UK manufacturers warn Brexit will undermine their place in EU supply chain

Dave Seaward is concerned by recent “big pharma’ investments” in Ireland, including those of Pfizer and AstraZeneca. 3P Innovation makes automated machines that are used to produce vaccines and medicines.

Seaward’s business boomed even before the UK exited the EU single-market but since 2016, the company has faced Brexit challenges, including engineers returning to the EU as well as border bureaucracy which has complicated 3P’s pan-European distribution chains.

Seaward is worried about the future of British industries that depend on supply chains that cross the EU. Clients in Ireland have privately stated that they want to eliminate UK risk from their business.

He said: “If big-pharma retreats into places like southern Ireland, it puts my company at a disadvantage in comparison to businesses within the EU.” “Big corporations have a low tolerance for risk and, now that Brexit has happened, they view the UK as a risky place.”

An in-depth trade analysis released by economists this month shows that high-end UK manufacturers who feed into EU supply chains will find themselves increasingly squeezed as a result of the challenges post-Brexit.

Nearly half of UK manufacturing exports are “intermediate”, supplying components to EU supply chains, which are then exported to other parts of the world.

The Report of the Resolution Foundation stated that UK exports were 17 per cent lower in the first quarter of 2023 than they were before the EU-UK Trade Deal came into effect three years ago. It also warned that UK manufacturers with higher productivity would be replaced by domestic manufacturing with lower productivity in the long term.

The UK auto industry’s recent struggle to attract investment for building the battery factories required for the electric vehicle revolution was cited as a sign of future challenges that other high-value industries, such as machinery, chemicals, and computer equipment manufacturing, will face.

The report warns that “even though it will take some time to untangle these [EU-UK] supplies chains, they will reduce the UK’s high-productivity manufacturing — from spacecraft to chemicals — as they go.”

The report noted that manufacturing accounts for almost 50% of UK exports. This structural shift will further contribute to the productivity crisis that has been weighing on the UK’s economy since 2008.

The report stated that “Policymakers must decide whether to remain part of EU supply chain, support high-productivity manufacturers and accept the fact that this means dealing with the EU border.” Trevor Mathers is the managing director at Alfa Chemicals in Bracknell (Berkshire), a medium sized chemicals distributor and importer. He said that the uncertainty surrounding the UK’s industrial and regulatory policies was also a threat to future investments.

Investors have also been affected by the chaos caused by the short-lived Liz Truss administration in 2022. The rising rates of corporate tax and the lack of clarity in UK regulations, such as those governing cars, chemicals, and medical devices that no longer follow EU standards, has also put a strain on investors.

Mathers stated that “nothing will disappear over night, but chemical plants require a 20-40-year investment. And talking to the people with whom we work in Europe, many see the UK as having a more unstable economic and political climate than the EU.”

In a survey conducted by BritishAmerican Business this month, a transatlantic business association, the confidence of US companies in the UK has declined for the third year running. Two-thirds of US firms ranked improving EU-UK trading relations as one of their top three priorities.

Make UK, an industry lobby, called last month for a Royal Commission that would develop a UK industrial policy. They warned of the pressures coming from the US $396bn green subsidy program and EU regulatory policies including the introduction a carbon tax.

Stephen Phipson is the chief executive officer of Make UK. He said that although there has been a “bit more realism” on the benefits of Brexit divergence from the government of Rishi Sunak, it was still necessary to develop a cohesive strategy for this sector. This includes a multitude of smaller companies who support the big manufacturers of autos, pharmas, chemicals, and aerospace.

“What we’ve seen to date is a reduction in the number of products traded with the EU, and a concentration on the larger, more high-tech companies. “We must ask, would Airbus manufacture all its wings in the UK if it were to make that decision today?” added he. Adam Vicary, the chief executive of Castings, a Midlands-based foundry business that makes components for the heavy truck industry, with EU clients including Volvo, Scania and DAF, said he was concerned over the UK’s future position vis-à-vis Europe.

Castings’ contracts with EU clients have not been lost, Vicary claimed, but the rising UK energy prices compared to those in the EU and additional Brexit bureaucracy could undermine his company’s future contracting ability.

He said: “My concern is that the UK’s policy on energy will erode our competitiveness over the next few decades. EU companies may ask, ‘why go to the UK when it’s not cheaper and there’s all this Brexit nonsense?'”

The Department of Business and Trade stated that the government has provided support to UK manufacturers, including an Export Support Service.

The government pursued a strategy that was clear for UK manufacturing, with various support schemes to ensure all sectors, from automotive to aerospace to low-carbon technology, have access to funding, talent, and infrastructure.