Businesses have been scrambling to prepare for Brexit – but it is only in recent weeks that the government has really begun to engage with the business community, says Nicole Sykes of the CBI. Uncertainty about the nature of the final Brexit deal is starting to bite. We need a two to three year transitional period after 2019 to enable firms to prepare.
The days following the referendum result last year were politically tumultuous and financially nerve-wracking. Business leaders flung themselves into action where political actors were caught up in leadership contests. Chief financial officers were scrambling to manage the falling value of sterling. HR directors were doing all they could to reassure anxious EU citizen employees. And CEOs were pulling together cross-departmental teams to analyse what Brexit could mean for different parts of their companies.
Of course, there was also an emotional reaction in the business community alongside the practical one. Every reputable survey taken during the referendum showed that the majority of businesses had wanted the UK to remain in the EU – from 80 per cent of CBI members, to 54 per cent of members of the British Chambers of Commerce and 63 per cent of members of the Institute of Directors. But firms moved very quickly past disappointment to pragmatism. In boardrooms, there were no discussions of a second referendum, frustrating or reversing the democratic decision taken on the June 23. Instead, the conversations were all about the steps business and government needed to take to make a success of Brexit. Neither could do it alone. From the start, it was clear to the CBI that a real partnership between business and government was needed.
From July 2016 to March this year, businesses undertook research into potential Brexit scenarios and their impacts. Many companies shared this analysis with Government departments to help them understand their priorities. The territorial offices, business, exit and international trade departments all held cross-sectoral roundtables throughout those months to hear views, while sector-specific conversations happened across Whitehall – food and drink in the Department for Environment, Food & Rural Affairs (Defra). Life sciences in Health, and tourism, tech and creative industries in the Department for Digital, Culture, Media & Sport (DCMS). But while the engagement was welcome, participants often found they did not understand how the detailed information they provided would be used.
It is hoped that will change with the welcome step up of business engagement since June’s election. With David Davis’ away day at Chevening, the first meeting of the Prime Minister’s Business Advisory Group, and business councils and taskforces popping up across ministries – it looks like a new premium has been placed on the business voice.
That has come not a moment too soon.
Policy makers speaking with companies now will hear demands for an increased urgency for greater insight and understanding into the government’s intentions – for a number of reasons.
Uncertainty is starting to bite
Firstly, because uncertainty is starting to bite. A recent survey by the CBI showed 42 per cent of companies saying the Brexit vote had already affected investment decisions. Ninety-eight per cent of those firms affected said the impact had negatively affected investment – with the only positive aspect the shift in sterling against the US dollar, and the main Brexit-related reason for increasing investment being the rise of automation to offset expected difficulties recruiting workers.
Uncertainty is affecting investments across the economy. The CBI has heard from a medium-sized book publisher cutting back on the authors it commissions due to concern over consumer confidence; a small tour operator switching focus from the UK to the US after its major European customer cancelled future contracts; a large plastics manufacturer postponing the purchase of machinery because its North American clients are concerned about tariffs; a multi-national engineering firm that has shelved plans for a cutting-edge innovation centre.
Secondly, the moment for putting contingency plans into place is drawing nearer – and not just for the financial services firms whose moves have been making headlines over the past few weeks. Every firm with contingency plans has a different tipping point, based on March 2019 as exit day and counting backwards through the time they’ll need to put plans in place. A Belfast-based customer services company that needs six months to set up a centre in Europe will be able to wait until October next year. A company making medicines in the Midlands that needs 18 months to establish a laboratory in Europe can’t wait much longer.
And thirdly, urgency is growing because businesses are starting to get ready to produce goods and services for sale after March 2019. Many automotive production lines are 18 months long, and sellers don’t know if they need to factor in the cost of tariffs. Airlines are about to start selling seats for flights in 2019, and they don’t know what legal basis there will be to fly between the UK and Europe.
These three reasons are why the CBI is urging negotiators to remove a layer of uncertainty quickly, by brokering transitional arrangements, to be agreed as soon as possible, that gives firms today the confidence to continue investing and creates time to get the final deal details right. This period should be as short as practically possible and could be in the realm of two to three years. These would provide much-needed certainty and stability, continuity for business operations and continued easy flow of trade.
MPs heading home for recess should reach out to businesses in their constituencies over the summer, and listen to the case repeated again and again for these transitional arrangements. Companies want to keep on providing jobs and growth, bringing prosperity to their local communities – but they need a more certainty to do so at the level we all want to see throughout the negotiations ahead.
This post represents the views of the author and not those of the Brexit blog, nor the LSE. It was originally published at The UK in a Changing Europe.
Nicole Sykes is head of EU negotiations at the Confederation of British Industry (CBI).