The clear front runner to be the next Prime Minister of the U.K., Boris Johnson has repeatedly stated his commitment to leaving the EU on October 31, 2019—either with or without a deal—should he be successful in replacing Theresa May.
It will be no surprise to hear that the Institute of Directors (IoD) has issued advice, or maybe a warning, that U.K. businesses take another look at their state of preparedness in the event of a no-deal scenario coming to pass.
The IoD has said its members had failed to make adequate preparations during the delay to Brexit. Data has been produced to suggest that under 50% of U.K. businesses have laid out firm Brexit plans. To that point, it has warned that companies should not put faith in politicians to produce an agreement. That is understandable as so far, all the House of Commons has done is say what it doesn’t want, rather than what it does.
Edwin Morgan, the IoD’s Interim Director General, said:
“This week’s vote won’t be the last twist in the Brexit saga but it made clear how real the possibility of no deal is. Business can have no absolute reassurance that an agreement will be reached, particularly given the commitment of some Conservative leadership candidates to leaving the EU in October, with or without a deal. It feels like the extension is at risk of being wasted.”
It has been hard on business as financial support from the government has been sparse. Not really what would expect from a Conservative government! Limited support and series of websites links offering guidance on “Find EU Exit guidance for your business” is not adequate.
This is disappointing as there has been no lack of requests for assistance for Brexit planning vouchers to help small and medium-sized enterprises (SMEs) receive professional help for complex trade and legal issues.
The issue affects large organizations as well. For example, Tesco’s chief executive Dave Lewis said it was more difficult for supermarkets to prepare for a no-deal exit from the EU in October than it was in March.
We’ll be coming out of Halloween and building stock for the Christmas peak, so the capacity in the supply chain will be much more challenging. It’s about sheer physical capacity. It’s not just the availability, it’ll be the space.”
There are similar alarm bells ringing within the EU itself. Since December 2017, the European Commission (EC) has been preparing for a no-deal outcome and has so far tabled 19 legislative proposals, 18 of which have been adopted by the European Parliament and Council.
At a sovereign level, political agreement has been reached on the proposal that considers the contingency Regulation on the EU budget for 2019. The EU is certainly worried that it may not receive the £39 billion ($50 billion) that the U.K. would pay in an orderly exit.
The EC has stated that it is the responsibility of all stakeholders to prepare for all scenarios. It looks like there is a lack of preparedness on both sides as in Germany, the government decided to hire an extra 900 customs officials (trade unions claim that 1,300 are needed) to prepare for no deal. So far that number has not been recruited.
Given the significance of exports to Germany, have the main exporters set an example? According to the German central bank, many companies are insufficiently prepared for Brexit. Some big companies have taken measures, but that is exceptional. Most haven’t made the investments needed into new staff or IT.
What of France? The government of President Emmanuel Macron is certainly a more centralized operation and so one may expect to find a situation under more control. The French government has begun the process of recruiting an extra 740 customs officials and veterinary inspectors as well as shoring up security at ports and airports. What has caused alarm is the government is seeking to pass legislation granting it the right to push through laws by emergency decree.
Medef, France’s largest employer federation, has suggested that there will be severe trade disruption and chaos will spill over in Calais and other ports which export goods to the U.K. in the event of a hard exit.
New customs and sanitary checks require new buildings. These have not been built and so there could easily be 30-mile tailbacks. So, France is not at all ready.
The seriousness of this cannot be overstated. The U.K. would, according to the International Monetary Fund (IMF), suffer economic damage equivalent to the loss of at least 2-3 years of normal growth between now and the end of 2021 if it leaves the EU without an exit deal. The economy would grow 3.5% less by the end of 2021 than it would under a smoother Brexit.
“The increase in trade barriers has an immediate negative impact on U.K. foreign and domestic demand,” the IMF said in April.
The economic losses will be lopsided as the EU economy would suffer too, however, by much less than Britain, facing an estimated 0.5% hit to gross domestic product compared with a smooth Brexit scenario.
Come on businesspeople... The clock is ticking down. Please get on with the planning process. Better to plan for the worst outcome and be delighted by a better result.
