Saturday, February 4, 2023

UK businesses struggle to trade with EU two years after Brexit deal

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It is now two years since the UK signed its post-Brexit trade deal with the EU, but for small businesses such as Doncaster-based Apothecary-87, the travails of trading across the English Channel show no signs of abating.

Owner Sam Martin’s range of premium beard oils and hair balms took off rapidly when his company was founded in 2012, but export growth came to a shuddering halt when the EU-UK Trade and Cooperation Agreement came into force on December 31, 2020.

“Before Brexit, our business was 75 per cent exports and the rest in the UK, but Brexit has pretty much turned that number on its head because of the costs and difficulties of getting products to those countries,” he said.

In a report to mark the two-year anniversary of the TCA, the British Chambers of Commerce said that Martin’s frustrations were typical of small and medium-sized companies that were now facing “structural” rather than temporary problems with the deal.

A BCC membership survey included in the report found that more than three quarters (77 per cent) of companies that were affected by the deal said it was not helping them increase sales; while more than half (56 per cent) of respondents said they faced difficulties adapting to the new rules for trading goods.

Shevaun Haviland, the director-general of the BCC, called for an “honest dialogue” with the government over how to improve the deal, presenting ministers with a 24-point plan to ease the burdens on businesses.

Mark Newton: ‘The TCA is definitely a growth inhibitor’ © Simon Buck/FT

“There are very few easy fixes to the many problems that businesses face trading with Europe, but it is disappointing that almost two years after the TCA was first agreed that nothing has been done to find solutions to some of these issues,” she said.

Chief among the BCC’s demands are a Swiss-style deal with Brussels to eliminate checks on plant and animal products; a Norway-style deal to reduce complexities around VAT on low-value imports and ongoing unilateral recognition of EU industrial and electronic product standards.

In the longer term the BCC says Britain should consider an EU-UK deal for VAT and an agreement to deepen EU co-operation on product regulation and facilitating professional services when the TCA comes up for its five-yearly review in 2026.

When he announced the eleventh-hour deal with Brussels on Christmas Eve 2020, the then prime minister Boris Johnson said that “no non-tariff barriers to trade” would arise from TCA.

However, Martin said that Apothecary-87 faced a host of ongoing post-Brexit challenges, including higher import costs caused by a weaker pound, longer lead times for obtaining ingredients, the need for cosmetic import licences, EU border checks and payment of import VAT — all of which deterred EU customers.

He added that online retail customers in the EU that had previously bought a single £10 product were facing VAT and handling charges that more than doubled or tripled the price, while barber shops in Italy and Spain were forced to obtain cosmetic import licences for up to €1,000 each.

“Only a true ‘superfan’ of our products could accept these kinds of higher prices,” said Martin, who urged the government to do more to smooth the passage of exports to the EU.

The BCC has also requested the UK agree with Brussels to remove the need for a so-called “fiscal intermediary” — an EU-registered company able to declare and pay VAT — for small businesses to send products worth less than €150 to the EU.

Video: The Brexit effect: how leaving the EU hit the UK

Analysis by Aston Business School suggests that exports to the EU are 26 per cent lower than they would have been without the non-tariff barriers imposed by the TCA. There has been a sharp fall in the varieties of goods traded, which have dropped from 70,000 to 42,000 since the new rules came into effect.

William Bain, the BCC’s head of trade policy, said it was notable that the responses to the annual membership survey had become increasingly embittered as businesses realised that the barriers posed by the TCA were not temporary, but permanent and structural.

“There’s a state of heightened emotiveness about just how onerous these costs and paperwork are, alongside a palpable sense of anger that nothing is being done to relieve them,” he added.

For some businesses, such as Suffolk-based LMK Thermosafe, which produces industrial heaters for drums and containers, the answer has been to shift distribution networks into Europe in order to maintain reliable deliveries to clients.

Mark Newton, the company’s managing director, said he had battled to hold on to EU clients, who represented 30-40 per cent of the business’s exports. He added that it was now easier to export to the US than the EU.

Despite hiring an extra full-time staff member to help with the paperwork, Newton said that delays still occurred, even when paperwork was correct. “I had been hoping to avoid opening in the EU. I thought we could get the processes down pat, but I’ve now had to accept it’s necessary. But it all adds cost and subtracts from the margin,” he said.

He added: “The TCA is definitely a growth inhibitor. Blue-chip clients have stuck with us, but with our EU competitors they are definitely sabre-rattling with our distributors, saying ‘you don’t want to do business with the Brits, it’s too complicated’.”

Overall, the BCC said its findings on the TCA two years on should “provide deep pause for thought by decision makers” as dissatisfaction over the agreement has grown during the past two years.

It concluded: “The sudden imposition of non-tariff barriers in business sector after sector has led many businesses to conclude it does not currently allow free trade.”

The government said the TCA had secured UK businesses market access across key service sectors and opened new opportunities across the globe.

“The UK has provided exporters with practical support on the implementation of the TCA, including launching an ambitious export strategy and a new export support service,” a spokesperson said. 

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