No-Deal Brexit? Here's the Impact of Tariffs on Your Weekly Shop
Food is already a significant cost for most Brits, consuming 10% of the average UK household budget. If there's a no-deal Brexit, as seems increasingly likely, the cost of each household's weekly shopping will surely rise due to tariffs—but by how much?
In order to determine how prices might rise for the weekly food shop, we've done some back-of-the-envelope calculations to estimate no-deal tariffs on the average basket of food and beverages for UK households according to the most recent ONS and WTO data. To learn more about the data and our calculations and assumptions, please see the Methodology section below.
- No-deal tariffs on the average weekly food shop
- Estimated food & drink tariffs depending on your weekly budget
No-Deal Tariff Consequences on Average UK Food Spending
The results showed that tariffs you pay on food and drink each year could cost as much as 2 weeks worth of your household grocery shopping, regardless of the amount you typically spend. UK households with average spending may need to budget an additional £132 per year due to tariffs on food and drink shopping and £78 per year on takeaways and restaurants—or £210 in total for the year.
Weekly Shop
The average UK household (spending £66 per week on groceries, including drinks) could pay an extra £132 per year due to tariffs on their food and beverage shopping. As a consequence of tariffs, UK households could pay 3.8% more to eat at home, raising the cost of the average weekly shop from £66 to £68.54—an increase of £2.54 per week. The biggest impacts to our wallets would come from dairy, beverages and meat as you can see in the table below.
| Average Weekly Household Shop | Imported from EU | Wholesale Costs of EU Imports | Average Tariff (%) | Tariff (£) | ||
|---|---|---|---|---|---|---|
| 30% | less 25% retail margin | per week | per year | |||
| Dairy | £7.90 | £2.37 | £1.78 | 35.4% | £0.63 | £32.72 |
| Beverages | £11.40 | £3.42 | £2.57 | 19.6% | £0.50 | £26.14 |
| Meat | £12.40 | £3.72 | £2.79 | 15.7% | £0.44 | £22.78 |
| Fruits and Vegetables | £13.30 | £3.99 | £2.99 | 10.5% | £0.31 | £16.34 |
| Cereals | £10.00 | £3.00 | £2.25 | 12.8% | £0.29 | £14.98 |
| Sugars and confectionery | £4.60 | £1.38 | £1.04 | 23.6% | £0.24 | £12.70 |
| Fish | £2.70 | £0.81 | £0.61 | 12.0% | £0.07 | £3.79 |
| Coffee and Tea | £3.40 | £1.02 | £0.77 | 6.1% | £0.05 | £2.43 |
| Fats and oils | £0.30 | £0.09 | £0.07 | 5.6% | £0.00 | £0.20 |
| Total | £66 | £19.80 | £14.85 | £2.54 | £132.07 | |
Takeaways and Restaurants
According to the ONS Family Spending report, in 2017 UK households spent £31 on food and £7.90 on drinks outside the home, per week. For a rough approximation we applied the same import, profit margin and tariff rates to food and drink purchased outside the home, calculating that UK households could spend an extra £1.50 per week or £78 per year on food and drink at restaurants and on takeaways due to pass-through tariffs.
Tariffs for Different Levels of Spending
Depending on the size of your budget, you may spend more or less than the "average" household spends on food and drink in total. To consider the impact of tariffs for different budgets, we've estimated the results for a range of food and drink spending from £50 to £200 per week. Roughly speaking, for every £50 you spend on food and drink each week, expect to pay around £100 extra due to tariffs each year.
| Annual Tariffs by Weekly Food & Beverage Spend | £50pw | £66pw | £100pw | £150pw | £200pw |
|---|---|---|---|---|---|
| Dairy | £24.79 | £32.72 | £49.58 | £74.36 | £99.15 |
| Beverages | £19.80 | £26.14 | £39.61 | £59.41 | £79.22 |
| Meat | £17.26 | £22.78 | £34.51 | £51.77 | £69.02 |
| Fruits and Vegetables | £12.38 | £16.34 | £24.76 | £37.13 | £49.51 |
| Cereals | £11.35 | £14.98 | £22.69 | £34.04 | £45.38 |
| Sugars and confectionery | £9.62 | £12.70 | £19.24 | £28.87 | £38.49 |
| Fish | £2.87 | £3.79 | £5.74 | £8.62 | £11.49 |
| Coffee and Tea | £1.84 | £2.43 | £3.68 | £5.51 | £7.35 |
| Fats and oils | £0.15 | £0.20 | £0.30 | £0.45 | £0.60 |
| Total Annual Tariff Estimate | £100 | £132 | £200 | £300 | £400 |
How do Tariffs Result in Higher Food Prices?
The UK imports 30% of the food we consume from the EU. In the event of a no-deal Brexit with no trade deal, tariffs will be owed on these imported food items, ultimately increasing costs for the average UK consumer. Here's why.
A company that imports any good from abroad may be required to pay a tariff to the UK government based on the value (and sometimes the weight) of the imported goods. Companies along the supply chain may then pass the tariff costs along to customers through higher prices, making goods more expensive to buy.
How Long Will We Pay Tariffs?
Tariffs will affect imports to the UK if there is no trade deal in place by the 29 March 2019 Brexit date (and no transitional agreement to cover the time between leaving the EU and the implementation of a new trade deal). In that case trade will be bound by World Trade Organization (WTO) terms and imports to the UK will be subject to "Most Favoured Nation (MFN)" tariffs.
While the government has stated its desire to enter into a Free Trade Agreement with the EU, these deals can take years to negotiate. For example, negotiations for the EU-Canada trade deal (CETA) took from May 2009 until August 2014, at which point the process of translating the final text into 24 European languages and ratification by each individual 28 EU member state began. CETA was not provisionally applied until September 2017, more than eight years after negotiations began, and ratification has still not completed.
While we can't predict the time frame for future trade agreement negotiations, with the UK due to leave the EU in less than three months it seems at highly likely that our imports will be taxed under WTO rules for a time. Our analysis is meant to determine the potential impact of MFN tariffs on the average UK household's food budget, should this be the case.
For more information on how WTO trading systems work, please see the WTO website or this helpful beginner's guide to tariffs and the WTO.
Methodology
To determine how a no-deal Brexit might impact food prices, we estimated potential tariffs on the average basket of food and drink bought by UK households. Specifically, we applied WTO Most Favoured Nation tariffs for the European Union to data on weekly household food and drink spending from the Office of National Statistics. Given 30% of food consumed in the UK is imported from the EU, according to the Food Statistics in your pocket 2017 study, we then applied the tariffs to 30% of all food and drink purchased in the UK.
Assumptions and Limitations
Given the complicated nature of tariffs and trade, we made a number of assumptions to help calculate our ballpark figures. For instance, data from Gov.uk showed that 30% of UK food consumption is imported from the EU. We assumed that each individual category of food has the same 30% rate, when in fact the import rate could vary by type of food. Additionally, we have assumed that retailers added a 25% profit margin to their import costs, which we removed in order to apply tariffs to a wholesale amount.
Accurately predicting future food costs would be nearly impossible considering a number of unknown factors. For instance, no one knows how companies in the supply chain may or may not pass on the full tariffs to consumers. Also, we can't know how underlying domestic or imported food prices might change, for instance due to changes in supply and demand both at home and abroad. And if the pound depreciates further then imported food will cost even more.
The back-of-the-envelope calculations in this article are meant to give consumers a rough idea of what to expect regarding potential changes to food prices due to tariffs in the event of a no-deal Brexit, to help them prepare for what lies ahead.