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No Deal and the North East

 

Jack Simpson looks at what a No Deal would mean for the North East, and how it could be avoided.

I might say it a lot, but this is a hugely dramatic week. With only five days to go, the United Kingdom is set to leave the European Union, and all options still remain on the table. There is potential for an extension, but relies on certain votes and decisions triggering an extension to either 12th April or May 22nd.

The United Kingdom is not ready for a No Deal scenario on 29th March. Government forecasts show that the North East would be the worst affected region, creating a hostile global economic environment and suffering a relative GDP decline of around 12-16% over 15 years.

Many businesses in the North East rely on Just in Time supply- meaning goods move frequently, and low levels of stock are held in storage. A No Deal Brexit would ruin these models, as goods become subject to more checks and documentation, increasing time at the border and resulting in more stock being held, rising prices.

It is estimated these “time barriers” will result in a 15-mile queue for a two-minute border check, but consider the streamlined Norway-Sweden border checks take eight minutes, the problem is more alarming. This will further impact the trade of perishable goods and chemicals, and could see consumer costs rise by 20%.

The Department for Transport trialled such delays in January, but was labelled a “farce”, you can see that breakdown here.

The Department for International Trade has been working to rollover all existing trade deals the UK benefits from as a member of the European Union, for example with Canada, Norway and South Korea.

However, to date, out of the £27bn of regional trade in 2018, only £3bn has been secured by the Department of International Trade- amounting to just 11%. While this won’t mean Trade to these nations will evaporate overnight, it will make them much more burdensome markets, and reduce the competitiveness of UK suppliers to these markets.

However, it should be noted, the most important trade deal would be one with the European Union, which is worth 59% of regional trade. See the DIT website here for continuity updates.

Rolling over deals will be easier in some cases than others. Rules of Origin have been a continuous thorn in trade negotiations, a method of duty exemption if a certain percentage of a product is domestically sourced. Currently EU content counts as domestically sourced for UK goods, allowing it to be traded duty free with third parties.

In a No Deal scenario, Government has warned products originating outside the UK will be “considered distinct”, and that new arrangements will be required to address “designations… to qualify for preferences”. Members should review their products content, and map their supply chain to better understand how they could be affected on preferential trade. See more No Deal trading notices here.

One of the most disappointing aspects of the Brexit process has been the severe lack of business engagement, particularly on policy that is solely in the hands of Government.

For example, the North Eat received £600m in European Funding from 2014-2020, and yet, the Government has not even consulted on what the replacement, UK Shared Prosperity Fund (UKSPF), will look like. While not expecting the full policy, Government should be reaching out to the business and regions that have benefitted from EU funding, and working out what has worked well, and what can be improved.

In addition, North East business have benefitted from access to global talent and linguistic skills, promoting growth and innovation in the region. However, future access to these skills is under threat, as is their retention. The White Paper has continuously been delayed, and businesses reviewing their future skill needs have been left in the lurch.

Our QES has started to forecast a downturn in planned recruitment, and Brexit uncertainty is definitely a factor in this trend. If businesses are to continue to grow in the North East, Government must work with them, not restrict them in ambiguity, to deliver policies that best unlock their global potential.

For all of the above, and many more reasons that come out in discussions with regional businesses, a No Deal Brexit should not, and can not, be considered a credible outcome to the Brexit negotiations. A No Deal Brexit would set the North East back decades in its economic development, and the Chamber has consistently campaigned politicians to make every effort to avoid a No Deal outcome.

Potentially, this crisis can be avoided this week by extending the negotiation period (Article 50), to either the 12th April or 22nd May, depending on a third meaningful vote. It is the frustrating strategy of this Government that we are having to choose between the lesser of two evils, but extending the negotiation period, and the small harm of uncertainty, is definitely preferable to the ruins of No Deal.

Government must then use this opportunity to collaborate with business and work to negotiate a deal and create economic policy that fosters economic prosperity in the UK.