ICAEW.com works better with JavaScript enabled.

Resilience and renewal

How to reinvigorate the UK’s international trade performance

Author: ICAEW

Published: 07 Nov 2023

world planet earth globe circles rays of light blue international trade ICAEW economy business

The UK’s international trade activity is falling behind that of its economic peers. Here, we examine what changes are needed from policymakers and business to close that gap and why chartered accountants are so well-placed to help them.

As we covered in the first article in this series, the UK’s international trade performance is beset by several challenges. A tough global trade environment, changes to trading relationships with the EU, and a lack of trade know-how among businesses all dampen trade activity. Yet there is a lot that can be done to tackle all of this. Adjustments to the UK’s trade policies and improving international relations will help lay the necessary groundwork, while the simplification and digitalisation of trade processes, together with better education, will encourage business activity.

Improving UK trade policy

One of the first things to recognise when discussing UK trade policy is that it is a relatively new area for the government. “It’s always worth bearing in mind that for 45 years, trade policy was a competence of the EU,” states Sally Jones, UK Trade Strategy and Brexit Leader at EY. “So, unsurprisingly, at the time of the Brexit referendum, there weren’t that many people in the UK who did trade policy, certainly within government, but even more so outside government in the private sector.”

When talking to experts, the view generally is that the foundations of a new trade policy are in place but that it still needs some refinement. Jones says: “It’s easy to overlook, but the officials at what’s now the Department for Business and Trade have done an astonishing job [since the referendum]. Considering where we were in June 2016 and where we are now, we’ve got a fairly decent trade policy that should be subject to tweaks rather than wholesale rewriting.”

Of course, the precise number of tweaks could easily run into the hundreds, but at a high level, some key themes emerge when talking to experts. First, there is the need for policy to be more reflective of the realities and complexities of trade.

David Henig, Director of the UK Trade Policy Project at the European Centre for International Political Economy (ECIPE), explains: “Trade is often spoken about in simple terms as if we live in some strange world where everyone is a cheesemaker or has some other simple product they’re selling to another market, but the majority of trade is not like that. It’s about complex products with complex pathways to market. When I speak to people in business, they want to hear that the government understands how they are doing business, and they don’t feel at the moment that the government does. The simple thing to do is recognise that level of complexity in trade and reflect it back.”

Second, many believe there needs to be a higher profile for services. “Nobody really thinks about services exports but it’s 80% of our economy. And given that we’re the first economy in human history where services exports have outweighed goods exports, we need to get better at it,” states Jones. “We’re uniquely placed to shape the world of services trade policy above and beyond any other country. Too much time is spent talking about technical barriers to services trade. What we should be doing is imagining a world where there’s a brand new office block in Malaysia, for example, that’s been designed by British architects, built by British engineering firms, certified as net zero by British accountants, and where British lawyers have drawn up the legal contracts. That is services trade.”

Finally, there are the needs of small businesses to take into account. Henig explains: “Trade policy as practised by government can feel quite high-level compared with the needs of a small business. Typically, policy focuses on the bigger companies, who are more involved in shaping policy, but there’s less awareness of the needs of smaller businesses. There are lots of things that get forgotten in policy terms, such as export credits, trade shows, etc. These things are important to small businesses but don’t often receive that much political attention.”

Underpinning all of this is a desire for a more stable and less chaotic approach to policymaking. Professor L. Alan Winters at the University of Sussex and Principal Director and Co-Director of the Centre for Inclusive Trade Policy, says: “Improving the policy environment in the UK is key. Everything has been really chaotic for seven years. And that means businesses say no to investments if there’s any hint of uncertainty because they’re actually just not quite sure what the next prime minister is going to do. So, in a sense, returning to something like the moderately business-friendly, pragmatic governance we used to have would help quite a lot.”

Rebuilding UK-EU relations

Alongside the high-level changes that can be made to trade policy, there is a lot of focus on the status of the UK’s new trading relationship with the EU. There have been strong calls, from business in particular, to renegotiate elements of the EU-UK Trade and Cooperation Agreement (TCA).

From the perspective of UK business, adjusting particularly troublesome aspects of the TCA would be welcome. For example, car manufacturers are particularly concerned about the rules of origin and the implications of these for electronic vehicle exports to the EU. However, the prospect of reopening negotiations from the EU’s perspective is slim.

