Rolls Royce to continue stockpiling parts for no-deal Brexit

‘I do have to be able to guarantee that we can continue doing our business’ after Brexit, CEO Warren East says.

Rolls Royce will push ahead with its contingency plans for a no-deal Brexit despite the draft withdrawal deal agreed by U.K. and EU negotiators Wednesday being a “step in the right direction,” the company’s chief said Friday.

“Any deal is better than no deal, giving us a framework for how we’re going to work in the future,” Rolls Royce CEO Warren East told BBC radio’s Today Program this morning.

But there’s still “a lot of water to run under the bridge,” East said, so his company will continue stockpiling parts as “this agreement is only a draft.”

East added: “I do have to be able to guarantee that we can continue doing our business after the 29th of March next year.”

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Businesses call for state bailouts if UK crashes out of EU

Firms argue Brexit is a political crisis and no fault of theirs.

LONDON — A no-deal Brexit could require U.K. government bailouts like those following the financial crisis to prevent businesses from going bankrupt.

That’s the view of some in industry who see Brexit as a problem created by politicians that threatens to destroy British businesses and bring about an economic crisis.

Even if negotiators in Brussels craft a Brexit divorce deal in the coming days, it is far from certain that any agreement will be ratified by MPs in Westminster, and the U.K. could still leave with no deal at all, even though many among the country’s traders, manufacturers and in town halls say it is probably already too late to prepare adequately for it.

If the U.K. does fall over the Brexit cliff edge, ministers must leverage the government’s “financial muscle … in rather the way they did for the banks during the [2008] crash,” said Ian Wright, director general of the Food and Drink Federation, which represents 7,000 firms.

“If the government was to say no [to that] now there would be a very big question from British industry: ‘You were prepared to fund the banks who brought the crisis on themselves … but you’re not prepared to support British business which is completely innocent of any fault in the current circumstances?’”

Local councils have also expressed dismay at gaps in no-deal planning.

“Very few businesses in the U.K. asked for this to happen,” he added. “This is a crisis entirely created by politicians.”

While discussion of no-deal preparations has focused on what the government is doing — from re-engineering motorways to serve as lorry parks, to hiring more customs officers — industry and local government has also had a role to play.

They are closer to the day-to-day reality of U.K.-EU trade and their message is simple: At this late stage, there’s not much more that can be done to prevent major disruption.

In such a scenario some firms won’t survive, many predict.

Anti-Brexit demonstrators form a chain along Whitehall in London | Tolga Akmen/AFP via Getty Images

“If you’re an exporter and a significant proportion, say 30 percent or above, of your business is with the EU, or if you’re an importer and you have critical ingredients or products that you bring in from the EU — maybe you import feta cheese or salami — I think there’s probably relatively little you can do to be prepared for a no-deal Brexit. And for those businesses it’s perfectly possible that the disruption could be terminal,” said Wright.

A U.K. government spokesperson said in response: “It is in the interests of both the EU and the U.K. to strike a good deal and we are confident this will be achieved. But as a responsible government we are making plans for all possible outcomes, including the unlikely event that we reach March 2019 without an agreement.”

“This comprehensive no-deal preparation includes informing businesses through a series of technical notices what practical steps they need to take,” the spokesperson said.

Too late

When Whitehall published more than 100 “technical notices” over the summer giving advice to businesses, public authorities and citizens on what to do in the event of no-deal, the U.K.’s business lobby was unimpressed.

“We still don’t know exactly what no-deal would look like on the day it takes effect, whether the government would relax import controls or cut tariffs as a mitigating response,” said Allie Renison, head of Europe and trade policy at the Institute for Directors, which represents business leaders. “Even its own technical notices don’t suggest this, and much of the advice on import and export with EU has been fairly general.”

Only a third of the IoD’s more than 30,000 members have done contingency planning for a no-deal Brexit, Renison said.

Businesses using the ports could turn up the day after Brexit without the right paperwork or licenses.

Those that have not are often smaller firms that have struggled to afford the investment in staff, IT systems or outsourcing needed to ensure they are prepared for an EU third-country customs regime. With continuing uncertainty about whether there will or won’t be a deal, many have gambled on there being a deal rather than make an investment they can ill-afford.

“They can only prepare when they know the exact direction of travel,” said Renison. The IoD is also calling for financial support for business, in this case to assist with the cost of professional advice on no-deal planning. The Irish and Dutch governments have offered such schemes to businesses in their countries.

