The impending implementation of new post-Brexit UK border controls, scheduled for later this month, is anticipated to have significant financial ramifications for British businesses, with projected costs amounting to £2 billion. These controls, which are part of Boris Johnson’s Brexit deal, are expected to lead to higher inflation rates, according to a report by Allianz Trade.
The report delves into the specific impact of checks on animal and plant products, set to commence on April 30th, which could result in a 10% increase in import costs within the first year alone. These checks are integral components of the government’s “border target operating model” (Btom), which will affect £21 billion worth of agricultural product imports. This includes a range of items such as eggs, live trees and plants, meat, and fish, collectively constituting about 3% of all UK imports.
The ramifications of these border controls extend beyond just import costs. The report suggests that EU companies are likely to pass on the increased costs to UK customers, thereby exacerbating the inflationary pressure. It is estimated that these affected items, which make up approximately 6% of the basket of goods used to calculate the UK’s headline inflation rate, could contribute an additional 0.2 percentage points to inflation. Among these items, dairy, meat, and fish are expected to be the most affected, potentially leading to higher prices for consumers across the UK.
While the government initially estimated last October that the additional checks would cost businesses an extra £330 million annually and add less than 0.2 percentage points to headline inflation over three years, the Allianz report paints a potentially more dire picture.
However, it’s worth noting that the inflationary pressures stemming from these new checks may be partially offset by a two-year suspension of tariffs on goods not covered by free trade agreements. This suspension could potentially reduce import costs by £7 billion, encompassing agricultural products, cars, fuels, metals, and other non-food goods, which represent 45% of total UK imports. Such a reduction could potentially mitigate general inflation by 0.6 percentage points over the next year, providing some relief amidst the anticipated inflationary pressures.
Despite this potential offset, concerns linger regarding the implementation of the Btom model. Phil Pluck, the chief executive of the Cold Chain Federation, has expressed worry about its implications, suggesting that it could undermine business confidence in the UK and lead to increased costs for consumers. Additionally, the report raises alarms about UK firms facing heightened barriers to exporting to the EU, as the UK lags behind in adopting new rules established by Brussels. This discrepancy could compel UK companies to adhere to new EU standards to maintain access to the EU single market, as the UK government’s influence over EU policy decisions has diminished post-Brexit, further complicating the landscape for businesses operating in the UK.