Is business right to still fear a no-deal Brexit?

Michael Gove has thrown more energy into the UK’s no-deal Brexit preparations than any of his predecessors. But with so little time left before the October 31 deadline his efforts have done little to dispel concerns of business that crashing out of the EU will inflict serious damage on the economy. When Boris Johnson last month tasked his fellow Leave campaigner to galvanise no-deal planning, he came to the job after two years in which Theresa May was lambasted by Conservative Brexiters for failing to prepare adequately for such an outcome.

Just four weeks into office, Mr Gove is in charge of “Operation Yellowhammer” — the no-deal planning effort across Whitehall — taking what he calls “very significant steps” to make sure the economy is “well placed” to leave the EU without a pact. But with just 71 days to the October 31 deadline, many business and industry figures remain unconvinced that a no-deal Brexit would amount, as Mr Gove put it this week, to just “some bumps in the road”. “There’s certainly a lot more energy about no-deal planning in government, that’s for sure,” said James Hookham, deputy head of the Freight Transport Association. “But a lot of the pieces of the jigsaw are still missing.

We’re still very pessimistic about what will happen on no-deal, day one.”

Is no-deal planning working?

Whitehall watchers say Mr Gove is clearly having an impact. “There is now much clearer accountability for no-deal planning at the top level of government in a way there wasn’t before,” said Joe Owen, programme director on Brexit at the Institute for Government. “Combined with a more united cabinet, that means decisions are being made more quickly and the excessive internal secrecy is starting to reduce.” The new government has injected an additional GBP2.1bn into no-deal planning, pleasing Brexiters who have accused Philip Hammond, the former chancellor, of failing to allocate sufficient funds. Mr Gove has ordered 2,000 staff to be redeployed in October from departments such as education and international development to what the government has identified as key Brexit roles.

Other initiatives include automatically enrolling 88,000 companies for extra customs documentation in an attempt to address a huge gap in the number of exporters with the correct paperwork in the event of a no-deal. However, many believe these efforts are coming very late in the day. “The extra GBP2bn sounds impressive but it is hard to see how a sum like that can be deployed so close to October 31,” said Mr Owen.

Tackling the Dover-Calais pinch point

The central challenge over no-deal continues to lie with the implications for logistics and supply chains across the Dover-Calais strait. Whitehall officials said their assessments of the possible gridlock in Kent, with lorry drivers queueing to get across the channel, are less pessimistic than a year ago.

But this is largely due to preparations by France to implement customs and regulatory checks that will ease congestion on their side of the border, according to an analysis by the BBC. Meanwhile, what the government terms “reasonable worst-case scenarios” still anticipate long disruption to about half of the freight crossing the Channel after a no-deal Brexit. “The problem for government is that many of the decisive questions are in the hands of the Europeans,” said Mr Hookham. “For instance, we don’t know how rigorously the French will patrol their side of the border.” Other areas of uncertainty include the requirements the EU will place on UK truck drivers entering the bloc once the existing haulage permit scheme expires in December.

These uncertainties about freight and logistics have varying consequences across a variety of key sectors. Food retailers, and those involved in the complex chain that supplies them, said they were concerned about the no-deal Brexit consequences for their sector. “There will definitely be upward pressure on food pricing and there will definitely be an issue with availability in stores,” said one senior executive at a big-four supermarket, adding that in some circumstances food price inflation “could rise to levels not seen in Britain for decades”.

How the state plans to save business

Within government, there is clearly concern about what impact a no-deal Brexit would have on the viability of some businesses.

The Treasury has been running a secret exercise called Operation Kingfisher, which is designed to identify which companies are most likely to need state support in the event of no deal. Government insiders liken Kingfisher to a “giant spreadsheet” which ranks businesses most at risk from no-deal because of the impact on supply chains and workforce shortages but stress that any intervention would be on a case-by-case basis. In contrast, senior pharmaceutical executives told the FT that the sector is better prepared than some others.

Although they cannot guarantee a continued supply of all essential medicines after October 31, they said the arrangements made for a possible no-deal departure back in the spring remained in place. “We have implemented a number of important measures, including the rerouting of our supply chain [away from the busy Channel link] and building a minimum of six weeks additional stock for our medicines that enter the UK via the EU,” said Lisa Timothy, government relations director of MSD, the European arm of Merck of the US.

The risk of panic buying

However, pharmaceuticals is one of a number of sectors where one of the biggest concerns is the public stockpiling and panic buying goods ahead of the October 31 deadline. “If everybody [stockpiled] it will create a shortage and that becomes much more self-perpetuating,” Ash Soni, former president of Royal Pharmaceutical Society, told the BBC this week.

Executives in the petroleum sector said inventories were plentiful and they envisaged no problems continuing to import fuel due to access to dedicated ports and terminals. But motorists could face problems if every driver rushes to fill up at once. “Panic buying for petrol is not dissimilar to a run on a bank,” said one executive with a UK refinery. “There might be plenty of fuel to meet demand, but if everyone tries to get it at once it will cause problems, [even if] they would be logistical rather than a genuine shortage.”

In an attempt to reassure the public, Mr Gove is set to unveil a GBP100m media campaign to warn the public about the realities of no-deal and urge them to remain calm. However, Rod McKenzie, managing director of policy and public affairs at the Road Haulage Association, said Mr Gove and his allies face an impossible battle. He acknowledged that there has been a “renewed sense of energy” since Mr Gove took the helm but added: “The government can’t do two years of work in two months.”

Additional reporting by Clive Cookson, Jonathan Eley, Tanya Powley, Sebastian Payne and David Sheppard

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