The result of the EU Referendum of 23 June 2016 is a vote to Leave the EU.
Following Prime Minster Theresa May's announcement at the Conservative Party Conference on the 2nd of October, the UK will trigger Article 50 of the Lisbon Treaty by the end of March 2017, meaning the UK will leave the EU by Summer 2019.
The IoD has created a Brexit Hub where we feature various guidance and reactions to help IoD members navigate the issues presented to the business community. This includes our snap poll of members views in First signs Brexit will hit jobs – IoD poll plus in Brexit – what it means for your business Allie Renison, head of trade and Europe policy at the IoD, outlines the alternatives for a post-EU Britain and examines the steps UK businesses should be taking now.
We have also collected together some opinion and guidance on what this means for businesses and what you should be doing to prepare for the changes ahead.
How should my business prepare for leaving the EU?
Management Today issued the following advice last year which still holds true today and might be useful to consider for any of the alternative trading options.
What should you be doing to get ready for the possibility of waving farewell to Brussels?:
- Don't panic - yet. It is estimated secession would take two years and the repeal of EU legislation from UK law might require an extra year, taking us to 2020. However, some effects - particularly on financial markets - are sure to be felt sooner.
- Brace yourselves. Brexit is likely to have a significant effect on the economy, which could mean a fair wind or a nasty recession, according to your viewpoint. Iain Mansfield, essay winner of the Institute of Economic Affairs Brexit Prize, estimated that a worst-case scenario would lead to a 2.6% decline in GDP, while the best case would give a 1.1% rise. His 'most likely' scenario implied a 0.1% gain.
- Think finance. Maybe now's a good time to move your overdraft to a UK bank and sound out your investors. Other funding may also be at risk. 'Many businesses in the science and technology sectors receive EU research funding,' while in poorer regions Local Enterprise Partnerships feed EU money to small business through loans and grants.
- Get an office in Dublin. City banks have already been looking at relocating within the EU, with the Irish capital the favoured destination. The need to do so would depend upon the exact form Brexit took. If we remained part of the European Economic Area (EEA) we would retain complete access to the Single Market, whereas other options such as signing up to the European Free Trade Agreement (Efta) would grant partial access.’
In the longer term businesses are likely to have to address various specific issues as follows:
The Business Continuity Institute has prepared a paper Horizon Scanning post Brexit: What should businesses prepare for? (by Gianluca Riglietti). This 13 page document covers the main issues businesses should plan in an easy to read style.
Different management techniques may be called for such as Brexit calls for Scenario Planning Now by Gareth Jones (The Crisis Interface February 2016):
- ‘The technique that stands the test of time for high uncertainty situations is scenario planning. Scenario planning provides the technique for identifying and framing the uncertainties for a plausible set of scenarios. At the best case it enables you to be proactive and understand the assumptions you have, see uncertainties more clearly and seek out the possible opportunities. At worse it brings your team together and allows you to start to rehearse responses. The real aim must be to examine the change in the environment to seek to identify possible opportunities that were not present before we embarked down the ‘in/out’ road! We need to be prepared for the possible range of destructive forces and opportunities. Agility does not come from being static!!’
Procurement and Supply Chain:
Currently there is free trade between the UK and EU but in case this trade pattern is disrupted or if new opportunities for trading with other countries present themselves then companies may wish to or have to make changes with their suppliers.
Will a Brexit spell Supply Chain disruption for Business? (Roy Williams Procurement Leaders.com) says:
- “Procurement chiefs must act now to increase supply chain agility and spread risk in order to ride out any political or legislative changes.
The potential implications of a Brexit are numerous. Exclusion of the UK from the EU free trade agreement could see tariffs imposed serving to increase the cost of sourcing raw materials, components and other imports from mainland Europe. Similarly, these tariffs would reduce the competitiveness of British exports, and there are fears that depleted business confidence could prompt multinational businesses to reduce their levels of inward investment into the UK economy’.
“Firms must ensure that they are able to react quickly to any cost-changes within the supply chain and this relies upon understanding the capacity that non-EU suppliers have to increase output if required.’
