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Brexit Has Been Out of Sight, Though Not Quite Out of Mind

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Written by;

Ian Price

CBI Wales Director

 

 


For many firms facing unrelenting stress from COVID-19, Brexit has been out of sight, though not quite out of mind.

Their total focus is on immediate survival and recovery. But as more businesses take tentative steps to reopen slowly and safely, every decimal point of economic growth is being fought for. They expect that same spirit to be replicated during the latest Brexit talks.

Brexit

The signals so far are not encouraging. Both the UK and the EU negotiating teams have rigid mandates and are following them to the letter. Negotiation by videoconference doesn’t allow for the kind of side-line conversations that normally help smooth differences in trade talks.

Unless the dynamic shifts, it looks like both sides will stay trapped in a holding pattern, with no trade deal a real possibility at the end of the year, when the transition period is scheduled to end. For businesses, jobs and economic confidence in this most challenging of years, this would be a shocking outcome.

For many Welsh firms fighting to keep their heads above water through the crisis, the idea of preparing for a chaotic change in EU trading relations in seven months is beyond them. They are not remotely prepared. Faced with the desperate challenges of the pandemic, their resilience and ability to cope is almost zero.

Stockpiles that were built up in preparation for a no-deal outcome in March, October and December last year have been used to plug supply shortages created by the pandemic, while half of all manufacturers are having difficulty reconnecting their supply chains.

Many businesses, especially smaller ones, have burned through cash reserves they would have otherwise used for rainy days.

One logistics firm would need to hire 300 new border officials starting in June to prepare for a no-trade deal Brexit, and are asking whether they should do this — and how this can possibly be a sensible use of their stretched resources.

Take one of the country’s beauty companies. Department stores and salons have been closed; sales have disappeared. Without a sensible arrangement on EU-UK regulation and tariffs, they face new costs into the millions of doing business in the UK.

Meanwhile the cost of producing shampoos and hair dyes has increased because social distancing — while essential — means lower productivity on the factory floor. For them, the price of a bad EU outcome is that they may no longer have a sustainable business.

Before COVID-19, the UK led the world in professional services trade, with the country’s auditors, accountants and architects landing business across the globe. But services trade has collapsed, with company surveys showing the greatest fall in all measures since records began.

Perhaps by the end of the year these companies will be climbing back onto their feet. However, an abrupt introduction of restrictions on trade and movement with the EU at that point would be a hammer blow.

The net impact would be higher unemployment at a time when we will be fighting for every job. We have forgotten what mass unemployment looks like — but it was something very real in Wales in the 1980s and early 1990s. The areas that would be hardest hit are the least resilient and most disadvantaged. When large numbers of people are out of work, every single job matters.

So what is the answer?

Negotiators promised progress on fishing and financial services by the end of the month. Delivering on those promises would instil confidence urgently needed by businesses operating within interconnected supply chains.

The desire for no further delay is understandable. After all, the UK made its choice in the Brexit referendum nearly four years ago now, and it is not clear extending the transition period would necessarily bring a better deal in the future.

But while it may be tempting for some to down tools and accept that WTO terms are the best either side can hope for, there are many livelihoods and businesses at stake. The current air of resignation surrounding the Brexit talks must be shaken off.

This is why a new dynamic and determination on both sides is so essential. In recent months, political leaders across Europe have shown that what previously may have been thought of as impossible is not. A good deal with the EU will be just one strand of the UK's national recovery from the pandemic, but it will be one of the most important for the future of our economy, jobs and livelihoods.

Business News Wales