Brexit: the regional impact

Businesses fear the UK is hurtling towards no deal - but what is the economic impact on our regions and nations? With Parliament in deadlock and businesses fearing a no deal is more likely, the CBI has analysed government figures to highlight the regional impact this scenario would have.

The North East, North West and West Midlands

With 59 percent of its goods exports going to the EU, the North East could be among the regions most exposed to the economic fall-out from leaving the EU without a deal. If the UK fails to secure a deal, the region’s real GVA – a measure of the value of goods and services produced in the region – could be 10.5 percent lower by 2034 than under the UK’s current arrangements with the EU.

This could amount to an annual loss of output worth £7bn by 2034 (in today’s prices), equivalent to twice the amount of public spending on schools and education in the region each year.

The automotive sector is particularly exposed, as are the chemicals and pharmaceutical sectors. And one of the businesses bracing for that impact is medical and safety products manufacturer Draeger UK.

Its Managing Director Mike Norris says: "Draeger imports supplies from Europe on a daily basis, with as little as 24 hours’ notice. In the early stages under a ‘no deal’ Brexit, this process could take six weeks, severely affecting our operations and our ability to service our customers, including the NHS.

“In the longer term, without trade agreements similar to those as favourable as the current trading arrangements with Europe, a ‘no deal’ Brexit will ultimately impact our ability to grow as a key employer in the North East.”

It’s a similar story in the North West, where the automotive and chemicals sectors employ thousands. Here regional GVA could fall by 9.4 percent, making an annual loss of £20bn by 2034.

And as an example of the concerns facing businesses in the region, an SME chemical manufacturer says a no deal Brexit will weigh on the firm’s competitiveness: “Without frictionless, tariff free trade and a consistent regulatory framework, it is difficult to see what advantages there are to manufacture in the UK."

And likewise, in the West Midlands, the importance of the automotive sector could lead to a knock of nearly 10 percent of regional GVA, which could  lead to an annual loss of £18bn by 2034. That’s double the value of current annual public spending on education in the region, including all schools and colleges.

London and the South East

Although London would take a smaller hit to regional GVA of 6 percent, the size of the economy means the annual financial loss from a no-deal Brexit is expected to be the largest – at £40bn by 2034. That’s nearly five times the annual public spending on London’s transport network and 13 times that spent on policing in the capital.

Here it’s services that are at risk from non-tariff barriers, such as the loss of passporting in financial services. Overall, services account for 58 percent of the capital’s exports – 37 percent of which go to the EU.

Similarly in the South East, the importance of services could lead to a knock of 7.8 percent to regional GVA, which equates to an annual loss of £28bn by 2034. And it’s not just big multinationals who will feel the effects of a no deal.

“As an SME in the services sector, my business depends almost entirely on a certain economic environment and confidence in the market,” says Phil Cousins, Director of South East employer Cousins Executive Coaching. “If the UK were to crash out of the EU with 'no deal', the uncertainty that this would bring, with businesses holding back on investment decisions, could severely hamper our revenue and growth for the foreseeable future.”

The nations

Northern Ireland is the most exposed of the UK’s nations, in terms of impact on its GVA, which could be 9.1 percent lower if the UK fails to secure a deal. That’s an annual loss of almost £5bn by 2034.

For Scotland and Wales, the impact to their GVA is the same – at 8.1 percent. In Wales, that would be worth £7bn a year by 2034, while in Scotland, it’s double that.

In both, there are examples of how the uncertainty is already affecting investment decisions.

William Watkins, Managing Director of Welsh bottled water company Radnor Hills, is worried about just in time supply chains for ingredients and resins, as well as access to casual labour, but he adds that price inflation is already biting:

“The value of Sterling has been depressed for so long now due to Brexit uncertainties that our profits have been severely affected due to the high price of inputs that we buy from Europe. This has also affected our investment decisions as almost all the machinery we buy is made in Europe."

“Like most businesses, the prospect of leaving the EU with no-deal is unimaginable,” adds Ed Monaghan, Chief Executive at Scottish house builder MacTaggart and Mickel. “Put simply; a wait and see strategy will most likely engulf decisions, from business investment to individual purchases.”

Yorkshire and Humber, East Midlands and East of England

The agri-food sector is likely to be particularly hit, which is one of the reasons why Yorkshire and Humber, East Midlands and East of England would be likely to see real regional GVA fall by nearly 10 percent (£12bn), 8.5 percent (£12bn) and 8.4 percent (£17bn) by 2034 respectively.

And Nottingham-based Freshcut Foods is just one of the many firms concerned about the implications of a no deal.

"Freshcut Foods is a £30m turnover fresh produce business that employs 280 people and supplies many of our favourite retailers and sandwich shops. Most of our raw materials are imported from the EU and have very short shelf lives. At no part of the supply chain – from grower to retailer – can more than a day or two’s stock be held,” explains Managing Director David Bondi.

“In a ‘no deal’ scenario, a delay of as little as 12 hours - coupled with lorry tailbacks at crucial ports - would adversely affect our ability to maintain full continuity of supply."

South West

GVA in the South could be 7.6 percent lower, or £13bn annually by 2034. Manufacturing activity is particularly important here, in particular the aerospace and maritime sectors.

And one of the region’s foremost employers has been particularly vocal about what a no deal could mean.

"A ‘no deal’ scenario threatens Airbus’ future presence in the United Kingdom,” says the company’s Senior Vice President Katherine Bennett. “While a ‘no deal’ scenario may not see the reconsideration of investments happen overnight, future investments would without doubt be at stake.

“Airbus’ integrated supply chain operates on a just-in-time basis that requires frictionless cross-Channel trade, meaning sudden changes in customs procedures, logistics and environmental standards would have major industrial and cost impacts.

“This would severely undermine the UK’s efforts to keep a competitive and innovative aerospace industry. As a direct employer of over 14,000 people in the UK, and an indirect supporter of 100,000 jobs through the supply chain, Airbus cannot sit by as the threat of a ‘no deal’ Brexit becomes a reality."

An unacceptable price

“Our analysis of the government’s own figures shows that Northern Ireland, Scotland, Wales and every English region would pay an unacceptable economic price for a no deal,” says the CBI’s Director-General. “From Penzance to Perth, this damage would be far greater than the sums spent on our schools, colleges, GPs and hospitals.

“The best route to pulling back from the cliff edge is for politicians of all parties to start showing real flexibility. Only then will they find a path that can command support in the Commons, be successfully negotiated with the EU and protect the prosperity of communities across the UK.

“The UK is not and cannot be ready for a ‘no deal’ Brexit. Only Parliament can avoid it, and now is the time to do so.”