The Brexit Column: Ready for the second half? | KPMG | UK

The Brexit Column: Ready for the second half?

The Brexit Column: Ready for the second half?

With Brexit negotiations stretched to the limit, it’s time for businesses to look ahead, keep an eye on the ball, and start planning for a post-Brexit future.

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Director, Public Policy

KPMG in the UK

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This column will be published exactly halfway through the Brexit process. 11am on Friday 10 November marks the midpoint between the referendum polls closing at 10pm on 23 June last year and the deadline for a Brexit deal of midnight on 29 March 2019.

In sport, half-time is a chance to reflect on what has happened in the game so far and make changes to get the result you want. The same goes for Brexit.

Companies have longer than the 15 minutes football managers get to make changes before sending their teams back out. It’s reasonable to see the period between now and the New Year as Brexit half-time for business. I urge bosses to reflect over the break and come back with a renewed determination to prepare for the crucial period ahead. So where are we now?

In January this column argued things would get rocky this year as Britain and the EU face off over the terms of a potential deal. So far, so predictable.

What was harder to foresee was the political turmoil in the UK – much of it unrelated to Brexit. Yet after the election we now see a parliamentary Brexit coalition which is fragile.

I’ve said before that Brexit is a secondary issue for European governments. In Germany, Angela Merkel is struggling to form a government. Macron is focused on his reform agenda and Spain is naturally concerned with its own breakaway crisis in Catalonia. Brexit won’t make or break any individual European government.

The worry is that the same is now true in Britain – that Brexit is subordinated to a government with a budget looming, continuing domestic policy challenges and which is buffeted by the scandals and errors that are part of political life.

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Stretched to the limit

I argued in January that Brexit negotiations would ease by 2018 as both sides accept the need to do a deal. That may yet happen but relying entirely on the government to secure a bespoke deal isn’t the prudent option – both sides in the negotiations are stretched to the limit.

Faced with this situation, how are our clients responding? Some have switched off from politics and are planning for the worst possible scenario. They are spending whatever it takes to avoid disaster in their supply chains. Others are refusing to act until the end result is certain. What may appear to be a conservative strategy may prove to be imprudent if negotiations do not make progress soon.

As the half-time whistle blows, most businesses are in between, weighing the trade-off between cost of preparation and the potential harm caused by disruption. Some are planning in detail: they reason that by giving existing processes a once-over, they'll unearth inefficiencies to mitigate some of the costs involved.

There are some sector trends. Financial services, driven by regulators and the need to maintain customer confidence, have their plans in place. As the Bank of England has said, banks are ready to put those plans into practice in the New Year.

Tackling your supply chain

Another regulated industry, pharmaceuticals, is actively seeking our advice and we are getting plenty of calls from advanced manufacturers. The importance of securing supplies was highlighted this week when a survey by the Chartered Institute of Purchasing and Supply found that supply chains between the UK and the EU are fragmenting. As we argued in our last column, it’s time to draw up a shadow supply chain to give you options if there is no deal.

Retailers have a different imperative to review plans – they cannot simply stock up to avoid disruption – clothing inventory is sensitive to weather and trends and food is perishable - you can’t put three months stock of bananas on the shelves. After Black Friday, Christmas and the January sales, I predict that retailers will turn their attention to Brexit. And that in turn will prompt action from consumer goods producers, food processors and logistics firms.

In the leisure industry, tour operators are well into planning holidays for 2019. UK hotels and restaurants have more time to adjust but will need to prepare for workers becoming more scarce and expensive as Brexit approaches. Other large employers of EU nationals are looking hard at workforce planning.

This first half of the game gave businesses time to see how Brexit was developing and now, at half-time, they need to review tactics and take stock. Because once the game resumes, many business leaders will be entering the financial year in which the Brexit deal is decided – that starts to make things real and companies will need to get on the scoresheet quickly. Rather than waiting for an 89th minute miracle, the time is approaching for businesses to put their Brexit contingency plans into practice.
 

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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