Robin Lee, Partner, Streets Chartered Accountants talks about the impact of a No Deal Brexit on businesses.
The governor of the Bank of England, Mark Carney, recently described the prospect of a No Deal Brexit as “uncomfortably high.” It is worth considering the possible implications.
Under a no deal scenario there will automatically be tariffs on goods moving between the EU and the UK. Fortunately both the EU and the UK are members of the World Trade Organisation (WTO) which has set tariff rates for trade between its members. Rates on most goods are around 5% but some are 10%.
The cost of imported goods will rise. Similarly the cost of UK goods to EU customers will also increase. The UK imports £4 goods from the EU for every £3 goods it exports to the EU so this will produce a boost to the treasury.
As we saw in the immediate aftermath of the referendum result, sterling decreased, so imports into the UK become more expensive but our exports become cheaper abroad. Confirmation of a no deal Brexit is likely to produce a further fall in sterling. Accordingly the price of any supplies, such as fuel, that is set in dollars is likely to increase. You could get a double whammy here with goods produced in Europe, such as cars and wine. Committing to forward buy currency appears a sensible precaution.
Naturally in changing markets there will be winners and losers. Car Dealers may struggle but Used Car sellers are likely to enjoy the benefits. In time this would filter down to benefit the car repair market.
It is widely assumed that a no deal Brexit will slow down the transportation of goods. However I have been impressed by new electronic delivery programmes I have seen (similar to a prepaid Humber Bridge tag). Buying goods in advance would be sensible though.
The labour market would be a challenge for many (Agriculture, Haulage etc). I am really encouraged though by feedback from clients who have already sought alternative labour supply.
In his assessment of a no deal Mark Carney made particular mention of the Housing Market which he forecast could lose one third of its value. This may prove excessive but there is likely to be some correction.
- Corporation Tax is likely to reduce quickly to attract new business
- VAT/Fuel Duty may be cut back in an attempt to boost spending (additional Import Duty gives flexibility here)
- Residential Property Taxes may be cut back sharply as the government tries to lessen the impact of a fall in the housing market
- The VAT regime should become simpler as it will move into UK jurisdiction
- We could follow the lead of many countries outside the EU in applying higher taxes on immigrant labour (on NI contributions for example)
A No Deal is not my favoured option, but I believe it is manageable.