Brexit

The UK-EU trade negotiations - what do we know so far?

2020-02-05T16:17:39+00:00

On Monday 3 February, the first working day since the UK left the EU, both the UK government and the European Commission released their positions on the conduct and scope of the forthcoming trade negotiations.

The Prime Minister submitted a written statement to the House of Commons, after he delivered a speech in Greenwich in which he outlined the UK government’s wish for the UK to re-emerge “as a campaigner for global free trade”, with a desire for “a comprehensive free trade agreement, similar to Canada’s”.

The European Commission issued a recommendation to the European Council to open negotiations on a new partnership with the UK. The EU’s chief negotiator, Michel Barnier, stated the EU is “ready to offer a highly ambitious trade deal” with “wide sectoral coverage”. On market access Mr Barnier said “the more we will have common standards, the higher quality access the EU will be able to offer to its market”.

I discussed these latest positions with Raoul Ruparel, who was previously closely involved in the first phase of negotiations and has recently joined us in Deloitte’s Brexit Insights team:

Q: Where are we given the opening positions of both sides?

“So far, the UK and EU are at least talking on the same page about the outcome they are aiming for. Both look to be targeting a Free Trade Agreement (FTA) in line with existing precedents, such as the agreement the EU has with Canada or with Japan.

“This seems to me to be a positive shift from the last phase. But it is clear the absolute maximum being sought is a Canada style agreement. The agreement will not go much beyond this precedent and it certainly will not allow for frictionless trade or an agreement similar to that which the EU has with Norway or even Switzerland.”

Q: What are the differences? Are they gaps which can be bridged?

“There are three significant ones. In some areas it is possible to envisage a landing zone. In others it will require either or even both the UK and EU to shift from their current hard line stance.

“First, the biggest area of disagreement is currently on ‘level playing field’. The EU position is the UK should commit to ongoing alignment with EU rules on state aid. Furthermore, that it should commit to non-regression from EU rules in areas such as taxation, labour and social protection and environment. All of this should be subject to adequate dispute resolution and enforcement mechanisms via the agreement. It also wants the treaty to require the UK to have a system of carbon pricing which is at least as effective as the EU’s Emissions Trading System. Of course this is much more onerous than what is usually found in a FTA, which the EU argues is necessary due to the proximity and value of the UK’s trade with the EU.

“On the other side, the UK has essentially said it is happy to sign up to the sort of provisions usually found in a FTA. These tend to be far less onerous and focus on non-regression from international standards, while they are often not covered by a dispute resolution mechanism. The UK fundamentally disagrees with the EU’s view that proximity necessitates more stringent provisions. This is likely due to the fact that a FTA does as standard require products to be checked and documented meaning the EU has the ability to prevent anything from undercutting the Single Market. Given the gulf between the two sides, it seems likely there will need to be movement from both.

“Second, another difference is the view on the structure of the agreements. The EU wants a single agreement with an overarching governance framework, while the UK wants a suite of agreements with discreet governance in each area. This is quite a fundamental difference, but it is possible to envisage a middle way which sees an arrangement of separate agreements inside a loose framework. In the meantime, negotiations could still progress in parallel strands with the exact structure left until later.

“And third, there are also differences on fisheries. The UK wants annual negotiations over access to waters and quotas, while the EU wants a longer-term settlement reached now. There seems a relatively obvious landing zone in the middle in the form of a multi-year agreement, but of course this is an area where negotiations rarely go as simply as expected.”

Q: What can we expect from the early exchanges in the negotiations?

“I think we will see some scratchy exchanges early on, particularly over level playing field and its structure. We are also likely to see linkages being made, for example between progress on fish and progress on financial services equivalence, and progress on detailing the implementation of the Northern Ireland Protocol from the Withdrawal Agreement and progress on the FTA. Business should be prepared for these sorts of ups and downs early on.

“Of course, one of the side effects of the standard FTA approach the UK and EU have now landed on is that the difference between this approach and no agreement is much narrower. As such, both sides may be less willing to concede or be seen to pay a price for the agreement.”

What does all this mean for business?

We now have a good sense of the direction the two sides are heading in and what the broad outlines of a deal are likely to be. Businesses have less than 11 months to prepare and need to start now. As the Prime Minister set out in his written statement to Parliament, whether there is an agreement on the future relationship or not “the UK will be leaving the Single Market and the Customs Union at the end of this year and stakeholders should prepare for that reality”. The statement also makes it clear there will not be an extension to the transition period.

We’ve consistently heard the government now wants to move Brexit from the front pages to the business pages – this is no longer about political uncertainty, but the detailed negotiations and the practical implementation, and is being placed firmly in businesses’ hands to prepare.

Business can already identify known change areas and given the negotiating positions can start preparing with much more certainty. The changes we already know include:

Any organisation moving goods across the UK/EU border will need to provide new import and export declarations, as well as deal with rules of origin – something many have never had to do before. Simplifications such as Authorised Economic Operator (AEO) and Simplified Freight should be applied for now.
Free movement of people will end on 31 December 2020. New records will need to be kept by business for the existing workforce, and new visa and mobility frameworks adopted in future.
Any organisation which currently requires regulatory approvals to place goods on the market will likely need to deal with a UK system and an EU system going forward, compared to one system previously. Conformity assessments may be covered under Mutual Recognition, but product safety markings will change.
Any organisation operating in Northern Ireland will be in a unique position under the Ireland/Northern Ireland Protocol (which is not the subject of the FTA), managing some form of customs border for goods moving from Great Britain to Northern Ireland and a different VAT regime for goods and services.
For many organisations, particularly those in the services sector, market access could potentially be significantly restricted and feel like a ‘no deal’ if, as expected, a shallow, goods focused trade deal is all that can be agreed in the timeframe.

We’ll be posting throughout 2020 to help you navigate the Transition Period and beyond. Never miss a blog, subscribe to have our Brexit blogs delivered straight to your inbox as soon as they are published.

For regular Brexit updates subscribe to our weekly Brexit developments newsletter, and visit our dedicated Brexit webpage.

For support in assessing or establishing your Brexit related plans, you can email us.

Amanda Tickel - Partner, Global Brexit Insights

Amanda leads Deloitte’s Global Brexit team based in the UK, and co-ordinates Deloitte’s Brexit expertise across the global network of firms. She advises businesses on the spectrum of Brexit related issues, assessing the scale of potential impact under various scenarios; helping clients to plan mitigating actions to minimize impact and maximize opportunity.

Brexit – what changes after 31 January 2020?

2020-01-16T09:49:44+00:00

December’s general election has broken parliamentary deadlock, giving the Conservatives a significant majority. With that majority position, business now has certainty that Brexit will happen and the UK is set to accelerate towards a new future trading environment.

