Duncan Geddes, managing director of Corby-based independent foam converter Technical Foam Services, explains why the biggest threat the UK’s manufacturing industry might face from Brexit is indecision and subsequently a fluctuating pound
This article is the view of the author and not necessarily of Ready for Brexit
Consistent growth and a reputation for world-leading innovation puts the plastics industry in a strong position as a vital element of British manufacturing. It has to be treated as a key industry if Britain is to enjoy growth post-Brexit, but, with close to seven out of ten imports coming from countries the UK has EU trade agreements with, there is a legitimate concern that Brexit could derail the industry’s momentum.
For me, the situation is summed up in one word – uncertainty. When the referendum was held, I think the result was probably a bit of a surprise to the majority of people and very, very quickly, the pound devalued by about 15-20%, which makes a huge difference to small businesses that are importing raw materials and products from abroad.
The pound falling 1.5% against the Euro after Theresa May cancelled the debate on her Withdrawal Agreement in December has demonstrated how volatile the current situation has become. Exchange rates have an immediate impact and that is a big concern, especially for small businesses that can’t afford to buy ahead. What happens if the pound drops again?
With multiple sudden drops likely over the course of 2019, British importers may find that they are facing increased competitiveness. While this can be anticipated, it is likely to lead to reduced profits.
Trade and single market access
In its current relationship with the EU, Britain is a net importer and is estimated to account for 7.5% of the demand for plastic converters in the EU. The main issue with tariffs is that after leaving the EU, Britain would have to trade on WTO rates, which would make us much more expensive than companies operating within EU trade rules.
Every UK company that imports material would increase their sales prices to cover the cost of the additional tariff, which would then make us less competitive internationally.
The lack of certainty about the future is already slowing recruitment, but if EU workers choose to return to Europe, that could result in stagnation as the industry would be forced to recruit and train, rather than innovate and develop.
For higher skilled roles, I do not anticipate issues for companies looking to recruit highly-qualified EU nationals, however, those looking for lower-skilled workers for packing or warehouse roles may have issues. Generally, I think the issues will vary on a sector-by-sector basis, rather than being the same nationwide.
Thankfully, while 80% of our workforce is from the EU, they are all UK based and going through the settled and pre-settled status process to secure permanent residency, meaning that our current workforce will not be affected by Brexit.
Something that many people seem to forget is that assuming a deal is reached, the March deadline is intended as the starting point, rather than the end. In theory, the transition period gives businesses nineteen months to organise themselves. So, I think, from an administration point of view, getting our heads around the changes – import/export documents, changes of tariffs – this will give us time to organise ourselves.
Ultimately, for a company importing raw materials, the challenge is the adjustment to administration and dealing with the additional costs and challenges that may come our way. Until we enter a transition period we cannot be sure, but from that point, I would hope that it becomes clearer.
We have quality standard 9001 and environmental standard 14001, which are issued from The British Standards Institution (BSI). From where I am positioned, it seems that the majority of the environmental and quality standards will be left alone. People seem to have the common sense to see that Britain doesn’t need a whole new set of regulations. It is working at the moment, so why change it? I don’t think the environmental side of things will be impacted, just logistics.
The key for business is that industry does not have to wait for a deal to be done. By adopting a positive and proactive attitude, individual companies can begin looking beyond Europe for suppliers.
There are a large number of companies that will be able to survive Brexit because they are prepared to be flexible and dynamic. Whatever the issues are thrown our way, they can be resolved if companies can react in good time. Perhaps that means that older, more traditional companies may struggle, and we could see a huge change in British industry in the next two or three years. But in the end, if suppliers in Europe still want to supply us and our customers in Europe still want to buy from us, then between us all, we will find a way through. I believe in the ability of British business to weather the storm in the end.