Insight & Analysis

The UK’s SMEs struggling to navigate post Brexit trade with the EU

Published: Apr 2023

Red tape and customs controls are tying UK SMEs exporting to Europe in knots. A recent letter to the Financial Times from Charles Mason, Managing Director of Cluney Lace, a Derbyshire lace manufacturer, detailing the challenges for British exporters went viral.

Post Brexit, for UK SMEs, trade with the EU remains grindingly difficult. Since the introduction of the EU-UK Trade and Cooperation Agreement in January 2021, the UK’s smaller firms have struggled to absorb customs controls, VAT and regulatory red tape and stories are growing of SME’s quitting exporting altogether.

Charles Mason, Managing Director of Derbyshire-based Cluny Lace, purveyors of high-quality lace for the last 250 years, famously woven into Kate Middleton’s wedding dress and a client list that includes Gucci, Dolce & Gabbana and Burberry, is better positioned than most to articulate the challenges. His recent letter to the Financial Times describing the bind of Brexit went viral, and speaking to Treasury Today from his base in Ilkeston he said many SMEs trying to do business in Europe have hit a wall. “There are loads of small companies like us that aren’t being heard.”

Cluney lace is made in Derbyshire but sent through that process to France where it is dyed. Sending it from France back to Derbyshire is a particular problem because of the added cost that comes with importing dyed product back to Derbyshire. “France has the specialist equipment to dye, finish and colour the lace,” he says.

Previously, under freedom of movement of goods rules, applicable while the UK was in the EU, this was a frictionless and easy process that took up none of Mason’s time. Now, following an audit by HMRC, the firm must pay an 8% duty on the return of all the dyed lace from France. On top of the backdated cost and the onerous paperwork, Mason must pay the duty within weeks although he might not sell the lace for years.

Sales

Brexit is also slowly strangling sales at the company. Before Brexit, 50% of Cluney’s lace was exported to Europe but this has now fallen to about 30%. “After 2016, the number of sampling enquiries started to decrease and we began to be slowly cut out of our customers ranges,” he explains. “Ever since 2021, our existing customers have found their orders are arriving days or even weeks late because of red tape. They are also having to pay charges and brokerage fees on imports that amount to hidden barriers to entry and trade, and many of our customers are now reluctant to buy from us.”

The number of employees at the company has shrunk to four on the shopfloor and Mason is only running two machines. He still has plenty of stock to sell, but believes the company is slowly heading towards closure. Unlike other companies, he says setting up shop in France isn’t an option.

Trade deals

The EU-UK post Brexit trade deal is a basic “Canada-style” free trade agreement that leaves the UK outside the EU’s customs union and single market. Goods that are sufficiently “made in the UK” to qualify can enter the EU tariff-free. But they must prove they qualify for this access, and comply with a myriad of EU rules and regulations like food safety rules or industrial standards, adding cost and delays to EU-UK trade.

Some 71 trade deals have been struck since Brexit, but the vast majority just replicate deals Britain had when it was part of the EU. Most recently the UK signed new deals with Australia and New Zealand – but they are only expected to deliver a tiny boost to trade and even that will take several years. They are also controversial, and many UK farmers fear they will lose out. Trade talks are still taking place with India and members of a Trans-Pacific pact.

UK Export Finance, the UK government’s export credit agency, has seen a sharp increase in calls for support. Due to the difficulties businesses have been facing when it comes to trade, this agency is currently lending its highest amount of credit in 30 years.

Financial services have not suffered the disaster some predicted and large companies are better positioned to navigate the consequences of Brexit. But smaller businesses lack the same resources, staffing power and financial stability to relocate or claim financial assistance, making it much harder for them to respond to these challenges. A recent survey by the British Chambers of Commerce found half of small businesses are finding it harder to export to the EU.

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