Brexit Views 26 June 2018

EU leaders are meeting in Brussels this week and contrary to expectations around a month ago, Brexit is not set to figure highly on the agenda. Instead, other pressing issues such as migration, the EU budget, reform and trade will dominate discussion.

It is expected that the Council Conclusions will highlight the current impasse around the Irish border as the main obstacle to negotiations and will call on the UK to provide more clarity on what kind of future relationship it wants with the EU. Furthermore, the Conclusions are expected to include a warning to member states and stakeholders to increase their Brexit preparedness and to ensure they are ready for all potential Brexit outcomes (namely a no-deal Brexit).

While the UK is preparing to shed light on its vision for its post-Brexit relationship with the EU with the publication of its White Paper (now expected in the second week of July), there is still no clear way forward on the back-stop solution for Northern Ireland. Without resolution on this critical issue, there is a risk of the UK leaving the EU without a deal; by far the worst case scenario for all involved.

This uncertainty around whether a deal can be finalised is now starting to have real consequences with major business leaders and employers speaking out about the business choices they are going to have to make in absence of any clarity.

Airbus was one of the first to come forward when the company’s COO, Tom Williams, said that the company is considering job cuts as it prepares to “press the button on crisis actions” in its response to Brexit. Airbus employs 14,000 people directly in the UK and its operations are thought to sustain a further 100,000 jobs. The vast majority of these jobs are high-skilled, high-tech industrial jobs located outside of London. A no deal Brexit could see the company moving out of the UK entirely meaning substantial loss of jobs and over £1.7 billion in UK tax revenue. The company’s own risk assessment states that it could lose up to £1 billion a week should a frictionless trade arrangement not be agreed.

BMW has said it would be forced to close it Mini and Rolls-Royce plants in Britain if Brexit results in serious disruptions to its supply chains. Such a move could result in a potential loss of 7,000 jobs. While the Society of Motor Manufacturers and Traders (SMMT) has warned that unless the UK remains in a customs framework that delivers “single market benefits” at a minimum, thousands of jobs in the sector will be put at risk. They further said that investment in the sector has already halved so far this year. Employment across the wider industry is around 856,000.

Adding further weight to these announcements, a number of business lobby groups have said that thousands of jobs are now being put at risk as businesses look to implement their Brexit plans in the face of ongoing uncertainty around the negotiations; a message put forward by the British Irish Chamber on repeated occasions during our meetings and engagements in Westminster.

As the second anniversary of the referendum vote was marked on Saturday, much focus has been put on the cost of the Brexit so far to the UK economy. In an analysis of the various models used, the Financial Times landed on the conclusion that the UK economy is now 1.2% smaller than it would have been without the Brexit vote – a £24 billion loss to the economy or £870 per household, per year.

All of the above demonstrate the real Brexit risk for the UK if the Government continues on its current path. These interventions all highlight the importance of the customs union and regulatory alignment for the operation of their “just-in-time” manufacturing operations. Without securing a future deal that protects these arrangements, jobs will be lost and the UK economy will suffer.

These are exactly the issues that the British Irish Chamber aimed to address when it published its Big Principles paper last November. The framework put forward in this paper (a customs arrangement, with ongoing regulatory alignment; coupled with a comprehensive deal in services; with oversight from an international dispute resolution mechanism) would satisfy the needs of business as outlined above.

When the British Irish Chamber was in the UK last week there was speculation that the UK Government might be moving towards looking for a customs and regulatory arrangement post-Brexit that would see the UK end up with a close relationship to the EU on goods. An idea that has been echoed in the press over the past week. While such a move would be welcomed by the Chamber as a positive move forward, we would also call for trade in services to be adequately addressed in any future deal.

One thing that is certain is that businesses need clarity and soon. The expected White Paper must be comprehensive in addressing how the UK sees its future relationship with the EU and provide enough clarity to businesses that will negate the need for them to implement their Brexit plans. It is also crucial over the coming weeks that the UK address the EU’s concerns around the backstop proposal published by the Prime Minister earlier this month. Without agreement on this critical issue, we risk a no-deal Brexit by accident rather than design and the job losses listed above would serve to be only the tip of the economic iceberg we would all encounter.

The downgrading of Brexit on the EU Council’s agenda this week should not be seen as a sign that things are going to plan. Businesses are not rash to make decisions in the face of uncertainty, but last week’s interventions show that we are still in a position of great ambiguity with a lot to negotiate before the Brexit clock ultimately times out.