Chris McCarthy Associate
The United Kingdom endures political turbulence and a pervading sense of uncertainty which is likely to persist well beyond any transition deal.
Over two years have passed since the UK voted to leave the European Union and ushered in a period of political turbulence – snap elections, a fragile governing majority, cabinet resignations, tense negotiations, and, perhaps above all, a pervading sense of uncertainty. But presumably this must all be over soon, at least by March 29 when the UK formally leaves the EU, and certainly by the end of 2020 when any transition period would end?
On the contrary, it is likely to persist.
Since the referendum in 2016, the focus has been almost exclusively on the intricacies and complexities of leaving the 28-member bloc, with much of the debate centred on what the settlement agreement between the EU and UK should look like.
But whatever agreement is in place on March 29, 2019 (assuming, of course, that there actually is one) the likelihood is that the debate over the impact of Brexit will actually become more intense after the UK has departed than it was before.
It is widely believed that the process of leaving the EU, and the negotiations that guide it, will be settled before next March, so enabling business, governments, and consumers to plan ahead and invest with confidence.
But this is a flawed and even dangerous assumption. There will be nothing to stop Britain from continuing discussions over any and all aspects of the future relationship with the EU, and ground that appeared firm and secured at one point will be open to question again and again.
Future Prime Ministers will set policy toward the EU just like any other policy
Theresa May will not serve as Prime Minister indefinitely and her successors at No 10 – whether from within her own party, the official opposition, or a future coalition – will determine their own policy toward the EU as they would any other aspect of a manifesto platform.
Even if a second referendum remains unlikely at present, we are still facing the possibility of a piecemeal and ad-hoc process of re-negotiation for many years to come. Positions on post-Brexit judicial oversight, trade agreements, market access, security cooperation, data sharing arrangements, industry regulation and standards, and labour rights will constantly evolve with future discussions.
As these negotiations continue, and positions that appear steadfast in one area are traded away as part of an agreement on a separate issue, companies will face unexpected opportunities as well as unforeseen risks. The UK will want to explore what competitive advantages it can maintain, which sectors it can champion, and what regulatory changes it can make to both compensate for any potential losses in certain areas, and to capitalize on new advantages in others.
Focusing on headline risks is understandable but deceptive. Anyone thinking that a ‘soft’, ‘hard’, or ‘no deal Brexit’ agreement marks the end of Brexit-related uncertainty will be very disappointed. Business will have to continually assess how this evolving landscape will affect their operations, for access to labour, supply-chain management, regulatory alignment, market access, costs of production, and so forth.
To take just one example, in the Chequers statement on July 6 outlining its vision for Britain’s new relationship with the EU, the government committed to leaving the Common Fisheries Policy and replacing it with a domestic policy on how British waters are to be used. Irrespective of the merits and who benefits from that new arrangement, the implication was that the fishing industry, worth £936 million in 2016, would enjoy a relatively smooth transition from one policy to another.
Later UK governments may trade away earlier agreements in order to secure a different deal
But that prospect becomes more complicated when we consider that any future EU-UK trade deal is likely to be contingent on the EU maintaining access for its own fishing industry. For as long as those negotiations are underway, there remains the prospect that a future government concedes access to British waters or restrictions on fishing rights in order to secure a broader deal that benefits other, larger industries.
When we consider the complexity of other integrated markets – supply chain operations, financial services and regulation, access to market, labor, and capital – we begin to appreciate how the post-Brexit uncertainty of one relatively contained industry, will be magnified across a wide spectrum of the business environment.
Planning for the future, businesses can no longer assume that the regulatory, labor, and market-related rules of the road will hold firm after Brexit. Instead, they will need to constantly update their thinking and strategic planning for what is likely to remain a destabilizing environment. Recognizing this landscape of prolonged uncertainty as the new norm will serve businesses better than working from a flawed assumption that the dust will have permanently settled by March 29, 2019.
Chris McCarthy Associate
About the author
Chris McCarthy is an Associate in our New York office and performs stress-testing and scenario planning for businesses in North America.
The Weekly Brief: our free geopolitical highlights email