The Withdrawal Agreement Bill was approved by the House of Commons and we expect it to be fully ratified by both the UK and EU Parliaments this month. The UK will legally leave the EU on 31 January and enter a Transition Period on 1 February 2020. During the 11 months to 31 December 2020, the UK and EU must negotiate and agree the detail of the terms of their future trade relationship.

Quite what the terms of the new Free Trade Agreement (FTA) will look like is unknown; but one thing that seems certain is the UK will leave both the EU Single Market and Customs Union. Business will need to consider at an early stage what this will mean for their operations, begin designing and implementing new systems and processes, and perhaps implement new business models.

The UK’s exit from the EU will also have implications for trading relationships with third countries. During the Transition Period, the UK will no longer automatically benefit from EU FTAs, but all major FTA partners have informally indicated they will continue to reciprocate and treat the UK as if it were an EU member for the purposes of existing trade deals. So they ‘roll over’ for a period of time. Where the UK has not yet succeeded in agreeing a continuity FTA, e.g. as in the case of Japan and Canada, they will need to do so before the end of the Transition Period for the preferential trade terms to continue applying.

The UK will need to negotiate its own trade relationships with the rest of the world, including the US, Australia, New Zealand and the Pacific Rim. Business will therefore need to not only prepare for the future economic partnership between the UK and the EU, but also between the UK and other countries.

1 February 2020 – will we see any changes?

Whilst the UK leaves the EU on 31 January, the Transition Period means the status quo is preserved in almost every regard for businesses. There will be some immediate consequences in the relations between the UK and the EU, and a couple of examples are highlighted below. Whilst they will have limited impact for business, they are important to be aware of:

EU institutions: The UK will no longer be represented in the EU institutions, i.e. the European Council, the Council of Ministers and the European Parliament, as well as the EU’s agencies. Any participation will be on a case-by-case basis provided the presence of the UK is necessary and is in the interests of the Union, or where the discussion concerns acts addressed to the UK and its citizens. Exactly how this will be defined in practice remains to be seen. While the UK and the EU might at times have different interpretations, the EU view is expected to prevail given these are EU meetings. Business will have to consider how to engage with rule-making bodies during this period.
Leading authorities: Perhaps the main direct consequence to impact business will be around the UK’s regulatory agencies. Certain agencies, such as the Medicines and Healthcare products Regulatory Agency (MHRA) and the Veterinary Medicines Directorate (VMD), will not be able to act as ‘leading authorities’ for some approvals and assessments. This means they will no longer have the authority to conduct e.g. quality and safety assessments which will inform decision-making processes for the approval products to be used or consumed within the EU. Businesses should check with the individual agencies and they may have to lodge applications for new products with leading authorities in an EU member state.

However, let’s be clear the Withdrawal Agreement between the UK and the EU is a bilateral one – it does not necessarily bind third countries. Broadly speaking, third countries are expected to continue with current arrangements during the Transition Period (e.g. the EU-US Privacy Shield for personal data and, as we’ve outlined above, with FTAs).

One exception we’ve identified so far is a niche, but interesting point in relation to US tax. UK-headed groups with US investments could see an increase in US withholding tax (WHT). This could arise, for example, where intra-group lending is undertaken to a US company by an EU finance company. A provision in the relevant US Double Tax Treaty (DTT) reducing WHT on interest payments to nil typically applies where the listed parent company is resident in an EU Member State. From 1 February 2020, as UK parent companies will no longer be resident in the EU, this mechanism for accessing US DTTs will no longer apply. Therefore, additional WHT may become payable in some cases if businesses don’t take steps to review their position.

Navigating 2020

For most businesses then, operations will continue as normal during the Transition Period. However, the changes that take effect at the end of the Transition Period will undoubtedly have a broad and often fundamental business impact. And there is a very short timeframe to design and take action.

Early identification of the “known knowns” – those areas that will change irrespective of whether or not a FTA is agreed – is an important first step in preparing for the post-Brexit landscape. For example, we know sales of goods will become imports and exports, the VAT reporting and simplifications will change and new product markings will be needed. And there are the “known unknowns” – those areas where the extent of change will be dependent on what is agreed between the UK and the EU on the future economic partnership. Preparations will require a methodical approach.

Many businesses are likely to have to factor in such changes to their financial forecasting. When preparing financial statements on a going concern basis for December 2019 year-ends and beyond, directors will need to remember the Transition Period will likely end within 12 months of signing the accounts.

Prioritising the key impacts early will also prepare business for engaging with government on business critical issues in the months ahead.

Our advice remains to start planning early, identify those known areas of change and start acting now.

For regular Brexit updates subscribe to our weekly Brexit developments newsletter, and visit our dedicated Brexit webpage.

For support in assessing or establishing your Brexit related plans, you can email us.

Amanda Tickel - Partner, Global Brexit Insights

Where next for Brexit?

2019-12-17T14:04:15+00:00

Introduction

On Thursday 12 December, the UK went to the voting stations. For once, the pollsters got it spot on and the public returned the Conservatives to power with a significant majority of 80. This election was termed the ‘Brexit election’ by many, and every Conservative candidate had pledged to back Boris Johnson’s renegotiated Withdrawal Agreement.

The Conservatives convene a Cabinet this week and the Queen will formally open Parliament on Thursday 19 December with a Queen’s Speech to set out the legislative agenda. The Withdrawal Agreement Bill which was discussed in Parliament prior to the General Election is expected to be brought back for a vote in the Commons as early as this Friday 20 December.

Brexit webcast

The morning after the election, Deloitte hosted a webcast with Lord Jonathan Hill, Conservative peer and former EU Commissioner, and Raoul Ruparel, former special adviser to Theresa May, to discuss the implications of the election result.

Commenting on the changed political dynamic, Lord Jonathan Hill said that the “Withdrawal Agreement will sail through the House of Commons and sail through the House of Lords”, and called the result a “vindication for Boris Johnson’s strategy”.

Raoul Ruparel put the point that government would need to create ways of engaging with business and other stakeholders. Raoul also added that business should take the deadline that government has set itself “seriously” and that the government would be unlikely to “back away from this target anytime soon”. The advice to business was to get on the “front foot” and engage with government early.

For all of Jonathan and Raoul’s insights you can listen to a recording of the webcast.

What comes next?

The expectation is that the Withdrawal Agreement Bill, or something very close to it, will now be ratified by the UK Parliament, and subsequently the EU Parliament, and the UK will now finally leave the EU on 31 January 2020 after 46 years of membership - “no ifs or buts”.

