In just eight weeks’ time the UK is due to leave the EU. As the clock counts down, I have spent this week working with businesses on their preparations for Brexit and catching up with contacts in Westminster to get the low-down on if, and when, the politicians may agree on what form Brexit takes on 29 March.
The word in Westminster: what happens next?
Theresa May is seeking changes to the Deal she agreed with the EU in November – mainly on the ‘backstop’ arrangement to maintain an open border between Ireland and Northern Ireland. Here’s how it may pan out:
- The next vote in parliament is likely to be 13 February. This is not expected to be decisive and more negotiation and votes will probably be needed again in March.
- The EU may make some concessions in March; and Theresa May may make concessions to win over some Labour MPs. We are unlikely to know until sometime in March whether these are enough to get a Deal over the line.
- If a deal is agreed with Parliament and EU (and the European Parliament) then there will be an extension to article 50, delaying Brexit day for up to 3 months to complete ratification.
- If No Deal is agreed, we leave the EU on 29 March on a hard Brexit basis.
Theresa May and Jeremy Corbyn are trying to achieve the same thing: deliver Brexit, keep their respective party together and try to gain electoral advantage. Until recently Corbyn would have settled for an early election over anything else but now that this looks less likely he seems to be keen on Brexit happening before the next election.
To unite the Conservative party, Theresa May has to keep the ‘ERG’ hard Brexiteers on side; and to unite his party, Jeremy Corbyn has to keep the majority of ‘soft Brexit’ or ‘remainer’ Labour MPs on his side. Ultimately neither leader may be able to pull off this balancing act.
Any concessions Theresa May wins from the EU in March may not be enough to win over the hardest Brexiteers in her party, who by then will be 4 weeks away from a No Deal Brexit they are comfortable with. This may mean the Prime Minister needs to tack towards Labour and concede the Labour demand for a customs union. That could be enough for the Labour leadership to support a deal, but would mean Corbyn loses the support of grassroots members and MPs who support a ‘people vote’.
It is a high stakes game.
What does this mean for your Brexit planning?
As things stand, the most likely outcomes seem to be either a No Deal Brexit on 29 March or a modified agreement Deal (possibly with concessions to the Labour party and/or changes to the Northern Ireland backstop) with Brexit day delayed until May or June.
With continued uncertainty and a ticking clock, people should continue to plan for No Deal; step up business continuity planning; and where necessary start implementing contingency plans.
What are other businesses doing?
Earlier in January I was working with a lot of manufacturing and food and drink businesses, focusing on stockpiling in the U.K. (parts, raw materials) and EU (finished products) to enable continued production and sales in Q2/Q3. My colleagues have been helping these businesses with supply chain and logistics planning and with assessing customs processes and developing operating models to mitigate tariffs and customs administration.
This week I have been working with more service sector businesses. This has included helping one bank develop its approach to credit risk and how it can best support customers in the event of No Deal and another bank looking at the impact on its IT services and ensuring continuity of service across its EU branches.
Planning sessions with a number of tech-based service businesses have looked at risks around data transfer between the EU and UK and mitigation strategies; M&A opportunities and expansion in other international markets; plus how to continue to be eligible for EU public sector contracts and stepping up communication with EU citizens in their UK workforce.
In terms of Brexit planning, every business is different. But the bottom line all clients are anticipating with a No Deal scenario is increased costs and reduced cash flow. We are seeing an unprecedented number of enquiries and projects about taking rapid cost out of the business to hedge against future market disruption. Most are targeting at least 10% reductions in their cost base.
Despite the political uncertainty, these businesses are more confident and certain about their own business plans and their ability to manage whatever happens in eight weeks and beyond.
As things stand, the most likely outcomes seem to be either a No Deal Brexit on 29 March or a modified agreement Deal with Brexit day delayed until May or June.