Britain is due to leave the EU on 29 March and the implications of a no-deal Brexit are stacking up for industries including technology, banking, energy, healthcare, food and insurance
The UK is due to leave the European Union on 31 October 2019
From food and medicine stockpiling to complications over energy imports and exports, it appears no industry is free from the implications of a no-deal Brexit.
As Britain hurtles towards leaving the European Union on 29 March with no agreement for a future relationship agreed, the list of repercussions stack up.
We look at some of the key themes for businesses to consider in industries including technology, energy, banking, healthcare, packaging and insurance.
Implications of a no-deal Brexit on UK technology industry
A hit on funding for innovative start-ups and an inability to service IT contracts – or build viable future ones – could result from a “disorderly no-deal Brexit”, according to GlobalData.
The data intelligence company’s latest report Brexit’s Impact on Global Tech states that global tech titans with a European base should survive the political turmoil.
But it says smaller companies lack the resources and bandwidth to cope with the expected fallout from no deal, which could include diverging regulations, more red tape and talent recruitment challenges.
GlobalData has identified five key areas where challenges must be overcome to mitigate the implications of Brexit on the tech industry.
They are:
Securing the continued free flow of data
Ensuring continued access to talent
Enabling the frictionless movement of tech products and services across borders
Providing alignment on rules covering digital services to avoid barriers to market access
Retaining access to EU funding streams such as Horizon 2020 and the European Investment Fund.
David Bicknell, principal analyst in the GlobalData technology thematic research team, says: “With no clear picture yet emerging as to what Brexit will ultimately look like, tech executives could be forgiven for adopting a ‘wait and see’ approach before deciding what to do.
“The big global tech players have the footprint to weather the Brexit storm because they have a big enough boat to ride the waves and a European harbour to sail for.
“Smaller players facing a skills shortage are more likely to be losers, as will telecom operators, which need skills to tackle full-fibre roll-out.”
Tech start-ups and scale-ups in search of funding will be among the biggest losers from a no-deal Brexit, according to Mr Bicknell.
The UK has typically been the default stop for US tech investment, but he believes any Silicon Valley CEO looking at the UK’s likely post-Brexit hangover – and current political turmoil – will either put off a decision indefinitely or opt for an alternative base that is both tech-friendly and offers strong English-language skills.
Mr Bicknell adds: “The government always talks a good game about winning the global race, in areas like AI, but the UK seems to be setting out to try and win the race with its legs tied together.
“Even Mo Farah would struggle with that. If the government expects the UK’s tech sector to continue to thrive, it has to create the conditions for it to do so, not destroy them.”
Implications of a no-deal Brexit on UK banking industry
One of the industries most exposed to market uncertainty is finance, with leaders calling for a transition period until the end of 2020 – during which the status quo would apply – to help plan a future relationship with the EU.
Stephen Jones, chief executive of industry trade association UK Finance, says: “Firms in the finance industry have put contingency plans in place to minimise disruption for their customers in a no-deal scenario but critical cliff-edge risks remain, including on the transfer of personal data and the operation of cross-border contracts.”
He also speculates that the UK – and specifically London – is likely to lose its status as Europe’s leading financial services hub in the event of no-deal Brexit.
“London as the European financial centre appears to most of us [inside the industry] to be over,” he added in an interview with Channel 4 News last month.
“We’ll do our best to retain what we can within the context of what is negotiated, no deal or a deal.
“But Frankfurt and Paris will become much more important financial centres in a European context.”
Britain will lose passporting rights – which permit financial services companies to conduct activities inside the European Economic Area – after Brexit, and this change would happen immediately in a no-deal scenario.
However, there could be more opportunities for tech-savvy and nimble start-up banks.
Digital mortgage broker Mojo Mortgages’ managing director Nick Sherratt says fintechs will gain ground on traditional finance businesses, which struggle comparatively to absorb the impact that a reduction in consumer confidence may bring.
“The market evolution through technology is inevitable regardless, but almost certainly will be amplified and accelerated by a no-deal Brexit,” he adds.