“As long as it remains government policy to potentially walk away, it is incumbent on them to make further provision to help firms be fully ready for the consequences of that outcome,” Renison said.

Local councils have also expressed dismay at gaps in no-deal planning. A report prepared for a meeting of the Local Government Association’s leadership board on October 17 said the government’s technical notices do not deliver essential practical guidance — or cash — for council-run port authorities that might be required to dramatically step up operations.

A lorry arrives at Dover Ferry Terminal on April 26, 2018 in Dover, England | Dan Kitwood/Getty Images

Pauline Bastidon, head of European policy at the Freight Transport Association, one of the U.K.’s biggest business groups, representing transporters, retailers and manufacturers, tells a similar story.

“Maybe three-quarters of the things that could have been done, if companies are waking up and deciding to do it now, it’s probably too late for March 2019,” she said.

At the moment U.K. government officials are considering waiving additional customs checks for all but security purposes in the event of no-deal. To alleviate snarl-ups at the ports of Dover and Holyhead, freight that needs thorough inspection will be sent inland to one of two clearing centers in southeast England at Milton Keynes or Heathrow. But there remains uncertainty at the very top of government about the stance French authorities on the other side of the Channel will take.

The problem is not just what the port authorities will do, but that businesses using the ports could turn up the day after Brexit without the right paperwork or licenses.

Concerns about food and medicine availability are well-documented.

“That’s quite probable,” said Bastidon, “certainly in the first few weeks. But should we really blame these companies? All these things come at a cost. When it comes to expenditure, companies have to ask: ‘Is it needed now?’ … The uncertainty around whether there is going to be a deal or not, all of this means that for industry it is a gamble [to spend on no-deal contingencies.]”

The government is aware of the risks.

Appearing before the House of Commons public accounts committee on November 5, Jon Thompson, chief executive of Her Majesty’s Revenue and Customs, listed “customer readiness” as one of the greatest no-deal risks.

“We are not going to be naïve about whether businesses will be ready for day 1, no deal,” he said. “That is currently rated red. To some degree, customers will not be ready for what would happen in the event of day 1, no deal.”

The consequences

In other words, the risk of no-deal disruption is real, and so therefore is the risk of goods shortages.

Concerns about food and medicine availability are well-documented, but even in these vital areas there remains uncertainty that enough has been done.

Representatives of pharmaceutical firms and the NHS warned Health Secretary Matt Hancock on October 31 that if a damning National Audit Office report on the state of government planning was correct, then “we will have widespread shortages if we do not respond urgently.”

British Prime Minister Theresa May leaves 10 Downing Street | Jack Taylor/Getty Images

As for food, the shelves will not be bare, Wright said, but added he is aware of firms already stocking ingredients from Europe that might become temporarily inaccessible in the event of no deal.

If the disruption lasts longer than a month or so, he said, there are “very, very few businesses which could stockpile enough of their ingredients or products this side or the other side of the Channel to be able to bulletproof themselves.”

“I think there will be businesses who through no fault of their own will be put at very serious risk,” he said.

Jo Johnson, brother of Boris, resigns over Brexit

‘The choice being presented to the British people is no choice at all,’ says transport minister.

LONDON — U.K. Transport Minister Jo Johnson resigned today over Theresa May’s “incoherent” Brexit strategy.

Johnson, brother of former foreign secretary and Brexiteer figurehead Boris, issued a statement describing the Brexit withdrawal agreement — which he said is being “finalized in Brussels and Whitehall even as I write” — as a “terrible mistake.”

“The choice being presented to the British people is no choice at all,” he wrote, calling for May’s deal to be put to the people in a referendum, with the option of remaining in the EU.

A second referendum “would not be about re-running the 2016 referendum,” he said, “but about asking people whether they want to go ahead with Brexit now that we know the deal that is actually available to us, whether we should leave without any deal at all or whether people on balance would rather stick with the deal we already have inside the European Union.

“Given that the reality of Brexit has turned out to be so far from what was once promised, the democratic thing to do is to give the public the final say,” he wrote.

Johnson said May’s deal would leave the country “economically weakened, with no say in the EU rules it must follow and years of uncertainty for business.

“The second option is a ‘no-deal’ Brexit that I know as a Transport Minister will inflict untold damage on our nation.

