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A shopper pushes a trolley in a supermarket in London
A shopper pushes a trolley in a supermarket in London. REUTERS/Neil Hall

Brexit Red tape Will Cost UK Households ‘Up To £1,000 A Year’

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A shopper pushes a trolley in a supermarket in London. REUTERS/Neil Hall

Deal or no deal, leaving the EU will hike bills for British consumers and hit company profitability, says a new report.

Brexit could leave Britain’s households up to £1,000 a year worse off, new research will claim. Increased bureaucracy around UK imports could cost UK consumers £245 to £961 more a year regardless of the tariffs imposed, a new report by consultancy Oliver Wyman will argue.

The new study, due to be published at the end of June, details how tariff and (non-tariff related) red tape costs, as well as costs relating to labour, will work their way through the supply chain and eat away at company profits, despite efforts by firms to mitigate this by increasing prices.

Brexit red tape to hit firms’ profits

Regardless of the outcome of Brexit negotiations, Oliver Wyman’s study found that costs for British consumers will rise and company profits will fall because of resultant custom check delays and increased bureaucracy.

“A Brexit deal that results in no new tariffs with the EU is still likely to increase the red tape costs of imports, driving down profits for businesses, and driving up prices for consumers,” says Duncan Brewer, Retail and Consumer Partner in Oliver Wyman’s London office and co-author of the report.

“Looking across the whole supply chain and taking into account multiple different Brexit outcomes, one thing is clear: Brexit will decrease profits for consumer businesses. The only question is by how much, which will depend on what deal is negotiated.

“While businesses will do all they can to absorb rising costs, we expect they will be forced to gradually put up prices for shoppers. If they don’t, profits could vanish.”

Five Brexit scenarios modelled

Examining Brexit’s potential impact on household spending and company profitability, the research, reported by the Financial Times, modelled five different scenarios: the UK leaving the customs union but remaining in the single market and the opposite; signing a bespoke customs and single market agreement; plus two in which Britain left the customs union and single market but in one scenario applied WTO import tariffs and in another applied zero tariffs to imports.

Researchers found that in these scenarios, the average hike to household bills ranged from £245 to £961 a year. What’s more, for each 5% devaluation of sterling against the US dollar and the euro, household costs rose by an additional £380 a year.

However, the study also found that any further free trade agreements signed, allowing the UK to switch to zero-tariff trade with non-EU countries, would cut costs by £120 to £170.

Poorer families to be hit the hardest

Under a ‘no deal’ Brexit, imposing World Trade Organisation most-favoured-nation trade tariffs, household bills would rise by £1,000 annually, according to the research, with low-income households hit the hardest because their greatest outlay after rental or mortgage costs tends to be groceries.

“[Under this scenario] we expect the price of a typical weekly grocery shop to go up by £5.50, a family meal for four at a high street restaurant chain to increase by £9, and a pair of trainers to cost £6.75 more,” says Brewer.

“Cost increases on essentials like food and drink could create difficulties for many people in the UK, but the price changes won’t happen overnight.

“However, consumers’ pockets are not limitless and they will cut back on discretionary purchases like holidays and eating out, putting pressure on businesses like restaurants and travel agencies.”

Supermarkets and restaurants vulnerable

Researchers at Oliver Wyman say the sectors most exposed to Brexit red tape costs are those which import goods from abroad, such as supermarkets and restaurants. Under a scenario which saw no Brexit deal but tariffs unilaterally lifted, a supermarket with revenues of £10bn a year would see profits fall by 71% unless it increased prices by 4.3%, according to the study.

Similarly, in the event of no deal and WTO tariffs imposed, a farm with annual revenues of £500,000 would see profits collapse by 80% unless it raised prices by 4.9%.

Research by Alvexo last November found that Brexit could cost UK households £2,000 extra a year, due to rising food prices, interest hikes and pressure on wages.

Experts say British consumers are already impacted, with wages down and the cost of food and overseas holidays already rising.

A report last year by the Centre for Economic Performance (CEP), a think tank based at the London School of Economics, claimed the average household was already £404 a year worse off due to Brexit-induced price inflation, while British holidaymakers were also hit by the weak pound.

UK Government’s own post-Brexit economic research negative

The UK Government’s own economic research published in March revealed that post-Brexit growth will be impacted for the next 15 years, while a Treasury report published in 2016 estimated that leaving the EU would cost British households £4,300 a year, although this was criticised at the time because the figure estimated lost GDP rather than bill costs.

Mark Essex, director at KPMG UK, says that while consumers will be hesitant to make key purchasing decisions ahead of March 2019, not all firms will experience the same impact from Brexit.

“There will be winners and losers and not just because some have prepared and some haven’t,” he told the Financial Times. “It’s all a matter of where they source their goods.”

Study ‘too pessimistic’, say Brexiteers

However, Pro-Brexit campaigner Gerard Lyons, chief economic strategist at wealth management firm Netwealth, claims the UK’s economy will “flourish” outside the EU.

“We need pro-growth policies, and should remember that 90% of global growth in the future will come from outside the euro-area,” he told the BBC.

“Judgements such as this [by Oliver Wyman] are far too pessimistic. Without the constraints that come from being a member of the EU, our economy can flourish.”

Note: The opinions expressed in this article are the author's own and do not necessarily reflect the view of Alvexo on the matter.