Why am I talking about a hard Brexit?
I have written before about the risks of Brexit. I have always said that everything depended on the terms we got and I still say so. However, there is increasing talk of a hard or ‘no deal’ Brexit which cannot be ignored. Despite this, much of what I have written previously will still be relevant.
How to begin assessing the hard Brexit risks?
The risks of a hard Brexit need to be assessed in the same way as any other risks. First look at the probability, then the severity, before considering your control measures. Not that most of us can control the risk in terms of probability. If you can: please do! Most of those who voted Leave probably believed we would still be able to trade with the EU as it was in everyone’s interests. It was. It is. But…
What is the probability of a hard Brexit?
I cannot remember anything being so hard to assess. It makes weather forecasting look like an exact science. If nobody would benefit from a hard Brexit, apart from a few self-seeking politicians, why is it at all likely?
- The progress of the negotiations so far does not make me optimistic.
- There are so many things that could go wrong: in Westminster, in Brussels and in 27 other capitals.
- The Russians could interfere covertly.
One problem most of us face is that of trying to tell reality from perception. How much of what we are told is a negotiating ploy by either side? Will the EU offer us a deal at the last minute, regardless of the rhetoric? Will the extremists in parliament act rationally when it comes to the crunch?
What about the severity of a hard Brexit?
Again, it is hard to know what is reality rather than scaremongering. However, in the absence of ANY agreement, there would be no guarantee that any contact with the EU could be maintained, at least in the short run. You may argue that we can and do deal with countries outside the EU without much trouble. Yes. But we have treaties, agreements and other arrangements. In some cases, such as the USA, there are visa requirements and travel restrictions. Some arrangements depend on our being in the EU.
How could a hard Brexit affect your business?
- You need to ask yourself what proportion of your sales goes to the EU. Then ask how realistic it would be to replace that with more sales in the UK or to non-EU countries.
- Next, you need to ask what supplies you obtain from the EU. How important are they? This is not necessarily all about volume or percentage. You might spend only a small percent of your costs on some component or ingredient, but it could be crucial to the running of the business. How easily could you replace it with something made in the UK or elsewhere outside the EU? Or change your processes so you can do without it?
- Then there’s the problem of a supply chain that crosses the Channel several times, as is common in the motor industry. Is yours like that? Does it have to be?
- How time-sensitive are your supplies or sales? How seriously would bureaucratic delays at ports affect them? Would better planning be the answer?
- Even if you think you are safe, check on the sources your suppliers depend on and ask what contingency plans they have.
- You also need to consider your dependency on EU workers. Again, how can you replace them from the British workforce or from elsewhere?
How hard would hard be for you?
I remember an episode of Only Fools and Horses, where Del got involved with a singer with a lisp. He couldn’t pronounce his R’s. After a catastrophic performance, everyone was expressing anger. The singer said, “I’ve got a good voice. Does it matter that I can’t pronounce my R’s?”
Albert said, “It only matters if you’re singing songs with R’s in them.”
My point is that you could be worrying too much, if leaving the EU without a deal would affect only a small proportion of your costs or sales, or if you have alternative sources of supply.
Finally, what about a soft Brexit?
You cannot assume that a deal would remove or greatly reduce all the above risks. Not every industry or every activity will necessarily be protected. Not every arrangement will be cost-free. Many people have said that uncertainty is bad for business. Yet there was always going to be uncertainty during the negotiating period (and probably beyond, as the devil is in the detail). M Barnier has rightly said several times that nothing is agreed until everything is agreed. Anything else would tie negotiators’ hands too much. However, it means we will have to live with uncertainty right until … whenever everything is certain.
If you want to go through any or all aspects of the impact Brexit might have on your business. Let me know.