“To present the nation with a choice between two deeply unattractive outcomes, vassalage and chaos, is a failure of British statecraft on a scale unseen since the Suez crisis.”

Johnson’s resignation is significant as, unlike his brother, he backed Remain in the 2016 EU referendum, and his decision to quit could be a sign of wider discontent against May’s Brexit plan within the Conservative Party.

“My brother Boris, who led the Leave campaign, is as unhappy with the government’s proposals as I am,” Johnson continued. “Indeed he recently observed that the proposed arrangements were ‘substantially worse than staying in the EU.’ On that he is unquestionably right. If these negotiations have achieved little else, they have at least united us in fraternal dismay.”

Boris Johnson tweeted that he had “boundless admiration” for his brother, adding that “we may not have agreed about Brexit but we are united in dismay at the intellectually and politically indefensible of the UK position.”

Asked whether he was aware of other ministers who felt the same, Tory MP and former attorney general Dominic Grieve said: “I know there are many other people who are troubled by what has been happening and have come to same analysis that I’ve come to and Jo’s come to.

“I appreciate they face difficult choices and I couldn’t make a prediction that more people are going to quit over this, but it does seem to me [that] the truth of all this is that there is no form of Brexit that is better than staying in the EU and that has become absolutely clear as the negotiation has gone on.”

A Tory MP on the Remain wing of the party said the resignation was “quite significant.” He said he knew of several others who were “considering what to do.”

An aide to a Brexiteer MP put a gloss on the resignation, pointing out that Remainers were “equally unhappy” with May’s deal.

A spokesman for the People’s Vote campaign, which is pushing for a fresh vote on May’s deal, said: “We think there are a handful of ministers who do not think that differently from Jo. We’re working on them and lots of Conservative MPs who we think could back a People’s Vote. Everybody has to make up their own mind. It’s their choice about how best to represent the interests of their constituents and their country. Do I expect Johnson to be the last ministerial resignation? I don’t.”

In a statement, Jenny Chapman, Labour’s shadow Brexit minister, said: “Jo Johnson is the eighteenth minister to resign from Theresa May’s government. She has lost all authority and is incapable of negotiating a Brexit deal within her own party, let alone with the EU.”

Rachel Johnson, a journalist and Jo and Boris’ sister, tweeted that she was “hugely proud of my honourable and principled brother Jo who has put the interests of the country ahead of his political career.” Last year she joined the Liberal Democrats in protest at Tory support for Brexit.

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Councils warn of ‘economic shocks’ from no-deal Brexit

A Local Government Association report says councils fear they are being kept in the dark by Whitehall on no-deal planning.

LONDON — Councils in England and Wales are lobbying the U.K. government for help to avoid “local economic shocks” in the event of a no-deal Brexit, according to a report prepared for the Local Government Association (LGA) board.

The document, which was discussed at an October meeting of the organization’s leadership board, warns of “stark” issues facing councils and raises concerns they are being kept in the dark by Whitehall on major aspects of no-deal planning.

It predicts that councils may not find out “the detail of Brexit” until “the last minute” and that preparations for “local economic shocks or emerging local opportunities [may] need to be developed quickly.” In some cases, it may already be too late for councils to train staff to cope with changes in time for a possible no-deal Brexit in March 2019, the document, which has not previously been reported, warns.

‘Stark’ concerns

The LGA, which represents English and Welsh local councils in their dealings with central government, has told Whitehall that its heavily publicized no-deal “technical notices” do not cover key issues and that more advice papers are needed “to address the impact across all services at a local level,” the report adds.

Councils lack clear guidance on what will happen to EU citizens in their jurisdictions in the event of no-deal, the report states.

However, it concludes these are “unlikely to be delivered,” adding: “Under the no deal scenario, these issues are stark as preparedness is needed by March 2019 when a switch from EU rules to new UK rules becomes effective.”

In a further complaint, the papers note that “much of the Government’s preparations on Brexit is being undertaken through confidential meetings,” a phenomenon described as “clearly unhelpful” and “hampering efforts by councils to prepare for Brexit.”

Councils lack clear guidance on what will happen to EU citizens in their jurisdictions in the event of no-deal, the report states, while noting that there has been “no response” from government to concerns raised by the LGA about potential costs to local authorities — which have faced deep budget cuts in recent years — if the price of new tariffs on EU goods is passed on to them.

