The impact of the Brexit vote
Peter Taylor-Whiffen finds out how leaving the EU has affected British businesses, from freight delays, staff shortages, rising prices, closing car factories and the problem of the Irish border to trade deals with the rest of the world and booming northern UK ports
In March 2021, the people of Britain were evenly divided on whether Brexit was a good idea. An Economic and Social Research Council opinion poll showed 44% thought that, in hindsight, we’d been right to leave the EU, while exactly the same percentage thought it had been a mistake, and 12% weren’t sure.
At the same time, the UK was congratulating itself on the speed and efficacy of its COVID-19 vaccination programme, compared with the apparent shambles of the EU’s rollout. It seemed that in protecting our own people, and creating a safe landscape for opening up the economy as soon as possible, quitting the Union had made us better off.
What’s significant, though, is that even then, when there was a clear advantage in not being subject to EU bureaucracy, just as many people regretted leaving the bloc as those who supported the move. Even more interesting is that in almost every opinion poll conducted since March 2020, the majority of British people questioned thought that Brexit was a bad idea.
UK business, of course, was always overwhelmingly against it. There were dire warnings of how the end of our membership would collapse foreign trade, stymie overseas investment in the UK, disrupt supply chains, decimate manufacturing and make it impossible to recruit staff. But Brexiteers said it would free us to make new deals and prosper and grow without the straitjacket of an unfair institution.
So what has really happened? How are we doing in this brave new world? The early signs make disappointing reading. With the caveat of COVID-19 lockdowns affecting different nations at different times, the UK’s GDP still shrank at a faster rate in Q1 2021 – ie, the three months after Brexit – than other nations. Its 6.1% fall compares with just 1.3% in the Eurozone and a 1.6% climb in the US. And since the start of 2020, when the UK was entering its EU divorce transition, UK GDP plunged 8.8%, against 5.1% in the Eurozone and, specifically, 5% in Germany, 4.8% in France, 2.1% in Japan and 0.9% in the US.
A brake on business
Since the end of the transition period on 31 December 2020, nearly a third of UK companies that previously traded with the EU have suffered a decline or loss of business, according to research by the Institute of Directors (IoD). Its survey in July of 650 business leaders found that 17% have cut their trade links with the bloc altogether.
“Many businesses are still wrangling with the challenges of our new relationship with the EU,” says IoD’s Director General Jonathan Geldart. “Small and medium-sized firms in particular are struggling to navigate new procedures around exporting and importing with the bloc.”
One of many firms to suffer is gift company Rex London, whose director Scott Clarke described the first few months of the year as “chaotic”, with many of his exports to Europe being returned because of freight delays or customers unwilling to pay additional charges. “There was probably a three- or four-week period when we couldn’t supply our customers at all,” he told the BBC. “These were teething issues, but they are part of the underlying problems that haven’t gone away.”
Last December, Prime Minister Boris Johnson told Parliament: “We’re taking back control.” But Clarke believes there’s only one way his company can do that – and that’s by decamping much of its operation to Belgium. “It means further growth is going to be happening there,” he says ruefully. “Instead of taking on new staff here, we’ll employ them there. Instead of making more profit and paying more tax here, we’ll pay it there. Basically, everyone is losing out here.”
It’s a similar story for online retail. A survey of 304 chief marketing officers by ChannelAdvisor and CensusWide found that 94% of brands that sell online have lost EU customers, two-thirds of them shedding “a significant number”. Three-quarters believed this was because Brexit admin had slowed customer delivery speeds – although more than 90% expected international sales to grow in the next 12 months.
In the finance sector, too, 8,000 jobs were relocated from the UK to the EU in just 12 weeks, with 43% of professional services companies saying they planned similar moves, reported in The Times. But again, it may not be a completely one-way street – a Freedom of Information request in the spring revealed 1,000 EU finance firms had applied for permission to operate in Britain, around a third of them eyeing up UK offices for the first time.
And, of course, where there are losers, there will always be winners. Northern ports such as Liverpool have vastly increased trade as companies try to avoid the congestion of southern gateways such as Felixstowe.
Is there more paperwork?
Oh yes. Extra customs documentation has had an impact on the journey of goods into the EU so much that there have been stories of some never reaching their destination at all – or if they do, customers are having to pay large import duties. Consumers are demanding their money back.
