CONSUMERS could face a “substantial impact” on the price of food because of Brexit with the poorest households suffering the most, according to an influential think-tank.
In a new analysis, the Institute for Fiscal Studies (IFS) warned that uncertainties over tariffs and the value of sterling leave households facing “considerable and unpredictable changes in food prices, with the poorest households much more exposed to this risk”.
Its authors Peter Levell, Martin O’Connell and Kate Smith said that around a third (30 per cent) of the value of food bought by households in the UK is imported, and the major source of food imports is the EU.
They added that only 17 per cent of overall consumer spending is on imported goods, which means that changes in the costs of imports – for example, through changes to tariffs or movements in exchange rates – were likely to have a particularly big impact on food prices.
Devaluation of sterling has already inflated cost prices for food manufacturers, and leaving the EU could add more to the woes of the retail industry if importers were forced to pay hefty duties on products.
Their report said that leaving the EU without a trade deal would mean switching to the World Trade Organisation’s tariff system, which would result in higher tariffs on goods imported from the EU. But they warned that these rates alone would not determine the price changes of particular products.
The EU also applies charges that alter depending upon a threshold level of imports of a particular product. “Tariffs can affect the costs of food products directly and indirectly,” said the authors. “The direct effect is on food products that are imported into the UK and sold directly to consumers. However, there is often also an indirect effect on costs if UK food manufacturers import intermediate goods for us in manufacturing.”
They said the indirect effects of tariffs made it very difficult to assess how prices would change following Brexit.
Neither was it known the extent to which these price increases will be passed on to supermarkets, and eventually, consumers.
Staying in the single market and the customs union after Brexit would keep tariffs stable, but the Tories have said Britain will leave both.
“There is a great deal of uncertainty over what the nature of the UK’s post-Brexit trading arrangements will be,” said the IFS study.
“Decisions over post-Brexit membership of the single market and participation in the customs union will have profound effects on the price and import mix of the foods on UK supermarket shelves.
“It is also unclear whether sterling will depreciate further – or appreciate – as Brexit proceeds.
“These uncertainties over tariffs and the exchange rate mean that UK households are potentially going to be affected by considerable and unpredictable changes in food prices, with the poorest households much more exposed to this risk than the richest households.”
SNP MSP Stuart McMillan said: “This is just the latest evidence of the needless damage that will be caused if the UK leaves the single market.
“Nobody voted for the price of food to go up – but that’s exactly what’s risked by Theresa May and Jeremy Corbyn’s plans for a hard Brexit, and the poorest households will suffer the most.”
He added: “There is no majority in the House of Commons for the Tories’ extreme Brexit without Labour’s support – Labour can help stop it, but instead they are arguing themselves into supporting a harder Brexit than the Tories.”
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