Andrew Gray, chair of PwC’s Brexit Steering Committee, shares what he has learned from conversations with clients on Brexit preparations and why Brexit is far from over.
With governments focused on coronavirus (COVID-19), negotiations on the future relationship between the UK and the EU have been progressing slowly. Despite these ongoing challenges, the UK Government has reaffirmed its commitment to the current deadline of 31 December, which marks the end of the transition period. As a consequence, the trade agreement that will govern the UK’s future relationship with the EU is likely to be more limited in scope than some might wish—and it will certainly be a very different relationship to the one we had when we were in the EU.
The UK entered the transition period on 1 January 2020, under the terms of the Withdrawal Agreement. Before the end of the year, the UK must move away from the transitional arrangements it currently holds with the EU, which allow it to temporarily preserve the rights and obligations of EU membership.
Organisations will continue to face challenges associated with COVID-19 for several months, and possibly years. In January 2021, the new trading relationship with the EU will compound the issues they could still be navigating as the pandemic continues to evolve—and organisations need to prepare for this.
With only limited time remaining, organisations must once again prepare for a number of potential outcomes. These should include both the legal default of no trade deal (and a default of WTO terms) and a trade deal along the lines of the political declaration, where we operate with a trade deal, but outside both the Single Market and Customs Union. The political consensus on both sides is that to agree a trade deal would be a good outcome for both the UK and the EU. But this alone does not guarantee a deal will be reached. And all scenarios result in significant change to the status quo.
In the short term, the impact needs to be understood and specific preparations made to ensure organisations are ready for the potential future trading scenarios that may come in January 2021. There are some common features which will apply in all cases. Namely, a customs border will come into effect between the UK and the EU, although details on tariffs and quotas will only be known in the event of a trade deal. Other sectors, such as financial services, may well be granted ‘equivalence’—potentially allowing them access to European markets—but this remains uncertain.
A number of firms were well prepared for a no deal on previous occasions (i.e. March or October 2019). But given the significant disruption that COVID-19 has caused across many sectors, organisations may need to update or rework those preparations. And even for businesses that have successfully navigated COVID-19, plans might need to be modified to accommodate different seasonal demands, management changes or business changes due to the elapsed time.
Over a year ago, we set out our eight ‘no regret’ decisions that organisations should take to prepare for Brexit. And, as I look through them now, they all still stand for the end of the transition period.
Plan to be agile
Support your people
Know your supply chain
Clean up your current data
Build ways to capture additional required data for Customs requirements
Take advantage of existing government schemes
Check out your contracts
Engage with key 3rd parties
Given the extended timetable and the consequences of needing to manage the challenges of COVID-19, I personally feel that one ‘no regret’ decision—plan to be agile—has become more important than ever. Regardless of whether there is a trade deal or not, the full details of our future relationship with the EU may not be known for some years. Uncertainty is a key feature of the business environment in the UK, and it looks like this will be the case for some time to come.
Planning to be agile means preparations need to run parallel to future-proofing your organisation for the longer term. This includes adapting to the opportunities new technology offers, and embracing new ways of working. For many businesses, the COVID-19 lockdown measures accelerated their adoption of technology-enabled flexible working practices. These organisations should look to maximise the effectiveness of these practices while reorienting to the new global trade environment and contributing to creating a new narrative for the UK.
Most sizable businesses have had an executive level ‘head of Brexit’ or single person accountable for Brexit planning and preparations, and often a supporting Steering Group with good representation across the business. But for many organisations, the rhythm of meetings on Brexit has understandably faltered due to the recent escalation of the COVID-19 pandemic. In addition, many of those who supported Brexit planning may have moved onto new roles or even moved organisations. And, particularly for those in regulated sectors, or who have been at the forefront of Brexit preparations, ‘Brexit fatigue’ might have set in. In this case, it might be time to think about refreshing the team as you reinvigorate your planning and governance.
Whatever comes next, and however the pandemic may have evolved by then, it’s likely that significant challenges lie ahead. To ensure you are as prepared as possible, explore our other ‘no regret’ decisions - from preparing for the future border, to supply chains, people and contracts and commercials, to ensure you are prepared as possible for whatever comes next after the 31 January 2020.
Partner, PwC United Kingdom
Tel: +44 (0)7753 928494