With less than 365 days until the UK is scheduled to leave the European Union, we explore where negotiations are, what comes next, what to look out for and how organisations can prepare.
Progress has been made since December's EU Council.
The ‘withdrawal agreement’ or divorce has now been largely agreed, including how much the UK will pay (around £40 billion) and confirming the rights of EU nationals living and working in the UK.
Last week the UK and the EU agreed the terms of a transition period that would run from 29 March 2019 until 31 December 2020. During this time the UK will have left the EU but will continue almost as if it hadn’t - with continued membership of the single market and customs union; participation in EU programmes; but no seat at the table for negotiation of any new regulations.
Brexit negotiators can now turn their attention to agreeing principles for a future UK-EU trade relationship.
It’s not all said and done
While progress is positive, it is no time to be complacent. There are still challenges ahead that could derail talks and lead to a no deal outcome.
Whether it is a failure to find a solution to the Irish border or in Gibraltar, Parliament’s inability to ratify the final deal or an event yet to occur, much could still change over the next 12 months. It is worth remembering that despite the progress 'nothing is agreed until everything is agreed'.
The UK government is trying to land the 'Brexit plane' on a free trade agreement and a transition period. But there is plenty of turbulence ahead and we may well arrive in a very different place – maybe a customs union and even single market – or we may suddenly crash on to WTO trade terms.
What we are hearing in the market
Organisations have concerns over their people. Clients with large numbers of EEA nationals in their workforce are unsure of how best to retain these workers and attract them in the future. Many businesses have yet to engage in a meaningful way with their European workers and this vacuum is causing confusion. We are working with them to build communication channels to inform, reassure and retain those affected.
Tariffs are a mixed bag. In exploring the impact of WTO rules with our clients there are varying levels of impact. One client working in electronics manufacturing faces potential tariffs of around 1.5% while another in the food and beverage sector is looking at around 15%. While low tariffs may not impact a business model, we are working with those with greater exposure to think about restructuring supply chains and changing suppliers.
Rules of origin (RoO) are a potential challenge. Should the UK leave the Customs Union then RoO documentation will be required on exports to the EU. HMRC estimates that 188,000 additional businesses will be required to register as importers and exporters and consequently complete paperwork to which they are not accustomed. The adherence to these rules and regulation could be more onerous than might be initially envisaged. We are working with clients to help them optimise their customs procedures and upskill their people.
Other clients, including a number of mid-market manufacturers and retailers, have identified that under a ‘hard Brexit’ they would need to set up a subsidiary or additional warehouse facility in the EU; they know the lead time for set-up, and at what point they would pull the trigger on investment.
We have been working with clients, assessing economic and political scenarios, to help them think about the key risks and opportunities posed by the UKs departure from the EU.
These changes can be as simple as engaging the local community and offering work placements to help recruit workforce from local school leavers. They might include diversifying logistical operations – using more than one UK port for import/export - to mitigate possible border delays.
One thing that everyone can do now is to focus on the business basics, so you are 'match fit' for Brexit: review your finance and working capital; operational efficiency; and ability to attract and retain the talent and workforce you need.
Plan for the worst, hope for the best
In the face of continuing uncertainty it is easy to delay acting until the detail is available but this may be too late. There are steps businesses can take now to prepare regardless of the final deal.
Planning against a number of scenarios including the most disruptive – a no deal outcome – will let you work out what you need to do and when.
Our Brexit guidance will help you think about the potential impacts of Brexit and the opportunities it will create for your organisation so you can prepare for March 2019 and beyond.