Spectre of ‘no-deal’ hangs over Christmas - Stephen Phillips

With 2021 and the end of the Brexit transition period fast approaching, many assume that we will soon ‘get Brexit done,’ one way or another. However, much like the new puppy at Christmas, the reality and impact of Brexit will be with us well beyond the festive season.

Stephen Phillips is a Partner and member of the Brexit Group at law firm CMS

Given the state of the current UK/EU negotiations, businesses will need to brace themselves. Even at this 11th hour, the outcome is still impossible to predict, but the most likely result is either a thin trade deal or no deal at all.

Whilst a deal would minimise tariffs for sectors like food and drink, otherwise there’s little difference between these two likely scenarios as neither will cover the service sector in any detail, including Scotland’s key financial services sector, which makes up the majority of existing UK exports.

For manufacturing-based sectors such as food and drink, another important sector of Scotland’s economy, a basic deal also presents significant issues. While such a deal may reduce tariffs and pave the way for better longer term relations between the UK and EU, it will be seriously impacted by non-tariff barriers such as customs and veterinary checks.

Any trade deal, or no deal at all, would likely result in disruption to supply chains for many UK companies. Photo: DANIEL LEAL-OLIVAS/AFP via Getty Images

This will likely result in disruption to supply chains for many UK companies. British ports are already experiencing delays due to Covid and stockpiling prior to the end of the transition period, which will only be worsened by the imposition of customs checks. There are also questions about whether UK hauliers will receive sufficient permits to deliver and pick up goods in the EU, which could lead to price rises for consumer goods imported into Britain.

Many businesses are already reeling from the effect of coronavirus lockdowns and understandably lack the bandwidth to make suitable Brexit preparations, but even some of those which have put plans in place can do little about the fact there are too few professional customs agents in place to cope with the additional workload they will incur in 2021.

Despite knowing for four years that new customs arrangements will have to be in place, the UK Government is still struggling to catch up. In contrast, the EU states have used that time more productively, hiring staff and building the required infrastructure.

At a time when so many are facing significant financial pressures, UK businesses must also deal with the prospect of a further hit to their cash flow should the Government’s inertia result in export orders that are delayed, cancelled or stuck in a port backlog. Instead companies here may have to turn to their lenders to support them through a tough and potentially prolonged ‘adjustment’ period.

The UK Government’s willingness to breach the EU Withdrawal Agreement has also seriously damaged trust. The EU now appears to be less committed to maintaining a close ongoing relationship with Britain compared with 18 months ago.

If these developments aren’t enough to knock the Christmas cheer out of us, the Westminster Internal Market Bill presents a further threat to business here in Scotland.

Described as a ‘power grab’ by the Scottish Parliament and by non-political sources, including Lord Hope of Craighead, the former deputy president of the UK Supreme Court, the Internal Market Bill could now diminish the powers of the Scottish Parliament to legislate in devolved areas. This could potentially create uncertainty about how our laws and regulations will apply to Scottish businesses.

This all adds to an already grim outlook at a time of year when our business community is desperately seeking some positive news.

The UK Government must use these final days of 2020 to ensure it secures the best possible outcome for business and minimise the trauma many will face in readjusting to a post-Brexit environment. Into next year, momentum must then be maintained as many trading agreement details will still need to be negotiated and implemented going forward. Any delay in doing so could further damage investment and business confidence.

The impact of Brexit may not be with us for life, but it will certainly extend well beyond the Christmas period. We need the UK Government to focus on post-Brexit trade during this time, throughout 2021 and beyond.

Stephen Phillips is a Partner and member of the Brexit Group at law firm CMS