What will a ‘no deal’ Brexit mean for UK business? What will a ‘no deal’ Brexit mean for UK business?

What will a ‘no deal’ Brexit mean for UK business?
26 Jul 2018

The deadline for Brexit is looming. The UK will leave the European Union (EU) trade bloc early next year. But as the clock ticks down towards the exit date of Friday, 29 March 2019, companies are becoming increasingly worried about what the move will mean for them. 

This article will summarise the latest developments and their implications for the UK business community. But as news here changes on a daily basis, be aware that some statements may well be out of date by the time the piece is published.

Where do negotiations currently stand?

It is becoming increasingly likely that the UK will crash out of the EU without any deal. Negotiations have effectively stalled and no significant progress has been made this year, not least because the UK has been unable to agree its internal negotiating position.

The ruling Conservative Party is torn between those in its ranks who support a ‘hard Brexit’, which would cut most ties with the EU, and ‘soft Brexit’ supporters. They favour maintaining links such as a Customs Union and maybe even membership of the EU Single Market.

Given these splits, UK Prime Minister Theresa May had been unable to present a clear negotiating standpoint to the EU. But in recent weeks, she finally put forward a proposal that makes her intentions clear - the so-called ‘Chequers’ proposal

What is the Chequers proposal?

The Chequers proposal has major implications for businesses operating in the UK, especially those that have important supply chains to or from the EU. If implemented, it would effectively allow goods to move between the UK and EU without border checks.

This would mean that UK companies would not suffer the major border delays that are a likely outcome of a ‘no deal’ scenario. It would also mean the UK would continue to follow EU regulations on industrial and agricultural products, which would prevent organisations having to operate two rulebooks in some sectors.

But day-to-day business operations would become much more complex than they are currently because the UK would not be an official member of the EU Customs Union. This situation would lead to increased administrative costs for business and the UK could also choose to exit this arrangement at any time.

There is little detail on how it, or other key areas, would operate. For example, while services account for 80% of the UK economy, there is no clarity about how they will be dealt with post-Brexit.

Moreover, EU nationals will no longer be able to move freely to the UK for work. But there are no specifics available as to how UK companies would hire EU labour, which currently plays a vital role in many sectors such as construction and healthcare.

EU nationals currently residing in the UK

Prior to the Chequers proposal, the UK had already announced plans for what EU nationals who already live in the country will do after Brexit. As such, they will be eligible to apply for so-called ‘settled status’, which will allow them to continue living and working in the UK. This is, of course, good news for companies that currently employ EU nationals as part of their workforce.

How likely is it that the Chequers proposal will be implemented 

Even though the Chequers proposal took so long to create, it is highly possible that it will not be implemented in its current form. It will face strong opposition both from the EU and from within the UK.

The proposal stands contrary to the EU’s stated negotiating position, which is based on freedom of movement in four areas: Capital, Labour, Goods and Services. The UK, on the other hand, is seeking free movement of Goods without taking on similar rights and obligations in the other three areas.

The EU views this stance as ‘cherry picking’, which means the UK may well have to give up substantially more in negotiations before it gets a deal. But UK politicians from all sides of the House strongly oppose Chequers because it effectively forces the country to adopt many of the EU’s rules without having any opportunity to influence them.

What is the Irish Border problem and why is it so important?

The single most difficult issue to resolve will be the Irish Border conundrum. No one wants a return to customs checks between the north and south of the island of Ireland as it could jeopardise the current peaceful situation. But both sides remain divided on how to achieve agreement, as it will involve major concessions on either or both sides.

What happens in a ‘no deal’ situation?

All the above points mean it is now becoming increasingly likely that there will be no deal between the UK and EU. Both sides are now publicly warning their citizens and businesses to start seriously preparing for this outcome. 

‘No deal’ would mean that all agreements between the UK and the EU are immediately terminated at 11pm on 29 March 2019. These agreements cover a wide range of highly complex arrangements covering both civilian and business affairs that have been carefully created over more than 40 years. 

The ramifications of a ‘no deal’ scenario are mind-bogglingly complicated and would affect virtually every UK business, albeit in different ways depending on their sector, supplier or employee base, regulations and the like. Here are some of the major implications:

  • Staffing: If your UK business employs EU nationals, it may be much more difficult to hire more in future;
  • Selling overseas: UK businesses may lose the right to sell into EU markets, for example under EU procurement contracts. They may also find their goods and services no longer meet EU regulatory standards. UK professionals may no longer be able to provide consulting services in the EU;
  • Customs: Goods moving between the EU and UK could become subject to customs checks, which could lead to major delays at borders and significant disruption to supply chains.

How should you prepare for a ‘no deal’?

Companies of all sizes across the UK are now being advised to make contingency plans. Large organisations in heavily-regulated sectors such as banking and pharmaceuticals have already been doing so for many months.

These plans will vary depending on the nature of your business, but a common solution is to set up a subsidiary in the EU, which is not as expensive or difficult as many people think. Also consider creating virtual operations to fill any staffing holes going forwards.

 John Galvin

John Galvin is founder and CEO of award-winning international expansion company Galvin International, which has offices in the US and UK. His firm helps clients expand globally by providing one-stop commercial and compliance services in more than 100 countries. John is a former multinational CFO with over 20 years of international commercial and finance experience, and was named Global Consultant of the Year 2016/17 at the inaugural Global Payroll Awards.

