The bright side of a no-deal Brexit?

As a no-deal Brexit approaches, this is what every company needs to know.

While almost no one in political circles wants a no-deal Brexit, there is the strong possibility that the UK will sleepwalk off the cliff-edge. This is due to Prime Minister May being unable to satisfy the right and left wings of her party - or the Northern Irish Democratic Unionist Party which props up the Prime Minister’s minority government - while the opposition Labour party are focused on calling a general election - not national unity - while remaining stoutly Eurosceptic. As the clock ticks down towards the March 2019 deadline, Prime Minister May’s almost universally unloved Brexit deal and a no-deal Brexit are the two realistic options which lay on the table. From a democratic perspective, polls show that the support of UK citizens for a no-deal Brexit is pretty high. 40% said they would support this in a recent poll.

The only other remote possibility would be a second referendum which would be intended to make the whole Brexit issue go away. This remains highly unlikely and opinion polls show that the result of any hypothetical second referendum could well be identical to the one held in June 2016.

For these reasons, a no-deal Brexit is highly likely. Although the details are being thrashed out, it is important for business to know the threats and look for opportunities. Outside of how planes will take off and land on 30th March - or how gas and electricity networks will operate - this is what businesses need to know.

No Single Market for the UK

The UK would no longer have unrestricted access to the EU internal market of nearly 450 million citizens. The basis for the UK’s trading framework would disappear, as would the immense body of laws, practices, standards and agreements that have been established over the past 45 years which cover everything from food standards to financial markets and water quality. This wrench would be painful, confusing and costly to businesses big and small. Tariffs would immediately be imposed on all goods and services, for example. The legal quick-fixes that could be established are uncertain and are likely to be rudimentary at best.

Future trade deals?

Despite the confidence of the UK government that leaving the EU will make the country a rejuvenated and nimble international player, deals take a long time and a lot of effort to develop and sign. The UK International Trade Minister Liam Fox famously stated that 40 free trade agreements would be signed and in place by the time the UK leaves the EU. He has not managed to deliver even one.

That said, there are immense opportunities for companies to access a market of 65 million people which remains one of the biggest and richest economies in the world. The ideal scenario would be an open, dynamic UK market focused on freeing up trade and developing relations with countries that have been kept outside the EU’s tariff wall. Regardless, now is the time for companies to be courting UK politicians and decision-makers as to the shape of the UK’s business and trading future.

Opportunities for companies

This previous point leads us to the fact that the UK government will be desperate to show that it is still open for business after a no-deal Brexit. This translates into an excellent opportunity for companies to benefit from tax breaks, incentives and sweeteners of all shapes and forms. From building factories to creating jobs and guaranteeing investments, this represents a golden opportunity for companies to negotiate a favourable deal. Furthermore, if a no-deal Brexit led to lower (or no) tariffs, more open trade and fewer checks and regulations would follow. The opportunities would be huge for companies to secure better access to the UK market. World Trade Organisation (WTO) rules mean that lowering tariffs for one country, or trading bloc, would need to be done for all. You cannot pick and choose your tariffs without a formal trade agreement. Free Trade Europa would be supportive of this no tariff approach and feel it would be an excellent positive example internationally.

Trade in services, however, is a notoriously difficult area. Regulatory harmonisation is politically sensitive and incredibly tricky to achieve at the EU level, let alone within the WTO where rules are threadbare in the extreme. Financial companies, for example, will need to establish a base in the UK and EU since the “passporting rules” which allow institutions to carry out activities from within any EU market to serve another will no longer be possible.

A no-deal Brexit is also likely to lead to a slide in the value of sterling. While this will make UK goods cheaper, and benefit exporters, the long term effects could well be higher inflation and an increase in interest rates. This will affect the purchasing power of companies and UK citizens alike over the longer term.

UK and EU supply chains will also be drastically affected. Modern logistics networks see goods and materials sourced internationally and the “just in time” nature of these supply chains means that warehousing requirements are kept to a minimum. The UK government will need to safeguard its transport infrastructure and allow these networks - which criss-cross national borders - to continue or else risk a catastrophic collapse in the UK’s business infrastructure.

Similarly, the evaporation of the free movement of workers within the EU is tragic for business - as well as socially and politically - in Free Trade Europa’s view. Not only will the supply of skills and talent be reduced but increased rules will push up costs, increase confusion and cause delays for business.

What about agriculture?

The support and subsidies that the UK agricultural sector benefits from - through the Common Agricultural Policy - would disappear. The UK would no longer be able to compete on the global stage and tariffs would cut farmers off from the EU market. This would likely lead to the decline and even demise of much of the agricultural sector in the UK without significant funding from the UK government, which is unlikely to materialise.

From an international perspective, a UK agricultural market freed from the grip of the Common Agricultural Policy could mean lower tariffs and regulations, and therefore a more attractive destination for meat, fruit and vegetables. The result could also be cheaper food for UK consumers.

Grey clouds with silver linings?

Although the future remains uncertain, a no-deal Brexit is certain to be messy, complicated and time-consuming. Many rules and regulations will be unclear and there will be a huge amount of ill will to go around. That said, business will need to pick its way through the wreckage and seek out the opportunities. In business - as in life - finding the positive in every negative is essential. There are huge potential gains for those who get it right.