Brexit barriers are having a significant impact on North East small and medium-sized enterprises (SMEs), hitting their exports as they struggle with regulations and red tape, a new report this week reveals. The region’s universities are another sector badly hit as the number of European Union (EU) students suffer a relative slowdown and academic participation in the Horizon Europe research and innovation programme is hampered.
“Particularly significant to international trade in the North East is the impact of the EU Exit on SMEs”, says the North East EU Exit Implementation Group (the group) in its final report to be presented to the board of the North East Local Enterprise Partnership (NELEP) on Thursday.
“This has been an area of focus for both regional surveys and stakeholder intelligence, with both of these sources suggesting that SME’s are more likely to have stopped or reduced their exporting activity compared to larger firms.
“This is attributed to increases in paperwork and costs, or a lack of resources to allow SMEs to adapt to the changing regulatory landscape, challenges which larger businesses have overcome. Specific administrative barriers identified include rules of origin requirements, logistical challenges, insufficient government guidance and regulatory issues.”
It also notes: “Since the agreement of the TCA [EU-UK Trade and Co-operation Agreement, signed on 30 December, 2020] and the end of free movement with the EU, North East businesses, particularly SMEs, have reported challenges with the cost and administration of the points-based system for skilled workers, and with the cost and administration of visas for business travel in the EU.”
Brexit and North East universities
The significance of Brexit’s effect on the region’s universities is also spelled out, both in terms of international student numbers and research participation:
“The number of EU nationals studying at North East universities has increased but slowed relatively since the EU referendum, but the number of non-EU, non-UK nationals has increased by a greater amount over the same time period.
“The delay in the UK fully associating to the Horizon Europe … programme has caused concern among North East universities that it may impact their research capability and their ability to attract and retain international staff.
“Particular challenges have been reported with UK academics being prevented from leading Horizon projects due to uncertainty over the UK’s participation. The UK government has pledged to provide additional funding and has published a policy paper which sets out a long-term UK alternative to Horizon in the event that the UK cannot fully associate to the programme.”
UK Shared Prosperity Fund
Problems are also reported with the UK Shared Prosperity Fund (UKSPF), the replacement for the European Social Fund (ESF) and European Regional Development Fund elements of the European Structural and Investment Funds (ESIF).
The NELEP area is receiving £102.8mn for 2022–23 and 2023–24, divided between North of Tyne Combined Authority (NTCA) and separately between the region’s four individual councils south of the Tyne, compared with 540mn euros awarded for the region in 2014-2020. However, some of the 2014–2020 programmes will continue to be paid out until this year.
As well as the amount of the UKSPF, the timescale is also problematic. This week’s report states: “Commentary from partners has indicated that the short funding window, tight timescales for funding in 2022-23 and the lack of clarity about the future of the fund post-2025 provide a challenge for lead local authorities and long-term regional strategic economic planning.”
Brexit, migration and skills
The report also identifies issues with migrations and skills supply. The EU Settlement Scheme (EUSS) opened in 2018 and by June 2022 had received almost 55,000 applications from the North East, of whom almost 36% were Polish or Romanian and about 20% Italian, Portuguese or Spanish. Newcastle accounted for the largest number at 43%.
The North East region (including Tees Valley) has the lowest number and proportion of EU nationals in terms of the total population of any UK region, the report states. The number of EU nationals employed in the North East (excluding self-employed) increased from 24,000 in June 2016 (the month of the Brexit referendum) to 27,500 in June 2021.
“The number of non-EU nationals employed in the North East increased from 25,300 to 37,600 over the same period. Growth in the number of non-UK, non-EU nationals employed in the North East has [therefore] outpaced growth in the number of EU nationals since 2019.
“The factors contributing to this change could include changes to UK migration policy, increasing employment opportunities in EU countries, and the impact of the Covid pandemic on employment decisions of EU citizens.
“In June 2021, non-UK national employments in the North East region were most likely to be in health and social work, accommodation and food services, or administrative and support services. Approximately 12,500 employees in health and social work in the North East were non-UK nationals; however only about 3000 of these individuals were from the EU.
“For EU nationals, employments were most likely to be in manufacturing where EU nationals made up 4% of the total workforce. This suggests that the sectors that make up most of the non-UK national employment in the North East, don’t necessarily attract a high number of EU nationals. The non-UK national population which is now resident in the North East is more likely to be undertaking health, accommodation and food services roles, compared with a previous concentration in manufacturing.”
Other economic shocks
Although the group has tried to disentangle the effects of Brexit from other economic shocks it recognises that it has not always been able to do so. As a result, the economic impact of Brexit on some aspects of the North East economy are found to be less clear cut, largely because of the effects of the Covid-19 pandemic, the Ukraine war and the recent hike in inflation.
On overall economic growth, measured by gross domestic product (GDP), the report says: “[I]t is difficult at this point to isolate the individual impact of Covid-19 and the EU exit.” Similarly, on international trade, it states: “The impact of Covid-19 on the export figures makes it difficult to draw a definitive conclusion on the impact of the TCA on international trade at this stage.” Finally, the region’s record on inward investment in recent years is described as “volatile”.
The EU Exit Implementation Group was set up in 2016, initially as the Brexit Group, consisting of representatives of NELEP, local authorities, business organisations and other partners, and has met monthly since.
The report concludes with six recommendations, including more monitoring of the effects of Brexit and Covid-19 on the North East, and advocacy to ensure the region is well represented in negotiations on unresolved issues of the Trade Deal with the EU.
“Whilst the Northern Ireland protocol is the most visible of the negotiations”, it says “a number of other negotiations will impact on the regional economy and justify input”. These include data use and protection, the replacement of EU agricultural funding schemes, introduction of the UK Conformity Assessed scheme (UKCA – replacement for the EU’s CE scheme) and changes to rules of origin requirements.
The North East EU Exit Implementation Group says it is now proposing to stand down on the basis that key work is ongoing through other mechanisms and the rationale for a group focused solely on EU Exit has passed.