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Spilling the beans on the cost of Brexit

Bryan Wu
Bryan Wu • 8 min read
Spilling the beans on the cost of Brexit
The UK’s departure from the EU has proven tricky to navigate for small business owners Chris and Natalie Brittan, who opened Carbon Kopi just months before Brexit came into effect. Photo: Bryan Wu
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Last year, The Times reported that coffee had overtaken tea as Britain’s beverage of choice. It was a shock result for a country which went to war over the dethroned drink with which its national identity has been inextricably linked for over two centuries.

The numbers from Statista’s Global Consumer Survey, which found that 63% of Britons drink coffee regularly while only 59% regularly drink tea, are perhaps less surprising if the continental favourite is viewed as an economic indicator instead of simply a vehicle for caffeine.

Given the perceived sophistication and higher price tag of espresso-based drinks in the UK and other Anglophone countries — compared to broadly appealing, egalitarian tea — coffee consumption has become an addictive obsession of a growing class of young professionals across the developed world, addled without their daily fix.

But navigating Brexit has proven to be a challenge for specialty coffee shops which have sprung up in recent years like Carbon Kopi, located on a sleepy street in the Hammersmith district of West London. Each hopes to deliver their unique take on coffee culture and capitalise on a movement that appears to have more societal traction than a passing retail trend.

Chris and Natalie Brittan opened Carbon Kopi, which draws inspiration from Natalie’s Malaysian background, in October 2019 — just four months before Brexit came into effect at the end of January 2020. The coffee shop runs a guest roaster programme featuring artisan coffee from around the world and faced its first hurdles when regulatory changes from the UK’s departure from the EU kicked in.

“It was definitely a hard transition in 2021. Our biggest initial challenge when Brexit happened was that importing from European roasters suddenly became really difficult,” Chris recalls. “Paperwork became more complicated and transportation companies didn’t know how to process import taxes before they got acquainted with the new systems.”

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Accommodations and food services are hardly the only sector to have been impacted by Brexit. In fact, new research from economic consultancy Cambridge Econometrics commissioned by London City Hall suggests the UK’s economy is 6% smaller on the whole as a result of its split from the EU. Backed by the report, Mayor of London Sadiq Khan said in a Jan 11 speech that it is now “obvious” that Brexit isn’t working. “The hard-line version of Brexit we’ve ended up with is dragging our economy down and pushing up the cost of living.”

Calling on British politicians to end their “vow of silence” on the economic fallout of Brexit, Khan urged the UK government to rebuild its ties with the EU. “The cost-of-Brexit crisis can only be solved if we take a mature approach and if we are open to improving our trading arrangements with our European neighbours,” he said.

‘Heroic extrapolation’?

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Comparing the difference between two scenarios — one with the UK still in the EU and one where it has left — Cambridge Econometrics estimates the 6% reduction in the size of the UK economy has cost the country GBP140 billion ($238 billion) while London’s economy has shrunk by over GBP30 billion.

Based on its calculations, arrears arising from Brexit could reach 10% by 2035 compared to how fast the UK economy would have grown if the referendum had gone the other way.

However, these figures are higher than those of other studies on the economic impact of Brexit. The National Institute of Economic and Social Research (NIESR), an independent research institute, estimated in November last year that Brexit had reduced the UK economy by 2% to 3%, with the impact expected to rise to 5% to 6% by 2035.

Robert Colville, director at the right-leaning think tank Centre for Policy Studies, was also quick to criticise the report’s methodology on X, formerly Twitter, calling the Cambridge economic modelling “catastrophically implausible”. “The only way you get to the [Cambridge] figure is both heroic extrapolation, and ignoring the pandemic,” Colville says.

The timing of Khan’s speech at Mansion House should not be overlooked. Opposition Labour — which voted against Brexit in the 2016 referendum and of which the London Mayor is a member — holds a significant lead over UK Prime Minister Rishi Sunak’s Conservatives in opinion polls ahead of the election Sunak plans to hold in the year’s second half.

Labour leader Keir Starmer, who said in September last year that there was “no case for rejoining the EU”, has also been reluctant to share details on how the UK might strengthen its EU ties.

Responding to questions from The Edge Singapore, a UK government spokesperson said: “UK-EU relations are positive and driving good results in the areas where we want them. Whilst we have decided not to be a member, we can still be friends, neighbours and partners.”

