Planning for Brexit

It’s been just over two years since the Brexit referendum, and no-one has yet given a clear indication of what the post Brexit arrangements will actually be. We have been told, though, that we will not be in the Single Market.

We have also been told that there will be a “frictionless” border between Northern and Southern Ireland, although no-one has yet come up with a way to arrange this that is acceptable to all parties.

So it’s pretty safe to assume that:

  1. there will be some tariffs on good in and out of the UK
  2. additional checking will be required at points of entry
  3. there will be additional delays for goods in and out of the country
  4. any new IT systems required to handle the extra paperwork (such as checking number plates against pre-notified Bills of Lading and so on) will be expensive, and implemented far too late. (The UK Government has a pretty poor track record for implementing massive projects - like the UK Electronic Borders project that was eventually cancelled before it was properly started.)
  5. UK Financial Services are unlikely to be “passported” to EU markets.

We don’t know

6. If we have trade deals ready that will lower, or at least reduce, tariffs from outside the EU. If so, it may be possible to import goods from (say) Japan or China cheaper than we can get them from the EU - although this does not solve issues of transport cost and delays.

I no longer have to concern myself directly with such things, but here is what I would be doing if I was in one of the big companies directly affected by Brexit.

Financial Services

Indications are that financial companies are either planning to use existing offices in the EU, or setting up new ones - Ireland is a good place for this. This allows them to continue to offer EU based products covered by EU regulation, even if some of the processing is done in the UK. With any luck (for the UK) that will have a relatively small impact in terms of employment, although the tax levied will mostly be lost to the UK Treasury.

Manufacturing

Most big manufacturers - cars, aeroplanes and so on - obtain parts from all over the EU and elsewhere in the world and assemble them in one place. They are likely to be running a “just in time” system, where parts are ordered so that they arrive just in time to be used on the production line. This cuts out a great deal of stockholding.

Import delays and costs obviously make this less efficient, not only for the manufacture itself, but also any additional staff needed for the extra paperwork.

We have already seen Airbus suggest that the wings made by British Aerospace factories may have to be made elsewhere in the EU, while BMW and Nissan have expressed concern about the impact on their business.

We have recently seen Land Rover Discovery production shifted to Poland.

If I were any of the EU countries, I would be offering incentives for BMW, Nissan, Honda and Toyota to shift production to elsewhere the EU. Bear in mind that BMW is a German company anyway, and that Nissan has strong ties with Renault, who already make Dacia cars in Romania. Toyota already make cars in Poland. Honda are a bit more exposed - they have an operation in Belgium, but this only rally handles motorcycles. Ford makes no cars in Britain now, although it does make engines and transmissions.

So, if I were them, I wouldn’t panic. But I would be planning to phase in production of new models to elsewhere in Europe. At the moment, plants within some of the major manufacturers compete with each other to assemble the new models. This won’t change, but UK plants will have tariff and bureaucracy disadvantages to overcome.

In other areas, such as collaboration in space projects and research, we are already losing out as we are no longer in the “club”.


Summary

Will Brexit have an immediate impact? Possibly on prices as a result of tariff changes/introduction, but less effect on employment in the short term. In the long term, it could have a major impact. Either way, most big companies will be planning to shift at least some work from the UK to elsewhere in the EU.