What impact is Brexit already having on UK manufacturing?

Posted on 21 Sep 2018 by Jonny Williamson

With just six months to go until Britain leaves the EU, new research from EEF suggests that a quarter of its members have lost out or expect to lose out on investment, skilled workers and new contracts.

Exports Shipping Crate Forklift Container Port Docks Trade Supply Chain - image courtesy of Depositphotos
Primary concerns for manufacturers are increased border checks and the resulting administrative burden and time delays they may cause – image courtesy of Depositphotos. – image courtesy of Depositphotos

EEF’s study of industrial decision-makers found that one in six (16%) warn that business would become untenable for them in the event of a ‘no-deal Brexit’ and the UK reverting to WTO tariffs.

The primary concerns, should that happen, are increased border checks on both people and goods, and the resulting additional administrative burden and time delays such checks may cause.

Furthermore, the majority (83%) said they are unprepared for a no-deal Brexit and two in five (43%) say that are not prepared and have no plans to do so.

 A quarter of business leaders expect to change their grown plans as a result of Brexit, and 30% say that they are finding or expect to find it more difficult to recruit workers with the necessary skills.

In terms of what they wanted from the negotiations, most (82%) said that it was important that there are no tariffs on EU goods, and a similar amount (78%) said the same of ensuring full access to the single market.

Remaining in the Customs Union was seen as important for 71% of those businesses surveyed, with two-thirds (68%) highlighting the need for new trade deals outside the EU.

America was the top priority for a new trade deal after Brexit (52%), while two in five businesses (41%) are already exploring, or expect to explore, new markets outside the EU.

Respondents were uncertain about where future opportunities lie, with 24% not clear what their biggest post-Brexit opportunity will be, but there was a definite appetite to take advantage of new trade possibilities.

However, while companies saw turbulence in the short term, in the longer-term manufacturing businesses were optimistic that business affairs will settle naturally as the UK and EU reach a stable agreement.

Alongside the new research, EEF also published its own Brexit Audit of the government’s white paper, highlighting the four key outcomes which Industry needs to see from the final negotiations to make Brexit work.

These include:

  • A properly planned, open ended implementation period for leaving the EU, likely to take many/several years, and open-ended to allow trade negotiations sufficient time to conclude and the outcome to be implemented without artificial constraints
  • Frictionless trade by ensuring no tariffs on the import of goods and ensuring British companies can continue to operate ‘just in time delivery’ logistics as part of an integrated supply chain
  • An ability for workers to move into and out of the UK, ensuring British companies can fill vacancies where they have skills gaps and send workers overseas to meet the requirements of service contracts and other commercial opportunities
  • A commitment for Britain to maintain mutually recognised, close regulatory alignment with the EU, supported by a common system of arbitration and standard setting, ensuring that British firms can produce goods that can be easily traded across Europe with clear protections in place

£5bn tariffs threat ‘tip of iceberg’

UK Automotive - The Society of Motor Manufacturers and Traders (SMMT) set out its priorities to assure the UK automotive industry’s future success - image courtesy of Depositphotos.
UK Automotive turns over £82bn, supports 856,000 jobs (186,000 in manufacturing) and is responsible for 11% of EU auto manufacturing R&D spend – image courtesy of Depositphotos.

The Society of Motor Manufacturers and Traders (SMMT) has said that a ‘no-deal’ Brexit must be ruled out now to avoid damaging one of the EU’s most valuable economic assets.

New SMMT analysis suggests that no-deal and the resulting tariffs on light vehicles alone could add £5bn to the collective EU-UK auto trade bill.

If passed directly on to consumers, import tariffs could push up the cost of UK-built cars sold in the EU by an average £2,700, and that of light commercial vehicles by £2,000 – affecting demand, profitability and jobs.

Similarly, UK buyers of a car or van from the EU would be faced with £1,500 and £1,700 increases if manufacturers and their dealer networks were unable to absorb these additional costs, SMMT has warned.

Under the hood

The automotive sector is one of Europe’s most valuable economic assets, employing 13.3 million people and representing 6.8% of EU GDP. The sector invests some £47bn in innovation each year, making it the EU’s largest R&D investor, and it produces roughly 17 million cars annually – nearly a quarter of global passenger car production.

UK Automotive is a key component of this success. It’s the EU’s second largest new car market – worth some £29bn to EU manufacturers every year – and the fourth largest car manufacturing nation.

Alone, it turns over £82bn, supports 856,000 jobs (186,000 in manufacturing) and is responsible for 11% of EU auto manufacturing R&D spend. In 2017, British buyers registered some 1.9 million cars and vans from the Continent.

Fundamental to this, according to the SMMT, has been the deeply integrated nature of the EU-wide industry, which “has sought to maximise single market and customs union benefits to reduce costs, improve quality and embrace innovation”.

Some seven out of every 10 cars registered by UK motorists come from factories in Europe, while UK car plants send more than 40% of their output to the Continent.

In addition, the tens of thousands of parts making up a vehicle cross EU borders multiple times before final assembly, with the majority of components going into UK-built cars coming from EU suppliers, supporting supply chain jobs across the region.

On top of the 2.7 million cars and vans that traverse the Channel each year, the UK exports some £3.4bn worth of components to help build these vehicles in Europe, and sources almost three-times that sum from EU-based suppliers.

More than 1,100 trucks cross into the UK from the Continent every day – the vast majority without a customs check – to deliver some £34m worth of parts to UK plants for vehicles and engines, which are then exported back to the EU.

The SMMT warned: “Without a withdrawal agreement, on 30 March 2019 this trade will, as a minimum, be severely disrupted – potentially halting production, undermining competitiveness and negatively impacting the industry in the UK and Europe.”