Whether you found the whole thing thought-provoking or tedious, the outcome of the Conservative leadership election between Boris Johnson and Jeremy Hunt will have long-term consequences for UK enterprise.
Though the UK remains a thriving place to do business, ongoing Brexit uncertainty, renationalisation threats and possible unilateral action on taxation are making business leaders think twice. In 2014, the UK Finance Chief George Osborne affirmed that the Conservative Party was “proud to be the party of firms and of businesses”.
Since then, the Brexit debacle has prompted a serious identity crisis within the Party, and the new PM must facilitate the UK’s re-organisation into the international economy, bringing a divided country back together.
It’s finally Boris’ time
Step forward Boris Johnson, who has inherited a country in crisis and a governing party so estranged that some members fear it could break apart. Boris, a divisive character himself, must begin preparations for a ‘no-deal’ Brexit, which would severely disrupt the economy, causing anxious ripples to permeate through UK industry. The costs of a no-deal – a self-inflicted burden on the economy – will be felt for years to come.
Mike Danby, MBE, CEO, Advanced Supply Chain, says: “If Boris manages to negotiate a decent Brexit deal (or preferably no Brexit), businesses will feel minimal impact. If (as promised) he leaves without a deal and the economy tanks, then we will suffer consequences that I can’t predict – although for sure they will be negative.”
Boris backs the idea of the UK leaving the EU with or without a deal, and fears continue to grow of a catastrophic no-deal divorce, especially since his Brexit strategy consists largely of bluster and bluff.
The new PM may soften his stance when faced with the reality, but what effect will the new Tory leader have on business? What policies has he pledged?
And what will a man whose career has been dogged by blunders, controversy, affairs and scandal, bring to business? Business leaders yearn for transparency, but a pre-Brexit Britain is a place more akin to confusion than clarity.
What is clear is that a no-deal Brexit could be catastrophic for supply chains, jobs and consumer prices, but Boris has pledged that the UK will leave by the 31st October, deal or no deal; and he has even now said he will suspend parliament to make certain he reaches a resolution.
This is hardly surprising from a man who once said “F**k business” to a Belgian ambassador, revealing his supposedly cavalier contempt for the business community and the millions of people it employs. Those on one side of the argument will feel that Brexit Boris is a dangerous character, and could do huge damage to the UK economy but those sympathetic to him will see a man – who like Churchill – is unorthodox but always ready to make the big decisions and ultimately capable of navigating Britain back to her feet.
In an attempt to reconcile himself, Boris promised to be “the most pro-business Prime Minister” in history at a recent gathering of 30 FTSE100 bosses including Lloyds, Marks & Spencer and BT. However, there is no sugar coating that a no-deal could be difficult for many industries in the UK and the tariffs on trade to Europe will be so punitive until a new trade deal is renegotiated that a huge number of businesses will suffer irreversibly.
Professor Andrew Kakabadse, Programme Director of the Board Directors’ Programme at Henley Business School is already apprehensive about the new cabinet, acknowledging the damage that Brexit could cause: “UK business leaders have every right to be concerned with the prospect of Boris Johnson becoming Prime Minister. Boris is heavily supported and championed by a two decades plus well-endowed campaign to have the UK leave the EU and form much closer economic and political ties with the USA.
“He totally underplays the damage that will be done economically and socially to the UK and has not even mentioned the short to medium term impact of the oncoming information revolution, namely Industry 4.0. Europe is estimated to lose over 55 million jobs with Industry 4.0 and the recovery will take a decade as new information technology progressively becomes the corner stone of the economy. It seems that very few are considering the impact of both Brexit and facing up to Industry 4.0.”
Business leaders are currently in no man’s land as it is impossible to plan without any idea what will happen on October 31st. If the UK leaves the EU without a deal it would lose trade deals immediately – worth about 11% of total UK trade. The US already trades extensively with the UK, but is much less important to the British economy than the EU, and Kakabadse already foresees holes in prospective Free Trade Agreements (FTA) with the US.
