Brexit: Have you got your implementation strategy in place? 

Author

Peter Curran

Analyst II

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Published
Monday 20 March 2018
Brexit

With the United Kingdom scheduled to depart the European Union (“EU”) on the 29th March 2019, the effect on the wider economy remains to be seen. Already, businesses across all sectors of the market are beginning to develop their Brexit strategy ahead of next year’s exit from Europe. Key talking points have included the potential return of a ‘hard border’ between Northern Ireland and the Republic of Ireland as well as businesses (including banks and large financial institutions) deciding whether to relocate from London to other large cities within the EU. Unilever, the world’s largest consumer goods company, have decided to relocate their legal operations from London to Rotterdam, their most significant structural change in 89 years. [1] If London was no longer the go to place for financial services, the wider effect on the UK economy could be damaging. [2]
 

Soft and Hard Brexit
 
As it stands, we are still unclear what the relationship between the EU and the UK will look like post-Brexit. The words ‘soft’ and ‘hard’ are often used to describe the closeness of the UK’s relationship with the EU following their exit from Europe. A hard Brexit would mean no compromise on issues such as the free movement of people, leaving the EU single market and trading with the EU. This would mean, in the short-term before a trade deal was completed, the UK and EU would apply tariffs and other trade restrictions on each other. On the other hand, a soft Brexit would involve keeping close ties with the EU, possibly through some form of membership of the EU single market, in return for a degree of free movement. The objective is that there will be a deal agreed upon that will benefit both parties. [3]
 
The return of a physical border between Northern Ireland and the Republic of Ireland is a major issue, especially for businesses operating close to or on both sides of the border. Many businesses are currently faced with a fear of the unknown. Every day, many goods are transported freely across the border; if checkpoint and customs’ patrols were to be introduced, this may have an extremely negative effect on businesses. Similarly, if an individual lives in Northern Ireland and travels across the border to work  their ability to travel may be restricted. The UK has promised to use technology to keep the new border as invisible and frictionless as possible. [4]
 

Brexit Planning
 
While the final details of the UK’s exit terms remain uncertain, businesses cannot wait and must begin preparing now to ensure they can adapt quickly to the new trading environment. Businesses with robust contingency plans can react to any changes driven by Brexit and will be best placed to succeed in a post-Brexit world. This can be broken down into three simple steps:
 
1. Complete a thorough and detailed review of all aspects of your business, focusing on those areas which you predict may be most affected;
2. Depending on your business type, try and gauge what may happen in different potential scenarios i.e. whether the UK remains within or outside the customs union;
3. Decide what actions you can take now to mitigate any future effects and have a plan in place for when Brexit happens.
 
Once businesses start planning for Brexit, it should become easier to see if there are areas where business models can be made more resilient and prepare to take advantage of any opportunities that may arise. An idea may be to appoint a single member of staff or unit within your organisation to oversee and govern change (especially in relation to Brexit). Communicating with staff and clients will be key, particularly if you are planning any major changes. [5]
 

Will banks relocate from London?
 
Many financial organisations are assessing their options and planning for the implementation of Brexit. If banks and large financial organisations make the decision to relocate a number of jobs from the financial centre of London to a location within the EU, Frankfurt is proving a popular location. Goldman Sachs have decided they can no longer wait for clarity from Prime Minister Theresa May on how Brexit will look. Members of the derivatives and debt capital markets teams working on German accounts have been advised that their activities will be relocated to Frankfurt. [6] No doubt this influx of jobs and people would be welcomed to the German economy. The question is whether Frankfurt would have the capacity to absorb as many as 100,000 jobs from London. With families in tow, this could increase the figure to 300,000 people potentially moving to Frankfurt. Can Frankfurt house these people?
 
Dublin has also been mentioned as a strong contender to house banks opting to relocate from London to within the EU. Dublin has the benefit of being part of a predominately English-speaking country with an already strong financial services infrastructure in place, alongside favourable corporate and personal tax regimes. Dublin holds a strong supply of talent from local universities, a stable and political legal system and is fully integrated within the EU, allowing for a smooth transition for bankers moving from London. [7] JP Morgan are amongst those who want to take advantage of all that Dublin has to offer. Already, they have secured new premises in the docklands area of Dublin which will house 1,000 staff. [8]
 
From the 2008 crash the real estate market in Ireland has gone from strength to strength. There is already a shortage of residential properties in Dublin. With the inflow of additional jobs to Ireland’s capital, surely this will mean further increases in property prices, on both the sale and rental markets. If demand is increasing and supply is decreasing, then this will cause property prices to surge. There are fears that another property bubble may be forming.
 
This is all positive news for both Dublin and Frankfurt, but how will this affect London? If a large number of jobs are repositioned from London to elsewhere, then this will no doubt have a negative impact on the economy. Supply and demand will dictate the price of property, particularly residential and office space. With supply higher than demand, prices will be sure to decrease.
 
With Brexit looming, there is no doubt that this is a unique time of considerable economic uncertainty. The ramifications of Britain exiting the EU will be clearer as the departure date approaches and will largely depend on the closeness of the relationship the UK will have with the EU. Business leaders are facing the ambiguous task of planning ahead for Brexit. In order to succeed, it is important that businesses plan for a range of outcomes and scenarios. Whilst the outcome of the Brexit process remains unclear, businesses must put in place a robust and flexible restructuring plan and ensure sufficient resources are available in order to adapt to the changing market conditions.

 
[1] https://www.ft.com/content/2d5acab0-283b-11e8-b27e-cc62a39d57a0 
[2] http://www.bbc.co.uk/news/uk-politics-43277176
[3] http://www.bbc.co.uk/news/uk-politics-37507129
[4] https://www.ft.com/content/d60e93aa-0ce1-11e8-8eb7-42f857ea9f09
[5] https://www.spaldingtoday.co.uk/news/weekend-web-businesses-need-to-be-brexit-ready-1-8357240
[6] http://www.independent.co.uk/news/business/news/goldman-sachs-london-staff-relocate-frankfurt-banking-brexit-a8244076.html 
[7]
http://www.savills.co.uk/blog/article/217725/residential-property/dublin-is-favourite-for-finance-jobs-post-brexit.aspx
[8] https://www.theguardian.com/business/2017/may/15/jp-morgan-landmark-office-dublin-brexit 

 
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