The Red Tape Cost Of Brexit

Brexit outcomes remain uncertain with a wide range of future trading relationships between the EU27 and UK still possible. Most firms remain unsure of the impact Brexit will have on their businesses. Our analysis begins to fill that gap in understanding.

In our first report in this series, we have not tried to calculate the full economic impact of Brexit on the UK and EU27 economies. Rather, we have focused on the direct impacts that will result from new tariff and non-tariff barriers that could be imposed on trade between the UK and EU27.

Understanding this initial set of “red tape” costs is essential for firms in their contingency and broader strategic planning. We have partnered with Clifford Chance to estimate these “red tape” costs across every sector of the economy where the EU27 and UK revert to a World Trade Organization trading relationship with one another.

For full context, scope, methodology, definitions, and footnotes please read the full report.

EU firms are generally better positioned to mitigate cost increases because a larger proportion of their exports are in goods rather than services. However, mitigations are not easy and will require concerted efforts and resources in planning and implementation

Kumar Iyer, Partner and co-author

1What does the report estimate the red-tape costs of Brexit will be on businesses?

The annual direct cost of new tariffs and non-tariff barriers will be around £27 billion for UK firms (equivalent to 1.5% GVA) and around £31 billion for EU27 firms (equivalent to 0.4% GVA).
2Will the red tape costs of Brexit be evenly spread across industries in the UK and Europe?

Five industry sectors will shoulder around 70 percent of the costs. With industries like financial services clustered in London in the UK and automotive production and manufacturing in Bavaria in Germany, some regions will feel the effects more than others.
3What would happen if a new customs agreement was broadly the same as the EU Customs Union?

This scenario would likely reduce the UK impact to £17 billion (equivalent to 1.0 percent of GVA) and the EU27 impact to £14 billion (equivalent to 0.2 percent of GVA).