The UK’s leading business groups, including the CBI, ABI and UK Finance have registered concerns that the possibility of the economy being imperilled by having to trade on World Trade Organisation terms may have come a step closer.
They argue that the resounding thrashing in Tuesday’s night’s meaningful vote on the Withdrawal Agreement, in which the Prime Minister’s deal was defeated by 432 votes to 202- the biggest ever government defeat in a UK parliamentary vote- may result in a no-deal Brexit outcome.
Carolyn Fairbairn, Director-General of the CBI which claims to speak on behalf of 190,000 companies, said: “Every business will feel no-deal is hurtling closer. A new plan is needed immediately. This is now a time for our politicians to make history as leaders. All MPs need to reflect on the need for compromise and to act at speed to protect the UK’s economy.”
Reacting to the Government’s defeat in Parliament on its proposed Brexit deal, Huw Evans, Director General of the Association of British Insurers, said: “We need a way forward urgently that avoids no-deal. This is uncharted territory and we face a period of unprecedented uncertainty. It is critical that the Government, Parliament and the EU work together to avoid an outcome that would be bad for our economies and bad for our customers.”
Stephen Jones, chief executive of UK Finance, the collective voice for the banking and finance industry, which claims to representing more than 250 firms, said: “Parliament has made it very clear there is no agreement for the Government’s Deal. It is now essential that politicians on all sides of the House work together to agree a way forward and provide much-needed certainty to the electorate and businesses, by ensuring our withdrawal from the EU is orderly and gradual. There must also be a sufficient transition period to enable our future relationship with the EU to be agreed and then implemented.
“Time is running out to avoid a chaotic ‘no deal’ Brexit that would be catastrophic for the UK economy. Firms in the finance industry have put contingency plans in place to minimise disruption for their customers in a ‘no deal’ scenario but critical cliff-edge risks remain, including on the transfer of personal data and the operation of cross-border contracts,” said Jones.
Last month finance chiefs at some of the UK’s biggest companies raised concerns to Financial Director about the prospect of a no-deal Brexit as the likelihood of that outcome has grown in recent days “We don’t think that a no-deal Brexit will be good for business or for investment in the UK,” said Adrian Marsh, the CFO of FTSE-100 packaging group DS Smith. “In terms of profitability, how we operate, the impact will be very limited, but as an executive of a UK-listed company, it would be deeply disappointing,” he says.
Oliver Tant, CFO of FTSE-100 tobacco group Imperial Brands, said: “We were very clear we wanted to remain, from an international trade perspective.”
He said a sinking pound is bad for the group because although manufacturing is sited overseas, half of all shareholders are UK based, who benefit from relatively low-cost production. “There is inevitably going to be an impact on exchange rates because 90% of our business is outside the UK. On the day of the Referendum we saw quite a dramatic effect on the share price,” he added.
“Then there are localised issues, such as the movement of goods, the customs union would be a positive development as we would be able to continue to manage the flow of goods,” he added.
There will be tax structuring issues, said Tant. “With a hard Brexit all the tax structuring gets unwound, in particular some of the existing treaties around with-holding taxes on dividend distributions lose effect and the UK beneficiaries of those dividends end up having to pay some with-holding taxes in the jurisdiction of origin,” he added. “It’s an additional tax burden to be paid out to the EU.”
Tant warned also of the impact on the movement of labour. “We are an international business. In our UK head office two members of our executive team are German, and we’ve had Dutch and Spanish members before that,” he said.