As the Brexit deadline continues to shift, it is still unclear what Brexit actually means. After weeks of cliff-edge negotiations and indicative votes, a delay until October has been agreed, but there is still no sign of a solution. If anything, extremes of opinion may be hardening as political factions dare others to blink first in order to secure compromise on their terms.
The formation of the breakaway Independent Group and Nigel Farage’s Brexit Party have opened an entire set of new discussions among Westminster’s traditional parties, confusing things further. For now, the only certainty is that both Britain and Europe, except for a politically-extreme minority, appreciate that a ‘no-deal’, that has been called a “disaster” for the UK’s manufacturing sector by Business Secretary Greg Clark, should be avoided. But with indicative votes rejecting every option and cross-party talks at an impasse, there is still no sign of a way forward.
The result is the prolonging of an uncertainty that is already impacting business, and the suggestion of further delays may encourage companies to stop waiting for a solution and to take precautionary action. The highest profile impact in recent months has been Honda announcing the closure of a manufacturing plant in Swindon, which will see the city lose some 3,500 jobs. They join a list of 42 companies including Sony and Panasonic who relocated key elements of their business to the Netherlands in 2018, and a rumoured 250 more who are in talks to do the same.
A small business viewpoint
While the car industry regularly hits the headlines, there are many areas of British manufacturing that are also having to plan for an uncertain future. After all, if huge corporations are pulling back from UK investment, how will SMBs manage to survive?
As Managing Director of Technical Foam Services, Duncan Geddes has a significant level of experience. Founded in 1987, the company is an independent foam manufacturer and convertor based in the UK. With suppliers and clients across Europe, Geddes in an excellent position to assess the current Brexit situation through the prism of SMBs and manufacturing.
Plastics have long been a success story of British industry. Turnover of £25bn in 2017 and a decade of growth has made the sector one of the UK’s top 10 exports, allowing Britain to be at the forefront of innovation and problem solving when it comes to environmental concerns around plastics. However, this is an industry reliant on the EU for 69% of its trade. The British Plastics Federation estimates that any form of Brexit that does not secure a trade deal with the EU would see a dramatic increase to the cost of both imports and exports.
Geddes said, “With such close link to international partners and clients, manufacturing is an industry that might suffer a greater impact from a no deal than most.
“The largest issue is the level of uncertainty coming from the debates and negotiations. It would be a mistake to sit back and wait for a solution, and so it is down the individual companies and the wider industry to operate in a positive and proactive manner.
“A no deal would automatically mean that Britain has to trade using WTO tariffs until they agree trade deals with specific countries. The sheer number of countries that would each require a new agreement means this could take years to be completed and will not be able to compete with the current situation, free trade within the world’s largest trading block.
“Meanwhile, the UK’s plastics industry is a net importer and we currently account for 8% of the demand for plastic in Europe. Each of these imports would be hit by the cost of tariffs at a rate of around 6%, depending on the materials, a huge increase in costs that may literally occur overnight.
“Clearly the profitability of the industry would take a significant hit as a result. This could be managed but is likely to knock the industry’s momentum, stalling the great work that goes into innovation and research to compensate.
“We are proud to be an international business and we will continue to be, whatever happens with Brexit. I have confidence in the industry to manage the challenges ahead and by working closely with our partners and customers around the world, to ensure that the impact of negative consequences is minimised.”
What can SMBs do?
Despite the exit deadline being moved to October, SMBs may feel that it is too late for a small business to put anything into place. However, this is not the case. It is important to remember that the leaving day is just a technical marker rather than the end of the road. Anything other than a no-deal would mean either a continuation of the status quo via further delays, or a transition period. In other words, the deadline is just the start.
Perhaps because of this, a surprising number of businesses feel that it is not an effective use of time and money to make preparations for a no-deal scenario. An HMRC survey revealed that four in ten SMBs that trade internationally have no plans to do. Despite the fear around this cliff edge, it seems that a significant portion of British business is not listening to the political arguments and are not able to invest in hypotheticals.
With a lack of clarity about the next steps from government, what can SMBs do to protect themselves against the unknown?
Geddes added, “The key is for business not to wait for a deal, but to adopt a positive and proactive attitude.
“Examining contracts with EU staff, suppliers and customers along with existing and potential tax and tariff rates will help to build a clear picture of how different scenarios could impact, allowing planning and preparation for a variety of scenarios.
“The next thing to consider is people. If you have a good relationship with suppliers and customers in Europe, you will be more likely to find a path through by working closely together. Supporting the EU-nationals in your staff is also crucial. Helping them to begin the pre-settled process to secure permanent residency will minimise disruption for them as individuals and as part of your workforce.
“Some companies will be severely impacted by Brexit because they are not able to be sufficiently flexible and dynamic. British industry will change significantly in the next five years, but with a dynamic attitude and strong relationships with partners, small businesses will be able to navigate these challenges.”