With the UK having turned down an extension to the transition period with the EU and many issues yet to be resolved ahead of the deadline of 31st December, there is increasing feeling that a no-deal scenario may become a reality.
The issue of no-deal has been discussed often, with many people feeling it would be detrimental to the UK. Several MPs and leading figures have also called for no-deal to be taken off the table entirely. However, with limited progress reported so far, the likelihood of no-deal has increased.
If no-deal were to take place, there would inevitable consequences that businesses need to prepare for. In this guide, we are detailing the what a no-deal may look like and how companies could be affected so that you can prepare for whatever eventualities the UK’s International Development (formerly known as Brexit) may bring.
No single market
One of the most significant changes that may come into effect is that the UK will no longer be part of the single market. The European single market is a trade bloc where trade barriers are reduced to allow the free movement of goods and services between the countries in the market. After we leave the EU, the UK will no longer be guaranteed access to this market.
Currently, negotiations are in place to agree on a trade deal between the EU and UK so that some of the benefits can remain in place, such as reduced tariffs and border checks. However, if an agreement isn’t in place, we can assume that the UK will have no access to the perks it currently does.
Without a trade agreement, businesses that deal with imports and exports may face increased costs due to increased tariffs and duty tax. The cost of your business supplies could increase in general, should any materials you use come from any country that is not the subject of a trade agreement, which will need to be accounted for in your running costs. Under World Trade Organisation rules, which Britain be would under in the event of a no-deal, tariffs can vary by sector which means some companies may be more impacted than others.
Additional paperwork may also be required for trade, as the single market reduces some of the barriers usually in place to allow for more free movement. This means that, following a no deal, businesses could need to apply for specific licences to trade, fill out increased documentation and may even have to appoint specific individuals to deal with these measures. In this sense, trade may become a much larger part of your daily operations to meet the increased workload associated.
Britain is now in talks not only with the EU but with several other countries, including the US and Australia to agree on trade deals that can assist their post-EU position. Depending on the outcome of these talks, these deals may provide a lifeline for businesses, allowing them to pursue new import and export routes that share some of the same benefits experienced as part of the single market. In this sense, no longer being part of the single market as an opportunity for Britain to diversify its trade, which could lead to new opportunities for businesses.
A further consequence to the UK of no longer being part of the European single market is that the time exports and imports take to move in and out of the country may increase due to enhanced border checks between the EU and UK.
Currently, the UK has confirmed it will ease these checks in gradually on goods coming in from the EU between January and June next year so that businesses have time to adapt. However, the EU has made no such promise and have confirmed that UK imports coming into European countries will be subject to full checks from 1st January. The announcement from the EU means that businesses exporting to the EU will face longer delivery times, which they will need to account in their operations. It may even mean that their EU customers choose against UK imports if the delays are significant.
If a trade deal can be struck, this is likely to encompass border checks and may help to reduce delays. In a no-deal scenario, border checks will become a regular feature of EU-UK trade that businesses will need to adjust to. Companies will need to prepare for longer wait times when ordering goods from the EU, which could lead to longer turnaround times in their businesses or the option of finding less-competitively priced suppliers elsewhere. There is also increased risk of shortages of goods with EU imports able to enter the country less freely.
Similarly – although unrelated to trade – border checks will be more extensive for people travelling into the EU, which could have a knock-on effect for any business representatives who regularly travel between the UK and Europe for meetings and so on, which may also cause delays for your business fulfilling its standard operations.
Energy price changes
Another area that could be impacted by a no-deal is the energy businesses use to fuel their operations. 45% of the UK’s energy is imported from Europe currently.
Yellowhammer – a report compiled by the government last year to detail the possibilities in a no-deal scenario – suggested that there could be significant price increases for energy. This is partly due to the predicted fall in the value of the pound against the euro, but prominently due to the UK no longer having access to EU energy markets. As a result, business running costs could increase.
With reduced access to the EU energy markets, Britain may also be at risk of energy shortages, particularly in emergencies where domestic energy production is compromised. This means that in the case of a storm or other extreme weather, businesses could face periods of downtime that may harm overall production targets.
It is worth noting that a great deal of the UK’s imported energy comes from Norway, which is not an EU member state – although it is a member of the EU’s Internal Energy Market. Due to this, the government have previously stated energy trade will continue as usual between Norway and the UK. An agreement has already been signed to confirm this, which will provide relief to the businesses with regards to energy supply.
Changes to your workforce
Another key talking point around the UK’s International Development is immigration. As well as the free movement of goods, the single market allows for the free movement of people – so, once the UK is no longer part of it, we will not be required to enable EU nationals to come into the country as freely.
Some initiatives have already been announced as to what EU immigration will look like moving forward. The EU Settlement Scheme has been put in place to allow those already living and working in the UK to remain with settled status, so businesses should endeavour to support their EU staff in their applications.
Beyond this, it is unclear as to how immigration may change, but the government have indicated emphasis is likely to be on skilled labour. The Immigration Bill was previously announced in February, which stated migrants would need to adhere to a points-based system to get a working visa. Anyone entering the UK to live would also need to have a job offer in place and be able to speak English. However, this bill has since been shelved, though it does still highlight the general direction of the government.
If a skills-based immigration policy was to come into play, as it may in a no-deal situation, it means that businesses may struggle to hire the cheap EU labour many rely on. This could lead to skills shortages in specific industries, as well as reduce the availability of seasonal workers.
Businesses will, therefore, need to adjust the way they recruit: either by focusing on domestic labour or by concentrating on EU nationals with higher skill sets. Both of these options are likely to increase wage costs.
Although EU immigration has fallen since the leave vote and may continue to do so, migration from elsewhere in the world has grown. This means that there are still people entering the UK to fulfil the gaps – albeit from different countries – and businesses can still utilise them to address the needs of their operations and keep costs down.
UK and EU leaders are in discussion about many of the critical topics that we have discussed, so there is still clarity to be sought. Talks are set to continue next month, meaning there is still time for a deal to be agreed and for businesses to prepare for whatever that deal may incorporate.
However, it is worth being wise to what a no-deal could mean for your company and having the preparations in place should that be the outcome.
If your business is struggling with its post-EU preparations, we are here to help. Our team of expert advisors can provide guidance tailored to your business and its operations, so that you can get the answers you need to get your business ready.
For more advice and to book a bespoke one to one advisory session, contact one of our expert advisors on 0330 2020 216 or email [email protected].