Help needed for Scottish businesses impacted by Brexit
Economy Secretary Fiona Hyslop has written to the Chancellor of the Duchy of Lancaster Michael Gove calling on the UK Government to provide more help for Scottish businesses struggling to trade with the EU post-Brexit.
The letter is below:
I understand that, from 1 March, Lord Frost will take over your responsibilities for the post-Brexit relationship with the European Union. I hope that you will still join the meeting of the Scottish Business Growth Group on 25 February, as planned, or that Lord Frost might attend in your place. I know you will again find it useful to hear first-hand from Scottish businesses about the realities of the Brexit related issues many are facing.
Businesses are telling us that the impacts of Brexit are still unfolding, becoming wide-ranging and are likely to be long lasting, affecting different sectors in different ways.
The most immediate, severe and visible impacts are concentrated in the food sector, particularly seafood, with some businesses facing threats to their survival. As you know, my Scottish Government colleague Fergus Ewing is engaged in intensive efforts, including with George Eustice and Scotland Office Ministers, to try to resolve these issues. Both of our Governments have made additional funds available to support businesses and, at least in some cases, to compensate for losses.
Your announcement on 11 February of a £20 million SME Brexit Support Fund to support businesses to adjust to new customs, rules of origin and VAT rules will provide some muchneeded interim relief. However, it will only go so far in addressing the long term structural changes and costs that many now face if they are to survive.
The Scottish Government is working with its agencies to understand fully the impact of Brexit and to support businesses in Scotland to deal with the new trading arrangements. Initial feedback from businesses – including through Scottish Enterprise’s contacts with 1400 important EU traders – confirms that many exporters are encountering significant additional costs, delays and non-tariff barriers as they try to navigate the new trading arrangements. Businesses in a range of sectors report issues with groupage, logistics, haulage, lack of customs agents, complex bureaucratic paperwork, new VAT and handling charges and the complexities of rules of origin requirements.
I noted your public commitment “to pull out all the stops” to help businesses adjust to new trade rules. Based on the issues being raised with us consistently by businesses in Scotland, I have identified three key blockages that should give your efforts some focus. These are fundamental difficulties affecting more than one sector and are in addition to the sectorspecific issues already the subject of remediation efforts.
First, Rules of Origin requirements in the Trade and Cooperation Agreement are proving particularly challenging for businesses. As Cabinet Office analysis confirmed, many SMEs will have to change their business models and supply chains substantively if they are to continue to access EU markets. Faced with this complexity and cost, some will choose to cease, or will no longer be able, to trade with Europe. We know that others are considering relocating substantial parts of their business operations, and the associated jobs and investment, from Scotland to the EU to circumvent Rules of Origin requirements.
Businesses tell us UK Government guidance is too lengthy, complicated and not provided from the point of view of business. What they urgently need is advice to interpret the new rules clearly and consistently. This would help them to work out how to apply Rules of Origin to their supply chains, what documentary evidence they need to retain and what are the costs and operational implications if they have to make changes to their supply chains.
Our ask of the UK Government is to provide urgent financial support, in the form of tax credits, vouchers or grants, so that small businesses can make full use of the services of customs brokers/agents – and so that the supply of trained, capable advisers increases to meet demand. This is likely to exceed the scope of the SME Brexit Support Fund. It is also needed urgently before confidence and customer relationships are irretrievably lost.
Second, new VAT rules are adding a further layer of complexity to trade and there is an urgent need for simplification. This issue cuts across multiple sectors in Scotland, affecting exports and imports. Businesses are struggling to understand and comply with the different sets of VAT rules that apply in the 27 EU Member States. Again, SMEs with less experience, capacity or resources to absorb the costs and complexities of these additional processes are experiencing most difficulties.
We urge the UK Government to engage with the European Commission and take urgent steps to improve and simplify VAT on cross border trade to remove trade barriers to support businesses, particularly SMEs, which is in the mutual interests of the UK and the EU. Clearer communication of new arrangements is also vital to their effectiveness.
Finally, dealing with new customs procedures under the groupage system is proving extremely problematic and costly for many businesses in Scotland. These are fast becoming a barrier to trade. As trade flows return to more normal levels and demand increases, the impact of these issues will become even more acute. The severe disruption to seafood exports has shown there are specific issues around groupage which have disproportionate impact in Scotland, given the large number of SMEs in our economy.
Simply put, there are not enough customs clearing officers and, of those that there are, some are inexperienced. These logistical issues are causing businesses huge difficulties, affecting their competitiveness and putting their survival at risk.
As well as customs issues, hauliers are less willing to move freight between the EU and mainland UK, driving up demand and costs. There is evidence that freight costs are increasing. Some couriers (for example, DPD and DHL) have introduced lists of “restricted” goods that they are not willing to carry as the paperwork required is deemed to be too complex, further reducing capacity in the sector. With only about 15% of hauliers being UK ‘home grown’, it is very challenging indeed to incentivise non-UK hauliers to service this market.
Our ask of the UK Government is to work urgently with all the devolved administrations and industry to provide a simpler system for groupage. I would also urge you to: streamline the increased bureaucracy and customs documentation; support an increase in capable customs agents; and find ways to incentivise EU hauliers to move freight between the EU and the UK. More generally, we need a proportionate regulatory framework in place which does not act as a barrier to trade but incentivises, rewards and enables. Where cost is proving a barrier, and is putting at risk livelihoods and jobs, the UK Government should step in to meet those costs.
I hope that you find this helpful. I would be pleased to discuss these issues further with you or with Lord Frost when he takes up his new role.
As ever, the Scottish Government stands ready to work in partnership with the UK Government, to share expertise and experience, and to ensure that the specific needs of Scottish businesses and the economy are met.