From 1 February 2020, the UK enters an 11 month “Transition Period” to 31 December 2020. It is during this Transition Period that the UK and EU must negotiate the terms of their future relationship. At the same time, the UK will need to negotiate continuity agreements or new trade agreements with the rest of the world. This will be a huge challenge for the civil service.

There’s been much talk, perhaps hope, of an extension to the Transition Period, which is offered under the Withdrawal Agreement terms currently agreed. The UK could choose to extend for either one or two years if it makes a request before 30 June 2020. But, the current pledge by Boris Johnson is that there should be no more “dither and delay” and there will be no extension. It is expected that this will be reflected in the EU Withdrawal Agreement Bill.

If no agreement is reached on the future relationship between the UK and EU during the Transition Period, then the trading terms for goods and services originating from Great Britain will face another no-deal cliff edge and revert to the terms set out in the World Trade Organisation.

It’s worth remembering the situation for Northern Ireland is a bit different from that of Great Britain. Northern Ireland follows the unique provisions in the Protocol on Northern Ireland and the Republic of Ireland set out in the Withdrawal Agreement, which will continue to apply regardless of whether the UK and EU agree the terms of their future relationship or not. Very, very broadly, Northern Ireland will align with Great Britain for customs duties and services regulations, but with the EU for VAT and goods regulation. There’s a significant amount of detail to be agreed as to the mechanics of how this unique arrangement will work, through a new Joint Committee to be established between the EU and the UK.

What does this mean for business?

In the short term while the UK is in the Transition Period, business with the EU continues almost entirely unchanged. However, the Transition is set to end on 31 December 2020 so preparations for those areas that have already or will gain certainty over the next few months need to get underway fast. Brexit has a broad business impact, but can be grouped into five key themes:

People
Supply Chain
Legal & Regulatory
Trade and Market Access
Financial

An early impact assessment and broad-brush understanding of any costs, opportunities and practical issues which could arise is advised. For some businesses, particularly those in the services sector, the future relationship may feel much like ‘no deal’ if a shallow, goods focused trade deal is all that can be agreed in the timeframe. They will need to have an understanding of EU and Member State-level services market access restrictions, and monitor the EU negotiations.

Quite what the terms of that future relationship between the UK and its global trading partners will look like is unknown; but there are clear change areas that can already be identified and planned for. The UK will be outside of the EU Single Market and Customs Union. There will be an end to free movement of people and a new immigrations system to manage. Revised product safety marking rules have already been laid out by the government. Compliance requirements for imports and exports can now be planned for, with new Customs declarations and rules of origin requirements built in. Processes, training, packaging designs and contracts changes can be implemented. Systems changes can be designed and scheduled in with IT teams.

Identifying and implementing change requirements can take months, if not years, so an early understanding is key to avoiding the need for time consuming manual interim measures. Our advice is to start planning early, identify those known areas of change and start implementing now.

For regular updates, subscribe to our weekly Brexit developments newsletter.

For support in assessing or establishing your Brexit related plans, you can email us.

Amanda Tickel - Partner, Global Brexit Insights

UK heads into a third Brexit extension

2019-10-28T11:08:19+00:00

The Brexit process has evolved rapidly in recent days, resulting in a busy week for MPs and pundits.

After intense negotiations, on 17 October the UK and the EU announced that they had agreed a new Brexit deal.

The Prime Minister urged MPs to approve the deal when Parliament sat on 19 October, the first Saturday sitting in the House of Commons since 1982. Unfortunately, for those of us waiting for an epic Brexit moment, events took a different course. Parliament instead approved the so-called Letwin Amendment; this effectively withholds approval for the deal until the whole of the legislative process has been completed.

As the deal wasn’t approved by the UK Parliament by 19 October, the Prime Minister was forced to write to the EU requesting an extension to Article 50, as required by the Benn Act. On Monday 28 October, the EU granted the UK a further extension, this time a ‘flextension’ which gives Parliament until 31 January 2020 to pass the Withdrawal Agreement. The UK could leave earlier, on either 30 November or 31 December if the Agreement is ratified sooner.

All of that said, some progress has been made. On Tuesday 22 October we saw the first signs of a Brexit breakthrough in that MPs expressed support for the deal in principle with a 30 vote majority – a first positive result in Brexit deal voting history. However, the next vote saw Parliament decline to support the Prime Minister’s preferred timetable for scrutinising the (admittedly technical and lengthy) legislation of just three days, resulting in the Prime Minister ‘pausing’ the ratification process for now.

What happens next is still very much up in the air. Today (28 October) Mr Johnson will request Parliament approves a general election on 12 December, with more time to scrutinise and potentially amend the Withdrawal Agreement Bill – but Parliament may not agree. An alternative election date of 9 December has been proposed by opposition parties, so we can expect another busy week ahead in Parliament.

What’s in the new deal?

The new Withdrawal Agreement is broadly similar to Theresa May’s deal, but completely replaces the ‘backstop’ with a new legally operative solution in the shape of the Northern Ireland/Ireland Protocol. If ratified, it would become the default position until such time as the Northern Irish Assembly and Executive ever choose to reject it in future, with the inclusion of a new consent mechanism and provision for a vote in Stormont every four years. The remainder of the Withdrawal Agreement - citizen’s rights, the financial settlement, and the transition period – is largely unchanged.

Predictably enough in a Northern Ireland/Ireland Protocol, the most significant changes concern Northern Ireland. In a bid to ensure no hard border or infrastructure on the border between Republic of Ireland and Northern Ireland, the UK and EU developed a unique solution that hasn’t been seen before in any trading arrangement. The whole of the UK leaves the Customs Union, and legally Northern Ireland would remain inside the UK’s customs territory. But, it would remain aligned to the EU’s rules for goods, and enforce EU customs tariff rates and rules in respect of goods entering its territory and at risk of moving into the EU.

Further, Northern Ireland would apply UK standard VAT rates, but EU regulations and VAT rules to physical goods. There’s an interesting provision included to allow reduced VAT rates to apply in Northern Ireland but not the rest of the UK, to align with the Republic of Ireland rates as an option – but there’s no vice versa.

This arrangement could give Northern Ireland unique beneficial access to both the GB market and the EU market – but the price for this would be increased administration and compliance complexity.

The Political Declaration has also changed, with the future relationship shifting from an Associate Agreement model to a more traditional Free Trade Agreement model. It also now includes the ‘level playing field’ provisions for areas like employment rights and environmental standards, moved from the original Withdrawal Agreement.

How is all this uncertainty affecting investment into the UK?

During a recent Brexit Update webcast to an American audience, we took the opportunity to poll the over 4,500 attendees, 39 percent of whom identified as C-Suite or executive level, on this point.

