Brexit: trade in goods Contents

Chapter 2: UK production of goods

Goods and services

11.The term ‘goods’ is rarely used in the context of the domestic economy, but is an important category in trade. Both manufactured products and primary commodities are goods.

12.In the context of trade, exports and imports are commonly divided into ‘goods’ and ‘services’. These categories are subject to different legal obligations under world trade law. Within the WTO, trade in goods is primarily regulated by the General Agreement on Tariffs and Trade (GATT), while measures relating to trade in services are largely subject to the General Agreement on Trade in Services (GATS).21

13.The division between ‘goods’ and ‘services’ is considered in Box 1 below. While recognising that some overlap between goods and accompanying services occurs, our report focuses primarily on goods, reflecting the fact that ‘bundled’ services are inherently reliant on the production of the underlying goods.

Box 1: Dividing goods and services

Although the GATT and GATS do not define ‘goods’ and ‘services’, world trade law draws a deceptively clear line between the two concepts. Generally ‘goods’ are tradable tangible items, while services are intangible.22

Despite this legal distinction, in practice goods and services are often combined. For example, the WTO Appellate Body stated in 1997 that a periodical (such as a newspaper) “is a good comprised of two components: editorial content and advertising content. Both components can be viewed as having services attributes, but they combine to form a physical product—the periodical itself.”23 Services also often play an important role in the production of goods.

Services are also increasingly often ‘bundled’ with goods. The Government Office for Science report cited a 2011 study which found that 39% of UK manufacturers with over 100 employees derived value from services related to their products. It suggested that future sources of revenue for manufacturers would include: the increasingly extensive packaging of services with products; capturing value by selling technological knowledge and leaving production to others; and ‘remanufacturing’ used goods.24

Mr Fergus McReynolds, Director of EU Affairs, EEF—The Manufacturers’ Organisation (EEF), agreed that “goods plus services models” were becoming more prevalent.25

In evidence to the EU Financial Affairs Sub-Committee, Ms Lowri Khan, Director of Financial Stability, HM Treasury, explained that “industry does not segment itself neatly into the buckets that policy necessarily does”. She gave an example:

“There is quite a lot of interdependency between some of the industrial sectors and the financial sector. To take motor manufacturing as an example, the German motor manufacturers have very large finance companies attached to them, so these issues will inevitably come together.”26

Services can account for a significant amount of the value of goods. For example, the Office for National Statistics (ONS) noted that in 2011, 37.1% of the total value of UK manufactured goods exports “reflected services sector value-added”.27 Services can also play an important role in driving demand for the physical goods to which they relate. Similarly, the services industry benefits from bundling with goods. Mr James Selka, Chief Executive Officer, Manufacturing Technologies Association, told us: “We are very much a services-based industry which is wrapped around hardware … we have UK-based importers that re-export after adding value through a service-based offering.”28

It is not easy to quantify the value of add-on services provided by manufacturers, as not all manufacturing firms report service revenue separately, and there is no requirement for them to do so.29

14.In discussion of the domestic economy, goods are divided into manufactured products and primary commodities. The term ‘manufacturing’ is used to encompass the production of goods in a wide range of sectors including food and beverages, aerospace, machinery, automotive, chemicals, pharmaceuticals, and metals.30 Primary commodities include raw materials, such as oil and metals, and unprocessed food (agriculture and fish). The production of manufactured goods is often closely interlinked with primary commodities, for example in the refining of crude oil into petroleum products or agricultural goods into processed food.

Manufacturing in the UK

15.A 2013 report by the Government Office for Science, Future of manufacturing: a new era of opportunity and challenge for the UK—summary report, noted that “in recent years, the relative share of manufacturing in the UK economy has declined more rapidly than in other developed economies … while the service sector has grown at a faster rate”.31 The gross value added (GVA)32 of manufacturing to the UK economy was 9.77% in 2015.33 This compared to 22.81% for Germany,34 15.79% for Italy,35 11.23% for France,36 12.33% for the US,37 and an EU average of 15.7%.38 Figure 1 below shows the GVA of manufacturing in the UK and EU from 2000–2015.

Figure 1: GVA of manufacturing to the UK and EU economy as percentage of GDP 2000–2015

Column chart

Source: World Bank, ‘Manufacturing, value added (% of GDP)’: http://data.worldbank.org/indicator/NV.IND.MANF.ZS?end=2015&locations=EU-GB&start=2000&view=chart [accessed 23 February 2017]

16.Although manufacturing has declined relative to the services sector, and has been slow to recover from the 2008–09 downturn,39 the Government Office for Science noted that “there are … many outstanding individual firms, and some important areas of relatively strong performance for manufacturing as a whole”.40 There has been a long term shift towards higher value-added and finished goods production in UK manufacturing, and an increase in export intensity (manufacturing exports as a proportion of manufacturing output).41 For example, the UK’s manufacturing export intensity rose from around 30% in 1991 to around 47% in 2011.42

17.The Government Office for Science report found that “‘deindustrialisation’ has also applied to UK manufacturing employment”.43 From the 1840s until the 1960s, manufacturing employed over a third of the UK’s working population.44 Between June 1978 and June 2016, jobs accounted for by the manufacturing, mining and quarrying sectors fell from 26.3% to 8.0%, while the services sector’s share increased from 63.2% to 83.2%.45

