Why Brexit will change what
things cost
how household costs will change
how business costs and profitability will change
In addition to tariffs, more admin and waste create red tape that increase costs
no friction
red tape
+19%
kg
£2.38/
kg
£2.00/
red tape
Supply chain has a predictable length, and vegetables quickly arrive fresh in stores
no friction
kg
£2.00/
Supply chain has a predictable length, and vegetables quickly arrive fresh in stores
no friction
red tape
Why Brexit will change what
things cost
how household
costs will
change
how business
costs and
profitability
will change
Because tariffs only make up part of the import cost of each product, finding cheaper sources for imports may not always lead to lower prices for shoppers.
Red tape, such as paperwork, time spent at the border, and customs checks, adds to the cost of importing goods.
After Brexit, these red tape costs will increase, making EU imports slower and more expensive. As red tape costs change, imports from non-EU countries could be relatively cheaper than those from the EU. We assume that businesses will always choose the cheapest comparable option.
ZERO TARIFFS
Current Tariffs
EU Irish Beef vs Argentine Beef
/tonne
/tonne
£3590
£3980
No tariffs
Some red tape
No tariffs
Some red tape
ZERO TARIFFS
/tonne
/tonne
£5550
£3720
Current Tariffs
EU Irish Beef vs Argentine Beef
Tariffs
Some red tape
No tariffs
No red tape
ZERO TARIFFS
Current Tariffs
EU Irish Beef vs Argentine Beef
/tonne
/tonne
£5550
£3720
Tariffs
Some red tape
No tariffs
Some red tape
Why Brexit will change what
things cost
how household
costs will
change
how business
costs And
profitability
will change
Tariffs on goods imported into the UK from the EU are one part
of the potential increase in costs due to Brexit.
If these tariffs increase, businesses will pay more to import those goods, cutting into their profits.
As tariffs change, imports from non-EU countries could be relatively cheaper than those from the EU. We assume that businesses will always choose the cheapest comparable option.
But overall they may end up paying more than they did before Brexit.
Revenue
Profit
Profit
Profit
Why Brexit will change what
things cost
how household
costs will
change
how business
costs and
profitability
will change
Revenue
Revenue
Costs
Costs
Costs
Components of cost
Purchasing and production
Wages & wage increases
Sourcing mitigations
Non-tariff barriers
Exchange rates
Trade deals
Tariffs
Other
Price
CUSTOMER
SUPERMARKET
MANUFACTURER
Farm
Why Brexit will change what
things cost
Why Brexit will change what
things cost
how household
costs will
change
how business
costs and
profitability
will change
Tariffs and red tape on imports and labour costs all contribute to the price customers pay
for a product or service.
All three of these may change after Brexit
and our work measures the complex interactions between them.
We also consider how any cost increases are passed on between businesses as price rises, eventually leading to higher prices for the shopper.
Why Brexit will change what
things cost
how household costs will change
how business costs and
profitability will change
Why Brexit will
change what
things cost
how household costs will change
how business
costs and
profitability
will change
Consumers will have little choice but to absorb price rises.
As a result, we expect they will look to reduce or remove less essential purchases, for example taking shorter or cheaper holidays, or not travelling at all.
On essential purchases like food, consumers will become more price sensitive and will shop around for the best prices.
It will be particularly important for those on lower incomes to seek out the best prices for groceries, since these make up a major part of their household bills.
Why Brexit will
change what
things cost
how household costs will change
how business
costs and
profitability
will change
+£77
-£3
+£221
+£156
+£147
-£4
+£256
-£7
+£98
+£73
+£34
+£92
ANNUAL COST CHANGES FOR DIFFERENT HOUSEHOLDS
restaurants
and HOTELs
clothing
transport
food and drink
monthly outgoings after housing costs
banker
junior doctor
london
leeds
£3,000
£2,000
£1,000
belfast
office assistant
mO
aIMEE
tOM
Why Brexit will
change what
things cost
how household costs will change
how business
costs and
profitability
will change
+£88
+£45
+£398
+£280
+£167
+£56
+£291
+£91
+£178
+£134
+£62
+£165
ANNUAL COST CHANGES FOR DIFFERENT HOUSEHOLDS
restaurants
and HOTELs
clothing
transport
food and drink
monthly outgoings after housing costs
banker
junior doctor
london
leeds
£3,000
£2,000
£1,000
belfast
office assistant
mO
aIMEE
tOM
Why Brexit will
change what
things cost
how household costs will change
how business
costs and
profitability
will change
+£76
+£28
+£219
+£154
+£145
+£35
+£254
+£57
+£102
+£77
+£35
+£91
ANNUAL COST CHANGES FOR DIFFERENT HOUSEHOLDS
