Brexit could cause potentially soaring overheads for many businesses
After months of negotiations, speculation and rumour, a draft withdrawal agreement for the UK’s departure from the EU has been drawn up. It’s a thoroughly detailed document at 585 pages long, which outlines everything from the transition period, what happens with the Irish border, customs arrangements and a whole lot more.
For the world of business, this has been a long time coming, with many already stating their preparations for the worst-case scenario. As this is only a draft, there’s still a chance that the terms could change. Either way, many businesses are concerned that whatever happens with Brexit, their overheads will rise.
The Current Situation
Businesses in the UK have a greater idea of what the consequences of Brexit might be now that the draft withdrawal has been released. An important part of this is the five-page ‘political declaration’ which sets out what the future UK and EU relations will look like. It envisages ‘a free trade area and deep co-operation on goods, with zero tariffs and quotas.’
This would be a good step towards solving the Irish border issue and great news for many businesses that currently import from or export overseas. Without such arrangements in place, most UK companies that do business within the EU could expect their overheads to dramatically increase as tariffs may be put in place. Still, the official Brexit terms aren’t confirmed so depending on what happens there could be bad news for businesses.
Impact of a No Deal Brexit
There are still various routes that the terms of Brexit could go down, especially if the proposed withdrawal draft is rejected by Parliament. That means a no deal Brexit might still be on the cards, which raises a lot more worries for many industries.
The main fear with this route is that the easy movement of goods in and out of the UK would be seriously harmed. Those who work in customs and the freight industry believe that if customs checks are added at Dover or Calais they will create long queues, slowing distribution networks and supply chains. This will have a huge impact on businesses from the UK’s leading supermarkets to ecommerce, car manufacturers and thousands more.
Should there be a no deal Brexit, or even one with limited freedom of movement, businesses will have to factor in the cost of delays and customs checks, increasing their overheads. Those using suppliers within the EU for products and services would expect an increase in price too, and may want to compare business electricity options and UK based options to avoid them.
Costs of Brexit to UK Businesses
According to research, the UK would lose at least £4.5 billion a year if they leave the EU without negotiating a new trade deal. Any export business will be hit hard financially, as increased tariffs would hike up the costs and make them less competitive in the EU markets and globally. One option could be to lower prices to remain competitive, yet this will have a negative impact on profits, possibly leading to job losses or cutting overheads by moving to cheaper offices, warehouses and facilities.
Should the UK be excluded from the single market then it has been predicted it will cost the country around £75 billion too. Coupled with potentially falling foreign investment, many businesses that rely on financial backing from other businesses and individuals in the EU could suffer too, either seeing this reduce or disappear.
For foreign owners of offices and properties they may also increase rental prices to offset any financial worries, which could see the overheads for businesses rise. While when Brexit does happen, whether there is a deal in place or not, the pound sterling is expected to fall and remain volatile too. This could cause almost everything to grow in price for both business and consumers for at least a little while.
The Consumer Effect
Potentially growing overheads for many businesses across the UK will have a direct impact on consumers. It’s likely that increased shipping, material and product costs will trickle down to them, as all sorts of businesses react to the more expensive overheads by increasing the price of their products or services.
In the event of a no deal Brexit, customers could lose out on legal protection when buying items from EU countries. Customers would also not be able to use UK courts in an effort to seek redress from EU-based traders either, according to the Department for Exiting the European Union. Should British consumers end up buying faulty goods then they may struggle to get a refund or replacement, putting them off making further purchases from overseas.
Unless businesses can find other ways to offset the possible increase in overheads, then they may have to deal with a potential drop in customers as well. However, this will all depend on what the final Brexit deal looks like.
