Business wary of Brexit's looming cliff edge

The director general of the Confederation for British Business (CBI), Carolyn Fairbairn, has warned of the dangers of a sudden 'cliff edge' exit from Europe. As Theresa May prepares to set out the UK government's key aims for Brexit talks, Fairbairn said more has to be done to understand the consequences of the UK leaving the EU without a trade deal in place.

Under pressure to reveal the government's principal aims for Brexit, Theresa May is widely expected to set out a 'hard Brexit' approach with red lines of control over freedom of movement and exit of the single market. This is the position most likely to harm the UK's chances of having the initial terms of a trade agreement with Europe in place in time for Brexit – leaving many including the CBI to question how falling back on less favourable World Trade Organisation (WTO) rules will affect UK business.

“An exit into WTO at the stroke of midnight without the proper planning and preparation in place would be very serious for the UK economy," Fairbairn said in an interview with the Guardian. "There are some signs that there is more conversation around that being an outcome. Our job is to demonstrate how difficult that would be because of all of these unanswered questions.”

Even some in the government' keen for a softer approach, including the Chancellor Philip Hammond, have suggested the UK will do whatever is necessary to remain competitive if European countries force it into a corner – such as relaxing tax rules to entice business and investment. The Dutch deputy prime minister Lodewijk Asscher is reported to have said the EU will block any deal that allows the UK to become a tax haven. As the UK prepares to start negotiations, many are considering the effects of a no-deal scenario.

In December the CBI produced the results of a consultation on Brexit with its membership of 190,000 UK businesses, revealing the issues that matter most to different sectors of industry. The CBI's report Making a Success of Brexit gives a 'whole economy' view, the CBI says, breaking down key points sector by sector. The report gives six principal issues, including the need for a smooth exit – avoiding a 'cliff edge' without the cushion of a trade agreement. This will be very difficult to achieve. Under the terms of EU membership, the UK cannot seek trade agreements with other nations until Brexit is completed.

Businesses in the construction industry want to be able to buy materials from Europe without additional tariffs, the CBI report says. While Brexit may present opportunity for more flexible UK regulation, many firms are concerned about the future of CE marking and harmonisation of standards with Europe and what that means for their businesses. Having the ability to recruit and retain skills from Europe is also clearly a very big concern for the construction and wider engineering sectors.

Towards the end of last year, a group of industry's leading institutions led by the Royal Academy of Engineering, wrote to government pressing the need for industry to retain its access to a European workforce. Not all consider Brexit to be the biggest issue for 2017, however. In the next print edition of Infrastructure Intelligence, nine key leaders in infrastructure give their key issues for the coming year. Implications of Brexit are listed by only two, including AECOM's chief executive for civil infrastructure, Richard Robinson.

"Government’s triggering of Article 50 at the end of March may cause major disruption for the infrastructure market, particularly if a hard Brexit is chosen," Robinson says. "If the UK leaves the single market, many companies will want to ensure they retain access to the best talent and skills. The focus (for infrastructure) must remain on progressing the UK’s ambitious project pipeline. Schemes such as Heathrow, HS2, Crossrail 2 and the Northern Powerhouse programme are vital to the country’s ability to compete on a global stage."

The six big conerns for business, according to the CBI, are: -

  • A barrier-free relationship with our largest, closest and most important trading partner
  • A clear plan for regulation that gives certainty in the short-term, and in the long-term balances influence, access and opportunity
  • A migration system which allows businesses to access the skills and labour they need to deliver growth
  • A renewed focus on global economic relationships, with the business community at their heart
  • An approach that protects the social and economic benefits of EU funding
  • A smooth exit from the EU, avoiding a “cliff-edge” that causes disruption