The Brexit Column: Choppy waters

The Brexit Column: Choppy waters

The Brexit ship has set sail but whether it will founder or safely make it to harbour remains unclear. The question now for companies is not whether to, but how much to, invest in preparing for 'no deal'.

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We’ve slipped the lines and set sail, but this is no ordinary voyage. Charting a course to an unknown destination, the good ship Brexit has two captains – European chief negotiator Michel Barnier and UK Brexit secretary David Davis – each trying to steer her to a different port. The waters will be choppy for two years. But will The Brexit arrive in safe harbour or founder on the rocks?

Some businesses thought The Brexit would never leave port and delayed making a plan, reluctant to invest capital – financial or intellectual. The delivery of Theresa May’s letter to Donald Tusk on Wednesday scotched those assumptions. 

Now the question for businesses is not whether they prepare to man the pumps (in the event that no deal is achieved), but how much to invest in preparing for that possibility. Corporate decision makers might argue – as many did on Wednesday – that the prime minister’s letter was evidence of mellower mood music from Whitehall, just as we said about European leaders here last month. That may be true, but the wind can shift quickly and we should not forget what a disorderly Brexit could look like: lines of lorries snaking away from Dover, holidaymakers waiting for planes that can’t land, British shops running low on Spanish veg and French wine, 4 million EU and British citizens stuck in limbo in their adopted countries. 

Any reasonable politician wants to avoid this scenario so surely a disorderly Brexit is vanishingly unlikely? I do believe goodwill exists on all sides. However in an increasingly unpredictable world and a scenario like Brexit – where a lot of different things all have to go right – the actual chance of failure is higher than many realise.Imagine our ship, The Brexit, has to navigate around six rocky hazards. Even if it has a 95% chance of making it past each one, taken together, the ship still has a 1 in 4 chance of mishap.  That is why some commentators have put the chance of ‘no deal’ at 1 in 3, and some as low as 50-50. 

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So what are these six rocks on which a deal could founder?

  1. MEPs veto the deal. This is possible if a majority feel an agreement is too generous to Britain.
  2. The UK walks away. Maybe over the size of the divorce bill or if the EU refuses to discuss the terms of the exit at the same time as their future relationship – two likely sticking points early on.
  3. The EU scuttles an agreement. Less likely than the UK quitting, but possible if the black hole which Brexit creates in EU finances is blamed for a string of EU projects being put on the backburner.
  4. A deal fails to pass the Council of Ministers. Less likely since it needs the support of ‘only’ 20 of the 27 remaining member states with 65% of the EU’s population. Not unimaginable if the EU faces an existential crisis.
  5. A national or regional parliament refuses to ratify. Similar to last year’s ‘CETA scenario’, in which the EU’s trade deal with Canada was almost collapsed because of opposition from the regional parliament of Wallonia in Belgium.
  6. The British Parliament refuses to approve the deal – Less likely since it requires a simple majority in the Commons and can be forced through the Lords.

Both captains are trying to steer clear, but that is no guarantee of success. Mutinies by MPs, the press or the general public; heavy political weather; or miscommunication could all lead problems. 

Of course, the job is more than just avoiding hazards and remaining on an even keel. Ambitious companies wanting to grow should take advantages of the opportunities Brexit might offer. That is particularly the case if others are struggling or just bobbing in the doldrums. 

The first task though is mitigating risk. That is why I say to any company: whatever the weather, continue building your life-raft. 

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Sound daunting? KPMG’s Brexit Navigator can help businesses chart their course through these waters and explore the opportunities Brexit presents. Watch out for the Brexit Navigator’s launch at the FT Brexit and Beyond Summit in London on 4 April.

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This article represents the views of the author only, and does not necessarily represent the views or professional advice of KPMG in the UK. You can register for the email subscription list of this column and expert views from our Brexit leaders.

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