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Last week saw the widely expected election of Boris Johnson as new Conservative Party Leader and hence as the new UK Prime Minister. Prior to his election, Mr Johnson had pledged to take the UK out of the EU on 31 October, “do or die”, with or without a deal. Since becoming Prime Minister, Mr Johnson has stated that the Withdrawal Agreement is ‘dead’ and that he will not meet with the EU unless it can be re-opened.
EU leaders wished Mr Johnson well on his appointment; but alongside the congratulations, the EU’s underlying position remains firm. In a phone call, Jean Claude Junker reportedly restated that the EU’s view was that “the Withdrawal Agreement is the best and the only agreement possible”.
Pro-deal MPs like Philip Hammond, Greg Clark, and Jeremy Hunt have all left government. Meanwhile, notable Brexiteers have joined the cabinet, including Dominic Raab as Foreign Secretary and Priti Patel at the Home Office, both of whom have said they are prepared to leave the EU without a deal. Michael Gove has been brought in to chair a Brexit inner-cabinet, tasked with turbo charging the UK’s preparations for an “assumed” no deal Exit.
We are seeing the reduced likelihood of a deal feed through into confidence in the Economy. Deloitte’s Q2 consumer tracker released this week revealed UK consumer confidence remains unchanged in Q2 2019 at -8%, still four points lower than a year ago, as Brexit uncertainty looks to have acted as a drag on consumer sentiment. Confidence in job security has also declined by one point, and is three points lower than Q2 2018, and sterling has also fallen further.
There is no doubting that the risk of the UK leaving the EU without a deal has increased. Business reaction is varied, but with less than 100 days to go, many are now working out how to re-visit their Brexit planning with even more rigour, whilst digging deep for at least the same vigour as back in March – and with a less positive economic backdrop.
Lessons learned – the business view
The impacts of Brexit are dependent on the unique facts and circumstances of each business, which is what makes it so complex to manage as a business risk. However, my discussions with those responsible for reacting to Brexit first time around have revealed five common themes which I’ve summarised here:
Brexit has a broad impact on every aspect of a business, meaning that different functions have had to work closely together in a way that they have rarely, or never, had to before.
One FTSE 100 company organised by business unit, noted the challenges their people faced when having to work with colleagues from different business areas - such as knowing who to talk to, managing competing priorities, differing KPIs or adopting new ways of working. It took a clear decision making structure, with a ‘group’ level leader, to identify a unified plan that worked in the interests of the business as a whole, rather than the individual business unit preparing their own Brexit plan.
Working with constant political and regulatory updates, with prolonged uncertainty, has been frustrating for businesses and, in some cases, costly. One Industrial Products company told me how their continual monitoring of political developments had been extremely time consuming, distracting employees from their other roles and had in their view materially affected productivity.
It seems it’s now all about politics, but to follow every twist and turn and try to build a model for each scenario will be practically impossible. Actually engaging with government is challenging, but something that most businesses have realised they need to do much more of - navigating the political direction at 40,000 feet, having a voice and being able to influence the future are all critical at this stage.
Despite initial ‘buy in’ to their Brexit strategy, one fashion retailer met reluctance from top management when it came to committing to investment decisions or securing necessary sign-offs to actually take any action. Using this experience, they have now standardised business cases for ‘no regret’ decisions – capitalising on mitigation actions which are of benefit to the business regardless of Brexit. In a similar way, a logistics business has implemented Brexit-driven changes in the UK that are leading to cost-savings globally in any event.
Rigour around the risk assessment process and the business case for any changes implemented, will be even more important with the increasing attention of the FRC, financial stakeholders and audit committees
We’ve seen a shift in our conversations with some businesses since the end of March. Up until then, many were focussed on the tactical decisions that they needed to take to preserve business as usual; but now some are looking at whether business as usual is the right target to aim for, or whether there are strategic opportunities available to them.
Part of this is undoubtedly being driven by the realisation that their Brexit preparations amounted to a one-off grassroots review of their operations, and they’ve discovered that not all is working as efficiently as they might like. One Fortune 500 business has told me that they now have a better understanding of the capacity and constraints of their support functions, leading to the recruitment and training of additional staff, policy improvements, the creation of a core ‘Centre of Excellence’, and, in the longer term, the automation of routine low value-add processes.
Many businesses were not ready for 29 March (or, indeed 12 April). Some mitigating actions with longer lead times, which companies had frankly run out of time to implement, are now being put back on the table - applying for Authorised Economic Operator status is one we’re hearing frequently. Another is a new window to rationalise entities and undertake cross border mergers to restructure within the EU with fewer legal and tax implications. Or to change customer terms and conditions to enable free flow of data between the UK and the EU.
For an FS business, management’s view was that this new window of time means ‘no excuses’ in the future even if less than perfection, or just the low hanging fruit, might have been tolerated had the UK left the EU in March or April. Their planning now needs to be 100% in the event they face a no deal exit in October and planning is now being undertaken to greater depth and detail.
Brexit planning with rigour and vigour?
Having prepared for a potential no-deal exit already, there could be a risk of business leaders perceiving “crying wolf” over Brexit, which gives rise to complacency and potentially leaving it too late to prepare for no-deal this time around.
But, it is clear from the actions and make-up of the new government that there is an increased likelihood of a no-deal exit this time. We cannot predict exactly where Brexit will end up, and it is difficult to navigate through the political fog, but as for any other risk businesses need to find ways to mitigate their potential exposures, and identify any opportunities Brexit presents. Those who were ready for 29 March should dust off the Brexit preparations they had put on hold, re-assemble their Brexit teams and re-engage their no-deal strategy for an October deadline, with renewed energy.
The government may be turbo charging their Brexit planning, but government can’t prepare business for Brexit, business needs to prepare business for Brexit.
For further insight into organisational design challenges, you could read The Adaptable Organisation or contact Shivani Maitra. For more from Deloitte on Brexit replay our latest Brexit webcast, where we discuss the election of Boris Johnson and what business needs to do next to prepare. Or, contact our Brexit team directly on firstname.lastname@example.org.
Amanda is Head of Tax & Trade Policy for Deloitte UK. She leads a team undertaking analysis and preparing insights across the spectrum of tax and trade matters including Budgets, technical consultations, trade negotiations and post-Brexit border rules. Amanda has held a wide number of roles during her career including leading client relationships, global representative to the OECD, mentoring and non-executive board roles. As well as previously being a partner at another Big 4 firm, she was in industry at Vodafone plc as global head of indirect taxes and responsible for managing tax value chain and centralisation initiatives. Amanda has an active home life with four children and is also passionate about horses, riding whenever free time permits and supporting the charity World Horse Welfare including volunteering as Trustee and Treasurer for 7 years.