Two years ago Brexit was done. Except it wasn’t

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But as of this month, Brexit is more complete than ever. UK and EU exporters and importers are now fully exposed to the shock of customs formalities, rules of origin declarations and value added tax calculations.

The customs agency will now check five times as many forms as before. Its new computer system, meanwhile, requires each truck to spend about 15 minutes processing documents.

The effect on the roads around Dover, the main conduit for goods between Britain and the EU, has been marked.

Britain belatedly introduced its post-Brexit customs regime this month, with predictable results. Bloomberg

The city’s Traffic Access Protocol (TAP), which manages routes into Dover when the truck queue begins to grow, has been activated more than a dozen times this month.

The queue is said to have been up to 10 kilometers long at times, mirrored by equally long traffic jams to Calais on the French side, blocking trucks for up to eight hours.

A boss of a logistics company said The Independent news site that he previously held up two trucks at the Port of Felixstowe for four days. “These delays are very frustrating and costly for businesses,” he said.

Some issues are front-end issues: shipping companies and customs officials are still getting used to new systems and paperwork, and mistakes cause delays. But the friction could reignite in July and then again in September, and some companies might decide it just isn’t worth it.

Others have already done so. There has been an increase in freight volumes going directly out of Ireland to France and Belgium, with carriers bypassing the UK ‘land bridge’. Similarly, port traffic in Northern Ireland has also surged, with UK-origin trucks going straight to Belfast instead of going through Dublin.

The impact of Brexit on the pattern of trade was already being felt before the start of the new regime this month.

The Center for European Reform estimates that trade in goods between Britain and the EU is 16% lower than it would have been if Brexit had not taken place. Agri-food trade between the two markets has collapsed, probably due to the rules of origin regime.

The London School of Economics estimated that UK GDP would be hit between 5.8 and 7% in the medium to long term. The government’s Office of Budget Responsibility estimated 4%. Economists say the impact of Brexit is equivalent to that of the pandemic.

Yet a recent survey by manufacturing body Make UK showed that while more than half of businesses surveyed expected customs delays and more red tape, two-thirds still saw Britain as a place competitive to set up their business.

Much of the pain of Brexit could be avoided if London and Brussels sit down to make some changes to the trade deal signed just before Christmas 2020, according to the British Chamber of Commerce. Simplifying rules of origin requirements , streamlining VAT and phytosanitary rules and making it easier for UK and EU nationals to cross the border could all help.

But with the two sides at an impasse over Northern Ireland, and still embroiled in a battle over fishing rights, there is not much goodwill or motivation for quick fixes.

The City of London takes on its European rivals

Financial services are another part of the UK economy that found itself in the trenches of Brexit. Most of the big players took pre-emptive action long before Brexit ‘D-Day’, and although some industries – European equities trading, for example – left the City of London in a hurry, the effect was mitigated.

Ernst & Young (EY) followed suit, and while he estimates two dozen major financial services firms have moved something in the region of £1.3 trillion ($2.49 trillion) in assets since the 2016 referendum, only 7,400 jobs disappeared from a city of 420,000 employees.

Luxembourg for Finance managing director Nicolas Mackel said change will come, but the tectonic plates of finance will move more slowly.

“The London ecosystem is, and will remain for a very long time, the essential place for international finance, the main financial center in Europe. None of the Brexit relocations will change that,” he says.

“But there will be a slow erosion over time. Not one where Paris or any other city will overtake London, but where the differences will become smaller.

To London’s advantage, the various European competitors are filling niches rather than emerging as a giant rival. Basically, Frankfurt is the banking capital, Amsterdam is the magnet for equity trading, Luxembourg and Dublin are the choices of asset managers, Paris is the choice of investment banks.

But Mackel expects that over time many companies will need to develop these offices rather than in London. “I think there’s a strengthening of what might initially have been contingency operations into bit by bit more substantial operations,” he says.

The EU seems to be trying to tacitly promote this development by offering as little dialogue or concession as possible to Britain on financial services.

But the continent’s ability to become a deep and sophisticated financial center is hampered by the fact that the bloc’s member governments remain at odds over how to complete their banking and financial union.

Britain still seems determined to go its own way. Regardless of the predominant cities, banks in Europe and Britain are already bracing for regulatory divergence between the two sides, which could skew decision-making and increase compliance costs.

Yet the relatively limited impact so far on the city seems to give courage to its inhabitants.

An EY survey of the financial sector published last week found that 87% of respondents planned to establish or expand operations in Britain this year, the highest since before the 2016 referendum.

And 90% said they thought Britain would be at least as attractive for investment in financial services over the next three years as it is now, up from 75% last year and only 50% the previous year.

It seems that even though the consequences of Brexit continue to disrupt the economy at the moment, companies are following Prime Minister Boris Johnson’s lead in hoping for a brighter future.

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