Transcript - Episode 17: Is the deal done?

Emily Khan: Hello and welcome to another beyond Brexit podcast. I am Emily Khan. With recent developments leaving many businesses feeling more uncertain than ever on the path ahead, the focus of today’s discussion will be on answering some of the questions we are hearing from clients and colleagues on what it all means.

I am joined by Andrew Gray, our Head of Brexit; Anna Wallace, Head of Political Relations; and Phil Brown, Senior Trade Advisor.

I am conscious that you three have all been eating, breathing, and sleeping Brexit for the last few days, so thank you for taking the time out to come and have a chat with me today.

Anna, coming to you first, as we often do, so much seems to have moved since our last podcast, quickly take us through what has happened since the last update?

Anna Wallace: Well, it certainly has been a busy couple of weeks, and we’ve crossed some important milestones in the Brexit journey, starting with the approval between the EU negotiators and the UK over the draft withdrawal agreement, and a short document outlining the frameworks of the future relationship. That was then agreed by cabinet and then that’s where it started to go slightly wrong, with at the moment about eight resignations.

But, let’s not get caught up in the politics just yet. The timeline after the cabinet approval now is the 25th of November, that’s when there will be a special summit in the EU, where the council will “rubber stamp” the agreements before the vote in Parliament, the “meaningful vote”, which we expect will happen in early December. People expect, perhaps, around the week commencing the 10th of December, and that’s where things of course get challenging.

Most commentators at the moment expect that the UK Government will lose that vote, at least the first time, some speculation that there might be a couple of votes in parliament before the deal is approved.

In summary, we are one step closer, but we are definitely still a few hurdles away from total certainty from a business point of view. From a political point of view, touch wood, at the moment we are recording, we haven’t had enough letters to trigger a leadership contest, but the thing that I would say, is that from a business point of view, we are still very much in this deal, or no deal territory, because one thing I think the people overlooked is that by default by law on the 29th of March the UK will leave the EU. That is not impossible to turn around, but it is very difficult to reverse the current trajectory in the 130 or so days that are currently left for the article 50 process.

Emily: Yes, that makes a lot of sense. Thanks for grounding us in that. I am going to come to you next, Andrew. Now, we’ve had to position for some time that a deal is more likely than no deal, Anna has clearly just touched on there some of the hurdles that we’ve still got to go through to get to that deal, has your view changed with the recent developments?

Andrew Gray: Well, I think we need to be cautious. So, having the political agreement is certainly a positive step forward, but it is still going to go through a legal ratification process, and as Anna suggested, time is tight. We’ve really got to be mindful of the fact that in the remaining time, the firms still need to think about what their continuity plans are in the event of a no deal, and in selective cases, perhaps move forward with some of those plans.

Emily: Okay, so expand a little bit on that for me. These contingency plans, what sort of things should people be moving ahead with now?

Andrew: As we talked about before, and we had a recent blog by Katy Wallace, who advised of six areas of continuity planning. These will vary from organisation to organisation, but all businesses should look to those areas which are most relevant, and also those areas, which may take time to address. Things like increasing stock levels, making sure you know your suppliers (end-to-end supply chain) and their Brexit exposures, continue to look at issues around personal data, and where it’s held, make sure you’ve got the right approvals or licences to be able to continue trading, look at HMRC accreditations now; and also look at your systems, both for supply chain, but also your workforce.

Emily: I should make a point to listeners that you can find more about all of those areas in our website pwc.co.uk/Brexit.

Andrew, one niche question if I may, you are of course also our expert on Financial Services, and clearly people in that sector have been waiting a lot of time to see what the agreement on the future relationship might contain on that, what do you think of what’s been contained in the political declaration?

Andrew: In one sense the fact that financial services is specifically referred to, that is a positive, but it doesn’t actually help significantly at the moment. The EU has been very clear that future relationships will be based on equivalence, rather than passporting, which are more restrictive than is the case for the current business models. Firms will really need to continue to push forward with their plans. One of the things that the EU did specifically comment on is that in the event of a deal, the equivalence will be examined before the end of the transitional period.

It does indicate that some thought is going to go into it. But again, at the moment no deal planning really is required by those in the industry.

Emily: Okay thank you.

Phil, I am going to draw you in now. We’ve talked quite a lot there about no deal, but let’s just pause for a minute and talk about the deal. I know you are leading a lot of our scenario planning with clients, and preparing for the deal scenario, not just no deal. What clarity do we have now on what the deal might look like?

Phil Brown: Well, the first thing to say is that most companies we are supporting now are rightly focussed on the no deal contingency planning, so that’s the imperative. Having said that, when working with our clients to prepare the contingency plans, we do take into account the likely changes in the event of a deal, to inform their decisions, and when they take them.

