The Brexit Column: Give and take | KPMG | UK

The Brexit Column: Give and take

The Brexit Column: Give and take

None of those engaged in the Battle for Brexit can win outright. Everyone will have to give a little if business is to win some certainty in the short term says Mark Essex.

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The Brexit Column: Give and take - rope

It's a tug of war but with four teams, not two. Leave voters are straining at the rope in order to see their vision of Brexit delivered. Meanwhile, the Remain-leaning business community heaves for a deal minimising disruption and uncertainty. The EU team in blue and yellow seem to be tugging more or less as one and seem unyielding – determined to limit the fallout or to set an example. And the fourth end of rope is held by the British parliament, a team still discussing which way to pull, how and when.

But no matter how hard they try, these groups must eventually acknowledge that none of them can win this tussle outright. Unless they all relax their grip and offer a little rope, the parties will huff and puff and run themselves into the ground while the dark clouds of a disorderly Brexit roll over, delivering a terrible drenching in 18 months’ time.

I say this for a simple reason: there is no possible position that can simultaneously accommodate leavers’ immigration and sovereignty demands, businesses’ demands for a near continuation of the status quo, which can command a majority in parliament and also gain approval in the council chambers and legislatures of Europe.

Some business leaders may cling to a hope that they can bring Leave voters round to their way of thinking. If they could make a convincing case and cleave off enough people from the 17.4 million who voted out, might not a sufficient number of MPs be freed from the obligation to ‘carry out the will of the people’?

I wouldn’t count on it, and certainly not in the few months left before businesses have to start taking steps to insulate themselves from an ‘unplanned no deal’ scenario, and the potential chaos it would unleash.

First, I don’t see Leave voters getting a sudden attack of buyer’s remorse. Businesses might be fretting about import costs, a ‘Brexodus’ of EU workers, supply chain dislocation or wobbling investment intentions, but the ‘only’ tangible impact on consumers, so far, has been the drop in the pound and a subsequent 1.8 percentage point increase in the rate of inflation1.

Secondly, MPs in both main parties are likely to continue backing Brexit, with both parties’ leaderships pledging to honour the referendum outcome. In the absence of a second plebiscite - the chances of which are virtually nil in the near future – this will not change.

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In my view, companies will have to make a trade-off: to soften their demands and accept some of the limitations set out in Theresa May’s Lancaster House speech in exchange for greater certainty that a deal can be done, and to know the outlines of that deal. That means exit from the Single Market and Customs Union and some limits on EU immigration, but certainty is perhaps the commodity we crave above all others right now.

How might Europe be persuaded to get on board with this plan? I think a settlement based on the UK Government’s Lancaster House proposals plus enough hard cash might give Europe’s leaders sufficient incentive to offer the UK a reasonable trade agreement. Not frictionless trade, but something approaching it; and not free movement of labour, but enough to avoid angering Leave voters.

Whether you agree with this analysis depends largely on how much time your business has.

Some firms are so near having to trigger contingency plans and spend significant sums that they would even support those calling for an early walk out of talks with the EU. In their situation certainty is more valuable than any deal that takes another year to emerge.

These are companies with complex supply chains into Europe or who depend on EU licences to trade inside the bloc. Others in this group will welcome a deal that comes soon, even if it does limit their market access because of the greater certainty it provides. Swift action from the UK Government and a generous offer looks like their best option right now.

Other firms – such as retailers or companies with simpler supply chains – have a little more time. Uncomfortable though it may feel, they might be able to hold off putting contingency plans into place now, hope public opinion shifts and the dynamics in parliament change sufficiently that the consensus in public and parliament shifts towards a Norway-style solution.

Whatever they hope to get from Brexit, businesses cannot demand certainty from government. In a process reliant on so many competing forces, it is not in their gift to give.

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