restaurants
and HOTELs
clothing
transport
food and drink
monthly outgoings after housing costs
banker
junior doctor
london
leeds
£3,000
£2,000
£1,000
belfast
office assistant
mO
aIMEE
tOM
Why Brexit will
change what
things cost
how household costs will change
how business
costs and
profitability
will change
+£8
+£10
+£116
+£82
+£16
+£12
+£27
+£19
+£43
+£32
+£15
+£48
ANNUAL COST CHANGES FOR DIFFERENT HOUSEHOLDS
restaurants
and HOTELs
clothing
transport
food and drink
monthly outgoings after housing costs
banker
junior doctor
london
leeds
£3,000
£2,000
£1,000
belfast
office assistant
mO
aIMEE
tOM
Why Brexit will
change what
things cost
how household costs will change
how business
costs And
profitability
will change
+£13
+£14
+£170
+£120
+£24
+£17
+£42
+£28
+£68
+£51
+£24
+£71
ANNUAL COST CHANGES FOR DIFFERENT HOUSEHOLDS
restaurants
and HOTELs
clothing
transport
food and drink
monthly outgoings after housing costs
banker
junior doctor
london
leeds
£3,000
£2,000
£1,000
belfast
office assistant
mO
aIMEE
tOM
NON-EU FREE TRADE DEALS
Why Brexit will
change what
things cost
how household costs will change
how business
costs and
profitability
will change
Cost increases
Lowest
Highest
Why Brexit will change what
things cost
how household costs will change
how business costs & profitability will change
Bespoke
Out
Bespoke
In
Out
Unilateral zero tariffs, significant red tape, and increased labour costs
£613
Single Market:
Customs Union:
Labour impact:
CHANGE IN ANNUAL
HOUSEHOLD COSTS
No
Yes
Low
High
Red tape:
/+2.5%
KEY COST COMPONENTS:
Tariffs for trade with the rest of the world
Retain existing
EU free trade agreements with non-EU countries
zero
NO, BUT ASSUMES
ZERO TARIFFS ON
ALL IMPORTS
UNILATERALLY
zero
EU tariffs
IMPORT TARIFFS
zero
high
NON-EU FREE TRADE DEALS
£758
£961
/+3.1%
/+4.0%
Why Brexit will
change what
things cost
how household costs will change
how business
costs and
profitability
will change
Cost increases
Lowest
Highest
Why Brexit will change what
things cost
how household costs will change
how business costs & profitability will change
Bespoke
Out
Bespoke
In
Out
Global WTO tariffs, significant red tape, and increased labour costs
Single Market:
Customs Union:
Labour impact:
CHANGE IN ANNUAL
HOUSEHOLD COSTS
No
Yes
Low
High
Red tape:
KEY COST COMPONENTS:
Tariffs for trade with the rest of the world
Retain existing
EU free trade agreements with non-EU countries
No
HIGH
EU tariffs
IMPORT TARIFFS
zero
high
£493
£631
/+2.0%
/+2.6%
NON-EU FREE TRADE DEALS
Why Brexit will
change what
things cost
how household costs will change
how business
costs and
profitability
will change
Cost increases
Lowest
Highest
Why Brexit will change what
things cost
how household costs will change
how business costs & profitability will change
Bespoke
Out
Bespoke
In
Out
Moderate amount of red tape and increased labour costs
Single Market:
Customs Union:
Labour impact:
CHANGE IN ANNUAL
HOUSEHOLD COSTS
No
Yes
Low
High
Red tape:
KEY COST COMPONENTS:
Tariffs for trade with the rest of the world
Retain existing
EU free trade agreements with non-EU countries
No
zero
EU tariffs
IMPORT TARIFFS
Cost increases
£134
£245
/+0.6%
/+1.0%
zero
high
NON-EU FREE TRADE DEALS
Why Brexit will
change what
things cost
how household costs will change
how business
costs and
profitability
will change
Cost increases
Lowest
Highest
Why Brexit will change what
things cost
how household costs will change
how business costs & profitability will change
Bespoke
Out
Bespoke
In
Out
Moderate amount of red tape
Single Market:
Customs Union:
Labour impact:
CHANGE IN ANNUAL
HOUSEHOLD COSTS
No
Yes
Low
High
Red tape:
KEY COST COMPONENTS:
Tariffs for trade with the rest of the world
Retain existing
EU free trade agreements with non-EU countries
yes
zero
EU tariffs
IMPORT TARIFFS
Cost increases
zero
high
£255
£380
/+1.0%
/+1.6%
NON-EU FREE TRADE DEALS
Why Brexit will
change what
things cost
how household costs will change
how business
costs and
profitability
will change
Why Brexit will change what
things cost
how household costs will change
how business costs & profitability will change
Bespoke
Out
Bespoke
In
Out
Significant red tape
Cost increases
Lowest
Single Market:
Customs Union:
Labour impact:
CHANGE IN ANNUAL
HOUSEHOLD COSTS
No
Yes
Low
High
Red tape:
Highest
KEY COST COMPONENTS:
Tariffs for trade with the rest of the world
Retain existing
EU free trade agreements with non-EU countries
yes
zero
EU tariffs
IMPORT TARIFFS
Why Brexit will
change whaT
things cost
how household costs will change
how businesS
costs and
profitability
will change
We have modelled five of the most commonly discussed Brexit scenarios and looked at how they will affect household costs for people living in the UK.
Free trade deals covering all non-EU countries can only lessen
the additional household costs by 20–45 percent.
