This time next year, the UK will officially leave the EU. In the 641 days since the country went to the polls, it has been hard to avoid the B word - as politicians – both here and in the EU, business leaders and the public have clamoured to have a say on what the terms of exit should be and what the future relationship with the EU should look like.
Amidst all the noise it has been difficult to see where the UK is headed. But over the last month, we have seen something of a direction of travel emerging.
In my latest blog (which is a little longer than usual!!), I will look to summarise the key points within the raft of recent developments. I will also highlight some of the likely implications, as we move towards the business-end of the Brexit negotiations – and some of the opportunities that may come alongside this.
21 months
So what have we learnt in recent weeks?
We now know that the UK's departure will include a 21 month 'status quo' transition period, which was formally agreed by EU leaders last week (subject to agreement of the Withdrawal Treaty). The UK has had to make some concessions to get to this point - in areas such as citizen's rights and fisheries policy, but even staunch Brexiteers have been appeased on the basis that by 1st January 2021 the UK will be out of the bloc. During the transition, the UK will be free to broker trade deals with other countries, but whether there will be appetite to conclude these before the future UK-EU framework is known remains to be seen.
The transition is clearly good news for the business community and buys time to prepare for a post-Brexit world. As David Davis has said, it means businesses can stop guessing about what happens after 29th March 2019 and shows that both sides are keen to avoid the dreaded 'cliff edge' and 'no deal' scenarios. The UK government has also been clear that the transition will mean businesses having to adapt to only a single set of changes.
But the transition does come with caveats – most notably that it is dependent on the withdrawal agreement being concluded by October and ratified by UK Parliament and those across the EU before 29 March 2019. Whilst much of the withdrawal agreement has been pinned down, two significant issues remain – the Irish border and the role of EU Courts.
The EU's 'backstop' position on the Irish border involves establishing a common regulatory area between the north and south, which would mean Northern Ireland remaining subject to EU rules and regulation. This position had been rejected by the Prime Minister and the DUP, with the Prime Minister saying it would undermine the UK constitution and is something 'no Prime Minister could ever agree to'. A separate series of talks specifically on the border have now begun to try and unlock the solution to this crucial issue.
So how helpful is the transition period for business, if it is just a political commitment at this stage?
We asked that very question to our business audience on a Brexit webcast earlier this week and found that 75% of them are continuing with Brexit contingency plans. Only 11% are pushing their planning back to a later date and a further 10% are reducing the time and resource dedicated to it.
This result is likely to be largely due to the dependency on the withdrawal agreement. We asked how confident businesses were on an agreement being reached and ratified by 29th March 2019 and only 49% said that they were.
But even if the transition were to be locked-in from a legal perspective, I would still be advising businesses to continue with their Brexit plans. 21 months isn't very long in the business world and given the scale and complexity of some of the challenges Brexit presents – the issue cannot be deferred.
The big issues
So what are the biggest Brexit issues for business?
Customs impacts, both in terms of duty and processing is a major concern. What was once a topic unlikely to feature on the boardroom agenda is now right up there. Over 60% of those we surveyed said it was a major priority for them.
Supply chain disruption is another area where 55% of our audience are currently focused. Many organisations are reviewing their suppliers to ensure that they are contracting with the correct entities and are having to adapt or implement new systems to ensure they are able to manage the changes that will stem from being outside of the single market and customs union.
Regulation is another major theme, particularly for industries such as financial services, chemicals and pharmaceuticals to name just three. 54% of our audience referenced regulation as a top concern and the transition agreement may not be enough to allay fears in this area.
In recent days a number of financial services industry bodies have been calling for supervisors across Europe to take the transition announcement as the green light for organisations to prepare for this scenario. This would mean institutions not having to take unnecessary and costly steps to continue preparing for a 'no deal' situation. Yesterday, the Bank of England announced that it will allow EU firms to assume that they retain current authorisations to operate in the UK until the end of the transition. But so far the EU side has remained quiet on this subject.
Interestingly, only 37% listed talent as a key concern, which is perhaps a little lower than I would expect. However, this could be because there seems to have been less mention of potential disagreement in this area. In her speech, the Prime Minister talked about businesses still being able to attract and employ the people they need the EU guidelines provide little detail on this point, beyond that 'the future partnership should include ambitious provisions on movement of natural persons'.
Looking to the future
We now know more about what the UK is seeking from the future relationship. During a speech in early March, the Prime Minister reiterated that the UK would be leaving the single market and customs union. She outlined the desire for an ambitious free trade deal, that includes financial services and a comprehensive system of mutual recognition of regulation. She advocated the UK remaining an 'associate' member of various regulatory bodies, such as the European Medicines Agency (EMA). This approach would continue to allow for a high level of access to each other's markets and would mean businesses only having to adhere to a single set of standards.
But the EU starting point for the future relationship is somewhat different. In the negotiating guidelines, which were signed off by leaders on the continent last week, the EU ruled out many of the Prime Minister's suggestions, including participation in EU institutions such as the EMA. The EU says that the UK's 'red lines' and the absence of common institutions and a shared legal system will mean necessary 'checks and controls' to maintain the integrity of the single market. But the guidelines do state that the EU would be willing to reconsider, if the UK's position on the single market or customs union were to 'evolve'.
On our webcast we asked businesses what they want most from the future relationship, and the inclusion of services in a free trade agreement was the most popular choice, with 38% of the vote. Zero tariffs came in second, at 26% and UK control of EU rules and regulations came in third, with 15% of the vote.
A long road ahead
But the negotiations on the future relationship are just beginning and it is no surprise that the starting points of the two sides are at opposite ends of the spectrum.There has been much talk of 'cherry picking' and how this won't be possible in the context of the future trade agreement. But clearly both sides will want to focus on the areas that best suit their own interests.
So these negotiations will rumble on and whether they can be concluded before the end of 2020 remains to be seen. On Tuesday, the Prime Minister said that 'sometimes the timetables that have originally been set are not the timetables that are necessary when you actually start to look at the detail', which has led some commentators to suggest the UK may require a further 'implementation period' once the new framework is agreed. The Institute of Directors (IOD) have been calling for such an 'adjustment period'.
The fact the two sides are starting from total integration makes this negotiation totally unique and so the usual timeframe may not apply.
In the last month we have seen an outline vision of what a future relationship could look like, and in the months ahead I would hope that things will become clearer, which will allow business to make informed judgments as to the likely outcome.
In every challenge lies opportunity
I have touched upon many of the business challenges presented by Brexit, but there is also opportunity to be found. On the operational side of things, I have seen businesses using Brexit as an opportunity to be proactive in their approach. For example, looking at differentiators to expand market share or using Brexit as a catalyst to realign processes and systems to achieve greater synergies and cost savings.
And beyond the operational, Brexit presents an opportunity for business to work more closely with government and educators to address the long term productivity challenge that the UK has faced. It is also a chance to consider the skills that the UK needs to develop in the coming years to retain our status as a hub for global business and a world-leading economy.
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