Transcript - Episode 1: The road ahead

Gaenor Bagley: Welcome to the first in our series of Beyond Brexit podcasts. Today we are considering some of the milestones in the Brexit process over the weeks and months ahead, and we are discussing what business can and should be doing to get ready. I’m Gaenor Bagley, PwC’s Head of Corporate Purpose and I also chair our EU Steering Committee.

I am joined today by Neil Sherlock, PwC’s Reputational Strategy Partner, and Anna Wallace, our Head of Political Relations.

So Anna, we have had a lot of uncertainty, we were discussing the other day there are lots of unknowns, lots of unknown unknowns, but following the Supreme Court ruling what do we know about what is going to happen?

Anna Wallace: Sure, so yeah as you said it’s been a hyperactive period for the government already. The Supreme Court ruling I think is probably one of the least important elements of what’s happened in the last few weeks.  It confirms that Parliament will have a say in whether the UK triggers Article 50 or not, but most pundits reckon that it will pass both houses, so excepting some exceptional situation in the Lords, the likelihood is that the PM can still stick to her target of triggering Article 50 by March 2017.

What was probably more important from a business point of view was the speech that came before it by the Prime Minister, where she talked about her vision for Brexit, and there was a lot in there that we had already heard about, so for example the political imperative around controlling immigration, clearly front and centre of the government’s Brexit plans.  But also a little bit more detail around absolutely we will be leaving the single market and we will be leaving the Customs Union in order that the UK might be able to strike its own trade deals.

The Prime Minister talked about wanting to strike a big FTA – a Free Trade Agreement with Europe, of course that depends on the agreement of the other EU-027 with whom we’ll be negotiating, but I think for businesses it’s very clear that we will be leaving the single market and we will be leaving the Customs Union and therefore there are to be some very real changes to the way that they’ve conducted their business for the past 40 years.

Gaenor: Yes.

Neil Sherlock: The next thing that might trigger more information is, as Anna said, when the Prime Minister triggers Article 50 and there has to be a sort of communication with the 27, the Commission and the Parliament negotiators. Clearly that will be a pretty wide spread circulation of the British position which the EU have to agree how they’re responding to it, and I would have thought in that process it’s pretty likely that quite a lot of the elements of that exchange will get into the public domain through the media and other sources and therefore a bit more sight and a bit more sense of what the priorities are will become clearer. But I don’t think people should assume, given it is a negotiation, that just because there’s a way you know one side more clearly you can predict what the outcome is going to be, and negotiation which businesses understand only too well is exactly that, negotiate/agree/do the deal, and that’s going to take time and be difficult.

Gaenor: Yeah. So Anna you hinted that, we know really what the Government’s going to try and achieve, but of course that’s only the first step. So what’s your thinking, do you think it can get done in two years once Article 50 has been triggered?

Anna: I think it’s certainly ambitious and one of the things that the EU-27 and the EU Institutions have been at pains to say is that there is a divorce settlement to be secured first before the EU-27 and the UK can start thinking about what the future relationship looks like, and there are some real thorny issues in there. The rights of the EU citizens here in the UK and likewise UK citizens in the EU, pensions liabilities, loans around the Europeans Investment Bank and of course the potential divorce bill with figures being kicked around sort of 50-60 billion.

So some real politically difficult issues for Theresa May as well as for the EU-27 leaders which might not leave very much room at the end to really talk about a Free Trade Agreement. As we know most FTA’s take around five years to negotiate. Now arguably we are already at a point of agreement around things like regulations, so perhaps it would be easier, but given the number of elections and the unpredictability of elections in Europe this year I don’t think to Neil’s point actually at the real meat of the conversation is going to be happening in 2017, you know, with the potential for leadership changes in France and Germany etc.

Gaenor: So it will still feel like a lot of potential bumps in the road, and still some big changes can still happen right up to the wire, if not beyond it.

Anna: That’s right, I think one thing we can take comfort in the Prime Minister’s speech two weeks ago is that she recognised the importance of business having clarity and reassurance. So she said that one of her principles would be to provide that throughout the negotiation if and when she could. So for example one thing that she suggested was that if they could achieve an early deal on EU rights – the rights of the EU citizens in the UK - then they would. So providing periods … sort of providing clarity for businesses throughout that process I think would be really important because otherwise it could go right to the eleventh hour.

Gaenor: So I think that’s kind of a clear message for business if they haven’t done that already, is to really look at their current workforce and understand how many EU nationals have they got, …

Anna: Absolutely.

Gaenor: …how many would they really to make sure are benefiting from any early resolution of that.

Anna: That’s right.

Gaenor: So what else would you suggest that business leaders should be doing? So we know we have got this uncertainty and we are not going to get clarity, but we do know some areas where businesses need to perhaps start to think about understanding what would happen if ...on their business, as well as people, presumably trade and regulation is another big area.

Neil: Yes, I think if you … if businesses recognise that from the triggering of Article 50 there is a two year negotiation, in that two years we are still a member of the European Union, therefore we are still subject to the same rules and regulations and debates and agreements and arguments, but at the end of that process things will change, and therefore people have to start to think through what those changes will be at the end of that period, and the things that people have relied upon for over 40 years to run their business, as you and Anna rightly say Gaenor, in terms of how do we employ people, how do we bring in people from overseas at a high skilled end or a low skilled end, how do we run our supply chain, how do we get ready to sort of build things to export outside of Europe? All of those things will change and therefore the business model, the fundamental business model that an organisation has, will have to be looked at, and one has a window of two years, not only to look at it but start to make some of the fundamental changes that will be needed. For example, how is one going to be able to train up more people domestically to do some of the jobs within your organisation, because you know on balance it is going to be harder to bring people in, I would say at either a high skilled end or a low skilled end, even at the margins, and therefore employment skills, that is going to be a critical thing to think through and get right.

