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The Brexit Column: How to avoid a no-deal quicksand

The Brexit Column: How to avoid a no-deal quicksand

As the clock runs down, there’s a risk we’re on the slippery slope to no deal by default, warns Mark Essex.

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Director, Public Policy

KPMG in the UK

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The last word in the party conference season fell to the prime minister. She took to the platform in Birmingham this week to insist once again that, yes, if push comes to shove, Britain is not afraid to leave the EU without a deal.

So far, so familiar. Yet set against the government’s avowed negotiating stance, I see a powerful counter-intuitive argument at play here. Having spent the past two years warning businesses about the dangers of a no-deal Brexit, I now sense a very real risk of that becoming a self-fulfilling prophecy.

How so? The prime minister talked this week about ‘holding our nerve’ to try and achieve the best possible outcome. Large numbers of businesses have been doing exactly that for what now feels like a very long time. And their nerve – and their patience – is now running out.  From carmakers to banks, we see clients executing their no deal preparations.  And each time a business sinks financial and human investment into no deal planning, the incremental future cost of no deal decreases. And each time the government reveals no deal spending, the marginal political cost of no deal decreases.  

Think of a racing driver in marginal, drizzly conditions. Once they decide to come in, pit stop and commit to wet tyres, from then on they don’t want the rain to stop. That would hand the advantage to the slick tyre gamblers.

It’s now or never

With less than six months to go until March 29th, all hopes are now pinned on the crunch European Council meeting in Brussels in mid-October to strike a deal. My sources tell me there may now be signs of movement on both sides on the Irish backstop. Heartening news if true, but if you follow my logic, the two parties need to agree very quickly to avoid getting sucked into the quicksand of escalating no deal preparations.

Because growing numbers of companies are now very close to their tipping point in terms of putting irreversible Brexit-proofing plans in place - just as the UK government itself is knee-deep in Brexit preparations, and the EU are looking at publishing theirs. Any agreement in Brussels would need to be ratified further down the line, but a handshake in October could still give business and politicians cause to pause. Of course, it is still hard to see where the parliamentary majority could come from, but that is a problem for next month.

If, however, the negotiations stall again, both sides take one step even deeper into the quicksand. And then we’ll see businesses across all sectors looking over the edge and finally starting to jump. All those big, costly and disruptive decisions from which companies have previously demurred – dramatically reconfiguring supply chains, say, or shifting elements of operations overseas – suddenly start to look doable and at marginal extra cost, with no deal a stone’s throw away.

I don’t sense that this dramatic shift in gear has happened yet. But there is a very narrow window for the UK and EU to reach a workable compromise, before business takes matters into its own hands and we risk getting into a situation from which it is hard to escape.

This article represents the views of the author only, and does not necessarily represent the views or professional advice of KPMG in the UK. To have future editions of the column and other expert views from our Brexit team delivered directly to your mailbox, subscribe to Brexit insights in the KPMG Preference Centre.

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