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For our very first item, we have a very in-depth and detailed report on UK/EU trade since Brexit, which has been provided by Paul, a member and frequent visitor to Cornwall. It shows quite clearly the financial impact that leaving the EU single market has had on UK trade and, it would seem, that downward trend is only set to continue.
As usual, the greatest impact has been on those least able to withstand the changes, namely SMEs with fewer resources and capital than larger organisations. The latest figures show the current reduction in trade so far to be around £35 billion, with the projected future annual shortfall to be even greater.
This is the second of a series of reports that Paul has written and a summary of the latest one can be read below. The full report can be read here: Tracking Total Trade September 2021 ONS.pdf and Paul’s previous report can be seen here: Paul Giles, Author at UK in a changing Europe (ukandeu.ac.uk)
Tracking Total UK Trade Post Brexit – Summary
by Paul Giles
No-one disputes that the additional trade friction introduced through the replacement of the EU single market with the Trade and Continuity Agreement (TCA), effective from 1 January 2021, has resulted in a value hit to UK exports to the EU countries. It is just a case of how bad the hit is, plus that already suffered and that still to come.
Small and medium-sized enterprises (SMEs) have been particularly badly affected given they have fewer resources to handle the increased paperwork, a situation only too familiar to many Devon and Cornwall businesses. As a result, many across the UK have given up exporting to Europe as it has become unprofitable. The South West shellfish industry has been further hit by product restrictions.
This is a summary of an article which estimates the hit to date and ongoing value hit to the UK.
The article shows the value hit already suffered to be £35 billion, with £40 billion per annum to come. This all adds up into a UK total exports cumulative shortfall of £240 billion (by 2026), growing to £1.2 trillion by 2041.
In his June 2016 report Can Britain Secure Trade Outside the EU? for Portland Communications the then Mr Frost pondered “… could the UK with less access to the single market than before ‘be outweighed by freedom to negotiate our own trading agreements with other countries?’”
At the time, he thought not (Britain Votes Leave: what happens next? by Portland – Issuu). Now we can see if he was right.
A simple model can put Lord Frost’s words into practice starting from the current UK export position. The model takes 2021 UK-EU and UK-non-EU exports to date and compares them with the equivalent time periods in 2018 and 2019 (2020 exports were too Covid-corrupted to be a useful comparison).
The difference is the UK-EU export shortfall resulting from the implementation of the TCA.
It then subtracts from this shortfall the additional export values arising from new non-EU free trade agreements (FTAs), a benefit of the independent post-2020 trade policy. The values here can be sourced from the Department of International Trade’s estimates, documented for its targeted markets – currently Australia, New Zealand and the USA. The outcome is a net total UK export shortfall which, annually going forward, grows into a cumulative shortfall.
The “February Model”, the first release, used an estimated 10% fall in UK-EU exports to estimate the shortfalls, having no actual data to go on. This gave cumulative shortfalls of £150 billion by 2026, rising to £500 billion by 2041.
With nine months’ ONS trade data now available UK trade – Office for National Statistics (ons.gov.uk) and the latest FTA positions, e.g. CBP-9204.pdf (parliament.uk) we can input more accurate estimates of:
- The value lost to date (beginning of January to end of September 2021) based on 2021 to date vs the average of the same periods in 2018 and 2019;
- The ongoing annual value loss based on the percentage fall in UK EU exports as in (a);
- The latest non-EU FTA export values.
- £35 billion of export income has been lost to date;
- The ongoing fall has increased from 10% to 14%, or a total of about £40bn per annum;
- Non-EU FTA export values are unchanged except that the USA has been removed given that talks have been suspended.
Note that the £35 billion is higher than the £30 billion which would arise from 9/12*£40 billion. This is because in Q1 2021 the UK suffered and is carrying an exceptionally large hit resulting from the introduction of the TCA. Given that the shortfalls are never “paid off”, they grow into a cumulative shortfall of £240 billion (by 2026) and £1.2 trillion (2041).
The model’s output can be seen graphically as follows:
- 2021 EU exports and imports with comparison for exports to 2018 and 2019
- Cumulative Total UK Export Shortfalls
OBR and Federation of Small Businesses
The OBR’s 27 October Economic and Fiscal Outlook – October 2021 independently estimates a 15% fall Economic and fiscal outlook – October 2021 – Office for Budget Responsibility (obr.uk).
The shortfalls can be partly rationalised through a recent press release from the Federation of Small business. This stated that the TCA’s increased trade friction has impacted the commercial viability of exporting to Europe. This impact has been estimated to be £1.25 billion per month, about 40% of the value fall vs 2019. One in four small exporters halt EU sales, three months on from transition end, new study finds | FSB, The Federation of Small Businesses.