The United Kingdom has revealed its post-Brexit tariff regime.
What though are tariffs and how do they impact the prices of goods and services? We take a look in this explainer.
What is a tariff?
A tariff is a tax imposed by a government on goods and services imported from other countries. Tariffs are often designed to make good and services from other countries more expensive and less desirable to buy.
This will be the first time in almost 50 years that the UK has set its own tariffs, with these previously being decided and set by the European Union.
What is the point of having tariffs?
Tariffs can make buying goods and services from other countries less desirable. Governments would generally prefer us to boost our economy by buying goods and services produced in our own country.
For example, after Brexit, corned beef in an airtight container will have a tariff of 16%. It may be cheaper to buy corned beef from other countries, but in order to import it into the UK, you would have to pay an extra 16% of the price. This usually makes buying from sellers in the UK more desirable and helps the economy.
How will Brexit change things?
The UK has left the European Union but is still following many of its rules during the transition period, which is currently set to run up to 31 December 2020. After that date, the UK can decide and enforce what tariffs it wants to apply to different products.
Under plans unveiled today, the UK will cut import tariffs on some products and scrap the use of the calculation system the EU uses to determine some food levies (taxes). Tariffs will be rounded down to the nearest 2%, 5% or 10% in order to simplify things, so there won’t be complex tariffs like 16.6%.
Around £30 billion-worth of imports will be subject to lower tariffs. The average tariff rate in the UK is set to fall to around 6% from around 7%, however, some tariffs will be maintained in order to protect key industries, such as agriculture and automotive.
Will all tariffs change?
No. Some tariffs will increase, some will decrease, and some will be scrapped altogether – but some tariffs will stay the same as they are now.
The new tariffs are set to go into effect from 1 January 2021.
What will lower tariffs mean?
Lower tariffs are likely to see some products cheaper to buy. For example, dishwashers, freezers, baking power and Christmas trees are just a few items that are expected to be cheaper to buy because of lower tariffs.
While lower tariffs likely mean lower prices for some products, they don’t automatically mean prices will be cheaper. As well as the new tariffs (known as the UK Global Tariff or UKGT), there can also be other import duties, measures or restrictions on products. Factors such as supply and demand can also impact prices.