Brexit ideology is being shunned as economic conditions deteriorate

Good afternoon. Two big Brexit stories this week that point to a significant shift in the Sunak government’s approach to handling the fallout from leaving the EU single market on such poor terms.

First, the Department for Business and Trade (DBT) has announced it is ditching the requirement for firms to use the copycat “UKCA” quality assurance mark for industrial products — though with a catch, as we’ll see. 

And then, as we reported last night, a decision is imminent on further delaying imposing border controls on imports from the EU to avoid additional food price inflation. I count that as the fifth delay since the Brexit trade negotiations of 2020 were drawing to a close. 

Both these decisions are a consequence of the government facing tough economic conditions ahead of an election year in which the prime minister has pledged to halve inflation by Christmas. Needs-must, Brexit ideology is being thrust aside. 

But while industry groups like the British Chambers of Commerce and Make UK say firms will be breathing a “sigh of relief” — and are rightly delighted that two and a half years of lobbying has finally paid off — the chaos does not end with a front-page story in the FT.

A quick recap: after Brexit the UK government decided to start its own UKCA conformity assessment mark to rival the EU’s equivalent CE mark, which demonstrates products have adhered to relevant industrial standards. 

Given the underlying standards were almost always identical, the UKCA scheme was dismissed by business as a make-work vanity project creating a dual certification regime that larded costs on to business.

It also made the UK less attractive because EU suppliers often couldn’t be bothered to get UKCA certification.

The implementation of UKCA was delayed over and over and then this week — finally — the DBT said that both UKCA and CE marks would be accepted “indefinitely” on electronic, industrial and consumer products.

First, the catch I mentioned. Although the DBT has said that products in the 18 areas it controls are now free to use both UKCA and CE quality assurance marks, two other product classes — medical devices and construction goods — were not covered. 

That’s because they’re managed by the Department of Health and Housing respectively and those two departments haven’t followed the DBT’s lead — to the understandable dismay of trade groups representing those products. More delay, more uncertainty.

Secondly, the decision is still not without costs. 

Many businesses have spent hundreds of thousands of pounds preparing for the mandatory introduction of UKCA in January 2025, re-marking products and applying for technical approvals. The DBT decision doesn’t just unwind that situation overnight.

Flip-flop Britain

Let me give you a concrete example. This morning I spoke with Andrew Varga, chief executive of Seetru, a Bristol-based manufacturer of industrial pressure valves that has 130 employees, and whose Brexit journey has featured in the FT since 2018.

Andrew says his company has spent £100,000 on preparing to comply with the introduction of UKCA and — while he’s delighted the government has “seen sense” at last — Seetru’s UKCA journey is very far from over.

The company spent money recalibrating the laser-markings on over 2,000 products (so they could carry UKCA), submitting technical specifications to UK conformity assessment bodies and revising technical documentation to fit the UK rubric.

The utterly frustrating thing is that the underlying standards for the UKCA and CE marks were identical, but such is the shortage of conformity assessment capacity in the UK, that submissions Varga made a year ago have still not been approved.

In one particularly egregious example of the pointless* costs inflicted by Brexit bureaucracy, the UK version of the “EU Pressure Equipment Directive” was incorporated into the UK as the Pressure Equipment (Safety) Regulations 2016.

But the UK regulation did the same thing but in a different order and format — which forced Seetru to rewrite its specifications. That’s all pain for no gain.

Even worse, all Seetru’s customers, for example in the oil and gas sector, rewrote their own specifications for the assumed introduction of UKCA marks — so unless those can be written back to CE marking, or both, Varga will still have to plough on with UKCA until those specifications revert to CE marks.

In addition, having spent much time lobbying his EU suppliers to prepare for the UKCA mark, he now has to explain the change of course that has left EU bosses shaking their heads at flip-flop Britain. “They’re literally laughing at us,” Varga says.

In sum, the DBT decision is a step in the right direction but not an instant panacea for one of the maddest examples of Brexit vainglory. 

What Varga suggests is that the UK government allows all CE-marked products to automatically carry UKCA marks, but as with medical devices and construction products, we’ll have to wait and see what happens.

He also wants the UK to think about rejoining the Customs Union, because the current paperwork requirements are causing him to lose business to EU competitors who can supply products inside the single market friction-free.

On a positive note, Varga acknowledges that there has been a change in attitudes from the government in the past two months. “Finally, there are serious people who are really listening,” he says. That is surely an important step in the right direction.

UK certification

The other under-appreciated impact of the government’s decision is the effect on the UK certification industry.

This was hit hard by the EU’s decision not to grant the UK ‘mutual recognition of conformity assessment’ — so that UK-based bodies could certify goods to the CE standards. As Michel Barnier said during the 2020 trade deal negotiations, the UK could not be a “certification hub” off the coast of Europe. 

Since Brexit, the effect has been to shrink UK testing capacity because where products need testing (required for safety-critical products like pressure valves that can’t be self-certified) that testing must be done inside the EU.

So, as William Bain at the British Chambers of Commerce observes, the DBT decision does not suddenly take the UK back to “pre-TCA” times. It will still see UK companies having to go to Europe to get items tested and certified, adding cost to their processes.

That’s also a potential death notice for the UK certification or “notified body” industry, according to Alasdair Reay of HPi Verification Services, which tests pressure equipment for the marine industry.

Companies like his have to pay for expensive accreditations with the UK government in order to maintain their status as a UK notified body, but he says the DBT decision will make it pointless for many companies to continue paying for such licences.

If UK notified bodies pack up because there is no commercial logic in maintaining UK accreditations, the net effect will then be that UK-based companies will have to go to the EU to get goods certified, even if they are only for the UK market.

“The dream held by the Brexiters seems to be well and truly dead,” he writes, “As we set off into a future where EU rules are applied without a UK voice in their creation and where European companies come to the UK and tell us which products we can sell on our own market.” 

So much for taking back control.

Brexit in numbers

This week’s chart comes via the Chemical Industries Association second quarter business survey, which makes for very challenging reading. 

It reflects the underlying market conditions that I suspect have added urgency to government decision-making on the issues discussed above.

The chemicals industry is important because its products go into pretty much everything that gets manufactured, so if demand is slumping for them, it’s a pretty good indication of weakness elsewhere.

The contraction began last year, but the short-term outlook remains poor. The survey found that nearly 60 per cent of companies saw a fall in sales in the second quarter of this year — up from 33 per cent in the first quarter.

“When considering the baseline and the past year’s trend, 58 per cent of companies reporting further contractions in sales is extremely worrying,” the CIA says.

As CIA boss Steve Elliott observes, what’s desperately needed is “a political commitment to long term policy stability and a competitive funding landscape for innovation and investment”.

As the travails with the UKCA backtrack show, restoring that policy stability will not happen overnight, but it can’t start soon enough.

And on that note, I’ll now be away for three weeks getting a bit of summer sunshine and handling the A-level results which fall on a Thursday. I’ll be leaving you in the capable hands of colleagues in Dublin and Brussels. Until then…

*This word replaced nugatory which appeared in the original version of this article.

Britain after Brexit is edited by Gordon Smith. Premium subscribers can sign up here to have it delivered straight to their inbox every Thursday afternoon. Or you can take out a Premium subscription here. Read earlier editions of the newsletter here.