Transcript - Episode 22: What's already changed for good?

Emily Khan: Hello, and welcome to the latest in our series of Beyond Brexit podcasts.  I am Emily Khan.  Well, here we are at the end of March 2019, a day that’s been clear in our sights since Article 50 was triggered two years ago.

Now, as engrossed as we all are with the political twists and turns, I would like to take the opportunity in this episode to pause and take stock, and look at Brexit from a bit of a different angle. I am joined today by my colleague Matt Alabaster, partner in our Strategy& practice, who spends most days helping global businesses to define their strategies for growth and entering new markets. He is also our relationship partner for the Department for International Trade - you could say a champion of UK Plc.

Matt has been leading some thinking we are doing here about “life beyond Brexit” as it were, and the things that Brexit or no Brexit, deal or no deal, are already changing.

Matt, thank you for joining me.

Matt Alabaster: Emily it’s a pleasure to be here.

Emily: So, start us off, give us a taste of the kind of changes that you’ve got front of mind?

Matt: Well, for starters, I completely agree with what you said at the beginning.  It is all too easy isn’t it at the moment to get subsumed with the hullabaloo that’s going on in Westminster about how and when the UK will be exiting the European Union.  So, it’s refreshing to think a little bit longer term, because I have a sense that if you tune out some of the noise, you will see that the business environment is changing and has changed since the Brexit process began.  More than three years of debate in the media, around the board table, probably around the dinner table, has changed some aspects of the business world for good.

The most obvious of these would probably be trade.  Trade, exports, the rules that govern that and the importance of exports to the wealth of the UK have burst into our collective consciousness like never before.  The UK has been running a trade deficit for over 20 years, but, until the referendum, it never got mainstream attention. And how many of us were paying attention in 2009, when the EU started negotiating a trade deal with Canada or in 2013, when it did the same with Japan?

Trade now is front page news.  There’s almost an excitement about it.  June 2016 saw the highest number of searches for trade deficit on the internet for over 10 years.  We now have a Department for International Trade that we haven’t had before.  We are seeking free trade agreements with countries on our terms.  We all have a view on what terms of trade we would like to see with the European Union and about export opportunities far afield.  We can all hold an argument now about the merits of Canada plus or Norway plus, like someone who spent an afternoon watching curling at the winter Olympics, we are all experts now.

Emily: So, trade is curling! Well I recognise exactly what you say there.  If you think back, cast your mind back to when we established, here at PwC, the Trade and Investment Hive, I suppose almost three years ago now, and absolutely round the table in the early days were the trade policy wonks, but now this is the mainstream topic of conversation.

Matt: It certainly is.  So, the question then is, when the winter Olympics have finished, will we forget everything that we’ve learnt, or will our new found engagement with trade help us make a step change in our exports.

Because if you think about this concept of export culture, in the past, some of my clients have disparagingly compared the UK’s export culture with that of, for example Germany, believing that exports rank higher up the list of priorities for typical German business than they do in the UK.  So, if this greater engagement, and knowledge, and awareness of the trade agenda develops into a cultural shift even fractionally in favour of exports, then our economy could be in for a real shot in the arm.

Emily: Right okay.  It doesn’t surprise me that trade and exports features front of line for you Matt given what you do in most days, what else is out there on the radar, as the beginnings of a change?

Matt: Second, and maybe a little bit of a counterpoint to the exports point, I think there is an increasing awareness amongst consumers about where the products they buy come from, and businesses starting to play the local identity card, the “place card” if you will in their advertising.  Recently we’ve seen an advertising campaign for a global company, which has different messages in London compared to Manchester, compared to Birmingham for example.  So, the shift in consumer behaviour has already been picked up on by some leading business.

Emily: Absolutely and I suppose that, to some extent, patriotism coming through in consumer behaviour, to some extent linked to Brexit.

Matt: Exactly.

Emily: We’ve talked, you and I, a lot about the relationship between Government and business throughout the Brexit process, do you see any changes on that front starting to come through already?

Matt: I absolutely do.  I think the relationship between Government and business has changed.  If I cast my mind back in 2009, I helped to write a study called The Future of UK Manufacturing, and one of the questions I asked our manufacturing clients at that time was “what do you want Government to do to help?”, and the answer was a resounding “leave us alone”.

But I think, we might get a different answer to that question now.  Brexit has made businesses more engaged in politics and it has made the Government more engaged in business.  So, we are perhaps at the start of maybe a more symbiotic relationship between these two important parts of our economy.

Emily: Absolutely, and if I think about the Export Insights Survey that we did, I guess, about two years ago now, actually it’s quite different from the example that you just mentioned.  Businesses of all shapes and sizes were quite clear on how they felt Government could help them with entering new markets, which goes back to your earlier point around export ambition and culture. 

So, let’s talk about this symbiotic relationship you just mentioned a bit more, how do you see that working in practice?

