At PwC, we're still clear that a deal is more likely than ‘no deal’, and that at the end of status quo transition, the UK will leave the EU with a Free Trade Agreement which builds upon the existing EU-Canada deal.
But with the EU encouraging people to make contingency plans for a ‘no deal’ scenario and with no major breakthroughs in the negotiations in time for the June summit of the EU, there is increasing imperative to consider the impacts of a ‘no deal’ scenario. We surveyed 350 UK based businesses to understand the scenarios they are planning for and the preparations they have made so far, and whether these are in line with our recommended ‘no regret’ decisions.
In my recent article I set out eight ‘no regret actions’ - things all organisations should be doing now, to pave the way for doing successful business regardless of where the negotiations end up. The aim was to help businesses stay agile, mitigate risk, and take advantage of opportunities as they come up.
With the clock ticking, we wanted to dig into the detail of what businesses are actually doing to prepare. If they are preparing, which situations are they preparing for? Are they making changes, or are they playing for time? Are particular regions or types of business further ahead than others?
What we found is a business community that is extremely divided in terms of expectations and preparedness.
Our survey results show a shared optimism amongst the business community that some form agreement will be reached, with the vast majority planning for at least one scenario that includes the transition period agreed in March going ahead. By comparison, only 31% are preparing for the ‘no deal’ scenario where changes take effect from 29 March 2019. At the same time, 1 in 10 businesses surveyed are not planning for Brexit at all.
Our opinion is the most likely scenario is that the UK and EU will reach some kind of Free Trade Agreement, although by March 2019, there may be few details, but these will emerge in the subsequent months during a transitional period. We still hold this view, but as time goes on, and with every day bringing little in the way of clarity, we think all businesses should have meaningful plans for a no deal scenario too.
This is especially true if you’re in a sector that would be highly impacted by the no deal scenario, such as those that are heavily dependent on the current regulatory alignment between the UK and the EU, or those with complex, commercially finely-tuned or time critical supply chains.
To see ‘who’s doing what’, we asked businesses which activities they’re undertaking in preparation for border changes. We explored a range of areas, including supply chain, warehousing and transportation, data and systems, customs and taxation, and overall operating models. This chart shows three examples of activities businesses should be considering.
Looking at the data from one angle, it appears that around half of businesses across the UK have already started their preparation, with 15-20% having already ‘Completed’ most key activities. Similarly, half of businesses have engaged with government or their industry bodies on Brexit planning to date. This indicates that the opportunity for ‘first mover’ advantage may soon have passed, leaving others to catch up.
If we flip this on its head, that means 80% of businesses have not completed key preparations with around half of businesses having not yet taken any action at all - remaining at the ‘not started’ or ‘planning’ stages. In fact, for each activity, between 10-15% of businesses have not even started planning key preparation activities. In the context of an increasing likelihood of a ‘no deal’ scenario, these businesses are risking not being ready by March 2019, if they need to be.
So why the lack of movement, when time is clearly running out? The responses show a correlation between the scenarios being planned for and the progress made so far in preparations. So if a business is considering multiple scenarios, they are likely to be further on in completing the activities to be ready for exit.
Despite very comparable perceptions of the impacts on their business, more businesses in London are actively planning for multiple scenarios. Notably more than 40% of London based businesses are actively planning for a ‘no deal’. This increased scrutiny of the scenarios, and in particular increased attention to the ‘no deal’ impacts, pushes the completion rate of the activities from 15-20% to 25-30% and levels of engagement with government and industry bodies on Brexit planning from 41% outside of London to 58% within the capital.
From verbatim feedback, we’re hearing that the main reason is a lack of certainty around the outcome of Brexit negotiations, and little guidance from government. When asked what government could do to help, the most called-for support was more industry specific communications (46%), followed by impact assessment tools and frameworks (44%). It also seems that business are looking to open up channels of communication, with 35% saying they’d welcome industry forums and peer networks, suggesting that it would be useful to share the insight and experience of others. The same percentage also called for a helpline for technical queries on the border.
Put simply, many businesses are doing nothing because they don’t know what to do first. The idea behind our ‘no regrets’ series is my belief that by starting with some key activities that will apply to any and all scenarios, the areas of most impact - and most need for action - will become more visible and priorities clearer.
In all the uncertainty, the one thing that is increasingly clear is that we are unlikely to know for sure what our future relationship will be, with enough time remaining to prepare for a certain outcome. With an agreement on our future relationship with the EU some time away, lead times for business to design and implement changes are such that, even with a transition period, there may already not be enough time left for full readiness on Day 1.
And there’s not just risk to be considered, for some businesses there are also upside opportunities - from first mover advantage or new commercial opportunities derived from supporting others in their preparations - that engagement with the scenarios will also allow them to see.
For those who have not yet started, my advice is that with two key scenarios that can be defined quite clearly today, it’s better to hedge your bets and plan for both, rather than back the wrong horse. And for those who are banking on a transition period, it’s time to dust off your plans for a ‘no deal’ outcome, regardless of which way the political winds are blowing right now, and make sure you know at what point the actions you have identified need to move from ‘planning’ to ‘complete’.
Partner, PwC United Kingdom
Tel: +44 (0)7753 928494