A no deal Brexit remains a very strong possibility, with Boris Johnson insisting the UK will leave the European Union on October 31.
Divisions between the UK and Brussels have deepened since Johnson became Prime Minister, with the UK insisting the only route to progress would be starting withdrawal negotiations again, something Brussels has repeatedly ruled out.
The Irish border is also hugely problematic, with the EU and UK on opposing sides.
The effects of no deal Brexit on the people and economy of the UK are likely to be profound.
No country or region “would be left untouched by the significant economic fallout from leaving the EU without a deal, harming jobs, livelihoods and living standards,” the CBI said in January.
The extent of Brexit’s effect on UK citizens is tied in to how hard it hits the UK economy — in 2016, the Treasury said the UK’s annual GDP level would drop by 7.5% after 15 years under a hard Brexit.
The Welsh economy is so tightly interlinked with the UK’s that any impacts will filter down. And there are other consequences of Brexit, like travel or house prices, that will affect everyone. But there are certain ways in which Wales could be specifically affected. In fact, a report in 2017 warned it could be the worst-affected region of the UK.
These are influenced by circumstances unique to Wales, like the way the Welsh economy is structured, the type and concentration of jobs we have, the importance of our ports, the amount of EU aid we get and the places our companies export to.
Nearly two-thirds (60.9%) of exports from Wales in 2018 went to the EU, much higher than the 44% of UK exports which go there. Their value was £16.9 billion.
The graph shows Wales exports a higher proportion of its goods to the EU compared to the UK as a whole (Image: Welsh Government)
Food, aerospace, automotive and metals are relatively at-risk sectors — and they employ large numbers of people in Wales on good wages meaning the wider economic impacts to Wales could be significant (however, there are sectors which see Brexit as a relatively minor problem or even an opportunity). Wales has a higher proportion of people employed in manufacturing than England. The rural economy could be particularly badly affected.
Tariffs on food and other goods could potentially be as high as 50% under a no-deal Brexit, with dairy products and meat attracting particularly high tariffs as trade relationships between the EU and UK revert to World Trade Organisation rules. But just as important (potentially more so) are non-tariff barriers like regulatory standards, rules of origin, intellectual property rights and, simply, the basic market access restrictions.
The CBI says Northern Ireland, Wales and Scotland “would all see sizeable reductions in their level of economic output”, saying Wales is set to lose £7 billion a year by 2034, equivalent to the annual public spending on hospitals, GP surgeries and other health services in the country.
Here are the specific ways Wales could be hit by Brexit.
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1. First off, Wales suffers more than other regions
“The implications of Brexit are profoundly different for the different cities, regions, and nations of the UK,” says the City Regional Economic Development Institute at the University of Birmingham, adding that “London and its hinterland along with Scotland are likely to be less affected by Brexit than the Midlands and North of England, Northern Ireland, and Wales”.
The institute cites “a large body of evidence from many sources” that suggests that the implications of leaving the EU are likely to be much more serious and problematic for the “weaker” regions of the UK than for the “stronger” ones. It says “Brexit is likely to exacerbate the UK’s current interregional inequalities, which are already very high by international standards”, citing ways in which these regions are more exposed to Brexit trade-related risks. These are spelt out in more detail in the following sections.
2. Companies leave the country
In a report for the Welsh Government, Cardiff Business School’s Welsh Economy Research Unit (WERU) spoke to large and medium-sized businesses in Wales. A number of them raised the very real prospect of Brexit “resulting in significant disinvestment from Wales (and the UK)”. In some cases it could mean leaving the country altogether.
In fact, one of Wales’ major employers, Airbus, said as much in January, threatening to pull the firm out of the UK over Brexit. Airbus employs 6,500 people at its Flintshire site, 400 in Newport and many people from Wales also travel to Airbus in Bristol, which employs 3,000 people. It is estimated that Airbus supports 11,600 jobs in Wales in the supply chain.
A firm in the medical and healthcare sector told WERU researchers a hard Brexit would mean a loss of productivity and competitiveness at its Welsh plant, while adding significant costs. The firm was already planning to move functions to its parent nation.
Tariffs, customs procedures and technical barriers to trade would all add to delays and costs, rendering Welsh companies uncompetitive.
