Brexit and the Evolving Damage Limitation Strategies

Brexit concern appears to be gathering rather than abating with leaked strategies and frantic efforts by Mrs. May to seem to be completely confident that she will get a better deal; in which case why did she not get a better deal the first time around?  The reality of any kind of Brexit, let alone a no-deal Brexit is slowly being revealed with mainly cons and precious few pros being exhibited.  Both the Confederation of British Industry (CBI) and the Institute of Directors (IoD) have been publishing the views of their members. 

The CBI quoted a global engineering organisation’s concerns:

“We operate a highly integrated supply chain, importing hundreds of thousands of raw materials, components and finished goods from the EU every year, as well as exporting tens of thousands of finished products. Despite all of the contingency planning and measures we have put in place to ensure customs documentation and arrangements are fully in place by March 29th, there remains a concern about border delays disrupting both our imports and exports of goods. We can accommodate some delays on standard items, but many of our goods are manufactured to order and more susceptible to delay."

Another member, a fast food retailer, voiced the following concerns:  “We import all of our salad from a country inside the EU due to a lack of availability in the UK. This food has a shelf life of five days - it cannot be frozen or stored for any longer. In the event of a 'no deal' exit from the EU, this supply chain would be broken. This would mean that the 50% of our products which use salad would no longer be made in the same way, or perhaps even be available to buy in the UK – impacting both the service we’re able to offer our customers and our profitability as a business”.

A further large organisation specialising in infrastructure commented:

"On day one of a "no deal" Brexit we would expect to see delays beginning on imported goods from the EU, an increase in the cost of supplies from the EU. We would have concerns over how this would impact our supply chain because we have no visibility over the supply chain’s exposure to EU goods. We would expect to see diminishing labour resources due to confusion about hiring EU workers, which would play a big part in an overall increase in recruitment costs due to a shift in supply and demand."

A new report from the IoD shows that one in three IoD members would be obliged to move their operations abroad in the event of a no-deal Brexit.  Furthermore, of the 1,200 directors who responded to the survey, 16% had already triggered their relocation plans, with a further 13% seriously considering doing so.  The IoD was at pains to point out that this trend does not only apply to big business but smaller firms as well.  The option of moving out of the UK seems to be high on the list of “Things to do to fix Brexit”.  As many as two-thirds of IoD members do business in the EU and a significant number of those members are already engaged in contingency planning which includes the potential to relocate in the EU.

The UK and London in particular, has depended on ease of access to the EU markets for some time, should this be lost by a no-deal situation the annual loss of production in London alone is likely to be eroded and the predicted annual loss of output by 2034 could be up to 6% lower which in actual terms could amount to £40 billion, at today’s rates, which is five times the annual spending on London’s transport network and 13 times the annual spending on policing, according to the IoD.  Barriers to trade would considerably weaken the UK’s and London’s ability to compete in the global markets.  The economic impact could be far-reaching and very difficult to stem.

In the view of Edwin Morgan, Interim Director General of the Institute of Directors, it may not be too late, he commented on the whole sorry situation:

“It brings no pleasure to reveal these worrying signs, but we can no more ignore the real consequences of delay and confusion than business leaders can ignore the hard choices that they face in protecting their companies. Change is a necessary and often positive part of doing business, but the unavoidable disruption and increased trade barriers that no-deal would bring are entirely unproductive.

“While the actions of big companies have been making headlines, these figures suggest that smaller enterprises are increasingly considering taking the serious step of moving some operations abroad. For these firms, typically with tighter resources, to be thinking about such a costly course of action makes clear the precarious position they are in.

“We still have a chance to stem the flow and provide enough certainty to the firms that are considering moving but haven’t yet done so. The UK’s hard-won reputation as a stable, predictable environment for enterprise is being chipped away. Our political leaders must keep this in the front of their minds as we enter this critical phase of negotiations.”

It is to be hoped that the political leaders he refers to have read and embraced his comments.