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Analysis

Price hikes or bust farmers? Another miserable Brexit choice

by Nick Kent | 19.02.2019

Tomorrow a cabinet committee will tackle an especially thorny Brexit problem: deciding the duties to be levied on imports if we crash out of the EU without a deal.

Two pro-Brexit ministers are at loggerheads on how to proceed. Liam Fox, our not very successful trade secretary, apparently wants zero tariffs on as many imported goods as possible. But Michael Gove has promised farmers “specific and robust protections for farming” when the tariffs are announced.

Neither option is good. If we slash import duties farmers will go bust, but if we keep them at current rates food prices could rocket. It’s another miserable decision forced on us by Brexit.

If we crash out without a deal on March 29, the UK will have to trade with the EU on World Trade Organisation (WTO) terms. The UK will have to charge the same level of duty on imports from the EU as we charge those from other WTO countries. This “most favoured nation” rule also requires the UK to set and publish its list of duties (the tariff), which is what ministers plan to agree it at a meeting tomorrow.

It all sounds very technical, like so much to do with Brexit. But buried within the mysteries of trade lie some painful truths. Average EU tariffs on food are high: 40% on meat and dairy, 30% on chocolate and 11% on fish. Roughly 70% of the UK’s food and drink imports come from the EU. Adding tariffs at current rates to those imports could increase their collective cost by £6 billion.

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And it could be worse. A disorderly Brexit could increase prices anyway because of the disruption to trade and the likely fall in the value of sterling. The governor of the Bank of England has said: “In the most extreme scenario, your shopping bill goes up 10%.”

The solution seems obvious – cut the import tariffs on food and drink to keep prices down in the UK. But that would encourage producers all over the world to flood the UK market with cheap food – at prices our farmers couldn’t match. Those imports might be cheap but they wouldn’t have been produced to equivalent standards, whether in terms of food safety or animal welfare.

It gets worse for farmers who export produce as well – over 60% of our food and drink exports now go to the EU. They would face the same high tariffs on exporting to the EU, making their products less competitive in EU markets.

On top of this, the government plans to phase out current subsidies to farmers. Not surprisingly, this tsunami of problems threatens to put a quarter of farmers out of business.

The cabinet committee will also have to consider our negotiating leverage after Brexit. Outside the EU we will be trying to negotiate our way back into EU markets for the 44% of our exports that have gone there hitherto, as well as trying to reach free trade agreements with countries like the US, Australia and Canada. If we slash our tariff rates to keep prices low at home, then we lose them as a lever to get better trade deals later.

The dream of a Global Britain, selling its goods across the world, is turning into a nightmare of frightened farmers, mothballed car factories and angry exporters. Whatever happened to the “easiest deal in history”?  Only now are Fox and Gove thinking through the complexities and consequences of their bid to leave the EU. Like so much of Brexit, it’s a muddle and a mess.

Edited by Luke Lythgoe

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