18.Nonetheless, manufacturing continues to be an important employer. EEF estimated that there were 2.7 million people employed in manufacturing in the UK.46 These jobs are often in regions where there are few alternative sources of employment. Mr Steve Elliott, Chief Executive Officer, Chemical Industries Association (CIA), noted that the chemicals and pharmaceuticals sectors, for example, “provide high-quality jobs in parts of the country that, frankly, need those jobs: for example, north of the M62”.47 The UK Trade Policy Observatory also highlighted regional variety in the areas where goods (both primary commodities and manufacturing) are produced: for example the upstream oil industry is highly significant to jobs and the economy in Scotland (and to Government revenue), while the Midlands depends more on engineering.48

19.Figure 2 shows the share of employment in manufacturing by region, calculated by location quotients.49 Location quotients compare each region’s share of employees in a specific industry with its local share of total employees.50 A location quotient greater than 1.0 indicates a relative concentration of the manufacturing industry in the geographic area.51

Figure 2: Manufacturing location quotients

Bar chart

Source: ONS, ‘Manufacturing location quotients’: unpublished data. Data drawn from ONS, ‘Business Register and Employment Survey/Annual Business Inquiry’: https://www.nomisweb.co.uk/query/select/getdatasetbytheme.asp?theme=27 [accessed 1 March 2017]

20.Manufacturing activity in the UK also supports jobs in the services sector, reflecting the close connection between the manufacturing of goods and the provision of services. Professor Peter Wells, Professor of Business and Sustainability, Cardiff Business School, told us that “there are many more jobs in automotive retailing, service, maintenance and support than there are in manufacturing”.52 The Society of Motor Manufacturers and Traders (SMMT) provided us with figures: the automotive sector accounted for “814,000 jobs across industry”, of which 169,000 were employed directly in manufacturing.53

21.EEF noted that manufacturing was also an important source of investment in the UK. Manufacturers accounted for 14% of all business investment in the UK, and 68% of all business expenditure on research and development.54 For example, we were told that the pharmaceuticals and chemicals sector contributed “around £5 billion a year on R&D”.55 The sectors also contributed to “investments in collaborations with our key universities and investment in significant programmes of [scientific] exploration”.56

Sectors considered in this report

22.Lord Bridges of Headley MBE, Parliamentary Under-Secretary of State, Department for Exiting the EU, and Lord Price CVO, Minister of State, Department for International Trade, told us that the Government was analysing 58 sectors of the economy.57 Within the scope of our inquiry, it was not possible to take evidence from such a wide range of economic sectors. We focused instead on six large and varied sectors:

We used these sectors to illustrate the potential impact of changes to the UK’s trading relationship with the EU on trade in goods. We also drew on our report, Brexit: the options for trade, which analysed the possible frameworks for UK-EU trade in both goods and services—namely membership of the European Economic Area (EEA), a customs union with the EU, a free trade agreement with the EU, and trade under World Trade Organisation rules.58 But given that the Prime Minister has now ruled out membership of the EEA or the customs union, our focus has been on the last two frameworks.59

23.Mr Luis González García, Associate Member, Matrix Chambers, told us that there was “a lot of creativity in the negotiation of an FTA.”60 FTAs typically set lower tariffs than the most favoured nation (MFN)61 rate agreed at the WTO, and most agreements include provisions relating to “agricultural and industrial goods, rules of origin, customs procedures, customs facilitation and co-operation”.62 Traditionally they are more significant to trade in goods than trade in services. FTAs have become increasingly complex, however, tackling a variety of issues from quotas on imported goods to intellectual property, investment protection, cross-border services, labour conditions and mobility.63 The most advanced agreements also include elements of regulatory co-operation.64

24.The six sectors were selected to provide an insight into the principal issues relating to goods trade that the Government must address in its Brexit negotiations. As the figures below demonstrate, the six sectors are significant exporters and importers, and represent both manufactured products and primary commodities.

25.The scope of each sector for the purposes of our inquiry is outlined below. We note that the available statistics in some cases cover either a broader or narrower industry segment, or incorporate a slightly different set of data points. Our inquiry did not seek to gather new data relating to the sectors investigated; rather, figures for each sector were provided by our witnesses and by the Office for National Statistics and other publicly available sources. For this reason, the figures used in this report are only indicative, and we acknowledge that some double counting or overlap is possible.

Pharmaceuticals and chemicals

26.The pharmaceuticals and chemicals sector comprises companies which produce medicines and conduct clinical research, the manufacturing base for active pharmaceutical ingredients, and chemicals manufacturing.65

27. In 2015, the UK’s total exports of the sector were worth £51.2 billion (£26.1 billion for chemicals and £25.1 billion for pharmaceuticals). In the same year, the UK’s total imports in the sector were worth £50.6 billion (£24.2 billion for chemicals and £26.4 billion for pharmaceuticals).66

28.The yearly average of employment in chemicals was 102,000 in 2015.67 The Association of the British Pharmaceutical Industry’s new Biopharma R&D Sourcebook 2016 cited 62,000 jobs as its “best approximation of employment in the pharmaceutical industry” in 2015.68

Capital goods and machinery

29.Capital goods are durable goods that are used in producing other goods and services.69 The capital goods and machinery sector includes a wide range of industries working in manufacturing. Capital goods include machinery, tools and other equipment used to produce goods for consumption—for example excavators, forklift trucks, generators, metal-forming and metal-working machines.70

30.A number of sectors, notably automotive, include their supply chains in sector statistics. There is considerable potential for overlap between the supply chains of capital goods and machinery sector and other industry sectors in this report.

