A new report from the London School of Economics has found that UK goods exports dropped by £27bn (6.4%) in 2022 in the first year following the UK’s full departure from the EU.
A drop in exports to the bloc were the main contributor, falling by 13.2% in the first year after the post-Brexit free trade deal between the UK and EU had taken effect.
The research from LSE’s Centre for Economic Performance (CEP) also found that 14% of the firms that exported to the EU before the Trade and Cooperation Agreement (TCA) entered force on 1 January 2021 have subsequently stopped sending goods to the bloc.
SMEs affected most
Smaller firms were particularly affected, with the value of exports among the smallest firms (those with six or fewer employees) falling by 30%. By contrast, those with more than 107 employees were largely unaffected by the TCA.
Marco Forgione, the director general of the Chartered Institute of Export & International Trade, said the report “reinforces the key points we have been raising with government since the TCA came into force”.
“There has been a significant drop in SMEs trading with the EU,” he said.
“These businesses find the new requirements too complex, they've reacted to the many stories of problems with customs processes, and they don’t have the expertise or staff to cope with the extra rules and regulations now in place.”
Forgione cited an example of a major exporter of poultry products with which the Chartered Institute has recently been working as evidence of the challenges SMEs now face exporting to Europe.
“Just last week, [the business] had four shipments rejected because of one missing digit on a customs form. That cost them over £80,000.”
Thomas Sampson, co-author and associate professor of economics at LSE, said:
“The TCA has been a disaster for small exporters, many of which have simply stopped exporting to the EU.
“At the same time, larger firms have adapted well to the new trade barriers. Consequently, total exports have, at least so far, declined less than expected.”
Other findings
The CEP claims that the report, titled ‘Deep Integration and Trade: UK Firms in the Wake of Brexit’, is the first to study the impact of Brexit on UK trade using customs data collected by HMRC.
The analysis found no evidence of either a positive or negative effect on firms’ exports to countries outside of the EU, meaning the 6.4% reduction in overall exports is “entirely due to lower exports to the EU”.
The post-Brexit deal has also seen a reduction in imports from the EU, but it says that this has been “partially offset by higher imports from outside the EU”.
The study found that overall imports came down by 3.1%, or £20bn, in 2022.
Imports impact still to come
Forgione, however, points out that post-Brexit rules for goods entering Britain from the EU were introduced in phases under the UK’s Border Target Operating Model (BTOM).
Sanitary and phytosanitary measures were largely bought in this year, while a requirement for safety and security data to be provided on goods entering Britain from Europe will only come into effect at the end of January next year.
The equivalent rules for goods leaving Britain for Europe came in immediately after the end of the transition period between Brexit (31 January 2020) and the implementation of the TCA (1 January 2021). Single market rules continued to apply for UK-EU trade during the transition.
“From our conversations with EU-based businesses there is a very real danger that many EU-based producers will stop trading with the UK as the new UK BTOM requirements come into effect, in full, from the end of January 2025.
“We have already seen delays, rejected shipments and spoiled goods at the UK border because animal and plant product checks have been introduced this year.”
SME focus needed – on both sides of the channel
Forgione says more needs to be done to ensure businesses on both sides of the channel have the expertise needed to comply with post-Brexit regulations under the TCA and BTOM.
“We need to focus on giving SMEs in the UK and EU the expertise and knowledge they need to trade competitively and compliantly with each other, as the EU and UK markets are vital to consumers and businesses on both sides.
“The Chartered Institute is working with businesses on both sides of the Channel to help navigate these changes and will continue working with stakeholders to promote trusted trade between the UK and EU.”
UK businesses exporting to the EU can learn more about the new rules and requirements with the Chartered Institute’s Trading with the EU training course.
European businesses sending goods to Britain can also benefit from the charity’s Trading with the UK course.
