When will business get a green light? | KPMG | UK

The Brexit Column: When will business get a green light?

Brexit Column: When will business get a green light?

Theresa May’s ambitious speech will push the Brexit timetable to the limit, says Mark Essex

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Director, Public Policy

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Theresa May’s Brexit speech got a mixed reception from business groups last week. While welcoming the prime minister’s greater emphasis on compromise, the CBI and the Institute of Directors said more clarity was needed on the timing and details of the government’s plan.

The British Chambers of Commerce had a different take. May had made her position clear but business still had no idea what a final deal might look like, it said.

That’s my view too. And there’s the rub. With little more than a year until the UK leaves the EU businesses are looking for a green light to make plans. But May’s speech means they will have to wait at a red signal until the last minute. 

Why? Because, far from being a vague holding measure, May’s speech was an ambitious statement of the UK’s position. It included:

  • A free trade deal with near frictionless trade at the border and a customs agreement instead of the Customs Union.
  • Acceptance by the EU that the Irish border will not be watertight and that some businesses will continue to trade with no extra checks.
  • Divergence on some areas of regulation but with continued access to the Single Market from outside the Single Market.

The speech was an accomplished piece of politics. Last week there was serious talk that the government might fall if remain-supporting Tory MPs voted with Labour for the UK to stay in a Customs Union. May’s speech seems to have succeeded in winning over many of those potential rebels while keeping Brexiteers on board. After achieving what some said was impossible by uniting her party, May has little reason to deviate from her position.

Now it’s the EU that has a unity question. Commission officials dismissed May’s speech but they know she has secured her own position. The Commission must now decide whether to be more flexible or test the unity of its 27 other members. They will read with interest that Guy Verhofstadt, the Brexit lead in the European Parliament, has welcomed aspects of the UK position. They will be alert to the concerns of some member states who seek to ensure that their representatives, the European Council, remain the ultimate decision makers in the negotiation.

Whatever happens, any compromise from EU institutions won’t be resolved quickly. With the stakes high for all parties, the Commission will prefer to test the UK’s resolve and demonstrate to member countries that the rules cannot be bent easily.

Something today better than jam tomorrow

Conversations with my clients suggest that many of UK businesses would have preferred the certainty of a more modest, early agreement over waiting to see if a better deal is signed late in the day. But we are firmly on the second path – and the chances of no deal have increased. Tough talk on Wednesday from Donald Tusk, the EU Council’s president, underlined the EU’s reluctance to concede to May’s position.

The next milestone is the Brussels summit on 22-23 March when the UK hopes to agree transition. That timing could now slip – possibly until the next summit in June. Whenever it is announced, don’t expect anything definitive. The best we can hope for is a draft, perhaps even a final copy of the transition. But it will remain “unsigned” until the wider negotiations are completed. When will we get the green light of legal certainty?

The target date for agreeing Brexit terms is October 2018. With both sides seeking to defend entrenched positions, that could slip just as an agreement on the first phase of talks  slipped from October to December last year. We could now be looking at this December before a deal is done – if one can be.

That would leave companies only three months or so until Britain leaves the EU on 29 March 2019. Some big companies were waiting for May’s speech before investing in preparation for a “no deal” scenario. Having digested the speech and its implications, they are readying their supply chains and workforces for that scenario.

For many others, this level of preparation seems too costly given it may never happen. However with the red signal unlikely to change soon, there are still things they are getting on with: actions that can be unwound such as building up stock or rerouting supply chains to avoid potential hot spots. Frustrating as it may be to wait, there is something almost every company can be doing in the meantime.

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