Is Brexit the most painful and protracted event that businesses have ever seen?

Economy & Politics | Reports
Nick Farmer, international advisory partner at accountancy firm Menzies LLP
Nick Farmer, international advisory partner at accountancy firm Menzies LLP

Brexit, Brexit, Brexit. Have we as a nation and business community ever seen anything as long-winded, dividing and frankly energy sapping as Brexit? In the most perverse and catastrophic way, the COVID-19 pandemic has provided the only relief from the saga ever since the UK went to the polls, all those years ago.

In this article, Business Leader will explore some of the pertinent issues facing UK businesses and bring in experts for each point.

To start, we look at preparing for the end of the Brexit transition period and what steps employers should take?

Despite the end of the Brexit transition period being very close, little more than half (54%) of UK retailers believe they are either fully prepared, or will be for Brexit by the end of 2020.

These are the findings of new research conducted by global ecommerce services company, PFS.

At the time of writing, it’s still unknown if the UK will leave the EU without a trade deal, yet nearly a third (29%) of UK online or omnichannel retailers concede that they are yet to make any preparations at all. That’s despite four-fifths (79%) admitting they will be impacted by any cross-border effects of Brexit.

The impact of a no-deal Brexit could be devastating, with two-thirds (67%) of respondents believing it could cause an order backlog in the first quarter of 2021.

More than half (56%) say these delays would be related to sending goods to customers in the EU from the UK, whilst two-thirds (67%) believe they will feel an impact when importing products from EU suppliers.

So far, only a third of retailers have assessed or implemented new technology to increase supply chain efficiency (37%) and have done, or are in the process of integrating inventory and order tracking software (36%).

A similar number (33%) of retailers have split or will be splitting their inventory to base fulfilment in the existing UK and European facilities.

Just two-fifths (44%) of the survey respondents say they have set up, or are setting up, an Economic Operators Registration and Identification (EORI) number to move goods between the EU and UK.

The same is the case for the setting up of Merchant of Record services for VAT management and reporting (43%). Furthermore, only 39% have implemented or are implementing a new fraud management system, potentially leaving them in breach of guidelines.

Two-thirds say they are preparing for an order backlog early in 2021 (67%) and expect delivery times will be longer than they are currently able to promise customers (65%). More than half (55%) said their contact centres are not adequately resourced to handle the anticipated increase in customer complaints about delivery delays in January 2021. The same number of retailers (55%) will not be able to handle an upsurge in returns that are not related to Christmas.

Strikingly, a third of respondents (34%) already anticipate an increase in customer complaints during the first quarter of 2021 as a direct result of Brexit. To manage these concerns, 40% plan to proactively notify customers about delivery delays and reduced stock availability.

Joe Farrell, VP of International Operations at PFS, comments on this survey: “The retailers that are putting measures in place now, such as using multiple distribution points across the UK and the EU to get goods to customers on time, will survive and thrive post-Brexit. Retailers operating in the UK and Europe should also look to third-party fulfilment providers to help ready their supply chain.”

What will happen to Grant Funding

Grant Funding is another topic businesses need to be aware of. Business Leader spoke to Joe Matusiak, Grants Manager at innovation funding specialists ABGI UK to answer the question – what will happen to Grant Funding after Brexit.

He comments: “At present there are a range of available grants to help UK businesses accelerate the ambition and vision of their product or services portfolio, including the EU’s Horizon programme.

“Horizon 2020 (H2020), the current EU Framework Programme for Research and Innovation, is the largest to date and has been supported by nearly €80bn (£71.4bn) of funding since its launch in 2014. At the end of the year, H2020 will be succeeded by Horizon Europe, a programme supported by a further €80bn (£71.4bn) which will go into effect until 2027.

“H2020 has been one of the key mechanisms in providing crucial funding for innovative EU companies, including those in the UK. If, however, a Brexit deal fails to materialise before the UK’s departure at the end of the year, British business will very likely need to look elsewhere for support.”

Tom Brett-Young, Partner at VWV says that existing grant funding schemes in the UK could become particularly important in providing that support. He says: “Existing UK grant funding schemes, including Innovate UK, may be called upon to pick up any slack should a No Deal force our withdrawal from the Horizon programme.

“A further option is for regional bodies, which include Local Enterprise Partnerships (LEPs) in England, Scottish Enterprise, the Welsh Development Agency, and Invest Northern Ireland to be given funds and autonomy to provide grants to support innovative companies within their local areas.

“Another new grant funding option could come via the UK Government’s ‘blue skies’ science and research agency, part of a series of pro-business measures designed to boost Britain’s competitive edge.

“The Prime Minister has often stated his preference for a Canadian-style trade arrangement with the EU, going forward.

“If they are however unable to secure a deal which would keep the UK within the Horizon programme, he would do well to look to Canada’s model in devising alternative grant funding arrangements to ensure businesses are able to thrive post-Brexit.”

Is the professional services sector ready for Brexit?

Nick Farmer, who is an international advisory partner at accountancy firm Menzies LLP, argues that those in the service sector have no time to waste no in preparing for Brexit.

He explains: “The UK services sector contributed 81% to the economy in 2019 and accounts for around 30 million jobs. A key sub-sector, which is often described as ‘professional and business services’, comprises HR, recruitment, advertising, legal services, market research, accountancy, audit, architecture, engineering and PR and management consultancy firms.

“This sub-sector alone is thought to employ around 4.6 million people and is a strong exporter of services to the EU. As such, leaving the Single Market without a deal or without securing any mutual recognition of qualifications, residency requirements and mobility rights could have a major impact on many services sector firms.

“A recent report produced by the House of Lords’ services subcommittee has raised concerns that the needs of professional and other business services firms are being overlooked by UK negotiators. If nothing is done to address this, many of them could lose contracts and jobs when the Brexit transition period terminates at the end of the year.

“The report warns that even if a Canada-style trade agreement is reached in the nick of time, services sector exports could still face major trade barriers.”

Nicks says that the potential issues that could arise for firms if there is no deal, or a deal that fails to address non-tariff trade barriers, include blockages caused by jurisdictional reservations, a lack of recognition of professional qualifications, data transfer issues, loss of passporting rights and reduced business mobility.

While in many cases, larger corporates have found the resources required to prepare for an uncertain future, many SMEs in the services sector have not yet prepared a Brexit plan that will allow them to continue trading, he says.

So what can they do?

Nick says that when drawing up a Brexit transition plan, firms should consider the following specific issues around market access, data transfer, business mobility, embedded services, professional qualifications, intellectual property rights and hiring EU staff.

He concludes by stressing that it’s vital to seek advice from relevant trade bodies and experts.

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