31.The UK exported capital goods worth £36.7 billion in 2015. Imports of capital goods were worth £57.2 billion in the same period.71

Food and beverages

32.The ‘food and beverages’ sector for the purposes of this report includes manufactured food, agricultural goods, and non-alcoholic beverages. The broader issues affecting the UK agricultural sector after Brexit are the subject of an inquiry by our Energy and Environment Sub-Committee, and we published a report, Brexit: fisheries, which considered the UK fishing industry—including trade aspects—on 17 December 2016.72

33.Annual exports of food and non-alcoholic drinks (including manufactured goods and processed and unprocessed ingredients) were worth £12.3 billion in 2015. Imports of food and non-alcoholic drinks amounted to £35.1 billion in the same period.73

34.Food and drink manufacturing employs around 400,000 people,74 and agriculture employs 476,000 people (this figure comprises 115,000 regular employees, 67,000 seasonal, casual and gang workers, and 294,000 farmers, business partners, directors and their spouses).75

Oil and petroleum

35.The oil and petroleum industry comprises the upstream and downstream sectors. The upstream sector identifies oil deposits and extracts these resources from underground, and the downstream sector refines crude oil (producing gasoline, fuel oils and petroleum-based products) and markets it to retailers and other end users.76

36.Oil exports were worth £21 billion in 2015 and imports were worth £29.3 billion.77

37.Just over 330,000 jobs in the UK are delivered through or supported by oil and gas production (the upstream sector),78 and the downstream sector supports the employment of 88,100 people, directly and indirectly.79

Automotive

38.The UK automotive sector comprises manufacturers of mainstream cars,80 buses and coaches, premium and sports cars, and commercial vehicles, as well as design centres and R&D centres.

39. In 2015, the sector exported products worth £34.3 billion, and imports were worth £52.1 billion.81 169,000 people are employed directly in automotive manufacturing, and another 645,000 work across the wider automotive industry.82

Aerospace and defence

40.For the purposes of this report, ‘aerospace and defence’ covers the interrelated sectors of aerospace, defence, and space. This includes the production of complex aerospace parts—such as aeroengines, fuselages and landing gear—defence equipment, and the space industry.

41.The industries’ combined exports were worth an estimated £33.1billion in 2015.83 Import figures are not available for the defence sector, but imports of air, spacecraft and related machinery were worth £19.8 billion in 2015.84 The sector directly employs 264,000 people in the UK.85

The competitiveness of the UK economy after Brexit

42.While the focus of our inquiry was the trade in goods between the UK and the EU, two non-trade issues with a direct impact on the competitiveness of the UK economy were highlighted by our witnesses: the availability of workers and research co-operation and funding.

43.The issue of UK-EU movement of people was the subject of our report Brexit: UK-EU movement of people, which considered the possible arrangements for migration of EU citizens to the UK, and their potential implications for UK citizens moving to the EU, after Brexit.86 The issue of research and science funding was considered in the reports of the Science and Technology Committee EU Membership and UK Science and A time for boldness: EU membership and UK science after the referendum.87

44.Provisions relating to the movement of people and research co-operation and funding are regularly included in FTAs. We briefly discuss these two issues below, before considering issues specifically pertaining to trade.

Availability of workers

45.Our witnesses emphasised that, for every sector, the ability to recruit the appropriate staff is critical to that industry’s success. They highlighted two issues: the ability to recruit staff to roles in the UK, and to move workers between EU countries.

Recruit staff to roles in the UK

46.We heard that it was not possible to fill all vacancies with UK workers. Mr Mike Hawes, Chief Executive Officer, SMMT, said that “all the companies will invariably try to recruit locally; it makes eminent sense to do so, and that will continue. However, you cannot always recruit locally.”88

47.The first challenge identified by witnesses was the skills shortage in science, technology, engineering, maths and design in the UK.89 This shortage was currently addressed by recruitment from overseas,90 and freedom of movement rules allowed companies to employ EU workers more easily than those from countries outside the EU.91 Norton Rose Fulbright LLP, a law firm with a large oil and gas practice, expressed concern that ending UK-EU free movement of people could result in a “complex, time consuming and expensive visa process with caps on numbers”.92

48.The Chemical Industries Association noted that, were restrictions to be placed on hiring EU nationals, UK capabilities could not be increased in the short term: “It is not possible to substitute 20 years of specialist knowledge in an obscure chemical discipline with a local training scheme.”93

49.Witnesses also highlighted the disproportionate impact of restrictions on the movement of people on smaller companies. Norton Rose Fulbright LLP told us that, in the oil sector, maintaining a licence to sponsor work visas would be too expensive for start-ups and SMEs, which have only small personnel departments. This meant that “a proportionately heavier burden would fall on them”.94 Mr Hawes noted that small companies within the automotive supply chain “have as much need” for specialist skills as large firms such as Nissan, but already find it “much harder to recruit”. Such companies were seeking “assurances that the non-UK nationals they currently have can remain and that they can continue to attract talent from abroad”.95

