Call for state bailouts if UK crashes out of EU
LONDON — A no-deal Brexit could require U.K. government bailouts like those following the financial crisis to prevent businesses from going bankrupt.
Thats the view of some in industry who see Brexit as a problem created by politicians that threatens to destroy British businesses and bring about an economic crisis.
Even if negotiators in Brussels craft a Brexit divorce deal in the coming days, it is far from certain that any agreement will be ratified by MPs in Westminster, and the U.K. could still leave with no deal at all, even though many among the countrys traders, manufacturers and in town halls say it is probably already too late to prepare adequately for it.
If the U.K. does fall over the Brexit cliff edge, ministers must leverage the governments “financial muscle … in rather the way they did for the banks during the [2008] crash,” said Ian Wright, CEO of the Food and Drink Federation, which represents 300 firms.
“If the government was to say no [to that] now there would be a very big question from British industry: You were prepared to fund the banks who brought the crisis on themselves … but youre not prepared to support British business which is completely innocent of any fault in the current circumstances?”
Local councils have also expressed dismay at gaps in no-deal planning.
“Very few businesses in the U.K. asked for this to happen,” he added. “This is a crisis entirely created by politicians.”
While discussion of no-deal preparations has focused on what the government is doing — from re-engineering motorways to serve as lorry parks, to hiring more customs officers — industry and local government has also had a role to play.
They are closer to the day-to-day reality of U.K.-EU trade and their message is simple: At this late stage, theres not much more that can be done to prevent major disruption.
In such a scenario some firms wont survive, many predict.
Anti-Brexit demonstrators form a chain along Whitehall in London | Tolga Akmen/AFP via Getty Images
“If youre an exporter and a significant proportion, say 30 percent or above, of your business is with the EU, or if youre an importer and you have critical ingredients or products that you bring in from the EU — maybe you import feta cheese or salami — I think theres probably relatively little you can do to be prepared for a no-deal Brexit. And for those businesses its perfectly possible that the disruption could be terminal,” said Wright.
A U.K. government spokesperson said in response: “It is in the interests of both the EU and the U.K. to strike a good deal and we are confident this will be achieved. But as a responsible government we are making plans for all possible outcomes, including the unlikely event that we reach March 2019 without an agreement.”
“This comprehensive no-deal preparation includes informing businesses through a series of technical notices what practical steps they need to take,” the spokesperson said.
Too late
When Whitehall published more than 100 “technical notices” over the summer giving advice to businesses, public authorities and citizens on what to do in the event of no-deal, the U.K.s business lobby was unimpressed.
“We still dont know exactly what no-deal would look like on the day it takes effect, whether the government would relax import controls or cut tariffs as a mitigating response,” said Allie Renison, head of Europe and trade policy at the Institute for Directors, which represents business leaders. “Even its own technical notices dont suggest this, and much of the advice on import and export with EU has been fairly general.”
Only a third of the IoDs more than 30,000 members have done contingency planning for a no-deal Brexit, Renison said.
Businesses using the ports could turn up the day after Brexit without the right paperwork or licenses.
Those that have not are often smaller firms that have struggled to afford the investment in staff, IT systems or outsourcing needed to ensure they are prepared for an EU third-country customs regime. With continuing uncertainty about whether there will or wont be a deal, many have gambled on there being a deal rather than make an investment they can ill-afford.
“They can only prepare when they know the exact direction of travel,” said Renison. The IoD is also calling for financial support for business, in this case to assist with the cost of professional advice on no-deal planning. The Irish and Dutch governments have offered such schemes to businesses in their countries.
“As long as it remains government policy to potentially walk away, it is incumbent on them to make further provision to help firms be fully ready for the consequences of that outcome,” Renison said.
Local councils have also expressed dismay at gaps in no-deal planning. A report prepared for a meeting of the Local Government Associations leadership board on October 17 said the governments technical notices do not deliver essential practical guidance — or cash — for council-run port authorities that might be required to dramatically step up operations.
A lorry arrives at Dover Ferry Terminal on April 26, 2018 in Dover, England | Dan Kitwood/Getty Images
Pauline Bastidon, head of European policy at the Freight Transport Association, one of the U.K.s biggest business groups, representing transporters, retailers and manufacturers, tells a similar story.
“Maybe three-quarters of the things that could have been done, if companies are waking up and deciding to do it now, its probably too late for March 2019,” she said.
At the moment U.K. government officials are considering waiving additional customs checks for all but security purposes in the event of no-deal. To alleviate snarl-ups at the ports of Dover and Holyhead, freight that needs thorough inspection will be sent inland to one of two clearing centers in southeast England at Milton Keynes or Heathrow. But there remains uncertainty at the very top of government about the stance French authorities on the other side of the Channel will take.
The problem is not just what the port authorities will do, but that businesses using the ports could turn up the day after Brexit without the right paperwork or licenses.
Concerns about food and medicine availability are well-documented.
“Thats quite probable,” said Bastidon, “certainly in the first few weeks. But should we really blame these companies? All these things come at a cost. When it comes to expenditure, companies have to ask: Is it needed now? … The uncertainty around whether there is going to be a deal or not, all of this means that for industry it is a gamble [to spend on no-deal contingencies.]”
The government is aware of the risks.
Appearing before the House of Commons public accounts committee on November 5, Jon Thompson, chief executive of Her Majestys Revenue and Customs, listed “customer readiness” as one of the greatest no-deal risks.
“We are not going to be naïve about whether businesses will be ready for day 1, no deal,” he said. “That is currently rated red. To some degree, customers will not be ready for what would happen in the event of day 1, no deal.”
The consequences
In other words, the risk of no-deal disruption is real, and so therefore is the risk of goods shortages.
Concerns about food and medicine availability are well-documented, but even in these vital areas there remains uncertainty that enough has been done.
Representatives of pharmaceutical firms and the NHS warned Health Secretary Matt Hancock on October 31 that if a damning National Audit Office report on the state of government planning was correct, then “we will have widespread shortages if we do not respond urgently.”
British Prime Minister Theresa May leaves 10 Downing Street | Jack Taylor/Getty Images
As for food, the shelves will not be bare, Wright said, but added he is aware of firms already stocking ingredients from Europe that might become temporarily inaccessible in the event of no deal.
If the disruption lasts longer than a month or so, he said, there are “very, very few businesses which could stockpile enough of their ingredients or products this side or the other side of the Channel to be able to bulletproof themselves.”
“I think there will be businesses who through no fault of their own will be put at very serious risk,” he said.
CORRECTION: This article has been updated to correct Ian Wrights title and clarify the number of firms the Food and Drink Federation represents.
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