Brexit Anxiety Grips Business as Leadership Crisis Stokes Danger
(Bloomberg) -- U.K. companies are fretting over the prospect of a no-deal departure from the European Union, with the government on the brink of collapse and Brexit negotiations likely delayed into the new year.
Facing defeat on her Brexit accord, Prime Minister Theresa May this week postponed a vote on the plan, fueling a revolt within the Conservative party set to culminate with a no-confidence test Wednesday evening. A loss for May would risk a further time lag on Brexit, pushing the talks onto the back burner until the leadership question was settled.
The delay in the Brexit vote means British businesses are planning with even less certainty, said David Kershaw, the chief executive officer of advertising agency M&C Saatchi. With a huge range of possible political outcomes, his clients are left in the lurch, “still pondering what kind of Brexit, or indeed not,” there will be as they draw up budgets for 2019, he said before the confidence vote was triggered.
Ever since Britons shocked the world by voting to quit the EU in 2016, companies from Airbus SE to Jaguar Land Rover Automotive Plc have been demanding clarity on the U.K.’s future relationship with the bloc. Many businesses backed Theresa May’s deal, one of the few interest groups to do so, and she used that support to try to persuade lawmakers that the agreement best protects the economy. That pitch failed, and on Monday -- less than four months before Brexit -- May pulled a vote on the deal.
Conservative lawmakers will be asked Wednesday whether they support May to continue as leader after the required number of no-confidence letters were submitted by lawmakers. If she wins, another vote cannot be called for 12 months. If she loses, the party will need to move quickly to elect a new leader.
May’s plan is to pursue greater assurances from the EU that the so-called Northern Ireland backstop -- fallback arrangements to prevent a hard border from emerging -- won’t become permanent. She had planned to convene her Cabinet on Wednesday for talks on preparations for a no-deal departure. Instead she will be contesting the no-confidence vote, insisting a deal is still within the U.K.’s grasp.
No fresh date has been set for a vote on her Brexit plan, but if she survives, she has indicated it will take place before Jan. 21.
Even that delay would be too late for some businesses to make the decisions needed to protect themselves, forcing them to accelerate plans and potentially waste money and resources, said Josh Hardie, deputy director-general at the Confederation of British Industry.
“The more time is wasted, the more investment is lost for the U.K.,” said Hardie. “If there’s no solution by the new year, for some businesses that will be the final straw to implement their contingency plans.”
A number of companies across industries -- from pharma to retail to manufacturing -- have already begun stockpiling goods to avoid delays to trade if the U.K. crashes out of the bloc. Jet-engine maker Rolls-Royce Holdings Plc said Wednesday that it’s stockpiling parts in case of customs checks that could slow component deliveries.
May’s government told supermarkets to keep as much stock as possible in warehouses around the country, leading retail giants such as Tesco Plc, J Sainsbury Plc, Walmart Inc.’s Asda and Wm Morrison Supermarkets Plc to ask suppliers to ramp up production on concern their shelves will be half-empty if there’s no deal.
Media companies are also taking action. Comcast Corp.’s NBC Universal International Networks has recently applied for Bavarian licenses for six international channels. U.S. broadcaster Discovery Inc. is laying the groundwork to move some operations to the Netherlands in the case of a no-deal Brexit. The last-minute nature of the negotiations could ultimately affect which countries are chosen for services, with Luxembourg much quicker at issuing licenses than Ireland, for example.
Manchester Airports Group said Tuesday it will fund applications by EU workers to stay in the U.K. after Brexit, following on from news that London Heathrow airport would do the same. MAG, which owns London’s low-cost Stansted terminal, as well as the Manchester hub in northern England, will cover the 65-pound ($81) cost of the paperwork “to give reassurance and comfort to valued colleagues,” it said in a statement. The company employs more than 400 people born in EU-27 countries.
For many businesses, staff moves will be among the last decisions to make because of the cost and impact on people’s lives. Yet even those plans are starting to take effect.
“Clients are definitely thinking about what people moves they might need to rush through in the new year if we don’t get clarity soon,” said Caron Pope, an immigration lawyer at Fragomen. “This is an onerous task that costs a lot of money, so companies will be reluctant to do anything they can avoid but, of course, they can only wait so long.”
The dramatic events of recent days have also forced other EU members to take note of the possible fallout from a cliff-edge exit by Britain, which has the second-largest economy in Europe. With many U.K. companies relying on suppliers in the bloc to increase stock, it’s important that EU manufacturers are alert to the problems, according to Tim Sarson, a partner at KPMG.
"The news coverage has meant that the penny has dropped for people outside the U.K.," said Sarson. "Suddenly it’s making its way into the headlines above Trump and yellow jackets, forcing EU suppliers to take the situation seriously."
©2018 Bloomberg L.P.