Matt: Well I think, in 2016, the first Industrial Strategy in living memory was published and that Industrial Strategy declared a new active role for Government in working with the private sector.  Since then we’ve had sector deals, we’ve had an export strategy, and we’ve had numerous business engagement programmes from across a range of different Government departments.  I think, over the last three years, we’ve seen, maybe, an acknowledgement that the Government and the private sector are partners in, if you like, the mission to develop our economy and export more.

Emily Right okay.  You just mentioned the Industrial Strategy there and I know that’s something that a lot of people that I speak to feel has got a bit lost in the Brexit noise.  How would you suggest we could reawaken that and move forward on some of the building blocks put in place by that strategy?

Matt: We are not the only country to think that exporting more might be a good idea.  So, out in export markets competition is fiercer than ever, and in fact many overseas Governments are also trying to reduce their reliance on imports.  So, what that means is trade and politics are increasingly linked, and as a result, Government’s support is critical to connect, promote, and finance UK suppliers in their chosen markets.

I spent a few years in the Middle East and I remember one of my clients saying that they competed with 63 different construction companies from around the world just in that one market, which just goes to show that in order to access some of these markets, you have to be better, you have to be stronger, you have to be better connected, you have to have better capabilities. And I think in that connection and that promotion side of things, the UK Government in certain sectors has a really important role to play.

Emily: Right okay.  Looking at the Industrial Strategy itself then, and I know you and I have talked about where that focuses - if Government is going to support business, where does it focus to maximize the opportunity for UK PLC? What would be your thoughts around that?

Matt: One of the concepts within the Industrial Strategy was around the grand challenges and these are four big themes that we are facing not only as a UK economy, but frankly as a world economy.  They are around an aging population, they are around the future of mobility, they are around a low energy economy, and they are around artificial intelligence and data, and those are really great themes to get united behind.  If there is a way of us developing greater depth of capability in those themes, all of which lend themselves to UK capabilities, UK industry, UK skills, then that’s a really good platform to grow.

Emily: Now we started this conversation with the framing that some things had already changed, and certainly from my perspective, one of the things that’s changed is that we are very focused on the UK, kind of our horizons have narrowed to what’s happening in Westminster let alone across the whole of the UK.

So, let’s just look more broadly for a minute.  What’s perhaps changed globally in the time that we have been negotiating our exit from the EU that changes the backdrop to how we take forward some of these things?

Matt: Yes, it’s interesting isn’t it.  If you have more and more interesting news at home, you take less and less attention of the news that comes from other countries.  So, let’s not forget that the US and China are locked in their own conversations about the future of their trading relationship, and China is an enormous economy as we all know.  So, yes when the hullabaloo dies down, one of the big questions is, does leaving the European Union, offer an opportunity to forge closer relationships with economies like China?  Potentially, if economies like the US are stepping away from some of those relationships themselves, so that would definitely be a theme.

I would think there is another one about the nature of global supply chains. So again, haven’t we learnt a lot about just in time supply chains, haven’t we learnt a lot about supply chains that maybe don’t make a lot of common sense, we send fish to China for filleting before they send it back for processing into fish fingers.  In the ever increasing drive towards globalisation that we have seen over the last 20 years, what’s made economic sense hasn’t necessarily made common sense or certainly not environmental sense.  So, is there a debate to be had about what supply chains we think we want to support in the future.

Emily: Absolutely, and I suppose in that context we see here UK businesses and many EU businesses having the best understanding of their supply chains than they have had for a decade through the work they’ve been doing in preparing for Brexit to build on.

Matt: Exactly, and we’ve helped businesses analyse their supply chains in ways that they probably hadn’t thought about doing before in order for them to be equipped for different trading rules with different countries they know more about it than ever.

Emily: We are almost out of time here Matt, I suppose, I just want to play back to you the sense that I am getting from you that this is complex, and we are going to need to work hard together across sectors and between business and Government, but I do feel a sense of optimism in what we could achieve in the global economy and environment if we are able to do that.  Is that fair?

Matt: It is complex, and it can’t really be summarised in a simple thumbs up or thumbs down, but certainly with change comes opportunity, and I think there is an opportunity for Government and business, maybe, to jointly revisit and revitalise components of the Industrial Strategy. 

I think there is an opportunity for people at the top of UK companies to push exporting up their list of priorities, and I think there is an opportunity for the Government, maybe to become more active, and perhaps even more partisan overseas in helping them succeed.

And what I would probably leave you with is trade is just as much about hearts and minds as it is about tariffs.  If we can have a shift in our export culture, both within the private sector and indeed within the Government departments that support that, I think we could be in for a really interesting ride.

Emily: Well, thank you very much Matt.  I’ve really enjoyed the chance to look beyond the immediate horizon and think about some of these broader opportunities ahead of us.  Listeners, thank you all for joining us.

This is just a taste of our views, and there will no doubt be other changes and other points of view in this debate and we look forward to hearing them.  You will be able to find more insights on this theme on our website, pwc.co.uk/Brexit later in the spring.

That’s all for today, bye for now.

Contact us

Brexit enquiries

Brexit enquiries, PwC United Kingdom

Follow us