'A Brexit nightmare': the British businesses being pushed to breaking point
C hristophe Fricker lectures in German at the University of Bristol and adores living in England. He was born in Germany but his anglophilia became so strong after moving here that he wrote a book called 111 Gründe, England zu lieben (“111 Reasons to Love England”) in 2018. He selected the gardens of Cornwall, the National Portrait Gallery, the way the English use collective nouns for groups of animals (herds, packs, and so on) and their fascination with murder cases in his varied list of reasons for loving this country.
But since 1 January, Fricker has been reminded that there are also worrying things about life in England – and being outside the EU is now chief among them.
Having run short of copies of his book to distribute to friends, Fricker contacted his publishers in Berlin a few days ago to ask them to ship over some more. The company was keen to help but said that, as a result of new rules, regulations and costs resulting from Brexit, it had decided not to export any more books to the UK at all, not even 111 Reasons to Love England.
For someone born in Germany but who had come to feel very much part of his adopted homeland, it was a jolt – a small but powerful demonstration of what living outside the European club of nations will really mean. “If you erect barriers, then people are going to be affected on both sides of them,” Fricker says. “The promise from those who supported Brexit was that nothing was going to change afterwards. That was obviously ludicrous.
“My concern is not so much about my book, but that if there are problems with cross-border trade, it becomes more difficult for small businesses to operate – in this case to trade cultural goods – so the business will all go to huge companies like Amazon.”
Less than a month after the UK finally left the European single market and customs union – amid claims from Boris Johnson that its people and its businesses were now free to live and trade as they wished – UK companies that export to the EU, and EU ones that send goods here, are beginning to realise that the reverse is true. And so are their customers.
It is not just British fishing crews who now cry betrayal, as they find themselves unable to sell their fresh fish into EU markets because of delays at ports. Nor is it the famous musicians who complained to the Times last week that their money-spinning tours to the EU would be made more difficult by visa restrictions, who will suffer most. Rather, it is millions of hard-working people running, and employed in, less romantic and exotic small businesses who are feeling utterly let down and wondering if their companies will even survive.
Take Andrew Moss, who is managing director of a small company called Horizon, based in Ely, Cambridgeshire. He employs 37 people and sells packaging and point-of-sale marketing displays in this country, and also exports to the EU. His annual turnover is around £3.5m. He describes his company as part of the “engine room” of the British economy – one of the almost 6 million UK small businesses (defined as those employing less than 50 people) – that account for most of the UK’s GDP.
The last three weeks, he says, have been a living nightmare. “Soft Brexit – there is no such thing. This is horrific,” he says. “We celebrated the Brexit deal with champagne over Christmas but when we woke up and realised that this car crash was happening, we thought, oh my God!”Christophe Fricker. The publisher of his German book, 111 Reasons to Love England, has stopped exporting all its products to the UK. Photograph: Karen Robinson/The Observer
The problems he has encountered since 1 January are many, including more forms and several extra Brexit-related charges for exporting into the EU that will eat into profit margins. For small firms, the extra costs hit proportionately harder as every small consignment attracts a charge.
But over the past three weeks he – like others – has had to confront another huge, potentially existential, problem resulting from Brexit that came out of the blue, and in a dark moment made him think of shutting the company down a fortnight ago.
He discovered from customers in Europe that they were being asked by couriers to pay VAT upfront on the goods he was sending to them – as a condition, in effect, of getting customs clearance – and the customers, unsurprisingly, were refusing.
Previously, when the UK was in the EU and during the transition period, Moss and other small businesses did not charge VAT on customers in other EU countries. But EU rules on third countries dictate that VAT must now be paid before goods are received from the UK.
Moss could not believe what was happening. Loyal customers were being told to pay around 20% extra on top of the quoted price for his goods before they could get hold of them. Of course, if this continued, they would look elsewhere for cheaper suppliers. What could he and other business managers do?
Moss had three options – and none would be easy. First, he could bite the bullet and pay the VAT himself on behalf of customers in the EU. But this would mean running at a huge loss and was not possible for the long term. Second, he could stop all exports to the EU – but this would reduce the size of his business overnight and mean that years of hard work finding customers abroad had been for nothing. Or third, he could set up and register a company in the EU, ship all his goods out once a week to avoid the delays and individual Brexit-related payments, and distribute his goods from there. The European branch of his company could then pay the VAT and claim it back from the government of whichever EU member state it was based in.
To Moss, this looked the best option, albeit one that would involve short-term costs and effort.
As he pondered what course to take, Moss contacted his local MP, Lucy Frazer, warning her that if no help was offered he would have to “sack lots of people”. Frazer put him in touch with a civil servant in the Department for Business, Energy and Industrial Strategy (BEIS) who knew nothing whatsoever about the VAT problem. “It was a complete surprise to him,” said Moss.
