By Rachael Elliott, Head of Thought Leadership, Business Continuity Institute & Paul Baines, Professor of Political Marketing, University of Leicester
When the referendum result was announced in June 2016, few predicted the turmoil the UK Government would find themselves in just weeks from the date set to leave the European Union. Within six months, the Government went from expecting a favourable deal from the European Union to preparing the country for leaving the EU with no deal. After multiple cabinet resignations, organisations have largely been left to prepare their businesses themselves for a multitude of possible outcomes including the Chequers-type deal that the European Union accepted but parliament rejected, no deal or some sort of protracted deal, based on a variation of the Chequers deal.
Business preparedness is falling as the certainty of the outcome becomes cloudy
To attempt to give business some clarity on Brexit, The Business Continuity Institute launched a tracker in November 2018 to monitor just how prepared organisations around the world were for the different ‘leave’ options in March. The first survey showed only around 1 in 2 organisations (47.5%) felt ‘prepared’ or ‘very well prepared’ for a soft Brexit and just over 1 in 4 (27.9%) felt the same for a hard Brexit. Rather worryingly, the second tranche of the survey finalised in January 2019 showed fewer businesses prepared for a hard Brexit (24.5% were badly/very badly prepared), almost certainly due to media persuasion at the time the survey was carried out that a hard Brexit was a very real possibility.
Brexit planning cannot be left until the last minute
Whilst the financial services and other regulated sectors are ahead with their planning, many organisations have chosen to either wait for guidance from the Government on specific, tactical measures to employ, or are part of the 1 in 8 (12.2%) of those surveyed who do not feel their organisation has to make any preparations at all for Brexit.
For many organisations, adding Brexit to the risk register is still the only preparation that has been made. Senior management have largely been tasked with managing the process, but many are still waiting for firm Government guidance on what preparations to make. A business continuity manager in a South-West based NHS trust revealed she had heard that the Department of Health had finally issued Brexit guidance to senior management – but senior management were not allowed to cascade that to those people within the organisation responsible for putting together Brexit resilience plans! In fact, across the NHS, real concerns remain about the possibility of not being able to quickly acquire life-saving drugs or specialist medical equipment if the UK leaves with no deal. Manufacturers and raw materials suppliers echoed deep concerns about supply chain disruption and, in the worst case, foresee collapse. As the probability of a no deal Brexit increases as 29 March approaches fast, many manufacturers have already announced their plans to move operations out of the UK: both Nissan and Honda announced in February that they plan to shut plants in the United Kingdom. Many companies are choosing to relocate to the Netherlands and the Netherlands Foreign Investment Agency (NFIA) reported in January that the number of British businesses they were in discussion with about relocation to the Netherlands had grown from 80 in 2017 to more than 250 at the start of 2019.
Financial concerns are also endemic amongst organisations
6 in 10 (60.6%) of those questioned in the most recent tracker survey believe a hard Brexit would impact negatively on their organization’s finances, with 2 in 9 people (45.0%) believing the same for a soft Brexit. Rather worryingly, 7 in 10 people (70.0%) of organisations have either not engaged or are unsure if they have engaged finance providers to prepare for Brexit. The financial difficulties organisations could face if the UK were to leave with no deal on 29 March are too great for directors to ignore: VAT duties on import could provide a devastating blow to cashflow, supply chain disruption could lead to stockpiling of goods and a drought of EU labour would mean recruiting more expensive domestic staff. Organisations are already holding back on business investment: the Office for National Statistics showed a 0.7% drop in business investment in the three months to June 2018, backed up reports by the Bank of England that firms were putting investment on hold or diverting it to other companies or subsidiaries.
With March now only days away, ‘waiting for guidance’ is no longer an excuse directors can make. We recommend setting up alerts to receive daily updates on Government issued Brexit technical notices, ensuring supply chains have been fully audited, engaging business continuity and risk management staff in Brexit planning programmes, looking at potential cost implications and speaking to finance providers to ensure financial stability is maintained.
The UK has been a resilient country throughout most of its history and will get through whatever option we face on 29 March, but organisations must plan for whichever Brexit scenario we are dealt. SMEs may be particularly vulnerable in the post-Brexit environment, given that they do not have the resources that large businesses tend to have. They do however have greater agility. SMEs must undertake urgent horizon scanning if they have not already done so to determine their own Brexit readiness. They should start to assess how exposed they are to the risks and potential opportunities that Brexit will bring if they have not done so already.