For more stories about where money flows, click here for Capital Section

The spokesperson added that the EU-UK Trade and Cooperation Agreement (TCA) continues to be one of the largest free trade agreements in the world in its zero-tariff and zero-quota terms, and that the UK government aims to maximise and “make the most” of the agreement. “As set out in the Integrated Review Refresh, the security and prosperity of the Euro-Atlantic will remain our core priority, bolstered by a reinvigoration of our European relationships.”

UK trade still leans continental

Despite these convictions, a 4Q2023 trade tracker report by UK in a Changing Europe (UKCE) found that the rate of growth of UK goods exports fell by 2.2% compared to 3Q2019, before the TCA was agreed on and the Covid-19 pandemic struck. This was in contrast with the accelerating rate of growth of UK service exports, which has grown by 1.25% compared to pre-Brexit.

“UK trade growth is being driven by a strong performance for UK services which are at record levels. UK goods trade is not performing as well as services and is below pre-Covid levels when adjusted for inflation,” said the government spokesperson.

Official trade data also shows that exports to non-EU countries are performing better than exports to the EU. The stronger performance of non-EU exports has been driven by exports of services, which in the year ending September 2023 were 19% above pre-Covid levels after excluding the effects of inflation. Meanwhile, exports of services to the EU have grown at a slower rate, just 7% higher than 2018 after adjusting for inflation.

Notwithstanding, UKCE notes the total share of UK trade involving the EU has risen to levels unseen since before the referendum, increasing by 0.5% in 3Q2023 from the previous quarter to 53.3% and up by 2.1% compared to 3Q2022. “The turn towards non-EU trade that occurred immediately after the introduction of the TCA in January 2021 looks to have only been a momentary blip,” it says.

UKCE adds that the growing share of EU trade is further evidence that forming new partnerships and signing new free trade agreements with geographically distant partners will not quickly supplant relationships with closer partners. “Despite new trade deals and accession to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), a trade agreement involving 11 countries, the UK
does not look likely to shift away from trading with the EU soon.”

Overcoming Brexit challenges 

The UK’s persistent pursuit of trade with the EU is, however, unlikely to undo many of the difficulties brought on by Brexit for individual businesses like Carbon Kopi. For instance, one of the coffee shop’s suppliers, a French baker who insisted on using French ingredients, shuttered his business after Brexit when he found the specialty ingredients too difficult to access.

Natalie adds that the current cost-of-living crisis — led by spiralling inflation since 2021 and higher energy bills arising from the war in Ukraine — has increased wage costs for businesses. Following the suggested guidelines of the London Living Wage, which increased by 10% to GBP13.15 per hour for 2023 to 2024, Carbon Kopi now pays its freelance baristas around GBP15 an hour.

This has been further exacerbated by a shortage of hospitality workers in London following a European exodus in 2020 as Brexit came into effect and the pandemic hit. “Coffee shops in London relied heavily on European staff pre-Brexit. We would hire plenty of them because they’re generally very experienced in hospitality and as baristas,” says Natalie. “But they all went home during Covid and they never really came back because we made it hard for them to come back.”

The UK has also backpedalled on a new system of work visas implemented post-Brexit, which led to net migration soaring as the influx of non-EU immigrants outweighed the falling number of immigrants from the EU who previously did not require visas.

In December 2023, the UK Home Secretary unveiled a plan to curb “immigration abuse” and cut net migration, increasing the minimum earnings threshold for skilled workers from GBP26,200 to GBP38,700 per annum. “There’s no way a barista will ever meet that income threshold, which is going to cut off anyone working in hospitality unless they are high management,” says Chris.

Working with these “compounding pressures”, Natalie says the business has had to make some compromises to the “true values” of its hiring approach. “We want our staff to be supported but also to have the right person for the team. At certain points, I think we were swayed by the pressures of being short-staffed more than hiring who we definitely wanted.”

Still, the Brittans have mostly managed to weather the storm in an experience “full of learnings”. The couple opened a second location in neighbouring Fulham in 2022 and have even had talks of a third.

While the aftermath of the UK’s decoupling from the EU is picked apart and debated by politicians and economists, one thing is certain — the success of businesses like Carbon Kopi has occurred despite, not because of Brexit.

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