"It’s been frustrating, demoralising, upsetting,” says Sarah Braithwaite, who runs horse nutrition company Forageplus in Mold, north Wales. “For a while we thought it was a hold-up at customs, just the sheer volume of shipments and they couldn’t cope. And then we realised we weren’t going to be able to get our parcels into Europe without our customers paying quite big import duties. They’re not going to do that, so we end up losing custom.”
In the freight industry, high costs and excessive administration “are holding businesses back”, reports Richard Greening, Global Technical Director of Lancashire-based haulage giant The DDC Group. Its own research cited 400 million more customs declarations, resulting in £13bn in paperwork costs – and nearly half its respondents had to fork out money on more staff to cope.
A leaked letter from Michael Gove late last year warned of a “worst case scenario” of 7,000 lorries queuing through Kent. That Domesday vision never materialised – although it’s difficult to judge how much the lack of traffic is down to COVID-19, lockdowns and the resulting travel restrictions across Europe. Early this year Transport Secretary Grant Schapps hailed the “miraculous” fact that cross-Channel traffic was flowing at “near normal levels”.
But six months on, even when companies have got used to the documentation they need for a smooth passage, some still face frustrating and seemingly arbitrary delays. Paul Jackson of Peterborough-based haulage firm Chiltern Distribution reports being stopped for hours at Caen, northern France, but the following week, carrying exactly the same load, he showed his passport and was “waved through. The rule of thumb in trucking is you drive for four days to pay the bills and you make your profit on the fifth,” he told the Financial Times. “But now in the EU you just can’t predict. If the French customs officer is having a bad day, yours can be ruined, too.”
Keeping a head count
Thousands of firms have reported staff shortages and difficulties recruiting since the start of this year. However, many of these are undoubtedly the result of COVID-19, not least the ‘pingdemic’ that has seen workers having to self-isolate. But industry leaders have warned that once the pandemic is behind us, the UK’s new Brexit landscape – especially the permanent departure of around 1.3m foreign workers – will still leave firms short of staff, particularly in transport and logistics, hospitality, manufacturing and construction.
In June 2021, the CBI called on the government to relax its post-Brexit immigration policy by updating its shortage occupations list to ensure Britain’s businesses have sufficient workers to shore up its COVID-19 recovery and build a healthy future.
“Where there are clear, evidenced labour shortages, businesses should be able to hire from overseas,” said CBI chair Lord Bilimoria. “An evolving shortage occupations list could help.”
Most foreign workers had to return home when the UK left the EU and its freedom of movement agreement. However, Europeans who have lived and worked in the UK for five years have been invited to apply to stay indefinitely through ‘settled status’, which makes them eligible for benefits and, after 12 further months, they can apply for British citizenship. But tens of thousands of employees are thought to have missed the 30 June deadline to apply. What will happen to them, and how will this affect their British bosses?
There’s a piece of good news here: the government says it will still accept applications, but advises workers to enter them as soon as possible. “This will permit individuals who have missed the deadline to resolve their immigration status by making late applications to the EU Settlement Scheme,” according to the Home Office website.
There’s good news for employers, too – updated Home Office guidance from 1 July says “you don’t have to immediately dismiss a member of staff who hasn’t applied for settled or pre-settled status by the deadline or doesn’t have any other valid visa in place. Instead, you can advise the employee to make an application under the settlement scheme within 28 days and continue to employ them – as long as they started working for you on or before 30 June.” That leeway lasts until the end of the year.
Will there be enough food?
Everyone has seen the effect panic-buying had on food supplies at the height of the pandemic. But many business leaders fear Brexit’s perfect storm of extra administration on imported goods, together with a shortage of staff in the haulage industry, could also empty supermarket shelves for the foreseeable future.
The logistics sector has lost around 15,000 Eastern European truckers since the end of the Brexit transition period, according to the Road Haulage Association (RHA) – and when the customs grace period ends in October, that could lead to reduced stock and higher prices as we go into winter. “If you overlay the end of the grace period for checks on food products and Europeans who are not yet ready to do paperwork, we could be facing a really significant problem here in terms of food supply chain,” warned RHA CEO Richard Burnett. “And not only will it be tougher to get all sorts of products into the UK, but there also won’t be enough drivers to deliver them to the supermarkets.”
