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Prime Minister Theresa May is stepping up her interactions with business leaders as Britain’s split from the European Union nears.
While pleased by the overtures and also by signs the government is increasingly acknowledging the need for a transitional period, executives and lobbyists still have a long list of demands for the divorce deal and subsequent trade pact.
Bloomberg News spoke to representatives from a range of industries to discover what they want most from the eventual Brexit agreement and what they think of the progress made so far.
U.K. drugmaker GlaxoSmithKline Plc has welcomed the government’s more “pragmatic approach” to Brexit and called for a minimum two-year transition period, while AstraZeneca Plc has said three to five years would be needed to give the sector time to prepare for the new environment. A loss of EU funding could threaten research and development unless the U.K. matches the amount forfeited and big companies like AstraZeneca want immigration laws that allow EU scientists to work in the U.K. They also say it is critical for the U.K to maintain access cooperation with the EU’s regulator, the European Medicines Agency, which will move out of London.
For the U.K.’s creative industries, loss of membership in the single market could deter investment in film and television programming, threatening the U.K.’s position as the premier European destination for U.S. studios. Broadcasters use U.K. licenses to access the EU and staff, TV studios and offices could all have to move if those licenses lose validity after Britain’s break from the bloc.
Broadcasters want to ensure that U.K. productions continue to qualify as “European,” in order to benefit from regional subsidies that foster investment. Television companies like ITV Plc are also worried about how advertising, a major source of revenue, will fare post-Brexit. U.K. retailers may cut ad spending if inflation due to tariffs and a weak currency eats into profit margins.
Travelers from the U.K. risk higher phone bills. While the EU abolished roaming fees as of June, carriers including BT Group Plc and Vodafone Group Plc could face higher wholesale prices from networks on the continent. Restrictions on the movement of EU workers would especially hurt BT, which relies on migrant engineers to climb poles and pull cables through ducts as it rolls out more fiber to boost internet speeds. Operators are seeking to ensure no barriers to the free flow of data across borders, which could be threatened unless the European Commission continues to consider the U.K. as an equivalent regime for data security and protection.
The main concern for the U.K. tech industry is a loss of access to skilled workers from the EU. Between 2009 and 2015, around one in six new hires in the tech sector came from other countries in the bloc, according to lobby group techUK. The Federation of Small Businesses said the uncertainty should be ended over future rights of EU citizens and how long they can remain in the U.K., and “it would make sense for the government to make that cutoff point as late as possible.” Also up in the air is how much of the EU’s plans for a digital single market the U.K. will adopt.
U.K. farmers fear losing easy trade access to the EU, the largest market for their exports. If Britain ends up exposed to World Trade Organization tariffs, agriculture will be among the sectors to suffer the most, given such duties run more than 40 percent for meat and cereals.
The industry also wants access to a reliable workforce. About 22,000 citizens from the EU were employed in British agriculture in 2015, roughly 20 percent of the total staffing, according to a report from the U.K.’s farming development board. The National Farmers’ Union is lobbying for special visas for seasonal workers. Brexit will also cost farmers EU subsidies and there are concerns that to win trade deals with other countries, the U.K. may weaken production standards by, for example, accepting chlorinated chicken from the U.S.
Top of the wish list for banks is securing a lengthy transition period after the end of the two-year Brexit negotiation period, during which the industry will retain full access to the EU’s single market. Such a transition is “paramount, paving the way for a smooth exit that protects the interests of our members’ customers and clients,” said Stephen Jones, CEO of lobby group U.K. Finance. Still, finance chiefs have begun the process of moving some U.K.-based operations to new or expanded trading hubs inside the EU, assuming there is no guarantee of a transition and that they will lose passporting rights in March 2019. Germany and France want to repatriate oversight of euro clearing, which would prompt an even larger exodus of bank jobs from Britain.
Carmakers are worried that Brexit will result in 10 percent tariffs on trade with the EU. More than half of U.K. vehicle exports headed to the bloc in 2015. PA Consulting calculated that the average car price in Britain would rise by 2,300 pounds ($3,017) in the event of a “hard Brexit” under which the country loses membership in the single market. It would also hamper the free movement of components between production sites across the continent.
The Society of Motor Manufacturers has called on the government “publicly to seek an interim arrangement” where the U.K. remains in the customs union and the single market throughout its exit from the EU. The U.K. government has also sent letters with undisclosed assurances to Toyota and Nissan as they weighed factory investments since the referendum.
Airlines typically draw up schedules about a year in advance, so “the clock is running down” on the time for planning for summer 2019, Neil Sorahan, chief financial officer of Dublin-based Ryanair, said July 24. Airlines are seeking clarity on EU ownership rules and whether the current single-sky treaty will be maintained. EasyJet has already established an EU subsidiary in Austria, which has been awarded an airline operating contract within the bloc. Ryanair would also need a license to operate its handful of U.K. domestic flights and warned flights to and from the U.K. could be grounded.
