How will your business be affected by Brexit?

October 21, 2016

 

Voters have elected the British exit from the European Union. During the coming months therefore British and European leaders will be negotiating this departure. The decision has affected many areas including trade and the future of our businesses and it will take years to understand the full consequences.

 

Britain first has to invoke article 50 as formal notification and then there will be a two year window to negotiate a new treaty to replace the terms prior to exit. Cameron has said the legal move to formally withdraw will be left to his successor in October. It may be that Britain negotiate a deal with the EU which is not much different to what it has now. As an example Norway is not an EU member but has favourable access to the European Common Market in return for agreeing to abide by some EU regulations.

 

This is however unchartered territory and a lot depends on the UK governments ability to secure the best deal in terms of the free movement of people, trade tariffs and other agreements that were secured as part of the EU.

 

Uncertainty about Britain’s future could push the UK into a recession. Already the pound has lost value. With Cameron’s departure, Britain’s prospects of negotiating a favourable deal with the EU could have weakened and the EU may play hardball to discourage other member countries leaving. Indeed, new British leaders may not be prepared to accept the kind of restrictions that come with a deal similar to Norway’s. This could then create serious problems for businesses based in the UK. Depending on how well negotiations go for access to the European market, the British economy could be 3.8 and 7.5 percent smaller by 2030.

The EU will certainly want to protect its interest with Germany leading the way; what’s for sure is that Brexit is already changing Europe’s political landscape.

 

“If you are Nissan or some other car producer with major production in the UK, today, the same safety standards and environmental standards allow you to sell everywhere in the European Market”, Jacob Funk Kirkegaard, an economist at the Peterson Institute for International economics said. “You would no longer be able to sell into other European markets, not because you face a small tariff but because you’d have to go through another set of safety certifications. This kind of thing would be repeated in every industry you can think of”.

 

Brussels has employed high import tariffs to many foods, especially beef, coming from outside the EU and this limitation would no longer exist, allowing South American farmers to compete with domestic and Irish beef farmers and undercut them. This open market economy could wipe out domestic businesses shielded by tariffs. However British businesses could be allowed to expand if any damage to industries protected by high tariffs could be offset with some short term subsidy and removing regulations on working hours, gender equality and climate change.

 

Climbing interest rates could make Britain more appealing to investors that seek higher returns which could boost the economy. The fall of the pound does make exports cheaper and Britain’s exporters will get a boost, but there could be barriers to trade in the form of higher tariffs when negotiations are completed.

There could also be a change in the make up of the workforce. At present, around 12% of hospitality jobs and 9% of manufacturing are filled by migrants and companies may face a shortage of affordable workers. Last year, over 200,000 new jobs were filled by EU migrants and there is doubt, with unemployment being so low, that the job market can plug this gap. Most BREXIT campaigners have rejected clinging onto the single market since it is clear that would mean accepting free movement of labour and unlimited migration within the EU.

 

Uncertainty will be the order of the day for time to come, but the more informed you are the quicker you can react and the better decisions you can make. The change of regulations will affect pretty much all industries and although you can’t do much about the legislation, knowing how much your business is worth today and plotting a potential exit strategy will give you options.

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