Brexit—we know more than we think
Government and business must talk
We know that the government will invoke Article 50 by the end of the first quarter of 2017, but we don’t know much else—or do we? Compared to the situation on 24th June, we know quite a bit, even if that “knowledge” owes more to probability than certainty.
Business doesn’t like uncertainty; it can inhibit investment and delay decisions, but those willing to go against their own particular status quo may find opportunities. While respecting the outcome of the referendum, if the business community is prepared to take early and sustained action, and to engage government with its priorities, there is every chance of translating uncertainty into competitive advantage.
So what do we know that can deliver a competitive edge? We know the prime minister won’t show her hand before the negotiations start, but we also know that Philip Hammond, the Chancellor of the Exchequer, wants a shift in economic policy to see the UK “through a period of turbulence and uncertainty.” And, breaking with George Osborne’s austerity, he has urged a new plan to “fit the circumstances Britain now has.”
We know that Theresa May’s insistence on ending free movement of workers and the influence of the European Court of Justice is probably incompatible with single market membership. But Hammond’s idea of “sector by sector” deals to keep single market access for key industries might hint at some negotiating wiggle room. There’s also commentary that suggests that the prime minister has circulated papers to the Cabinet that warn of the pitfalls—from falling GDP to traffic chaos in Dover and Holyhead—of leaving the customs union. Some have suggested that industries with complex supply-chains, for example the car industry, might need customs union carve-outs to simplify cross-border trade.
While all this remains speculative, there are still enough clues to help individual businesses to model how the impact of a variety of Brexit options might impact on their supply-chain and operations. And while these options need to be seen in the context of people and talent, a final deal with the EU is likely to be bespoke, with potentially varying levels of market access by sector. So preparations need to be sector- as well as market-specific.
That understanding of what is really important to individual business informs what’s important to the economy. That, in turn, provides an opportunity for dialogue with the government on the form, structure and outcome of negotiations.
Among the myriad issues that will potentially impact business, three stand out.
The first is talent. The UK needs access to people and skills, so understanding current and future skills needs, and developing contingency plans to retain existing talent and attract, develop and retain new talent, is fundamental. Second, international supply chains need to be stress-tested to understand not only the impact of trading with the EU from outside the customs union but also the opportunities to facilitate trade beyond the EU under a new UK customs regime. The third is contracts, almost all of which will need re-negotiating and updating to reflect any agreed bespoke model of engagement with the EU and other trading partners.
Under Article 50, Britain will have a two-year window to negotiate the terms of its exit from the EU—this is challenging. There is tacit acceptance among the EU27 that striking a comprehensive deal with the UK inside two years is almost impossible. So we may need a transitional deal until the final settlement is agreed—another factor that business needs to consider in their post-Brexit trade strategy. Getting all this right will require wide and deep engagement across society and business. So how can government distil the substance from the noise and deliver what’s best for UK PLC?
It’s essential that an effective dialogue occurs between government, industry and civil society to get the best deal for the UK. With so many voices, and plenty of interests, it is essential that government takes a structured approach to match and build a comprehensive map of business and society’s wants, needs and priorities, to underpin the negotiations. Although government must take into account all interest groups, collaboration between business and government is crucial when it comes to designing a robust and winning trade negotiation and industrial strategy.
These challenges are considerable and there are risks and uncertainties; but new trading relationships will also bring opportunities. Understanding these opportunities will be important in planning ahead. But this can only happen, and happen successfully, if businesses become passionate about modelling their options and share the results with government to ensure these outcomes are factored into its early discussions. If we do that, we will emerge stronger for the experience.
On the 17th of January 2017, Prospect hosted a roundtable discussion with the contributors to: Brexit Britain: the trade challenge. This report is designed to act as a guide for parliamentarians, officials and businesses with a stake in the UK’s changing relationship with the world following Brexit. The discussion was chaired by Tom Clark, Editor of Prospect. Participants included Tasmina Ahmed-Sheikh MP, Miriam González and Vicky Pryce.
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