While big business has spoken out in favour of remaining in the EU, many smaller companies have been less than enthusiastic. In a way that’s understandable: ‘Big Brother’ EU seems at times against the spirit of entrepreneurship, and to impose unwonted costs and bureaucracy that small businesses can ill-afford.
As a fast-growing small and medium-sized enterprise (SME) ourselves, we can see the reasoning behind such a view. However, our experience, shipping to both EU and non EU countries, leads us to believe, on balance, that the true cost of going-it-alone outweighs any ideological reservations we might have.
Our belief is that if Britain exits the European Union, there will be an immediate and significant decline in trade.
Here’s why. The first problem any SME importer will face post-Brexit is that there will be an average 5%-9% added to the price of an item in duties on goods coming in from the EU – where any duties are payable. Currently, of course, there are no such tariffs as we are part of the union.
Next comes the issue of VAT. Currently we don’t pay VAT inside the EU of course; but once we are outside the union there is likely to be VAT of around 20% to pay. Of course businesses will reclaim this, but it’s going to be an administrative pain, not least because different EU countries have different tax rates to keep on top of.
Additionally, as an experienced parcel broker serving those European non-EU countries, we believe there will be increased transport costs. Trust us on that. The UK outside the EU won’t be as attractive a destination, as companies will face red tape at borders and issues around customs duties and paperwork. They will impose new ‘customs clearance’ fees: typically, around £15 per package, or a percentage of the overall value of the shipment; whichever is greater. Remember these are not customs tariffs, but fees imposed by the carriers – as the long-suffering Swiss consumer will testify.
All this means – as our new report Delivering Brexit: The True Cost of Leaving the EU reveals – that a typical SME, that employs more than one person and imports from the EU, is likely to spend an extra £163k annually on transport, admin and duties.
A stand-alone UK is likely to be dealing with exactly the same red tape a company from outside the EU has to deal with, when trading with us now. That means Customs forms with proof of origin for every shipment will be required. And that means delays.
Many entrepreneurs argue that by following the Swiss model we could have the best of all worlds: enjoying the benefits of trading with the union but not being bound to its decisions. But a glance at the cost of living in such countries is rather eye-opening. The cost of living is 32% more in Norway; and 58% in Switzerland. To put that into context a pair of Nike trainers costing £59 in the UK costs £88 in Switzerland. You may argue that this is because the Swiss like taxing things to the hilt to pay for their clean roads and social welfare – but in fact a significant chunk of this cost is certainly down to the transport and red tape issues. And it’s widely acknowledged that the EU is fed-up with having to separately renegotiate every change that takes place within the EU with the Swiss state. It’s not likely to welcome another such arrangement.
President Obama notoriously argued on his recent visit to the UK that Britain would ‘go to the back of the queue’ for any new trade deal with the US, if it quits the EU. That matters because the planned Transatlantic Trade and Investment Partnership (TTIP) between the US and EU aims at removing most customs duties. Great news for SMEs doing business with the US. Except if we leave the union, we leave the TTIP agreement. British cars exported to the US would still face a 2.5% tariff that will no longer apply to EU cars. And import duties of 10% on imported American cars would remain in Britain, but be abolished in the EU. A £25,000 Jeep Cherokee will fall in price to £22,500 across the channel; but remain the same here. It is also likely that very many other British exports such as fuel and chocolate could also be at a disadvantage if TTIP abolishes tariffs on those products.
What may look like a tempting exit may, in fact, be a wall blocking us off from many of our key markets.
Read the full report at: www.parcelhero.com/brexit
By David Jinks MILT, Head of Consumer Research, ParcelHero