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Nervous UK plc battens down the hatches for no-deal


For Rafael Rozenson, founder of Vieve Drinks, a London-based maker of flavoured water, there is not much he can do to prepare for a no-deal Brexit. “We are holding fire until the last minute,” he said. “We don’t have the funds for contingency planning.”

Vieve is at risk of hard borders and tariffs in a no-deal because it imports ingredients from the EU and exports more than 70 per cent of its finished product. Mr Rozenson would need to change labelling — which requires a European address — and find a new warehouse. “We have also started discussions with manufacturers in the EU but it is not easy.”

Hundreds of thousands of small-business owners such as Mr Rozenson are a big worry for the British government as the October 31 deadline approaches for leaving the EU.

While most larger FTSE companies said they were prepared for a no-deal on the original timetable of March 29 and — despite the cost and inconvenience of maintaining contingency planning — are similarly confident for October, the story is different among many smaller businesses.

Make UK, which represents the manufacturing industry, and the Federation of Small Businesses are worried that smaller operators are not taking the necessary steps.

The CBI employers’ lobby group said that, for hundreds of thousands of small companies, “diverting precious resources — both human and financial — to Brexit preparedness measures is out of reach”.

'No deal' Brexit funding chart

Stockpiling plans and staff training revived

For many companies, the arrival of Boris Johnson as prime minister has prompted a renewed focus on Brexit preparations.

While he entered Downing Street promising to be business friendly, his pledges to deliver Brexit, deal or no deal, have rocked currency markets, sending sterling tumbling and fuelling fears among companies that Britain will crash out of the EU in three months’ time.

“There is no point in the business community saying that Boris should take no-deal off the table when the politics is saying it’s something we will do,” said one FTSE chair. “Business has to be ready.”

Companies are rapidly reviving plans to stockpile supplies, train staff, test the impact of a hard border and ensure their balance sheets are robust enough to deal with any currency fluctuations and economic impact.

Guillaume Faury, Airbus chief executive, said “it is now obvious that no-deal is likely and we want all governments to be prepared for that, which was not the case by the end of March”.

Mr Faury added that the company was holding about one month’s worth of inventory and had asked suppliers to confirm they were able to deliver in the event of a no-deal. The cost of the preparations was of “a minor magnitude”, he said, warning the “cost of working capital is significant”. 

The CBI said businesses had so far “spent billions of pounds preparing for a no-deal Brexit”, shifting HQs, licenses and activity to the EU in highly-regulated sectors such as financial services, broadcasting and life sciences.

Emma Walmsley, chief executive of GlaxoSmithKline, said the company had been “consistent in the view that no-deal would be a bad outcome”. It is expecting to spend up to £70m on Brexit contingency plans over the next two years. In a no-deal scenario, the company anticipated “subsequent and ongoing” annual costs of about £50m a year from customs duties and the cost of duplicate testing and release of products.

'No deal' Brexit funding and UK small businesses

Small businesses lack money to plan ahead

Many smaller companies do not have the spare funds to plan so thoroughly.

Nimisha Raja, founder of Nim’s Fruit Crisps, which imports some of its fruit from the EU and sells into the bloc, said: “We are probably not prepared at all but it’s hard to plan for anything. Before, we thought that no one wanted a no-deal.”

The company relies in part on so-called “just in time” fruit supplies from the EU, with no refrigeration on site, although Ms Raja added they had started making and stockpiling watermelon crisps ahead of October. Before March, the company had stockpiled “hundreds of kilos” of apple crisps, for which Ms Raja said she was lucky to find a buyer in the NHS after the deadline passed.

Creative Nature, which produces snack bars, faces similar concerns about the tonnes of ingredients it sources from Europe each month.

“We simply don’t have the skills or resources to work out all the scenarios of what will happen in a no-deal, “ said Julianne Ponan, chief executive. “We have to continue business as usual until something happens and then we’ll try to adapt.”

The Treasury is also worried about whether businesses are ready for the paperwork and time needed to declare to customs any of their products being imported and exported after Brexit. The numbers of traders and suppliers needing to do so is set to almost double to 295,000. On Thursday, the government said it would invest a further £108m for no-deal preparations among small companies.

Rowan Crozier, chief executive of Brandauer, a Midlands manufacturer, said he was ready to deal with trade disruptions but paperwork could be a problem for many smaller companies. Brandauer has stockpiled up to three months of raw materials but, for Mr Crozier, the biggest problem is uncertainty. “Everyone is battening down the hatches for a storm but we don’t know if it’s a hurricane or weekend wind,” he said.

Greggs, the bakery chain, has assessed the effects on its line of pastries and snacks. “You’ve got BLT sandwiches. What happens if there’s no L and no T? Well, you’ve got a bacon sandwich. And we’re number one for bacon sandwiches so we’re fine,” said chief executive Roger Whiteside.

“More worrying for us on Brexit is what happens after Brexit,” he added.

Ports, warehouse space and currency worries

Even the biggest companies add a similar caveat: no one knows what will happen after a no-deal Brexit. Much rests on the ability of the UK to strike quick deals covering services and trade, as well as goodwill on both sides to hold fire on enforcing rules under which teams in professional services would be unable to function across borders and lorries would be held in long tailbacks at ports.

Harald Krüger, BMW chief, said: “it’s important that companies remain highly flexible. We are prepared for all scenarios.” But, he added: “If there is a hard Brexit, both sides will lose.”

The ports are the biggest worry for exporters, manufacturers and retailers because they are the hardest to predict and mitigate. For products with limited shelf lives, such as salads, or parts needed for “around the clock” manufacturing, every hour spent in transit matters.

Retailers are also worried about warehouse space in October. 

“This is peak time for logistics because of the ramp-up for Christmas, Black Friday and Halloween,” said Peter Ward, who heads the UK Warehousing Association. “It couldn’t come at a worse time — the industry’s going to be pushed to breaking point.”

Richard Walker, managing director at Iceland Foods, said tariffs published by the government this year were broadly neutral but certain subcategories such as bacon could be affected. “There is just not enough supply in the UK and we are all dependent to a large extent on Denmark.”

Currency is also a concern. “We are down to €1.10 now — if we go to [euro] parity the impact on us would be twice as much as the impact of tariffs,” he said, adding that hedging can only defer the pain.

At the smaller business end, Ms Raja said the drop in sterling had begun to have an impact on the fruit she buys in euros and dollars.

The government is under no illusion that British business is fully ready. Downing Street’s business team — under the new boss, Andrew Griffith, the former Sky finance chief — used its first week to call on business leaders and groups to help spread the message that Brexit was real and preparations needed to be made. 

One Downing Street official said: “We are getting the message out. We want people to be realistic about leaving on October 31.”

Even companies that are planning ahead admit many of the challenges remain out of their hands.

David Lenehan, managing director of Northern Industrial, said he had done as much as he could to mitigate the impact of no-deal on his 83-strong company that supplies manufacturing parts to 130 countries from a headquarters in Blackburn.

However, with half of his exports to the EU — and next-day delivery crucial to customers on the continent — he cannot be sure the transition will be smooth.

“We have our staffed trained up, but long delays at the border are beyond our control. You do what you can and then pray that people can get things in and out of the country.”

Additional reporting by Jonathan Eley, Sarah Neville, Sylvia Pfeifer and Oliver Ralph



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