Urgent need for clarity on what a Brexit with no deal will mean for UK business
Is a no deal better than a bad deal? With many people predicting a ‘nodeal’ exit from the EU, Seamus Gates, director at professional advisors MHA Broomfield Alexander, looks at what that might mean for business
“No deal is better than a bad deal”. It was a slogan that sat at the heart of the Conservative Party’s manifesto in last year’s general election and one that has undoubtedly influenced the Prime Minister’s negotiating position with her European counterparts. But while the tone of the rhetoric may have altered in recent months, there remains a very real possibility that the UK could leave the EU without a significant trade deal.
New Brexit Secretary Dominic Raab has confirmed that the UK could leave without a deal, speaking of plans and preparations in the event of a “clean break” Brexit that would mean the UK falling back on to World Trade Organisation (WTO) rules.
Ahead of the parliamentary recess, officials in Brussels published a comprehensive report outlining the impact of a “no-deal” for EU businesses that want to continue to trade with the UK after Brexit. According to the report, the impact could be substantial.
Licences issued and approved by the UK will no longer be recognised by the EU, nor will UK professional qualifications; the UK loses its approved destination status for certain EU business sectors and ceases its membership of EU systems, including those for quotas, VAT and duties. In order to continue doing business in the EU, companies based in the UK will no longer be able to rely on its “member status” and may need to consider establishing a “representative” in an EU country. In operational terms, the UK becomes what’s known as a “third country” – having no preferential customs or VAT deal.
So far as WTO rules go, the Government has said it would look to replicate its existing trade regime “as far as possible” by carrying over the terms it currently has and continuing to trade off them. But just as the Brexit deal needs negotiation, eventually, so too will these terms. Currently, the UK is under the EU’s terms in the WTO, so the dividing of quotas on exports and the possible imposition of tariffs could prove difficult, divisive and potentially damaging. The Government claims, however, that it is making good progress on its charm offensive on third-country agreements with other nations to ensure deals on, for example, trade, aviation, customs and data are ready for March 29, 2019.
There are also implications for the border. The UK and EU may both introduce customs checks on imports and exports which, in turn, could be costly and lead to delays in the delivery of goods. Without a deal, there is also no certainty on the rights of EU nationals living in the UK (or vice versa) and with more than two million Europeans working in the UK economy, progress is needed on this front as quickly as possible.
The evolving nature of the UK’s relationship with the EU has not only created a complex backdrop for the exit negotiations, it has also extended the potential impact beyond traditional exporting businesses. Supply chains, employment agreements and regulations are all at risk from the impact of a “no-deal”.
Far from being spectators on the sideline as politicians debate the pros and cons of the Government’s approach to trade negotiations, many businesses have been making preparations. Many of our clients have been considering the options available to them in terms of future markets, financing and employment (in particular if there is a reliance on European labour); and preparing for worst-case scenarios. In the context of a lack of guidance on many important issues, however, it’s a difficult task.
Some businesses have voiced their concerns. Airbus and BMW, for example, have warned that an exit from the Customs Union and Single Market with no transition deal could force them to leave the UK, while research suggests more than a third of large firms in the finance sector are either considering or have confirmed they are moving operations and/or staff from the UK to the EU.
Many of our own clients remain concerned at the lack of clarity over the possible outcome, telling us that it is difficult to plan when there is such uncertainty about what you are planning for. SMEs are less likely to move headquarters than larger companies and can also lack the infrastructure and buying power to access new markets or switch suppliers, and therefore could be more exposed to the impact of a “no-deal”.
While the political to-ing and fro-ing continues, businesses are having to strike a balance between cost (preparedness can be an expensive exercise) and time, with only eight months left until the UK’s withdrawal – yet there is no sign of what a post-Brexit UK looks like. Our role as advisors is to ensure we fully understand the implications of Brexit’s potential impact so we can guide our clients accordingly. As MPs’ long summer recess gets under way, there is ample food for thought ahead of another marathon few months in Parliament. What business needs in the autumn is something that has eluded the negotiations thus far – crystal-clear clarity.