Six months in and UK businesses are still battling with Brexit

Almost a third of British companies that trade with the EU have suffered a decline or loss of business since post-Brexit rules took effect on January 1, according to a survey conducted for the Financial Times.

The survey, carried out by the Institute of Directors, also found that 17 per cent of UK companies that previously traded with the EU have stopped — either temporarily or permanently — since the start of the year.

The findings paint a bleak picture of trading arrangements with Europe, particularly for smaller businesses that do not have the resources to navigate the barriers to commerce thrown up by the UK’s departure from the EU single market and customs union.

Six months after Brexit, companies reported they were continuing to wrestle with new red tape ushered in by the UK-EU trade and co-operation agreement. Although the Brexit deal, agreed on Christmas Eve, confirmed zero tariff, zero quota trading between Britain and the EU, the new arrangements require companies to comply with costly checks, customs controls and bureaucracy which have added friction to commerce.

Relations between the UK and the EU have also been soured over a new trade border between Great Britain and Northern Ireland which requires checks on many goods crossing the Irish Sea, sparking violence in the region’s pro-British unionist communities.

Bar chart of To what extent have new barriers since Jan 1 caused a change in your trade with the EU? (% of responses) showing Almost one in three UK companies report a decline in EU trade

“Six months on, many businesses are still wrangling with the challenges of our new relationship with the EU,” said Jonathan Geldart, director-general of the Institute of Directors.

“Small and medium-sized firms in particular are struggling to navigate new procedures around exporting and importing with the bloc, while business leaders are more broadly reporting difficulties in recruiting following an end to freedom of movement.”

The IoD survey asked 651 companies to give their assessment of the impact of Brexit so far.

Of those companies that trade with the EU, 31 per cent said new barriers since January 1 had a negative impact on commerce with the bloc. Just 6 per cent said trade had increased, while 58 per cent stated there was no change.

According to a separate survey, carried out for the FT by the Chartered Management Institute, just over a quarter of private sector managers said changes to trade at the end of the Brexit transition period had negatively affected their organisations’ turnover in January. Six months later almost the same proportion — 26 per cent — still said there was a negative impact, and largely the same organisations.

“Private sector managers reported that post-Brexit trade challenges are still having a negative impact on their organisations’ turnover,” said Ann Francke, chief executive of the CMI, which sought the views of 1,354 managers in its survey.

Bar chart of Private sector managers in organisations trading with the EU - impact of Brexit changes on turnover (%) showing Many companies still report a hit to turnover six months after Brexit

However, more than half of managers that participated in the CMI survey said that the initial challenges around trade with the EU created by the end of the Brexit transition period had been resolved at least to a small extent — suggesting that many companies were starting to overcome initial hurdles. 

Some companies responding to the IoD survey sought to focus on positive aspects of the UK leaving the EU: 17 per cent of companies said Brexit made them more likely to invest in their businesses, compared with 15 per cent who said it made them less likely to invest. 

One anonymous contributor to the survey said: “I am generally becoming more optimistic about the economy as a result of Brexit, so more likely to invest in future.”

But some UK businesses have responded to Brexit by embarking on profound changes to their companies, such as moving operations across the English Channel.

Many businesses think the impact of the UK leaving the EU will get worse when some of the mitigations put in place to ease the Brexit transition come to an end this year, including the introduction of import controls at British borders with the bloc.

According to the IoD survey, about two-thirds of companies said the new UK customs controls would have a negative effect on trade when they were implemented in January next year — six months after they were supposed to be introduced.

Bar chart of To what extent do you anticipate new UK customs controls to negatively impact trade? (% of responses) showing Businesses expect problems from new customs controls on EU imports to UK

For many companies the hassle of the new bureaucracy already introduced has been enough to convince them to give up on EU business.

Last week, the Cheshire Cheese Company decided to stop selling to the EU on a bulk wholesale basis. The cost to ship a consignment to the EU has risen from about £300 to more than £1300, spelling the end for its once successful European trade.

