Much of the focus on the debate about the EU has been on the impact that any Brexit would have on exports and economic growth.
On one hand the UK will lose access to the world’s biggest market, on the other hand it can negotiate free trade agreements more easily and export more freely from burdensome regulation.
But what about the impact on costs directly and on the supply chain? These impacts fall into three main categories, the supply of goods, access to skills and people, and economies of scale.
The Brexit cheerleaders claim import costs will be significantly reduced (by as much as 8 per cent) as we move to being a zero tariff regime. Maybe. But import costs are equally likely to rise or stay the same. Many of our imports come from the EU and this is unlikely to change. It’s unlikely the UK will immediately move away from the international agreements the EU has. It’s also likely the administration of imports (everything from VAT to duty deferment) will become much more complex.
What is certain to add more costs to business will be the associated decrease in migration and the increase in administration and regulation associated with business travel. There will be a clear increase in costs for products and services that depend on low skilled migrant labour (everything from contract cleaning to logistics and construction).
What is forgotten is free movement within Europe doesn’t just apply to immigration, it also applies to business travel. At 4C Associates we can send any of our staff anywhere in Europe at a moment’s notice. Whatever rules the UK puts on immigration and travel is likely to be mirrored to other staff. This will have a particular impact where key skills are shared internationally. For example, studies have shown at any time, approximately 10 per cent of the UK management of BMW is on an international assignment, with up to 80 per cent of the placements at BMW Group locations across Europe. A third of 4C’s staff are in Europe and we often work on projects seeking European efficiency. These benefits would be lost.
Finally, without the EU, many customers will lose the benefits of buying from pan-European companies that can operate at maximum scale. For example, telecoms, IT and software companies offer lower costs through pan-European scale and competition. There is a big risk that these companies will charge more to British customers in the event of an EU exit (in the same way that there was a fear that if Scotland left the UK, supermarkets would charge more).
What’s clear is there are no guarantees an exit would reduce import costs and there are many reasons to think supply chain costs will increase as result of Brexit.