Small UK exporters have been hit hard by new post-Brexit barriers, contributing to a £27bn shortfall in goods sales to the EU since Britain left the bloc’s single market and customs union.
Research by the Center for Economic Performance at the London School of Economics reveals that Brexit led to a 6.4% decline in the UK’s global exports and a 3.1% decline in imports from the rest of the world. Importantly, the study found that the impact on sales was “concentrated among small businesses, but not significant for larger companies.”
Under the Trade and Cooperation Agreement that came into force in January 2021, the UK can trade goods with the EU without tariffs or quotas, provided they meet certain criteria. However, the re-imposition of customs controls and Britain’s exit from the broader EU trading framework have created friction between businesses, especially small businesses.
According to the report, companies trading goods with the EU suffered a “severe and sustained decline in trade” from 2021 onwards. Relative goods exports to the EU fell by 30% for the smallest companies and 15% for medium-sized companies. About 16,400 British companies stopped exporting to the European Union completely. In contrast, larger companies had the resources to prepare for regulatory changes and absorb fixed costs, resulting in their export performance being relatively unaffected.
Researchers estimate that UK exports to the EU are now £27 billion less than would be expected if the UK had remained a member of the EU. The study focused on goods, not services, as UK exports to the bloc have already remained resilient, growing steadily and contributing to a trade surplus of £40bn this year.
Latest trade data shows that UK exports to the EU were higher than its exports to the rest of the world in the three months to October for the first time in a year. The report notes that while there has been significant disruption, businesses have also adapted to the new landscape, with many importers switching from suppliers in the EU to suppliers elsewhere in the world.
“Importers and large exporters adapted to the shock in ways that dampened the decline in trade,” the study noted. “If this flexibility persists, the economic costs of reversing deep integration may be lower than expected.”
Labor has promised to “reset” the UK’s relationship with the EU and begin work on improving aspects of the current trade deal. Sir Keir Starmer is due to attend a meeting of EU leaders in February, while Shadow Chancellor Rachel Reeves recently called for a future UK-EU partnership built on “trust, mutual respect and pragmatism”.
However, the government stresses that it will not reconsider its “red lines” for returning to the single market or customs union or accepting free movement of people. Likewise, Labor has signaled its unwillingness to restore freedom of movement, although it seeks deeper defense cooperation and other practical improvements to the current arrangement.