Why British Businesses Are Spooked by a No-Deal Brexit

Why British Businesses Are Spooked by a No-Deal Brexit

U.K. companies have made preparations for how to respond to a no-deal Brexit. 1 in 5 British businesses has implemented plans for this outcome.

SourceHinterhaus Productions/Getty

Why you should care

To be or not to be — in Britain. That is the question.

Lynda and Phil Platts were hoping to move to Italy once they retired. They did not imagine they might be moving their U.K. business there instead because of Brexit.

But this is one of several radical options the couple is having to consider for ACP Solutions, which produces insect repellent and bedbug-resistant bedding if Britain crashes out of the European Union without a deal.

“One option is to effectively pick [our business] up and move it into an EU territory,” says Phil Platts, adding that another would be to sell part of ACP to an EU customer, reflecting how the business exports four-fifths of its insect repellent to the bloc.

ACP, based in Nailsworth, Gloucestershire, is one of a minority of U.K. companies that have made preparations for how to respond to a no-deal Brexit.

The Confederation of British Industry (CBI) estimates that 1 in 5 British businesses has implemented plans for this outcome, whether by relocating operations overseas, stockpiling goods, cutting jobs or adjusting supply chains outside the U.K. Even though the risk of the U.K. crashing out of the EU has loomed large ever since Britons voted to leave the bloc in 2016 — because Prime Minister Theresa May insisted for a long time that “no deal is better than a bad deal” — companies’ preparations for this scenario are patchy at best.

For every company that has done some sort of risk assessment on Brexit preparedness in general, there are two that haven’t.

Adam Marshall, director general, British Chambers of Commerce

Many big groups have developed contingency plans to try to cope with cross-border trade potentially being reduced to chaos, but most small companies have not. And there are big differences between sectors: While financial services companies have made extensive preparations, for example, manufacturing businesses have not.

“For every company that has done some sort of risk assessment on Brexit preparedness in general, there are two that haven’t,” says Adam Marshall, director general of the British Chambers of Commerce. “Of those that have, very few will have done it on the basis of a no-deal.”

Pharma groups start early

One sector that started its no-deal contingency plans early, straight after the 2016 Brexit referendum, was pharmaceuticals.

“We have an integrated European supply chain, so we’ve known from the beginning that any challenges at the border could affect us,” says Mike Thompson, CEO of ABPI, the pharma industry’s trade body.

He adds that the sector is engaged in a range of preparations for a no-deal Brexit — not just stockpiling medicines but also increasing imports of key supplies by aircraft and pushing the government to open up ports on the east coast of England to offset the risk of problems at Dover.

Miles Celic, CEO of TheCityUK, the business lobby group for financial services, says leaving the EU without an agreement would be “the worst of all outcomes.”

“The industry is taking every action to prepare for a no-deal Brexit,” he adds while stressing the sector was reliant on steps being taken by lawmakers and regulators across the EU in certain areas.

This includes measures to ensure the validity of derivative and insurance contracts should the U.K. leave the bloc without an agreement.

“Just in time” manufacturing fears

The situation is far more acute in relation to manufacturing. A survey commissioned by the EEF, the sector’s trade body, has found 4 out of 5 companies are not ready for a no-deal Brexit. Two in 5 said they had no intention of starting preparations. Some of the large carmakers have made contingency plans, according to the Society of Motor Manufacturers and Traders, a trade body.

However, overseas carmakers with factories in the U.K. have warned of the dire consequences for them of a no-deal Brexit, reflecting how they have “just in time” manufacturing processes reliant on deliveries of components from continental Europe.

Toyota has said in this scenario that its plants in Deeside and Derbyshire would be on “stop-start” production for weeks or even months.

Minnows face big challenges

But for many small companies, spending money on preparations for a no-deal Brexit — something that may not happen — cannot be justified.

The Federation of Small Businesses has estimated just 1 in 7 small companies is making contingency plans for if the U.K. crashes out of the EU.

And calls by the CBI for the government to provide more support for small businesses — by setting up a “one-stop shop” of Brexit advice, for example — have so far been ignored.

Allie Renison, head of trade policy at the Institute of Directors, says attempts to prepare for a no-deal Brexit have been hindered by a lack of transparency from the government about its contingency plans.

Whitehall departments have shared information with some of the companies most affected, including haulage and parcel delivery businesses, but those privy to it have been made to sign nondisclosure agreements so that it has not been more widely diffused.

“For a lot of other businesses and trade associations we are left fumbling in the dark,” says Renison. “There is no clarity about what mitigating actions the government would take if there is a no-deal.”

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By Sarah Gordon

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