Law firm Fieldfisher summarises the main issues keeping business leaders awake at night as we head into 2019
With fewer than 100 days to go until the UK leaves the European Union, and with the prospect of a no-deal Brexit closer than it ever has been, we spoke to our business clients about their chief concerns and hopes for the future, writes Andrew Hood, partner – regulatory and trade at law firm Fieldfisher.
We discovered that the impact of a potential no-deal Brexit is already being felt by manufacturers, retailers and distributers, and they are implementing no-deal planning now.
Some concerns are specific to fashion: retailers are worried they will not be able to staff their shops with temporary extra sales assistants over the Christmas and January Sales period.
They are also worried because of the composite nature of their products (especially those containing leather), and their European customer bases.
As things stand, most manufacturers and retailers with European supply chains feel there is no upside from Brexit. Some companies are considering pulling out of smaller EU markets, where margins or profits do not stack up against the disruption and costs of doing business there without a favourable trade deal.
Dealing with the prospect of no deal is likely to take up increasing amounts of management and staff time between now and 29 March 2019, in the months and years that follow.
Businesses are no longer assuming that the government will avert a Brexit crisis and are making contingency plans, although they continue to hope for a positive outcome from future UK and EU discussions.
The key concerns we heard from our clients focused on three areas:
For retailers, short-term and casual staff required over Christmas and the January Sale period are proving harder than ever to find and recruit, as net migration from the EU to the UK continues to fall.
Staffing worries are being expressed throughout the manufacturing and retail supply chain, especially for distributors and for retailers’ warehouse facilities. Many EU nationals have expressed concerns about being able to prove five-year UK residency and about the cost of applications, particularly among low-paid workers.
Some companies have offered to foot the bill for their staff’s applications for the right to remain in the UK or for UK staff seeking reciprocal rights in EU countries. But for some small businesses, the cost and administrative burdens of offering this service are prohibitive.
Many low-wage EU staff, for whom the high cost of accommodation and travel in the UK offsets any benefits of higher wages, are considering going back to their native countries – particularly as the weaker pound has slashed the value of euros they can send home.
Businesses employing staff from outside the EU will at least have some familiarity with the legal and administrative processes of ensuring their staff have the right to work in the UK, but for many this will be their first experience of dealing with such matters.
The biggest concerns for many UK-based manufacturers and retailers are about the security of their supply chains. UK ports are already overloaded and warehousing facilities are in increasingly short supply and becoming more expensive, as manufacturers either stockpile or reserve warehouse space in anticipation of no deal.
Retailers are ordering more stock and manufacturers are ordering more raw materials that they can store for sale or use after 29 March 2019, in case customs arrangements change overnight. New bonded warehouses are being opened and constructed to meet demand, as more and more import-reliant UK businesses increase the amount of stock they hold – but there is a limit to how much of a buffer stockpiling will provide.
In Europe, there is increasing demand for continental EU port facilities, storage and warehousing so that that companies that have used the UK as a stop off point or land-bridge in the past can by-pass UK ports in the event of a no-deal Brexit. Manufacturers and retailers are increasingly expecting or asking their supply chains – including logistics companies – to present them with no-deal plans, so they can gauge the impact of this scenario on their access to raw materials and components, on one hand, and customers on the other.
Businesses in the UK and the EU are anxious to know what the future trading relationship between the UK and the EU will look like – since this could be in place for a generation or more, until a replacement deal is agreed and implemented. Manufacturers with interests in EU markets are worried that their sector has not been given sufficient prominence in Brexit negotiations. Under the current UK withdrawal agreement, the text devoted to the proposed immediate post-Brexit trading relationship covers seven pages.
Assuming the withdrawal agreement gets through both houses of parliament, and the transition period kicks in at midnight on the 29 March 2019, businesses want to know which of their contracts and trading arrangements need to be reviewed as a priority.
UK companies who trade with non-EU countries under existing EU trade agreements are feeling very much in the dark about how Brexit will affect their business. There is a lot of anxiety about whether existing business contracts will cover the potential impacts of no deal on their businesses. It is assumed that most force majeure clauses will not cover much of this disruption, as Brexit is a political, rather than natural risk.
Businesses are nervous about the prospect of increased litigation in any post-Brexit scenario – both between businesses themselves, and between businesses and regulators. UK-based manufacturers who manufacture products from a range of EU-sourced materials and components have particular concerns about how the EU’s rules of origin will affect their export businesses.