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15 December 2016

Are you ready for Brexit?

Written by: Lucy Thomas, Associate Director at Edelman

Brexit, Government Affairs

2016. The year of the political earthquake. And of victorious campaigns with a unifying theme: your destiny in your hands, your chance to “Take Back Control” or “Make America Great Again” by kicking the establishment, the status quo and the so-called experts. For anyone on the Remain side, a hard lesson in distilling your message to convince people that tomorrow will be better – not just less bad – if they vote for you.   

So what will Brexit mean?

Not only for future campaigns, but for the whole political and regulatory environment, this is the defining challenge of our times and it’s something we’re going to have to get used to.

And to do that, it’s not a catchy political slogan, but the abiding motto of girl guides and scouts that offers the best advice: be prepared.

As Donald Rumsfeld not-so-elegantly put it, there are “known knowns”, there are “known unknowns” and “unknown unknowns.” For the moment, it’s the “known unknowns” that seem to dominate, as the Government works through its negotiating plan. And that’s before we know what the 27 EU countries will say.

If the UK’s man in Brussels is right, it could be a long ten years before we know the final deal. But it’s never too early to plan ahead and work through the possible scenarios, how they might affect you and how best to respond. The spotlight is on business more than ever before, as policy makers, the media, consumers and staff, look to their leaders for their thoughts.

When Nissan’s CEO said he may have to move his business from the UK, he’d worked out what Brexit meant to him and how to maximize his leverage over negotiations. The challenge for others is to decide what their business needs from any deal, who they should tell and how.

By using Edelman’s new Brexit tool, businesses can test their readiness to withstand any risk and communicate with all their stakeholders.

Second: listen carefully. While Theresa May has insisted there’ll be no running commentary on Britain’s Brexit demands, in recent weeks her ministers have been rather less tight lipped. Thanks to some of their recent winks, nods and indiscretions, we are starting to see a more business-friendly, softer tone emerge.

What do we know so far?

Back in October there was little doubt over the destination for Britain outside the EU following Theresa May’s party conference speech. Greeted with a plummeting pound and a severe market reaction, this was Hard Brexit: outside the Single Market and Customs Union, the only place to meet the red lines on free movement of people, free trade deals, EU budget payments and the European Court of Justice.

Fast forward two months and things are starting to soften:

Transitional deal not cliff edge

What happens on 1st April 2019? The most pressing concern for many businesses, desperate for certainty on the terms of trade the day after negotiations end. Would their UK business even remain viable? The growing momentum for a transitional deal was underlined this week by Phillip Hammond who told MPs that businesses, regulators and “sensible politicians” all thought there should be a longer period to manage the change and no businesses should face a cliff-edge or unnecessary uncertainty over their terms of trade.

Reality is already starting to bite, as Lloyds of London have become the first to announce a timetable to move part of its operations to guarantee its future terms of trade. And as uncertainty grows, so will the pressure for a transitional deal. Whether passporting for financial services, or cooperation on flying rights for airlines, these are essential practicalities for many UK-based firms to simply do their jobs. Expect many to follow the example of Nissan and the auto sector’s early win.

Customs Union – alright for some?

Many were left scratching their heads when Theresa May said membership of the Customs Union was “not a binary question.” We now know this meant some sectors remaining within and others leaving. The most obvious to benefit would be those with integrated supply chains such as automotive and aerospace. 

A word of caution on the feasibility of this, though. Piecemeal membership could run counter to World Trade Organisation rules, which insist that customs unions (or free trade deals) cover “substantially all the trade” among contracting parties. In practice, this means that almost all our sectors would have to be covered, not just a select few.

Paying to play isn’t off the cards

Brexit Secretary David Davis told MPs continuing EU budget contributions would be considered to secure the “best possible access for goods and services to the European market.” Philip Hammond echoed this and Boris Johnson suggested paying into schemes like research and innovation programme Horizon 2020, or Erasmus, the pan-EU student exchange.

Room for manoeuvre on free movement

For those concerned about how ending free movement could affect their business, an encouraging shift in language from David Davis. He told the CBI in Wales that there would be an end to “free movement as it has operated before” – not to free movement full stop. This leaves open some room for manoeuvre on how any changes are implemented.

The race for the Brexit slogan is on. We’ve had “Brexit means Brexit”, “smooth or hard” Brexit and most recently one that is “red, white and blue.” As we wait for a deal, there’ll be plenty of reading the runes and lots of new body language to read. But by being prepared and listening out, you can get ahead of the pack.

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