As the Brexit process trundles on, it seems that the only certainty is uncertainty. For businesses, ‘uncertainty’ has always been a word that is frowned upon. It can spook markets, deter investors and hinder planning. Fortunately, in most cases, it is a temporary phenomenon. However, as regards Brexit, the myriad of possible outcomes and the gravity of the potential changes involved raise the stakes that much higher.
A transition period is supposed to alleviate those concerns. The intention is that it would come into force on 29th March 2019 and allow a limited time (two years is frequently mentioned) for businesses and individuals to prepare for the changes agreed in any final Brexit deal.
But, at this stage, there is uncertainty over whether a transition period will even be implemented, let alone regarding what it might entail.
From a business viewpoint, the desired plan is clear. It wants a limited transition period that maintains the status quo of the UK remaining within the single market and customs union, along with the continuation of free movement of labour. With this guaranteed, it would mean that business will have to plan for just one set of changes, initiated by a new Brexit trade deal, at the end of the transition period.
Moreover, the business world wants assurances about the structure of a transition period as soon as possible, preferably now. Why? Companies want to know what the medium-term future holds so that they can finalise investment plans and projects. Without any transition guarantees forthcoming, many are making contingency plans, some of which involve relocating from the UK to avoid them being embroiled in a ‘hard’ Brexit or ‘no deal’ situation, and the clamour for certainty has grown.
Business concerns were crystalised by Theresa May’s Brexit statement to the House of Commons on 23rd October. In it, she surprised MPs by saying that there would be no transition period without a final trade deal being agreed, as there would be little point in allowing time for implementation if there was no new arrangement at the end of it. However, in saying ‘no deal, no transition’, Mrs May appears to have moved away from the content of her Florence speech which appeared to support the call for the status quo to exist until the end of the transition period.
Chancellor Philip Hammond responded quickly in saying that the ‘principles’ of transition will be agreed soon. That reassurance may not be enough for businesses concerned at the prospect of having to wait until the last minute to learn if a deal on transition and future trade is agreed. There is also a fear that, without a transition period or subsequent trading arrangement, a ‘cliff edge’ exit from the EU is inevitable. It is unclear, at this point, whether a transition period will occur if there is no deal and the UK is obliged to abide by WTO guidelines.
Meanwhile, Michel Barnier has commented that it could take up to three years to conclude a new trade deal. Phase 2 Brexit talks are supposed to conclude by October 2018 in order to allow time for member states to ratify the deal before 29 March 2019 – official Brexit Day. If negotiations do take three years, that takes us to 2021 – the supposed end of transition. Mr Barnier also expressed his opinion that the UK is heading towards a deal similar to that agreed between the EU and Canada, as the UK intends to eventually leave the single market and customs union. Such an agreement is likely to upset those hoping for a ‘soft’ Brexit, including many within the business community.
Ultimately, the government’s challenge is to balance political calculations with logistical practicalities. The result may be that the uncertainty lingers for a while yet.
Article published: 8th November 2017
