Brexit will be the biggest single change to all aspects of life in the United Kingdom in the last 50 years. Whatever your beliefs about the EU, it is becoming more and more clear with each passing day that a no-deal Brexit is becoming more and more likely.
If no-deal happens (and as likely as it may seem it is, at the time of writing this article, still an ‘if’) the UK will go from being a member of one of the world’s largest single markets and customs unions to being a global outsider, quite literally overnight. The impacts on all businesses across the UK will be dramatic. Companies in the manufacturing sector which rely upon just-in-time supply chains, and an international base of both suppliers and customers, for their survival, can expect to be especially heavily impacted.
The English Midlands are home to a huge range and variety of manufacturing and engineering businesses. From small and medium-sized enterprises such as ourselves at Subcon Laser, through to global giants such as BMW, Rolls Royce and others, our region has a long and prestigious history of heavy industry and was one of the driving forces of the industrial revolution.
However, since the UK joined the EEC (as it was then, now the EU) in 1973, the entire nature of our industry has changed. Rather than South Wales, Shropshire, and the North-East, our raw materials now arrive just in time from suppliers across the EU, and around the world. Any interruption to this just in time supply chain would have an inevitable, and costly, impact on business.
Unfortunately, it is difficult to see how an interruption to vital trans-European and global supply chains can be avoided. Even in the event of an orderly exit of the UK from the EU, it seems that – for political reasons – it will not be possible for the UK to remain a member of the customs union and single market.
The impact of this change cannot be overestimated since it will bring about the inevitable reintroduction of customs checks, import duties, and tariffs for all goods travelling from Europe into the UK. Not only will compliance with new – as yet unknown – procedures and bureaucracy impose additional financial and regulatory burdens, the uncertainty of additional transport times for goods crossing borders has the potential to render the concept of just-in-time supply an impossibility.
Once outside the EU, UK-based companies will be obliged to pay tariffs on the overwhelming majority of goods travelling into the single market, of which we will no longer be members. The practical upshot of this is to increase the cost of UK manufactured goods to customers in the EU; indeed, that is the whole reason that tariffs – a tool of economic protectionism – exist.
It may be that the UK, as has been suggested by some on the far right of British politics, would unilaterally decide not to impose our own tariffs on imports to this country. However, even if the UK were to embark on its own zero-tariff approach, there is essentially zero chance the EU would follow suit.
For manufacturers who export within the EU – or even to other countries with which the UK has a trade agreement as a member of the EU – there will be two options: pay the tariffs on behalf of customers and take a significant hit to their finances; or pass the costs on, see order numbers drop, and take a significant hit to their finances. There are companies across the Midlands region, and throughout the UK, already operating on tight margins for which this issue alone could mean that they can no longer continue to trade.
It is inconceivable that, in the event of a no-deal Brexit, the pound will maintain its global value. Additionally, because of the increased costs of importing goods, and services such as gas and electricity, into the UK, no-deal will lead to rampant inflation, price rises, and higher costs for both businesses and consumers. Higher prices here in the UK, combined with a fall in the value of the pound, will make British goods more expensive overseas, and make overseas goods more expensive for UK based companies. The Bank of England has presented some scenarios in which prices could increase by as up to 35% – a change it would be difficult for any company to survive.
Is it all bad?
Well, yes. Supply, the economy, and tariffs are just three areas where UK manufacturing stands to be hugely negatively impacted by a no-deal Brexit. There is also the prospect of recruitment difficulties caused by the end of freedom of movement; a breakdown in transport infrastructures such as ferry transport and the Channel Tunnel; and lack of certainty over regulation to name but three more challenges.
Worst of all, these impacts are not just limited to a no-deal scenario. Even if the UK Government is able to reach a deal with Brussels on the withdrawal agreement, that will only buy an extra few months in which to negotiate the terms of our future relationship with the EU. Unless something dramatic changes, every appearance is that – for the manufacturing and engineering sectors – Brexit is a choice between chaos now, or chaos tomorrow.