The global supply chain and an example of how Welsh goods cross several borders before they are sold (Image: Welsh Government)
Jobs in sectors like aerospace and automotive are well-paying, directly employ very high numbers and add value across the rest of the Welsh economy. The share of EU workers is also much higher in the manufacturing sector than it is in Wales in general.
Firms have also raised concerns about the ability to participate in future EU research programmes, and the potential loss of influence. The aerospace sector gets large sums from EU research and development programmes like Horizon 2020.
It’s not just firms like this that would suffer from a potential loss of EU workers, however. 15% of the wholesale and retail workforce in Cardiff is from the EU and the food and drink sector relies on the availability of unskilled EU workers.
A Welsh Government report says: “It is very unlikely that, in the short term, free trade deals with other countries — even the USA — could compensate for the loss of full and unfettered access to the Single Market.”
3. Chaos and decline at ports
Wales has seven major ports, which directly supported 18,400 jobs according to a 2011 study commissioned by the Welsh Government. An Associated British Ports report found that the south Wales ports alone contribute £1 billion to the Welsh economy. Ports in Wales are typically located in deprived areas so are key employment hubs.
The crucial importance of Welsh ports
Holyhead is the UK’s second largest “roll-on roll-off” ferry port after Dover
Milford Haven is the UK’s third largest in terms of freight transport
524,000 lorries and unaccompanied trailers travelling to and from Ireland in 2016 passed through Welsh ports
The vast majority of those passed through Holyhead
11% of total UK freight traffic in 2016 passed through Welsh ports
80% of goods carried in Irish registered HGVs between the Republic of Ireland and Europe pass through Welsh ports
What happens with the border between Ireland and Northern Ireland could have a major impact, with a soft border putting Welsh ports at a disadvantage and leading to freight and traffic from Welsh ports moving to to ports in England and Scotland via Northern Ireland. Irish Ferries told an Assembly inquiry into Welsh ports in 2017: “If a stringent customs regime was in place at the Welsh seaports with direct connections to seaports in the Irish Republic, and a less onerous or more relaxed regime was in place at the land boundary on the island of Ireland, there is a risk that this could cause significant displacement of traffic, from the Welsh ports to ports in northern England and Scotland. This could have serious economic consequences for the ports in Wales and Ireland, both in direct and indirect employment.”
The Welsh Ports Group said it understood that shipping operators “are already looking at options for direct Ireland–EU services”, though Irish Ferries disputed this, saying the length of those crossings would be too great.
New customs arrangements will result in major challenges, with Welsh ports lacking the infrastructure and physical capacity to accommodate new border controls and customs checks. Not only could this lead to long delays, but it would also increase the unattractiveness of Welsh ports.
4. Traffic gridlock on Welsh roads
Welsh ports’ lack of capacity to handle new customs or passport checks could have a knock-on effect on roads.
Ian Davies of Stena Line Ports, based at Holyhead, told an Assembly inquiry: “Physically we do not have the land mass to stop and check vehicles. We have some of the largest ferries in Europe coming in and we do not have the space even to empty those directly into the port. The whole port would come to a grinding halt. The whole logistics industry would come to a grinding halt.”
He added: “I don’t think it’s physically possible to come up with a physical land mass to absorb some of these traffic flows. We’re looking roughly, at our peak, at 400 freight units an hour coming off the ferry. Each freight unit is 16m long. That’s one long traffic jam coming out onto the A55.”
The UK Chamber of Shipping has said that all sectors of the economy have, over the last 20 years or so, adopted “just-in-time supply models”. Welsh ports are at the heart of this. Arbitrary and unpredictable delays caused by border controls are incompatible with just-in-time supply chains.
5. Farms could collapse
In July, Welsh farmers warned Boris Johnson he should be prepared for mass civil unrest if he goes ahead with a no deal Brexit they describe as “catastrophic”.
A Ceredigion farmer, Wyn Evans, described the prospect of a no-deal Brexit as “horrific” and in February farmers held a meeting, with some (though not all) fearing the disappearance of the European market altogether (some farmers also saw opportunities in the domestic market).
A Welsh Government report on the impact of a no deal scenario says lamb exports would be impacted quickly, with tariffs on the export of “lower value lamb cuts” meaning this trade could cease. Only 5% of lamb produced in Wales is consumed in the country, according to Hybu Cig Cymru, and up to 40% is exported out of the UK. More than 90% of these exports are to the EU.
