A report has found that as many as 20,000 British businesses have stopped exporting goods to the EU since new trading rules were introduced post-Brexit.
The study by the Centre for Economic Performance (CEP) found that small firms were disproportionately affected, with most larger companies largely unaffected.
Economists from the CEP used HMRC customs data to find that the number of firms exporting to the EU fell to around 100,000, down from 120,000 in 2019, with this fall being “entirely accounted for by small exporters with fewer than 10 employees”.
Missing ‘stars’
This drop is concerning, according to the report’s authors, “as some of these firms would have been likely to grow large over time”.
“Put differently, the pipeline of potential future UK star exporters has been diminished.”
Britain’s importers and exporters have been trading with the EU under the rules set out in the UK-EU Trade and Cooperation Agreement (TCA) since the start of 2021.
However, UK exports have risen at the same levels as other European economies since 2016, with a rise in services exports offsetting a corresponding fall in goods exports. Imports have grown far slower over this same time period.
In real terms, both the UK’s exports and imports of goods have shrunk by 1% and 2% since 2016.
“Overall, Brexit has had a negative effect on UK trade. But, so far, this effect has been smaller than economists expected.”
Sanding the edges
As the general election heads in to the final two weeks, the topic of Brexit has largely been relegated to the margins of the political debate.
Labour has promised to work with the EU on a few select issues, while incumbent Conservative prime minister Rishi Sunak has largely steadied the ship when it comes to UK-EU relations, and, to an extent, resolved longstanding trade tensions over Northern Ireland with the agreement of the Windsor Framework.
Another report released yesterday by the thinktank UK in a Changing Europe (UKiCE) found that both parties’ manifesto pledges would not make much difference to the overall trade picture, as neither looks to do anything other than maintain stability within the existing framework:
“Even the election of a Labour government is likely to lead, at most, to attempts to further warm relations through enhanced dialogue, and to sand away at the sharpest edges of the TCA through technical agreements on trade.”
Twin track approach
Labour leader Sir Keir Starmer has made it clear he would not seek to rejoin the customs union or single market, but instead would attempt to reduce trade barriers through technical changes to the TCA, via deals on veterinary standards and mobility.
Labour’s current foreign policy plans with the EU rely on the two ‘twin tracks’ of trade and national security.
According to UKiCE, shadow foreign secretary David Lammy has set out a path whereby Labour uses cooperation on national security matters to improve relations in Brussels, before working on complicated trade matters.
However, says the report, “the ‘linkage’ between defence and economic issues suggested by Labour’s expansive interpretation of security appears unlikely to induce greater flexibility on the EU’s part.”