The Brexit Column: In the case of cliff edge | KPMG | UK

The Brexit Column: Cliff edge – dead metaphor, live danger

The Brexit Column: In the case of cliff edge

The once-alarming image of a Brexit cliff edge has lost some of its impact through overuse – but the underlying danger has not gone away, Mark Essex argues.

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The Brexit Column: Cliff edge - dead metaphor live danger

Warnings about a 'cliff edge' if there is no Brexit deal are ubiquitous. From political interviews on Sunday TV to broadsheets who have used the phrase more than once a day since the election, repetition has turned this once evocative image into a dead metaphor.

Brexit may not have happened before but this doesn’t mean we have no precedent for the disruption that a cliff edge Brexit could cause. The fuel protest of 2000 and the Icelandic volcano eruption of 2010 can teach us useful lessons about the scale of the challenges we would face.

And while I hope for agreement, if nothing is agreed until everything is agreed, then it will be some time before business can relax. The two negotiating teams’ starting positions are some way apart and something needs to shift to divert the current trajectory away from the cliff and toward the sort of agreement which will reassure businesses.

Grinding to a halt

The date for reaching a deal on trade and tariffs is 29 March 2019. If talks fail and no interim measures are put in place then a British tourist hiring a car in Paris may find that their UK licence is not recognised on 30 March. Majority UK-owned airlines may find their air operating certificate invalid, effectively grounding the fleet.

A ferry arrives at Dover every 30 minutes and the port, Europe’s busiest, handles 2.6 million freight vehicles a year. We have seen Operation Stack turn Kentish motorways into lorry parks. How far round the M25 will those traffic jams back up given the level of disruption at the ports which cliff-edge will cause? I worry about the ability to recruit and train sufficient customs officials, drivers who don’t understand the new rules and vessels unable to berth. The word “impossible” is used often in conversations about Brexit futures but when it comes to accommodating queues of lorries in the port of Dover, physical geography asserts itself: we will literally run out of road.

What will be the results? Unpredictable shortages of goods in factories and shops. Why unpredictable? Because supply chains are complex and long and rely on lots of firms to work together in a co-ordinated way. Industry no longer has teams of expediters chasing ingredients around their supply chain, relying instead on Just-In-Time systems and inventory measured in hours more often than weeks. Those systems are not designed to cope with cliff edge Brexit.

Is this over-reacting?  Let’s examine some precedents.

 

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Lessons from the past

The fuel shortages of 2000, due to protests about petrol prices, caused schools to close and the cancellation of non-essential operations in hospitals because staff were unable to get to work. Supermarkets came close to running out of food and postal services struggled to maintain deliveries. The Institute of Directors said the cost to business was £1 billion.

At its height the crisis caused by an Icelandic volcanic eruption led to the cancellation of almost a third of global flights, leaving more than 10 million people unable to board flights and costing the airline industry an estimated $1.7 billion. The British Chambers of Commerce said the disruption cost the UK £100 million a day in lost output.

“No deal” Brexit could be worse than those events combined. The economy would be damaged quickly if low-inventory supply chains seized up and parts for manufactured goods were left stranded outside Britain. This would be compounded further if companies’ decision makers also find themselves unable to get to HQ due to travel disruption. The turmoil would last at least as long as it took for politicians to agree measures to get things moving – we are talking more than a few days.

Brexit is not an unforeseeable event. You know it’s coming and so do your customers. If you can show you have planned to the best of your ability and mitigated the impact, they will be understanding. But badly handled disruption can cause lasting damage, as recent events in the airline industry have shown. Our Brexit Navigator shows the decisions that businesses need to consider over the remaining 20 months.

If good sense prevails, none of this planning will need to be tested. But hoping for the best is not an option. Each business will have its own priorities if the cliff edge turns from cliché to reality. My list would start with ensuring availability of your supply chain, your staff and your decision makers.
 

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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