Equally, details of how a U.K. plan to replace EU regional funding would operate in the event of no-deal is also “yet to be developed.”

Concerns particularly focus on councils with authority for food safety and other checks at ports. Advice contained in the government’s no-deal papers on this issue are “purely technical,” the report says.

British Chancellor Philip Hammond set aside additional funds for cross-Whitehall preparations for Brexit, but it is unclear how much will go to local councils | Tolga Akmen/AFP via Getty Images

“They do not consider the training/change management needed locally nor do they consider any additional resource that might be needed,” it states.

“Councils are capable to manage this change but they need new resources for new duties. Change requires training and an understanding of detail of front-line staff. Under a no deal scenario, the time and training needed for such additional capacity may not be available and ‘a period of grace’ may be needed in which any confusion between the sudden shifts in regulatory systems will result in support rather than punishment,” the report argues.

Dysfunctional government

Painting a picture of dysfunctional cross-government working on Brexit, the paper describes how the local government sector itself has had to “deal with and coordinate the work of all departments in order to understand the scale of the work needed by councils. This continues to be a concern.”

“There is still an onus on the sector itself to join up the action plans of Whitehall,” it adds.

The report, which was submitted for discussion at a board meeting on October 17, ahead of the government’s latest budget statement on October 29, says that the LGA is in discussion with the Ministry for Housing, Communities and Local Government about the need for “resources or capacity which deal with these local risks and opportunities.”

In the budget, Chancellor Philip Hammond set aside an additional £500 million for cross-Whitehall preparations for Brexit, but it is not yet clear how much of this will be allocated to local councils.

A government spokesperson said: “We firmly believe it is in the interests of both the EU and the U.K. to strike a deal, and we remain confident we will agree a mutually advantageous deal with the EU.

“However, it is the duty of a responsible government to continue to prepare for a range of potential outcomes.

“We continue to work closely with local areas and meet representatives regularly. Our Brexit Ministerial Local Government Delivery Board, which the LGA are part of, is meeting regularly.”

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Brexiteers fear price rises, not return of Irish border

Poll for POLITICO finds nearly half of voters believe that Brexit’s economic legacy will be positive a decade hence.

LONDON — Few things are likely to change the minds of the British public on Brexit — and the Irish border almost certainly isn’t one of them.

While the debate in Westminster, Brussels and Dublin is now almost solely focused on efforts to avoid a hard border between Northern Ireland and the Republic of Ireland, most U.K. citizens appear largely apathetic. According to an exclusive poll for POLITICO by the consultancy Hanbury Strategy, they are far more concerned about the possible effect Brexit will have on prices in the shops.

The data suggests that some potential negative outcomes of Brexit are more likely than others to make voters change their minds. And the responses of Leave supporters to the poll indicate they are particularly resistant to having a change of heart if things get rough — whatever the outcomes.

Presented with a list of possible consequences of Brexit, 35 percent of Leave voters said prices going up in shops would be likely to change their opinion — the highest of any potential negative outcome. In second place, 32 percent of Leavers said staff shortages in the NHS could make them think again.

But less than 22 percent of these voters said that the creation of a hard border between Northern Ireland and the Republic of Ireland would shift their stance on Brexit, while 42 percent said that it was unlikely to.

The figures are based on a poll of more than 3,000 people, including 1,236 Leave voters, carried out between October 29 and November 2, which was weighted to be representative of the U.K. population.

Notably, no single negative scenario — not a major recession (27.5 percent), millions of job losses (29 percent), food shortages (28 percent) or medicine shortages (30 percent) — is likely to prompt a majority of Leavers to change their mind.

Economic impact

Overall, respondents were much more positive about the long-term outlook for the U.K. economy after Brexit, but with some significant concerns — even among Leave voters — about the short-term impact.

Asked whether Brexit would have a positive or negative impact on the economy, 45 percent said that the weeks immediately after Brexit would be negative and only 26 percent thought the opposite (the rest expect a neutral impact). Even among Leave voters, 26 percent expect the impact weeks after Brexit to be negative for the economy.

However, 38 percent of people believe that a year after Brexit the U.K. will doing better economically. The exact same number believe things will have gotten worse.

Ten years down the line, 48 percent of people believe that Brexit’s economic legacy will look positive, compared to just 26.5 percent who think the effect will still be negative.

