Will higher tariffs on UK exports to the EU following Brexit be bad for farmers, retailers and the consumer?
Nick Clegg has claimed that quitting the European Union without staying inside the single market will devastate British farming. He said a hard Brexit would be followed by “punishing tariffs” on products including beef, cheese and wine, effectively pricing them out of their biggest export market.
The former Liberal Democrat leader and deputy prime minister warned that reverting to rules governed by the World Trade Organisation (WTO) after the article 50 process has run its course could saddle companies with extra bureaucracy and costs that push them out of business.
In a report published on Monday the Lib Dem MP gives a breakdown of the £11bn worth of agricultural products the UK sells to the EU each year and how they will be hit with an average tariff of 22.3%. This average is constructed from some extreme highs, including 59% on beef, 38% on chocolate, 40% on cheese and and some tariffs that are not so onerous, like the 14% on wine.
Under WTO rules, he says these tariffs will also have to be applied to all imports into the UK until a trade deal with the EU is struck.
“This will cause a significant increase in food prices, compounded by increased costs to producers from extra red tape such as customs checks and labour shortages caused by the end of EU free movement,” he said.
These are the longer-term consequences of a move towards a hard Brexit that has already sent the pound plummeting and import prices rising.
The recent Marmite battle, in which Tesco resisted demands from Unilever to raise prices, is an early skirmish in a battle that retailers will soon begin to lose, leading to the soaring cost of a weekly shop.
According to Clegg: “It’s clear that Marmite was just the tip of the iceberg,” as food importers either pass on prices or see their profit margins wiped out.
“The only way the government will be able to avoid this outcome is if it maintains Britain’s membership of the single market,” he said.
Will higher tariffs cripple the agriculture industry and lead to higher prices in the shops?
The answer is not as clearcut as Clegg argues. The gains and losses from operating outside the single market are the subject of several studies.
Most economists agree that in the coming months, prices of certain goods will rise. Next, the clothes retailer, said the cost of its shirts and skirts could rise by 5% over the next year, more than eight times the rate of inflation. The company’s boss, Lord Wolfson, said this after a 10% fall in the pound. Sterling has fallen almost 18% since Wolfson, a Brexit campaigner, made his assessment.
Yet, British supermarkets will use their buying power to minimise the impact and keep prices low. They could also increase productivity, which is another way of saying they will try to sell the same amount of stuff with fewer staff.
Clegg assumes the UK would impose retaliatory tariffs that mimic the EU’s, based on a speech by the trade minister Liam Fox. But Economists for Brexit, the grouping that supported Boris Johnson and Michael Gove in the referendum debate, recommend abolishing tariffs, a move that would offset the fall in the pound.
This might be tough for the burgeoning British wine industry and its exports to the continent, and French and Italian wine would flow freely into the UK.
And even if a future chancellor of the exchequer imposed tariffs, once outside the EU, shops could also start to source goods from countries where the tariff is less significant because prices are at rock bottom. That would mean replacing Irish beef with the South African equivalent. New Zealand wine would step in to replace the more expensive Italian and French varieties.
Economists for Brexit agree the agriculture industry will face a challenge. South African beef will undercut British beef as well, forcing them to use the land for something else. But an opportunity opens up to farm organic livestock to achieve higher profit margins or, in the case of low value land that is only farmed to grab a subsidy from the common agricultural policy, left to become wilderness again.
It will mean a huge shakeup that is long overdue, as left-leaning commentator George Monbiot has argued. And the government could use some of the funds repatriated from Brussels to cushion the blow to those farmers worst affected.
Ryan Bourne, head of public policy at the free market Institute for Economic Affairs, said by his calculation the EU’s food was 15% more expensive than the average world price between 2002 and 2011. This is not just the cost of CAP subsidies, but the “overbearing regulation” that Brussels has imposed over the years, though his version of overbearing regulation includes a block on genetically modified food.
If the UK could achieve a little more than half this cost reduction once outside the single market, it would ease the pain of the estimated 8% increase in costs that a study for the National Farmers Union said would take effect by 2025.
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Times
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