Throughout my seven years at senior school, we had the same headmaster. Every September he made the same speech on the first day of term. Half of the year’s work, he said, was done in the autumn term, between September and Christmas. We should put the lazy days of summer behind us. It was back-to-reality and hard work from now on.
I have long believed that something similar happens in business. This is the time of year when things get back to normal after the summer and there is a flurry of activity in the months before Christmas. After New Year people start sloping off on skiing holidays. That then shades into spring breaks and before you know it, it’s summer again. In the autumn, though, fewer people go away and the run up to Christmas is when a lot of the concentrated work gets done.
This autumn is also Brexit crunch time for a lot of firms. What might have seemed like an interesting intellectual exercise a few months ago is now starting to look a lot more real. At the end of September we will be 18 months away from leaving the EU. And as anyone who has ever run a major project knows, 18 months isn’t very long.
According to KPMG’s Brexit Navigator, the first decision-making deadlines are due this month. Any organisation that wants to set up an EU subsidiary, move people abroad or apply for EU regulatory licences needs to make those decisions this month if they are to have everything in place by 29 March 2019. It’s not only banks that will need to relocate staff. Pharmaceutical firms, airlines, media companies and the UK’s much celebrated games industry expect to move at least some of their people to the EU. Next July and August will probably be the Brexodus months. Many people will want to move at the turn of the school year. To be in place by March 2019 means moving next summer. That is less than a year away. Companies therefore need to start making decisions about relocation now.
August was a transition month for Brexit says Jill Rutter of the Institute for Government, the point at which both the government and the Labour Party acknowledged the need for some sort of transitional period after March 2019. The ticking clock has concentrated minds:
Why all this talk on transition now? On the Government side, it seems to reflect the increased power in the Cabinet of the Brexit pragmatists, most notably Hammond. He will be only too aware of the time needed for adjustment to cope with new processes at pinch-point ports – and will have heard the calls from the CBI and the Institute of Directors among others for early clarity on transition. Businesses are already warning that they need certainty about post-Brexit arrangements in the next few months.
Transition, not the final deal, is now the priority:
The Government also knows that the sooner a transition can be agreed, the less risk to business and the less it will incur nugatory spending on putting the mattresses at the foot of the cliff. Agreement on transition now is hugely more valuable than a last minute deal.
Therefore an off-the-shelf transition is looking more attractive as it can be done more quickly:
The other emerging recognition is that, whatever its demerits, a transition that mirrors (the other word of the summer) the status quo means one adjustment – not two – for business. The sheer complexity of negotiating a new deal for the transition and then a longer-term future partnership is just not worth the hassle. So, a time-limited period outside the EU’s political institutions but inside the economic ones offers an “off-the-shelf” answer.
Charles Grant, director of the Centre for European Reform, thinks that, despite all the posturing from hardliners, we will end up with the UK staying in the customs union and single market during the transition period. In other words, pretty much what we have now except with no vote. There simply isn’t time to negotiate and agree a bespoke settlement.
This would, he says, also get us over the money problem:
If the UK asked for a three-year transition and agreed to pay €10bn a year (roughly what it pays today), that would cover a large part of its share of unspent EU budgetary commitments. That would also ensure no hole in the EU budget in 2019 and 2020, the last two years of the current seven-year budget cycle – which would be a great relief to the European Commission.
An off-the-shelf transitional arrangement would certainly take the pressure off companies. If trading rules are going to remain as they are for a few more years after 2019 there is less urgency. The trouble is, such a deal is far from certain and might yet take months to agree. This leaves businesses with a dilemma. Do they make arrangements for leaving the single market and customs union in 2019 or do they hang fire in the hope that something will be agreed?
As Faisal Islam said in his excellent summary of where we are at with Brexit, we are getting close to the point where companies will have to make a call:
[T]he clock is running down in another way too. The Government has been told by business leaders that they too will not wait around until Christmas before making decisions.
In the next three months, board meetings will occur where finance directors will put forward plans for the fiscal year 2018-2019. These plans will have to include an assessment of exactly what the legal position will be with the EU on 30 March 2019. If still unclear, many of these boards will have a responsibility to shareholders to activate ‘No Deal’ contingency plans that were prepared over the past year. This is most apparent in financial services, but is relevant across the economy.
Most organisations will do some sort of risk and impact assessment to determine how long they can afford to wait before making a decision. The longer we go without clarity on the transition phase, the more likely it is that companies will assume the worst and cut their losses. The clock is ticking and for many organisations the decision deadlines are getting dangerously close. As my old headmaster used to tell us, the autumn term is when the work gets serious.