TradeTuesday: Brexit three years on

The three-year anniversary of the United Kingdom’s exiting from the European Union has been met with a sense of disillusionment across the UK’s political fault lines. This has been evident with the UK’s departure from the Single Market which has not been smooth, and tangible economic or even trading successes are hard to certify.

Domestically, Brexit still impacts all four of the UK’s nations and their political parties.  Three years since leaving, this has led to a Brexit inertia which has meant the UK’s political parties still grapple with how they want to readdress their relationship with the EU and businesses are left with a number of unanswered questions. There is also a question about what being ‘out’ has meant for our trading relationships with non-EU countries, and supply chain flows.  

International trade and supply-chains

By Sabine Tyldesley

Leaving the EU and the resulting changes in imports of goods from the EU have affected UK firms’ supply chains significantly. The fall in imports from the EU affected the UK economy negatively through its impact on supply chains; mainly due to disruption in sourcing products used as inputs to production across many industries in the UK.

Four in five UK businesses felt that Brexit had proved the biggest supply chain disruptor over the past 12 months, according to an Ivalua survey reported on in November.

Brexit reduced the number of foreign workers and caused significant disruption to supply chains by causing a drop in lorry drivers in the UK, alongside non-tariff barriers, when full UK border controls came into force at the end of January 2022. More controls on food and animal products are pending, and analysis shows trade between the EU and Britain has dropped dramatically.

Business groups have some damning verdicts on the Trade and Cooperation Agreement (TCA) with the British Chambers of Commerce sharing three quarters (77%) of firms saying it is not helping them increase sales or grow their business. 56% of firms face difficulties adapting to the new rules for trading goods. Almost half (45%) face difficulties adapting to the new rules for trading services, and a similar number (44%) report difficulties obtaining visas for staff.

Problems are far from universal, but they are widespread. Covid has additionally frustrated new trade agreements and led to some sectors reorganising their supply chains away from EU countries (and some away from China… but that will be the topic of our next Blog).

Business’ Unresolved Questions

By Dafydd Rees

Three years on from the moment the UK officially left the EU, and more than six years since the referendum vote itself, Britain’s financial and business communities are surprisingly still not released from the ties that once bound the UK to the EU.  

In fact, as a recent landmark report by the independent academic think-tank UK in a Changing Europe sets out in detail, there remains a host of unresolved Brexit economic and regulatory issues, quite apart from the ongoing and thorny dispute over the Northern Ireland Protocol.    

Here are just some of the big questions to which UK business requires permanent answers.     

In Financial Services temporary decisions which provided important access to EU markets are set to expire within the next two years. Looming large is a permanent decision on equivalence between the UK and EU, which allows UK clearing house firms access to European markets. It looks unlikely to be continued beyond 2025. Currently, as the UK in a Changing Europe report sets out, EU financial firms in general have much greater access to the UK market than vice-versa.

The UK car industry faces another headache with the introduction of rules of origin for electric vehicles manufactured in the UK. From 2024 the required proportion of an EV which must be produced in the UK rises. Engine batteries will also have to be assembled in the UK to qualify for tariff-free trade with the EU.  

From the start of 2025, all good for sale in Britain will require a replacement for the EU “CE” kitemark and at some date in the future, which is yet to be announced, the introduction of full customs checks is due.

In June 2025, the agreement which as part of GDPR protocols allows for the free exchange of personal data between the UK and EU ends. The fisheries deal between the UK and EU finishes in June 2026.

As the Eagles once sang so memorably in Hotel California it looks as if when it comes to the UK’s relationship with the EU, “you can check out any time you like, but you can never leave.”

The view from Westminster

By Fraser Raleigh

In Westminster, politicians are – for the most part – keen to move on. The endless, exhausting debates over how (if at all) the vote to leave should be implemented were ended with Boris Johnson’s landslide victory in 2019. Under Rishi Sunak, the Conservatives are keen to point to changes made possible by Brexit – such as in financial services – while quietly but steadily rebuilding relationships with Brussels, Paris and Dublin that were put under serious strain by the more bullish rhetoric of Johnson and Liz Truss.

But the loose threads and jagged edges of the “oven-ready” deal that broke the deadlock still cause significant political challenges three years on. 

Devolution in Northern Ireland has collapsed in large part due to the implementation of the Protocol, with unionists unlikely to be won over by the changes the EU and UK seem close to agreeing, and nationalism’s appeal gradually growing among unaligned communities. Conversely, while the SNP has made re-joining the EU a central part of its pitch for independence, the political, economic and logistical challenges of Scotland leaving a post-Brexit UK are significantly greater, with polls showing no appetite for an imminent indyref2.

Then there’s Labour. Once the standard bearer of the ‘People’s Vote’, Keir Starmer now talks of making Brexit work rather than reversing it, talking up Labour’s pragmatism. This is in part both to prevent ruptures in the electoral coalition he needs and to highlight divisions within the Conservatives. He hopes – almost certainly correctly – that with new challenges coming from every direction the electorate, too, have moved on.