50.A second challenge was access to “relatively lower-skilled labour” in the form of “both permanent and seasonal migrant workers”.96 Professor Tim Lang, Founder, Centre for Food Policy, City, University of London, told us that “you would not get any fresh British vegetables or fruit if it were not for migrant labour”, and “there would be no food manufacturing”.97 The Agriculture and Horticulture Development Board (AHDB) informed us that “it is not unreasonable to view … EU nationals as accounting for around 20% of the 115,000 regular employees in the [agricultural] sector”.98 In addition, it was “clear that EU migrants are likely to be filling the majority” of seasonal migrant labour roles for that sector, although accurate data were not captured.99 The Food and Drink Federation (FDF) estimated a higher rate still for the food and drink manufacturing workforce: 29% were non-UK EU nationals—almost 116,000 workers.100

51.The AHDB said that EU workers would be “an important factor influencing the competitiveness of the agricultural industry … post-Brexit”.101 While restrictions on free movement of people would “push up wages to attract UK workers”, this would “increase costs of production resulting in product being uncompetitive on domestic and export markets”.102

52.While access to lower skilled labour is a particular issue for the food and beverages sector, Professor John Manners-Bell, Chief Executive, Transport Intelligence Ltd, told us that the challenge was not limited to that sector: “At the moment, the logistics and supply chain sector is powered by employees who are largely migrants who come in from eastern Europe.” These included van drivers and staff at warehouses and distribution centres supporting a range of sectors including e-commerce: “If that huge supply were to dry up it could really push up costs, and that would make UK manufacturing and retailing uncompetitive.”103

Intra-group transfers of staff between EU countries

53.Many firms routinely move employees across the EU between the different locations in which they operate.104 The reasons for such movement include project work (such as installing a product, or providing a related service) and seconding or transferring staff to different company locations.

54.Given that manufacturers increasingly provide add-on services, wrapped around their products, Mr McReynolds told us that “the free movement of individuals into the EU [27] to carry out those service activities” was important.105 The Manufacturing Technologies Association emphasised the importance of “the movement of people and expertise to facilitate working on international contracts and projects,”106 a point also made by Mr Simon Whalley, Head of External Affairs, Royal Aeronautical Society, and the SMMT.107

55.Mr Chris Hunt, Director General and Company Secretary, UK Petroleum Industry Association (UKPIA), gave us an example of the importance of moving staff between the UK and other EU Member States in the downstream sector:

“We move between 1,000 and 1,500 people from the UK into Europe and back again each year. There are around 82 locations throughout Europe which are affiliated to UKPIA members and where they have offices and plants. We move highly skilled people around through the processing we do, which is highly technical, so that is key to us.”108

56.Our witnesses also emphasised the importance of moving staff to the development and retention of skilled employees. The CIA told us that larger companies needed to move staff between locations “for career progression and ensuring the best people are in the right jobs”.109

Research collaboration and funding

57.Engagement between universities and businesses, in many cases facilitated by EU funding, is also important to the success of the UK’s manufacturing industry. Meggitt PLC, which provides components and sub-systems for the aerospace, defence and energy markets, told us that the EU was “an important source of funding for research and development” within the aerospace and defence sector.110 Mr Whalley agreed: given the “limited amount of funding available from national government compared with what is available from the European Union”, such funding resulted in a “higher quality of outcome than necessarily achievable within only national programmes”.111 In the automotive sector too, “significant levels of EU funding” had the effect of “boosting UK automotive innovation”.112 Mr Whalley told us that while the Government’s guarantee of funding for EU-funded projects until 2020 had been welcome, concerns remained in industry and academia about the longer term outlook.113

58.Dr Virginia Acha, Executive Director of Research, Medical and Innovation, Association of the British Pharmaceutical Industry, said that while “having predictable funding” mattered, collaboration was just as important: “It is not just about the money; it is about the networks in which these researchers are able to participate.”114 The Association of Manufacturers of Domestic Appliances (AMDEA) similarly told us that the collaboration between UK and other EU universities through EU funding created “competence centres that are beneficial for both EU and UK industries”.115 Such collaboration on research and development was also highlighted by the automotive industry.116

The Government’s industrial strategy

59.The Government’s Green Paper, Building our industrial strategy,117 went some way to addressing the concerns we have outlined. It included “science, research and innovation” and “skills” as two of its 10 priorities. “Trade and investment” was a third heading, including the commitment to “pursue, as a priority, a bold and ambitious free trade agreement with the European Union”. We note, however, that there was no mention of a new immigration policy or measures to enable the movement of staff overseas post-Brexit.

Conclusions and recommendations

60.International businesses are not structured neatly along sectoral lines or national boundaries. The Government must be mindful of the complex structure of businesses, particularly multi-national companies, in its analysis of the impact of Brexit.

61.The manufacturing and primary commodities sectors are important employers, particularly in regions outside the South East of England. Ensuring that these industries do not face additional barriers to trade with the EU and beyond will be essential to drive growth across the whole country, as envisaged in the Government’s Green Paper, Building our Industrial Strategy.

