Many believe the UK leaving the EU without an agreement – a ‘hard’ Brexit in the common tongue – would have disastrous consequences for business, create chaos at the borders, drive up food prices and lead to a shortage of essential goods.
Brexiteers, like Liz Bilney, CEO of Leave.EU, argue that a no-deal Brexit should be a positive. “It is at worst, benign, at best, a fabulous opportunity for a fairer, more prosperous Britain,” she claims. But business is firmly against a no-deal Brexit.
With less than 30 days to go until the Brexit ‘D-Day’ and the prospect of a no-deal exit very much on the horizon, let’s look at what such a scenario might mean for the UK.
A business ‘Brexodus’
A recent poll of 1,200 members of the Institute of Directors (IoD) in the UK found that 29% are planning to or have already moved part of their UK-based businesses in order to avoid the potential damage of a hard Brexit.
Over two-thirds of the firms planning a move said they would relocate to another EU27 state, with only 7% saying they would leave the EU entirely. In a political process that too often has been influenced by emotion, the cold calculating eye of business has little doubt about the downside of leaving the EU without a deal.
Interim Director General of the IoD, Edwin Morgan, said the figures reveal “worrying signs” of the “real consequences of delay and confusion”. The figures were released just days after Airbus chief, Tom Enders, called the UK Government’s handling of Brexit a “disgrace”, warning the aerospace firm could leave the UK if the country crashes out of the EU without a deal. The impact of a company like Airbus leaving the UK would be sorely felt. As one of the biggest manufacturers in the Britain, it employs more than 14,000 people across 25 sites in the UK – supporting a further 110,000 people in the supply chain.
While many companies who have decided to cut jobs and scale down operations in the UK are hesitant to point to Brexit as a reason, it very much feels like the elephant in the room.
Nissan’s European boss Gianluca de Ficchy summed up the prevailing attitude well when he wrote recently: “Clearly the uncertainty around the UK’s future relationship with the EU is not helping companies like ours to plan for the future.”
Many other companies have expressed concern over a hard Brexit with some having already announced plans to cut jobs in the UK and/or beef up European operations elsewhere. These include:
As it prepares for Brexit, Britain’s second-largest insurer announced in February it will move £7.8bn worth of assets to Ireland.
Bank of America Merrill Lynch
The US lender is spending $400m (£306m) to move staff out of London. The bank announced the merger of its Irish and UK subsidiaries in May last year, transferring 125 jobs to Dublin.
The British bank moved £166bn of clients’ assets to the Irish capital, stating it could not wait any longer to implement Brexit contingency plans.
BNP Paribas, Credit Agricole, and Societe Generale
Have chosen to transfer 500 staff out of London to Paris.
The giant Swiss bank has moved about 250 bankers from London to other European financial hubs.
Billionaire inventor Sir James Dyson – an ardent Brexit supporter – has relocated his company’s headquarters from the UK to Singapore.
The US car maker warned in February that a no-deal Brexit would be “catastrophic” for business. The company said a no-deal Brexit would cost Ford $800m (£613m) in 2019 due to World Trade Organisation tariffs and the impact of weaker sterling.
The Japanese car giant announced it will close its manufacturing plant in Swindon in 2021, with 3,500 losing their jobs. Brexit must have played its part.
Jaguar Land Rover
The UK’s biggest car manufacturer announced in January it would be cutting 4,500 jobs, the majority falling in the UK. Again, one can’t help feeling the timing, coinciding as it does with Brexit, is not a coincidence.
The US money transfer giant has moved its European headquarters from London to Brussels.
The Japanese consumer electronics giant announced it would be moving its European headquarters from London to Amsterdam in order to avoid potential tax issues linked to Brexit.
Closing its only UK factory, with operations and 430 jobs transferring to the Netherlands.
Automotive and industrial supplier Schaeffler cited the “uncertainty” surrounding Brexit as one factor behind the decision to close two sites in the UK.
Switzerland’s biggest bank has chosen Frankfurt as its new base for EU operations after Brexit.
Trade – playing by WTO rules
Should a hard Brexit come to pass, the UK would revert to World Trade Organisation (WTO) rules on trade. This means Britain will be immediately outside the EU ‘shop window’ looking in. No longer bound by EU rules, it would now be subject to the EU’s external tariffs.
