UK businesses facing increased costs and supply chain issues in post-Brexit system – new from UKTPO
Posted on behalf of: UK Trade Policy Observatory
Last updated: Wednesday, 15 March 2023
New analysis released today (Wednesday 15 March, 2023) by the University of Sussex’s UK Trade Policy Observatory (UKTPO), reveals that UK businesses are struggling with increased costs, labour and skill issues and supply shortages and issues following the UK’s departure from the European Union.
Using AI technology, specifically machine learning and sentiment analysis techniques, the UKTPO analysed over 2,800 responses to three surveys issued by the British Chambers of Commerce (BCC), to help produce a long-term perspective on the challenges facing UK businesses.
The UKTPO analysis examines the main challenges and opportunities reported by businesses over 2021 and 2022 and in two specific trade-related areas. The first is on the difficulties and disadvantages for businesses arising from the EU-UK Trade and Cooperation Agreement (TCA). The second is on supply chain challenges.
The UKTPO report shows that as a result of the TCA, UK businesses are reporting significant difficulties and disadvantages, including increased red tape, bureaucracy and costs, as well as shipping and transport issues. Such increases inevitably lead to both shortages of products and rises in prices for the UK public.
When asked about overall challenges and opportunities for businesses, the UKTPO found that 94% of responses focused on the challenges of the current business environment, and only 6% were positive in sentiment. The researchers conclude that this, in itself, is a reflection of firms’ perceptions of the economic environment that they are currently facing.
Since the introduction of the TCA, difficulties surrounding taxes, tariffs and duties and increased costs have become more significant for businesses.
This increase is related to several factors including, administrative costs, shipping costs and the cost of inputs. Over the last three years, concern around increased costs has grown, with 23% of the survey respondents reporting this as an issue in 2022, compared to 20% in 2021. Businesses have reported a competitive disadvantage for the UK and loss of trade with the EU nearly three times more in 2022, than 2021.
Alongside Brexit, the researchers found that discontent with government policy was another key issue. Based on the analysis, overall, Brexit was mentioned as a concern on average for 10% of responses across the three surveys, while concerns with government policy rose from 11% to 15%.
In the most recent survey, businesses were asked several questions with regard to supply chains. As previously reported by the BCC, over half (52%) of respondents overall said they are experiencing shortages of goods and services, rising to seven in ten (70%) for manufacturers. New analysis from the UKTPO reveals that a significant proportion of businesses attribute these shortages to Brexit with over 35% of the survey’s respondents identifying this as a causal factor, followed closely by COVID-19. The main shortages reported are amongst electronic goods and components, and in the labour market.
Michael Gasiorek, Professor of Economics at the University of Sussex and UKTPOs Director, says:
“The TCA poses significant financial challenges for many businesses and the UK public, especially relating to increased costs, and this is likely to continue. The concern in the long run is how this may impact on investment, in particular, when coupled with broader-based supply chain disruptions around the world, and governments’ responses to those disruptions. This underlines the importance of a suitable and stable policy framework to encourage productive investment.”
William Bain, Head of Trade Policy at the BCC, says:
“With the Windsor Framework showing it is possible for the UK and EU to negotiate improved trading arrangements, this research makes clear where the next priority will lie. Looking at simplifying paperwork for food exports and changing VAT arrangements would be a good place for the EU and UK to start.”
“With a recession looming we must remove the shackles holding back our exporters so they can play their part in the UK’s economic recovery.”
The EU-UK TCA came into effect just over two years ago as a result of the UK’s decision to leave the European Union. The TCA is a free trade agreement between the EU and UK that sets the terms of the trading arrangements, as well as a broad range of other key areas of mutual interest.
The report also highlights how concerns over the energy crisis have increased over time.
The British public are likely to experience the knock-on effects of these challenges. This may translate into an increase in prices, and shortages of goods in the shops in the long run. The analysis from the UKPTO shows that there is concern that some businesses may no longer be able to continue to operate, resulting in job losses and continued economic instability.