Over the coming months, we will issue on our website regular briefing notes to help our clients understand the fundamental changes the country will go through and what they will mean for them.
The Political Hokey Cokey
Businesses like stability and a degree of certainty, and a secure economic and fiscal regime. It allows them to plan ahead, assess risks, make decisions accordingly and then get on with running their businesses. It is hard to envisage what else could be thrown into the mix to make the next two years more uncertain. For those previously involved in the Scottish independence referendum, it feels like businesses have performed the hokey cokey: “in, out, in, out, shake it all about”. It now appears that there are three possible routes:
- Stay in the EU – this seems unlikely but with such political turmoil, it is not impossible that there would be a general election and a second referendum which might reverse the result declared last week.
- The UK leaves the EU – this seems the much more likely outcome and there will be many aspects for businesses to consider. Staff recruitment and retention will be an issue for many businesses and employers may wish to reassure employees who do not hold British passports. For businesses importing from and exporting to the EU, they will have to start learning about import/export tariffs and procedures. We do not, of course, know how these will work but some guidance can be obtained from current rules that apply to imports and exports from outside the single market. See our commentary VAT Brexit Briefing note.
- Scotland leaves the rest of the UK and remains in the EU – this is almost as likely as the second scenario of leaving the EU. In this event, businesses will have to consider import/export tariffs and rules for cross border trading north and south of Hadrian’s Wall. There may also be the question of having to trade in different currencies if under the terms of Scotland remaining in the EU, it is required to adopt the Euro.
What can you do?
At this stage, it is premature to offer many comments. However, we suggest the following:
- Build up reserves – it is quite possible that inflation will pick up and the economy will cool down as this period of uncertainty unfolds. Businesses with strong balance sheets will be in a better position to weather this period and work through to better times.
- Manage your bank debt – if your business is able to fix its debt at a low rate of interest for a reasonable period, that will help to give a degree of certainty to your trading position and help your business work through this period of uncertainty.
- Flexible structures – depending on how matters turn out, businesses based in Scotland may require to have a base in England and vice versa. Similarly, businesses may wish to have a base on the continent. Businesses should build flexibility into their structures and consider where would be the most beneficial place to conduct their business, bearing in mind any particular regulatory regime which is applicable to them. Businesses will also need to consider where they want to be domiciled.
- Contractual terms – when entering into new business contracts, businesses should try to bring in as much flexibility as possible; such as the ability to transact in a different currency, tariff and tax provisions and exit clause triggers in the event of the UK breaking up.
- HR considerations – this will be an unsettling time for employees and your HR strategy should ensure you retain your key employees in your key geographic locations.
If you have a query about how Brexit may affect you or your business, please get in touch with your usual Chiene + Tait contact.