Pinsent Masons LLP
This blog post was produced for inclusion in the Birmingham Economic Review for 2020.
The annual Birmingham Economic Review is produced by the University of Birmingham’s City-REDI and the Greater Birmingham Chambers of Commerce, with contributions from the West Midlands Growth Company. It is an in-depth exploration of the economy of England’s second city and a high-quality resource for informing research, policy and investment decisions.
This post is featured in Chapter 2 of the Birmingham Economic Review for 2020, on Building Resilience: Future Growth and Opportunities.
Click here to read the Review.
The end of 2020 marks the close of a tumultuous year as a result of Covid-19, as well as the end of the UK's transition period after Brexit. The impact of Brexit has been a hot topic for the last 4 years and has a significant impact on the business environment in the West Midlands. But, as we reach the end of the transition period would should businesses in Birmingham expect?
With the UK and EU both having ruled out any extension to the Brexit transition period, business strives certainty as to what will happen at the end of 2020 – will we see a form of free trade agreement to govern our relationship with the EU or will the trading environment be significantly different?
Impact on the business environment in Birmingham
For businesses, grappling with the challenges of an unprecedented global recession, clarity over the post-Brexit landscape is needed now more than ever. We know that both sides consider October as the latest point that a deal could be done to allow implementation and ratification before the end of the year. As negotiating positions and no deal preparations have developed in parallel it has been striking to see the deal and no deal scenarios converge, eroding a number of the stark contrasts between the two positions that we have become accustomed to over the last three years.
For businesses in Birmingham this gives more certainty on some of the bigger issues such as trade and jobs and skills than we have had previously. With the manufacturing industries being at the heart of the economy in the region its vital businesses plan and prepare to address these impacts and make the most of any associated opportunities.
The automotive and manufacturing industry is a flagship trade in Birmingham, however only 40% of automotive components are sourced locally, meaning that businesses are reliant on non-UK suppliers. Therefore, border disruptions and increased costs would have a material impact on our region.
A significant area of commonality that is emerging though (even if a deal is done) is the introduction of customs paperwork and inspections at the UK-EU border, and a regime that will involve tariffs on at least some goods crossing the border. The UK government has announced that it will defer the introduction of full checks at the border for the first six months of a no deal exit, and we can expect a similar approach to new checks if a deal is agreed. However, although this may help to mitigate the disruption to traffic flow, it will not remove the new burden of customs paperwork that businesses will need to complete and submit.
This potential disruption and compliance cost could be significant in our region given the automotive and manufacturing companies that rely on cross-border trade and in particular those that implement just-in-time manufacturing processes. The exposure to tariffs, the potential need for additional warehousing to combat delays, and border friction will therefore be some key risks for many businesses that have a reliance on EU-suppliers.
Jobs and skills
Certainty is also emerging around the impact on labour and skills. This issue will affect a range of businesses across Birmingham – whether it is access to low skilled or high skilled workers.
As freedom of movement across the UK ends, the Immigration Bill 2020 introduces the UK's new points-based system. This makes access to talent from outside the UK more complex and costly with visa requirements and sponsoring licences in play. The impact of this is far reaching in an economy as diverse as the West Midlands – affecting sectors such as tourism and hospitality, logistics, manufacturing, health and social care and business services.
As well as the new system preventing many current migrant workers from continuing to work in Birmingham, it may also have the effect of deterring any future EU talent from living and working in the city. For business this means reconsidering how current tasks will be staffed. Automation and digitisation is likely to play a role here and, indeed, are research shows graduate talent expects employers to be at the cutting edge. However, as the war for talent continues the pressure is increasing on businesses to be an attractive employer.
The end of the transition period will undoubtedly bring extra challenges to the local business environment, particularly given the already difficult economic conditions following the pandemic. But 2021 and beyond for the Birmingham business community has a wealth of opportunities with significant infrastructure investment and major events planned in the City. Therefore, given the emerging certainty the key takeaway for businesses in Birmingham is to prepare and plan for the end of transition so that they can thrive into 2021 and beyond.
Pinsent Masons LLP