UK manufacturers warn Brexit is undermining their place in EU supply chains

A recent rash of “big pharma” investments in Ireland by the likes of Pfizer, AstraZeneca and Eli Lilly is worrying Dave Seaward, co-founder of 3P Innovation, which makes automated machines used in the production of vaccines and other medicines.

Seaward said business had boomed before the UK left the EU single market but since 2016 the company had battled Brexit headwinds including engineers returning home to the EU and border bureaucracy that has complicated 3P’s pan-European supply chains.

With clients in Ireland saying privately that their global parent companies are keen to remove UK risk from their businesses, Seaward fears for the long-term future of British industries like his that are reliant on integrated supply chains that criss-cross the EU.

“If big pharma retreats to places like southern Ireland it puts my business at a competitive disadvantage to one inside the EU,” he said. “Big corporations are risk-averse and now, after Brexit, they see the UK as risky.”

According to an in-depth analysis by trade economists released this month, high-end UK manufacturing that feeds into EU supply chains is going to find itself being increasingly squeezed by the challenges of post-Brexit trade. 

Nearly 50 per cent of UK manufacturing exports to the EU are so-called “intermediate” in nature, feeding components into EU supply chains that are then often exported onwards to the rest of the world as finished products.

The report by the Resolution Foundation said that UK global exports in the first three months of 2023 were still 17 per cent below the levels before the EU-UK trade deal came into force three years ago, and warned that the UK’s more advanced manufacturers would be supplanted by lower-productivity domestic manufacturing in the longer term. 

It cited the UK auto industry’s recent struggles to attract investment to build the battery factories needed for the electric car revolution as a harbinger of the future challenges facing other high-value sectors, including machinery, chemicals and computer equipment manufacturing. 

“Although these [EU-UK] supply chains will take time to disentangle, they will shrink the UK’s high productivity manufacturing — from chemicals to spacecraft — as they do,” the report warned.

With manufacturing accounting for nearly 50 per cent of UK exports, the report added that the structural shift would further contribute to the longstanding productivity crisis that has weighed on the UK economy since 2008. 

“Policymakers need to face the choice over whether or not to stay part of EU supply chains, to support high productivity manufacturers, and they need to accept that doing so means addressing the EU border,” the report said.

UK lags behind the majority of G7 countries in goods exports. Chart showing the index of goods exports values for G7 countries in the following sectors. Vehicles Chemicals Other manufacturing Agri-food

Trevor Mathers, the managing director of Alfa Chemicals, a medium-sized chemicals importer and distributor in Bracknell, Berkshire, said the air of instability around the UK’s regulatory and industrial policies also threatened future investments.

The chaos of the shortlived Liz Truss government in 2022, rising corporate tax rates and the uncertainty around UK regulation, which no longer tracks EU rules in sectors such as cars, chemicals and medical devices, have also weighed on investors.

“Nothing will disappear overnight, but chemical plants are 20-40 year investments and talking to people we work with in Europe, they see economic and political instability in the UK compared with the EU,” Mathers said.

A survey of US businesses this month by BritishAmerican Business, a transatlantic trade association, saw confidence in the UK slipping for the third consecutive year, with two-thirds of US businesses putting improving EU-UK trade relations among their top three priorities.

Make UK, the industry lobby, last month called for a Royal Commission to build an industrial policy for the UK, warning of further pressures from the $396bn US green subsidy programme and EU regulatory policies, including the introduction of a carbon border tax.

Stephen Phipson, the chief executive of Make UK, said that while there was now a “bit of realism” from Rishi Sunak’s government on the limited benefits of Brexit divergence, there was still a need to develop a coherent strategy for the sector, which includes myriad smaller companies that support big manufacturers in autos, pharma, chemicals and aerospace.

“What we have seen so far, is a large reduction in the variety of products in trade with the EU and concentration on larger, higher tech companies. The question we must ask is, ‘would Airbus make all their wings in the UK, if they were making that decision now’?” he added.

Adam Vicary
Adam Vicary: ‘My worry is that over the next few years the UK’s energy policy erodes our competitiveness and suddenly EU companies are asking “why should we go with the UK” ’

Adam Vicary, the chief executive of Castings, a Midlands-based foundry business that makes components for the heavy truck industry, with EU clients including Volvo, Scania and DAF, said he was concerned over the UK’s future position vis-à-vis Europe.

Vicary said that Castings has not lost its pre-existing contracts with EU customers but rising UK energy costs compared with those in the EU, coupled with additional Brexit bureaucracy, risked undermining his company’s ability to win contracts for future models.

“My worry is that over the next few years the UK’s energy policy erodes our competitiveness and suddenly EU companies are asking ‘why should we go with the UK, when it’s no longer cheaper and we’ve got all this Brexit rubbish to deal with’?” he said.

The Department of Business and Trade said the government had provided support, including an Export Support Service, to help UK manufacturers trade globally.

“The government has pursued a clear strategy for UK manufacturing with a variety of support schemes that ensure sectors from auto, to aerospace, to low-carbon technologies have access to the funding, talent and infrastructure they need,” it added.