Shock Brexit charges are hurting us, say small British businesses

Government ministers describe the post-Brexit headaches that British exporters have suffered since 1 January as mere “teething problems”.

However Alex Paul, who jointly runs a successful family business that features in the Department for International Trade’s list of national “export champions”, disagrees. And he wants the real story to be told.

Two weeks into the supposed golden era of global Britain, Paul and many other British entrepreneurs, large and small, are running into very serious problems.

UK fish exporters are unable to sell into European markets because of delays at borders and complain that Boris Johnson and others misled them about Brexit. Leading supermarket chains are warning ministers of food shortages in Northern Ireland because of new border rules and bureaucracy. And small UK companies such as Paul’s, which thrived as part of the EU single market, are saying they may have no future at all in exporting into continental Europe because of the crippling new costs.

Paul is a director of Leon Paul, based in Hendon, north London, which employs 50 people. It is a niche business, which has been in his family since it was set up in 1921. It designs and manufactures equipment for the Olympic sport of sword fencing. But in many ways it is typical of tens of thousands of small companies that sold some of their goods at home and some abroad, and enjoyed seamless access to the border-free EU market for decades. “Previously the business of sending orders direct to customers in Europe was very straightforward,” he says.

“You put something in a box, sent it off with a courier and it got to the customer in a day or two days without any friction, just like sending something within this country.”

Almost a third of Leon Paul’s £7m annual turnover is to customers in EU countries. On average each order to the EU has been worth about £200. But the European export side of the business is now looking increasingly unsustainable.

“We did everything we could to prepare for Brexit and are part of the DTI’s export champion community,” says Paul. But since 1 January, his firm – like other UK exporters – has been hit by three new charges. And four days ago the firm discovered another one that his customers in the EU will have to pay on receiving the goods.

“As far as I can see, currently, companies like ours in the UK are not going to be able to do ‘end sales’ to customers in the EU any more. Particularly, small orders for anything under £100 will be completely impossible,” says Paul.

The new export levies, which he says will amount to £160,000 a year for Leon Paul, are first, a “Brexit charge”, as the couriers are calling it, an export fee of £4.50 for every parcel shipped to the EU to cover costs of extra administration and form filling that couriers must carry out.

Second, there is a “deferment account fee” of £5 per parcel that covers couriers’ costs of pre-paying import charges in the destination country; and third, a “disbursement charge” which is set at different levels in each EU country with a minimum of about €14 per parcel, or calculated as a percentage of the value of the goods, whichever is the higher, plus VAT in the destination country. This covers the costs of the tax authority in the recipient country inspecting and processing the parcels.

For the past fortnight Paul has been trying to work out how to absorb the extra costs. But he is struggling to see an easy way.

“Jobs lost will be lost here,” he says. “That is the reality. All of these fees will come straight off profit margins.

“We might save some of the increased costs of doing business in Europe by setting up a warehouse there – and thereby avoid paying charges on every consignment – but we would have to make redundancies in our warehouse here and reduce the size of the business footprint in the UK. We are of course a relatively small business but all exporters will be hit with similar charges.”

Were it not for Covid-19, such stories would be dominating the news. Privately ministers know things will get worse. Behind the scenes civil servants in Whitehall are letting it be known that there is little that can be done because the exhaustively negotiated trade deal is largely set in stone.

“There is the potential to make some changes if both sides agree – that is in the deal,” said one leader of a UK business organisation. “But there is not much goodwill in the EU to help British business now. Business people like us can ask for more talks with the EU but optimism that we will get anywhere is in short supply.”

On Wednesday the Northern Ireland secretary Brandon Lewis will appear before the all-party Northern Ireland select committee. He is sure to be grilled on why Boris Johnson and he both insisted there would be no such problems. On 1 January Lewis tweeted: “There is no ‘Irish Sea Border’. As we have seen today, the important preparations the Govt and businesses have taken to prepare for the end of the Transition Period are keeping goods flowing freely around the country, including between GB and NI.”

As discontent grows ministers are also being warned that Scottish fishing vessels will begin heading in larger numbers to Denmark to land their catches from this week as a result of the bureaucracy created by the Brexit deal.

An increase in boats making a two-day round trip to Danish ports has already been detected as trawlers face slumping prices in Scottish ports as a result of difficulties in selling on their catches to the EU in time. Industry figures are already demanding compensation for the businesses that are being hit as a result of the disruption.

“It’s not just something you do at the drop of a hat, it’s a couple of days round trip,” said Elspeth Macdonald, chief executive of the Scottish Fishermen’s Federation. “But it does at least give the vessels a decent chance of getting a decent price. Talking to some of the folks in our association, they suggest there would be an increased number of vessels that would probably do that next week. Clearly, that has an impact on the businesses this side, in terms of the auction markets and the processors.

“The prime minister has said he recognised that businesses are being affected by these problems and that there would be compensation for businesses affected. While obviously we want the problems to be resolved, it’s really important that those businesses that have lost significant amounts of money – fishing businesses and processing businesses – are able to be compensated for the losses because they have been significant. And we want to see the details of that scheme come forward as quickly as we can.”