No-deal Brexit could add £7.8bn to retail costs

Will Green is news editor of Supply Management
26 March 2018

A no-deal Brexit could add £7.8bn to the cost of retail goods, a report has claimed.

The report, by consultancy Retail Economics and law firm Squire Patton Boggs, said the risk of higher costs from new tariffs was highest for food and drink from the EU, where the UK gets more than 70% of its imports.

The report said tariff rates for food and drink are “far higher than the rate for non-food goods” while the risk of such tariffs was high because “the EU is likely to demand compliance with a wide range of non-trade regulations which may be difficult for the UK to accept”.

The report outlined three possible scenarios: WTO tariffs following a hard Brexit, a free trade agreement and a customs union.

Total EU imports in 2017 were £83.66bn, which under WTO rules would result in tariffs of £7.8bn. Non-EU imports were £70.6bn.

Under a hard Brexit scenario food and drink, of which there were imports from the EU worth £30bn in 2017, would be hit with tariffs worth £6.03bn. Chocolate faces a tariff of around 30%, said the report. Clothing and footwear UK imports from the EU were worth £9.9bn in 2017 (potential tariffs of £1.07bn), DIY and gardening (£6.5bn and £251m respectively), electricals (£17bn and £220m) and furniture and flooring (£4.7bn and £133m).

Richard Lim, chief executive at Retail Economics, said: “Should the government fail to agree a deal with the EU, the retail industry faces a debilitating wave of rising costs from import duties. Extensive research has been carried out which reveals an additional £7.8 billion could be added to the cost of retail goods should a hard Brexit scenario become a reality following a transition period.

“Food retailers would face the toughest challenge, given that almost three quarters of what we eat is imported from the EU. Some tariffs on meat and dairy products would rise to more than 80% causing an inevitable surge in food inflation to hit families.

“The retail industry is already delicately poised between an outlook of softening consumer demand and mounting cost pressures, evidenced by recent high-profile retail administrations. Additional costs of this magnitude will amount to a tipping point with some retailers unable to remain commercially viable.

“Retailers need to scenario plan for a range of outcomes while feeding to government their view of a viable trading framework post-Brexit. The clock is ticking for those needing to form actionable strategies in order to thrive in such times of uncertainty, or indeed, survive.”

Matthew Lewis, head of the Retail Industry Group at Squire Patton Boggs, said: “There are over 170,000 EU citizens working in British retail. Although greater reassurance has now been given to EU citizens already in the UK (both before we leave and during the transition period), there is no clarity yet on the immigration restrictions that will be imposed on those EU citizens arriving from 2021.

“Losing access to this valuable workforce could increase competition in the retail job market and further drive up costs for retailers.”

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