New Oliver Wyman and Clifford Chance Report Estimates Brexit ‘Red Tape’ Will Cost EU27 and UK Exporters £58 Billion a Year

  • The annual ‘red tape’, or tariff and non-tariff, costs of Brexit for EU27 exporters is around £31 billion and for UK exporters is around £27 billion even after initial steps to mitigate costs have been taken. This is proportionately 4 times larger for the UK as a percentage of Gross Value Added (GVA1).
  • 70% of the aggregate impact falls in just five sectors in both the EU27 and UK.
  • Disproportional impacts in specific regions such as Bavaria in Germany and London in the UK.
  • A future customs arrangement equivalent to The Customs Union reduces the EU27 impact to around £14 billion and the UK impact to around £17 billion. Mitigating the costs of Brexit are non-trivial and impacted firms need to be taking steps now. Small firms will be least able to mitigate these costs and in turn pose risks to their supply chain.

BRUSSELS & LONDON--()--In a unique assessment of the business costs of Brexit, Oliver Wyman and Clifford Chance have partnered to calculate the impact of tariffs and non-tariff barriers on companies if the EU27 and UK reverted to a World Trade Organisation (WTO) trading relationship with each other.

The ‘red-tape’ cost of Brexit estimates that the direct costs will total around £31 billion for EU exporters and around £27 billion for UK exporters, with non-tariff barriers accounting for more of the effect than tariffs. The report focusses only on the direct impacts of the UK’s exit from the EU which are of immediate importance to companies for Brexit planning. It does not model additional impacts such as migration, pricing changes or third country Free Trade Agreements, which are likely to increase the overall impact.

In the EU27 the hardest hit sector will be automotive, where the direct impact will be around 2% of current GVA. Country level differences will vary considerably, with Ireland’s agricultural sector’s exposure to UK consumers, for example, a particular pinch point. In Germany, four of the sixteen states – Bavaria, North Rhine-Westphalia, Baden –Wuerttemberg, and Lower Saxony – will shoulder around 70% of the country’s direct impacts as a result of exports to the UK that arise from their leading global positions in automotive and manufacturing.

In the UK the Financial Services sector will take by far the biggest hit, incurring around a third of the extra ‘red-tape’ costs. However, there are very significant impacts in other sectors where firms are highly integrated into European supply chains – for example in the automotive, aerospace, chemicals and metals and mining sectors.

Kumar Iyer, Partner, Oliver Wyman, says: “There will be both winners and losers from Brexit. In order to navigate the uncertainty companies should be thinking about impacts under different scenarios both operationally and strategically. We see the best prepared firms taking hedges now based on the direct impacts on themselves, their supply chains, customers and competitors. Unfortunately we see that small firms are least able to take these steps at present.”

The impact assessment also reveals that the ability to mitigate the impacts of post-Brexit trade barriers will vary by sector and company size. Before designing their response, firms need to think through the impact on different levels: operations, supply chains, customers and competitors. Small firms will find this particularly challenging especially where they have no non-EU trade experience and may be rendered uncompetitive as they seek to make the changes needed. Automotive and aerospace industries will be able to localise supply chains and take advantage of domestic suppliers in some areas but with the loss of “passporting” financial services will require relevant front and back-office staff to relocate to the EU. However, even within each industry individual impacts and the appropriate response are highly variable. The differences will depend on things like the mix of goods and services the business sells, where it is based, where its customers are, and how complex its supply chain is.

Jessica Gladstone, Partner, Clifford Chance, says: “Failing to prepare is preparing to fail. Given the difficulty of knowing exactly what turbulence lies ahead many businesses are putting Brexit in the 'too hard' box. However, exporters that understand exactly what Brexit's risks and rewards could be for them will be able to implement the right plans at the right time to ensure that they are one of the winners rather than one of the losers.”

Access the full report: The Red-Tape cost of Brexit

Notes to Editors

About Oliver Wyman

Oliver Wyman is a global leader in management consulting. With offices in 50+ cities across nearly 30 countries, Oliver Wyman combines deep industry knowledge with specialized expertise in strategy, operations, risk management, and organization transformation. The firm has more than 4,700 professionals around the world who help clients optimize their business, improve their operations and risk profile, and accelerate their organizational performance to seize the most attractive opportunities. Oliver Wyman is a wholly owned subsidiary of Marsh & McLennan Companies [NYSE:MMC]. For more information, visit www.oliverwyman.com. Follow Oliver Wyman on Twitter @OliverWyman.

About Clifford Chance:

Clifford Chance is one of the world's pre-eminent law firms with significant depth and range of resources across five continents. As a single, fully integrated, global partnership, we pride ourselves on our approachable, collegiate and team based way of working. We always strive to exceed the expectations of our clients, which include corporates from all the commercial and industrial sectors, governments, regulators, trade bodies and not for profit organisations. We provide them with the highest quality advice and legal insight, which combines the firm's global standards with in-depth local expertise.

1 Gross value added (GVA) is the measure of the value of goods and services produced in an area, industry or sector of an economy. GVA is GDP plus subsidies less taxes; Tariff is a tax or duty to be paid on a particular class of imports or exports.

Contacts

Oliver Wyman:
Gregor Ridley, +44 7342 053449
Gregor.ridley@oliverwyman.com
or
Clifford Chance:
Michael Osborne, +44 7949 054340
michael.osborne@cliffordchance.com

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