For example, the UK set out its policy on settled status for EU nationals, which applies whether or not there is a deal or not a deal. Companies can and should be taking action now to communicate with their employees and put in place the appropriate support packages and plans. Whereas, on the other hand, the situation on personal data is binary. If there is a deal, we can be confident there will be no change, whereas without a deal, it will not be possible to transfer data from the EU to the UK, without putting in place GDPR compliant measures.

In this case, and many others companies should be assessing their exposure now and knowing what they need to do, but holding off taking action while they can. In terms of the future deal, at the moment, when recording this podcast, we only have seven pages, although we are told that there will be more details soon. It is all pretty high level stuff, but we can already see that this is shaping up to be, what I would describe any way, as a fairly standard or be it nonetheless ambitious free trade agreement or services, with some form of customs union along with single market rules for goods.

Emily: Okay, that’s all helpful. What still isn’t certain though, from what we’ve seen so far?

Phil: Well, that’s why I was careful to say “some form of customs union”, because logically that’s where this is heading. This would retain frictionless borders for goods trade, but at the expense of striking new trade deals, sovereignty, and long-term competitiveness. For these reasons, because the detail simply isn’t yet ready, the future declaration may be slightly fuzzy on this as well as other issues. Let’s not forget this is a political declaration, so it is not actually legally binding. To some extent, it will change as negotiations and importantly politics evolve.

To come back to your question Emily, I think this gives companies the sense of the parameters and the direction of travel for the final deal, but they still need more clarity in order to make firm plans.

Emily: Okay, so still quite a lot of uncertainty to work through then.

We have talked a lot about no deal contingencies and you’ve mentioned a few there, Andrew has clearly given us the list of things that businesses should be getting on with now for no deal, are there any other things you would add to that list, so that they are as prepared as they can be for a deal scenario too?

Andrew: Well it is absolutely right to be focussing on the contingency planning side of things, but there are a number of no regret actions that will bring benefits in all circumstances, and should be taken forward now. Indeed, many of those covered in our contingency planning blog that Andrew referred to earlier, such as knowing your supply chain, reviewing contracts, engaging your employees, these are “no regret” activities.

Looking slightly further ahead, assuming there is a deal, companies should really be tracking the status of those negotiations, so that they can prepare plans and take action once the details are firmed up. This clarity is going to emerge incrementally over the coming days, months, and I am afraid, years.

Emily: Right.

Anna, so just picking up on that, if we are going to track these negotiations, what should people be looking out for in the immediate future?

Anna: I think the first thing I would say is, Phil alluded to it, is that we’ve got the summit on the 25th of November, but importantly there might be some more detail published around that summit, around the shape of the future relationship. We’ve had seven pages, some suggesting that there could be an additional 40 pages or so, further, illuminating businesses with what that relationship will look like. That will be really important for businesses. We will be picking over the detail of that on our webcast on the 26th of November (very important milestone!) and then really is probably going to go a little bit quiet again while the debate turns back to parliament ahead of the meaningful vote in December.

As I said at the top, there might be more than one vote, so I think, in that period between the 10th of December and Christmas, is going to be fiercely political, fiercely noisy, potentially of course leadership votes, and all sorts of things in between there. Hopefully, we might come out of that unscathed or at least with a semblance of a deal so that the European parliament and the European institutions can approve in the New Year, ahead of the 29th of March.

Emily: Very good. Thank you all.

I am going to bring things to a close there. And this time, I would like to wrap up with one piece of advice from each of you for those listening. Anna you were last talking, you go first.

Anna: I have said this to clients before who have had the pleasure of me coming to bore them with Brexit, is don’t read the papers, because the next few weeks that we are about to enter are going to be full of political noise and political machinations, and from a planning point of view that’s not the information that you need. Actually, businesses need to step back and concentrate on the horizon and what the deal and what no deal means for them.

Emily: Great thank you. Andrew, what’s your tip?

Andrew: I think it is really just hold your nerve. Some changes that businesses will be required to make will take time. It really is a case of focussing on those with the greatest lead time and making progress now.

Emily: Right great. Phil, how about you?

Phil: Well similar to the others from me, I would focus on those contingencies, and contingency planning, but don’t forget to advance your no regrets activities, as these will help you prepare for all eventualities, whether we have a deal or whether we don’t.

Emily: Great, thank you all very much, and thank you listeners for joining us. Don’t forget, you can see all our latest updates on www.pwc.co.uk/brexit and feel free to follow myself, Andrew, Anna or Phil on Twitter to see our latest comments on events as they unfold.

That’s all for now, back soon.

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