trade are also due to come to an end.
The grace period for Northern Ireland has been extended by the UK to 1 October (not accepted by the EU); while from 1 July, products of animal origin must enter the UK via designated border posts as customs controls are tightened. Grace periods on physical border checks and those surrounding Rules of Origin have been pushed back to January 2022.
Bruce Macmillan, a specialist lawyer at Irwin Mitchell, said: “The TCA agreement with the EU is the ‘Canada-plus’ type arrangement anticipated by many and, predictably, this report shows that UK goods not facing tariffs or quotas does not offset the issues, costs and delays that barriers and customs checks (“non-tariff barriers”) create.
“The end of free movement for people and services stands to impact many firms across the country and an agreement with the EU on equivalence could still take time to resolve even if there is the political desire to do so.
“While the detail of many aspects of the situation remains in flux; the overall political and legislative direction of travel is now clear; and so businesses need to be prepared for the likely emerging realities of our new relationship with the EU as it comes back into focus following lockdown.
“Holding off decision making and hoping for things to be as they were before is not a sensible strategy as the Government has a political mandate for what it has done in “taking back control”; and, from Australian trade deals to domestic state intervention, it needs to be seen to deliver on its agenda to its electors between now and the next election in 2024. So the prudent leader will be anticipating both the direction and nature of change – but also recognising that not all change needs to be big in reality to meet political needs (which offers some scope for lobbying).
“Many face a tougher trading environment and disruption puts billions of pounds at risk at a time when the economy remains fragile. Regions like the East of England generate £2.3bn exporting services to the EU – money the regions will need to continue post-pandemic recovery.
“A large volume of UK businesses have revenues stemming from product and services exports not covered by the TCA agreement with the EU and with grace periods due to expire, further negotiations are crucial if the Government wishes to sustain trade and business activity across all UK regions at pre Brexit and pre Covid levels.
“We are all living in a new normal and in the absence of further cooperation with our near neighbours, trading difficulties will continue. Even things firms once took for granted, such as hiring workers from abroad are no longer simple matters.
“Taken together, UK business has limited room for manoeuvre and without further negotiation with Europe, there could yet be a further sting in the tail of the TCA so it is essential to plan ahead on a realistic basis and to seek to minimise the downsides and find whatever opportunities might emerge.”