Written Evidence submitted by the London Chamber of Commerce and Industry (LCCI) (UKT0016)

London Chamber of Commerce and Industry (LCCI) is the largest capital-focused business advocacy organisation, representing the interests of over 3,000 companies from small and medium-sized enterprises through to large, multi-national corporates. Our member companies operate within a wide range of sectors across all 33 London local authority areas – genuinely reflecting the broad spectrum of London business opinion.

As the voice of London business we seek to promote and enhance the interests of the capital’s business community through representations to central government, the Mayor and the GLA, Parliament and the media, as well as relevant international audiences. Through member surveys and commissioning research, LCCI seeks to inform and shape the debate on key business issues. 

Introduction

1. LCCI welcomes the International Trade Select Committee’s inquiry into UK trade options beyond 2019. International trade has long been a critical component of Britain’s economic well-being, and LCCI has facilitated this through activities since 1881. LCCI undertakes trade promotion, trade facilitation and trade missions every year. While there is much debate on the UK’s potential new relationships with the EU, it is imperative that the UK does not neglect the opportunity to optimise and re-enforce trading relationships with the rest of the world.

2. Now, more than ever, there is a pressing need to encourage and support British businesses to engage in international commerce and help build a strong and prosperous UK economy. LCCI will therefore respond to the inquiry based upon the priorities of London business, outlining the barriers they currently face as a result of Brexit and exploring opportunities which may now have arisen.

3. Businesses are primarily concerned with securing a stable environment in which to trade, and as such, this response will not seek to address some of the more specific issues highlighted in the terms of reference. Following the referendum result LCCI undertook to probe the views of London businesses about their expectations and requirements arising from the UK’s vote to leave the EU, including around international trade. 

4. LCCI hosted roundtables with London business leaders from a wide range of industry sectors and company sizes attending to discuss immediate reactions and highlight potential impacts. LCCI commissioned polling agency ComRes to survey London business leaders about Brexit. ComRes interviewed 504 business decision makers in August 2016.  Data was weighted to be representative of all London businesses by company size and broad industry sector[1]. 

Transition

5. Nearly three months after the referendum, it remains ‘business as usual’ for many. Roundtable participants were continuing to recruit, several cited improved business performance in the months following the result and others pointed to the beneficial impact of the more competitive, post-referendum exchange rate.

6. One exporter confirmed that “the pound devaluation has been very good because we’ve been in dollars and euro so it’s gone straight on our bottom line. We haven’t reduced our prices so it’s been very beneficial”. A participant from the banking sector said “we’re not tailing back on any of our development or expansion plans. It’s very much business as usual. We’re employing in and around the Greater London area circa 50 people a week and that’s going to continue for the foreseeable future until we hit where we need to be”.[2]

7. However, these good news stories should not give cause for complacency. ‘Business as usual’ reflects, in part, a longer term uncertainty in the business environment over the past 18 months with the lead-up to the UK General Election in May 2015 followed by anticipation of the EU Referendum this year. Post-referendum, this ‘uncertain’ trend continues and businesses have had to manage their way through these periods.

8. Roundtable participants cited several indicators of negative impacts following the referendum result, including an apparent unwillingness of banks to lend to businesses and a ‘softening’ in the residential and commercial property markets, albeit one that had started prior to the referendum result.

9. 57% of business leaders faced uncertainty about the future value of the pound. Other factors that were causing uncertainty to London businesses included rules for trading with EU countries (29%) and whether compliance with EU directives and regulations in the UK legal system will be enforced (22%).

10. When considering transitional measures, LCCI believes that the greatest priority for London business is re-establishing a stable environment in which to do business. Businesses want policymakers to act decisively, to be bold and bring forward innovative measures that will maintain the ‘pull’ factors that make London an attractive location to set-up and succeed.

11. For the capital, this means three principal things: immediately addressing a delayed domestic agenda focused on strategic infrastructure needs alongside more devolution; secondly, signalling a positive approach towards the EU based on cooperation while looking to maximise new trade opportunities with the wider world. However, by far the issue of most concern that emerged from the summer roundtables was around workforce certainty – continued access to skilled workers and with that, the position of EU nationals currently employed within London firms.

12. The opportunities offered by Brexit must concentrate minds on London’s strengths as a business environment, and the value of making them stronger. So too should any transitional arrangements.

13. LCCI believes that the broad outline of the best possible deal lies in seeking to secure full access to the single market. However, given the challenge of balancing the retention of full access to the single market against the EU principle of the free movement of people, the UK Government should seek to secure as close an arrangement as possible to the existing single market model.

