Business cannot prepare for a no-deal Brexit in the middle of a pandemic

Away from this unparalleled health and economic crisis, Brexit talks continue from a distance.

For many firms facing unrelenting stress from COVID-19, these talks have been out of sight, though not quite out of mind. Their full focus is on immediate survival and recovery. But as more businesses take tentative steps to reopen slowly and safely, every decimal point of economic growth is being fought for. Businesses expect that same spirit to be replicated in Brexit talks this week.

The signals so far are not encouraging. Both the UK and the EU have rigid mandates and are following them to the letter. Negotiation by video conference doesn’t allow for the kind of side-line conversations that are normally used to smooth differences in trade talks.

Unless the dynamic shifts, it looks like both sides will stay trapped in a holding pattern, with no trade deal a real possibility at the end of the year when the UK is scheduled to leave the transition period as it leaves the bloc. For businesses, jobs and economic confidence in this a year of crisis, it would be a shocking outcome.

For many firms, particularly smaller ones fighting to keep their heads above water due to COVID-19, the idea of preparing for an abrupt and chaotic change in EU trading relations in seven months is beyond them. They are not remotely prepared. Faced with the desperate challenges of the pandemic, their resilience and ability to cope is almost zero.

With 10% of the economy closed, 8 million people in furlough and not working, the UK is already in recession. Stockpiles that were built up last year in preparation for a no-deal outcome in March, October, and December last year, have been used to plug supply shortages created by the pandemic, while half of all manufacturers are having difficulty reconnecting their supply chains.

Many businesses, especially smaller ones, have burned through cash reserves they would have otherwise used for rainy days. One logistics firm would need to hire 300 new border officials starting in June to prepare for a no trade deal Brexit, and are asking whether they should do this — and how this can possibly be a sensible use of their stretched resources.

Take one of the country’s beauty companies. Department stores and salons have been closed; no one’s getting dressed up, sales have disappeared. Without a sensible arrangement on EU-UK regulation and tariffs, they face new costs into the millions of doing business in the UK. Meanwhile, the cost of producing their shampoos and hair dyes has increased because social distancing — while essential — means lower productivity on the factory floor. For them, the price of a bad EU outcome is that they may no longer have a sustainable business.

Before COVID-19, the UK led the world in professional services trade, with the country’s auditors, accountants and architects landing business across the globe. But services trade has collapsed, with company surveys showing the greatest fall in all measures since records began.

Perhaps by the end of the year these companies will be climbing back to their feet. However, an abrupt introduction of restrictions on trade and movement with the EU at that point would be devastating. Take the automotive industry, which has already seen sales plummet to record lows. New tariffs, customs checks and delays, would add yet further pain onto an industry that  has been such a shining beacon for the UK economy over a number of years.

The net impact would be higher unemployment at a time when we will be fighting for every job. We have forgotten what higher unemployment numbers feel like since we haven't experienced it since the 1980s. The regions that would be hardest hit are the least resilient and most disadvantaged. When large numbers of people are out of work, every single job matters.

So what is the answer? Negotiators promised progress on fishing and financial services by the end of the month. Delivering on those promises could instil confidence urgently needed by businesses operating within our interconnected supply chains. But these self-imposed deadlines must start being met.

The desire for no further delay is understandable. After all, the UK made its choice in the Brexit referendum nearly four years ago now, and it is not clear delay would necessarily bring a better deal when the UK starts to trade with the European Union having left the bloc.

But while it may be tempting for some to down tools and head straight for the exit, there are many people’s livelihoods and businesses at stake. The current air of resignation surrounding the Brexit talks must be shaken off. It is why a new political dynamism on both sides is so essential if we are to reach a deal and protect the economy.

In recent months, political leaders across Europe have shown that what previously may have been thought of as impossible, is not. A good deal with the EU will be just one strand of a national recovery plan as the UK responds to the coronavirus pandemic, but it will be one of the most important for the future of our economy, jobs and livelihoods.