Why is a ”no deal” Brexit scenario an urgent planning priority?

This week’s Brexit talks as expected have failed to deliver any new break-through.   As predicted, the UK refused to discuss an exit payment until trade discussions commence.

Michel Barnier, the EU negotiator described the UK position as “disturbing” and stuck in “deadlock”. He said he “cannot recommend” to EU leaders at the 19-20 October summit that negotiations move on from divorce issues to talks on a post-Brexit relationship. Furthermore, Barnier strongly asserted the rights of EU citizens, the Irish border and the “exit payment” have “nothing to do” with trade talks.

Despite the popular view that Theresa May made major concessions in her Florence speech to Britain paying a substantial contribution to the EU during a transition period of up to two years, there has been no change in the UK government’s position. Her Florence speech was consistent with her Lancaster House speech.

If the EU hasn’t grasped by now that the UK position is (as it has been from the beginning) that it is impossible to resolve any of these questions without discussing a trade deal, for they are intrinsically and inextricably interlinked, it is hard to see how progress can be made between now and December, either.

Theresa May has no real latitude to make any more concessions to the EU. If she does, her government will fall. The UK government is now publishing plans for “no deal” preparations and planning (at some point in the future) to allocate major expenditure to support. The UK government will hold off committing to this expenditure as long as a deal is possible but once it starts spending large sums, it will be politically very hard to abandon a no deal position.However, time is running out to reach a deal. The EU has to submit details of a deal for ratification to national governments by the end of September 2018, six months before the March 2019 Brexit date.

Firms need to plan for a “no deal” situation as a matter of contingency and judge how must work must be undertaken up to the point that a “no deal” is triggered. Some firms who have failed to undertake any adequate Brexit planning, may need to significantly ramp up efforts given the likely timescale, capacity and capability issues. Once the UK Government starts serious expenditure on a “no deal”, preparations must start in earnest.

A further complication is that there are various types of “no deal”. These range from total disagreement between the EU and UK to a more cordial divorce.  It would be a major failure by both sides if there is a total breakdown of relationships. A “no deal” will require some sort of transition agreements at various levels if we are to avoid major economic, social and political consequences which could destabilise not only the UK but parts of the EU also.

The chances of a “no deal” are now much greater than 50%. The vast majority of firms have undertaken insufficient Brexit preparations to date.  The consequences of a “no deal” for individual firm’s customers, supply chains, partnerships, revenue streams, cost structures, funding arrangements, contracts and operating model(s) must become an urgent contingency planning priority. 

Dr. Ray NultyComment