14. LCCI also believes that any transitional arrangements should seek to replicate existing rules, until such a time that the new arrangements are established and agreed to; it should be ‘business as usual’ so far as possible. Replacing one existing set of bureaucracy with another in the interim would simply cause greater uncertainty at a time where businesses most need a stable environment in which to operate.

Models for UK-EU trading relations

15. 38% of London businesses have told us that minimising direct tariffs on trade with the EU is their single highest priority. 46% said minimising non-tariff barriers was a ‘high priority’. Businesses have highlighted to LCCI the importance of minimising barriers was widely raised.  Whenever non-tariff barriers, like customs, are created, getting goods to market is delayed, and costs are incurred. However, businesses have also pointed to the more competitive pound offsetting immediate concerns about the impact of a tariff.

16. Clearly, any new EU deal with any barriers will be limiting for London business. That was reflected by 34% of business leaders saying the ‘Norwegian model’, including full access to the single market, free movement of people and accepting the majority of EU laws, would be best for Britain’s future relationship with the EU. A further 34% thought that the ‘Canadian model’ would be the best basis for the UK-EU relationship: i.e. a free trade deal covering some but not all areas of trade, but without the free movement of people.

17. Government should initiate and maintain a dialogue with London business to understand the potential barriers to future EU trade. This should include an exploration of single market access limitations that could prove detrimental to the UK economy if not fully assessed before the forthcoming Brexit negotiations next year. 

Boost the UK’s international trade position

18. Following the referendum, many London businesses are now looking at opportunities to increase trade with other parts of the world.

• At least two in five London business leaders consider potential trade deals with the USA (54%), China (48%) or India (41%) a high or essential priority for the UK. 
• 66% of London businesses supported the more far-going proposal to unilaterally have no tariffs for all imports (37% say it should be a high or essential priority, 29% a medium priority).

19. While there is much debate on the UK’s potential new relationships with the EU, it is absolutely imperative that the UK does not neglect the opportunity to optimise and re-enforce relationships with the rest of the world – where almost two thirds of London’s exporters’ trade is done.[3] Significant opportunities exists to develop trade agreements with emerging markets and other global trading powers alike. It will be in new relationships – when our EU caps and restrictions have been lifted – that the UK has the potential to see real ‘upside’ economic benefits.  

20. LCCI’s roundtables focused on what can practically be done to better support businesses to trade with the world.  LCCI members agreed that in light of impending Brexit it is important to look at the ‘UK Plc operating model’ to identify where there are opportunities to maximise trade with the rest of the world where “our EU membership might have held this back”, i.e. with economic centres like Australia, North America and India.

21. London business highlighted the value of private sector trade missions that include practical advice and local knowledge on how to enter a new market. Targeted support for businesses, via supported trade missions into markets with potential, would make a difference to UK exporters, particularly smaller businesses. LCCI also supports the idea of a sovereign-backed export credit guarantee system for smaller firms, to help provide confidence. 

22. LCCI is concerned about the level of expertise which Government is able to bring, in the short term, to help UK businesses export into new and developing markets. We believe that Government should take heed of business expertise, and consider the value of commercially experienced or focused UK ambassadors. 

23. As an island economy, aviation delivers the international connectivity that makes the UK globally competitive. To maintain this, UK businesses must have the ability to directly connect with high-growth, and emerging, economies beyond Europe. The UK aviation sector contributes £52 billion in overall GDP to the UK economy. Air freight may only account for 0.5% of the UK’s international goods movements by weight, but in value terms it makes up around 25% of the total.[4] It is therefore vital that Government ministers work with the aviation and logistics industry as part of Brexit preparations.

LCCI recommendations:

• A cross-Whitehall national strategy for exports growth could coordinate relevant departmental policies and outline the role that businesses and private providers could play in an integrated effort to target support to greater numbers of UK firms, particularly SMEs, looking at overseas markets. Such an effort might include enhanced, supported trade missions into markets with potential.

• Government should initiate and maintain a dialogue with London business to understand the potential barriers to future EU trade and single market access that could prove detrimental to the UK economy if not fully assessed before the forthcoming Brexit negotiations next year.

• The Department for Transport should undertake a full review of all existing UK Air Service Agreements with countries outside the EU. 

24. Businesses in the UK and across the EU will want to continue to trade and do business. Governments must look to reduce bureaucracy, minimise cost and limit barriers to future trade – so that both can prosper. 

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