50 days until Brexit: it’s time to secure a fair deal
10 November 2020: ICAEW CEO Michael Izza breaks down the latest updates to the Brexit negotiations and their predicted affect on business.
Brexit negotiations
‘Time is running out’; that has become the UK Government’s mantra on Brexit, and with good reason. In exactly 50 days, the post-Brexit transition period will come to an end, marking the UK’s departure from both the EU’s single market and its customs union.
There are signs that ministers are taking seriously the economic damage a disorderly exit could cause. The Prime Minister spoke directly to the European Commission’s President over the weekend, and the EU negotiating team is back in London this week for intensive discussions. Even the outcome of the US Presidential elections may have helped to concentrate British minds: the prospect of a US-UK free trade agreement was a useful counterweight in the bargaining with the EU, and this now – perhaps – looks less imminent.
Along with many other voices in UK business, ICAEW calls on the Government to redouble its efforts to secure a fair deal that minimises disruption next year and which will help to stimulate and sustain the UK's post-COVID economic recovery.
Twist and turns
The way in which this saga has played out, particularly during recent weeks, has left businesses exhausted and confused.
On 18 October – when prospects of a deal were originally fading – we joined with over 70 other professional institutes and trade bodies to emphasise the importance to jobs and livelihoods of securing an ambitious and comprehensive agreement with speed and clarity.
Since then, prospects have improved again, as negotiations have intensified, positions on both sides have softened, and deadlines have been extended. While difficulties clearly remain, hopes have risen that a deal is in reach.
The UK Government has framed the choice for the UK’s future trading relationship with Europe as being between the so-called ‘Canada option’ (namely a free trade agreement) and the ‘Australia option’ (which would see the UK doing business with EU countries on WTO terms) and, in public at least, it claims to be indifferent as to which one happens.
Meanwhile, the economic impact of COVID-19 has worsened, with new lockdowns taking effect in the UK and in many other European countries.
Business preparation
We are now just 50 days away from the prospect of a grim double jeopardy: the combination of a disorderly Brexit and the continuing disruption caused by the pandemic. That would undoubtedly inflict further severe hardship on businesses across the UK, and on those in EU economies who trade into the UK. It will likely prove fatal for some. It must be avoided.
The UK Government’s campaign to persuade businesses to get ready for the end of the transition period has unfortunately served to antagonise more than it has inspired or motivated; just last week, HMRC distributed 250,000 letters and e-mails urging businesses to ‘act now to avoid disruption’, highlighting the professional support that many will require to deal with customs declarations. But quite simply, without knowing what our trading relationship will be come January, it is difficult to prepare adequately. And why would businesses invest considerable time, money and effort without knowing the direction of travel?
Nonetheless, by and large businesses are failing to make the necessary preparations. Preoccupied with mere survival in the face of COVID-19 and worn down from previous Brexit-related false alarms, many companies almost seem to be using the continued uncertainty around the UK-EU negotiations as an excuse for inertia.
A ‘bare bones’ deal is better than ‘no deal’
It is important we all understand that a ‘no deal’ scenario is now quite likely, and that at this late stage, any deal that is able to be agreed will likely prove very ‘bare-bones’ indeed.
However, at this stage even a very basic agreement would suffice to get us safely over the line that is the end of the transition period. Heading forward, more detailed ‘sub-deals’ could then be built upon this framework, to the benefit of specific sectors and to address specific challenges.
Specifically, we must ultimately have provision for the effective mutual recognition of professional qualifications and confirmation of cross-border equivalence on statutory audit.
After so many months of negotiation, this is hardly a very ambitious objective, but it could be enough to minimise disruption to businesses in both the short and the long term. Having just last week acted to protect millions of jobs through the extension of COVID business support schemes – a bold and generous move, ICAEW believes - ministers must now show equal determination in addressing this other major threat to the UK’s economy.
ICAEW members
We also call on ICAEW members to remain vigilant about the level of disruption that may occur come January, and to think hard about how the businesses they advise or work for should be preparing.
We continue to regularly update our online Brexit Hub, which contains a comprehensive library of news, analysis and guidance on a huge range of practical topics, for both UK and non-UK members – including audit and accountancy, financial reporting, customs processes, sales and supply chains, cash flows and information for specific sectors. Please take advantage of these extensive resources.
Time is critically short and it is difficult to overstate the scale and complexity of the impact of entering 2021 without a deal, and of the changes businesses will need to make. Government must act now to secure a deal – however basic – and avoid a devastating cliff-edge.