Susanna Di Feliciantonio, Head of European Policy at ICAEW, says, “There are no signs at the moment of much appetite [among EU leaders] to reopen and renegotiate the TCA. The EU has lots of other things on its plate, from dealing with conflict on its border, pushing for a greening of the economy while protecting European industry including vis-à-vis China, as well as mitigating the impact of the Inflation Reduction Act in the US, not to mention discussions on potential future enlargement and reforming the bloc’s own economic governance. There is a caveat to this, though, because when the review of the TCA comes up, we'll be in a new legislative cycle. The European Parliament holds its elections in June 2024 and a new set of Commissioners will be appointed after the summer. We don’t know where the majority will lie and what the political weather will be like.”

While there is a pre-agreed review of the TCA, this won’t start until 2026. This proves a source of frustration for many businesses, particularly those in sectors that are required to have extra licences and file additional declarations. Given that there is little prospect of the status quo changing any time soon, this is where accountants and advisers can really be of value in helping their clients with supply chain management and trading processes. Ahead of any review, it is vital that business and other key stakeholders are consulted.

Beyond Europe: developing trade ties with the rest of the world

Accountants can also help businesses navigate trade with the rest of the world outside the EU. Following Brexit, the UK has signed a number of new trade agreements, which presents opportunities for the businesses willing to take them. “When I worked in practice advising businesses about their supply chains, there were very much two types of business,” explains Saltmarsh. “There were those that withdrew when we left the EU and just carried on selling domestically because they didn’t want to get into all the customs checks, the regulatory checks and so on. And then some actually saw it as an opportunity, taking the position that if exporting to the EU is now the same as exporting anywhere else, it could also start exporting to the US, to Asia and so on. The path taken was very much down to the business leadership.”

One of the most high-profile new trade deals that the UK has agreed terms for is to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), a free trade agreement (FTA) between 11 countries around the Pacific Rim that provides the UK with an FTA with Malaysia for the first time. However, reactions to the potential impact of CPTPP are mixed.

Jones says: “CPTPP gives us a lot more opportunity to export. The main benefit of it is that it gives us essentially a free trade deal with Malaysia, which we didn’t have before. And I think there’s quite a lot of excitement among business that it could be a lucrative export market.”

However, Winters says: “CPTPP is big, but except for Malaysia, we already had trade agreements with these countries. It’s also worth noting that there is some evidence that the beneficial effects of trade agreements decay over distance. So, not only do you trade less with countries on the other side of the world, but actually signing a trade agreement has less effect.”

Nonetheless, businesses can only work with the frameworks in place, and accountants are best placed to help them make the most of these. Arguably, one of the greatest challenges is encouraging the actual uptake of FTAs on the ground. Saltmarsh says: “Few businesses are using these FTAs, and the message needs to get out of how businesses make the most of them. Customs agents won’t necessarily do this, as they’re supposed to follow written instructions from their client; that is the business. So, if the business doesn’t tell them to claim this free trade preference tariff, the customs agent probably won’t.”

Improving trade promotion

Changes to trade promotion could also make a big difference to the UK’s trade performance. Most experts agree that promoting British trade overseas is essential to encourage countries to invest in and buy from the UK and increase British exports to those markets. There are numerous examples of trade missions organised both by the central government and other bodies, such as the Mayor of London and the Corporation of the City of London. However, UK organisations, including the government, could improve how they handle these.

First, there is a need for a more targeted approach. Jones says: “The government should stop trying to be everything to everybody. I would stop treating all geographies and all sectors as equal, and I would be placing some really big bets on some sectors and geographies where we’ve already got great relations and where we’ve already got a globally market-leading capability like fintech, green tech, green services, pharmaceuticals, or the creative industries. And I would be looking to really strongly promote those in core overseas territories so that you get an exponential bang for your buck. Because at the minute, it sometimes feels a bit like we’re spread like butter, too thin on toast.”

Second, the scheduling of trade missions could be better. “The trouble in my mind with trade missions is that businesses don’t get enough notice of them to take advantage of them,” says Jones. “They’re often organised with a handful of weeks’ notice, but senior business leaders’ diaries are booked up 18 months to two years in advance, so if they don’t have a reason to be in the country where the mission is, it is unlikely they can accept the invitation. I also think a lot more could be done virtually.”

Last, we should make much better use of the UK’s embassies to promote British business interests. “I’d really like to see all overseas missions and embassies receive significantly more business training. They are amazing if you’re a British tourist and you lose your passport, but they’re not set up – and to be fair to them, they have never been set up – to promote British business interests like other countries do. We need to move away from a model where the embassies are there for people in trouble towards one where the embassies are much more about promoting British business and spotting opportunities,” states Jones.