In addition, a weaker pound will increase costs further. Each 5 percent devaluation in the pound to the euro and dollar increases household costs by £380 per year.
Consumers will have little choice but to absorb price rises.
As a result, we expect they will look to reduce or remove less essential purchases, for example taking shorter or cheaper holidays, or not travelling at all.
On essential purchases like food, consumers will become more price sensitive and will shop around for the best prices.
It will be particularly important for those on lower incomes to seek out the best prices for groceries, since these make up a major part of their household bills.
Select
scenario:
Select
Scenario:
Why Brexit will change what
things cost
how household costs will change
how business costs and profitability will change
To protect profits, businesses need to understand the risks of each Brexit scenario and act to reduce those risks.
For example, should tariffs and red tape costs change after Brexit, companies must be prepared to change where they import from.
This will ensure they get the best prices, keep costs low, and stay in business.
Select
Scenario:
-2%
4.3%
-71%
-6%
4.6%
-11%
5.7%
-32%
-48%
profit drop
General
merchandise
retailer
Restaurant
RESULTING VOLUME DECLINE
PRICE RISE REQUIRED tO MAINTAIN
PRE-BREXIT PROFIT
Food
retailer
Select
Scenario:
6.6%
6.1%
-64%
-4%
7.8%
-128%
-8%
-12%
-38%
profit drop
General
merchandise
retailer
Restaurant
RESULTING VOLUME DECLINE
PRICE RISE REQUIRED tO MAINTAIN
PRE-BREXIT PROFIT
Food
retailer
Select
Scenario:
-10%
5.7%
-32%
-5%
4.1%
-42%
-71%
4.3%
-2%
profit drop
General
merchandise
retailer
Restaurant
RESULTING VOLUME DECLINE
PRICE RISE REQUIRED tO MAINTAIN
PRE-BREXIT PROFIT
Food
retailer
Select
Scenario:
General
merchandise
retailer
Restaurant
RESULTING VOLUME DECLINE
PRICE RISE REQUIRED tO MAINTAIN
PRE-BREXIT PROFIT
Food
retailer
-1%
-2.3%
-37%
-3%
2.2%
-23%
-1%
0.7%
-4%
profit drop
Select
Scenario:
Food
retailer
-2%
3.3%
-55%
-5%
3.6%
-37%
-2%
1.1%
-6%
General
merchandise
retailer
Restaurant
RESULTING VOLUME DECLINE
PRICE RISE REQUIRED tO MAINTAIN
PRE-BREXIT PROFIT
profit drop
Many consumer businesses will try to maintain their profits by increasing prices.
But as prices rise, consumers will cut back their spending on non-essential products and services, to be able to afford the essentials.
This volume decline will affect each business sector differently.
Select
scenario:
Average change in profit for all sectors
Clothing retailers
-2.8 points
Unilateral zero tariffs,
significant red tape,
and increased labour costs
Tariffs, red tape, mitigation
Labour
Utilities
Restaurants
Hotels
General merchandise retailers
5
0
-5
-10
Food retailers
impact by sector
CHANGE IN profit (points)
KEY COST COMPONENT:
Select
scenario:
Average change in profit for all sectors
-4.2 points
Global WTO tariffs,
significant red tape,
and increased labour costs
Tariffs, red tape, mitigation
Labour
Utilities
Restaurants
Hotels
Clothing retailers
General merchandise retailers
5
0
-5
-10
Food retailers
impact by sector
CHANGE IN profit (points)
KEY COST COMPONENT:
Select
scenario:
Average change in profit for all sectors
Utilities
-2.7 points
Moderate amount of
red tape and increased
labour costs
Tariffs, red tape, mitigation
Labour
Restaurants
Hotels
Clothing retailers
General merchandise retailers
5
0
-5
-10
Food retailers
impact by sector
CHANGE IN profit (points)
KEY COST COMPONENT:
Select
scenario:
Average change in profit for all sectors
-1.1 points
Moderate amount
of red tape
Tariffs, red tape, mitigation
Labour
Utilities
Restaurants
Hotels
Clothing retailers
General merchandise retailers
5
0
-5
-10
Food retailers
impact by sector
CHANGE IN profit (points)
KEY COST COMPONENT:
Tariffs, red tape, mitigation
Labour
Select
scenario:
-1.6 points
Significant red tape
Utilities
Restaurants
Hotels
Clothing retailers
General merchandise retailers
5
0
-5
-10
Food retailers
Average change in profit for all sectors
impact by sector
CHANGE IN profit (points)
KEY COST COMPONENT:
We have modelled five of the most commonly discussed Brexit scenarios and looked at how they will impact UK businesses’ profits.
Each scenario affects each business differently, depending on how they respond to changes in tariffs, red tape and labour costs.
Overall, costs will rise and profits will decrease after Brexit.
Free trade deals covering all non-EU countries can only lessen the additional costs by 15–35 percent.
As import costs change, imports from non-EU countries could be relatively cheaper than those from the EU. We assume that businesses will always choose the cheapest comparable option.
Why Brexit will
change what
things cost
how household
costs will
change
how business costs and profitability will change