Should we expect shortages?
Shane Brennan, who as CEO of the Cold Chain Federation represents the nation’s chilled food warehouses, believes the problem is not only more immediate, but will keep happening. “A lack of EU workers in packaging, production and warehousing is already affecting some products,” he said. “It is going to be like a series of rolling power cuts in that we are going to see shortages, then shelves replenished, and shortages again. That is going to carry on for as long as demand is unpredictable and labour remains as tight as it is. There will be outages day by day.”
Other food and haulage organisations concur. The British Meat Processors Association has warned consumers to expect shortages of meat, adding that a 10% reduction in production capacity because of staff shortages means it’s “heading for a brick wall”.
And it’s a similar outlook for fruit and veg, with Shaun Leonard, Commercial Manager at Cambridgeshire logistics giant Turners, predicting: “The worst is definitely yet to come.”
Supply and demand logic suggests that haulage firms will need to pay higher salaries to fill driver vacancies, a cost that will then be passed to the supermarkets – and ultimately, in the form of price rises, to customers.
Britain’s supermarkets have suggested a solution to the government, writing to Boris Johnson warning him of an impending “crisis” in the supply chain and urging him to create special visas for Eastern European drivers that circumvent Brexit rules. Watch this space…
Prices have gone up since we left the EU. According to the Office for National Statistics, June’s inflation rate rose to a three-year high of 2.5%, fuelled partly through increased food prices. The Food and Drink Federation issued a report in July estimating that the cost of feeding an average UK household was likely to increase by £160 a year. British Retail Consortium CEO Helen Dickinson also warned that “retailers will have to battle the cost pressures from Brexit red tape”.
Deals with the rest of the world
Leaving the EU was meant to pave the way for the UK to strike its own independent deals with other countries – and it has done so. On 15 June the government struck an accord with Australia, and Trade Secretary Liz Truss proudly proclaimed that it would be cheaper to sell British products such as cars, Scotch whisky, biscuits and ceramics to Australia due to changes in export tariffs.
British farmers are not convinced, however, believing the deal will mean they are undercut by cheap imports, which will lower food standards and cost jobs. David Barton, who farms 200 beef cattle in the Cotswolds, told the BBC: “Unless the government gives us the support we need… UK agriculture is going to be chucked under a bus.”
The precise terms of the deal have not yet been announced, but Truss has argued the deal would contain protections for farmers, such as a cap on tariff-free imports for 15 years, and also said it would be the first step to the UK joining a wider, tariff-free Asia-Pacific trade partnership.
And last month the government also ratified a deal with fellow non-EU European nations Norway, Iceland and Liechtenstein, which will cut tariffs on UK farm products such as cheese and meat. Truss said the reduced import tariffs on shrimps, prawns and haddock would cut costs for UK fish processing, helping to support jobs in Scotland, East Yorkshire and northern Lincolnshire.
The UK has also signed a deal with Japan, which promises bespoke but so far vague benefits for British businesses “in digital and data, financial services, food and drink, and creative industries”. Like the Australian deal, it’s a stepping stone to membership of another inter-country trade arrangement, this time the 13-country Comprehensive and Progressive Agreement for Trans-Pacific Partnership.
Talking of Japan….
There has been some post-Brexit good news for the car industry, with Nissan not only continuing its car manufacturing in Sunderland, but pledging to site a new 9GW ‘gigafactory’ built by its partner, battery recycling giant Envision, to produce batteries for electric cars. It has vowed to invest £1bn and create 6,200 jobs in what Johnson described as “a major vote of confidence in the UK”.
But there’s a rub – Nissan’s plans have been supported by an undisclosed but estimated (by the media) £100m government payment (“bribe”, say Remainers) to stay. In addition, industry commentators fear it won’t be enough to make Britain competitive in the ever-intensifying race to provide the world’s car batteries. Volkswagen is planning four sites with a total of 240GW across the EU and Elon Musk chose to build Tesla’s enormous 50GW site near Berlin rather than Britain because of his uncertainty about Brexit.
“Without battery making in the UK,” warns David Bailey, Professor of Business Economics at Birmingham Business School, “mass car production will disappear.”