Whilst nearly a third of the 1,750 people who answered the question said they have continued with their planned investments in the UK, another third have held off from making any investment decisions. Add the 20 percent who have not invested at all, or as heavily, in the UK since the referendum, and the 14 percent who have invested elsewhere in the EU as opposed to the UK and we have nearly two-thirds of this particular audience who have scaled down investment plans in the UK. Just four percent have increased their investments though, as a result of a weakened sterling.

I asked Debapratim De in Deloitte’s Economics team, for his thoughts on what this latest extension will mean to the UK economy:

“An extension will reduce the immediate risk of a no-deal Brexit, but uncertainty is likely to remain at elevated levels.

“The new deal, in its current form, doesn’t rule out a cliff-edge exit next year. In the event of a general election, betting markets expect a hung parliament to be the most likely result, with the Conservatives winning the most seats. As such, an election may also fail to provide clarity on Brexit.

“The uncertain environment for businesses, and the resulting squeeze on investment, will likely continue until a resolution of the persistent political deadlock over Brexit.”

What next?

While preparedness varies across business sizes, sectors and geographies, many have extensively planned for no deal on two occasions in 2019 (not including the 12 April date), including expensive stockpiling, plant closures and restructuring for regulatory reasons. And most will not relish the prospect of preparing for a third major deadline in the future.

But, not being prepared, and not following UK government Brexit guidance, is not an option. Assuming the UK does leave the EU, it will not be a waste of resource to understand what the Single Market and EU Customs Union means to your business today. There is very little provision for services businesses in either the Withdrawal Agreement or Protocol – so understanding whether EU membership gives you access to the services market, and understanding regulatory environments is key. Even in a transition period, there could be some change on day 1 if the deal is ratified by Parliament if your business relies on an EU trade agreement for exports.

The detail of the future relationship between the UK and the EU may change, but given the limited time set out in the Withdrawal Agreement for transition, an early understanding of any costs, opportunities and practical issues is advised without trying to second guess the exact trading arrangements. For instance, businesses should be mapping the movement of goods against the increased burden of extra checks at ports and checkpoints and addressing the requirements of EU Customs Duty and processes to determine origin. Building in systems requirements often takes months, if not years, so an early understanding is key to avoiding the need for time consuming manual interim measures.

No matter what happens next, there is still everything to play for once the future relationship negotiations start. The date the UK leaves the EU will mark the start of a significant period of change for the UK in terms of regulation, immigration and trade policy. So businesses will need to be ready to adapt to change and willing to engage with government to influence and understand the future landscape.

You can watch our Preparing for Brexit videos here and read our series of Brexit industry insights here.

You can download Deloitte’s Brexit Tactical Actions checklist here.

For support in assessing or establishing your Brexit-related plans, you can email us.

50 days to go 2.0

2019-09-11T16:36:28+01:00

Again, we find ourselves with just fifty days to go until the scheduled Brexit date.

The past seven days have been momentous in UK politics, with the risk of a no deal exit on 31 October reaching a peak, then dramatically reducing with the passage of the Benn-Burt Bill (or as it is formally known, the European Union (Withdrawal) (No. 6) ACT), resulting in law requiring the Prime Minister to ask the EU for another extension if specific criteria are met. So, now that Parliament has been prorogued, what can business expect over the next fifty days?

The risk of a no-deal exit may have receded but it hasn’t been removed. Over the next five weeks, the government will continue negotiations to further its primary aim to seek a deal with the EU, whilst at the same time ramping up its no-deal planning. The “Get Ready for Brexit” advertising campaign has begun, aimed at increasing business readiness for the UK’s exit - if you haven’t yet seen the distinctive red, white and blue advertising, you probably will soon.

Then there are several key dates to look out for:

On Monday 14 October, the UK Parliament will open with the Queen’s Speech, which marks a new parliamentary session and sets out the Government’s legislative agenda. We could see the government present a revised deal on this date, but we could also see another call for an early general election or a no confidence vote.

The EU Council will meet on Thursday 17 to Friday 18 October - that will mark the last chance for the UK Government to secure any changes to the current Withdrawal Agreement and Political Declaration.

As a result of the new Act, the Prime Minister has until Saturday 19 October to secure the approval of MPs either: i) for a Withdrawal Agreement; or ii) to leave the EU without a deal. If neither happens then the Prime Minister must ask the EU for another Brexit extension until 31 January 2020. If the EU offers a date that differs from 31 January 2020, then the Prime Minister must put it to MPs (within two days) to approve or reject that extension.

A no deal risk is reduced but it remains the legal default unless the EU accepts the UK’s request for an extension or if perhaps a different legal route is identified and tested. – or something else not yet predicted happens...

What should business do now?

Many businesses have undertaken some Brexit planning, but recent initiative from the UK government has seen a real focus on encouraging preparations, including providing new funds to trade bodies for the provision of guidance, revising government technical notices, revamping the gov.uk website and developing a useful questionnaire which points business to the relevant policy areas on the website.

Despite all of this activity from government departments, the political uncertainty seems to be affecting business response levels. We still see some adopting a ‘wait and see’ strategy, but as time ticks on and the uncertainty continues, these judgement calls ought to be re-visited and business should review their preparedness during this period of Parliamentary calm.

But, at this uncertain stage, can business realistically do much to identify, or reassess, and actually mitigate their risks?

Yes. The first thing to do is to consider the issues that are most likely to affect your sector at this stage – we have a new series of Industry Insights that outline the potential impact of Brexit on a range of sectors from agri-food companies through to professional services providers.

Having worked out your critical issues, the key is to identify your ‘no-regret’ mitigating actions – those steps that divert as little resource as possible, and ensure preparedness for whatever direction Brexit heads.

Here are seven actions to support your Brexit preparations now:

Market access and trade: assess what might hinder your ability to sell goods and services both inside and outside of the EU, including the potential loss of EU Trade Agreements; for example, tariffs, authorisations, licences, regulation, labelling or domestic restrictions. Services restrictions are often much less obvious, but can be an absolute barrier to trade as they aren’t managed with a tariff.
Supply chain and customs: map your supply chain. If you have not been automatically enrolled by HMRC, register for an Economic Operators Registration and Identification (EORI) number. Get ready to complete and submit new customs declaration forms by training your people and redesigning your systems and processes – check whether you are eligible for the new government training and IT grants, and consider stockpiling/accelerating exports.
Brexit risk management and monitoring: review whether your risk register is comprehensive, and your reporting statements are aligned with the latest from Regulators. Take the new questionnaire and assess revised UK government technical notices on www.gov.uk/brexit, as well as EU and global government communications and regulatory changes to ensure compliance.
Contract and legal review: understand, assess and mitigate risks within your commercial contracts in order to protect your business from increased costs as a result of border friction, additional tariffs and un-anticipated contract termination. Assess whether your business can continue to transfer data cross border from the EEA to the UK and if legal safeguards such as standard contractual clauses have been considered. Also, review EU intellectual property and .eu domains to ensure continuity post-Brexit.
People: monitor government announcements both in the UK and in each of the EU countries. Agree your workforce support and engagement strategy, including business travel policy around 31 October. Make regular communications to your employees explaining their right to reside and work status – there is some good news here with a new policy for arrivals after exit date with the ‘Temporary Leave to Remain’.
Financials: model the potential impact of no deal in your budget and forecast to cover currency fluctuation, cashflow, changes in customer demand, access to capital, costs or tariffs. Consider whether you could access government grants for Brexit expenditure in the UK or EU – a significant fund of €780m has been set aside by the EU for support in the event of a no-deal exit.
Stakeholders: talk to your audit committees, engage with NEDS, draft customer communications, agree a strategy with key suppliers, engage with government, regulators and trade bodies and maintain conversations with investors. Regular communication enables stakeholders to understand the risks and upsides Brexit may present, and gives them an opportunity to positively influence and support your business.