90% of Welsh shellfish production is exported to the EU with many species transported live. There is currently a limited domestic market for these types of fish.
“If we have tariffs [in the sheep sector] of 40/50/60% we wouldn’t be able to compete. We would suffer serious hardship,” said Mr Evans.
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NFU Cymru President John Davies has said: “A no deal Brexit would be devastating for Welsh agriculture. Forced to trade on WTO terms, our exports of lamb would face an effective tariff rate of 46%, while for beef effective rates are much higher at anything between 48% and 84%. Faced with such tariffs, our farmers simply couldn’t compete.”
The problems don’t stop at tariffs. There could also be problems around complex import/export documentation, animal health and certifications, which could be an issue with refrigerated goods and delays in transportation.
6. The economic gap between Wales and the rest of the UK grows
Welsh manufacturing involves a large number of plants which are branches of large multi-national companies, which are now more vulnerable. Firms could simply choose to move operations to another EU site, avoiding the costs associated with tariffs and non-tariff barriers that threaten to increase their costs and make them less competitive. Inward investment to Wales is also more vulnerable as a result (and Wales has significant amounts of inward investment).
“Indeed a sustained reduction in inward investment flows would probably work to widen the economic disparity between Wales and the UK,” says this report by Cardiff Business School.
(Image: Cardiff Council)
A CBI report from January 2019 says “analysis indicates that Northern Ireland, Wales and Scotland would all see sizeable reductions in their level of economic output” in the manufacturing sector. The Welsh Government says: “Wales’ success in attracting foreign direct investment over many decades is largely based on access to the EU market of more than 500 million customers.”
7. Money stops coming to Wales and major projects don’t happen
Wales is a net beneficiary of EU membership, receiving about £680 million in EU funding each year. The money is spent on a wide range of things, from major building projects and urban development to supporting farming and helping people into work. Swansea University’s new Bay Campus got £40 million of EU money, thedualling of the Heads of the Valleys road got £79 million. You can see exactly how much money Wales gets from the EU and how it is spent here but you can also read here how people don’t necessarily feel this money has helped them in any way.
After 2020, Wales will no longer be eligible for EU funds and it will have to be seen whether comparable regional aid money comes from the UK government.
Wales receives substantially more EU funding per head than other UK countries (Image: Joseph Rowntree Foundation)
A Cardiff council report from 2018 says potential factors like the increase in the cost of imported goods, restrictions on the free movement of labour and diminishing investor confidence “could affect the business case for the delivery of capital schemes”. The council specifically names the Cardiff Living Scheme (designed to tackle growing demand for affordable housing) and the 21st Century Schools school-building programme among among major projects that may be hit.
By leaving the EU, Wales could also lose access to the European Investment Bank, the largest publicly owned bank in the world, which has invested almost £2 billion in Wales over the last 10 years.
Another Cardiff council report says European structural funding has, in Cardiff alone, created 3,380 jobs and helped 4,455 people into work between 2007 and 2013.
8. Universities won’t be able to attract staff, students, research or funding
Brexit threatens the ability of universities to recruit international staff and students and engage in international research collaborations and projects. Recent figures released by UCAS show a 7% drop in EU applications across the UK.
In Wales, 11% of academic staff and 5% of students in Welsh universities and colleges come from the EU. There are 2,960 EU students in the Cardiff City Region (3.8% of the total student population), says a Cardiff council report. A sharp reduction in numbers means a potential loss of up to £10m per annum in tuition fee income to universities.
Having continued access to collaborative EU funding streams like Horizon 2020 and the European Structural and Investment Funds is a priority for local universities. If this goes, a major funding stream goes with it.
But this also has a knock-on effect for the wider Welsh economy, as direct impacts of reduced spending on research and development make their way through. Being excluded from collaborative research could impact directly on Wales’ ability to maintain and attract new companies and to develop new industries (the compound semiconductor cluster in south-east Wales has grown rapidly over recent years as a direct result of investments made in buildings, equipment and top research talent drawn to Wales). Limiting the availability of highly skilled staff working in Wales could have a negative impact on growth and living standards.
9. Health workers won’t be able to take care of people
Although Wales has a lower share of workers with EU nationality than the UK as a whole (2.8% compared to 5.7%), there are sectors where this is much higher. In Cardiff, 13% of people working in human health and social work are from the EU.