But the civil servant did refer him on to a senior trade adviser in the Department for International Trade.If we can’t move our goods across Europe without all this palaver, a lot of companies will be in very serious trouble Geoffrey Betts, businessman
“This guy talked complete sense,” said Moss. “What I said to him was, have I got another choice [other than to set up a company abroad]? He confirmed that he couldn’t see another way. He told me that what I was thinking of doing was the right thing, that he could see no other option. He did not see this as a teething problem. He said he had to be careful what he said, but he was very clear.”
Moss has moved fast, and in the past fortnight has settled on a two-part strategy. In the short term, to keep his customers happy, he will pay the VAT bills himself, writing big cheques every week. But as he can’t afford to do that for long, he has decided to establish his own company in the EU – Horizon Europe – in the Netherlands. He has identified a site and hopes it will be ready for use in six weeks. But he knows it will mean downsizing at home and laying people off.
“If I have got to recruit two people in Holland, and let two people go here, that hurts,” he says. “I have been in touch with other companies in the last week that have exactly the same issues. It will be affecting thousands of companies.”
Moss is, indeed, far from alone. Geoffrey Betts is managing director of Stewart Superior, a company in Marlow, Buckinghamshire, which deals in office supplies. He too has decided to set up a new company in the Netherlands, for the same reasons. “When the government said it had secured free trade it was obvious it was nothing of the sort,” says Betts.
VAT problems, new charges on moving goods and more bureaucracy all added up to an “administrative nightmare” which left him with no choice. The only way to avoid the Brexit barriers was to operate inside them, to move back into the single market. “If you don’t, you are screwed in so many ways,” he says.
Betts also talked to trade advisers from the Department for International Trade, who gave the same advice as they gave to Moss. “The adviser I spoke to said it was a can of worms, and he thought that would be the best move,” says Betts.
“It is all going to be hugely damaging to the UK economy because if we can’t move our goods across Europe without all this palaver, a lot of companies will be in very serious trouble. Someone needs to sort this out in government – and quickly.”
Others have adopted different but equally drastic ways out. Gyr King is chief executive of a company called King & McGaw based on the south coast at Newhaven. It has a turnover of £8m-£10m, selling framed fine art prints online to the public, and to big museums in the UK and abroad. Over recent days, King has decided to stop – or, as he puts it, “switch off” – all sales to the EU because of post-Brexit shipping delays, new administration charges and VAT demands. It all amounts, he says, to a “disaster”.
In King’s view, there are two types of problem that Brexit has foisted on businesses.
“One is that shippers’ systems are in disarray,” he says. “There is confusion about the forms they have to fill out, which leads to delays. The shippers are not delivering in anything like the timescale they were before. We have got customers waiting for packages that were shipped before Christmas, and these problems may or may not be resolved, we don’t know.Gyr King of King & McGaw: ‘We are hit both ways. We are not receiving the raw materials from the EU we normally do.’ Photograph: Andy Hall/The Observer
“Then there are more fundamental issues, including additional charges that exporters now face, VAT charge points, and rules of origin, where there does not seem to be an easy solution. A significant amount of what we sell at the moment will not be possible to ship because the customers will not pay for these extra costs.”
There is yet another problem, he says, coming in the other direction. “We are hit both ways. We are not receiving the raw materials from the EU that we normally do because of similar problems the other side. So the whole thing has become blocked.”
Everywhere, different problems are hitting different businesses. UK businesses importing from the EU are also reporting having to pay additional VAT.
Last Wednesday, the Northern Ireland secretary, Brandon Lewis, appeared before a parliamentary select committee and faced questions about how trade between Northern Ireland and the UK was functioning post-Brexit.Set up shop in Europe, government advisers tell Brexit-hit businesses Read more
The Democratic Unionist MP Ian Paisley told him that the first 20 days of trade between Northern Ireland and Great Britain since the Brexit deal had been an “unmitigated disaster”, and that he knew of companies in Northern Ireland which were losing £100,000 a week because of border delays and extra checks at the ports.
He was speaking to the same Brandon Lewis who had tweeted on 1 January that there would be no new border checks.
“There is no ‘Irish Sea Border’,” Lewis said then. “As we have seen today, the important preparations the Govt and businesses have taken to prepare for the end of the Transition Period are keeping goods flowing freely around the country, including between GB and NI.”
During the committee hearing, Lewis again seemed partly in denial, suggesting that problems with trade to Northern Ireland had as much to do with Covid-19 as Brexit.
For entrepreneurs such as Moss, this is just part of a pattern in which Tory politicians who backed Brexit never told the truth about it. As he contemplates setting up his new operation in the Netherlands – investing his money in the same single market that the government has just torn his country out of – all Moss wants is honesty. “After everything, I just want somebody to tell me [admit] that Brexit is not about making Britain great again, not about empowering us, not about giving us back our sovereignty. Brexit is about the engine room of Britain investing significantly in Europe.”