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Brexit: Where next for Business

They say a week is a long time in politics, but that’s an understatement in the context of Brexit. Earlier this month we saw historic votes in the UK Parliament to reject the Withdrawal Agreement for a second time, reject the possibility of the UK leaving the EU without a deal, and an instruction to the Prime Minister to request an extension to Article 50. And March’s European Council meeting threw in some additional unexpected developments.

What has happened?

The Prime Minister wrote to Donald Tusk, the President of the European Council, on Wednesday 20 March to request a short extension to the looming Article 50 deadline of 29 March. After eight hours of debate by the leaders of the EU27 on Thursday 21 March, an extension was granted in two forms:

  1. An extension to Wednesday 22 May, provided the negotiated deal is approved by the House of Commons by 29 March. In this case, the delay will be needed to allow the UK to ratify the necessary legislation to give the Withdrawal Agreement legal effect, including, crucially, the transition arrangements.
  2. But if the negotiated deal is not approved by the UK Parliament by 29 March, then the extension will be shortened to Friday 12 April. This would be an unconditional extension, but the UK Government would then be required to achieve a consensus view and indicate a way forward by the end of it.

The ‘two-tier’ extension was formally accepted by the UK on Friday 22 March in a letter to Donald Tusk.

What happens next?

We look set for another tumultuous week in Parliament.

The Prime Minister will put forward an amendable motion to the House on Monday 25 March to set out the Government’s next steps. As with previous votes, Members of Parliament will likely propose amendments, and Speaker Bercow will decide which are debated and voted upon. It is possible that MPs will look to force a mechanism to achieve consensus, such as indicative voting.

Depending on the outcome of Monday’s debate, a third attempt at passing the Meaningful Vote is still on the table. If it passes, then Brexit day will be 22 May, and all of the ratifying UK legislation needs to pass through both Houses before then.

Should Parliament reject the negotiated deal for a third time, or a vote doesn’t take place, then the UK has until 12 April to decide what to do. Options include seeking a long extension, leaving without a deal or revoking Article 50.

In any case, new secondary legislation is needed to stop the UK leaving on 29 March, which will take a couple of days to pass in Parliament.

What does this mean for business?

The possibility of leaving without a deal on 29 March has been removed, but the pressure is now firmly back on the UK to find a workable solution, and the future path is impossible to predict.

Doing nothing is still not an option for business as no-deal may still be just weeks away. And whatever their level of preparedness, all businesses still face continued uncertainty.

Businesses with complex contingency plans in place are likely to be frustrated at having to work to new dates, having acted upon instructions to prepare for a fixed leave date – some planning cannot be unwound nor easily replicated. Working to new dates means yet more cost, and more resources diverted from their day-to-day operations.

Others will welcome the additional two weeks as precious extra time to put their plans in place - for example to obtain outstanding registrations or certifications.

One benefit of the extension will be to allow both the UK Government and the European Commission to continue to develop and issue unilateral simplifications, clarifications and easements in event of no-deal (for example, today’s announcement by the UK Government of certain legislative changes on trademark protections in a no-deal situation).

Below are some of the more immediate questions to which business needs answers, and some suggested actions:

>What dates am I working to now?

The result of any third Meaningful Vote on the Withdrawal Agreement will determine whether business needs to work to 12 April, (which might conclude with no-deal or a longer extension) or 22 May (and a managed withdrawal with transition).

What do I do with my no-deal planning?

  • No - deal is still on the table, and if it comes to pass, will only be delayed by two weeks.
  • Companies that have put no deal plans in place can use the extra time to refine and complete their mitigation.
  • Businesses will also potentially need to balance the unwinding of their positions with their capability to replicate again in preparation for leaving with no-deal a fortnight later than planned, or when moving into transition or extension period.

What should I do next?

Now is the time to call your Brexit leadership team. They need to continue actively monitoring the evolving situation and respond to changes.

  • Change key dates in planning documentation, and appraise stakeholders of new timelines, including your audit committee and employees.
  • Most planning can remain in place but you should revisit, and possibly, unwind some actions. Some businesses have arranged international events such as training for the second half of April, thinking that the worst of any no deal travel disruption would be over by then, which might not now be true. Reconsider travel bans put in place for 29 March – then wait until next week to determine whether a new travel restriction should be in force.
  • Businesses that have stockpiled will need to consider the impact of a potential new no deal date on 12 April, and/or manage their inventory effectively in the event of a transition period or long extension. Can key supplier delivery dates be delayed? Decisions are likely to vary depending on the goods involved, with a far greater impact likely for perishable goods and where factory closures have already been planned. Financing and working capital positions will also need to be considered.
  • Review outstanding customer orders. Establish whether you can bring forward the delivery dates for customer orders that were initially deferred to after the original leaving date of 29 March.
  • Keep flexible. Did you buy flexible capacity on trade routes, perhaps? Plan for additional cost in keeping options open for longer. Conduct a cost/benefit analysis of whether to go live with new services structures or delay two weeks.
  • Be ready to update your IT master data/ERP modules at the press of a button. Updates take time to prepare and deploy, so use the extra weeks to get your systems Brexit ready.
  • Monitor UK and EU transitional measures. Unilateral decisions affecting all types of businesses in both the goods and services sectors are being announced continuously. Recent measures by the UK government include day one tariffs and schemes such as the Simplified Transit Procedures.
  • If you are less advanced in your planning, take a look at our Brexit Tactics. There are still three weeks to get arrangements in place.

How long will this uncertainty last?

The Brexit process continues to be unpredictable and with two new dates in the mix, it’s hard to say how long it will last - to misquote President Juncker, it will last “until the end.” Which all adds up to continued uncertainty for business.

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