In this report, Cardiff council identifies health and social care and construction as sectors where potential restrictions on the free movement of labour could exacerbate known recruitment issues. Delivering social care is already extremely challenging on a UK level, with under-funding and recruitment major problems. It is also considered one of the sectors most vulnerable to changes in migration patterns, so there could be fewer people to look after those who need it, and there aren’t enough as it is.
10. Medicine shortages are a risk, so are price rises
The Welsh NHS and care organisations rely on products, innovations and industries which could be undermined as we leave the EU. In this report, the Welsh Government says it is “particularly concerned where this could affect the availability of goods, medicines and medical devices”.
It says: “Leaving without a deal, with the possibility of tariff and non-tariff barriers, would cause problems for the Welsh NHS. There would be a real risk of disruption to supplies of medical products and a potential rise in drug prices which would compound existing financial challenges. It could seriously undermine the ability of health and social care organisations in Wales to keep delivering the best care to patients.”
But it’s wider than that. The Welsh NHS benefits from a thriving life sciences sector, one of Wales’ fastest growing and most innovative industries, employing around 11,000 people in nearly 350 companies and contributing around £399m to the Welsh economy every year. Failure to reach adequate trade and co-operation arrangements could restrict growth in this sector, slow down access to cutting-edge treatments in the NHS and damage medical research in several ways.
In pharmaceuticals, if the UK is not still part of the EU’s patent exhaustion zone after Brexit, trade to and from the UK will close, probably leading to a rise in the cost of drugs for the NHS. And these firms would no longer have automatic access to EU research and innovation programmes.
11. Food shortages and price rises
The bosses of major retailers including Sainsbury’s, Asda, Marks and Spencer, Waitrose and Lidl have written to the Government over their concerns about a no-deal Brexit. They fear it will drive up food prices and pose a “significant” risk to the range and quality of products on supermarket shelves. Although anecdotal, people in Wales have told us they are stockpiling food in case of Brexit shortages.
A picture of stockpiled food gathered by one person in Wales concerned about possible food shortages in the event of a no-deal Brexit
A House of Lords report found that “if tariffs were imposed… it seems highly probable that food prices for UK consumers would rise”. And non-tariff barriers resulting in additional border checks and documentation requirements will increase the time it takes for food to reach shop shelves and result in additional costs to businesses, which may be passed on to consumers.
Cardiff council says it is “cognisant of a number of scenarios that would represent severe disruptions to the city and the ability of the council to deliver services. These include food shortages”.
A 2017 report warned that low-income households would face the biggest cost pressures as a result of rising food costs, which estimated the cost of the average annual household’s current consumption rising by £260.
12. Protecting public health becomes harder
Trading standards and environmental health teams operating inland from ports would be hit by the loss of intelligence gathered from access to key EU databases, says a Cardiff council report. This reduces their ability to target their work and enforcement activity appropriately, weakening the ability of local regulatory services to protect public health.
13. Companies involved in making cars are exposed
80% of cars assembled in the UK were sold abroad, 58% of which were exported to the EU, says this Cardiff Business School report.
Without a trade deal, tariffs on cars could be around 10%, but the UK automobile sector also relies on imported parts and components. If manufacturers are forced to increase car prices to stay profitable, their competitiveness suffers. The report cited an earlier report predicting total UK car production to fall by 12% (more than 180,000 cars per year) compared to staying in the EU. Prices faced by UK consumers would also rise by 2.6%.
This also exposes firms directly and indirectly involved in the car-making chain, including engine manufacturing facilities at Toyota in Deeside and Ford in Bridgend, as well as key firms linked to the automotive sector such as Calsonic in Llanelli. Schaeffler in Llanelli announced it was closing its Llanelli plant in November with the loss of 200 jobs. It said Brexit was not the only reason behind the decision to close two sites but it had “brought forward” their decision.
14. EU nationals living in Wales face huge uncertainty and insecurity
Wales has 42,900 EU nationals working here. Around 6% of doctors working here were trained in EU countries. The withdrawal deal rejected by Parliament offered temporary guarantees for EU citizens in the UK. But no deal means this agreement is gone, meaning huge uncertainty. EU citizens living here can apply for settled status — but some fear this is no guarantee of being able to stay here indefinitely in future, should circumstances change.
And EU citizens in the UK have spoken about how they now feel like second-class citizens. You can read WalesOnline journalist Estel Farell-Roig’s account of her own experience here.