Adam Housley & Adnan Alam
Brexit is a bold political move for the UK. Although the EU has granted a leave extension to 31st January 2020, before this deadline, the UK will hold a General Election. This could make or break Brexit by swaying parliamentary arithmetic in favour of the potentially leave favouring Conservatives or of a Brexit halting Remain Alliance, however, amongst this political chess, the question looms… what are the potential impacts on the very industries that make up the heartlands of the industrious, working-class Brexit voter?
This is a difficult question with many unquantifiable factors over which many Economists disagree. The impact on different industries will vary depending upon which form of Brexit occurs. Consider the fishing industry. The EU’s Common Fisheries Policy (CFP) allows every member state equal access to the EU’s collective territorial waters. The CFP also allows the EU to negotiate treaties with third countries. Between 2014 and 2020, the UK had access to €243.1 million worth of CFP subsidies. However, Boris Johnsons’ deal states that the UK will leave the CFP.
Leaving the CFP will allow the UK fishermen to fish in UK waters without other EU fishermen depleting their stock. This will give UK fishermen an advantage with regards fish such as cod or tuna which are more abundant in North Atlantic than the Mediterranean. 20% of the current UK catch currently comes from the waters of other EU member states and this will need to be substituted by increased domestic fishing and/or imports; these could be more-costly unless a free trade agreement is reached. However, the CFP has long been seen as unfair towards the UK fishing industry due to its large fishing zone compared to most other EU member states. Therefore, leaving the CFP will enable the abundant supply of fish in the North Sea to be caught and processed by British companies, thus, potentially reviving the UK fishing industry.
However, the UK will likely have difficulty restricting access to their fishing waters as tribunals and international courts have often ruled in favour of historic access rights and against those seeking to limit access. The UK will be unshackled from burdensome EU fishing regulations such as sea time limits and fleet quotas. However, the UK would still adhere to international quotas e.g. as set by the North-East Atlantic Fisheries Commission (NEAFC) which aim for sustainable fishing. EU quotas were repeatedly criticised for failing to protect fish stocks with quotas regularly above scientific advice during 2011 - 2016. Thus, Brexit gives Britain the potential to become a world leader in sustainable fishing by being able to set their own quotas (as long as they meet quotas set out by the NEAFC) and these quotas could be at a more sustainable level than current EU levels.
For the meantime, uncertainty surrounding which deal (if any at all) the UK will leave with is causing problems for the UK economy. The Head of Economics at the British Chambers of Commerce, Susan Thiru, states “The prolonged nature of Brexit uncertainty, including the risk of a no-deal Brexit, together with the deterioration in global economic conditions are expected to weigh on investment, trade and productivity - important determinants of economic growth”. The delay of Brexit has led to significant frustration from many firms causing them to cease investment, in the short run, until there are definitive terms of a deal and date of departure. For example, Nissan has reversed plans to invest in new manufacturing capacity in the UK, citing “continuing uncertainty” around Brexit. However, these reasons should be taken with a pinch of salt as manufacturing has been moving from the UK economy long before Brexit.
In the long run, a lack of business investment could damage productivity and reduce economic growth. The BCC as recently forecasted that business investment is set to fall 1.5% this year and 0.1% next year, and economic growth is estimated to fall from 1.3% to 1.2% this year and next year from 1% to 0.8%.
Mark Carney, Governor of the Bank of England, has stated that the fact that the prospect of a no-deal Brexit has not been ruled out yet has been a significant underlying issue with many UK firms. He also forecasted that it will create “instantaneous shocks” and that “You actually have businesses that are no longer economic.” if it was to occur. This terrifying possibility has already led many firms already leaving to other European countries in the single market. Examples include, Sony and Panasonic moving their European headquarters from the UK to the Netherlands and Amsterdam.
A no-deal departure from the EU, resulting in tariffs and customs checks, would be devastating for manufacturers who rely on frictionless trade to import raw materials and export goods. Compliance with new, unknown procedures and the uncertainty of additional transport times across borders will impact supply chains and costs to businesses. Once outside of the EU, UK firms must pay tariffs on goods entering the single market. This raises the price of UK goods to EU customers. Firms have a choice of either paying tariffs on behalf of customers or they pass on costs on to customers in the form of higher prices which will reduce demand. Both of these options will cause a significant decrease in revenue causing companies who operate on tight margins to go bust.