Chemical and Plastics

The UK chemicals and plastics sector has initially been cautious about the impact of currency depreciation on profits, as it relies on imported raw materials. However, surveys show hiring, investment and sales are holding up at present [1] . Any future price shifts will have knock-on effects on numerous related industries.
Products of the chemicals and plastics industry comprise important raw material and intermediates to almost every other industry with examples as diverse as: adhesives, artificial limbs, automotive parts, cosmetics, dialysis machines, food packaging, military helmets, inks, pesticides, sports equipment, solar panels, window frames and more.
Stability thus far is encouraging news for suppliers to the chemicals and plastics industry, such as those which produce the specialist machinery and materials needed for chemical and plastic manufacture. The energy sector is particularly strongly linked to the chemicals and plastics sector as these businesses are the largest industrial users of UK energy, accounting for 14% of industrial consumption [2] . The UK's expertise at chemicals also supports numerous jobs in services, with 23% of global service providers for chemical regulatory compliance headquartered in the UK.

Key stats

  • 277,000 employees
  • £17.5 billion GVA (1.1% of total GVA)
  • £26.9 billion exports
  • £27.8 billion imports
EU Trade: Tariff-free and barrier-free trade with the EU will continue to be important for the chemicals and plastics sector

The UK chemicals and plastics industry has relatively high logistics costs as part of the total supply chain and thus 53% of the UK chemicals industry's exports are to the EU [3] . It will be important to keep UK-EU trade in chemicals and plastics tariff-free and as simple as possible. The average EU tariff on chemicals is 4.6% [4] , with higher tariffs in areas like finished paints and coatings, which face a 6.5% tar [5] .

Regulation: As a highly regulated sector, chemicals and plastics businesses are seeking regulatory stability and certainty

The regulation of the UK's chemicals and plastics industry is predominately European, and businesses are concerned that any significant changes to these could be seriously disruptive and costly. This includes EU regulations such as REACH – through which UK companies have made 5,000 registrations of chemicals manufactured in or imported into the UK [6] – and COSHH, which requires employers to control hazardous substances. The EU has also facilitated international regulations, such as the adopting of the UN's system of labelling and classification, so the symbols for 'corrosive' and 'flammable' are universal.

Many of these regulations have been expensive to implement, with particularly severe burdens for SMEs. However, if the UK's chemicals regulations are no longer recognised as equivalent to the EU's, chemicals businesses may face multiple sets of requirements. Some businesses see opportunities for risk-based reform of what are today hazard-based regulations in the long-term, provided they do not undermine quality or access to the EU – which is the priority. Additionally, given the detailed nature of these regulations, a lengthy transitionary period for businesses and regulators to adapt to any changes would be needed, with clarity for existing supply agreements, where compliance with existing regulations is already embedded.

Migration: With fluctuating demand, chemicals and plastics businesses need access to international skills on a flexible basis

The chemicals and plastics industry needs large but fluctuating numbers of skilled workers for project turnarounds. As these peaks do not happen every year, contractors are dependent on certain groups of craftsmen from abroad – such as scaffolders from Poland or Croatia, insulators from Portugal, and specialists from Germany. The chemicals and plastics industry needs to maintain access to these workforces from abroad at times of need.

International: There could be advantages for chemical and plastics businesses through new international trade agreements

A sophisticated trade deal with the US, covering both tariffs and non-tariff barriers, would benefit the UK chemicals industry. Tariffs currently cost UK companies an average of 3% on £4.9billion of exports to the US [7] , and differences at customs and around classifications create barriers and costs.

Funding: A new funding deal must support innovation and research and development in chemicals and plastics

The UK chemicals industry spends around £612million a year on R&D, and benefits from a thriving innovation environment. It will be important to avoid funding gaps as the UK transfers from EU funding to domestic systems of funding, in order to avoid harming innovation. It would also be of great benefit to the sector to maintain access to EU research systems – including data sharing.

Exit: A smooth exit is needed to ensure regulatory certainty in the chemicals and plastics sector

The extent to which the chemicals and plastics sector would be affected by the UK leaving the EU without a deal or interim agreement depends on the progress of domestic regulatory arrangements. Some certainty could be provided by transposition of EU regulations and directives. However, there would certainly be detrimental effects on trade from tariffs and new compliance requirements to exports if no agreement is secured.

Our members say

"Scale is important in chemical manufacturing. The UK market is too small to support modern scale facilities without significant access to export markets." - major chemical group in the UK

"We have spent a lot of time and money over the years in order to comply with all the EU regulations, such as the Biocidal Product Regulations, and feel that we will have to continue to abide by them if we wish to be able to export to the EU." - small manufacturer of cleaning and hygiene chemicals

"Free movement of workers matters. Without it, British talent will be disadvantaged from EU opportunities, British plants will be deprived of access to the best people." - multinational chemical business
Our partners have more information:
  • British Association for Chemical Specialties
  • British Coatings Federation
  • British Plastics Federation
  • Chemical Business Association
  • Chemical Industries Association

For chemicals at the CBI, contact: Nicola Hetherington on 0207 395 8080 or Nicola.Hetherington@cbi.org.uk


References

[1] CIA, August 2016 Economic Survey

[2] CIA, UK Chemical and Pharmaceutical Industry Facts and Figures

[3] EEF, 11 Key facts about the UK's relationship with the EU

[4] Open Europe, How would the UK's key export sectors fare under Brexit?

[5] BCF, November 2016

[6] Latham & Watkins LLP, July 2016

[7] Briar Chemicals, Open for Business

Related Pages