“Contingency planning for a Brexit should begin immediately, with businesses communicating with vendors to establish what effect this change would have on trading activity, allowing them to work together to devise possible solutions.”
You may also like to order the free ‘Supply Chain Resilience Report’ from the Business Continuity Institute in order to strengthen your supply chain management.
Employing Staff from outside the UK:
Currently there is free movement of labour between EU states but this may change as a result of a Brexit.
Allen and Overy have written Brexit - contingency planning for employers. They advise employers to review EU based expatriate arrangements and consider risks for staff benefit plans.
Immigration Policy may change with a resulting change in the supply of overseas labour. What would Brexit mean for Immigration? (Open Europe blog) looks at the various options.
A more detailed view of the impact of Brexit is given in Croner Briefing Brexit June 2016
In order to combat cybercrime, the EU has implemented legislation and supported operational cooperation, as part of the ongoing EU Cybersecurity Strategy.
These may change or no longer apply in the event of a Brexit; Cyber Skills threat and compliance issues for UK post Brexit (John Cohen New Statesman Tech) writes:
- ‘Firms trading in the EU are today held accountable by the UK Information Commissioner Office (ICO), and also the EU General Data Protection Regulation (GDPR), which was adopted on the 14 April 2016 and so the two-year countdown to compliance is now on. The headline difference between the ICO and the GDPR is the extent to which firms can be fined for data breaches. The ICO states 2 per cent of global turnover, whereas the GDPR is regulated to 5 per cent. Whichever number you take, these are significant chunks of change regardless of the size of your organisation, with the GDPR probably taking the edge in terms of keeping you awake at night. Will Brexit free you from this worry? Probably not; if your firm trades in Europe or holds data related to any EU citizen, then both the ICO and GDPR will continue to apply. From a cyber perspective on Brexit, has this cleared anything up? Food for thought perhaps, but nothing yet is clear.’
What will be the effect of Brexit on British Business?
The Financial Times gives 3 possible economic forecast outcomes summarised as follows:
- Booming Britain
- Troubled Transition
- Disastrous Decision
Brexit - A Practical Guide to the Legal Implications written by Berwin Leighton Paisner law firm gives a number of economic trading block options as follows:
- European Economic Area (EEA) but not European Union (EU)
- European Free Trade Area (EFTA) but not European Economic Area (EEA)
- Customs Union
- Free Trade Agreement
- World Trade Only (WTO) Relationship
UK and EU: Better off In or Out - BBC news (February 2016) gives some potential models:
- The Norwegian model: Britain leaves the EU and joins the European Economic Area, giving it access to the single market, with the exception of some financial services, but freeing it from EU rules on agriculture, fisheries, justice and home affairs
- The Swiss model: Britain emulates Switzerland, which is not a member of the EU but negotiates trade treaties on a sector-by-sector basis
- The Turkish model: The UK could enter into a customs union with the EU, allowing access to the free market in manufactured goods but not financial services
- The UK could seek to negotiate a comprehensive Free Trade Agreement with the EU, similar to the Swiss model but with better access for financial services and more say over how rules and standards are implemented
- The UK could make a clean break with the EU, relying on its membership of the World Trade Organisation as a basis for trade.
KPMG discuss Macroeconomics and Brexit in the boardroom (May 2016); including these findings:
- Trade: 5% to 10% fall if UK exits the EU
- Wages: 0.2% to 0.6% higher for low skill jobs in some industries
- GDP: 4-6% lower by 2031
- Regulations: Lower costs representing 0.7% of GDP
Bird & Bird have looked at Brexit: tax implications (4 May 2016):
- The major questions surround what will happen if the "leave" campaign succeeds. The short answer is: the UK will be required under EU law to give two years' notice if it intends to withdraw. This allows time for negotiating the various agreements that will govern UK-EU relationships after an exit. The long answer must address what those relationships will actually look like. Three main post-Brexit models appear possibilities, based on how other non-member nations interact with the EU. The net effect of a Brexit will depend on which model is adopted and the trade agreements reached.
