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Summary
- The coronavirus pandemic has delayed the Brexit-deal negotiations between the UK and EU, with now only six months to go before the EU common area regulations expire
- Should a deal fail to materialize in time major manufacturing regions like north of England, Midlands and Wales industrial areas will have the maximum to suffer as their export dependencies on EU is very high
- A deal at this point of time is the best option that both sides can have to protect the interests of their manufacturing companies
The coronavirus pandemic and the subsequent lockdown has been causing trouble for the businesses in the UK in more ways than one. In a report published by British manufacturers lobby group Make UK and accounting firm BDO has found that in the event that a Brexit deal is not materialised before the EU common area regulations expire, the economic damage for the manufacturing sector will be massive. Certain areas which are the manufacturing and industrial heartlands of the country will not only see many businesses facing a risk of survival but will also see massive jobs losses. With not much alternative employment opportunities available at this point of time due to the pandemic induced economic situation, the ensuing social, economic situation in the regions may not be that favourable for the conservative party which had won several seats in the region in the last elections.
These industrial areas have last year won seats for the Tories, and now face maximum job risk.
The industrial and manufacturing regions of North England, Midlands and Wales have a high concentration of companies those who have traditional relations with the European Union. These areas which were traditionally strong bastions of the Labour Party has assumed the name of " Red Wall" as red represents the colour of Labour. However, in the 2019 general elections, these areas uncharacteristically voted for the conservative party, with many media houses giving it " Fallen", " Crumbled" or " Demolished" kind of proverbial names, calling it red wall have been " turned blue". The Make UK and BDO report state that this newfound fortune of the Tory will come under serious risk if the Brexit deal talks fail to achieve a breakthrough within the stipulated time, and the situation is let to deteriorate.
The manufacturing sectors is one of the largest exporters in the UK and contributes in a big way for the country to maintain its global economic competitiveness. During the time, the UK was part of the EU, manufacturers of the country had a very wide resource base to cheaply import high-quality raw materials and have a big market to sell their finished goods. In the event that negotiations fail between the two blocs, this massive market will be lost, and the industry will fall back on its competitiveness by decades.
The triple whammy of Brexit, Coronavirus Pandemic & failure of trade deal post Brexit
The manufacturing sector is currently plagued by three different major regressive factors that are affecting its productivity, survivability, and future. The first of these factors was Brexit itself, till the time the actual pull-out happened on 31 January 2020, the long-standing uncertainty, if both parties will eventually enter into a deal to protect business interests on both sides, caused massive confusion and business disruptions. Second is the continuing Coronavirus pandemic saga that had virtually shut the manufacturing sector for seven months when the lockdown was in effect. During this period, not only did the industry suffered because of labour not being able to report to work, but massive supply chain bottlenecks also cropped up as transportation systems were also down because of the pandemic. The third whammy will be the failure of the trade negotiations between the EU and the UK, which will ensure a duty-free movement of goods across borders as had been happening before when both sides were together. During the transition period between 31 January 2020 and 31 December 2020 when the EU common area regulations had been agreed to be effective to allow both sides to conclude an appropriate deal, the business has been as usual for the British manufacturers sans the disruption caused by the pandemic. But if the deal does not take place, it will be a matter of survival for the manufacturers as the domestic demand will not be able to sustain the industry.
The government’s efforts to deal with the eventuality so far
The government has taken several measures since 31 January 2020 to address the concerns of the manufacturing sector in the country. It has rolled out business rate cuts and VAT rate cuts to lower the cost structure in the industry. Government has also launched trade negotiations with several countries so that British companies can have better access to larger markets, which would not only help it to export to these countries but also help them source quality raw material conveniently and economically.
It is also highly likely that the government will roll out further measures in the near future to spur demand for manufactured goods in the country, on the same line that it has rolled out measures for the housing construction and the hospitality industries. Till that time, the industry must pull all stops to push itself on the path of recovery.
Outlook
Despite the anxiety of the manufacturing sector that an appropriate deal may not materialise in time, the negotiators from both sides will most likely meet the deadline. Manufacturing industries of both UK and EU are heavily dependent on each other, and despite the disagreement on both sides on many things, none would want to get into a situation where a deal does not go through. The supply disruptions of raw materials and components from China along with the falling export figures to that country during the past few months has left many companies scrambling for alternatives. A deal at this point of time is the best option that both sides can have to protect the interests of their manufacturing companies, as the world slowly inches back to recovery.
