Brexit deal so 'thin' that 'companies are preparing for no deal Brexit'

Out-Law News | 11 Nov 2020 | 5:43 pm | 3 min. read

Companies are preparing for a no deal Brexit because the difference between no deal and the agreement currently being negotiated is so small, an expert has said. The UK and EU are in talks over a trade deal with more limited scope than those discussed in the referendum campaign.

Clare Francis, Brexit expert at Pinsent Masons, the law firm behind Out-Law, said: "What we find the vast majority of businesses are doing is to prepare for a no deal scenario and if there is this slim deal obviously they can track back from that and that puts them in the best possible position, being able to plan and prioritise accordingly."

Francis was speaking to the Brain Food For General Counsel podcast in a programme about the looming Brexit deadline of 1 January 2021.

"We've helped clients map what would they be doing if they were preparing for a no deal, and where is that activity exactly the same based on what we know this slim deal will look like, and that is something they would need to be doing in either scenario, and it gives them that certainty that they're investing their time and energy in the right place that will have a good impact on their business," she said.

Francis Clare

Clare Francis

Partner

We've helped clients map what would they be doing if they were preparing for a no deal, which gives them certainty that they're investing their time and energy in the right place that will have a good impact on their business.

Also speaking to the programme, former joint head of the UK Government Economic Service and current board member of the Centre for Economics and Business Research (CEBR) Vicky Pryce said that the currently planned free trade agreement (FTA) or proceeding with no deal and trading on World Trade Organisation (WTO) rules would involve a long term shrinking of the UK economy of 6-9%.

"If we go for WTO rules then we could see GDP fall by 9% over the next 13 years. Most forecasters agree with that," she said. "What we're discussing now is an FTA that would mean possibly 6% lower. The problem with that is that you lose the output over a period of time and you can't really recover it and that's why the London School of Economics has done some recent calculations and are saying that the long term impact of Brexit is likely to be twice as large on the UK economy as the impact of Covid-19."

Francis said that companies have realised that most issues they have to address are the same, even if a last minute deal is agreed.

"There is a real convergence between on the one hand what a deal might look like and what a no deal scenario might be," she said. "We know the deal is becoming thinner and therefore there will be some change even if there is a deal on various elements. That means for business it does give them some areas of more certainty where they can plan and prioritise their resources and their activities accordingly."

Trade law expert David Thorneloe of Pinsent Masons said that whatever happens there will be a border between the UK and EU, with significant implications for trade.

"The biggest change that will affect all sectors of the UK economy will be around the UK border because even if there is a deal on tariffs and quotas the border is being re-erected and there will be customs formalities to be complied with and that will lead to a slowdown of movement and trade at the border," he said.

"By the UK government's own calculations there will be an extra 200 million customs declarations a year, which really is an eye-watering number to give a flavour of that administrative burden that will come next year," said Thorneloe.

Customs and trade consultant Anna Jerzewska said that the lack of certainty leading up to the deadline has hampered companies' efforts to prepare.

"For the most part businesses are not prepared, they're not ready," she said. "Even the businesses that have been trying to get ready cannot be fully ready because of a lack of information, so we are still waiting for crucial guidance in terms of the border, we're waiting for information, for applications for certain certifications, for a number of other things. No-one can be fully ready because the information is just not available."

Francis said, though, that the experiences of a testing 2020 have helped some companies become more resilient.

"One of the things we are finding many clients focus on is the lessons they have learned from the impact of the Covid-19 pandemic, particularly on their supply chains. Supply chains were massively impacted by Covid-19 and businesses have learned some really valuable lessons from that which they're able to take into their Brexit planning," she said. "That has meant many businesses feel more robust going into the uncertainty now because they have dealt with those issues in Coronavirus and feel more confident about where the impact might be felt by their business."