How prepared are businesses for Brexit? What are their priorities in the negotiations? Those were some of the questions that we posed to our audience during a Brexit webcast we hosted last week.
Interestingly, we found that 25% of organisations said they had not yet taken any action with regards to planning for the potential effects of Brexit. The CBI also asked the same question in their recent survey and found that 11% are yet to take action. Given that both the UK and EU have acknowledged that progress to date has been slow and certainty on any aspect of the final deal as yet remains elusive, it is perhaps unsurprising that in some cases, businesses are still waiting for greater clarity before taking steps to mitigate risks or realise Brexit related opportunities. This reflects what some businesses are telling us - the view that current levels of uncertainty are too high to take meaningful strides or to begin to prepare. It does seem that there a desire from both the UK and the EU to increase the pace of talks and there is hope that discussion will turn to trade before the end of this year. This could spur businesses on, but even if things do progress, trade talks tend to operate on the basis that 'nothing is agreed until everything is agreed', so our advice to clients has been to treat Brexit like they would any other business risk and plan for the situation of most change so that they are prepared for a range of final outcomes.
For the majority of organisations that have been preparing for Brexit, 35% have set up a Brexit steering committee, 22% have identified their priority issues and 17% have detailed risk assessments and planning underway. Furthermore, in the CBI survey, they found that 60% of their respondents are looking to trigger contingency plans by March 2018 if transitional arrangements are not agreed before then. However, with business groups on both sides of the channel pressing this issue, and the UK and EU seemingly in broad agreement that a sensible transition period is in everyone's best interest, I am hopeful that this crucial part of the talks will be resolved in the coming months.
So what are the biggest Brexit issues for business and what do they want in terms of the future UK-EU relationship? Our poll found that higher customs duties on trade of good and services is posing the greatest challenge for most organisations (37%), closely followed by macroeconomic uncertainty and currency fluctuations (28%). It is unsurprising then that we found tariff free access to the single market is by far the number one priority from a business perspective (69%). An immigration system that continues that enables access to labour came in second (23%).
Our polling results only provide a snapshot of some of the main challenges. From our work with clients we tend to find that issues quickly become fact and circumstance specific. For example, we were recently working with two manufacturers who produce an almost identical product for the UK market. One has long term contracts with a UK production plant, the other has a plant on the continent. Therefore, for the first organisation there is considerable potential upside, whereas tariffs and duties are a major concern for the second.
A common issue for many of our clients is around their workforce and the EEA nationals that they employ. Whilst the new immigration system is not yet determined, we are starting to see an emerging direction of travel – which will likely require these workers to apply for 'settled status', in line with the current requirement for non-EEA workers. Employers will also need to register their EEA workers. This is likely to have an impact on the availability of labour as entry requirements become more stringent, and for some groups the UK perhaps becoming a less desirable place to live and work, not least if sterling continues its devaluation trend. We are advising our clients to take a number of practical steps in this area, such as; assessing how many EEA workers they currently have on payroll; mapping out current skill levels against the Government Standard Occupational Codes; ensuring immigration compliance requirements are reviewed and updated and considering the capacity of the HR function, which will likely see increased administrative responsibility.
Another common issue facing many businesses is around data, which currently flows freely between the UK and EU. Once the UK leaves the EU, it will become a 'third country' and will need to be granted 'adequacy' status in order for the current situation to continue. Only 11 countries currently have this status (the US is not one) so there are other frameworks that can be deployed but businesses need to understand their current data flows and how they will address potential changes to come.
Finally, we asked our audience what the longer terms priorities for the UK should be. A third of respondents think liberalised trade with non EU countries should be top of the agenda (33%), closely followed by investment in skills and innovation (29%). Whilst the future UK-EU is crucial and will likely dominate the agenda for some time to come, business and government need to work together towards these longer term goals aimed at bolstering growth across the whole of the UK and ensuring the UK remains a globally attractive destination to do business.
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