 

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The deadline for Brexit is looming. The UK will leave the European Union (EU) trade bloc early next year. But as the clock ticks down towards the exit date of Friday, 29 March 2019, companies are becoming increasingly worried about what the move will mean for them. 

This article will summarise the latest developments and their implications for the UK business community. But as news here changes on a daily basis, be aware that some statements may well be out of date by the time the piece is published.

Where do negotiations currently stand?

It is becoming increasingly likely that the UK will crash out of the EU without any deal. Negotiations have effectively stalled and no significant progress has been made this year, not least because the UK has been unable to agree its internal negotiating position.

The ruling Conservative Party is torn between those in its ranks who support a ‘hard Brexit’, which would cut most ties with the EU, and ‘soft Brexit’ supporters. They favour maintaining links such as a Customs Union and maybe even membership of the EU Single Market.

Given these splits, UK Prime Minister Theresa May had been unable to present a clear negotiating standpoint to the EU. But in recent weeks, she finally put forward a proposal that makes her intentions clear - the so-called ‘Chequers’ proposal

What is the Chequers proposal?

The Chequers proposal has major implications for businesses operating in the UK, especially those that have important supply chains to or from the EU. If implemented, it would effectively allow goods to move between the UK and EU without border checks.

This would mean that UK companies would not suffer the major border delays that are a likely outcome of a ‘no deal’ scenario. It would also mean the UK would continue to follow EU regulations on industrial and agricultural products, which would prevent organisations having to operate two rulebooks in some sectors.

But day-to-day business operations would become much more complex than they are currently because the UK would not be an official member of the EU Customs Union. This situation would lead to increased administrative costs for business and the UK could also choose to exit this arrangement at any time.

There is little detail on how it, or other key areas, would operate. For example, while services account for 80% of the UK economy, there is no clarity about how they will be dealt with post-Brexit.

Moreover, EU nationals will no longer be able to move freely to the UK for work. But there are no specifics available as to how UK companies would hire EU labour, which currently plays a vital role in many sectors such as construction and healthcare.

EU nationals currently residing in the UK

Prior to the Chequers proposal, the UK had already announced plans for what EU nationals who already live in the country will do after Brexit. As such, they will be eligible to apply for so-called ‘settled status’, which will allow them to continue living and working in the UK. This is, of course, good news for companies that currently employ EU nationals as part of their workforce.

How likely is it that the Chequers proposal will be implemented 

Even though the Chequers proposal took so long to create, it is highly possible that it will not be implemented in its current form. It will face strong opposition both from the EU and from within the UK.

The proposal stands contrary to the EU’s stated negotiating position, which is based on freedom of movement in four areas: Capital, Labour, Goods and Services. The UK, on the other hand, is seeking free movement of Goods without taking on similar rights and obligations in the other three areas.

The EU views this stance as ‘cherry picking’, which means the UK may well have to give up substantially more in negotiations before it gets a deal. But UK politicians from all sides of the House strongly oppose Chequers because it effectively forces the country to adopt many of the EU’s rules without having any opportunity to influence them.

What is the Irish Border problem and why is it so important?

The single most difficult issue to resolve will be the Irish Border conundrum. No one wants a return to customs checks between the north and south of the island of Ireland as it could jeopardise the current peaceful situation. But both sides remain divided on how to achieve agreement, as it will involve major concessions on either or both sides.

What happens in a ‘no deal’ situation?

All the above points mean it is now becoming increasingly likely that there will be no deal between the UK and EU. Both sides are now publicly warning their citizens and businesses to start seriously preparing for this outcome. 

‘No deal’ would mean that all agreements between the UK and the EU are immediately terminated at 11pm on 29 March 2019. These agreements cover a wide range of highly complex arrangements covering both civilian and business affairs that have been carefully created over more than 40 years. 

The ramifications of a ‘no deal’ scenario are mind-bogglingly complicated and would affect virtually every UK business, albeit in different ways depending on their sector, supplier or employee base, regulations and the like. Here are some of the major implications:

  • Staffing: If your UK business employs EU nationals, it may be much more difficult to hire more in future;
  • Selling overseas: UK businesses may lose the right to sell into EU markets, for example under EU procurement contracts. They may also find their goods and services no longer meet EU regulatory standards. UK professionals may no longer be able to provide consulting services in the EU;
  • Customs: Goods moving between the EU and UK could become subject to customs checks, which could lead to major delays at borders and significant disruption to supply chains.

How should you prepare for a ‘no deal’?

Companies of all sizes across the UK are now being advised to make contingency plans. Large organisations in heavily-regulated sectors such as banking and pharmaceuticals have already been doing so for many months.

These plans will vary depending on the nature of your business, but a common solution is to set up a subsidiary in the EU, which is not as expensive or difficult as many people think. Also consider creating virtual operations to fill any staffing holes going forwards.

 John Galvin

John Galvin is founder and CEO of award-winning international expansion company Galvin International, which has offices in the US and UK. His firm helps clients expand globally by providing one-stop commercial and compliance services in more than 100 countries. John is a former multinational CFO with over 20 years of international commercial and finance experience, and was named Global Consultant of the Year 2016/17 at the inaugural Global Payroll Awards.

 

MORE ARTICLES THAT MAY INTEREST YOU

What might Brexit mean for UK employment law?

Contingency planning for Brexit

The Brexit jargon-buster