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Brexit Series: Business Planning

 

1) Brexit Business Planning: A Brexit transition period has been agreed up to the end of 2020. How do you think businesses (excluding financial institutions) need to plan to deal strategically with the transition to Brexit?

The transition period will allow UK companies to address the time-consuming challenges of Brexit.   Companies will face the following logistical difficulties:
 

  1. VAT: After Brexit VAT will be charged at the border when importing goods and services which could pose a cash flow problem
  2. Customs: Companies will need to fill in customs declaration forms.  Business management systems will need to respond both to the EU’s customs requests and to HMRC - resulting in delays to both exports and imports.  
  3. Trusted Trader: Companies may want to register as “trusted traders” and achieve Authorised Economic Operator (AEO) status which allows faster clearance at borders - but this will take at least 12 months.
  4. Supply Chains: Supply chain management will become much more important because ‘rules of origin’ will be required for traded goods. Also if a supplier is not prepared for Brexit then this will disrupt production.  The automotive and chemical sectors are particularly interlinked along EU supply chains but other sectors will also be vulnerable.
  5. Inventory:  Companies may need to increase warehouse capacity if delays occur. Warehousing costs are already rising as firms implement contingency plans.
  6. IP: Intellectual property, patents and trademarks could lapse after Brexit - although most will remain in place during the transition.
  7. Labour:  Companies will need to know the immigration status of their EU workers
  8. Contingency plan:   The new regulatory procedures around border controls, supply chains, IP matters and immigration rules mean that companies should develop contingency plans to address obstacles to future growth. 
     

However, there are opportunities as well as threats.  The supply chain issue could potentially reduce the UK’s involvement in EU supply chains. This could lead to increasing reliance on British products and this could be healthy for UK businesses.  Also new trade deals with growing economies outside the EU could open up new supply chains.
 

The labour market after Brexit: What are the likely restrictions on immigration into the UK post Brexit?  How do you think businesses are proposing to deal with this situation? 

Brexit will bring an end to free movement in its current form. The post Brexit immigration system is likely to clamp down on low-skilled EU immigration. However, there is likely to be a “light touch” work permit system for EU professionals and for low skilled workers ready to work antisocial hours. 

A new immigration bill (before Brexit) is likely to introduce a phased implementation strategy that will lead (post Brexit) to stricter new rules for new entrants and a much more UK-focused immigration policy.  But the post-Brexit immigration deal is likely to maintain a lot of continuity in the movement of skilled people.  The emphasis will be on reducing the number of low skilled workers but it will also create a route for migrant workers coming to the UK to undertake seasonal work and take on jobs with antisocial hours.

There is some evidence that companies reduced their training budgets for domestic workers when Eastern European labour became available a decade or so ago.  In response, the UK government is likely to offer increased assistance to companies that have become heavily dependent on low-skilled EU workers in order to help manage the transition to lower dependence.  Increased emphasis will be placed on prioritising the development of British workers. UK employers will be asked to think twice before employing someone from the EU and only those migrants who have real expertise will be offered work permits to stay in the UK for longer than three years. 

The upshot of this is that businesses will need to become much more involved in upskilling their current workforce and offering training to new recruits.  But there is likely to be increased government support available for training – perhaps linked to the Apprenticeship Levy and to the implementation of the Post-16 skills plan. In this way the government is looking to improve the technical education offering in the UK, which is currently way below that offered in Germany.  This may involve some kind of tax credit so that employers are incentivised to invest more in their workforce.
 

Business emigration:  What evidence is there that businesses are starting to move people out of the UK to the EU in order to avoid the impact of Brexit?

We hear a lot about firms moving out of London because of Brexit, but the evidence is thin on the ground:

  • Deutsche Bank was rumoured to be moving 4,000 jobs out of the UK.  But in reality the bank has only said ‘it could move jobs because of Brexit’. 
  • Similarly, Barclays has said it may expand its Dublin office - by 100 people. 
  • Goldman Sachs is reported to be taking extra space in France and Germany where it may increase headcount in its existing operations. 
  • Lloyds of London is seeking a new Brussels based subsidiary but ‘the new office would be an additional base and less than 100 London jobs would be affected.’

The Bank of England has warned that about 10,000 finance jobs may leave by the end of the transition period because of Brexit. However, there are currently over 1 million financial sector jobs across the UK (400,000 in London) so we are talking about 1% of jobs.  At the same time, top U.S. investment banks are planning to hire far more people in London than anywhere else in Europe.

So there is no real momentum behind the exit of financial jobs and there seems little impetus from other sectors: e.g. Microsoft has said it would have to respond to ‘huge import tariffs’ on its purchase of IT servers, but the company has also said ‘it remains committed to the UK’.  Similar statements have been made by other FTSE 100 companies.

However, there is concern in the manufacturing sector in relation to global supply chains.  For example, Japanese car companies claim they might relocate to continental Europe unless the UK remains in the customs union because outside the customs union car exports need to be checked to ensure that they conform with ‘rules of origin’ criteria and these can be very complicated in the automotive sector.  This could lead to significant extra cost for exporters.   

The UK therefore will need to ensure that the Brexit deal on ‘rules of origin’ is as flexible as possible, to minimise the distortion to global supply chains and the risk of multinationals relocating to the EU.

 

If you have any questions about this article please get in touch at emailus@acuitylegal.co.uk or ring 02920 482288

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