62.Although concentrated in different regions, the production of goods and services is often intertwined. A worsening of trade conditions for goods could therefore have a negative impact on employment in supporting services industries across the country. The Government must seek a trade agreement with the EU which recognises this interlinkage, and secures the best possible terms for both.

63.A new UK approach to immigration must take account of the needs of businesses in the UK. The ability to recruit staff from the EU-27, and move staff to and from the EU-27 through intra-group transfers, is essential to the primary commodities and manufacturing industries. The Government must ensure that its post-Brexit immigration policy allows this.

64.We call on the Government also to clarify that the UK’s existing level of research funding and collaboration with the EU-27 will continue, or that equivalent domestic arrangements will be established, after the UK’s withdrawal from the EU.


21 There are a number of additional WTO agreements which also affect trade in goods and services. WTO, ‘Legal texts: the WTO agreements’: https://www.wto.org/english/docs_e/legal_e/final_e.htm [accessed 9 February 2017]

22 Diana Zacharias, ‘Article I GATS’ in WTO–Trade in Services by Rüdiger Wolfrum, Peter-Tobias Stoll and Clemens Feinäugle (eds), (Leiden: Brill, 2008)

23 WTO, Appellate Body, Canada—certain measures concerning periodicals (WT/DS31/AB/R) (30 June 1997), p 17: https://docs.wto.org/dol2fe/Pages/FE_Search/FE_S_S006.aspx?Query=(%40Symbol
%3d+wt%2fds31%2fab%2fr*+not+rw*)&Language=ENGLISH&Context=FomerScriptedSearch&languageUIChanged=true#
[accessed 9 February 2017]

24 Government Office for Science, Future of manufacturing: a new era of opportunity and challenge for the UK—summary report (October 2013), p 16: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/255923/13-810-future-manufacturing-summary-report.pdf [accessed 9 February 2017]

26 Oral evidence taken before the EU Financial Affairs Sub-Committee, 9 October 2016 (Session 2016–17), 61

27 Written evidence submitted to the EU Internal Market Sub-Committee, 5 December 2016 (Session 2016–17) TAS0064 (Office for National Statistics)

29 Government Office for Science, Future of manufacturing: a new era of opportunity and challenge for the UKsummary report (October 2013), p 16: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/255923/13-810-future-manufacturing-summary-report.pdf [accessed 9 February 2017]

30 EEF—The Manufacturers’ Organisation (EEF), UK manufacturing 2016/17, the facts: https://www.eef.org.uk/campaigning/campaigns-and-issues/manufacturing-facts-and-figures [accessed 9 February 2017] and Government Office for Science, Future of manufacturing: a new era of opportunity and challenge for the UKsummary report (October 2013): https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/255923/13-810-future-manufacturing-summary-report.pdf [accessed 9 February 2017]

31 Government Office for Science, Future of manufacturing: a new era of opportunity and challenge for the UKsummary report (October 2013), p 14: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/255923/13-810-future-manufacturing-summary-report.pdf [accessed 9 February 2017]

32 Gross value added (GVA) measures the contribution to an economy of an individual producer, industry, sector or region. It is used in the calculation of gross domestic product (GDP). GDP is commonly estimated using one of three theoretical approaches: production, income or expenditure. When using production or income approaches, the contribution to an economy of a particular industry or sector is measured using GVA. Financial Times, ‘Definition of gross value added GVA’: http://lexicon.ft.com/Term?term=gross%20value%20added%20GVA%C2%A0 [accessed 9 February 2017] and World Bank, ‘Manufacturing, value added (% of GDP)’: http://data.worldbank.org/indicator/NV.IND.MANF.ZS?end=2015&locations=EU-GB&start=2015&view=bar [accessed 9 February 2017]

33 World Bank, ‘Manufacturing, value added (% of GDP)’: http://data.worldbank.org/indicator/NV.IND.MANF.ZS?end=2015&locations=EU-GB&start=2015&view=bar [9 February 2017]

34 World Bank, ‘Manufacturing, value added (% of GDP)’: http://data.worldbank.org/indicator/NV.IND.MANF.ZS?end=2015&locations=EU-DE&start=2015&view=bar [accessed 9 February 2017]

35 World Bank, ‘Manufacturing, value added (% of GDP)’: http://data.worldbank.org/indicator/NV.IND.MANF.ZS?end=2015&locations=EU-IT&start=2015&view=bar [accessed 9 February 2017]

36 World Bank, ‘Manufacturing, value added (% of GDP)’: http://data.worldbank.org/indicator/NV.IND.MANF.ZS?end=2015&locations=EU-FR&start=2015&view=bar [accessed 9 February 2017]

37 World Bank, ‘Manufacturing, value added (% of GDP)’: http://data.worldbank.org/indicator/NV.IND.MANF.ZS?end=2014&locations=US&start=2014&view=bar [accessed 9 February 2017] Data for the US is from 2014.

