Brexit: The Plethora of Issues Plaguing Britain’s SMEs

As seen on Fashion Roundtable

A conversation with Jeni Hewlett of Chester Wool & Fyberspates

Brexit promised a lot of things — to liberate Britain from EU regulations and to pledge the start of an independent, thriving economy. However, since Britain officially left at the start of this year, there has been a drastic decline in UK trade. Since records began in 1997, January 2021 marks the largest monthly fall in imports and exports, and according to the Office for National Statistics, exports to the EU fell by 40.7% and imports from the EU by 28.8%.

The UK fashion and textiles industry is worth £32 billion to the economy generating more than fishing, pharmaceuticals, automobiles, film and music. Disturbingly, Oxford Economics has forecasted that we could see a sharp decline to £26.2 billion with the industry highly-exposed to the impacts of Brexit, unless a “greener and more sustainable levelling up agenda” is put into place. And while larger corporations may find it easier to cut the red-tape, it’s smaller businesses that have been left struggling and contemplating their long-term plans moving forward.

Small businesses have faced myriad issues since Brexit — from shipping delays, to a dramatic rise in shipping costs and mountainous paperwork. A key issue is that any goods now entering the EU must satisfy rules of origin requirements. This problem is pertinent to the fashion and textiles industry, as goods are now characterised by final products and many incorporate inputs from multiple origins. These issues and costs alike have meant that many small businesses are now considering setting up distributing centres in the EU, at the cost of UK jobs and loss of taxes to our economy, which is entirely averse to Brexit’s goal.

Jeni Hewlett and her partner Andy Robinson run two companies: Chester Wool which sells undyed yarn for dyers who operate small to larger companies. And Fyberspates a business selling dyed yarns for hand knitting, along with knitting patterns. Jeni’s immense passion is instantly visible when we discuss her business, as hand-dyeing is still a niche area to many. “Customers demand transparency in sourcing, very high-quality products, and are very environmentally conscious. It is a pleasure to work in this space where people care so much about how things are produced,” explains Jeni. Over a decade of work has gone into developing yarns suitable for dyeing which attracts artisan end-users and requires large stock levels on hand.

Only a small amount of stock stays in the UK with 75% being exported. Prior to Brexit, the business relied very much on getting products to customers quickly and efficiently. Where customers could previously order these products with a two-day turnaround, Brexit has meant that they can’t simply ship to European customers, with delays of weeks and in some cases months.

“We still have boxes floating around which were shipped on the 6th of January… customs fees were slapped on indiscriminately and in most cases, duty was added” says Jeni. “These duties were not applicable on our products, duties weren't even consistently charged at the same rate. Some packages never even left the country and were declared lost.”

There is a feeling amongst the industry that Brexit’s execution was rushed, and the government left it far too late to share the complete ramifications of leaving the customs union. “If these had been brought to our attention far earlier we would have had more time to prepare and would not be suffering as we are now.”

For many SMEs like Jeni’s, it was a huge gamble to decide how to prepare for the transition without any concrete guidance from the government. Initially, their strategy was to register for VAT in some European countries so that they could send their products DDP (delivered duty paid), absorbing customs charges and some of the shipping costs— without impacting their customers. However, none of the couriers could cope with this plan and they were forced to ship with FedEx who were more reliable with delivery times, but meant they had to absorb 50% of the delivery cost, as these went through the roof. In addition, as they work with a number of small companies who in some cases are not yet registered businesses, even FedEx had issues delivering.

The financial impact on small businesses like these is severe. “As we initially decided to sell DDP we have spent close to £100,000 on setting up the VAT in various countries, this has proved to be a total waste of money.” These issues have meant that they are now working through the complex process of setting up a company with its own warehouse in the EU and creating employment there, as this is now the only option to continue to sell to Europe uninterrupted. Although a number of customers have stuck with them, they are concerned that they will miss out on this percentage should these issues continue. The hope is that their business continues to grow once they make the move, and they can then recapture the customers who’ve had to stop purchasing for the time being.

The promises made by the government in relation to Brexit are yet to be seen. Smaller businesses are the backbone of our economy. So while larger corporations will be able to cut through the Brexit legislation far easier, it is this passion and ingenuity from SMEs that our economy thrives on. The whole transition process to date feels clumsy and disjointed, particularly as we are losing a number of businesses and employment opportunities to the EU. Fashion Roundtable’s recommendations in their latest report, Brexit: The Impact on the Fashion Industry, includes incentivising on-shoring with tax reliefs for brands which manufacture in the UK, just like the film industry enjoys. As well as gaining a proportionately equal level of support as the fishing industry has received when exporting product to the EU. To put this into context, the fishing industry has received a £23m package for 12,000 workforce, versus £2,000 grants available for all of the UK’s 617,600 SMEs.

It is particularly poignant that the government takes the fashion and textile industry seriously, as the sector has the potential to be at the heart of the UK’s post-pandemic recovery. Frankly speaking, it is innovative companies like Jeni’s, who offer high-quality products and transparency in their supply chain, that the government should be going out of its way to support and keep at the centre of its vision moving forward.