There is a lot happening right now in the world of politics that may influence the final shape of Brexit: Theresa May's speech in Florence last week, the German elections, the Labour and Conservative party conferences. None of this has or is likely to change my core advice on any organisation planning for Brexit. My view remains we have a 50/50 probability of either a chaotic 'no deal' Brexit in 2019 or a smooth, orderly Brexit over a longer period.
Chaotic Brexit would involve no deal being reached between the UK and EU. This could be due to lack of agreement in the UK government, in the UK Parliament, between the EU and UK, in other EU States asked to ratify an EU-UK deal or with the European Parliament. There are so many players, some of whom have yet to come onstage yet, that securing agreement with all will be tricky. Chaotic Brexit involves the UK simply "falling out" of the EU on 31 March 2019 with no agreement in place for transition or longer term relationship. Cross border trade, services and movement of people would be subject to standard WTO terms. This is a cliff edge Brexit - immediate and with no new terms agreed. Businesses and other organisations who have a cross border element to their work (including for example supply chain or recruitment, as well as sales) should continue to plan for this as the worst case scenario.
The other broad scenario is "orderly" Brexit. The smoothest version would involve a transition period in which the current relationship with EU is maintained - ensuring businesses don't have to undergo two Brexits (initial transitional change and then a second, longer term change). The transition would allow for all details of the future relationship with the EU to be agreed. It would provide clarity and a long enough lead time to enable business to adapt their business model accordingly in a way that avoids disruption to customers and operations and minimises cost.
Theresa May's speech last week gave some succour to hopes of an orderly Brexit. She stated the UK government wants a 2 year transition during which the status quo will be maintained. If (note "if") the EU also agrees this then it would mean no change for business until March 2021. That may swing the probability of orderly versus chaotic Brexit to odds of say 52 to 48. Angela Merkel’s election win may also support that - and the electoral success of the far right AfD party and the fact that immigration was a core issue in the election debate in Germany may increase the chances of EU flexibility on free movement of people. So we may start this week thinking the odds are shifting towards orderly Brexit.
The domestic political response to Theresa May's speech has indicated there remain divisions in cabinet, and we will see divisions in the Labour and Conservative party over the next 10 days. Theresa May's speech helped move forward the " divorce" talks with Brussels ( with warmer words on paying the UK' s full commitments and o EU state losing out before 2020) - but it did not contain enough detail to make a breakthrough in the talks this month. This means the "divorce" section of the talks (settling the bill, guaranteeing the rights of citizens, and Northern Ireland) is unlikely to reach agreement until the end of the year. Which then leaves less time for talks on transition and future relationship. This all suggests the probability of chaotic Brexit increases - maybe a swing to 52% in favour of chaotic.
We will keep seeing shifts in probability over the coming weeks and even months. Every political move will be interpreted as increasing or decreasing the odds of orderly or chaotic Brexit. But overall the odds will hover around the same 50/50 mark. We are unlikely to see a breakthrough - one way or another - until next year. In many ways this is probably unsurprising, with a referendum that voted 52/48 in favour of leaving, the detailed negotiations are always going to hang in the balance too as a roughly 50/50 split runs through much of our political institutions.
So for now, my advice to businesses and organisations would be -
- apply a ‘graphic equaliser’ to the noise and debate on Brexit; the fundamentals haven't changed that much.
- assume the worst case is a chaotic Brexit in March 2019. We won't be able to rule this out until December 2018 at earliest.
- the alternative scenario may be no change in our relationship with the EU until 2021 with a 2 year status quo transition period. Again we won't know this for sure until well into next year. And under this scenario, the politicians buy an extra two years to agree what the future relationship looks like - which may mean we don't have certainty about life outside the EU for another 3 years.
For now the 50/50 rule is, in my view, the best to apply.
Meanwhile you can create your own certainty by planning for the worst, identifying the opportunities and focusing on a strategy for your organisation that is as Brexit proofed as possible and enables you to flex your plans as the political shape of Brexit takes a more certain shape.. Rather than waiting for the politicians, plan your trade, talent and finance and operations strategy and focus on that…
apply a ‘graphic equaliser’ to the noise and debate on Brexit; the fundamentals haven't changed that much