In the Limelight

March 5, 2018

Last month, BuzzFeed obtained Government analysis of the impact of Brexit that indicted the North East could see a devastating drop in GDP of between 11 and 16 per cent. Alison Cowie gauges reaction to the leaked information and asks what needs to be done as way of a response to these damning forecasts

The North East works hard to present itself as a place where businesses can thrive but it was dealt a major blow recently when a leaked Government document indicated that the region would be the worst hit after Brexit.

Analysis obtained and published by BuzzFeed on the impact of Brexit indicated that the UK would be worse off outside the European Union, whatever deal was secured (a free-trade agreement, a no-deal, or single-market access via membership of the European Economic Area).

The leaked document – dated January 2018 – also predicted that the North East would suffer a catastrophic fall in GDP of between 11 and 16 per cent.

The Government tried to distance itself from the analysis and in a statement said the forecasts ‘did not reflect the Government’s official thinking’ and that ‘more research was needed’. But it still made uncomfortable reading for North Easterners – especially given the region voted resoundingly to leave the European Union (just one of its seven areas voted to remain).

North East England Chamber of Commerce’s Ross Smith was not surprised by the predicted impact on the region in the leaked report.

He says: “The North East of England is the biggest and best region in the country in terms of doing trade with Europe, so it stands to reason that the negative effect would be greater.

“What is surprising is that we’re now 20 months on from the referendum and Government hasn’t properly addressed that yet. Particularly when you take into account that they were elected last

year on a manifesto that made closing the gap between London and other parts of the country a top priority.”

Though the director of policy remains wary of economic predictions so far in advance, in a blog published on the Chamber’s website on February 8, he vented his frustrations at the analysis and called on the Government to stop “taking us for idiots”.

Iain Wright, chief executive of the North East of England Process Industry Cluster (NEPIC), also wasn’t surprised by the forecasts. He cites one reason that North East would be so negatively affected is that it is a “major player in key industries such as manufacturing, automotive and chemicals”, which rely on trade with Europe and the rest of the world.

Iain goes on to say that the uncertainty around Brexit has led many of NEPIC’s members – which tend to represent large-scale, international organisations – to delay investing in new facilities, skills and products in the area.

Similarly, Alex Ingham, managing director of MI Supplies, wasn’t shocked by the predicted negative impact on the North East.

“Certain regions of the UK such as the North East always seem to get a raw deal,” he says.

Alex reports that his own business – a workwear and safety clothing company that relies heavily on imported goods – felt the impact of Brexit immediately after the referendum, as suppliers put their prices up.

“One major supplier raised its prices by 14 per cent 24 hours after the result was announced,” he reveals.

“It’s meant that we’ve had to find a lot of new work to subsidise losses that we’re making on existing contracts.”

In his blog, Ross Smith calls for a number of Government actions during its Brexit negotiations.

He recommends that the Government should reconsider leaving the Customs Union as this could expose the UK to “huge risks.. great complexities and huge capacity building”. Or if sufficient evidence is provided that shows that there are benefits from leaving the

Customs Union, then the two-year window to manage this transition and secure trade deals is “perilously short” and should be extended.

Ross also believes that major investment should be taking place in technical training and advice for businesses.

“Government should be investing now in the kind of infrastructure and support that businesses are going to need to understand future custom procedures,” he says.

Iain also questions the two-year transition period and says that

Negotiators must make sure there are no unnecessary trade barriers created in the UK.

“For example,” he explains, “modern manufacturing means partially finished products are often moved across borders using complex ‘just-in-time’ models. If products get stuck in ports while paperwork is complete, because the UK is not part of the single market, this will put barriers up and it will make the playing field uneven.”

Alex Ingham, meanwhile, is not waiting to see what the outcomes of the Brexit negotiations are, and has already taken steps to future-proof his business by opening sites in Germany and France – as well as building its e-commerce capability.

“We’re looking at how we can spread the business and not rely on one locality or one Government,” he says.

When asked whether businesses like his may decide to leave the North East altogether if the damning Brexit analysis comes to fruition, Alex is not convinced.

“We’re a £2.5 million turnover business and I think for businesses of a similar size, it’s difficult for them to up sticks and move. Their facilities and workforces are based here; their kids go to local schools. Relocation also represents a large expense for companies.”

Iain also strikes a positive note when asked whether NEPIC members may look to leave the region.

“The region’s underlying strength is its reputation. We’re known for being an innovative place. People tend to think of the North East of England when they’re looking for manufacturing so I don’t think they’ll turn their back on that. The Government just has to ensure the best possible deal – for all British Industry – is secured.”

How much credit can be given to the leaked Government analysis is still up for debate, but what has been highlighted is the North East’s vulnerability due to its positive export record and reliance on certain sectors.

The forecasts also reconfirm the need for the North East to ensure its voice is heard while negotiations between the UK government and the EU take place.

“We can’t just shout from the sidelines,” says Ross. “We must take every opportunity to explain, properly and meaningfully, what the issues are in the North East.

“At the Chamber, we’re trying to get ourselves – and our members – in front of ministers and civil servants who are making the decisions to make sure they can hear directly from North East businesses and how Brexit will affect them.

“I would hope and expect any other organisation in the North East, which has the capacity, to be doing the same thing.”

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