Smaller British exporters have been hardest hit by new post-Brexit barriers, which have contributed to a £27 billion shortfall in goods sales to the European Union since Britain left the bloc’s single market and customs union.
Research from the Center for Economic Performance at the London School of Economics shows that Brexit has led to a 6.4% fall in Britain’s global exports and a 3.1% drop in imports from the rest of the world. the world. Crucially, the research found that the impact on revenue was “concentrated among smaller companies, but insignificant for the largest companies.”
Under the trade and cooperation agreement that came into effect in January 2021, Britain can trade tariff- and quota-free goods with the EU, provided they meet certain standards. Yet the reintroduction of customs controls and Britain’s departure from the EU’s wider trading framework have created friction for businesses, especially smaller ones.
According to the report, companies trading goods with the EU suffered “a sharp and sustained decline in trade” from 2021 onwards. Relative goods exports to the EU fell by 30% for the smallest companies and by 15% for medium-sized companies. About 16,400 British companies stopped exporting to the EU completely. In contrast, the largest firms had the resources to prepare for regulatory changes and absorb fixed costs, leaving their export performance relatively unaffected.
The researchers estimate that British exports to the EU are now £27 billion lower than would have been expected if Britain had remained a member of the EU. The research focused on goods, not services, with UK exports to the bloc having actually remained resilient, growing steadily and contributing to a trade surplus of £40 billion this year.
Recent trade data shows that UK exports to the EU exceeded those to the rest of the world in the three months to October for the first time in a year. The report suggests that while there has been significant disruption, businesses have also adapted to the new landscape, with many importers switching from EU suppliers to suppliers elsewhere in the world.
“Importers and larger exporters adapted to the shock in ways that dampened the decline in trade,” the study said. “If this resilience is maintained, the economic costs of reversing deep integration may be lower than expected.”
Labor has pledged to ‘reset’ Britain’s relationship with the EU and work to refine aspects of the existing trade deal. Sir Keir Starmer will attend a meeting of EU leaders in February, while Shadow Chancellor Rachel Reeves recently called for a future partnership between Britain and the EU based on ‘trust, mutual respect and pragmatism’.
However, the government continues to insist that it will not revise its “red lines” to rejoin the single market or customs union, or to accept the free movement of people. Labor has also indicated that it has no interest in restoring free movement, although it is committed to deeper defense cooperation and other practical improvements to the current arrangement.