Lee Collinson explores the impact that Brexit is having on UK manufacturing and advises businesses on what to do to overcome or mitigate the challenges of uncertainty.
As things stand, the UK is due to leave the European Union by 31 January. The date has already been moved several times, so there is a very real possibility of it being moved again.
There is a possibility that the UK could in fact leave sooner. If a deal is approved by Parliament before January, then the UK would leave at the end of the month in which it was ratified.
In the three and a half years since the referendum, Brexit has dominated front pages, opinion pieces, column inches, news broadcasts, panel discussions, social media, videos and much more.
Whatever (and whenever) the outcome, it’s safe to say that the key decisions around Brexit will have a direct and long-lasting impact on our manufacturing sector.
Across the industry, we are already seeing the affects in three key areas:
- Trade barriers – After the EU referendum input price inflation increased due to depreciation in the trade weighted value of the pound, adding to an increased cost pressures on firms.
- Workers – Employees of UK-based businesses have already started to shift to other EU countries, and the number of EU nationals working in the UK has declined.
- Weak currency – Exchange rate volatility is likely to continue as the growing risk of Brexit has weakened Sterling, having an adverse impact on imports.
Sector specific challenges
Brexit poses a range of specific challenges to many subsectors of manufacturing, from regulatory issues and supply chain delays, to increased operating costs and the availability of funding.
Below are just some of the sector specific issues that have to be addressed:
- Food & Drink businesses have a high dependency on migrant workers (compared to other sectors in the economy). Of the more than 400,000 people directly employed by the sector, around a third are non-UK nationals.
- In the event of a ‘No Deal’ scenario, the 77% of Consumer Goods exports currently destined for the EU market would need to meet the individual requirements of each country – placing an additional layer of compliance for businesses to contend with.
- The EU currently contributes around £100m to UK R&D in Aerospace, Security and Space every year. Leaving without a deal would leave a significant long-term funding gap for our research and innovation.
- The UK Transportation & Logistics industry is already facing driver shortages, and around 10% of the current workers are EU migrants. A ‘No Deal’ Brexit could result in a reduction of up to £6.7bn in economic output due to a lack of workers, including drivers.
- Post-Brexit, changes regarding EU agricultural subsidies could influence industry performance by limited demand from the downstream Agriculture sector.
Potential solutions
Barclays is helping companies to take the proactive steps necessary to overcome or mitigate these challenges.
We are hosting more than 100 clinics across the nation to offer small and medium-sized businesses practical expertise from the bank’s 1,500-strong network of relationship manager and industry specialists.
The clinics provide an opportunity for business owners to share their thoughts on how to tackle a broad range of common issues, from food exports and cashflow and labour, to supply chain management, fraud and trade.
Below are some of the issues a ‘No Deal’ Brexit presents and potential solutions:
Working with Banks
UK businesses are likely to face a range of additional import VAT and tariff costs, as well as added costs from new customs procedures or border delays. Putting in place overdraft and lending facilities can act as an insurance policy.
Tariffs
The UK will implement a temporary tariff regime for up to 12 months until a full consultation and review on a permanent approach is undertaken. Under such a regime, the majority of UK imports would be tariff free; however, in certain sectors, tariffs would be maintained to support the most sensitive agricultural industries and to maintain the UK government’s commitment to developing countries.
New Customs Procedures
To minimise EU customs-related disruptions and to continue trading, the government advises businesses to apply for a UK Economic Operator Registration and Identification (EORI) number, which will also be needed to apply for customs simplifications.
Businesses trading with the EU will also be required to submit new customs declarations either directly or through a third party such as a customs broker or logistics provider.
H2020 Projects
Horizon 2020 is the EU Research and Innovation programme with nearly €80bn of funding available over seven years (2014 – 2020). The UK government is committed to an underwrite guarantee to all successful UK bids made to H2020 prior to Brexit, as well as to UK organisations participating as a third country between exit day and the end of 2020.
If a UK based company has received H2020 funding, it’s important for them to register details of its project with UK Research and Innovation (UKRI).
Data Transfer
Businesses will need to ensure that adequate safeguards are in place to maintain any data flows from European Economic Area (EEA) to the UK. Companies would need to work with their EU partners to identify a legal basis for data transfers, most likely through Binding Corporate Rules or standard contractual clauses.
Employees
EU/EEA and Swiss citizens residing in the UK before the UK leaves the EU will be able to apply for EU Settlement Scheme to get settled or pre-settled status, enabling them to continue to live, work and study here. EU/EEA and Swiss citizens must apply for this by 31 December 2020 if the UK leaves the EU without a deal.
Helping businesses thrive
Barclays has a long and proud history of supporting UK businesses, particularly this country’s 5.7 million SMEs, through times of change and uncertainty – and will continue to do so.
All businesses should have plans for dealing with uncertainty – Brexit included. Barclays is here to help you make sure they’re in place.
To find out more about the steps you can take to prepare your business for Brexit, please visit our dedicated section of the Barclays Business Banking website.
I’d love to hear your thoughts, so please connect with me on LinkedIn.
Lee Collinson is National Head of Manufacturing, Transport & Logistics at Barclays
Further thought-leadership courtesy of Lee:
- Is ‘Going Direct’ the key to growing your manufacturing business?
- Why upgrading the UK’s digital infrastructure is so vital for manufacturers
- Improving transport infrastructure would help drive business growth in the North
- The road ahead may be daunting, but the UK has world-class expertise in battery science
*Images courtesy of Depositphotos