Sucking it up: UK manufacturers look in vain for Sir James Dyson’s Brexit benefits
UK-based firms feel anything but liberated by Britain’s new trade relations with the EU, reports Ben Chu
The Brexit-supporting manufacturing entrepreneur Sir James Dyson gave an interview this week in which he suggested the UK’s departure from the European Union’s single market and customs union on 31 December was already yielding benefits for British businesses.
“We’ve got our freedom, we can make trade agreements with other countries outside Europe [and] we can employ people from all around the world,” said Sir James, who moved Dyson’s manufacturing operations out of the UK almost two decades ago and shifted its corporate headquarters to Singapore in 2019.
Speaking from Dyson’s Wiltshire innovation campus, where Sir James was announcing 200 new jobs, the billionaire designer of vacuum cleaners and hand driers suggested to the BBC that the Oxford-AstraZeneca vaccine was evidence of this freedom dividend.
“We were not part of the European Union’s development of the vaccine – we had to develop our own brilliantly at Oxford. And they produced a world-beating vaccine produced in record time,” he said.
“We did it independently – we had the independence of thought and independence of action.”
Despite their prominence in the media, Brexit-supporting business voices were few and far between during the 2016 referendum campaign and in the subsequent years.
Survey after survey of members of corporate groups showed that support for Britain leaving the single market and customs union was very much a minority position.
And Sir James’s views on the beneficial impact of leaving the EU since 31 December are just as unrepresentative of the feeling in the wider UK manufacturing sector.
“It’s hard to take seriously the comments of people who have moved their operations offshore – you’ve got to be in it to understand what this means,” says Stephen Phipson of Make UK, which represents manufacturing employers.
“There are very sad stories from businesses that have been trading for decades with their European customers and are now finding it extremely difficult to do so.”
The Independent has spoken to a host of UK-based manufacturing firms who feel anything but liberated by the change in the UK’s trade relations with the EU since 31 December when the transition period finally ended.
Church’s Shoes manufactures in Northampton and before Brexit exported around 60 per cent of its product to the European Union. This had been a commercially frictionless process. Sending shoes to Milan was as easy as sending them to Manchester.
But since 31 December Church’s has been forced to navigate separate VAT and customs regimes for every member state to which it exports.
It’s hard to take seriously the comments of people who have moved their operations offshore
Those new “non-tariff barriers” have pushed up the firm’s costs considerably.
“We haven’t had any benefit yet – just a fair bit of pain,” says Hamun Shah, the company’s chief financial officer.
Despite the new swamp of red tape Mr Shah says Church’s has managed to get its product through to Europe, albeit with some delays.
But SuperFOIL has not been so lucky. Prior to Brexit, the family-owned Lincoln company, which manufactures foil insulation products, sold around a fifth of its wares to EU customers, much of it through Amazon.
No longer. “For the last three months and a bit we haven’t made any sales in Europe”, says managing director Will Bown, pointing to a combination of new bureaucratic barriers, shipping costs and the unpreparedness of logistic firms.
“When the new year hit, Parcelforce just didn’t know what to do or how to deal with the paperwork,” he says.
The Cheshire Cheese Company is another company which has seen its EU sales wiped out this year.
Previously the Macclesfield-based cheesemaker could sell direct to EU customers as easily as selling to UK customers, but now every small shipment to the continent requires an individual vet-approved export health certificate, instantly making its previous £180,000 a-year online EU sales unviable.
Boris Johnson has described the problems of UK manufacturing firms as “teething problems”, suggesting they will gradually get accustomed to the paperwork and find ways around the barriers.
Yet one way that firms seem to be doing this is by setting up subsidiaries in the EU.
SuperFOIL has just established a Dutch company to which it will export its product in bulk and then distribute to EU customers from there, rather than direct from the UK.
This doesn’t remove the red tape but minimises it.
“It’s been a bit of a nightmare,” says Mr Bown. “It’s a new set of accounts, I’ve got to do Zoom calls with legal people, I’ve got to cross-check passports – it’s been a slow, awkward process.”
The irony, given the promises made by the government, is that by creating subsidiaries in this way means UK firms are investing in the EU, and possibly even creating new jobs there.