Gaenor: So I think that’s another very good point. So as well as thinking through the businesses, what they would like to see from any negotiation. There’s another strand is that, what else could they do? How else could they innovate to ensure that the UK economy can make up the difference or enable their business to grow.

So does the industrial strategy … does that help give any guidance about ideas or next steps for business?

Anna: I think one thing that businesses should take from the industrial strategy is that there is a domestic agenda that they need to respond to as much as an international one. As Neil said, in two years’ time we are going to be in a completely different trading environment. We aren’t going to be able to do things the way that we’ve always been able to do them, whether that is around access to low skills for example, whether that is the way that goods and services flow across our borders, and what you see in the industrial strategy again is, the government placing an emphasis around sector level collaboration. So unless you are a very very very big organisation I think the way that government wants to engage with business at the moment is around a sectorial level, so trying to find common interests and common challenges, and therefore common solutions that are relevant, not only on the international stage, so not only about which countries would your sector most prefer an FTA with, but also around what skills investment do you need in order to support the creative industries for example. What would the right immigration system look like? And the industrial strategy was … it was very consultative in its approach, and again I think there is a big gap in the market for businesses who are interested and engaged and have views about the way that things could be better done in their sector to engage directly with government. I think there is a real recognition inside government that as with businesses we can’t do it the way we’ve always done it, much greater willingness to be more interventionist. So again a real role for businesses to come up with some innovative solutions and work with government at the national and at the local level incidentally.

Gaenor: I guessed you were going to say that. So there is a window of opportunity to engage, certainly to remember to try and come together industry wide, but also think about location and place, and think about things that are really relevant to ensure your local economy is vibrant. I think that’s what seems to be very clear.

Neil: Yes, and I think that one of the things you know, we were privileged weren’t we, and you were very much part of it Gaenor, when the Education Secretary Justine Greening came in last week and made her speech where she set out, I thought really clearly that there are parts of the country where there isn’t significant enough opportunity for young people to see people who will employ them, who they can spend time building a career with, and therefore I think the challenge is to business to recognise that and to think about how we can do more as businesses to help those young people at the start of their careers to see a career path in many of those parts of the country where I think their grandparents would have been very clear about what their career was going to be, but it’s not quite so clear now, and we as businesses need to recognise that challenge to us in this world, and therefore what more can we be doing to spread opportunity, to encourage people, to send people to schools and colleges in those places, to increase aspiration, and I know it’s something that you’re very passionate about and have been throughout your career, and I just think that is really really important for businesses, and business leaders to start to recognise that’s really important for this government, and they want to see businesses rightly doing more in those sorts of spaces.

Anna: Absolutely, and again, clearly ‘a country that works for everyone’ is the mantra from the Prime Minister’s speech on the steps of Downing Street last summer, and again for her that is very much about the devolution agenda, that is very much about rebalancing the economy. There’s probably been paid a lot of sort of lip service to it, but you know, she sees Brexit as a moment where we can really do something about it, and coupled with her more willingness to be interventionist, I think again, you know as I said, real difference in the environment for businesses.

Gaenor: So there’s that … devolution is still important. Does that extend to allowing Scotland, Northern Ireland and Wales a kind of voice in the Brexit negotiations?

Neil: Well I think the government at the UK end would have been pleased that the Supreme Court didn’t lock in those three devolved Parliaments to have a say on the triggering of Article 50, that would have made it very difficult to stick to the government’s timetable. But one of the early things, in fact I think the first visit the Prime Minister had when she became the Prime Minister was to Scotland to see the First Minister, and made it clear that the devolved Parliaments do have a say in the negotiating position that will start,

I think it’s been a bit bumpy along the road about quite what the government at a UK level accepts in terms of the input views and positions that have come, particularly from Scotland, but that discussion continues and is complicated clearly by the fact that Scotland and Northern Ireland in the referendum both voted to stay in the European Union, that wasn’t the case in Wales, that wasn’t the case in England, but it was in Scotland and Northern Ireland, and the Northern Irish situation has further complexity by the fact that there is an election, and you’ve also got the massive issue of the Northern Ireland/Republic of Ireland border, which of course was one of the issues that was sorted out in terms of the Good Friday Agreement. But nevertheless, if you have to have a trade border all of that history starts to come back, so that’s a big issue, and why the Prime Minister was with the Taoiseach only this week discussing that, so that will be an early priority to try with a new Northern Ireland executive and assembly to try and have those discussions, and Scotland of course because of the commitment of the First Minister to ultimately Scotland becoming independent, that obviously means the referendum is back on the table, and therefore this is a very delicate and important piece of management from the Prime Minister and the UK government given those different interests, and the Welsh of course are very keen given some of their industries to ensure greater access to the single market, so they will be looking very closely at that. So this is an element which many countries in the world will be very very familiar with, but is newer in a UK context of different voices having their say which the national government needs to reflect and take into account, and ultimately whether they do enough of that or not the politics and the negotiation will play that out.

Gaenor: So therefore it is relevant, those three home nations, but it just adds a bit of compl … a lot of complexity to the situation.

So thank you Neil and Anna for some very insightful comments, I think we’ve learnt a lot from that discussion, although there is a lot of uncertainty and we won’t get clarity for a while, it’s really clear there’s some issues that businesses should start thinking about now, particularly around their employees, their supply chain, impact of regulation and there is a window of opportunity for business to really engage with governments, and to think about both domestic and international solutions and innovative ideas about how, together, we could make this country work through beyond Brexit.

So you will be hearing more about some of the topics we discussed in our future podcasts that are coming out over the coming weeks. For more insights from PwC on Brexit please visit pwc.co.uk/brexit.

Thank you for listening.

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