The number of times Mrs May’s Brexit deal is being put to the vote in the House of Commons may remind some of the film “Groundhog Day”. At least in that film there was a happy ending – can the same be said when Brexit is finally done and dusted?
In the World Bank’s “Doing Business 2017“ Report, the UK was listed as the 7th best country in which to start a business. Will that remain the case once we leave the EU? The news that many financial services companies are relocating their headquarters to EU bases, Honda is preparing to close its plant in Swindon by 2021 with the loss of 3,500 jobs, the recent collapse of Interserve and the failure of a host of high street retailers over the past few months does not bode well. Some of these events may have occurred even if Brexit was not in play – but certainly, Brexit has had an impact. What, ultimately, could be the cost to UK business of Brexit, even if a deal is ultimately agreed?
UK Exports to the EU currently make up around half of the UK’s global exports. Predictions are that if the UK leaves the EU without a deal, the increased tariffs, which will result in UK goods being less competitive, will have a direct impact upon the success of businesses in the UK, and Oxford Economics has predicted that under WTO trade terms, UK GDP could decline by 1.5-3.9% by 2030, with the overall level of exports dropping by 8.8%. This accords with the vast majority of studies on the impact of Brexit, which indicate that the UK economy will slow down compared to if it stayed in the EU.
Another fear is that foreign investment in UK business will reduce once the UK is outside the EU. As of January 2018, 42.6% of foreign investment in UK companies came from other EU countries, but the evidence shows the UK has historically been attractive to overseas investors because of its access to Europe and global supply chains/markets. If barriers are put up post-Brexit, it is possible the level of overseas investment will diminish and UK business will suffer.
Any significant drop in the migration of EU workers into the UK will also have a detrimental affect on UK businesses and services which rely on workers from overseas. Only this morning, it was reported again that there is a significant shortage of doctors and nurses in the NHS, running into the tens of thousands. In mid-2018, it was reported that 5.6% of workers in the NHS were from the EU so any loss of free movement of workers as a result of Brexit will make the position even worse.
After the Brexit vote in 2016, Euler Hermes predicted that in the event of a hard Brexit, in 2019 over 26,000 businesses in the UK could enter insolvency (15% of UK businesses) and even in a soft Brexit, that number could be over 25,000 businesses. Statistics are not yet available for the number of insolvencies for the first quarter of 2019, but for 2018, the Insolvency Service reported that the level of company insolvency rose to 17,439 companies – and that is whist we are still operating within the EU. The continuing uncertainty of “deal or no deal” is not helping to stabilise British business and confidence is waning to its lowest ebb as we fast approach 29 March with no deal agreed. Mrs May has approached the EU to seek an extension to Article 50 but what most businesses want is certainty so that they can plan their future. British business cannot be expected to continue to hold its breath for the long-term and a prolonged delay will doubtless contribute to more corporate failures. The waters remain choppy and for many it will be a time of sink or swim.