You can download Deloitte’s Brexit Tactical Actions checklist here.

For support in assessing or establishing your Brexit related plans, you can email us.

Amanda Tickel - Partner, Global Brexit Insights

Brexit: Taxing Times?

2019-08-19T14:15:20+01:00

Boris Johnson has been Prime Minister for just over four weeks and the prospects of no deal are climbing, particularly as there are currently no ongoing negotiations between the UK and the EU. There are fewer parliamentary mechanisms that could block a no deal outcome now compared to in the run up to 29 March; opposition parties and some “rebel” Conservative MPs are exploring any methods possible, including a vote of no confidence with a caretaker government.

Most consider that the chance of the UK leaving without a deal is at its highest ever level, and we are at another peak of uncertainty for business.

Although the UK Parliament is in recess until 3 September, no deal planning is at the forefront of the Government’s agenda and the Civil Service is busy. There are already indicators on the tax side of the increased activity to come. For example, the Government has established an advisory panel on freeports and we’ve seen HMRC increase communications to business, sending individual letters asking about Brexit readiness, reminding business to check the Government’s guidance, and sign up for alerts.

What tax areas should business focus on now?

There has obviously been a heavy focus on Customs Duty: for companies with UK/EU cross-border supply chains the calculation and payment of tariffs, with the associated complex reporting and systems requirements, is prominent on the Tax Director’s agenda – often reaching the Board’s agenda for the first time. Even where the duty cost itself is not material, there will still be increased customs compliance obligations to meet, and tax teams are looking for innovative ways to manage the burden whilst keeping the cost down and the business moving.

As is often the case with VAT, the devil is in the detail – and there’s a whole host of changes that businesses need to consider, with potential impacts on both the VAT position and associated administrative requirements. Some sector-specific changes could materially impact companies’ VAT recovery positions, in a positive way.

There have been limited corporate tax changes arising directly as a result of the UK leaving the EU – the most significant of these are future withholding taxes on payments of dividends, royalties and interest between the UK and countries such as Germany, Poland and Portugal because relieving EU Directives will no longer apply.

In regulated sectors such as financial services, insurance, life sciences and broadcasting, many businesses have undertaken restructuring to enable continued access to markets across the EU, and there may be tax payable on the transfer of part of a business. For these sectors, attention is also turning to future tax models: new cross-border charges for services provided, say, by an old UK hub company to a new EU company will have transfer pricing as well as VAT implications.

I asked Daniel Lyons, Deloitte’s Head of Tax Policy, to share his insights on the tax authority approach in both the UK and EU27 Member States, and what Brexit could mean for future UK tax policy:

“As a general rule, HMRC is not making sweeping changes to tax law and policy as a result of Brexit – for example, exit taxes will still apply – albeit some application of current law to Brexit-driven changes may not be fully tested for a couple of years.

“HMRC is taking a consistent approach to transactions with EU and non-EU counterparties in the event of a no deal scenario. This has led to a number of positive outcomes for business from a VAT perspective, for example in a no deal scenario deferred import VAT accounting will apply to all EU and non-EU imports; VAT recovery will be allowed on supplies of many financial services to all non-UK counterparties (rather than just non-EU as now); and UK travel and other businesses operating the Tour Operators Margin Scheme will pay a reduced amount of VAT in relation to EU sales.

“Turning to the EU, a number of EU27 Member States have published guidance for businesses in relation to tax and some have legislated to avoid an immediate adverse domestic tax impact arising in a no deal scenario. For example:

Belgium introduced a law where the UK is deemed to remain an EU Member State for corporate tax purposes for a transitional period, subject to reciprocity;
Germany enacted a Tax Act in March 2019 that includes rules to prevent triggering an immediate tax charge in relation to historical German-UK company migrations or asset transfers;
Italy enacted a law in May 2019 (applicable for 18 months from exit date) during which some Italian domestic tax provisions in force as a result of the UK’s membership of the EU would continue to apply.

“The impact that Brexit will have on future UK tax policy remains to be seen. The current draft framework on the future economic relationship commits to a level playing field for open and fair competition, covering relevant tax matters and state aid. But we could see reductions in corporate tax rates, and indeed other tax rates, to stimulate economic growth, and further R&D incentives to encourage investment. Of course, if there was a change in Government as a result of Brexit, we could see a complete change in direction of future UK tax policy.”

The UK government has already enacted a number of statutory instruments to ensure tax law is operational post-Brexit. These updates, along with HMRC guidance and related topics, can be found on our Tax Brexit Portal. A detailed overview of the key tax impacts of Brexit can be found in our tax technical paper here.

Brexit has wide ranging tax consequences for business, not all of which have been high up in the headlines. With the increased risk of a no deal exit, tax needs to be firmly on the agenda for every business’s Brexit planning, both to manage any immediate consequences for payments, forecasts, compliance or reporting – and also to ensure business is well positioned to influence and take advantage of any positive future tax policy changes.

For more information on Brexit you can contact our Brexit team directly at brexitsupport@deloitte.co.uk.

Amanda Tickel - Partner, Global Brexit Insights

Brexit: Planning with Rigour and Vigour

2019-07-30T16:26:19+01:00

Last week saw the widely expected election of Boris Johnson as new Conservative Party Leader and hence as the new UK Prime Minister. Prior to his election, Mr Johnson had pledged to take the UK out of the EU on 31 October, “do or die”, with or without a deal. Since becoming Prime Minister, Mr Johnson has stated that the Withdrawal Agreement is ‘dead’ and that he will not meet with the EU unless it can be re-opened.

