Planning for life after the EU
As well as coping with the impacts of the coronavirus crisis, the UK’s chemical businesses are also having to plan ahead for arrangements once the transition agreement comes to an end following the UK’s departure from the European Union (EU) in January.
This standstill agreement expires at the end of the year, but the terms of a deal on our ongoing trading arrangements are still to be finalised. It’s even possible there will not be a deal.
One consequence for chemicals companies is the impact on their supply chains, where suppliers are based in the EU or the European Economic Area (EEA), this will have to be managed.
Where companies are established in the UK, EU chemicals legislation, including REACH (Registration, Evaluation, Authorisation and Restriction of Chemicals), CLP (Classification, Labelling and Packaging), BPR (Biocidal Products Regulation) and PIC (Prior Informed Consent) will no longer apply once the transition period comes to an end, if their products are placed on the market only in the UK.
However, if your business is in any way connected to the 27 remaining EU member states or to the EEA nations, you’ll need to prepare for the new environment. A useful guide is available here, while the Chemicals Industry Association (CIA) is also publishing valuable support for its member (see here for more details).
Another post-Brexit possibility is the establishment of freeports – tax-advantaged zones located around the UK’s coasts. The CIA is particularly interested in the idea of a freeport in the North-East, with proposals to create one such zone in Teeside. That could help cushion the chemicals industry if extra tariffs are imposed on imports or exports in the new arrangements with the EU.
Teeside is a critical part of the Northeast of England Process Industry Cluster, which comprises several chemical-consuming sectors including petrochemicals, pharmaceuticals, biotechnology and biofuels. More than 1,400 companies are directly involved in the region’s chemicals-based supply chain, generating £26bn of sales every year and employing 190,000 people.
More broadly, with exports of £12bn each year, the North East is the only net exporting area in the UK. Its reliance on exports, coupled with the concentration of chemical-intensive industries in the area, means it’s particularly sensitive to any new tariffs imposed following Brexit. This article describes the debate in more detail.
Manufacturing sector news
August’s Manufacturing Purchasing Managers Index, published on 1 September, registered a figure of 55.2, indicating that manufacturing activity in the UK is rising at its fastest pace in six years. However, this was from a low base and was actually slightly lower than anticipated. The broader market context remains that job cuts are likely as the Government continues to unwind the Job Retention Scheme (JRS).
Still, new research from MakeUK does give reason to be positive. A third (31%) of manufacturers currently have no staff furloughed, its latest Manufacturing Monitor reveals, while more than half (54%) now think it will take less than 12 months to get back to normal trading conditions.
However, the research also shows that 62% of firms think the JRS should be extended for critical sub-sectors. MakeUK itself argues this is crucial to support the UK’s strategic industries, which are otherwise at risk of losing key skills and falling behind international competitors. Almost a quarter (23%) of firms disagree with the Government’s determination to close the scheme and 17% think it should be extended for all businesses. Significant numbers also say the scheme should be reintroduced in the event of another lockdown, and that we now need a new scheme to replace the JRS.
MakeUK points out that similar schemes in Belgium and Germany have already been extended, to the end of 2020 and 2021 respectively, while the Australian Government is extending its JobKeeper Payment scheme until March. In France, a new long-term short-time work scheme in specific sectors is planned for sectors where companies will suffer enduring loss of business from the pandemic.
The aerospace and automotive sectors are especially in need of an extension to the JRS, MakeUK says, given their position at the cutting edge of technology, which is likely to be vital to growth in the future. The organisation points to official data showing these two industries are the UK’s largest investors in research and development, accounting for more than two-thirds of such spending. The sectors are also among the hardest hit by coronavirus, with many job losses already announced and output predicted to fall by 33% (a £4.6bn loss in value) and 14% (£1.3bn) in automotive and aerospace respectively.
Across manufacturing as a whole, meanwhile, reshoring now looks to be an increasingly important agenda item. Bloxwich-based manufacturer, Albert Jagger Engineering, is one business proving what might be possible. It has worked with catapult centre, MTC, to bring the production of almost 250,000 fastening components back to the UK, achieving savings of 20%-30% in the process. The efficiencies come from a new factory layout, the introduction of new technology, retraining and a 50% decrease in stockholding costs.
Finally, on 10 September, Santander and MakeUK published the latest manufacturing sector fact card, providing a crucial update on the importance of the industry to the UK economy. The fact card include data ranging from export statistics to employment figures. We’ll look at the figures in more detail in our next briefing.
To discuss how Santander can help your business please contact: ccbsectorinsights@santander.co.uk