What should you do to prepare for a No Deal Brexit?
On 31 October 2019, there is now a real risk that the UK could leave the European Union, our largest trading partner by a significant margin, without a deal.
Previously an unthinkable possibility, leaving without a deal could have potentially damaging consequences to the UK economy. Unless a solution can be found to the issue of the Irish backstop, and Parliament, once it returns from prorogation, votes on whatever deal has been agreed in principle, a No Deal exit is on the horizon.
What could No Deal mean for the economy? Forget project fear. Everyone with any authority on economic matters have issued stark warnings about the consequences for the country and economy.
KPMG are predicting that the economy will shrink, falling into a recession in 2020. KPMG are estimating that the economy will shrink 1.5%, accelerating a downward trend that has seen growth slow over the last few years. Continued uncertainty about Brexit has contributed to this slower growth.
Consumer spending has been responsible for 60% to 80% of economic growth over the last few years. Analysts have already noted that it’s not been this weak since the mid-1990s, and is likely to reduce further in the event of a No Deal Brexit.
The Bank of England and HMRC’s Office for Budget Responsibility, an independent forecasting unit, have both warned that crashing out of the EU without a deal could cause serious economic damage. It would push the UK into the first recession since 2009. Leaving with a deal would have the opposite effect, strengthening the economy, growing it at least 1.5%.
Yael Selfin, KPMG UK’s chief economist warns: “Despite headwinds such as the slowing global economy and limited domestic capacity, the UK economy now has the potential to strengthen over the next 12 months. But a no-deal Brexit could put paid to this upside, triggering the UK’s first recession for a decade.”
Unfortunately, there is no way at present to predict what will happen with Boris Johnson as Prime Minister. Brexit is in the hands of those who aren’t afraid to leave without a deal, despite numerous dire warnings. Parliament has passed legislation to prevent leaving the EU without a deal, asking for another extension, although it isn’t clear whether Downing Street will commit to this course of action.
What should small businesses do to prepare?
The Institute of Directors (IoD), Confederation of British Industry (CBI), and UK Government are urging businesses, including millions of small and medium businesses, to take immediate action to prepare for a potential No Deal Brexit.
In particular, any company the trades with the EU or European Economic Area, and has clients in this region, needs to take practical steps to get ready for this. According to the CBI, 4 out of 10 SMEs that trade internationally have no plans in place to cope with the UK leaving the EU without a deal.
The government has put together extensive and up-to-date guidance documents for every sector that might trade with Europe. If you are in this scenario, it’s worth going through this 7-point checklist to determine what action you might need to take: https://www.gov.uk/prepare-business-uk-leaving-eu
Companies that have clients in the EU, whether they’re exporting goods or services now need to have an Economic Operator Registration and Identification (EORI) number. In December 2018, HMRC wrote to 145,000 businesses to advise them this was needed, and many were issued EORI numbers automatically. However, if that isn’t the case then the government urges companies to do that straight away via this website: https://www.gov.uk/eori
For those with clients or suppliers who import goods (and in some cases, services) to the UK, the government has issued guidance to simplify this too.
In the event of No Deal, UK exporters will need to deal with the EU rules the same as exporters from anywhere in the world. There is a risk that stock piling products that are part of a manufacturing supply chain should start sooner rather than later, to avoid the danger of goods getting stuck in ports.
In some sectors, such as the automotive, there is a fear tariffs could be imposed, increasing the cost of buying a car in the UK by up to £2,800. Although this very much depends on how negotiations go and how we exit the EU.
Leaving without the deal could cause economic damage and a recession. Businesses need to think carefully about clients and suppliers, to determine which might be more affected than others and therefore what action to take to protect yourself and business. Keeping a healthy balance sheet, reducing debts, and maintaining a positive cashflow are useful irrespective of political and economic turbulence, but now more than ever those actions are necessary and urgent for every business.
If you are concerned about the impact of a No Deal Brexit, you can also email the CBI, whether or not you’re a member: EUNegotations@cbi.org.uk