How has the UK leaving the EU restricted retailers?
What challenges has leaving the EU caused the retail sector?
The introduction of trading barriers with our biggest (and let us not forget, closest) trading partner has proven to be disastrous for British businesses. Following the adoption of the TCA with the EU, each industry has been affected in its own particular way and the retail industry is no exception.
Research by Retail Economics and TradeByte, an e-commerce service, highlighted a number of factors following Britain’s exit from the EU that have restricted British retailers. These include:
Trade friction: Increased customs paperwork requirements, complex requirements for declarations, and greater regulation. These trade frictions have slowed down exports and increased operational costs for retailers.
Talent gap: The increased bureaucratic burden resulting from the TCA has left retailers with a shortage of expertise in customs compliance and international trade regulations. It was an area where many retailers, particularly SMEs that only exported to the EU, simply had no experience prior to Britain leaving the single market.
Financial burdens: Requirements for VAT registration across multiple EU countries.
Regulatory divergence: The bigger the risk of the UK and EU diverging on issues like product safety regulations, the more costly it is for British retailers who have to prove their compliance with EU regulations to keep exporting their goods to the Single Market.
Supply chain disruptions: Delays to the transportation of materials between the EU and the UK due to trade frictions, such as an increase in time-consuming customs paperwork and checks on imports, have led to shortages across the retail sector.
Published in May 2024, the above research does not include the substantial effect of the General Product Safety Regulation (GPSR) on British retailers. Added to the already bleak picture, GPSR further raises the bureaucratic burden for British retailers who wish to export their goods to the EU or Northern Ireland by requiring them to find an ‘authorised representative’ in an EU country, or in NI, to act on their behalf, amongst other requirements.
How has this affected the economy?
Between 2019-2023, UK exports for non-food products to the EU shrunk from £33.6 billion to £27.6 billion, an 18% drop. But it is not just Britain’s exporters who have paid the price, British consumers have been faced with shortages and reduced choice due to the supply-chain issues mentioned earlier.
In an October 2024 poll, 18% of shoppers said that items in their weekly shop had been unavailable, a number which has been rising 1% year-on-year. According to Zycus, 80% of British businesses think that Brexit has been the biggest issue for their supply chains over the last 12 months, whilst research by McKinsey found that 70% of British businesses have seen their supply side costs rise since Britain left the single market. Zycus also reported that 50% of businesses had experienced significant delays at the border following the introduction of the TCA, particularly damaging for those firms who operate on ‘Just in Time’ methods of manufacture.
These effects have come at a particularly volatile time for British retailers, the effect of the Ukraine-Russia war, spiking energy prices and COVID-19 have all made British businesses more vulnerable to the trade frictions stemming from leaving the EU. With increasing geopolitical tensions around the world, including potential U.S. tariffs, it is more important than ever that the UK is able to reduce the unnecessary burden of our current trading relationship with the EU on British retailers.
How can the government help our retail sector?
So what can be done to help Britain’s retail sector? One way in which the government can make an immediate impact is by focusing their attention on the regulatory alignment of both goods and services between the UK and EU. A Frontier Economics report, commissioned by Best for Britain, found that closer alignment on goods and services could deliver between 1.7%-2.2% GDP growth in the long term. By making trade easier with our closest and largest trading partner, and reducing trade barriers for British retailers, the government could claw back between a quarter and half of the 4% GDP loss that the OBR estimates leaving the EU has cost our economy.
One such method would be the introduction of a mutual recognition agreement of conformity assessments (MRC). An MRC is an agreement between two trading partners - countries, or blocs of countries - to remove technical barriers to trade, to create smoother trade flows and reduce costs for businesses, like the duplication of costly paperwork and tests. Another route could be through deep regulatory alignment, with the UK adopting new EU regulations where such a move was deemed to be in the UK’s interests. This would remove the trade barriers associated with regulatory divergence, allowing British goods to enter the EU market more freely, and vice versa.
Closer regulatory alignment was one of the 114 recommendations made by the inaugural UK Trade and Business Commission (UKTBC). In addition, the UKTBC suggested modernising Britain’s visa system. For retailers who are currently struggling with a skills shortage of experts in customs compliance and the like, a potential relaxation of business visitor rules would enable companies in the sector to bring skilled workers into the UK more easily for short term projects. The UKTBC also called for the UK Government to conduct a review of the visa costs and paperworks facing UK businesses, with a view of making the system more accessible to businesses of all sizes.
First published at Best for Britain