By Jo Simmons *
With the March 29th deadline for Britain’s withdrawal from the European Union fast approaching, concern is mounting over the impact of a potential “no-deal” Brexit on British firms. More than a third of British export firms recently surveyed have already bled business and investment since the June 2016 Brexit vote, while Carolyn Fairbarn, head of the Confederation of British Industry (CBI), has warned cumulative losses will run into the billions of pounds. Indeed, many of the biggest names in British business have already paid a price for the past two-and-a-half years of back-and-forth, underlining how imperative it is to find a sustainable solution.
Recalibration at De La Rue
The iconic banknote and identity document manufacturer De La Rue was sent into a tailspin in April last year after it lost its highly lucrative contract with the British government to produce the country’s new blue passports. While CEO Martin Sutherland initially vowed to appeal Theresa May’s decision to award the tender to Franco-Dutch competitor Gemalto and challenged the Prime Minister to personally explain her decision to the workers whose job would be at risk, his position soon became transparently untenable.
With Gemalto’s bid coming in £120 million lower than De La Rue’s, and with the UK keen to demonstrate it will still welcome overseas investment after Brexit, May’s decision was surprisingly logical—if rather mercenary. De La Rue has since been forced into a climbdown, retracting the appeal and posting a 36% loss in profits.
To make up the shortfall, De La Rue has indicated that it will expand into the lucrative security and authorisation industry. This isn’t the company’s first attempt to reinvent itself by selling new products, after it was left bruised by cancelled contracts, resignations and stiff competition. Indeed, De La Rue has been proposing security and authentication solutions similar to what it is offering now for years without picking up many clients, raising questions about whether these products are adequately tested. Sutherland has tried to address such scepticism by pointing to the company’s first contracts in the sector, namely an agreement with the Federal Tax Authority (FTA) in the United Arab Emirates, but it’s unclear whether De La Rue has the expertise to compete effectively in the industry.
With a cornerstone of the historic British company’s business snatched from under it, will its attempted pivot be able to reverse the company’s fortunes in time? While De La Rue’s year-on-year revenues grew 9%, activist investors have warned the company may be vulnerable to a takeover and Sutherland spent a good bit of the past year trying to shore up his position as CEO. Brexit has clearly upset De La Rue’s game plan in more ways than one.
Maplin in administration
Other firms have faced even worse fallout from the 2016 referendum: both Maplin and administrators PricewaterhouseCoopers have agreed that curtailed consumer spending and higher import prices – both a direct result of the falling pound caused by Brexit-related uncertainty – are to blame for Maplin’s entry into administration.
When the news was first announced a year ago, Maplin pledged to keep its 200 stores open and its 2,500 jobs safe for as long as possible, though the efforts proved to be in vain. Maplin’s last branch closed its doors just four months later, at the same time as 3,000 workers suffered a similar fate at Toys ‘R’ Us. Other staples of the British high street, from Debenhams to Prezzo, are under threat from similar challenges.
Crisis of confidence for M&S
The slump in consumer confidence Marks and Spencer (M&S) was already facing has undoubtedly been aggravated by Brexit. The company posted a 62% decline in profits before taxation for 2017/18 and has announced the closure of 100 outlets between now and 2022. After March 29th, its situation could deteriorate even further. Chairman Archie Norman has warned that lengthy border delays after a no-deal Brexit could make M&S unable to service the French market— which reportedly consumes 1,000,000 of its sandwiches per year.
Those delays will cut both ways, too. M&S and Tesco have begun stockpiling tinned foods in preparation for a no-deal outcome, while Lidl is hiring their own customs staff. With M&S relying on fresh food for 70% of its culinary market, border holdups could easily lead to elevated costs and significant food wastage.
British Airways to fly the nest?
British Airways (BA) is synonymous with UK aviation, but this might soon come to an end. Under present EU legislation, all airlines belonging to member states must have a controlling stake (51% or higher) owned by shareholders based in the bloc. Since British shareholders will no longer contribute to this percentage in the wake of Brexit, BA’s parent company IAG—which also owns Iberia and Aer Lingus— is now attempting to prove that it actually qualifies as a Spanish company, meaning that BA may no longer be British at all.
Brexit could also exclude London from existing aviation agreements allowing it privileged access to all EU countries and 17 non-EU ones, including the USA and Canada. That could potentially affect 1.8 million routes and result in thousands of cancelled flights. Easyjet has already been quietly making contingency plans involving a Vienna-based subsidiary.
A bleak outlook for the NHS
Of course, it’s not just the private sector facing hardships. The Leave Campaign’s promise, infamously emblazoned on the side of a bus, that exiting the EU would free up an additional £350 million a week for the health service has yet to materialise. Theresa May tried to make reality fit the advertising by unveiling a £20 billion-per-year boost for the NHS by 2023, but this is long overdue for a health service stretched to its breaking point under Conservative leadership. Since 2010, the NHS has received 1-2% of additional funding per annum, roughly half of what it did under previous administrations.
Brexit promises to cause the NHS other headaches as well. With 5% of nurses, 9% of doctors and 15% of dentists hailing from the Continent, the NHS is highly dependent on imported labour. The number of EEA workers arriving in Britain has plummeted since the vote, while a recent report estimated that nurse vacancies could number more than 51,000 by 2021.
What’s more, the UK imports 37 million packs of medication from the EU every day. To avoid post-Brexit shortfalls, the government has asked British firms to begin stockpiling a six-week supply—even if this means food shortages— but the logistics of storing and refrigerating medication such as insulin makes this an impractical solution.
No-deal not an option for British prosperity
With just over six weeks until the UK crashes out of the EU, it’s imperative Theresa May and the House of Commons come together to provide a viable way out of the labyrinthine mess of Brexit. Above all, Westminster must avoid a no-deal scenario, which would spell serious trouble for the businesses mentioned above and the entirety of British commerce.
*Jo Simmons is a writer and consultant currently living in London.