Food prices will go up, not down, after a no-deal Brexit – despite what Jacob Rees-Mogg says

Opinion piece (iNews)
Sam Lowe
07 January 2019

Could Brexit mean cheaper food on our supermarket shelves? The idea has been propagated by politicians such as Jacob Rees-Mogg and business people like JD Wetherspoon’s owner Tim Martin, who promised lower prices in his “Beermat Manifesto”. In the event of no deal in March, the UK could unilaterally remove all tariffs (import taxes) currently levied on imported food, bringing down prices in the shops – or so the argument goes. On the face of it, this argument intuitively makes sense – but I am sceptical.

Food from the EU
First, the vast majority of imported food and drink – around 79 per cent – is sourced from the EU. Even if the UK unilaterally removed tariffs on all imported food and drink, no matter its country of origin, we would still import a lot of food from the EU because it is close by, consumer preference, there not being ready made alternatives produced elsewhere, and sticky supply chains. Any food imported from the EU post-Brexit will be more expensive than it is now, if only because of the new bureaucracy associated with the UK no longer being a member of the EU. Promises of frictionless trade outside the single market and customs union are fantasy – friction and cost can be mitigated via an agreement, but not removed entirely.

Second, one of the main reasons that cheaper products are hard to come by in the UK now has nothing to do with tariffs – which are generally quite low due to numerous free trade agreements and preference schemes for developing countries. Instead it is due to them not meeting the EU’s strict food hygiene requirements. This is why American beef from cows treated with hormones is not on our supermarket shelves. In the event of no deal, the UK might decide to change these rules, but it would go against stated government policy and probably prove controversial.

Crashing sterling
Third, the devaluation of sterling post-referendum has already made imports more expensive. In the event of no deal I would expect it to devalue further. Even if tariffs were removed, a big sterling devaluation post-Brexit could mean imported food remains more expensive than it was before the referendum. Of course, exchange rates can change in both directions over time, but the Institute for Fiscal Studies estimates that while the unilateral removal of all import tariffs could reduce household prices by up to 1.2 per cent, this potential saving has already been wiped out by an estimated 2 per cent increase in prices as a result of the referendum induced depreciation in the value of sterling.

Savings not passed on
Fourth, while some specific foods could indeed be imported more cheaply – for example Brazilian beef – not all, if any, of the saving will be passed through to consumers in the form of cheaper food on the supermarket shelf. There is little evidence to suggest that the removal of tariffs leads to lower consumer prices in practice (rather the benefit of free trade agreements and tariff removal is an increase in quality). On the flip side, when costs or tariffs go up, this is more likely to be passed onto the end consumer in the form of higher prices.

Our own food more expensive
Finally, the UK still produces around 50 per cent of the food consumed in the UK, and no deal would put inflationary pressure on the domestic supply as well. A weaker sterling and other new barriers to importing from the EU could make imported fertiliser more expensive, for example. Also British farmers will probably find it more difficult to attract migrant labour, with the end of free movement of people and, again, a weaker currency reducing the UK’s appeal as a destination. In the immediate aftermath of a March no deal, the disruption and uncertainty would undoubtedly see a spike in food prices. In the long-run it is hard to see how unilateral tariff removal would offset other inflationary pressures and make food in the UK cheaper than it is now. At best prices would remain much the same. At worst, the daily shop could become noticeably more expensive.

Sam Lowe is a senior research fellow at the Centre for European Reform.