Implications of a no-deal Brexit on UK energy industry
Energy is more reliant than many industries on seamless transportation across country borders, while many of the UK’s biggest energy suppliers are either controlled or owned by European companies.
These include German-owned E.ON and Innogy, France’s EDF and – despite its name – even ScottishPower is controlled by Spanish utility firm Iberdrola.
Similarly, since North Sea oil and gas production peaked in 1999, the UK has become increasingly reliant on imported energy and has been a net importer of energy since 2004.
In 2017, imports were double the volume of exports and contributed to 36% of the country’s energy needs – with the government expecting this dependence to increase in future.
A briefing from global natural resources consultancy Wood Mackenzie says: “The most notable risk to the UK energy market from a no-deal scenario is principally linked to the economy.
“The consensus of no-deal scenarios suggests weaker economic growth and a fall in sterling, which would weaken demand and increase the cost of energy imports respectively.”
Departure from the EU without a deal would mean Britain leaving the Internal Energy Market (IEM), which allows for efficient trade of energy between EU members as a result of compliance over EU energy rules and regulations.
The government recommended that energy industry stakeholders seek “alternative trading arrangements” before the leaving date of 29 March 2019.
Much of the UK’s energy infrastructure is tied to Europe and it is already involved in 11 proposed interconnectors – cables that supply energy between networks – between the UK, Ireland and continental Europe that could provide a fifth of Britain’s electricity by 2025.
But despite more efficient energy links with Europe, the trade of electricity across them could become harder if the UK leaves the EU without a deal.
Wood Mackenzie’s industry experts believe the UK has been perceived as an attractive destination for power flows due to high prices, retirement of coal and limited existing transmission links.
But the company adds: “In addition to influences on the fundamental drivers of interconnector flows, a no-deal Brexit would also immediately decouple the UK from Europe’s IEM, meaning that cross-border flows of electricity would no longer be governed by EU rules on efficient trade and cross-border cooperation.”
The nuclear industry is concerned about the future of Britain’s membership of the European Atomic Energy Community (Euratom) – a participatory agreement between EU member states to efficiently distribute nuclear energy across Europe and sell surplus power to non-member states – and International Thermonuclear Experimental Reactor, an international nuclear fusion research and engineering project.
And environmentalists will worry about whether the “high standards” referenced in the government’s Brexit White Paper will include the EU-governed commitment to cut emissions and increase efficiency by 20% by 2020.
Implications of a no-deal Brexit on UK insurance industry
Everyday worries over what the future holds could lead to a shift in priorities from planning for the future to concentrating on the here and now among many people – with repercussions for the insurance market.
Industry commentators have identified a potential rise in income protection, which covers part of an individual’s income if they can’t work due to ill health or unemployment – the latter a key concern for workers as the political uncertainty threatens investment prospects.
Rod Jones, head of partnerships at insurance comparison website ActiveQuote, says: “In the midst of economic uncertainty, policyholders are thinking they need to protect their income as a greater priority than insuring their lives.”
As European insurance providers seek to raise their game in competing with British rivals when it comes to costs, UK firms could find it more difficult to recruit top talent.
This could threaten the country’s position as the largest employment base, with 110,000 people working in UK insurance.
But Tom Webster, senior manager at specialist financial recruiter Heat Recruitment, says: “Such measures are unlikely to result in job losses due to the increased demand of skilled workers.
“We may see a rise in the use of contractors and specialist workers who can come in on a flexible contract without bringing any training costs with them.”
Insurance is another industry at risk following the loss of passporting rights, with the current position being that UK companies will be unable to pay claims made by EU policyholders.
That’s unless EU regulators create an equivalent scheme to the UK’s Temporary Permissions Regime (TPR) – which enables EU-based companies to temporarily continue their business in the UK until a permanent arrangement is agreed – although there is no indication yet that such reciprocation will happen.
Implications of a no-deal Brexit on UK healthcare industry
The UK’s healthcare and life sciences industries – one of the most productive in the world with 240,000 employees and worth more than £70bn to the economy – could seriously suffer immediately after 29 March if no agreement is made with the EU, according to the British Medical Association (BMA).
