U.K. Businesses Renew Brexit Wish Lists as EU Talks StartBy and
Potential loss of EU workers, threat of tariffs top concerns
From carmakers to coffee shops, stakes rise as talks begin
Businesses are renewing demands of the U.K government to keep their interests in mind as Prime Minister Theresa May opens two years of talks with the European Union.
With Britain’s ambassador to the bloc set to hand EU President Donald Tusk a hand-signed letter from May to invoke Article 50 of the Lisbon Treaty, business concerns include the risk of tariffs, disruptions to supply chains and the potential loss of European workers.
Bloomberg News spoke to executives, lobbyists and analysts from a range of sectors to discover what they want most from any eventual Brexit deal.
A loss of EU funding could threaten research and development, especially at universities and start-up biotech firms, unless the U.K. matches the amount forfeited. Big pharmaceutical companies such as AstraZeneca Plc want immigration laws that allow EU scientists to work in the U.K. British patients could lose out if the country severs ties to the European Medicines Agency, because the U.K. by itself is too small to be a priority for drugmakers bringing life-saving new treatments to market. That makes it critical for the U.K. to secure an agreement for the reciprocal approval of new drugs or to allow Britain to follow Norway and Iceland in coming under the regulator’s authority.
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 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 is abolishing roaming fees as of June 2017, carriers including BT Group Plc and Vodafone Group Plc could face higher wholesale prices from other networks on the continent unless the U.K. agrees to cuts as part of a trade deal. 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. In 2016 the U.K. government increased the number of so-called tech visas by 20 percent to 250, giving highly skilled workers a fast track to U.K. employment. But that’s a small fraction of the industry’s hiring needs. Alphabet Inc.’s Google and Amazon.com Inc. alone have pledged to add almost 10,000 employees in the U.K. between them over the next few years. 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.
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 would retain full access to the EU’s single market. Absent that guarantee, finance chiefs say they will have to start moving people into the EU after May triggers formal exit talks. Banks also want insight into whether they can keep providing services to the region from bases in London even if they no longer benefit from the EU’s so-called passporting provisions. Ensuring access to high-skilled foreign talent is also important to the industry. Elsewhere in finance, Germany and France want to repatriate oversight of euro-clearing.
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 ($2,900) 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. Carmakers with plants in the U.K., including Toyota Motor Corp. and BMW AG, have called on the government to maintain tariff-free trade, while Nissan Motor Co. wants the U.K. to spend 100 million pounds to support auto suppliers. “Continued tariff- and barrier-free market access between the U.K. and Europe that is predictable and uncomplicated will be vital for future success,” Johan van Zyl, chief executive officer of Toyota Motor Europe, said in March.
Flights between the U.K. and EU will require a new treaty if the current single-sky arrangement isn’t maintained. U.K. carriers that fly from one EU state to another are also likely to need an operating license based somewhere in the bloc; British Airways owner IAG SA already has several via its continental arms, but Luton, England-based EasyJet Plc is looking at establishing an EU subsidiary to source a certificate. As an EU carrier, Dublin-based Ryanair Holdings Plc would also need a license to operate its handful of U.K. domestic flights. 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.
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. The pound’s slide is already fanning inflation, according to Wm Morrison Supermarkets Plc, though passing on the full cost increase to customers is difficult in the fiercely competitive grocery sector. That means profit margins could get squeezed. 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.
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. The problem is particularly acute in London, where nearly one in four construction workers are from the bloc, according to a report from London Mayor Sadiq Khan. Tariffs are also a concern, with a majority of materials like glass and cladding imported from the continent. Contractors, already struggling to meet order prices because of the weak pound, want to ensure that the cost of doing business with European suppliers doesn’t rise any higher.
— With assistance by Christopher Jasper, Benjamin D Katz, Joe Mayes, Dalia Fahmy, John Ainger, Sam Chambers, Thomas Buckley, Giles Turner, Jack Sidders, Manisha Jha, and Nicholas Brautlecht