Driving the Recovery With the Hand Brake On

Why new border controls are adding to UK businesses’ supply chain woes 

In January 2021, UK exports to the EU fell dramatically after the first Brexit trade controls came into force, from £2.1 billion to £1.1 billion, while imports fell by a more modest but still significant amount. The collapse in exports had an especially big impact on the food industry in particular. 

PwC market analysis shows that 60% of businesses saw export volumes fall or stall. Similarly, 40% of businesses reported a drop off in the levels of imports. While new customs requirements will have been a contributing factor to this, the pandemic and the associated supply chain issues that have been widely reported in the media are likely to have been the most significant driver in the reduction in volumes. 

We recently surveyed businesses on the impact that these changes have had and how prepared they are for the withdrawal of deferred declarations and the introduction of further regulations. 

There’s no doubt that COVID-19 restrictions had – and continue to have – a significant impact on UK businesses. However, our survey found that respondents were more likely to identify further changes relating to the UK’s transition out of the EU as a greater external threat to the future health of their organisation, than the pandemic. 

Asked about internal threats, businesses’ most common response was compliance with new regulations, however concerns were wide ranging and included: confidence in the support they receive from brokers, access to the necessary skills and expertise, and access to the right technologies.

Bouncing back? 

Notwithstanding recent challenges, upbeat forecasts point to a big rebound in consumer spending as we begin to emerge from the COVID-19 pandemic. Consumer confidence is at a five-year high, according to recent findings from YouGov and the Centre for Economics and Business Research. People say they have positive expectations for the next 12 months, and this indicates that they are ready to splurge on consumer goods, add value to their homes through improvement projects and invest in their businesses. 

Other research has reached similar conclusions. PwC’s Consumer Sentiment Survey – Summer 2021 finds that people intend to increase their spending in the hospitality sector as well as on groceries and home improvements. Meanwhile, the Bank of England predicts 8.9% growth in the UK’s real GDP through 2022, while the European Commission expects the Euro region’s GDP to grow by 4.8% in 2021 and 4.5% in 2022. 

All of this means that businesses – after many months of constrained operations to help protect the nation’s health – are set to see a much-needed boost in revenues and cash flows. If they don’t want to miss out, they need to be sure they have the capacity to meet the expected demand. That’s especially vital for small and medium-sized businesses left hurting during 2020 and continuing to struggle through 2021.

This is welcome news after the economic contraction of 2020 – the largest since records began. But many businesses can’t relax just yet. That’s because, in addition to other challenges, some are struggling to meet customs requirements, incurring costs and impacting the flow of goods which could ultimately hamper the overall recovery. 

Now businesses are facing several new challenges: approaching deadlines for the deferred customs declaration scheme, expiration of that same scheme in January 2022 and a host of new customs requirements for products of plant or animal origin, although the original implementation date of 1 October 2021 has been delayed, giving organisations more time to prepare. We found that 40% of all firms were not aware of one or both of the key deadlines and smaller businesses were much less likely than larger firms to be aware of these. 

Upcoming customs requirements could put a dampener on recovery 

We will be facing more customs changes as the government completes regulatory adjustments for the post-Brexit economy. Businesses must be ready if they want to enjoy the benefits of the predicted economic recovery. 

As the original deadlines loomed, for food imports in particular, we found a lack of awareness and readiness about what the new customs controls would require. Large organisations are coping, although they are doing so at a large cost – in its recent annual statements, for example, one major UK retailer has attributed a £30 million increase in costs to customs requirements. But small and medium-sized businesses are at risk of feeling even greater pain. 

In our survey, over half of businesses (58%) expressed confidence in their ability to adapt to the new trade environment. But that still leaves a significant 42% who said they were either concerned or uncertain about their ability to do so.

Businesses have achieved so much already in weathering the challenges of the pandemic, in responding to new requirements and in adapting to a changing economy. To capitalise on the work done to date and to better prepare for what’s to come, we believe that there are a range of steps that businesses should take to gear themselves up, from investing in their processes to seeking specialist support and transforming their ways of working.

To prevent new customs requirements potentially derailing the expected post-pandemic economic recovery, businesses need to act now. Link to download report.