Transcript - Episode 16: Beyond the October Summit

Emily Khan: Hello, I’m Emily Khan and I am delighted to welcome you to another episode of our Beyond Brexit Podcast.  Having been behind the scenes on these podcasts for many months, I have the pleasure of holding the microphone for this episode. And what an interesting time it is to be talking about the Brexit negotiations, what we expect the outcome to be, and what businesses can be doing now to prepare for different outcomes.

Recently, we’ve had the much anticipated EU summit.  This was, for some time, where many had hoped a deal would be struck.  However, as we now know, it was judged that insufficient progress have been made to reach an agreement, or indeed to schedule the rumoured extraordinary summit for November.

So, where does this leave negotiations, and what can we expect over the next weeks and months? Today, I am joined by PwC experts, two familiar voices by now, Anna Wallace, Head of Political Relations; and Andrew Gray, our Head of Brexit; and a new comer to our panel, welcome Imane Chetouani, one of our immigration specialists. I will be putting to these groups some of the questions I am most often hearing from our clients. So, Anna, perhaps you can start us off by explaining what we know now about the October summit, and where we are in the negotiation process?

Anna Wallace: Sure, thank you Emily. As you’ve rightly said, the October summit was supposed to be the moment in this Article 50 process, where we left Brussels with a deal, which would then be put to both the British Parliament and the institutions of the EU.  And unfortunately, that is not what it represented in the last few weeks.  I think, what you will see in the next few months is a lot of sabre-rattling, certainly within the UK.

In many ways it will probably feel like we are back in the referendum as both sides recount all of the arguments about why we should or shouldn’t be closer, or further away from Europe.  But having said that, all indications, and certainly some of the mood music coming from behind the Brussels negotiations, is that we are heading for a deal and that the UK and the EU are close to agreement.  It won’t surprise listeners to know that Ireland remains the blocker in terms of delivering that progress.

But, nonetheless it seems like we are on right track.  Now, there is another December summit already scheduled, I think it’s the 13th and 14th of December.  There might be an extraordinary summit in November, where issues are debated further. But either way, whether we get to a November or a December deal point, because we do still think a deal is more likely than not, the real question then, and I guess the unpredictability in this negotiation comes from Parliament.

The real questions there are, what deal is put before Parliament, what alternative options do they have to whatever deal is presented to them, and how long do they have in which to potentially change tact?

If, as I outlined there, we don’t really walk away from Brussels with the deal in our hands until, say, December time.  That means any Parliamentary vote might be coming quite late, maybe December, maybe even into January 2019.  That doesn’t leave a lot of room to go back to Europe and renegotiate if parliament rejects the deal.

That is why, I think, it is interesting to see where the incentives are and where they aren’t, but if Parliament is presented with an option of deal or WTO, that clearly doesn’t do any favours for Ireland and the hard border.

Emily: Indeed, I get a sense, though, from what you’ve just said that you feel quite optimistic that things are moving in the right direction.  Is that a fair summary?

Anna: Yeah, I think that’s a fair summary.  I am optimistic.  As the Prime Minister has said a number of times in the last few weeks, this was always going to be the most difficult part of the negotiations, and I think you see clearly a lot of showmanship on all sides.  Somebody said to me that sometimes in politics you have to be seen to be failing, and I think there is a bit of a sense of that at the moment that actually if things were too easy between the UK and Europe, they might get more difficult between the Prime Minister and her colleagues in Westminster.

Emily: Quite, so watch this space. Another question that I get a lot that I would like your take on Anna, is the ‘no deal’ notices.  There has been a lot published over the summer, how have they been received and what are they useful for?

Anna: Yeah, well it is quite interesting that I think all of the talk around the ‘no deal’ notices has driven interest within the business community that actually Brexit is something they need to worry about.  I think, for those organisations, who have been quite well prepared, and who have engaged with the issue of Brexit before that point, there probably isn’t a lot of new detail in those notices that they didn’t already know.  Having said that, for businesses who have been less engaged with the topics, including businesses outside of the UK, who was selling goods and services into the UK, they are probably a helpful starting point, to give you a bit of a summary of what some of the key issues are, including what might happen at the border and what might happen to people, which we know lots of businesses are grappling with.