All that though depends on the U.K. government getting a divorce deal in the short term. Amid continuing uncertainty that Theresa May will be able to secure a Withdrawal Agreement that will satisfy the U.K. parliament, respondents were asked to choose from a range of options for next steps should MPs reject May’s plan.

Reflecting the continuing Leave/Remain split in U.K. opinion, the most popular options were to leave without a deal (34 percent) and stay in the EU (26 percent). Eighteen percent back the opposition Labour Party’s preferred option of a general election.

Given this range of options, only 9 percent said they want a second referendum on EU membership and only 8 percent back a referendum where the options would be May’s deal or no deal. Six and a half percent went for none of the above.

However, when asked the second referendum question in a different way — “When the negotiations with the EU are over, would you support or oppose a public vote on the outcome of the negotiation?” — 43 percent support the idea, 35 percent oppose and 22 percent don’t know.

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Madrid tells businesses to get ready for (any) Brexit

Only one-third of Spanish companies have made Brexit contingency plans.

MADRID — Spain is stepping up calls on businesses to get ready for any potential Brexit outcome.

Industry and Commerce Minister Reyes Maroto this week announced a series of actions aimed at “helping companies prepare contingency plans” for Brexit, including informational meetings with business leaders and a public website.

“We have to inform companies that any scenario can occur,” she told reporters. “Some [companies] still convey to us hopes that nothing will happen, and the reality is that something is going to happen.”

Only 31 percent of Spanish companies have made contingency plans for Brexit, and just 19 percent have started implementing those plans, according to a survey of 2,000 executives conducted by KPMG in coordination with the CEOE, Spain’s biggest business lobby.

A CEOE official said the government has told businesses to prepare for three potential scenarios: A no-deal Brexit (with the U.K. falling under the trade rules of the World Trade Organization), a so-called Canada-plus agreement — which would go beyond the EU’s deal with the North American country — and a deal whereby the U.K. remains in the EU customs union.

Spanish Prime Minister Pedro Sanchez has told civil and business leaders to prepare for any kind of Brexit | Raul Arboleda/AFP via Getty Images

Madrid has consistently advocated for the softest possible Brexit, under both the current Socialist and previous conservative governments. But there are growing concerns among officials that this may not be the outcome, leading some to fear Spain could be one of the biggest economic losers from Brexit.

The U.K. is the biggest recipient of Spanish foreign investment, the second largest foreign investor in Spain and the fifth biggest destination for Spanish exports. The U.K. also sends the largest number of tourists to Spain, and Brits buy more real estate in the country than any other foreign nationals, according to KPMG.

On top of that, more than 300,000 British nationals live in Spain — the highest number from any EU country — and around 150,000 Spaniards live in the U.K.

Maroto’s comments follow a series of warnings in recent weeks by Socialist Prime Minister Pedro Sánchez and his Foreign Minister Josep Borrell, asking both public administrations and business leaders to get ready for any kind of Brexit.

“The agreement on air transport is the most important thing” — Josep Borrell, Spanish foreign minister

Speaking in Parliament last week, Sánchez called on all economic, social and institutional stakeholders to elaborate “their own contingency plans” to face “any kind of scenario that can occur after March 29, 2019.”

Last month, Borrell warned the Congress of Deputies that many companies still don’t have contingency plans, when they should. “It’s important for people to understand that we must be ready for any eventuality,” he said.

A Spanish diplomat working on the Brexit negotiations said the likelihood of a cliff-edge, no-deal scenario had increased slightly after the EU and the U.K. failed to reach an agreement in October, leading Madrid to accelerate preparations.

The diplomat said Deputy Prime Minister Carmen Calvo is coordinating plans across all government departments, which, he said, includes getting ready to hire extra customs officers, as well laying out urgent regulations on trade protocols or phytosanitary standards.

He said Madrid was stepping up calls for everyone to get ready for Brexit after seeing that Spanish companies lagged their German and French counterparts in their preparations.

Top among Madrid’s economic concerns is the fate of the aviation sector.

“The agreement on air transport is the most important thing,” Borrel said in Congress. Spain’s flagship airline Iberia is part of the IAG conglomerate that also owns British Airways, Aer Lingus and Vueling.

Spanish officials have also expressed concerns about the fishing industry — Spanish shipowners partly rely on British waters — tourism and expected cuts to agricultural subsidies and structural funds.

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