Simon Spurrell, who runs the Macclesfield-based specialist cheesemaker, said that not only was shipping directly to 446m EU consumers no longer viable, “neither can we now ship to Northern Ireland any more”.

He added: “The government has successfully removed us from the EU as a business, it is no longer commercially viable and our distributors in France, Spain and Germany are not interested in doing business with us because of both the extra cost and the difficulties with the paperwork.”

Meanwhile, Totnes-based Motorcycle Broker — which had been buying all its bikes from the EU — has stopped serving the region entirely. About 15 per cent of the company’s sales had been to the EU, according to Paul Jayson, who runs the vintage motorbike trader.

While Jayson is now bringing in bikes from non-EU countries, such as Australia and the US, this can take months rather than days. “We’ve always been global and we will survive but we are in a ‘no deal’ situation. There is nothing but friction.”

In a meeting with ministers, Spurrell was told to abandon the EU in favour of markets such as Canada.

But Spurrell said: “We shipped our first parcels to consumers and within a week we had to stop sending to Canada after 14 parcels were subjected to an additional 245 per cent duty.”

Leaving the EU single market and the ending freedom of movement has also exacerbated a growing worker shortage in the UK. According to the IoD survey, over a quarter of companies said Brexit had caused difficulties in hiring — 17 per cent complained of the loss of high-skilled staff, and 10 per cent of shortages of low-skilled workers.

Bar chart of Has your organisation experienced hiring difficulties  due to a shortfall in applicants from the EU  (% of responses) showing One in four UK companies have had difficulty hiring staff from the EU

UK businesses have been forced to set up operations in the EU to serve the European market, but this has led to higher costs and the transfer of jobs from Britain to the EU. Nearly a quarter of businesses that trade with the EU have had to relocate some operations or staff, according to the IoD survey.

Laura Rudoe, who runs Evolve Beauty, an eco-friendly beauty company in Hertfordshire, said she had set up a warehouse in Ireland to export to the EU and service its customers in the bloc reliably. She said this had introduced “additional cost, time and paperwork”.

“Since Brexit, we have found that some key markets are closed off to us,” added Rudoe.

Clothes retailer Rivet & Hide plans to route goods through the Netherlands to minimise costs.

Danny Hodgson, founder of the London-based company, said: “The effort in terms of time and mental bandwidth to try and retain our EU business is exhausting — I have nearly given up on several occasions but I won’t let this government defeat me.”

Hodgson said extra duty, value added tax and shipping costs had caused prices of his company’s goods going to the EU to rise by 30 to 40 per cent. As a result — after growing at 20 per cent a year in the EU prior to Brexit — trade to European countries has more than halved.

The CMI found that managers at small and medium-sized enterprises were significantly more likely to report that the end of the Brexit transition period had a negative impact on their businesses’ turnover — at 35 per cent — compared with those in large organisations at 23 per cent.

Many have been forced to cut jobs. Alfred van Pelt, managing director of Something Different, which distributes clothes, gifts and other merchandise to small retailers and visitor centres around Europe, halved his workforce after Brexit. 

Last year the 30-year-old distributor based in Somerset was sending out 2,500 parcels to EU customers every day at peak trading in November and December. Now, the company sends about 100 to 150 — “if we are lucky”, said van Pelt.

The problem is cost and border procedures which EU customers are reluctant to shoulder. The value of parcels can be low — less than £30 each — but costs amount to £8 for shipping and £17.50 to cover import declarations.

“Its thrown our business off the cliff edge,” said van Pelt, who had to lay off nine of his 20 staff. The business tried to expand in the UK but with three-quarters of its sales last year to the EU, it has been an uphill task. 

Without Brexit, the company would have been employing more full-time staff in the UK, he said, given its EU-based owner had planned to invest in its operations. “The majority of our EU customers have just given up,” he added.

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