Trade simplification and digitalisation

While trade deals and trade promotion may boost trade prospects, the reality is that most businesses involved in trade find it administratively cumbersome. This also acts as a disincentive for businesses to start trading. However, several projects are in the works to overcome these issues.

Saltmarsh says that “HMRC is looking at many ways to simplify processes. It’s launched three or four consultations on simplifying customs declarations and is also considering modernising customs authorisations. It has also launched a new customs declaration system called the Customs Declaration Service (CDS), which replaced the old CHIEF system that had been in place for about 30 years. There is also a project called the Single Trade Window, which will allow traders one point of access to the various systems they need to use for importing or exporting, rather than forcing them to log into multiple systems. The idea is that once you’ve told HMRC something, that will be it, and it will automatically fill in the information. So, it should take out so much of the manual process that’s currently needed.”

Once rolled out, these projects will undoubtedly benefit businesses and their advisers. However, many are years away from completion; the Single Trade Window is currently scheduled to be rolled out in 2025.

The importance of education

The government plays a huge role in improving trade conditions, but ultimately, the impetus to start trading comes from business itself. Saltmarsh states: “Government can negotiate the trade details, it can promote trade, it can make sure that the customs system works. But the decision as to whether to trade or not is down to businesses and their advisers.”

In this respect, education and training can be hugely important in encouraging businesses to start trading. Lack of trade know-how is one of the biggest barriers for companies to start trading overseas, and though training and support are no guarantee that they will start doing so, it is an important foundation. In this aspect of improving trade, both government and business have a role to play.

From a government perspective, a lot of information is available, and there have been well-received initiatives, such as the UK Export Academy. However, it is not always easy to source this information. Jones says: “So first and foremost, the very first thing I would do if I ruled the world is that I would overhaul the gov.uk website, which is incredibly difficult for businesses to navigate. If you’re a business and you want to start exporting, and you want to work out what you need to do, you have to go through, by last count, something like 200 different clicks to get all the necessary information. If you compare that with the websites from the Australian or US government, which are very much one-stop shops for business, it’s materially harder for UK businesses to get hold of the information in the first place.”

From a business perspective, trade associations and their members can also play a key role. The eCommerce Trade Commission launched earlier in 2023 is a case in point. Convened by the Institute of Export & International Trade, the new Commission aims to encourage the UK’s 70,000 SMEs to trade internationally online. Aside from advising the government on policy, the Commission will also help to promote the opportunities offered by trade and signpost SMEs to resources.

ICAEW sits on the Commission, as Saltmarsh explains: “As well as ICAEW, the Commission is made up of a number of the major marketplaces, such as eBay, Amazon, Shopify and Alibaba, and they all have their own resources to help small businesses to export. So, for example, eBay runs a scheme where, if you want to sell overseas, you actually just sell it to eBay; they handle the logistics and just tell you how much it will cost. There are all these resources and schemes out there that businesses just don’t know about. So, one of the Commission’s goals is to pull these resources into one place and promote them to SMEs.”

The role of accountants

Then there is, of course, the role of accountants. Research from the Social Market Foundation shows that accountants are the most used source of advice by SMEs about exporting, with 20% of SMEs citing them as a source of help to start, maintain or grow exporting activity. And the consensus of most experts is that accountants play a critical role in helping businesses with export and trade matters. Saltmarsh states: “Accountants are often the go-to for any small business looking to start exporting. And whether that’s because the accountant has the knowledge themselves or because the accountant can do the declarations or because they can signpost resources from their own network or government programmes, they are an incredibly important resource.”

Finally, in the words of Alison Horner, VAT and Indirect Tax Partner at MHA: “If a business is looking to trade internationally, whatever and wherever that trade may be, there are specialists within the UK that can help with that. It’s just knowing that they’re there. You might think that you’re on your own, but you’re not.”

Open AddCPD icon

Add Verified CPD Activity

Introducing AddCPD, a new way to record your CPD activities!

Log in to start using the AddCPD tool. Available only to ICAEW members.

Add this page to your CPD activity

Step 1 of 3
Download recorded
Download not recorded

Please download the related document if you wish to add this activity to your record

What time are you claiming for this activity?
Mandatory fields

Add this page to your CPD activity

Step 2 of 3
Mandatory field

Add activity to my record

Step 3 of 3
Mandatory field

Activity added

An error has occurred
Please try again

If the problem persists please contact our helpline on +44 (0)1908 248 250