"We must deliver Brexit on 31 October” is becoming the mantra of the Conservative leadership contest. This phrase is also frequently followed by “deal or no deal”. With five months to go, what should you be thinking about? Why and how should you plan for Brexit? And what’s different for business compared to the previous Brexit deadline of 29 March?
This is the first in a series of four blogs that take a fresh look at how to plan for Brexit given where we are in the whole political process.
Over the coming days I will share more Brexit political analysis and insights from my work with businesses. This will explain why being ready for Brexit means more than dusting off the plans made for 29 March. I will explore three phases of Brexit planning:
- how Brexit is affecting markets now through to October
- why 31 October is different to 29 March
- what to think about in the longer term as we see rising political volatility.
Today I will start with some Brexit basics: why plan for Brexit; what is no-deal Brexit; why a no-deal Brexit is more likely than ever; plus a recap on how to plan for this.
Why plan for Brexit?
Let’s start with three reasons to plan for Brexit:
1. Your customers expect it and your competitors are doing it. Particularly in B2B business, customers are increasingly looking for assurance that their suppliers are Brexit-ready and are reviewing any suppliers who may be a ‘weak link’ in their own resilience.
2. Brexit is already having an impact. Uncertainty caused by Brexit is already affecting markets and behaviours.
3. Brexit planning identifies opportunities as well as risks. A CBI survey showed that “About half of companies have looked for potential opportunities from Brexit – of these about half have found some and half have not.” We can make this a 100% success rate: at Grant Thornton every business we have worked with in our Brexit workshops has identified opportunities as well as risks.
What is no-deal Brexit?
No Deal means there is no transitional period. The UK leaves the EU with no agreements in place with the EU.
Imports and exports between the UK and EU at that point become subject to tariffs (which vary from 1% to over 80%) and customs declarations. This means new processes for business as well as additional costs. Free movement of people ends. UK goods and services will face new regulatory barriers in the EU and in some cases will need to have EU registered offices to continue to provide services to customers.
Government has warned of big delays at ports - particularly roll-on roll-off such as Dover and Folkestone - as additional customs checks will need to be done on all freight and trucks travelling between the UK and EU.
A No Deal Brexit would trigger an economic shock. The Bank of England has suggested that a worst-case scenario could be similar to the 2008 financial crash, but with interest rate rises, inflation and £ sterling falling below parity with USD $.
Why plan for a no-deal Brexit?
Here are three reasons:
1. The probability of a no-deal Brexit has increased. The UK parliament has continually rejected the alternative ‘deal’ on offer. Political leaders in the UK and EU are increasingly prepared to countenance a no-deal Brexit and the UK Parliament can not necessarily prevent this (for more on this, click here). It is for this reason that over the next week we will see an attempt in Parliament led by the Labour Party to rule out government pursuing a no-deal in October; but this may not succeed (not least because party politics will come to the fore); it could be circumvened in the autumn; and the EU can still turn down any request to extend the Brexit deadline. Furthermore, no-deal could also occur if it was a choice in a second referendum.
2. It is the most disruptive form of Brexit, with highest impact in a short period of time. The knock-on effects will disrupt all organisations, even those not engaged in EU-UK trade. See below: ‘what is no-deal Brexit’.
3. If you plan for no-deal you are well prepared for all eventualities. Whenever we run scenario planning with clients and assess other Brexit outcomes as well as no-deal, we always find that no-deal planning provides the basics for other Brexit scenarios. Clients always identify ‘no regrets’ decisions that stand them in good stead whatever type of Brexit may occur.
How to plan for no-deal
To plan for no-deal Brexit you need to:
- Measure your risk exposure and any opportunities, applying our best assessment of what no-deal will mean to your business model
- Identify mitigating actions, often rooted in familiar business solutions and drawing on what others have been doing.
Here is a simple guide I prepared earlier, looking at these issues: Brexit essentials - compliance, continuity and cost.
In my next blog, I will explore in more detail how to think about the first phase of Brexit planning: whether or not you already have a plan , what should you be doing between now and October?
With five months to go, what should you be thinking about? Why and how should you plan for Brexit? And what’s different for business compared to the previous Brexit deadline of 29 March?