There is some helpful pointers in there, especially perhaps if you haven’t engaged with the process before, or likewise if you have parent companies or operations abroad, you need to point to them about what no deal would mean and there is some helpful content in there in that context too.

Emily: I know from my own work on planning for Brexit that actually it has been very reassuring to look at what you are saying, for instance, about audit and accountancy, and check that against our assumptions and see a close marrying up.

Anna: That’s right, nothing new, but perhaps a helpful reassurance that we are going in the right direction.

Emily: Andrew, just bringing you in on that, because I know you are leading a lot of our work with clients on Brexit.  Are a lot of clients asking you about planning for deal versus no deal?

Andrew: I think really the uncertainties still causing many client issues, and the recognition of the fact that there is still a possibility of no deal, being the worst case scenario for many firms.  That’s really the reason why we see still clients are planning for a no deal scenario.  Although, continue to review that on an ongoing basis, but recognising also the time is short and the amount of effort it takes, quite often, to actually make the changes are very significant for some firms.  Therefore, at least doing some work ahead of time, at least gives the Board and the senior executives reassurance that they will, whatever happens, whatever the outcome, they can continue to trade as best as they can.

Emily: Yeah, that makes sense.  Picking up on your point there about time taken to prepare, what’s your view on a possible extension to the transition period, is that good news or bad news.

Andrew: Well, I think part of the problem is, we have got several phases to this.  Looking forward to the 29th of March 2019 deal or no deal, and firms need to be absolutely prepared for that situation.  When we get a transitional period, that’s only on the basis if there is a deal done, then obviously that’s going to result in a whole other series of conversations between the UK and the EU in terms of what that future relationship looks like.  Simply having a transitional period in itself doesn’t help businesses.  What it does do, is it gives politicians the time to negotiate a trade deal.

It’s only really once you’ve got clarity around what that future trade deal looks like that then firms can genuinely start to plan in terms of what their longer-term future is going to be.  That itself will require whole new series of work streams for many firms, and question marks about actually should there be an implementation period after the trade deal has been announced, after the trade deal has been agreed, still requiring a significant effort.

Emily: So, actually that transition period being extended means a longer period of uncertainty as much as it means more time to prepare.

Andrew: Yes, it is only once we actually know what the future relationship is going to look like, will firms genuinely have certainty and know how they are going to be able to trade with Europe on a longer-term basis.  Only then can they start to really put together strategic plans about what their future is going to be.

Emily: Right, so what can they be doing now then, given that there is going to be uncertainty for at least a couple of years beyond into a transition period?  What could there be getting on with now?

Andrew: We’ve talked for some time now about ‘no regret decisions,’ which includes things like looking at your supply chain, thinking about your people.  But I think, increasingly as your time becomes shorter, what we really need to think about is what sort of short-term contingency measures can be put in place, which may in some cases result in effectively regrettable actions or expense incurred, which might not be required in the long term.

But I think it is just business sense now that you’ve got to really think about, there is only a matter of months left now, and if, as Anna was talking earlier, it only goes through parliament in January and there is still some challenges in parliament, then really you are talking about weeks between potentially a deal or no deal and March.  So, really getting some actual foundations in place and probably spending some money now, is looking at some of the practical things that firms are going to have to do.

Emily: Imane I saw you nodding there about Andrew’s point about knowing your people, and there an area where we are seeing businesses focus very much at the moment, it has been a little while since we’ve talked about immigration and developments in that space, but actually a lot has been happening there too.

Can you bring us up to speed on what’s happened in the last few months?

Imane Chetouani: Yes, in respect of the European Settlement Scheme, otherwise known as a Settled Status Scheme, and that actually opened up earlier this summer.  So, it’s an initial pilot and it will be opening up in phases between now and the end of March next year.  That is a new system, which is entirely online, and interestingly it’s the first time that they have relied on a link in with HMRC records as opposed to requiring original documents.  That is an interesting point.