EU leaders wished Mr Johnson well on his appointment; but alongside the congratulations, the EU’s underlying position remains firm. In a phone call, Jean Claude Junker reportedly restated that the EU’s view was that “the Withdrawal Agreement is the best and the only agreement possible”.

Pro-deal MPs like Philip Hammond, Greg Clark, and Jeremy Hunt have all left government. Meanwhile, notable Brexiteers have joined the cabinet, including Dominic Raab as Foreign Secretary and Priti Patel at the Home Office, both of whom have said they are prepared to leave the EU without a deal. Michael Gove has been brought in to chair a Brexit inner-cabinet, tasked with turbo charging the UK’s preparations for an “assumed” no deal Exit.

We are seeing the reduced likelihood of a deal feed through into confidence in the Economy. Deloitte’s Q2 consumer tracker released this week revealed UK consumer confidence remains unchanged in Q2 2019 at -8%, still four points lower than a year ago, as Brexit uncertainty looks to have acted as a drag on consumer sentiment. Confidence in job security has also declined by one point, and is three points lower than Q2 2018, and sterling has also fallen further.

There is no doubting that the risk of the UK leaving the EU without a deal has increased. Business reaction is varied, but with less than 100 days to go, many are now working out how to re-visit their Brexit planning with even more rigour, whilst digging deep for at least the same vigour as back in March – and with a less positive economic backdrop.

Lessons learned – the business view

The impacts of Brexit are dependent on the unique facts and circumstances of each business, which is what makes it so complex to manage as a business risk. However, my discussions with those responsible for reacting to Brexit first time around have revealed five common themes which I’ve summarised here:

Cross-functional working is hard – but worth it

Brexit has a broad impact on every aspect of a business, meaning that different functions have had to work closely together in a way that they have rarely, or never, had to before.

One FTSE 100 company organised by business unit, noted the challenges their people faced when having to work with colleagues from different business areas - such as knowing who to talk to, managing competing priorities, differing KPIs or adopting new ways of working. It took a clear decision making structure, with a ‘group’ level leader, to identify a unified plan that worked in the interests of the business as a whole, rather than the individual business unit preparing their own Brexit plan.

Managing uncertainty

Working with constant political and regulatory updates, with prolonged uncertainty, has been frustrating for businesses and, in some cases, costly. One Industrial Products company told me how their continual monitoring of political developments had been extremely time consuming, distracting employees from their other roles and had in their view materially affected productivity.

It seems it’s now all about politics, but to follow every twist and turn and try to build a model for each scenario will be practically impossible. Actually engaging with government is challenging, but something that most businesses have realised they need to do much more of - navigating the political direction at 40,000 feet, having a voice and being able to influence the future are all critical at this stage.

Prioritise actions that add value, Brexit or no Brexit

Despite initial ‘buy in’ to their Brexit strategy, one fashion retailer met reluctance from top management when it came to committing to investment decisions or securing necessary sign-offs to actually take any action. Using this experience, they have now standardised business cases for ‘no regret’ decisions – capitalising on mitigation actions which are of benefit to the business regardless of Brexit. In a similar way, a logistics business has implemented Brexit-driven changes in the UK that are leading to cost-savings globally in any event.

Rigour around the risk assessment process and the business case for any changes implemented, will be even more important with the increasing attention of the FRC, financial stakeholders and audit committees

From tactics to strategy

We’ve seen a shift in our conversations with some businesses since the end of March. Up until then, many were focussed on the tactical decisions that they needed to take to preserve business as usual; but now some are looking at whether business as usual is the right target to aim for, or whether there are strategic opportunities available to them.

Part of this is undoubtedly being driven by the realisation that their Brexit preparations amounted to a one-off grassroots review of their operations, and they’ve discovered that not all is working as efficiently as they might like. One Fortune 500 business has told me that they now have a better understanding of the capacity and constraints of their support functions, leading to the recruitment and training of additional staff, policy improvements, the creation of a core ‘Centre of Excellence’, and, in the longer term, the automation of routine low value-add processes.

Pick more than low hanging fruit?

Many businesses were not ready for 29 March (or, indeed 12 April). Some mitigating actions with longer lead times, which companies had frankly run out of time to implement, are now being put back on the table - applying for Authorised Economic Operator status is one we’re hearing frequently. Another is a new window to rationalise entities and undertake cross border mergers to restructure within the EU with fewer legal and tax implications. Or to change customer terms and conditions to enable free flow of data between the UK and the EU.

For an FS business, management’s view was that this new window of time means ‘no excuses’ in the future even if less than perfection, or just the low hanging fruit, might have been tolerated had the UK left the EU in March or April. Their planning now needs to be 100% in the event they face a no deal exit in October and planning is now being undertaken to greater depth and detail.

Brexit planning with rigour and vigour?

Having prepared for a potential no-deal exit already, there could be a risk of business leaders perceiving “crying wolf” over Brexit, which gives rise to complacency and potentially leaving it too late to prepare for no-deal this time around.

But, it is clear from the actions and make-up of the new government that there is an increased likelihood of a no-deal exit this time. We cannot predict exactly where Brexit will end up, and it is difficult to navigate through the political fog, but as for any other risk businesses need to find ways to mitigate their potential exposures, and identify any opportunities Brexit presents. Those who were ready for 29 March should dust off the Brexit preparations they had put on hold, re-assemble their Brexit teams and re-engage their no-deal strategy for an October deadline, with renewed energy.

The government may be turbo charging their Brexit planning, but government can’t prepare business for Brexit, business needs to prepare business for Brexit.

For further insight into organisational design challenges, you could read The Adaptable Organisation or contact Shivani Maitra. For more from Deloitte on Brexit replay our latest Brexit webcast, where we discuss the election of Boris Johnson and what business needs to do next to prepare. Or, contact our Brexit team directly on brexitsupport@deloitte.co.uk.

Amanda Tickel - Partner, Global Brexit Insights

Brexit: Reporting Risk

2019-07-15T14:31:18+01:00

Reporting on Brexit Risk

The Conservative Party leadership contest continues, with the two candidates – Boris Johnson and Jeremy Hunt – attending hustings across the country for the next week. Voting has opened among the Party’s members, and the new Prime Minister will be announced on 23 July. Both candidates have differing Brexit plans, and business will be playing close attention to the pledges and commitments made during the process. Both have committed to leaving the EU by 31 October 2019.

Absent a general election, whoever becomes UK leader faces the same challenge as Mrs May – the numbers don’t stack up in Parliament to pass any version of Brexit on the table to date. Pro-Remain MPs aren’t leaving a stone unturned in their attempts to block a disorderly no-deal exit, including trying (and so far failing) to add a requirement for an October debate into legislation, but succeeding with a narrowly approved amendment to the Northern Ireland Bill that requires ministers to report on the situation in Northern Ireland on a fortnightly basis.