In spite of the Nissan boost, one car factory does not an industry make – Honda closed its Swindon factory in July after 36 years, with the loss of 3,000 jobs. The company took the decision two years ago “in light of unprecedented changes” in the automotive sector, although it has pointedly refused to blame Brexit.
And what about fishing quotas?
These fractious talks took centre stage during the Brexit negotiations and, six months on, the waters are still choppy. Under the deal, the EU’s fishing quota in UK waters will be reduced by 25% over the next five years, with the UK theoretically able to exclude EU boats from coastal waters after 2026.
But Barrie Deas, CEO of the National Federation of Fishermen’s Organisations, said in July the actuality was different, only fractionally raising UK quotas – and he fears the EU will have enough leverage to give it access to UK waters beyond the next five years. “We didn’t even secure exclusivity over our coastal waters,” he said. “We thought that was a red line, but we didn’t manage to secure that”.
However, Britain’s most bullish Brexiteer maintains, as you’d expect, that everything’s been a great success. Nigel Farage told the Daily Express – unsurprisingly – that the country is seeing the benefits of leaving the EU.
However, he was vague – the closest he got to actual specifics came as he claimed (probably correctly) that if we’d stayed in the EU our vaccine rollout “would have been a complete and utter Horlicks” and when he referred to the UK scrapping post-Brexit certification on cheaper plonk.
“Trade deals, not just replicating what we had with the EU, but new trade deals with Australia. Add to that, cheaper wine, how bad is that? Project Fear was wrong. I do think there is a longer-term change here. We are reaping some of those dividends already,” he said.
It’s probably only when COVID-19 is truly behind us that we can properly focus on the impacts – positive and negative – of Brexit.
In the meantime, Lord Bilimoria says it’s important for businesses to be pragmatic and spot the opportunities as he called on businesses to invest in innovation and technology, to open new routes into their businesses, and to consider employing those who might have previously been overlooked based on gender, ethnicity or background.
“I never thought I’d be giving a speech about staff shortages,” he said. “Business and government together can solve this shortage. And if we do, I have every confidence this could be the best decade yet for the UK economy.”
The challenge of Northern Ireland
From the moment the Leave camp won the Brexit vote in 2016, this was always going to be the greatest challenge – how to manage the UK’s only land border with the European Union.
The government’s pride in announcing the Northern Ireland Protocol, which helps to prevent checks along the Irish border and protects the Good Friday Agreement, fell a little flat when it became obvious that the solution – a border between Great Britain and Northern Ireland, effectively in the middle of the Irish Sea – was actually unworkable.
Given its complications, a period of grace began in January that would not require such checks – but this expires in September. The EU is insisting that customs rules will then apply, while the UK is suggesting it will break them – despite those same rules being part of the Withdrawal Agreement it has so proudly signed up to.
Of course, there are acute political implications – unionists object to the checks because they would mean Northern Ireland being treated differently from the rest of the UK and the same as the Republic of Ireland.
The latest position – intransigence on both sides – means there’s no clear solution. The UK wants to remove the role of both the European Commission and the European Court of Justice in overseeing adherence to the protocol.
The EU, meanwhile, has said it’s happy to consider “creative solutions”, but is preparing legal action if the UK goes ahead and breaks the law.
Vaccine wars and travel U-turns
Brexit would have been hard enough without a pandemic – and certainly the combination of the two has blurred issues and compounded problems.
In March, the legacy of the bitter divorce talks threatened to spark a vaccine war, as the EU considered blocking the export of doses to countries including the UK, while the UK discussed potential tit-for-tat measures.
As Britain happily rolled out its vaccines quicker than anywhere else in Europe, Brexiteers pointed gleefully in a “we told you so” moment to the bloc’s combination of over-zealous bureaucracy and lack of organisation, while the EU seemed set on undermining its people’s confidence in the Oxford-AstraZenica jab. For a while, both sides appeared happier to prioritise political point-scoring over the simple matter of their fellow human beings’ health.
The legacy of Brexit continued as countries introduced their own individual travel restrictions, the UK’s constant U-turns on quarantine measures around travel to France, Spain and Greece infuriating not only British holidaymakers, but their European neighbours.
But COVID-19 has deflected from some of Brexi't issues too, with most businesses in the UK and the EU still unable to see the real impact of the divorce deal until the pandemic is firmly in the rear-view mirror.