38 World Bank, ‘Manufacturing, value added (% of GDP)’: http://data.worldbank.org/indicator/NV.IND.MANF.ZS?end=2015&locations=EU-GB&start=2015&view=bar [9 February 2017]

39 ONS, ‘Economic Review: February 2016’ : https://www.ons.gov.uk/economy/nationalaccounts/uksectoraccounts/articles/economicreview/february2016 [accessed 9 February 2017]

40 Government Office for Science, Future of manufacturing: a new era of opportunity and challenge for the UK—summary report (October 2013), p 15: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/255923/13-810-future-manufacturing-summary-report.pdf [accessed 9 February 2017]

41 ONS, ‘Economic Review: February 2016’: https://www.ons.gov.uk/economy/nationalaccounts/uksectoraccounts/articles/economicreview/february2016 [accessed 9 February 2017]

42 Government Office for Science, Future of manufacturing: a new era of opportunity and challenge for the UK—summary report (October 2013), p 15: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/255923/13-810-future-manufacturing-summary-report.pdf [accessed 9 February 2017]

43 Government Office for Science, Future of manufacturing: a new era of opportunity and challenge for the UK—summary report (October 2013), p 14: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/255923/13-810-future-manufacturing-summary-report.pdf [accessed 9 February 2017]

44 Andrew Walker, ‘UK manufacturing: Whatever happened to the ‘march of the makers’?’ BBC News (28 January 2016): http://www.bbc.co.uk/news/business-35414075 [accessed 9 February 2017]

45 ONS, ‘Statistical bulletin—UK labour market: Nov 2016’: https://www.ons.gov.uk/employmentandlabourmarket/peopleinwork/employmentandemployeetypes/bulletins/uklabourmarket/november2016 [accessed 9 February 2017] The remaining 8.8 % is accounted for by: agriculture, forestry and fishing; electricity, gas, steam and air conditioning supply; water supply, sewerage, waste and remediation activities; and construction.

46 EEF, UK manufacturing 2016/17, the facts (no date): https://www.eef.org.uk/campaigning/campaigns-and-issues/manufacturing-facts-and-figures [accessed 9 February 2017]

48 Written evidence submitted to the EU Internal Market Sub-Committee, 30 November 2016 (Session 2016–17) TAS0085 (UK Trade Policy Observatory, University of Sussex)

49 Location quotients show the concentration of an industry by location, and not the absolute employment figures.

50 The number of employees is derived from the Business Register and Employment Survey (BRES). This is the total number of employees in a specific day in September. The definition of employee in BRES is anyone aged 16 years or over that an organisation directly pays from its payroll(s), in return for carrying out a full-time or part-time job or being on a training scheme. It excludes voluntary workers, self-employed, and working owners who are not paid via PAYE. ONS, ‘UK business register and employment survey (BRES)—Statistical bulletins’: https://www.ons.gov.uk/employmentandlabourmarket/peopleinwork/employmentandemployeetypes/bulletins/businessregisterandemploymentsurveybresprovisionalresults/previousReleases [accessed 9 February 2017]

51 ONS, The Spatial Distribution of Industries (8 November 2012) p 3: http://webarchive.nationalarchives.gov.uk/20160105160709/http:/www.ons.gov.uk/ons/dcp171766_285278.pdf [accessed 9 February 2017]

52 Written evidence from Prof Peter Wells (FTG0013)

53 Written evidence from SMMT (FTG0009); We note that these figures include the supply chain. Supply chain companies serve more than one sector, and so there may be some double counting, for example with the aerospace sector.

54 EEF, UK manufacturing 2016/17, the facts: https://www.eef.org.uk/campaigning/campaigns-and-issues/manufacturing-facts-and-figures [accessed 9 February 2017]

55 Q 14 (Steve Elliott)

56 Q 14 (Dr Virginia Acha)

57 Written evidence from Lord Bridges of Headley MBE and Lord Price CVO (FTG0027)

58 European Union Committee, Brexit: the options for trade (5th Report, Session 2016–17, HL Paper 72)

59 Theresa May MP, Speech on the government’s negotiating objectives for exiting the EU, 17 January 2017: https://www.gov.uk/government/speeches/the-governments-negotiating-objectives-for-exiting-the-eu-pm-speech [accessed 13 February 2017]

60 Oral evidence taken before the EU External Affairs and Internal Market Sub-Committees, 8 September 2016 (Session 2016–17), 14

61 ‘Most favoured nation’ (MFN) in the WTO refers to the principle that members cannot discriminate between WTO members. If they grant a lower duty on the import of a certain product, they have to do that for all other members too. WTO, ‘Understanding the WTO: basics—Principles of the trading system’: https://www.wto.org/English/thewto_e/whatis_e/tif_e/fact2_e.htm#seebox [accessed 10 February 2017]

62 Oral evidence taken before the EU External Affairs and Internal Market Sub-Committees, 8 September 2016 (Session 2016–17), Q 14 (Luis González García)

63 Oral evidence taken before the EU External Affairs and Internal Market Sub-Committees, 8 September 2016 (Session 2016–17), Q 14 (Luis González García) For more information about FTAs see our previous report, European Union Committee, Brexit: the options for trade (5th Report, Session 2016–17, HL Paper 72)

64 Written evidence submitted to the EU Internal Market Sub-Committee, 30 November 2016 (Session 2016–17) TAS0085 (UK Trade Policy Observatory, University of Sussex)

66 Written evidence submitted to the EU Internal Market Sub-Committee, 5 December 2016 (Session 2016–17) TAS0064 (Office for National Statistics). The turnover of the sector in 2015 was £43.9 billion (£29.9 billion for chemicals, and £14 billion for pharmaceuticals). ONS, ‘UK Non-Financial Business Economy (Annual Business Survey): Sections A-S (Section C)’: https://www.ons.gov.uk/businessindustryandtrade/business/businessservices/datasets/uknonfinancialbusinesseconomyannualbusinesssurveysectionsas [accessed 13 February 2017] We note that the ONS balance of payments data (from which the data on exports is drawn) measures pharmaceutical products, while the ONS annual business survey (from which the turnover figure of £43.9 billion is drawn) considers pharmaceutical companies. Any discrepancy between the data may be accounted for by this difference in methodology.