Meanwhile, the Labour Party has fundamentally changed its stance and now supports a second referendum - and if the question put to voters were a choice between Remain and the Conservative Prime Minister’s deal then the Labour Party would campaign for Remain.

Business sentiment

For business, Brexit remains a concern. Our latest survey of UK Chief Financial Officers, out last week, reveals that CFOs continue to rank Brexit as the biggest risk facing their businesses. 83% of CFOs now expect Brexit to lead to a worsening of the business environment in the long term - the highest level since the referendum. Recruitment forecasts, often seen as a bellwether for corporate health, are also sharply down.

Reporting Brexit risk

With this context in mind, we’ve just entered into the 2019 interim reporting season – or for June year-ends, the annual reporting season – and the UK’s Financial Reporting Council is calling for clearer reporting on the potential risks arising from Brexit. It’s likely that businesses won’t know the outcome of the Brexit process before signing June interim reports, so how should such an uncertain impact be reported?

I asked William Touche, leader of Deloitte’s UK Centre of Corporate Governance, for his thoughts on what business should consider when preparing interim reports.

“In its Annual Review of Corporate Reporting, published in October, the FRC called for companies to provide disclosure which distinguishes between the specific and direct challenges Brexit poses to their business model and operations from the broader economic uncertainties.

“Companies may be preparing their last stock exchange announcement before the UK leaves the EU. Brexit should therefore be seen as a “hot topic” for the half year reporting season.

“Half year reports should summarise the principal risks disclosed in the previous full year and where there are developments should update the risk narrative to reflect what has changed.

“As well as looking at disclosures, we also recommend updating your assessment of the potential impacts of Brexit on the group’s business model and operations.”

There are key areas that are worth considering when it comes to Brexit reporting:

Assumptions: Companies should be looking to address Brexit in their interim reports and explain what assumptions have been built into their forecasts, especially regarding liquidity and cash flows.
Context: Assumptions need to be made to allow Brexit scenario risks to be quantified, and considered in combination with the other principal risks. How does Brexit compare in terms of exposures and mitigations?
Scenarios modelled: Due to the uncertainty, business planning will likely involve management running several scenarios which can be refined and finalised as critical milestones change or pass.
Going concern: Where sensitised forecasts show a short term impact on liquidity and cash flows, going concern should be examined with rigour, as should the carrying values of assets.

To see how Brexit fits within our wider view on areas for board focus at the half year, see our latest ‘On the board agenda’ report.

How much to say

We analysed the reports of 100 FTSE UK listed companies here. In the 2018 reporting season, 3 in 5 companies identified Brexit as a principal risk. Surprisingly, only one company drew out an assumption related to Brexit, although a handful of others described the outcomes against which they prepared.

The range of reporting styles adopted by business so far is striking. Businesses in the same industries with high profile comparable brands, without obvious differences in complexity and supply chain, have reported anywhere from a bland “Brexit is a risk that has been considered” to reporting results of scenario analysis, with associated financial impact. Some businesses have gone significantly further in their reporting detail, particularly in the retail sector. Marks & Spencer Group plc, for example, explained how it models principal risks and described potential mitigations. The interim report for NEXT plc, ran for 10 pages on Brexit and was considered by some as setting the standard in terms of both transparency and reassuring shareholders.

Our expectation is that more boards will need to consider, discuss and report the potential impact of unfavourable Brexit outcomes in more depth in the 2019 reporting season and audit committees will undoubtedly be asking more and deeper questions about Brexit readiness.

Other stakeholders

Of course, many UK companies don’t need to have statutory audits or have foreign parents that deal with audit committees, shareholders and the like. But reporting Brexit risk is taking many forms, and is not just in the sights of UK regulators.

US businesses, which have generally only nodded to Brexit risk in their 10-K filings, for instance, may likewise need to say more in the future. US and international businesses that are registered with the Securities and Exchange Commission (SEC) are likely to be under increased scrutiny with the chairman, Jay Clayton, reported as saying “my personal view is that the impact of Brexit has been understated” and that the SEC will be “sharpening its focus about the risks posed”.

We also hear anecdotally that UK lenders are taking an increasing interest in Brexit and what it might mean for lending terms, rates and covenants, so understanding the detail and being ready to explain your plans whether you are listed, private, large or small remains key.

If you would like further insight on Brexit contact our team at brexitsupport@deloitte.co.uk; or you can contact our UK Centre for Corporate Governance at corporategovernance@deloitte.co.uk.

Amanda Tickel - Partner, Global Brexit Insights

The Art of the Trade Deal

2019-06-19T14:22:12+01:00

A UK-US Trade Deal?

We continue to see the Conservative leadership contenders whittled down further, with the various debates and media briefings substantially covering the Brexit strategy of each. At the time of writing, Dominic Raab is the most recent runner to be eliminated and five candidates remain. We’ll know the final two by the end of Thursday, 20 June, after which the decision as to who will be the UK’s next Prime Minister will be handed over to the grassroots members of the Conservative Party.

What the future UK/EU relationship looks like, and when it will take effect, is still impossible to say. However, the UK’s future trading relationships with the rest of the world are often raised as one of the key opportunities of Brexit. A UK/US trade deal has been touted as one of the biggest, in fact it could potentially be “phenomenal” in President Trump’s words, so in this week’s blog I look at how a deal could work.

How do you ‘do’ a trade deal?

The road to a trade agreement is a long one and can take years from start to finish. There are key milestones along the way, and the UK-US negotiations are at the very first stages – in fact, they can only be informal until the UK has actually left the EU. The UK has conducted an initial consultation with business, NGOs and other stakeholders, while the US has published its negotiating objectives.

What comes next is for each side to organise its negotiating team, and give them a mandate within which they’re authorised to horse-trade. The two negotiating teams then undertake many rounds of trade negotiations – perhaps as many as twenty to thirty rounds - ranging from the overarching structure to highly technical provisions.

Then comes the finalisation of the negotiating text, the ‘legal scrub’, domestic ratification, and then finally implementation of the Free Trade Agreement. In between all of this, there are usually a few moments of crisis and high politics thrown into the mix.

Each side needs to know that what is being promised is acceptable back home, and can actually be delivered in practice. If a deal is agreed that cannot subsequently be approved in the ratification stage then the negotiation has failed - which is exactly what happened to the negotiated UK-EU Withdrawal Agreement and to the currently stalled US-Canada-Mexico Agreement, which has been signed but not yet ratified.

So what is actually on the table?

I asked Sally Jones, Director of International Trade Policy here at Deloitte, for some of the detail.

