Food bills could rise due to £3 billion 'tariff bomb' of no-deal Brexit

11 December 2020, 10:07

Supermarkets and their shoppers will be hit with a £3.1 billion annual tariff bill on food and drink if the UK fails to secure a last-minute Brexit deal.

The price of a grocery shop is expected to increase in the no-deal scenario, according to business groups.

Supermarket chains will face import taxes on goods imported from the EU, which are expected to particularly impact fresh food, such as fruit and vegetables.

While retailers may swallow some of the impact, it is understood that grocers intend to increase some prices on everyday staples to mitigate the tax increase in a no-deal scenario.

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The British Retail Consortium (BRC) said that 85% of foods imported from the EU are expected to face tariffs of more than 5%.

John Allan, chairman of Tesco, warned that food bills could climb by 5% on average in the event of a no-deal scenario.

If a Brexit deal is not struck, new tariff rules are set to be implemented from January 1.

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The BRC said this would result in an average tariff of more-than-20% on food imported from the EU, including 48% on beef mince, 16% on cucumbers, 10% on lettuce and 9% on tomatoes.

The Food Foundation found that, if tariff increases are passed directly on to UK consumers, the average British family would pay 4% more for their fruit and vegetables from the start of next year.

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Andrew Opie, the BRC's director of food and sustainability, said: "With just weeks to go, it is alarming that there has still been no deal agreed with the EU, putting customers in line for a £3 billion tariff bombshell.

"Currently, four-fifths of UK food imports come from the EU and without a tariff-free deal, supermarkets and their customers face over £3 billion in tariffs from 2021.

"Retailers are doing everything they can in time for January 1 but no amount of preparation for retailers can entirely prevent disruption to food and other essential goods that come from or through the EU.

"With negotiations entering the eleventh hour, protecting UK and EU consumers from billions in tariffs must be the top priority."

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A survey by the Association for Convenience Stores (ACS) revealed that retailers' biggest concern regarding impact was the potential effect on pricing.

Around 41% of retailers surveyed said they were most concerned about increased prices of products when the UK exits the EU next month.

Drinks are also expected to be particularly impacted by the tariff rules, with beverages making up 43% of all groceries imported from the EU.

In September, wine merchants warned the All Party Parliamentary Group for Wine and Spirits that they expect a £70 million tariff bill which could push up the price of Rioja, Bordeaux, Prosecco and other imported drinks.

Supermarkets have increased their sourcing of British produce over the past year, so that more than half of all food consumed in the UK is currently produced in the UK.

However, supermarkets will be reliant on imports of certain fruit and vegetables during the winter period.

The UK sources 85% of its tomatoes from the EU in January, falling to 30% by June.

Checks and delays at the border could also result in some of these products reaching UK customers with a shorter shelf-life

Other items such as toys and clothes could also be particularly impacted by price increases and disruption in the distribution process.

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However, on Thursday, Foreign Secretary Dominic Raab said he is "not concerned" about potential food price rises or shortages if the Government fails to strike a trade deal with the European Union.

Retailers and industry experts have raised concerns about increased costs and difficulties getting produce to the UK from January 1 without a deal.

Mr Raab acknowledged there would be "bumps along the road" but sought to play down the issue.

Tesco chairman John Allan has warned that food bills could climb by 5% on average in the event of a no-deal Brexit and the supermarket has already begun stockpiling in case of problems after January 1.

The Food and Drink Federation's Ian Wright told MPs this week that "we can't be absolutely certain about the movement of food from EU to UK from January 1'' due to border checks and tariffs.

But Mr Raab said that tariffs - which will be levied on imports from the EU if there is no free trade deal - played only a small part in the cost of food.

He said Mr Allan's warning of a rise of up to 5% on a shopping basket is not a figure the Government recognises and tariffs will be a "very minor proportion" of food prices.

"Of all the things that will be a challenge, I am not concerned about either supermarket cupboards running bare or the cost of food prices," he said.

"Equally, there will be some bumps along the road if we don't get a free trade deal, that's the inevitable consequence of change.

"But we will be well braced and well prepared to deal with those, and we are going to make a success of leaving the transition period, come what may."

A Government spokesperson said: "As we have seen this year, the UK has a large, diverse and highly resilient food supply chain - which has coped well in responding to unprecedented challenges.

"We are in regular contact with the food industry to support its preparations for a range of scenarios, and will continue to work closely with them to ensure people across the country have the food and supplies they need."