New research has found that Brexit added £5.84bn to food bills in the UK over the two years to the end of 2021, equating to an extra £210 per average household. The additional cost of food imported from the EU is blamed on red tape at the borders.
Researchers at the Centre for Economic Performance (CEP) led by the London School of Economics (LSE) studied micro data-tracking trade flows and consumer prices for food products in the UK to identify the cost of trade barriers. They found that leaving the EU increased the price of food products by 3% a year, a 6% increase over the two-year period.
In 2015, the year before the referendum, 77% of food imports were from the EU.
While the Trade and Cooperation Agreement, which came into force in January 2021, ensures that trade between the UK and the EU remains tariff-free, it lacks the depth of EU membership. This means there are now more non-tariff barriers (NTBs) between the UK and the EU. These include comprehensive customs checks, rules of origin requirements and sanitary and phytosanitary measures for trade in animals and plants.
The CEP report called ‘Non-tariff barriers and consumer prices: evidence from Brexit’ noted that the rise in consumer prices was driven only by products with high NTBs and there was no significant rise in prices for products with low NTBS – suggesting that EU exporters and/or UK importers face higher costs due to these new barriers and between 50% and 88% of these costs have been passed on to consumers.
The study noted that the changes have benefitted some domestic producers of food, who now have less competition from European imports. However, the gains to domestic firms are outstripped by the loss to domestic consumers by more than £1bn.
Richard Davies, a professor at Bristol University and study co-author, said: “The UK inflation rate rose above 11% in 2022, the highest rate in 40 years. Many factors, affecting both supply and demand for goods and services are involved. One factor in this high inflation has been the rise in non-tariff barriers for trade with the EU.
“In leaving the EU, the UK swapped a deep trade relationship with few impediments to trade for one where a wide range of checks, forms and steps are required before goods can cross the border. Firms faced higher costs and passed most of these on to consumers. Over the two years to the end of 2021, Brexit increased food prices by around 6% overall.”
Nikhil Datta, assistant professor of economics at Warwick University and study co-author, added: “The policy implications are stark: non-tariff barriers are an important impediment to trade that should be a first-order concern, at least on par with tariffs, for policymakers interested in low consumer prices.”
The research comes the day after data from the British Retail Consortium (BRC) showed UK food price inflation hit a record high of 12.4% in November as the price of basics such as eggs, meat, dairy, and coffee rose.
NAM Implications:
- Non-Tariff Barriers, the unintended consequence of leaving the EU.
- Key that NTBs find a place on the negotiating table…
- Meanwhile, this 327-page LSE Report is worth a read.
- Despite the additional on-costs, worth keeping in mind that for some UK citizens, Brexit is about sovereignty…
