Third of UK export firms have already lost business directly due to Brexit

Researchers warn of prolonged period in which 'UK manufacturers risk being cut out of large areas of international trade'

A major study has revealed how British manufacturers that boost UK exports by £52bn a year have already suffered a major loss in both business and investment as a direct consequence of Brexit.

The survey of around one thousand companies exporting industrial products found Brexit meant many have already seen export sales fall, some by up to 30 per cent.

A sizeable chunk of the companies surveyed have indicated that investment had fallen as a result of the UK’s plan to quit the European Union, while others said they are bracing themselves for a shortage of skilled workers.

The report, based on research carried out by the University of Sussex, delivers a chilling warning that companies currently in a supply chain or on a tender list with EU-based companies will likely lose contracts as a direct result of Brexit.

Professor Alan Winters of the university’s UK Trade Policy Observatory said: “Our research reveals that Brexit is already impacting British exports.

“In the event of a no-deal exit from the European Union, Britain’s trade with the EU will be badly hit, hundreds of thousands of jobs will be at risk and real wages are likely to be cut.”

It comes just days before the government prepares to release its second set of documents aiming to convince concerned business chiefs that it is adequately preparing for a no-deal Brexit.

The survey was carried out by the University of Sussex on behalf of an alliance of 13 major UK trade bodies representing electrical, automation, laboratory, machine tool making, catering, plastics, lighting, communications and other equipment manufacturers.

The thousand UK companies represented by the 13 trade associations – making up, in value terms, a fifth of all UK manufactured goods exporters – employ 1.1 million workers and generate £52bn worth of UK exports per year.

But the survey showed almost 30 per cent of those export firms who were able to provide data have already lost business directly as a consequence of Brexit – and a third have already experienced a Brexit-driven fall in investment.

Some 22 per cent of them have already lost up to 10 per cent of their export trade as a direct result of Brexit, the survey showed, and a further 6 per cent have lost between 10 and 30 per cent of their export sales.

What’s more, the survey data suggests that an even higher number of firms – more than 300 – have seen investment in their companies decline. Those reporting Brexit-driven falls in investment were 20 times the number that reported Brexit-driven increases in investment.

The 13 UK trade associations’ joint Brexit research task force, known as Euris, is chaired by Dr Howard Porter, who said: “Our industry needs clarity and a withdrawal agreement confirmed with the European Commission in the autumn.

“As this report and our member survey clearly show, further delays and the risk of no-deal will result in significant long-term damage to the UK manufacturing sector.”

Euris is particularly worried that rules of origin regulations in current and future free trade agreements could substantially impact British industry after Brexit – because UK-originating goods will no longer be considered as being of EU origin.

“Regardless of what is agreed, UK businesses seeking to export will be involved in a much more complex system than has ever applied previously,” the report warns.

The report notes that “Those UK manufacturers who are in supply or value chains with companies based in EU27 states will likely find that they lose contracts and are dropped from tender lists as their customers or corporate groups seek to preserve their ability to certify the end product as being of EU origin.”

It explains this is because any UK content may cause the end product to lose the preferential treatment in overseas markets granted to EU made goods.

The report goes on: “This is already happening as the uncertainty of the overall position and of the application of Rules of Origin under different FTAs [free trade agreements] makes dropping external content the easiest solution”.

Much of the key data will be presented as a report to MPs at a meeting in the Houses of Parliament today.

The survey also reveals that a majority of companies are particularly worried about potential post-Brexit tariff problems (79 per cent), regulatory problems (55 per cent) and border delays (61 per cent).

Companies are also fearful of losing access to EU workers. Forty per cent of firms said they would experience a shortage of skilled workers if access to EU labour became less easy.

Thirty per cent of firms revealed that their operations actually require them to send employees to work elsewhere in the European Union on short-term arrangements and/or receive EU workers in the UK for similar short-term roles. Many companies are now concerned that Brexit might impede this practice.

Firms are particularly worried about the government failing to reach any agreement with the EU.

“A no-deal Brexit will cause severe damage to our industry and must be avoided,” says the report.

Euris believes that post-Brexit trade barriers could harm a whole series of high value industrial sectors, including ones that will be of increasing importance in the future.

The report suggests, for instance, that green industries could be particularly badly hit.

“The manufacture of low carbon energy products is one area where post-Brexit trade barriers could slow down the UK’s ability to capitalise on an innovative growth sector,” says Euris.

Examples of particular strength in the UK include smart grids, energy storage, offshore wind, electric vehicles and solar panels, among others. Prior to potential Brexit impacts having to be taken into account, this green sector of the UK economy was slated to expand five-fold by 2030, accounting for eight per cent of GDP and over two million jobs.

“Trade tariffs could impact the UK’s ability to capitalise on leading positions in low carbon product innovation.

“A failure to secure a favourable trade arrangement could increase the cost of low carbon equipment, hampering deployment in the UK and affecting our competitive advantage to capitalise on these sectors post-Brexit,” says the report.

Electrical vehicle exports are another example of an industrial sector that could also suffer.

“The EU currently accounts for a large proportion of the UK’s export in electric and hybrid vehicles. It is currently unclear what tariffs the UK market may face on leaving the customs union. However, failure to secure a trade agreement could possibly see member states apply [their] most favoured nation tariff of 10 per cent on UK imports of electric and hybrid vehicles,” the report warns.

“This could damage the UK industry, especially given the expected demand for such products, driven by EU member state commitments to stop the sale of new petrol or diesel cars within the next two decades”.

Euris also fears that the low carbon industry could be hit by another Brexit-induced problem.

Substantial funding has been made available by the European Union for green technology research and development and commercialisation. Brexit will end that support and UK government replacement funding is only guaranteed until 2020.

The report, due to be presented at a meeting in Parliament today, says that exporters are concerned about a wide range of potential post-Brexit issues – border delays, skills shortages, investment reductions, the value of the pound, trade tariffs, rules of origin, product certification, divergence from EU regulations, increased administration burdens and weakened intellectual property rights protection.

It also argues that UK trade with the European Union is in many ways a pre-requisite for expanding trade with much of the rest of the world.

“UK manufacturing is embedded into complex supply chains across the EU.

“It is not a choice of exporting to Europe OR the rest of the world. If we become less competitive in the EU, we will be less competitive in other international markets,” says the report.