He says: “Concerning a potential free trade agreement with the US, the Americans have already made their intentions clear, the privatisation of the NHS and a focus on free trade over agricultural products and services. The American agenda is to prop up the Midwest, a deeply sensitive political issue for the US.
“Other countries that have signed free trade agreements with the US have sacrificed their farming industry. Australia is a case in point. Try purchasing Australian products in their supermarkets. Its impossible. American products have swamped the Australian market. Should a British Prime Minister sign such a deal, the same will happen to the UK.”
The new PM’s policies are also coming under growing scrutiny as he consolidates his position. His main policy – cutting taxes for approximately three million higher earners by raising the 40% threshold from £50,000 to £80,000 – has raised eyebrows.
Boris Johnson has also proposed changes to National Insurance Contributions (NICs), which the IFS said was “probably the best thing one can do through the tax system to help low earners.” However, most of the benefit would be felt by high earners and Resolution Foundation estimates that 83% of the gains from Johnson’s proposed tax cuts and NIC reductions would benefit the top 10% of households.
His core economic policy is to ditch austerity measures and he has made numerous spending promises, including rolling-out broadband in rural areas and greenlighting Northern Powerhouse Rail. As part of his manifesto, Boris Johnson has also promised better transport and communications infrastructure.
He has pledged to provide more funding for schools – £4.6bn per annum by 2022/23, reversing cuts imposed since 2015 and has vowed to back business. As London Mayor, Boris demonstrated that he can work with big businesses, helping to secure the capitals place at the top of the global charts and launching the International Business Programme in 2016. Led by London & Partners, this initiative aimed to help SMEs maximise their global business potential, playing a key role in doubling London exports by 2020.
EU leaders have made it clear that there will be no further negotiations, and with the PM seemingly willing to proceed on regardless, one must question if he really grasps the negative impact of a no-deal on the economy? Classing the UK as a “world soft power superpower” with a focus on “free trade, freedom from oppression and freedom of thought” is all well and good, but with companies that are essential to the economy either relocating overseas or cutting back on their operations in the UK, things don’t look good.
Kakabadse believes that business has very good reason to fear Boris’s plans.
‘British business leaders’ suspicions of Boris Johnson are well founded. The man is doggedly pursuing a political agenda that suits a small and wealthy minority in Britain. The economic and social welfare of our citizens is the least of his concerns. With Johnson at the helm we are likely to become an even more unequal, disadvantaged and fragmented society.’
Brexit is predominantly seen as a risky event, yet there will be new opportunities for those that wish to capitalise on them. The volatility of currency will favour some businesses and new trading relationships can be explored.
However, Boris needs to act fast, outlining a clear, practical direction for the UK. He needs to build a long-term vision, which drives in investment and backs business, as a foundation for a healthy, inclusive economy. Boris suggests that he can shake up a failed system, but only time will tell if he can transform into a credible international player.
Danby offers his advice to businesses – whatever the next few months may bring. “Run a tight and well-managed business, be agile if things go awry and be prepared to make tough decisions early rather than waiting too long. As always, ‘cash is king’ when there are headwinds.”
President Trump likes Britain, Brexit and Boris, and by implementing tax cuts that benefit the wealthy alongside a communication strategy that courts controversy, comparisons between the two leaders become all too easy.
Supply chain: Determining who bears the expected additional costs and how delivery lead times will need to be adjusted will be essential considerations
Regulations: UK based businesses principally work to European-wide standards, so Brexit will have a major impact. Expect adjustment problems and increased delays to market.
Movement of Goods: HMRC has issued instructions to businesses that trade between the UK and the EU-27, or with the rest of the world, to prepare for a no-deal Brexit
Border tariffs: At the very least there will be costs where tariffs apply
There is only so long the economy can continue with the uncertainty that has become synonymous with Brexit and the CBI has warned that “no one is ready for no-deal”. How can businesses authorise new projects when they have little idea what the policy and regulatory landscape will look like from next year? To survive, businesses that buy and sell from the EU must have contingency plans in place by October