67 ONS, ‘UK Non-Financial Business Economy (Annual Business Survey): Sections A-S (Section C)’: https://www.ons.gov.uk/businessindustryandtrade/business/businessservices/datasets/uknonfinancialbusinesseconomyannualbusinesssurveysectionsas [accessed 13 February 2017]

68 Association of the British Pharmaceutical Industry, Open for Innovation—UK Biopharma R&D Sourcebook 2016, p 15: http://www.abpi.org.uk/our-work/library/industry/Documents/Open_for_innovation_ABPI_Sourcebook_2016.pdf [accessed 9 February 2017]

69 The Balance, ‘Capital goods: examples, effect on economy’: https://www.thebalance.com/capital-goods-examples-effect-on-economy-3306224 [accessed 9 February 2017]; We note that whether an item is a consumer good or a capital good depends on how it is used. For example, a computer is a capital good if used by a business, but a consumer good if used by a family.

70 Clifford Chance, ‘Capital goods’: https://www.cliffordchance.com/expertise/sectors/industrials/capital_goods.html [accessed 9 February 2017] and Business Dictionary, ‘Capital goods’: http://www.businessdictionary.com/definition/capital-goods.html [accessed 9 February 2017] Commercial buildings, such as factories, offices, and warehouses are also capital goods, although not relevant to trade as they have a fixed location. The Balance, ‘Capital goods: examples, effect on economy’: https://www.thebalance.com/capital-goods-examples-effect-on-economy-3306224 [accessed 9 February 2017]

71 ONS, The Pink Book—2016, Chapter 2—2.1 Trade in goods summary table (29 July 2016): https://www.ons.gov.uk/economy/nationalaccounts/balanceofpayments/datasets/2tradeingoodsthepinkbook2016 [accessed 9 February 2017]

72 European Union Committee, Brexit: fisheries (8th Report, Session 2016–17, HL Paper 78)

73 Food and Drink Federation (FDF), ‘UK-EU food and drink statistics’: https://www.fdf.org.uk/eu-referendum-food-drink-statistics.aspx [accessed 23 February 2017] Food and drink manufacturing has a total turnover of around £83.7 billion per annum. Food and Drink Federation, A new UK-EU relationship—priorities for the food and drink manufacturing industry (July 2016), p 2: https://www.fdf.org.uk/corporate_pubs/FDF-Manifesto-A-New-UK-EU-Relationship.pdf [accessed 9 February 2017] Food and drink manufacturing adds £21.9 billion of gross value to the UK economy annually, and UK farmers contribute around £10 billion. FDF, ‘Statistics at a glance’: https://www.fdf.org.uk/statsataglance.aspx [accessed 7 March 2017] and National Farmers Union, ‘The economy’: https://www.nfuonline.com/back-british-farming/why-should-i-back-british-farming/the-economy/ [accessed 9 February 2017] The statistics and terms are provided in the documents cited. The House of Lords did not have the opportunity to verify the methodology used or the precise definition of the term ‘contribution’.

74 FDF, A new UK-EU relationship (July 2016) p 2: https://www.fdf.org.uk/corporate_pubs/FDF-Manifesto-A-New-UK-EU-Relationship.pdf [accessed 9 February 2017]

75 Written evidence from the Agriculture and Horticulture Development Board (AHDB) (FTG0007)

76 The figures for the downstream sector used in this report only represent the membership of the UK Petroleum Industry Association (UKPIA). UKPIA represents the eight refining and marketing companies which own and operate the six major crude oil processing refineries in the UK.

77 ONS, The Pink Book—2016, Chapter 2—2.1 Trade in goods summary table (29 July 2016): https://www.ons.gov.uk/economy/nationalaccounts/balanceofpayments/datasets/2tradeingoodsthepinkbook2016 [accessed 9 February 2017]; The activities of the upstream and downstream sectors combined make an estimated annual contribution to the UK economy of £11.3 billion. UKPIA, Fuelling the UK’s economic engine (21 October 2016), p 3: http://www.ukpia.com/docs/default-source/default-document-library/fuelling-the-uk’s-economic-engine39b55c889f1367d7a07bff0000a71495.pdf?sfvrsn=0 [accessed 9 February 2017]; £11.3 billion is derived from £2.3 billion from UKPIA members and £9 billion from the upstream industry. We note that the figure for the contribution to the economy of the oil and petroleum sector was provided by UKPIA, while the export figure was collated by the ONS. The contribution to the economy (gross value added) of a sector can be significantly less than its exports, in particular in sectors with a high proportion of imports and if the cost of inputs is high. Any discrepancy between the data may be accounted for by a difference in methodology.

