New Brexit research from Make UK reveals true scale of Brexit impact
16 October 2019
New Make UK_Squire Patton Boggs research_Preparing for Brexit_Deal or no deal
New research from Make UK, the manufacturers' organisation & global law firm, Squire Patton Boggs shows that 64% of UK manufacturers say Brexit delay & uncertainty has hit profits in the last two years. Almost half have already seen a negative change in the appetite of EU customers & suppliers for doing business with them.
New research published today by Make UK, the manufacturers’ organisation, and global law firm, Squire Patton Boggs shows that 64% of manufacturers have already taken a financial hit during the last two years, as they struggle to prepare for an unknown trading environment post-Brexit.
• 64% of manufacturers cite Brexit delay and uncertainty as having had a negative impact on their company’s profit margin in last two years
• Nearly half have already experienced a noticeably negative change in the appetite of EU customers & suppliers towards doing business with them
• 76% of manufacturers feel that a no-deal Brexit would have a further negative impact on the appetite of their EU customers & suppliers to do business with them
• 73% of manufacturers believe proposed zero-tariff plan would result in additional costs for their business versus just 3% who predict a cost saving
• Two thirds of manufacturers experiencing increased tariff costs would pass on all or some of that cost to customers
• Fewer than 30% of UK manufacturers have applied to government for a customs special procedure to help with cash flow or mitigate against import duties
Businesses have already had to make a costly U-turn in the run up to the original 29 March 2019 Brexit date, when stockpiling activities reached the highest level ever recorded in the G7. Demand for warehousing space rocketed by an unprecedented 32%. This surge was followed by an inevitable slump and since then, almost half of companies have seen a noticeable negative change in EU customer and supplier appetite to do business with them because of continued uncertainty.
According to the survey, 76% of manufacturers said that a no-deal Brexit would be disastrous to their businesses, with a negative impact on the appetite of both EU customers and suppliers to do business with them. Some 60% of manufacturers would increase product prices and a third would cut staff.
The government’s proposed zero tariff plan in the event of no-deal was also viewed negatively with 73% of companies saying it would bring about a cost hike for their businesses. The scheme would see 87% of imports by value eligible for zero-tariff access to the UK, compared to the 80% which are already tariff free. Just 3% of companies think they will see a saving from the new regime in the event of a no-deal Brexit.
As the default leaving date of October 31st looms, less than a third of manufacturers have prepared for the new customs processes which would come into force in the event of no deal.
The survey further showed that while nearly two-thirds (64.1%) of respondents understood that changes would be introduced to product labelling, fewer than half have taken any steps to enable them to comply with the new rules which will allow them to continue to trade with the EU.
Commenting, Stephen Phipson, Chief Executive at Make UK, said: “Today’s research must serve as a wake-up call to Government – business needs clarity and stability going forward, but that does not mean leaving the EU at any cost.
“No deal would leave manufacturing facing tariffs on the import of goods and just-in-time delivery logistics would become inoperable. Furthermore, business would be unable to access the people to ensure British companies can fill vacancies where they have skills gaps or, send workers to the EU for service contracts and other commercial opportunities.
“We must also see a commitment to maintain mutually recognised, close regulatory alignment with the EU, supported by a system of arbitration and standard setting to ensure that British firms can produce goods that can easily be traded across Europe with clear protections in place.
“We have already seen major companies voting with their feet and taking their planned business operations away from the UK while many businesses are losing out on new contracts with EU customers because of the uncertain future trading arrangements. This is only going to get worse until a deal with a sensible transition period is agreed.”
Manufacturing makes up around 10% of the total UK economy and is likely to one of the sectors hit hardest by border delays and tariffs, especially given its heavy reliance on just-in-time supply chains, as well as its high level of exports to EU customers. Already, Make UK estimates, based on official data, point to a net fall of 120,000 manufacturing jobs since the 2016 referendum, largely as a result of Brexit.
Given this, it is not surprising that manufacturers have been angered by comments from government ministers over how prepared business is for Brexit. Michael Gove, the Cabinet Minister in charge of no deal preparations, came under attack last month after he claimed that companies in sectors such as retail were prepared for Brexit. And this weekend, Home Secretary, Priti Patel was heavily criticised for appearing to disregard industry concerns over a hard Brexit in a BBC interview with Andrew Marr.
“We repeatedly hear from government that we are ready, when we are not,” said Phipson, warning that the supply chain could break down unless smaller companies were protected. Just a third of companies told Make UK they were significantly prepared for a no-deal departure, contradicting repeated government assertions that industry was ready for any outcome.
Jeremy Cape, partner in the Brexit team at Squire Patton Boggs, added: “A no-deal Brexit presents huge challenges to the UK’s manufacturing sector and the immediate implications for businesses in terms of cost and disruption will be serious. In particular, it is widely expected that many manufacturing businesses, particularly those that rely on just-in-time supply chains within the EU and those who may be impacted by the imposition of new tariffs, may scale back or close their UK operations.
“Whilst it is impossible to know the macroeconomic consequences of a no-deal Brexit, it is vital that UK manufacturers do what they can to be fully prepared. It is clear from the research findings in this report that many companies have not planned anything like as fully as they should. No one likes to spend time and money preparing for outcomes that may not occur, but the impact of a no-deal Brexit – in October, January or later – is such that a small investment in preparation is critical.”
'Preparing for Brexit: Deal or no Deal', published by Make UK and Squire Patton Boggs, explores the impact the Brexit delay has already had on manufacturers, with most already reporting significant losses, both financially and in credibility terms. The report dives deep into the following areas:
1. Frictionless trade
2. Access to skills to deliver services
3. Regulatory & technical alignment
4. A properly planned transition period
5. Post-Brexit opportunities
The message to Government is clear
With just 2% of manufacturers believing a no-deal Brexit would positively affect our ability to do business with the EU, we must do all we can to avoid the irreversible impact a no-deal Brexit would have on UK manufacturing. Make UK calls on the Government to prioritise securing a deal with the EU as soon as possible.
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