EU cut direct grants to UK firms by 20% in the run up to Brexit

31 January 2019

A reduction in EU funding is hitting small and mid-sized enterprises in the UK, according to research from a UK accounting and advisory firm. Grants to British firms from the European Development Fund have fallen by 20% in the last year.

Factoring in a £5.6 billion rebate in 2017, the UK Government paid £13 billion to the EU budget. Each year, following this payment, the Government then gets some of that money back. In 2017 that was forecast to be £4 billion, meaning UK’s ‘net contribution’ was estimated at nearly £9 billion. Each year the money sent back is spent on things the Government may or may not choose to fund upon leaving the EU, including payments to farmers and for poorer areas of the country such as Wales and Cornwall, as well as grants to small and mid-sized enterprises (SMEs).

Grants from the EU are financial contributions to projects from the EU budget or the European Development Fund. These are given to specific projects related to EU policy goals, and usually follow a ‘call for proposals’ which external organisations then bid for. Areas which are known to receive such funding include agriculture, climate action, digital society and economy, migration and maritime affairs. While the possibility remains that these areas will continue to receive state funding while cutting out the ‘middle man’ of the EU, many fear the opposite will become the case.EU cut direct grants to UK firms by 20% in the run up to Brexit

Among the opponents of the UK’s divorce from the EU, there has been some consternation that these funds will dry up post-Brexit, leaving many of Britain’s brightest new businesses starved of vital assets. Now, according to professional services firm UHY Hacker Young, that forecast is already coming to pass, with the firm contending that the value of grants given directly by the EU to UK organisations has already dropped by 20%, falling from €1.94 billion in 2016 to €1.55 billion in 2017.

UHY added that other EU member states have seen marked increases in grants over the same period, with EU grants to Germany increasing by 20% from €1.41 billion to €1.93 billion, and grants to France increasing by 16% from €1.32 billion to €1.53 billion. EU grant funding secured by UK organisations is meanwhile guaranteed until the end of 2020; however, it is not anticipated that any EU grant funding will be available to UK businesses once Brexit is complete, possibly leaving them without vital funds to put towards research and development.

Andrew Hulse, a Partner in UHY’s Sheffield office, said, “We all knew that EU grant funding to the UK was likely to be cut after Brexit, but it appears the EU got a two-year head start on the process. UK businesses are already missing out on hundreds of millions of euros in funding. The Government needs to recognise this shortfall and urgently put in place targeted grants appropriate to the needs of businesses and particularly SMEs where this funding often has the greatest impact.”

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UK manufacturing sees orders slow amid Brexit anxiety

11 April 2019

Manufacturing in the UK saw negative growth for the end of 2018, reflecting a wider slowdown in the UK economy to 0.2% for the quarter, followed by three months at the start of 2019 which saw continued softening in orders. With uncertainty still hitting the sector ahead of Brexit’s deferred deadline, the industry faces a difficult 2019.

Despite a perpetually changing economic landscape, manufacturing remains a keystone industry in the UK. Optimism in the industry has been riding high in recent years, reflecting the perceived potential of automotive technologies, but last year saw a slight dip in business performance, ahead of what seems set to be a turbulent period for British manufacturing. Ordinarily, the sector might have expected to recover its footing relatively quickly, but with the looming spectre of Brexit making the economy’s future completely uncertain, this has not been the case.

The uncertainties of Brexit have continued to create headaches for companies on both sides of the channel. As contingency planning continues, new analysis from BDO and the Make UK explores how manufacturing – a segment likely to be hard hit by Brexit – has fared in the final quarter of 2018.

Output balance stable

Manufacturing remains a key industry in the UK, generating around 10% of total economic output and supporting around 2.7 million jobs. Yet while the industry has seen a number of years of strong optimism as well as demand, Brexit is set to throw a spanner in the works, with a range of manufacturing companies leaving the UK, or considering it. Indeed, UK manufacturing’s output currently sits at a 15-month low as the industry anticipates a cliff edge Brexit.

In terms of growth for various parts of the UK economy, a slowdown was noted in the final quarter of 2018 compared to Q4 2017. Manufacturing, in particular, saw growth declines coming in at almost -1%, with a similar trend in production. Construction saw a sharp contraction, falling 2 percentage points to below 0% growth in December 2018. Only services managed to have positive % growth in the final quarter. The final quarter as a whole saw growth of 0.2% in the UK economy – the lowest level in six years.

Output across most sectors in the industry remains positive, with the percentage balance of change in output at 22%. The result is the tension quarter of positive percentage balance of change, with stagnation on the final quarter of 2018. The firm is projecting a slight softening of output going into Q2 2019. The firm notes that there is some stockpiling taking place, with orders and outputs unaligned going into 2019.

Order balance remains positive but dips further

While there is a broadly positive picture for output, the firm does note considerable differences between subsectors. Basic metals for instance, saw a net 24% fall to -18% over the past three months. Metal production is also seeing relatively poor performance as demand from the automotive industry enters a period of acute uncertainty. However, most industries are to see improved output on balance, with rubber & plastic increasing from a net 11% to net 56%.

Export trade

Having been buoyed by the lowered value of the pound, UK export orders are up slightly on the previous quarter, but remain well below the most recent peak in Q3 2018. Domestic orders were relatively strong, with a year between the most recent peaks for the segment. However, Q2 2019 looks to see domestic orders fall sharply, to half Q1’s result, while export orders too are set to see declines.

The decline reflects a decrease in basic metals, possibly a reflection of changes affecting the auto industry. Meanwhile, export orders are down due to Brexit cross-border uncertainty – the effect of the sterling devaluation unable to continue to buoy the market. Basic metals and metal products are both in negative territory for the coming three months.

Investment and employment intentions

UK employment figures reached new milestones, with total unemployment down to 3.9% while participation rates hit record highs. Employment planning continues to be in net positive territory, with a net positive balance of 22% in Q1 2019. The coming months are projected to see a slight dip, again, largely resultant from uncertainties around Brexit. Basic metals is the sector most likely to see a negative trend, reflecting the expected decline in orders.

Investment intentions meanwhile continue to be in positive territory. However, again, the now acute uncertainty about Brexit – the UK government has boxed itself into a corner – mean that confidence around investment could wane rapidly.

Commenting on the wider economy, Peter Hemington, a Partner at BDO, said, “Manufacturing firms have been ramping up their preparations for a disorderly Brexit, in large part through the stockpiling of imported goods. This has had the effect of inflating activity levels… It’s too late to do anything about this now.  But a disorderly Brexit would be far worse than the current relatively mild slowdown, possibly disastrously so… We are concerned it looks more likely than ever that we will exit the EU without a deal.”