Some retailers have warned that a no-deal Brexit will lead to “unaffordable” price hikes on food and drink for customers as well as causing shortages of some everyday items. Wayne Hudson, head of UK frozen food firm Birds Eye, said food prices were likely to rise by up to 20 per cent “virtually immediately” due to new tariffs. It also remains unclear how accommodating the EU27 countries will be to UK exports after Brexit.
The average EU tariff is quite low – about 2.8% for non-agricultural products – but, in other sectors, tariffs can be quite high. Cars, for example, would be taxed at 10% when they cross the UK-EU border while tariffs for agricultural products would be significantly higher, rising to an average of more than 35% for dairy products.
There are also significant “non-tariff barriers” to be negotiated which include safety regulations, product standards, and sanitary checks on food and animals. Over 44% of all UK exports in 2017 went to the rest of the European Union with no checks or tariffs, as part of the single market and the customs union. So, switching to WTO rules for trade with the EU would be a huge change.
Some say it won’t be an issue, but that’s not the UK Government’s view or the EU’s view, nor the view of most businesses.
An infamous leaked report, carried out by the UK’s own Brexit department, suggests that without deals on customs and trade, it’s possible parts of Britain would run out of food and even medicines within a fortnight of a hard Brexit outcome.
People – Blue passports, border delays and custom checks
What is certain, if there’s a hard Brexit, is that EU citizens’ automatic right to settle and work in the UK will end. The UK will be free to set its own controls on immigration by EU nationals and the bloc can do the same for Britons. If passport and customs checks are heightened, long delays at borders and airports look likely. At its most extreme, flights to the EU could be grounded as the necessary safety confirmations to cover both ends of the journey might not be in place.
The fate of expats – there are 3.7 million Europeans in Britain and 1.3 million Britons in EU countries – in terms of their rights to live and work remain unclear. The UK’s Home Secretary Sajid Javid said, British businesses will be given “time to adjust” to the end of free movement between the EU and the UK. As with trade, certification in terms of labour may also be called into question. Professionals working in the EU may find their qualifications are no longer recognised, meaning they can no longer practice in that state.
The UK Government’s white paper on immigration, published on December 12, states that the UK’s new immigration policy will “control the numbers and type of people” coming to the UK and “reduce annual net migration to sustainable levels”. The worry for UK businesses, particularly in sectors such as food and leisure, tourism, technology and healthcare, is that Brexit will cause a labour shortage that will ultimately affect profit margins.
The latest UK migration figures show workers from the rest of the EU are already leaving Britain in droves. In the fourth quarter of last year, there were 61,000 fewer EU nationals working in the UK than a year earlier.
Hotel chain Millennium and Copthorne recently blamed a shortage of workers from the EU due to the approach of Brexit for contributing to its fall in profits.
A ‘hard’ Brexit means a ‘hard’ border
In the event of a no-deal Brexit, the UK would leave the single market and customs union, without any transition period. A range of checks would then immediately be required on goods passing through the border between Northern Ireland and the Republic.
The issue of Northern Ireland and more specifically the ‘backstop’ means a no-deal Brexit has very serious ramifications for the UK and Ireland. Whether a bargaining ploy or not, the EU has confirmed it will enforce a hard border on the island of Ireland in the event of a no-deal outcome, despite the risk this would pose to peace. While physical infrastructure has been vetoed, the existence of a viable alternative is yet to reveal itself – does one even exist?
Despite the UK Government’s contingency planning, leaving the bloc without any agreement in place would result in a major disruption to trade, no protection of citizenship rights, and the likelihood of a customs frontier in Northern Ireland.
A Better Outcome for all of the Citizens of the UK and the EU
It must be fervently hoped that the governments of the EU and the UK can reach a withdrawal deal that will protect the people of Europe and the UK from the drastic negative consequences of a no deal scenario.
Rodney shares insights from his 20 years’ experience working in the legal and accounting industries with both Irish and international companies. As Managing Director at Cafico International, Rodney regularly works with international companies in the technology, pharma, aviation and insurance industries that are seeking to establish operations in Ireland, assisting them with the management of their projects, and compliance with their fiscal and legal responsibilities.
To learn how Cafico International can help your business expand to Ireland, get in touch with Rodney today.