PROSPER MAGAZINE: ISSUE 02 | BUSINESS & BREXIT
WHAT NEXT FOR BUSINESS & BREXIT?
Brexit is happening and on 31st January Britain will formally leave the European Union.
Prosper asked FBC Manby Bowdler Brexit Director Peter Wilding, the man who invented the word ‘Brexit’, to take a look at the herculean task which now lies ahead for Black Country businesses.
Now that Brexit will be done, the fact is, it will have only just begun. Boris Johnson’s government is already up against the clock with a manifesto commitment to get a free trade deal done by New Year’s Eve 2020 which leaves precious little time to negotiate.
Given the government's record in securing a deal towards the end of last year where we witnessed a 'smudging' of previously set-in-stone and unchangeable red lines, there are two sticky issues we need to keep an eye on.
First, will the PM stick to his decision ruling out any extension to the transition period, in effect imposing a 31 December deadline for concluding a free trade deal with the EU? Second, will he stick to his policy of diverging from EU rules and standards and thus risking future business access to the single market?
The initial signals don’t look good. Although he now has an 80-strong parliamentary majority, extending the transition means years of more paying into and no say over EU rules which would infuriate Eurosceptic MPs and some voters.
So, this will leave seven months to hammer out a deal.
In February both sides will publish their respective mandates and by September a deal must be done to give time for all 27-member state parliaments plus – would you believe – regional parliaments to ratify the deal by years end. That’s just months to agree on the type of deal that typically takes five years.
This is a tall order. By acting in haste, the government risks business repenting at leisure. The search for a quick deal will either mean the UK signing up to the EU’s terms – with all the tariff and regulatory burdens that would entail – or rejecting them and facing even harder tariff and regulatory burdens under the WTO regime.
The real problem is that many at the top of government see diverging from EU rules as the big prize of Brexit. It is doubtful this government will agree to follow EU rules imposing a level playing field in the future.
Ireland, for example, has already implemented the new rules on exporting live breeding animals from the UK. In order to send a rare breed pedigree bull there, we now need three separate vet inspections, blood tests and animal health history and complete 67 pages of documentation. No free trade deal will remove any of these requirements which apply to any non-EU country outside the customs union.
Even so, not agreeing to follow other EU rules will make it difficult to defend manufacturing industries from EU tariffs and regulatory barriers – cue the looming prospect of job cuts and factory closures that the new Tory MPs from the Midlands will be anxious to avoid.
If someone is going to be disappointed soon, the thing to watch is distraction techniques.
The Tories’ new working-class former Labour voters are likely to be used as a justification to deliver a quick deal earmarked by a tough approach to immigration. Standing up to the EU won’t play badly if the PM wants to play tough with Brussels especially if we see “buy British” procurement rules and state aid for companies struggling to survive.
However, if the last three years have taught us anything, commercial imperatives will always take second place to politics. The central dilemma is how to reconcile two contradictory, ideological objectives.
The first is that, for many in the Conservative Party, Brexit will not be Brexit unless the UK is entirely free to set its own taxes, tariffs, rules and regulation unfettered by European law. The second is that to achieve this, business – and the jobs dependent on it – will face possibly ruinous barriers to trade from January 1, 2021.
Equally, the EU is unlikely to do the UK any favours. They fear the UK becoming a bargain-basement economic and political competitor and have all the time in the world plus the collective weight to impose much of the European model on the anxious UK. Moreover, they will try to retain their privileged access to such things as fishing rights whilst denying the UK retained access to such things as the services market.
Which is why the political imperative for the government will be to silence Brexit.
Expect the government to ensure that the legitimate concerns of manufacturers, farmers and service providers are relegated to the business pages.
I predict Boris Johnson will focus the government’s 2020 messaging on anything but Brexit except when Brussels-bashing can disguise a climbdown.
Hostages to fortune such as full EU alignment on the one side or cliff-edge breakdown on the other will be avoided. Through the middle may come a messy, low-alignment trade deal dictated by the EU and spin as a British victory.
A Conservative Party quieted, a public sated and a press distracted will be enough to get the Prime Minister into 2021 unscathed. And the actual real end result - tariffs and regulatory barriers will be buried in the back pages and will anyway be the fault of the rigid EU, not plucky Britain.
The only time you’ll see Brexit on the front pages is when No 10 tries to enrage its newly acquired voter base with lurid anti-Brussels headlines as the power differential between the two sides reveals itself during the negotiations.
In the meantime, 2020 will be business as usual. The transitional period keeps single market access and thus current supply chains intact. The only difference is that, under the radar, the government will be reshaping the country’s economic order. Given that this cannot happen until it has made up its mind as to what trade deal it wants, business now must make up the government’s mind for it.
I have always said that, because business has other things to think about on a daily basis, the two low-hanging-fruit imperatives to focus on are contracts and compliance.
Businesses across the Black Country and beyond need to ensure that all the legal terms and conditions by which they operate are watertight regarding the costs and liabilities which may result from the economic upheaval that is coming.
And they also need to make sure that all the regulatory and financial compliance requirements previously not needed as members of the single market are now considered and put in place.
I have visited many companies across the West Midlands whose contracts and compliance procedures haven’t been considered for decades. This will need to change, and we are here to ensure that you are protected from surprises.
Finally, you need to know how the government intends to deal with your sector in the negotiations.
Will it understand your requirements and fight to protect you from adverse consequences or will your sector suffer in the inevitable trade-offs and compromises that will emerge?
That will require you to do something unusual for most businesses: influence decision-makers.
As some MP’s once told me – for them the benefit of Brexit is that they will have new powers previously devolved to Brussels. They will now be required to serve their constituents by ensuring that their business communities are not sold down the river.
As a former lobbyist, I know how this works.
West Midlands businesses are resilient and innovative. There is no question that most will survive and, subject to the new trading regime that emerges, prosper. If politics had not plagued this issue for so long, we could expect a long transitional period until a reasonable free trade agreement was reached.
After all, the government has the option to keep everything the same for another three years under the Withdrawal Bill. Because of politics, we have to expect that this will not be palatable to the government.
So now it is time to get ready and prepare.