As the UK and the EU reset their relationship through the 2020 transition period, businesses also have the opportunity to plan and adapt. The post-Brexit trading rules will be taking shape and businesses will need to quickly understand how these will affect their specific circumstances. They will need work out how to operate within those rules in order to maximise opportunities and minimise risk.
There are three areas of change that UK businesses must address in order to maintain or build on their success. These are;
This article, based on the BDO European survey, examines each of these areas in turn and highlights the key risks and opportunities.
Access to talent post-Brexit
One of the biggest risks that companies need to manage is the supply of talent. The number of skilled workers from overseas applying to enter the UK’s private sector has fallen 9% since the Brexit vote, raising fears over an increasingly severe talent shortage after the UK leaves the EU.
Figures from UK Visas and Immigration show that over 4,000 less applications for Skilled Worker Visas were made by non-EU workers seeking to work in the UK’s private sector in 2018/19*, dropping to 44,300 from 48,600 in 2015/16, the year of the Brexit referendum.
The UK having left the EU with a short transition period, there is a risk that skilled worker migration from the European continent could fall further causing difficulties for key UK industries. As well as the direct impact of Brexit, such as new immigration rules, there are also concerns that indirect effects, such as the weak pound could have led to more skilled workers looking to competing economies for employment.
There is already a skills shortage in key industries like technology and manufacturing. British businesses must be able to bring in talented workers from overseas where necessary, once our exit from the EU is completed. Can the UK Government’s design a new visa system that attracts the best talent with economically-relevant skills and prioritises the needs of UK businesses?
If or when Brexit tightens the supply of talent, businesses will need to build new plans to meet their talent needs. UK businesses should consider investing more into the development of their labour force, utilising the apprentice scheme and engaging with schools, colleges and universities in order to secure their talent pipeline.
The impact of a single customs border with the EU
There will be a customs border between the UK and the EU. UK Businesses importing and exporting goods and materials will need to review their supply chains to identify any possible new friction points. It’s also important to put the new EU border into context – it is just one new border, not 27, with the whole of the EU on the other side, once it is crossed.
Leading up to previous exit deadlines, we became aware of instances of UK businesses finding that some European suppliers were becoming reluctant to ship goods into the UK post-Brexit, preferring an EU delivery address. Some of our UK clients are therefore looking at establishing either storage locations in the EU. Others are going further and setting up European subsidiaries to take delivery and manage the transportation and distribution of goods into the UK and elsewhere from the EU.
Finding appropriate warehousing and managing all the appropriate registrations, company set up procedures takes time and is not cheap – particularly in mainland Europe where things are not as straightforward for company set up and registration.
European businesses need to be aware of the potential for increased costs of transport through the channel ports, longer processing times and compliance costs that may be involved in serving UK-based customers.
It’s important that businesses both sides of the new border use the transition period in 2020 to undertake a full review of their trade between the UK and Europe and their global supply chains to analyse the likely risks. Businesses should assess how much of their supply chain is dependent on UK-European trade, before going on to identify where friction might be introduced as a result of the new trading relationship and assess the costs and physical impacts associated with these.
Opportunities for global expansion
BDO is working with many UK and EU businesses already looking to pursue trading opportunities in other global markets in order to offset the possible impact of Brexit. Markets such as the US, Canada and the UAE are becoming more popular because of their ease of access and certain similarities to European markets.
The UK economy continues to show resilience and growth while the EU’s main economies are faltering. As a result the UK will be an extremely attractive place for non-EU as well as EU businesses to focus on in terms of customers, talent and investment.
London remains a global financial centres, attracting international capital onto its equity markets. This is not going to change after Brexit and may even strengthen as the UK is not bound by EU rules on future share transaction taxes or other proposed measures.
The UK Government’s appetite for new trade deals with countries across the globe has been well and truly whetted by its success in “getting Brexit done”. Despite the immense amount of time, energy and manpower required to complete a deal with the EU before the end of 2020, the UK will be looking to negotiate and conclude FTAs with new trading partners as soon as it can.
I expect the US to be at the front of the queue, but many more will follow, opening up opportunities for trading relationships right across the world. I expect that the Commonwealth countries and other old allies such as Israel and South Africa will be high up on the Government’s priority list.
For the rest of the world, the UK’s exit from the EU is barely a footnote. The trading superhighway through Asia and the US continues unabated. The EU continues to be a trading challenge for many countries because of its strict regulations regarding manufacturing and farming standards. With the UK free from these standards, it can attract new trading partners, depending on what oversight the EU retains through the FTA negotiations.
I believe the UK will continue to be a major target for global businesses long after the Brexit is finalised. However, there are three areas of change that UK businesses will need to address over the next year.
I would also urge businesses to consider how recession-proof they are? Many economic forecasts suggest that both the UK and EU economies may slow further immediately after Brexit. A key consideration is how dependent is the business on customers’ non-essential spend? Retail businesses, for example, may be particularly vulnerable to customers losing confidence.
Following this analysis, business leaders can formulate a worst-case scenario, which will help them to identify contingencies that could be put in place once the future direction of the UK-Europe trading relationship is known with more certainty.
Research report – BDO European Survey: Ensuring a leadership position in 2020
How are UK and European business leaders responding to market disruption in order to gain competitive advantage?
Our latest BDO Global Report entitled ‘BDO European Survey: Ensuring a leadership position in 2025’ is based on the insight of 200 UK and European CEOs and business leaders, and aims to explore their strategic mindset as they go for growth.
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Stuart Lisle is Senior Tax Partner at BDO.