Earlier this autumn as well, we had the Migration Advisory Committee come back and report back to the Government on European immigration, and one of the key recommendation that they had made, which was its important to point out that it was on the assumption that the UK immigration policy is not included in the agreement with the EU.  The recommendation there was to create a single system, which applies to EU and non-EU migrants.  Essentially that would make it easier for higher skilled workers to come to the UK and it aligns with the Government’s broader industrial strategy, which they announced last year.

Emily: Right, okay, so actually quite a lot of movement forward in that area.  So, what sort of things were you doing with clients now to support their people in providing reassurance or helping them plan within this environment?

Imane: It’s a really difficult time for EU workers, their families, and employers to plan ahead.  The types of things that we’ve been working on with clients are around the data.  So, it is really important that they have good quality data on their employees’ immigration status.  That enables them to identify the impact of populations and also more broadly to look at the impact for key areas of their business.

So, for example, more lower skilled occupations for example, there may be a more pronounced impact on those individuals.

Other things that we’ve done as well are to work with them on communications and support packages, which we referred to earlier.  We do know in terms of retaining the talent that we do have and attracting the best talent going forward, that it is really important that employees work on those communication strategies.  The types of things that we see are FAQs, information portals, town hall presentations, it really does depend very much on the employer, and we’ve seen several strategies.

Emily: Let’s talk for a minute about beyond Brexit, and the future trajectory of immigration policy in the UK.  You mentioned the MAC report already, but bring that to life for us a bit, what might that look like in beyond Brexit environment?

Imane: The MAC recommendations with respect to tier-2 is actually extremely interesting in respect of the tier-2 system generally.  So, one of the most important recommendations that they made is the abolition of the cap.  There is currently an annual cap in respect to all of the migrant workers and there was a recommendation it creates uncertainty for employers and that the more robust approach to salary, is a much better way of protecting the resident labour market against employers undercutting the salaries.

Emily: So, watch this space for that and interesting things ahead.

Imane: They also made a recommendation in respect to the skills threshold, and that again is if free movement ends, then there will be skills gaps in respect of more lower skilled roles, for example, hospitality.  So, there was a recommendation that the skills threshold be reduced in line with that skills gap.

Emily: We are almost running out of time guys, but there is one last thing I would like to do with you, because you know I’m passionate about busting myths around Brexit.  So, I am going to give you each the chance to bust a myth that you hear talked about a lot.

So, Andrew I am going to come to you fast, what’s your myth that you would like to bust?

Andrew: Well I still hear a lot that people imagine that the transitional period is agreed absent of everything else.  So, we have until December 2020, which as been stated, is not true, unless we have an exit agreement, we don’t have a transitional period either.

Emily: Right okay, very good. Anna, so you are nodding very keenly at that, what’s your myth to add to that one?

Anna: Well having just had the peoples vote march in London, I think it is probably all of the myths around a second referendum, and there is clearly a growing swell of opinion in favour of a second referendum or a peoples vote, but that doesn’t necessarily mean that we will get one.  The thing that I would point to in that is a couple of fold, I guess; one that we have 160 something days left of the Article 50 process, not very long when you consider any referendum would have to have a massive change of political heart at the top and/or a change of leadership, and would need the legislation laid in order for the referendum to be delivered, and then you have to have a purdah period and all the rest of it.

A lot of stuff to deliver within 160 days it just to me seems a bridge too far to really believe.

Emily: Imane what’s your myth to close us off?

Imane: That there is nothing that we can do until the Settled Status Scheme is opened.  When actually the current arrangements are open and will remain opened for applicants until the end of March 2019, so that actually allows them to some administrative certainty and on a path to citizenship should they choose.

In respect of employers, again as we discussed, they can review the data that they do hold, so that when agreement is reached, they can act quickly to make informed decisions on their future immigration policy.

Emily: That’s great, thank you very much. So lots to take in there, and lots the businesses can be doing now.  Don’t forget listeners that you can access a wealth of insights in our website, pwc.co.uk/Brexit and indeed ask any questions for us to cover in our next podcast, by clicking ‘Ask Andrew.’ Thank you all for listening

 

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