“A US/UK deal could lower nuisance tariffs. Tariffs between the two countries are already very low, averaging 1.8% on US imports according to the World Bank. But that 1.8% number hides wide variations – particularly on products such as food and beverages (around the 16/17%) or steel, so there are potential big wins for some sectors.

“Another aspect that could bring wins for both sides would be harmonisation of certain regulatory standards. The insurance market, for example, might find its administrative burden reduced if the UK chose to align with US rules, although doing so would inevitably involve the UK moving further away from EU rules. The volume of US/UK insurance business might make that a price worth paying.

“Discouragingly, a US/UK trade deal won’t tackle many of the non-tariff barriers that prevent UK firms doing business in the USA. In part, this is because some barriers are created by State not Federal law and therefore are extremely difficult to include in a trade deal. Legal services, for example, are regulated at the state level - so a New York qualified lawyer can’t practise law in, say, California. It would be impossible for the US to give greater freedom for UK lawyers to work in the US than its own lawyers enjoy.

“Further, there are a number of other topics which will continue to be contentious during the negotiations for political reasons, including agriculture and the NHS.”

Ultimately what comes out of the US/UK negotiations will depend on what each side is willing to accept. Negotiators are prepared to live with a position in one area that they might not otherwise choose, in order to prevail elsewhere. As long as both sides feel that overall the benefits outweigh the challenges then a deal can be done. And, of course, the nature of trade is that it is inter-related; the closer you get to one market the further away you potentially get from another.

Could a successful trade deal offset less trade with the EU?

Probably not, at least in the short to medium term, as the EU represents a much larger proportion of the UK’s exports than the USA (44% compared to 18%) according to research from the House of Commons.

But, that said, a US/UK trade deal is expected to be net positive for the UK economy - in the past, the UK government has estimated that an ambitious agreement with the US would raise GDP by 0.35% annually (which would equate to £9bn per annum based on 2018 figures).

And, let’s not forget, a US/UK trade deal doesn’t preclude a UK/EU trade deal. It’s not an “either/or” situation. If the UK could agree decent deals with both the US and the EU then it could retain its enviable position as the gateway into Europe for US businesses.

What should business be doing now?

In the context of the future of US/UK trade, now is a good time for businesses to make sure they understand the barriers that stop them trading in the US in the way they’d like – and vice versa. There are genuine restrictions that could be dismantled in a US/UK trade deal, provided that business makes its voice heard in government consultations on both sides, by clearly articulating the opportunities that could come good.

Look further afield than just the US and the EU and there are many other countries with both ‘lower hanging fruit’ and astonishing growth prospects over the next decade, so a holistic view of trade policy is advised.

If you would like further insight into trade policy post Brexit, contact our team at brexitsupport@deloitte.co.uk.

Amanda Tickel - Partner, Global Brexit Insights

May Leaves, Uncertainty Remains

2019-05-30T10:36:15+01:00

A week really is a long time in politics. Theresa May has announced her intention to resign as leader of the Conservative Party; European Parliamentary election results showed the degree of polarisation over Brexit in UK politics; and nominations are already being declared for the Conservative leadership contest.

As something of a recap:

What led to the Prime Minister’s resignation?

After six weeks of talks between the Government and the Labour Party ended with no agreed way forward, Theresa May began last week by setting out her “new, bold offer” on Brexit in a speech in London. The offer included a vote on a second referendum, a vote on different customs options and enhanced protections for workers’ rights and the environment. Almost immediately MPs from across the political spectrum reacted negatively to the offer and the pressure from inside her own party became insurmountable. On Friday morning, 24^th, Mrs May announced her intention to resign as leader of the Conservative Party two weeks hence, on 7 June. Mrs May will stay on as Prime Minister until the next leader is chosen, expected to be in July.

The European Parlimentary elections

26 May then saw the results of the European Parliamentary elections that the UK was required to participate in as a result of the Article 50 extension - elections that the government never wanted and which were treated by some in the UK electorate as a proxy referendum. The results show the degree of polarisation over Brexit in UK politics. There are various statistical analyses out there, but generally one can say that 35% of votes were cast for parties demanding a hard Brexit (the Brexit Party and UKIP), and 35% for parties calling for a second referendum (Liberal Democrats, Greens and others) - while support for the Conservative and Labour Parties collapsed.

Who will replace Mrs May?

The Conservative leadership contest will formally begin on 10 June, with successive rounds of voting by Conservative MPs in which candidates with the lowest votes drop out, until a final choice of two is put to the 120,000 Conservative Party members – or a winner is declared if only one is left standing. The views of these members are overwhelmingly pro-Brexit, with 66% of them favouring leaving the EU without a deal based on a recent Yougov poll. This is likely to push whoever is in the race towards advocating for a harder Brexit, and we are already seeing media reports of the would-be leaders indicating their Brexit positions.

What does this mean for Business?

Theresa May’s resignation increases the likelihood of No Deal. Her Cabinet was committed to leaving with a deal but a new Conservative leader may not be. The default position is still that the UK leaves the EU on 31 October 2019 with or without a deal, unless either the EU agrees another extension, or Article 50 is revoked.

One thing we have learned since the referendum, though, is that the political landscape is difficult to predict and it seems anything is possible; who knows, we may see an alternative to ‘no deal’ in the form of a partial deal and disruption mitigated. But there are other parliamentary interventions possible, including a ‘vote of no confidence’ in the Government resulting in a general election. All we can say is that the uncertain political landscape is here to stay and the only certain date business has to work towards now is 31 October.

As such, business should take this time over the next few weeks and months to reset and re-engage with their no deal planning, re-schedule and potentially repeat the No Deal actions. And bear in mind that more strategic options that were impossible to complete by 29 March have now become viable again.

If you haven’t already done so, consider:

Brexit risk management and monitoring: review whether your risk register is comprehensive and keep fully up to date with UK Government technical notices (gov.uk/brexit) as well as EU and individual Member State notices.
Market access: in a no deal Brexit, consider what changes might hinder your ability to sell goods and services both inside and outside of the EU, including the potential loss of EU Trade Agreements. Determine if you will need new authorisations or licences, for example.
Supply chain and customs: map your supply chain, register for an Economic Operators Registration and Identification (EORI) number, get ready to complete and submit new customs declaration forms, and consider stockpiling/accelerating exports.
People: make regular communications to your employees explaining their right to reside and work status. Consider EU work status for your UK workforce abroad, visa requirements etc.
Financials: model the potential impact of no-deal in your budget and forecasts.
Stakeholders: talk to your audit committees, customers, suppliers, and investors.

Firms have been afforded some time, and businesses that do not prepare sufficiently could be at a disadvantage if a new Conservative leader does pursue a ‘no deal’ strategy. Mrs May is leaving, but the possibility of a no deal Brexit and the resulting uncertainty remain.