Wednesday, 14 October 2020
Time to confront the ‘B word’: How Brexit is causing a bigger headache than coronavirus for many businesses
After the huge impact of Covid-19 on businesses of all shapes and sizes, the uncertainty they have lived with throughout 2020 continues with less than three months until the end of the Brexit transition period and no sign of a trade deal being negotiated with the EU. Dan Robinson finds out how this is affecting companies and jobs in the East Midlands.
A survivor of five recessions already, Ian Greenaway is confident he’s well-set to come out the other side of number six.
Having watched MTM Products, the Chesterfield manufacturer he’s run for 24 years, reduced to taking just a third of its pre-Covid business at its lowest point in the spring, it shot back up to 75% as the economic recovery gained momentum in August.
But just as optimism was taking hold, the rebound plateaued in September and now there’s a dark shadow looming on the horizon – the B word.
“It’s on a par with Covid,” he says. “People conveniently forgot about Brexit at the start of coronavirus but now it’s back on the horizon, and there’s very much a lack of confidence from manufacturing that the Government will be ready by the end of the year because we have to physically move goods across borders.”
About 20% of MTM’s goods – which include labels, aluminium nameplates and other industrial graphics products – are exported directly into the EU, and most of its materials are purchased directly or indirectly from the bloc.
Prior to Brexit, and during this year’s transition period, the firm has been able to send goods by either parcel carrier or pallet without tariffs or customs checks.
From 1 January, when the transition period comes to an end, it will have to deal with the extra costs of customs documentation, regardless of whether a trade deal is reached.
A no-deal scenario, however, stands to cause far-reaching problems.
As well as trade tariffs, special VAT arrangements for holding call-off stock in customer factories based in the EU would be assessed when the goods move across borders, rather than at the point of usage when suppliers like MTM transfer ownership to the client. This could require it to set up a subsidiary company in the EU.
There’s also the prospect of border hold-ups, with a “reasonable worst-case scenario” report by the Government’s Border and Protocol Delivery Group forecasting queues of 7,000 lorries in Kent and two-day delays to cross into the EU.
Ian, who is also worried about the longer-term reputational damage for UK plc that may force European firms to trade elsewhere, says: “At the moment, we can do next-day deliveries to Romania but there could be delays.
“We buy a lot of materials like aluminium, polyesters and acrylics directly from countries including Belgium, Holland and Germany, so this would put into question the availability of those materials because a lot of them aren’t stocked in the UK.
“This would likely go on for about three months so we’d have two options – to put up with it and deal with the customer service issues it causes, or build up stocks.
“Building up stocks creates additional cashflow pressures to those we’re still facing from the fallout of coronavirus. MTM is relatively well placed in terms of low borrowing but many companies just haven’t got the cash available to build up stocks.
“If there’s no trade deal, the effects on our business are likely to be in a year or two. For example, the car manufacturers are panicking about the impact on their supply chains, which are integrated across Europe, so if they decide the UK isn’t a good place to do manufacturing, some of the companies we supply to will have less work.”
Covid-19 has already had a huge impact on job losses - and Brexit uncertainty isn't helping
This impacts jobs and livelihoods. MTM has already made five people redundant, taking its workforce to 41, and there will be another review before the end of the Government’s Job Retention Scheme on 31 October.
Ian doesn’t expect business to reach pre-Covid levels until the end of 2021 and plans to invest in capital equipment, rather than people, to bolster productivity.
“It’s hard but we need to remain competitive and protect the jobs of the majority,” he adds.
MTM’s story could likely be repeated across large swathes of the UK and East Midlands economy.
The region’s May to July unemployment rate rose by 0.7% – the UK’s second largest increase – compared to the previous three months, reaching an above-average 4.4%.
Sonia Baigent, owner of Assist Business Consulting and a board member of the Leicester and Leicestershire Local Enterprise Partnership (LLEP), works with SMEs.
“From what I’m seeing, Brexit and coronavirus aren’t necessarily the problem,” she says. “It’s the uncertainty of both.
“Particularly in manufacturing, Brexit is a much bigger problem than Covid-19, which just amplified the issues that were already there in industries like retail and hospitality.”
While Sonia predicts opportunities for sectors like food manufacturing, she admits these won’t be able to take advantage until they know the costs involved.
She adds: “It means a lot of businesses are trying to have two completely separate plans. While they don’t want to incur too many costs by being driven too far down one of those avenues, we’re getting to the point where we don’t have a choice and have to take those contingency plans all the way.
“The businesses that survive will be those that are quickest to react.”
It's not all doom and gloom as Brexit provides opportunities for East Midlands
While lockdown and social distancing have given a kicking to bricks and mortar retail and hospitality, the accelerated shift to e-commerce has at least stimulated the burgeoning logistics sector.
This provides much promise for the East Midlands given its central location and emergence of East Midlands Airport as the UK’s busiest pure freight airport, handling more than 370,000 tonnes of flown cargo every year – second only to Heathrow for annual tonnage of all cargo.
As well as being the UK hub for DHL and UPS, it has spawned a huge amount of warehouse development in the area around the airport, particularly at the neighbouring 700-acre SEGRO Logistics Park East Midlands Gateway.
Amazon also stemmed the bad news tide in August by creating 1,000 roles at a 550,000 sq ft warehouse in Sutton-in-Ashfield, its fourth fulfilment centre in the region.
Jonathan Dawes, planning director at Tritax Symmetry – which is working on two major logistics developments in the region, including a proposal to create a National Rail freight interchange just outside Hinckley – says logistics is a key strength for the East Midlands.
He adds: “There’s a significant amount of office space within these warehouses that have the full range of so-called ‘good-quality’ jobs and the industry has a good track record for ongoing career development from the age of 18 upwards – a key point given that many of the people hit hardest by unemployment are aged 18 to 24.
“It’s sad it’s taken something like Covid to thrust it into the spotlight but people are now starting to understand how critical it is to the economy, particularly with the exponential growth of online retail.”
So while the UK is in a perilous economic position with coronavirus and Brexit, these glimmers of light could provide a tonic for supply chain companies like MTM Products, which need consumers to spend.
Ian Greenaway regains his optimism, adding: “Even before Covid, we were being hit by uncertainty so while chaos might reign in the short term, whatever happens at the end of this year will at least give us some degree of certainty in the long term.”
This article features in the October edition of the Chamber's Business Network magazine, which is available to read here.Back