BY Richard Summerfield
Companies in the UK and European Union could face additional annual costs of £58bn if the UK’s divorce from the bloc results in a ‘no-deal’ Brexit, according to a new report from Oliver Wyman and Clifford Chance.
The financial services industry in the UK would be the hardest hit sector, according to the report. In the EU, the automotive, agriculture and food and drinks, chemicals and plastics, consumer goods and industrials industries would be the most impacted.
'The "Red Tape" Cost of Brexit' report estimates that the direct costs will total around £31bn for EU exporters and around £27bn for UK exporters, with non-tariff barriers accounting for more of the effect than tariffs. The report focuses only on the direct impacts of the UK’s exit from the EU which are of immediate importance to companies for Brexit planning. It does not model additional impacts such as migration, pricing changes or third-country free trade agreements, which are likely to increase the overall impact.
In the absence of an agreement by the end of the transitional period, which is due to begin in March 2019, after the official Brexit deadline, Britain’s relationship with the EU would revert to World Trade Organisation rules.
Just five sectors – finance, automotive, agriculture, food and drink, and consumer goods – would bear 70 percent of the burden of additional costs resulting from this scenario, according to the report.
Kumar Iyer, a partner at Oliver Wyman, says: “There will be both winners and losers from Brexit. In order to navigate the uncertainty companies should be thinking about impacts under different scenarios both operationally and strategically. We see the best prepared firms taking hedges now based on the direct impacts on themselves, their supply chains, customers and competitors. Unfortunately we see that small firms are least able to take these steps at present.”
However, if the UK were to remain in a comprehensive customs union with the EU that provides market access, the costs arising from tariffs would be avoided and some of the border costs reduced.
Yet the chances of the UK opting for a customs union appear slim. In February, UK prime minister Thereasa May reiterated that remaining within a customs union would “betray the vote of the people”. Furthermore, membership of a customs union would prevent the country from striking its own trade deals with emerging economies, including China and India.
Report: The Red Tape Cost of Brexit