Breakthrough needed to avoid investment tipping point
Read Carolyn Fairbairn's article in The Times on the progress needed in the Brexit negotiations
It is an unavoidable truth that Brexit is already affecting investment and jobs. Every day, firms describe ambitions shelved and contingency plans drawn up to move people and supply chains out of the UK.
There is no time to lose. We are approaching a tipping point, where a trickle of lost opportunities could become a flood and even an emergency. This makes the European Council meeting in December a watershed moment, not just for our economy but across the EU. To avert serious economic cost, the stalemate must be broken. The evidence is piling up and must not be ignored by either side.
Brexit is harming investment right now. In surveys both by the CBI and the Bank of England, around 40% of firms say they have delayed or cancelled plans because of Brexit uncertainty. Large companies scrapping schemes for innovation centres, logistics hubs and office buildings. Small companies holding back on recruitment and plans to export. Publishers reducing the roster of new authors they take on and animal feed manufacturers delaying purchase of new equipment. Whether the impact is 4,000 jobs or 4, the result is a litany of missed opportunities. Lost investment that not only means jobs never created but also lower productivity and living standards in the years ahead.
Brexit is also harming firms’ ability to recruit. Four in every 10 firms surveyed by the CBI say Brexit has made it harder to find and retain people. This is felt across all sectors: universities and tech firms seeking the best and the brightest from highly globalised talent pools; construction firms, tasked with building essential infrastructure and now 300,000 new homes a year, finding workers not returning after summer holidays, with Christmas breaks coming; crops going unpicked in Cornwall; public services, already struggling and now seeing fewer vital workers wanting to come to the UK - for example, a 96% reduction in nurses applying to work here from the EU.
Companies have no choice. They must plan for a no-deal scenario to protect their businesses. The majority either have plans or are developing them. There is no desire to press go, but 10% have already started to implement them. Without further clarity around transitional arrangements after March 2019, another 25% will follow by year end. Another 25% by the end of March. That’s 60% by Easter. Thousands of jobs leaving the UK, and in most cases irreversibly.
Financial services are often used as the example, but this is happening across sectors, across regions. Multinational broadcasters are eyeing Berlin and Amsterdam, automotive firms are overhauling supply chains, and telecoms firms are building databanks in Latvia. It’s not just large companies. The CBI has heard from SMEs making sheds in Belfast, skateboards in Somerset and cancer drugs in the Midlands – all considering moving production to France or Dublin.
We must be clear – it is the spectre of no deal that casting such a long shadow. Companies are preparing for the worst while still hoping for the best. Negotiators on both sides should be under no illusion about the impact of ‘no deal’. Rising costs for consumers and businesses, disruption at ports and airports, confusion over everything from contracts to chemicals regulation, uncertainty for citizens, and cross-border services in disarray.
A fragile picture, but one that can be repainted if progress is made now. 75% of the UK’s biggest firms with contingency plans say the agreement of transitional arrangements would give them enough certainty to put these plans on hold and carry on investing. That’s a prize worth fighting for.
The recent Budget highlighted the opportunities that lie ahead for the UK – to be a leader in the fourth industrial revolution and build a high productivity, knowledge-led economy. But this is only possible if we secure a good Brexit. A bad Brexit would stop us in our tracks. And the starting point must be a breakthrough in Brussels in three weeks’ time.
Three things are needed. First, on citizens’ rights, ‘touching distance’ needs become a proper deal that sets minds at rest for 4 million people; second, a commitment to the Good Friday Agreement and Common Travel Area that supports the people and businesses of Northern Ireland; and third, a financial settlement that recognises the value of the £600 billion annual trade between the EU and the UK, with clarity from the UK and flexibility from the EU.
These are times of great change and I remain hugely optimistic about the UK’s future. But without urgency, clarity and unity on both sides, leading to progress in Brussels in December, I fear that the flow of lost opportunity will turn into a flood, hurting the most vulnerable in our society hardest.
This article originally appeared in The Times on 24th November 2017.