BREXIT: Are we there yet?

As domestic Brexit negotiations sway between intricate chess moves and matches of tiddlywinks, contingency planning for a hard Brexit is finally taking centre stage across both government and industry. Ant Gould looks at the latest plans

It has been three long years since the UK voted to leave the European Union and as the ensuing political turmoil continues, businesses that had been in doubt about the UK’s pending exit from the bloc have accepted that it is now time to refine and test contingency plans in case the country leaves as scheduled on the 31st October but without a deal.

One sector that has certainly been ahead of the game is the pharmaceutical industry, particularly as two thirds of medicines used in the UK are presently imported from the EU – with 90 per cent of these coming through Dover and Folkestone.

Mike Thompson, CEO of the Association of the British Pharmaceutical Industry has described Brexit as the biggest logistical challenge ever faced by the industry. He says the sector has responded by increasing stocks of medicines, duplicating processes here and in the EU, planning alternative routes and reviewing supply chains, particularly for medicines with special requirements such as cold storage, short shelf-lives or personalised medicines containing DNA. Manufacturing plants are also running for extra hours and into the weekend.

The government has been active for its part, setting up the Brexit Medicines Supply Contingency Planning Programme last year requesting companies to increase stocks of medicine by at least six weeks’ worth and ensure plans are in place to air freight products with a short shelf-life which cannot be stockpiled.

Medicines will also be prioritised at the border and additional roll-on, roll-off ferry capacity between the UK and the EU has been secured. These ferries will run on routes between the ports of Immingham, Felixstowe, Poole, Plymouth and Portsmouth.

At the beginning of the summer, following Boris Johnson’s appointment as Prime Minister the Treasury announced an extra £2.1 billion to fund preparations for no deal planning, including £434 million towards ensuring continuity of supply of vital medicines and medical products. A £25 million contract notice was also put out to tender to set up an express freight service to deliver small parcels of medicines or medical products on a 24-hour basis, with additional provision to move larger pallet quantities on a two to four-day basis. The successful provider(s) are expected to be announced in September and the contract will run for 12 months.

The government also plans to create ten freeports, status for which ports and airports across the country will soon be able to bid. International Trade Secretary Liz Truss said these manufacturing and services trade hubs could be free of unnecessary checks and paperwork and will offer customs and tax benefits.

But while ports are readying themselves for all eventualities, they are hamstrung by local issues, including lack of physical space and suitable infrastructure. The government has now added another £20 million for councils to appoint a designated Brexit lead and released another £9 million to help ready major ports and surrounding areas for Brexit. Kent – home to the Port of Dover, Eurotunnel, Ashford and Ebbsfleet – will receive over £2.6 million, and Kent County Council £1 million.

Tim Morris, CEO of the UK Major Ports Group gave the investments a cautious welcome, warning “we must be realistic about the extent of physical change possible between now and the end of October”. The Port Infrastructure Resilience and Connectivity Fund could make a difference at some locations and circumstances, particularly if it applied to storage and areas adjacent to core port operations. But it can’t be a silver bullet for the risk of no-deal disruption and £10 million should be seen in the context of the more than £600 million UK port operators invest each year.

Doug Bannister, chief executive of the Port of Dover is still upbeat. “The Port of Dover, as with our sister ports in France and our ferry partners, are prepared for the 31st of October. Merchants, border agencies and highway authorities also have pivotal roles to play in ensuring the system continues to operate smoothly,” he said.

Preparation is all

And the money continues to flow. In September the government’s Spending Review included another £2 billion for Brexit delivery.

With many businesses uncertain about their ability to get parts and goods in on time, it is no surprise that stockpiling – no matter how modest – has gained traction, and that the cost of warehouse space in the UK has soared on the back of high demand. Peter Ward from the UK Warehousing Association has warned that UK’s warehouses are now full.

Another potential concern for businesses is the loss of cheaper labour – from skilled to unskilled – something which is presently being exacerbated by the falling value of the pound. This is a particular concern for the construction industry – which in the UK employs more than 225,000 EU citizens.

The construction industry has not been sitting on its hands, however. At the start of the year, the Construction Leadership Council convened a meeting of over 100 industry leaders – including construction contractors from across the supply chain, house builders, product manufacturing and professional services, as well as trade associations and key construction clients, to develop sector contingency plans for a no-deal Brexit. It looked at how the industry can recruit, retain and support foreign nationals within the UK construction workforce – and how to mitigate the impact of changes to the rules on the import and export of goods within the supply chain.

Following the meeting, the CLC published a contingency planning report, and recommendations included a call for firms to proactively provide information to its EU employees about how to secure ‘settled’ or ‘pre-settled status’ in the UK, as well as helping to provide any additional evidence that may be requested by the Home Office for the application.

The CLC also urged the government to reduce the required qualification level for a skilled worker to NVQ Level 2 to reflect the industry skilled status; to set the salary threshold for a skilled worker at the median level, which is significantly below the £30,000 currently proposed; adjust short-term worker visa to 24 months to allow the industry to meet its short-term workforce requirements; and ensure that, in the event of a no-deal Brexit, the mutual recognition of qualification across the EU and UK is prioritised.

As with the pharmaceutical industry, the supply chain is also a major concern – with construction products valued at over £10 billion imported from the EU every year, including £1 billion of timber and £750 million of aluminium products. It is estimated that at least 15 per cent of products used in UK construction are presently from the EU (accounting for two-thirds of materials imported). Added to this, project delays of over 90 days may also lead to insurance becoming invalid under cessation of work clauses. And costs will also increase if the UK falls back into World Trade Organisation (WTO) rules with the imposition of tariffs.

Getting real about no-deal

The larger corporate industries – and by default their supply chains – have, or should have been, preparing for Brexit. However, it is the largest sector in the UK where contingency planning may have slipped by the wayside. According to the Confederation of British Industry, four out of 10 SMEs that trade internationally have no contingency plans at all for Brexit.

Understandable? Perhaps. Irresponsible? Certainly. But the CBI defends these companies, saying that diverting precious resource – both human and financial – to Brexit preparedness is out of reach; 41 per cent of CBI members cite cost or a lack of resources as the reason for their inaction. Eighty seven per cent say it’s down to inconsistent information on the topic.

Soon after moving into Downing Street, Johnson’s new Brexit team launched a major publicity campaign guiding businesses in no-deal preparations, and in August announced it will be automatically issuing UK Economic Operator Registration and Identification (EORI) numbers to VAT-registered businesses that trade exclusively with the EU. Federation of Small Businesses chairman, Mike Cherry welcomed the more assertive moves made by the new Prime Minister.

“[Small traders] are the ones that need to prepare the most, so it is welcome to see the government has listened to us and is taking concrete action. Automatically issuing EORI numbers to all VAT-registered small firms that trade exclusively with the EU is a vital intervention in preparing small traders for a no-deal Brexit and will be one less thing for them to worry about. It will also allow small business importers to the EU to take advantage of easements such as transitional simplified procedures.

“Focus must now move on to what other support government can offer to small businesses including those...exclusively trading with the EU that are below the VAT register threshold. Small business needs an Emergency Budget before 31st October with across the board measures to boost cash flow and help [them] prepare, and adapt, to any new trading circumstances from 1st November.”

At the time of press, parliament was in the throes of yet more infighting and political posturing, while outside of Westminster, polls show the public is still in favour of what it voted for those three, long years ago. Much uncertainty has surrounded the subject of Brexit during this time, with very little in the way of agreement. But if there is one thing we can all agree on (and readers of this magazine in particular) it is that contingency plans must be in place – for all businesses, and now.

This article was published in the September-October 2019 issue of CIR Magazine.

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