U.K. access to a so-called Open Skies deal with the U.S., integral to the profitability of BA and Virgin Atlantic Airways Ltd., might also need re-negotiating since the deal was struck by the EU. Takeover rights could also be limited, since the EU has a 49 percent cap on investment in its airlines from beyond the bloc. The head of trade association ADS Group, Paul Everitt, welcomed the government’s changed stance on a transition deal but said the sector “would be very keen to see that agreed before the end of this year.”
For logistics companies, on the other hand, Brexit could bring benefits. “Protectionism leads first to more complexity” and “complexity is good” for the industry, Deutsche Post AG Chief Executive Officer Frank Appel said in a March 8 interview, because customers seeking to ship products will need help dealing with more duties or red tape. But 20 percent of transport’s workforce is born outside the U.K., so immigration curbs could cause driver shortages. More border controls could also mean more time at ports and other entry points like the Channel Tunnel, potentially delaying deliveries and travelers.
Because the U.K. imports about half the food it eats, tariffs that run as high as 30 percent for dairy products and confectionery products would put upward pressure on prices, which are already increasing because of the decline in sterling. Industry lobby group the British Retail Consortium said that a “no-deal” Brexit may raise food tariffs by 22 percent on average, bringing additional pressure to a sector where profits have withered due to the rise of discounters Aldi and Lidl. The fashion industry worries that intellectual property rights could be weakened by Brexit, but U.K. luxury brands with significant overseas sales could benefit from the weaker pound, even as Brits cut back on non-essential spending amid a squeeze on incomes.
Food and Drink
Britain’s coffee shops, pubs, restaurants and hotels could suffer from a shortage of EU migrant workers and the imposition of tariffs. Consulting firm Mercer reckons 33 percent of hotel workers are non-U.K. nationals. Costa Coffee owner Whitbread Plc and Restaurant Group Plc have said they expect surging prices of food and drink sourced abroad to crimp profits. Pub operator J D Wetherspoon Plc and sandwich chain Pret a Manger Ltd. have highlighted the potential labor crisis for the industry, where one in three employees are born outside the U.K.
The weak pound has fueled a surge in overseas visitors—up 19 percent in January from a year earlier—but restrictions on the EU’s free movement pose a threat to further growth. KPMG identified food and drink manufacturing as the area likely to suffer the most from a hard Brexit. Industry groups have urged the government to seek a tariff-free EU trade deal and a transitional agreement to ensure regulatory continuity.
Around 8 percent of Britain’s 176,500 construction workers are from other EU countries, according to the Royal Institution of Chartered Surveyors. With the industry already facing an age-related skills crisis, the risk of a hard Brexit is causing considerable alarm. Access to labor will become an even more acute concern as the U.K. breaks ground on a series of ambitious infrastructure projects booked for the coming decade, including a new runway for Heathrow Airport and a cross-country railway from the capital to Birmingham. Tariffs are also a worry for the sector, with a majority of materials like glass and cladding imported from the continent.
Owners of power cables and natural-gas pipelines linking Britain with the EU would face the imposition of tariffs should the U.K. leave the bloc’s single energy market. Lawmakers on both sides of the Channel will probably want to avoid tariffs by keeping Britain in the market to help prevent unnecessary cost increases, said Martin Callanan, a non-executive director of Aquind Ltd., which plans a power link from France that’s the largest of about 12 proposed. The International Emissions Trading Association in Geneva, which represents banks and utilities, wants the U.K. to stay in the EU carbon market because that will cut the cost of meeting greenhouse-gas reduction targets. There’s a chance that renegotiation of nuclear fuel supply rules known as Euratom will limit output at U.K. atomic plants, which could revive demand for fossil-fuel power, Macquarie Group Ltd. said in April.
The fishing industry backed Brexit, hoping it would revive a sector that’s been hit by competition from foreign fleets and quotas imposed by the EU. But it’s also anxious to retain border-free trade, with no tariffs or bureaucracy as fishermen continue to ship goods to the continent. Environment Secretary Michael Gove announced last month that the U.K. will leave the 1964 London Fisheries Convention to “take back control” of waters up to 12 miles from the coast. Despite this, fishermen know they won’t get everything they want, said 46-year old Barry Young, the managing director of Brixham Trawler Agents, in an interview with Bloomberg. But he added, “if we get something, then that’s better than nothing, which is what we have now.”
—With assistance from Christopher Jasper, Benjamin Katz, Joe Mayes, John Ainger, Sam Chambers, Thomas Buckley, Giles Turner, Jack Sidders, Manisha Jha, Nicholas Brautlecht, Chitra Somayaji, Rebecca Penty, Elisa Martinuzzi and Hannah George.
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