No-deal Brexit could hit Indian companies, UK economy to be down by 9%
An official assessment of the impact of the United Kingdom leaving the European Union without an agreement says the country’s economy will be 6.3 to 9 per cent smaller over 15 years. Its impact will also be serious on many Indian companies based in the UK.Updated: Mar 01, 2019 09:40 IST
An official assessment of the impact of the United Kingdom leaving the European Union without an agreement says the country’s economy will be 6.3 to 9 per cent smaller over 15 years. Its impact will also be serious on many Indian companies based in the UK.
The bleak assessment, released by the Theresa May government on Tuesday under pressure from Parliament, sets out a series of situations in which production lines, food shortages, impact on financial institutions and movement of people will be adversely affected.
A no-deal Bexit is widely considered the worst-case scenario – called ‘catastrophic’ by ministers and MPs – but is one of three options before the country; others being leaving with an agreement on March 29 and not leaving the EU by revoking Article 50.
As May revised her approach by promising new votes in the House of Commons in mid-March, there is growing realisation of the adverse impact of a no-deal Brexit on nearly 700 Indian companies that have offices in the UK.
Pratik Dattani of the Economic Policy Group said: ““Many of the largest Indian employers operate in the services sector, which will be seriously impacted. UK businesses would be treated as third-country service providers by the EU, with potential loss of market access and increase in non-tariff barriers”.
For example, there have been several Indian-owned fintech businesses investing in the UK over the last few years, which could lose their regulatory permissions and suffer interruptions of cross-border data flows.
Dattani added: “Manufacturing companies like Jaguar have already said just-in-time production models will be several hampered, and they forecast higher tariffs of up to ten percent. Under a no-deal Brexit, the British economy will be smaller, and the merits of Indian companies locating in the UK, rather than rising European hubs such as Duesseldorf will be much lower”.
Departments have been planning for a no-deal Brexit, but the assessment says most British companies are not yet prepared to deal with the impact of easy rules and regulations put in place over decades of the UK’s membership of the EU not in force in such a situation.
The assessment says flow of goods through Dover would be “very significantly reduced for months”. The UK imports 30% of food from the EU, whose prices are likely to increase and there is a risk that panic buying might create shortages.
The note says: “In a no-deal scenario, both the UK and EU would need to apply customs and excise rules and VAT to goods moving between the UK and EU, as they are currently applied to goods traded in the rest of the world”.
“Every consignment would require a customs declaration, and so around 240,000 UK businesses that currently only trade with the EU would need to interact with customs processes for the first time, should they continue to trade with the EU”.
Tax and revenue officials have estimated that the administrative burden on businesses from customs declarations alone, on current (2016) UK-EU trade in goods could be around £13 billion per year.
The note concludes: “(The) short time remaining before 29 March 2019 does not allow Government to unilaterally mitigate the effects of no deal. Even where it can take unilateral action, the lack of preparation by businesses and individuals is likely to add to the disruption experienced in a no-deal scenario”.