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The government’s drive to promote high-tech sectors is likely to be undermined by leaving the European Union, according to the first detailed examination of UK manufacturing post-Brexit.
In an analysis of 122 sectors, the UK Trade Policy Observatory at the University of Sussex found that aerospace, automotive and pharmaceutical manufacturers would be hardest hit if trade with the EU became more difficult after Brexit.
If the UK left the European Union without a deal, then increased trade friction could cause the motor vehicle sector to shrink by 10.4 per cent, the academics suggest, with the air and spacecraft industry contracting by 8.1 per cent.
For regions of the country that depend on these industries for work, this is worrying news. In Stratford-on-Avon, for instance, where a high proportion of the employment is in the motor vehicle industry, the report estimates that “for every 100,000 economically active residents more than 1,500 high tech jobs may be lost.”
In Copeland, in Cumbria, where work is concentrated in nuclear fuel processing (either in Sellafield nuclear power plant or on the Trident nuclear submarines), the report predicts that more than 10 per cent of jobs could go.
The government’s Brexit impact assessment, which was controversially leaked last week, is reported to show that the potential impact of Brexit on the North East of England would be 16 per cent of GDP.
R&D-intensive sectors such as automotive tend to rely most heavily on sales to the EU, so in the event of a hard Brexit their output would fall, even as their prices rise, the report suggests.
The government has pledged money to R&D, which is often seen as a key source of productivity growth, as part of its Industrial Strategy. “Clearly there are contradictions,” says Michael Gasiorek, one of the report’s authors. “On the one hand you have an industrial strategy hoping to encourage these industries; on the other hand Brexit may impact negatively on these.”
Could an energetic Industrial Strategy counteract the effects of Brexit? “Not really,” says Gasiorek. “Brexit will have very complex impacts on industries ranging from impacting on imports and exports both because of possible tariff barriers and also complex non-tariff barriers (such as mutual recognition of testing and certification – ie proving that you produce to the right standards), impacting also supply chains both in terms of manufacturing and service inputs. That is not something that industrial strategy could easily counteract.”
Overall, manufacturing represents 10 per cent of the UK economy. However, high-tech sectors are generally regarded as more significant than this number suggests, thanks to their influence of innovations on other industries. “In the longer run as well as the direct hit, it might lead to lower rates of economic growth,” says Gasiorek.
The Sussex University report did not estimate the effects, but the Brexit impact assessment leaked to Buzzfeed news suggested that even if the UK government strikes a comprehensive free trade agreement with the EU, growth would be 5 per cent lower than current forecasts over the next 15 years.
Some manufacturers could stand to gain from Brexit. Diary and pasta producers, for instance, could benefit if tariffs and border restrictions were imposed on food produced in the EU, pushing up the prices of their products.
The Sussex academics predict that UK macaroni makers would enjoy an output increase of “over 90 per cent” in the event of a hard Brexit. However, they note that, overall, “the effects are small and come at the expense of higher consumer and intermediate goods prices.”
Perhaps the strongest implication of the report is that the fate of UK manufacturing depends heavily on the form of Brexit. The authors of the report considered five possible scenarios, ranging from “softest” (“EEA membership”) to “hardest” (“no deal”), observing significant differences between the results of their simulations.
In the “no deal” scenario, food exports fell by 38.4 per cent, whereas in the “EEA scenario” they fell by 6.9 per cent.
This first scenario generously assumes that the UK signs free trade agreements with all non-EU countries. “Even achievement of the (literally) incredible objective of signing FTAs with every non-EU country would not compensate for the loss of the relationship with the EU,” write the team in an accompanying blogpost.
This article was originally published by WIRED UK