According to City AM (8 March 2016): EU referendum: How Brexit could affect your business, ‘the Financial Reporting Council urged companies to include the potential cost of quitting the EU in their financial statements. While the warning was aimed at major FTSE companies, SMEs and other high growth companies would do well to listen’.
The article concluded as follows with the following business advice:
- ‘With so many variables in the mix after a Brexit, it’s a good idea to start by focusing on some of the more obvious areas that would be affected, such as staff, suppliers and customers.
For instance, if one of your main suppliers decided it was better for them to remain in the EU and upped sticks to mainland Europe, your dealings with them would then be subject to new taxes, custom costs and slower admin processes. How much could this hit your bottom line?
A similar scenario may arise with those you sell to. How many of your customers - individuals or businesses - could feasibly leave the country? Could you still sell to them outside the UK or would you have to find new ones to replace them?
And if you employ non-British nationals, a Brexit may require them to have a visa or work permit. If several of them left as a result, what impact would that have on your productivity, HR costs and projected growth?
By including these kind of scenarios in your financial plans, you can make more informed decisions about what investment or preparations you should make to ensure your business continues to grow if the UK left the EU’.
For a detailed analysis of the Brexit issue see Brexit public reading list April 2016 (CMS Law Now - Reg Zone Briefing, April 2016).
Price Waterhouse Cooper has published a briefing The EU Referendum
This gives particular emphasis on employer and employee rights and duties.
Clifford Chance have produced briefings on the financial and legal impact of Brexit:
Clifford Chance Brexit Legal Impications for the UK
Opinion from senior figures varies; with the following providing their thoughts:
Interestingly, only one in four businesses have a plan in place for dealing with the risks of the UK leaving the EU (Out-Law comments on a Pinsent Mason survey, 10 May 2016).
The business impact of a Brexit vote would depend on which of the post Brexit economic and trade options this government (or successive UK governments) opted for.
Freshfields Bruckhaus Deringer has listed these in a briefing: Britain and the EU - Questions for your business.
Another factor is the time involved in negotiating new trade arrangements with the EU depending on what alternative option is selected; the BBC discussed this: Reality Check - could Brexit be negotiated in two years? (March 2016).
Lord O'Donnell fears complex talks would take much longer than that, and if the EU refused an extension to the negotiating period the UK could face higher trade tariffs.’
Euromonitor Blog - Brexit FAQs for Business answered (Sarah Boumphrey) says that discretionary items e.g. confectionery may be affected but overall there will be no great effect on consumer spending. Also a weaker pound may increase inflation.
What has been The IoD’s position on the EU Referendum?
Simon Walker, Director General of the IoD, issued this statement on March 7th 2016:
‘As you will know, the IoD is governed by a Royal Charter, which was granted in 1906. Our Charter instructs us to ‘represent the interests of members and of the business community to government and in all public fora and to encourage and foster a climate favourable to entrepreneurial activity and wealth creation’. To this end, we recently published a poll of our membership on how they planned to vote in the referendum. 60% said they intended to vote to remain in the EU, 31% said they would be voting to leave, while 9% were unsure.
While the IoD will not be campaigning in the run-up to the referendum, neither will we be remaining silent on the topic. We aim to provide information members can trust amid the sea of noise in this debate. Whether the British public decides to remain with the EU, or to leave, the UK’s economy will continue to be closely linked Europe’s. A more competitive EU will always be in Britain’s best interests, whether we are in or out’.
For enquiries to the IoD on this topic the contact is Andy Silvester, Head of Campaigns.
In the 'Director' magazine James Sproule, the IoD’s chief economist and director of policy, explains that the business organisation has a key role to play as the arguments are aired but must stay impartial and be ready to support businesses whatever the outcome: Why the IoD should remain neutral in the EU Referendum.
In the IoD report The UK's relationship with the European Union Allie Renison, Head of Europe and Trade Policy - IoD, explores what business really thinks of the EU-and why?
In addition, at the IoD Convention last year, Lord Mandelson (pro European Union membership) and Lord Lawson (in favour of Brexit) debated this issue; watch the IoD convention: Europe debate for further insight into the issues for business.
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