05th February 2019
Fears of empty supermarket shelves after no-deal Brexit are overblown, says new IEA briefing
Today the Institute of Economic Affairs launches another briefing in its series of ‘no-deal’ Brexit Fear-Checkers to help separate theoretical risks from reality; Project Fear from Project Fact.
These short briefings look at a particular warning about the impact of leaving the EU without a deal, assess the problem, and outline what can be done to fix it.
The latest briefing examines the claim that a no-deal scenario would result in price increases and food shortages, because of the implementation of tariffs and formalities risk causing chaos at ports and on the road.
Author of the briefing Victoria Hewson – Senior Council for the IEA’s Trade and Competition Unit – highlights the serious risk that companies and the intermediaries that support international trade may not be ready for such changes, which could cause queues and delays.
However, between HMRC's plan to implement modern simplification processes for customs clearance and the ‘risk based approached’ the Government and Food Standards Agency plan to adopt, Hewson argues that the risk of empty supermarket shelves is largely overblown.
The problem:
- The UK imports 30% of its food from the EU, an amount that will be at its peak in March due to low availability of domestic fresh produce at that time of year
- In a no-deal scenario, traders will be faced with new formalities, including fiscal obligations and regulatory requirements, they may not be prepared to handle
- Failure to comply with new requirements may cause delays to processing lorries at either end of the Channel, quickly causing queues and gridlock, leading perishable food items to spoil and deliveries to not arrive on time.
Proposed solutions:
- Modern laws and systems have simplified and accelerated the process of customs clearance – declarations are made almost entirely electronically and pre-cleared by authorities in the importing country before consignment is shipped.
- HMRC has notified business that it will be implementing these simplifications and applying postponed accounting for VAT for all imports, to relieve pressures around fiscal requirements.
- The Government and the Food Standards Agency will adopt a ‘risk based approach’ to import checks, meaning the UK will not impose additional border checks on the EU, like the kind carried out on imports from third countries, from the first day of a no-deal Brexit.
- This does not mean the EU would not impose additional checks on UK exports, so there could still be an increase in delays and frictions, impacting UK traders; but steps have been taken to ensure that UK consumers will not have their food products delayed.
The briefing argues that many companies who already import from around the world should be well placed, after more than two years notice, to make necessary adjustments. But smaller businesses and intermediaries will need more support, and all affected traders need certainty from government as to what the legal parameters will be.
While the risk of delays and friction are serious, intensive presence of Border Force, HMRC and customs brokers at or near Channel ports should keep traffic moving, prioritising flow over compliance in the immediate term to ensure that supermarket shelves are stocked.
There is a real chance that the UK will leave the EU in March 2019 without the ‘withdrawal agreement’ anticipated in Article 50. Membership of the Single Market and Customs Union would then be replaced with trading on World Trade Organisation terms. Many other arrangements that currently govern relations between the UK, the EU, and the rest of the world could also come to an abrupt end.
The prospect of this has prompted another surge of warnings about potentially devastating impacts on the economy, security and welfare of the UK. Some of these warnings contain elements of truth and need to be taken seriously. But almost all describe scenarios that are very unlikely to happen in practice, because steps can still be taken to avoid them.
The Fear-Checker briefings are written to give a sensible assessment of the dangers involved in a ‘no deal’ scenario, and the preparations that should be made to minimise them.
Commenting on the briefing, Victoria Hewson, Senior Council to the Trade and Competition Unit at the Institute of Economic Affairs said:
“While fears about food shortages in supermarkets if we leave the EU without a deal should be taken seriously, talk of empty shelves seems overblown.
“It is clear though that businesses have been making serious preparations to keep goods moving, and even at this late stage there is a lot that government can do, with some welcome signs in the offing about HMRC starting to work with businesses to support them and simplify processes. There still needs to be clarity about the legal framework for trade with the EU after Brexit.”