With the rush for a deal on, the government should consider a Brexit implementation period so businesses aren’t left in the lurch
EU's chief negotiator Michel Barnier (left) arriving from the Eurostar with EU Ambassador to the UK, Joao Vale de Almeida for negotiations on a free trade deal between the EU and the UK in September [Credit: PA Images]
After a tumultuous year for business, if a trade deal with the EU is agreed, an implementation period may be needed to help both government and business adjust with minimum impact
Boris Johnson’s first year in office has not gone to plan. Elected in December 2019 with an 80-seat majority, he entered 2020 with a commitment to “Get Brexit Done”, a promise of an oven ready deal, and a pledge to not extend the transition period under any circumstance. Events, namely a global pandemic that engulfed continents and governments, took over, and the Prime Minister has been forced to shelve his long-term visions and embrace crisis management instead.
Businesses have been on this tumultuous ride with him. Faced with restrictions usually reserved for world wars, industries of all sizes have had to adjust to the huge economic consequences of societal lockdowns, transformed working conditions and consumer behaviours and the dislocation of global manufacturing and supply networks.
Rapid, generous and unprecedented support schemes, such as the Job Retention Scheme, staved off forced business closures, but many are now struggling to stay afloat during the current Covid second wave and looking pessimistically to the horizon; bracing themselves for a potential cliff edge when the UK leaves the transition period on 31 December 2020.
A no deal exit would result in immediate tariffs, checks and delays for British businesses, and is therefore largely cautioned against by all sectors of Industry and most political interests. With little over a month to go, a deal is still tantalizingly possible but increasingly likely to fall short of the zero-quota/zero-tariff deal aimed at originally by the Prime Minister.
Whatever terms the UK leaves on, businesses will struggle to make the necessary changes in time and are likely to face extreme difficulties as a result.
Despite the government launching a new advertising campaign in October, and HMRC writing to 200,000 firms to advise on new custom and tax rules, a recent YouGov poll showed that only one in five businesses felt well prepared for the end of the transition period, with 30% stating they were poorly or very poorly prepared.
In a recent appearance in front of the Treasury Select Committee, Lord Agnew of Oulton, a Cabinet Office minister, accused traders of adopting a “head in the sand” approach to the transition period, and failing to engage in an “energetic way.”
The comments proved contentious in the business community, with many highlighting the frustration felt about the lack of detail on what to prepare for. Arguably, a few businesses have shied away from preparing for the ‘worst-case’ no deal exit simply because the impact and scale of adjustments are so challenging that they opt to gamble that it will never happen.
But preparing for the UK and EU agreeing to some form of trade deal is also problematic. Without knowing the specific terms of any UK/EU deal, it is extremely difficult for many sectors to engage in detailed, long term planning and make changes to their supply chains and operating models.
And it is not only lack of detail that is hampering preparation efforts. In the lead up to the various Article 50 exit deadlines, many businesses undertook preparatory work to build up financial reserves and stockpiles of goods. However, the pandemic ate into these and restocking the reserves is an extremely costly endeavor which few can now afford, even if their global supply networks were fully functioning.
In the face of these challenges, a short six-month implementation – not transition - period in 2021 would have many advantages to both government and Business in allowing preparations to be informed by a clear understanding of the future trading relationship between the UK and EU.
While the Pfizer-BioNTech and Moderna vaccines have improved forecasts significantly, offering a light at the end of the tunnel for individuals and economies, the UK will still likely enter 2021 in the midst of a second wave – with restrictions in place – and spend much of the year in recovery mode. Businesses will still require support to deal with the pandemic, and the government may find that an opportunity to avoid additional support measures and further borrowing is worth a little political capital.
Laura Hutchinson is Dods Head of UK Business and Political Intelligence