JD Sports has said it might have to transfer 1,000 UK jobs to the EU if it opens a distribution centre abroad to cope with the new border frictions.
Moreover, for smaller firms like The Cheshire Cheese Company, this kind of investment is often unrealistic.
Its managing director Simon Spurrell says he was actually prompted by the food minister Victoria Prentis in a meeting three weeks ago to consider setting up a facility within the EU in this way.
Mr Spurrell said such a move would likely cost his business hundreds of thousands of pounds and would represent a considerable risk if there were any further restrictions on food exports to the EU.
“I said to her: ‘Can you say it’s going to be safe for me to invest and that we’re not going to end up with an all-out trade war or a no deal?,” he recalls.
“She said: ‘We couldn’t offer you that promise, no’.”
The suffering of exporters like The Cheshire Cheese Company and SuperFOIL is reflected in the aggregate trade figures.
The Office for National Statistics reported that goods exports to the EU collapsed at a record rate in January, slumping by 40 per cent on the previous month.
There was a recovery in February, but overall levels remain well below the average of previous years. However, manufacturing exports seem to have held up better than other sectors such as live animals and chemicals.
Stephen Phipson of Make UK says there has been a “twin track” for the sector in recent months, with big manufacturing firms managing to keep exporting, albeit with significant extra costs, but smaller firms simply being unable to.
“We’ve got companies saying we’re not going to do it anymore – we won’t trade with the EU, it’s too difficult,” he says.
This is borne out by a survey in March from the Institute of Directors, which showed a tenth of its members who previously traded with the EU had now stopped doing so permanently.
One in 20 exporters surveyed by the Federation of Small Businesses last month also said they’d decided to simply stop trying to sell to the bloc, with one in ten considering it.
Sir James Dyson – like government ministers – stresses the future potential gains for UK firms from new trade deals with countries beyond the EU, such as the US.
1 in 10
Firms who previously traded with the EU who have now stopped doing so permanently according to IoD survey
But most UK manufacturers say they are more worried about losing market share within Europe (half of UK manufacturing trade is with the EU) than they are excited about future sales opportunities abroad.
“The big issue is if your customer has to pay 20 per cent VAT to get your product in advance,” says Mr Shah of Church’s Shoes.
“Because of the pandemic a lot of the businesses [in Europe] don’t have the cash flow and they may think instead of buying from a UK business ‘let’s buy from a Portuguese shoe company’ or whoever.”
Mr Bown of SuperFOIL is hopeful that his company can get back to where it was in terms of headline EU exports within a couple of years, but he points out that, absent Brexit, the company’s sales would probably have been four times higher by that stage.
“I think we’ve lost out on quite a lot of sales we would have had,” he says. “We’ve been doing 30 per cent growth year-on-year in EU sales for the last four years.”
This tale fits with all the credible academic modelling of the long-term economic impact of Brexit.
We had an ocean of an opportunity and now we’ve got a puddle
The UK government’s own 2018 modelling exercise showed serious long-term economic damage to UK manufacturing output from moving from single market/customs union membership to a bare bones free trade deal with the EU.
The biggest cost of leaving the customs union and single market in these models comes not from the fall in trade relative to pre-Brexit levels, but the absence of new trade that would otherwise have taken place due to the new non-tariff barriers.
“We had an ocean of an opportunity and now we’ve got a puddle,” is how Mr Spurrell of The Cheshire Cheese Company sums it up.
Mr Phipson of Make UK also warns there are many more problems for UK manufacturers still to come, not least the UK’s new import customs checks for goods coming into Britain from the EU which have not yet been implemented.
When the lockdown eases and travel opens up again the absence of recognition of many UK professional qualifications in the trade deal will also become a headache for those manufacturing firms who send service technicians to mainland Europe.
The new UK regime for chemicals regulation, and product conformity assessments for goods which haven’t kicked in yet, will also impose serious fresh red tape and costs on UK firms.
“We’re just at the beginning of this,” warns Mr Phipson.
In terms of exporting to Europe, Brexit has, as expected, made just about everything harder and more costly for British firms. And some have simply given up.
As for the domestic benefits for UK manufacturing stemming from the “independence” delivered by Brexit, Mr Phipson is sceptical.
“I’m waiting for people to tell me what they are,” he says.
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