78 Oil & Gas UK, ‘Oil & Gas UK figures show impact of oil price downturn on jobs’: http://oilandgasuk.co.uk/oil-gas-uk-figures-show-impact-of-oil-price-downturn-on-jobs/ [accessed 10 February 2017]; The figure is a forecast for 2016.

79 Figures for UKPIA members only: UKPIA, Fuelling the UK’s economic engine (21 October 2016) p 3: http://www.ukpia.com/docs/default-source/default-document-library/fuelling-the-uk’s-economic-engine39b55c889f1367d7a07bff0000a71495.pdf?sfvrsn=0 [accessed 10 February 2017]

80 ‘Mainstream cars’ excludes Formula 1 and racing cars.

81 SMMT, Motor industry facts 2016, p 9: https://www.smmt.co.uk/wp-content/uploads/sites/2/SMMT-Motor-Industry-Facts-2016_v2-1.pdf [accessed 21 February 2017] and written evidence from SMMT (FTG0009); The industry has an annual turnover of £71.6 billion and added £18.9 billion in value to the UK economy. Written evidence from SMMT (FTG0009)

82 Written evidence from SMMT (FTG0009); We note that these figures include the supply chain. Supply chain companies serve more than one sector, and so there may be some double counting, for example with the aerospace sector.

83 Written evidence from ADS Group (FTG0028); Turnover of the combined sector in the UK in 2015 was £56 billion (the total figure for turnover including the security sector was £65 billion in 2015, and £56 billion is this sum minus £9 billion for the security sector). The total figure for exports including the security sector was £35 billion in 2015; £32.1 billion is this sum minus £2.9 billion for the security sector (average exports 2010–2014). ADS Group, ‘Facts & figures 2016’: https://www.adsgroup.org.uk/facts2016/ [accessed 10 February 2017]

84 ONS, Publication Tables, UK Trade, CPA (08) (21 December 2016): https://www.ons.gov.uk/economy/nationalaccounts/balanceofpayments/datasets/publicationtablesuktradecpa08 [accessed 1 March 2017]

85 ADS Group, ‘Facts & figures 2016’: https://www.adsgroup.org.uk/facts2016/ [accessed 10 February 2017]; The total figure for employment including the security sector was 304, 000 in 2015; 264, 000 is this sum minus 76, 000 for the security sector.

86 European Union Committee, Brexit: UK-EU movement of people (14th Report, Session 2016–17, HL Paper 121)

87 Science and Technology Committee, EU Membership and UK Science (2nd Report, Session 2015–16, HL Paper 127) and Science and Technology Committee, A time for boldness: EU membership and UK science after the referendum (1st Report, Session 2016–17, HL Paper 85)

89 Written evidence from CIA (FTG0003), The Association of Manufacturers of Domestic Appliance (AMDEA) (FTG0002), Meggitt PLC (FTG0017) and Prof Peter Wells (FTG0013)

90 Q 74 (Mike Hawes), written evidence from AMDEA (FTG0002), CIA (FTG0003) and Meggitt PLC (FTG0017)

91 Written evidence from AMDEA (FTG0002)

92 Written evidence from Norton Rose Fulbright LLP (FTG0018)

93 Written evidence from CIA (FTG0003)

94 Written evidence from Norton Rose Fulbright LLP (FTG0018)

96 Written evidence from AHDB (FTG0007)

98 Written evidence from AHDB (FTG0007)

99 Ibid.

100 Written evidence from FDF (FTG0021)

101 Written evidence from AHDB (FTG0007)

102 Ibid.

103 Oral evidence taken before the EU External Affairs and Internal Market Sub-Committees, 15 September 2016 (Session 2016–17), Q 38 (Prof John Manners-Bell)

104 We use intra-group and intra-company transfers interchangeably.

106 Written evidence from The Manufacturing Technologies Association (MTA) (FTG0015)

107 Q 85 (Simon Whalley) and written evidence from SMMT (FTG0009)

109 Written evidence from CIA (FTG0003)

110 Written evidence from Meggitt PLC (FTG0017)

112 Written evidence from SMMT (FTG0009)

113 Q 86 On 13 August 2016, the Rt Hon Philip Hammond MP, Chancellor of the Exchequer, confirmed that research funding from the EU’s Horizon 2020 programme (which awards funding for research and innovation in EU Member States) granted before the UK leaves the EU will be guaranteed by HM Treasury, even when these projects continue beyond the UK’s departure from the EU. If UK organisations bid directly to the European Commission on a competitive basis for EU funding projects while the UK is still a member of the EU, for example universities participating in Horizon 2020, the Treasury will underwrite the payments of such awards, even when specific projects continue beyond the UK’s departure from the EU. HM Treasury, ‘Chancellor Philip Hammond guarantees EU funding beyond date UK leaves the EU’ (13 August 2016): https://www.gov.uk/government/news/chancellor-philip-hammond-guarantees-eu-funding-beyond-date-uk-leaves-the-eu [accessed 5 January 2017]

115 Written evidence from AMDEA (FTG0002)

116 Written evidence from SMMT (FTG0009)

117 HM Government, Building our industrial strategy—Green Paper (January 2017): https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/585273/building-our-industrial-strategy-green-paper.pdf [accessed 10 February 2017]




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