Assessing the impact

The plastics industry is one of the UK’s largest sectors with strong links to the EU. Here, James Bakewell finds out from the British Plastics Federation about what Brexit means and if manufacturers should be worried.

On Friday 29 March 2019, the UK will leave the European Union (EU). The exact details of how this separation will take place – how over 40 years’ worth of treaties and agreements covering thousands of different subjects will be unpicked – are, frankly, anyone’s guess. Indeed, there are conflicting messages coming from the UK and EU negotiating teams on the progress of talks on this so-called ‘Brexit’.

What is clear, however, is that the outcomes of these negotiations will be of considerable significance to British industry, and will have global ramifications.

The plastics industry is one of the UK’s largest manufacturing sectors and it employs more people (166,000) than pharmaceutical, glass, paper, nuclear and steel industries combined. It has an annual turnover of £25.5 billion. The industry is evenly distributed across the country, and generally specialises in the manufacture of high-value products. With an average of 27 employees per company, it is an industry of small-to-medium enterprises (SMEs). So what does Brexit mean for those involved in plastics?

“When I look at my time in the industry I’ve seen a lot of the more commoditised applications such as raffia and [biaxially oriented polypropylene] POPP largely leaving the UK,” says Mike Boswell,managing director of UK polymer distributer Plastribution. “What we have left is a pretty sophisticated, well-equipped, efficient, forward-looking industry.”

Boswell is also chairman of the British Plastics Federation (BPF)’s Brexit Taskforce, which was set-up immediately after the UK voted to leave the EU in June 2016 to work out what Brexit could mean for the UK plastics industry.

Europe is a key trading partner for the British plastics industry. In 2015, the BPF reported exports of plastics and plastic products to the EU totalled £4.9 billion. However, the UK plastics industry is heavily reliant on imports compared with other global economies. In 2015 it exported £1.8 billion of raw materials to EU member states, but imported £3.8 billion.

Whereas France, Germany and Spain all produce more plastics than they use, the UK only produces about 50% of what it consumes, and some key plastics materials are not manufactured in the UK at all.

Boswell says: “To sustain a vibrant plastics industry, we have to import plastic raw materials that allow us to manufacture the goods needed by key industry sectors like packaging, construction, automotive, medical and industrial.”

Not only is the UK plastics industry heavily reliant on imported raw materials, almost all machinery is imported and 80% of that is sourced from the EU – primarily from Germany, Austria and Italy.

The Brexit vote is already influencing this trade. The Pound is currently weak against the Euro, and is likely to remain so as negotiations play out. This means that European companies will pay less for goods from the UK, which could lead to British companies increasing the volumes of their sales to the continent. However, as we have seen, the UK plastic industry is a net importer and will have to pay significantly more for the raw materials it needs.

“We are seeing inflation in terms of the cost of raw materials and investments in plants and machinery,” says Boswell. “And if we’re employing overseas workers the wages they are repatriating are going down in value.”

Indeed, the UK plastics industry is heavily dependent on workers from the EU. Of these migrants, around 56% are low skilled, about 25% are mid skilled and about 19% are high skilled.

“We need a complete spectrum,” adds Boswell. “There may be an argument that for low skilled positions we continue to automate, but I believe that in the UK economy a lot of that – the low hanging fruit – has already happened. The next level of investment comes at a very high price. In terms of mid and high skilled workers, these are really essential to the smooth running of our companies.”

With the UK and EU plastics industries being so closely interlinked in terms of supply chains, investments and labour, the smooth exit of the UK from the EU is of vital importance to both parties.

Broadly speaking, there are two ways this could happen. A ‘soft’ Brexit could mean that the UK retains its access to the single market and must accept the free movement of people as a result. On the other hand, a ‘hard’ Brexit would see the UK refusing to compromise on issues such as the free movement of people even if that meant leaving the single market. This option would cause much more upheaval.

Indeed, it could see trade between the UK and Europe take place under World Trade Organization (WTO) rules, at least until new agreements are put in place. Boswell says: “Some calculations have been done on the financial implications of this on the plastics industry. Imports will cost £540 million more for the UK plastics processing sector. On the export side, those goods will cost UK companies an additional £340 million. That is almost a billion-pound penalty if we have a hard Brexit. I would argue that’s going to have a massive impact on our industry in terms of its ability to compete on a world scale.”

In this scenario, goods moving through ports could spend longer in customs checks, increasing costs.

Further, UK companies would still have to comply with EU regulations to trade there. Here, Boswell says: “The really hot topic is REACH. The idea is to bring European law into UK law, and yet ECHA, the body responsible for REACH, lives outside the UK. So how do we maintain our REACH compliance? How do we interact with ECHA? Or do we have another organisation? If so, how do we set it up? It’s a nightmare.”

The BPF wants the UK to maintain free, or at least easy, access to the single market. It wants the UK to be able to tap the EU labour force. It wants the UK to maintain and develop legislation that is compatible with the EU. How likely all of that is remains to be seen.

Boswell concludes: “We are going to become more globally outlooking as an industry, I think that’s an inevitable consequence of Brexit.”

James Bakewell

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