It cites how key medical research is reliant on the EU in terms of its workforce and collaboration in both research and funding programmes.
Damon Culbert, a political commentator from immigration law firm Immigration Advice Service, says: “To leave the single market as well as the European scientific community as a whole will negatively affect the country’s ability to innovate.
“Without access to shared databases or the ability to quickly transfer highly-skilled professionals between the UK and the EU, our country will be losing out on the advances being made elsewhere.”
One of the biggest no-deal Brexit concerns in healthcare is medical supplies, with about 2,600 types of drugs at least part-manufactured in Britain.
In 2016, the UK exported £24.9bn of pharmaceutical products, of which £11.9bn went to the EU, according to the UK government.
At the same time, the UK imported £24.8bn of pharmaceutical products, of which £18.2bn were from the EU – giving a trade deficit of £6.3bn in the EU.
Some 45 million patient packs are supplied from the UK to other European countries, while another 37 million flow in the opposite direction.
It has led to many organisations stockpiling, with diabetes care healthcare specialist Novo Nordisk making emergency preparations by doubling its UK insulin stockpile to give it 18 weeks’ worth of supplies.
Meanwhile, the Pharmaceutical Services Negotiating Committee – which supports NHS community pharmacies in England – has warned medial shortages have already increased in recent months.
As an EU member, medical products approved in the UK automatically extends to approval to the rest of the EU by using the CE mark – which represents a declaration by the manufacturer that it complies with EU requirements regarding health, safety and environmental protection legislation.
Although the UK’s Medicines and Healthcare Products Regulatory Agency (MHRA) confirmed it will continue recognising CE-marked products for use in the country for a limited time initially, the BMA is concerned Britain may not receive similar assurances from the EU in a no-deal Brexit scenario.
It states: “Establishing a separate system for accreditation of medical devices in the UK – diverging from the CE marking scheme – would increase the burden on device manufacturers through the need to satisfy different safety, health and environmental protection requirements.”
Implications of a no-deal Brexit on UK food and packaging industries
One of the biggest discussions surrounding a no-deal Brexit in the food and packaging industries is the effect that it will have on so-called just-in-time supply chains.
Just-in-time (JIT) production – also known as the “Toyota production system” after being dreamed up by the Japanese engineering giant – is an end-to-end manufacturing technique that aims to cut costs by reducing the amount of goods and materials a firm holds in stock at any one time.
And with the manufacturing industry relying heavily on products such as car parts from overseas, JIT is a vital cog in the supply chain.
Tony Mundin, managing director of Nottingham luxury packaging firm Oyster Retail Packaging, has “a number of worries” when it comes to the event of a no-deal Brexit, particularly relating to imports and exports.
He says: “We’d be expecting longer lead times due to import delay, which would increase costs.
“The weakening of the pound offers an increase in costs for everyone including ourselves.
“Put simply – in the event of a no-deal Brexit, we’ll be facing a multitude of side effects that can only result in a negative outcome, a loss of trust, and a lack of confidence for our future.”
This also has a huge impact on food supplies, as major retailers like Aldi and Tesco reportedly using JIT supply chains to minimise stock retention, improve working capital and reduce wastage.
The UK imports 70% of its food from the EU and is only 60% self-sufficient, according to a report by the Food and Drink Federation’s chief scientific officer Helen Munday.
“JIT supply chains mean empty shelves in four days or fewer if supply is delayed or interrupted,” the report states.
Labelling is another area of change as some wording may have to change.
For example, honey blends currently bear labels stating that ingredients are sourced from both the EU and outside.
If the UK leaves the union without a deal, this must be altered to wording such as “blends of honeys from more than one country”, the government says.
An EU address on labels in the UK would also no longer be valid for a UK market, meaning any products sold in Britain with an EU base would then need to have a UK-based address for that product.
Any UK-based company selling products in the EU must, in turn, have an EU address instead of using the UK address.