Brexit revisited: No clear plan from government adds to uncertainty says insolvency expert

Before the decision to leave the European Union was made last June, TheBusinessDesk.com ran a series ‘Are you in or are you out?’ discussing the opinions, fears and hopes of Yorkshire’s business leaders and entrepreneurs about what the decision would mean for their company or industry.

Here we revisit the Brexit decision just over six months on and see if they’ve had a change of heart.

Interested in having your say? Email yorkshire@thebusinessdesk.com.

 James Sleight is a partner and head of the Leeds office of PKF Geoffrey Martin & Co, restructuring and insolvency specialists.

Before the EU Referendum, you said you were ‘In’ – would you have changed your mind based on the last five months?

No. The reason why I wanted to stay in was that I was concerned
about the long term uncertainties after Brexit. We’ve certainly seen economic uncertainty over the last few months with companies not sure whether to invest or take staff on.

We’ve also seen the wider trade negotiation issues between Canada and the EU, where the objections of one province in one country were enough to almost break a deal that took seven years to negotiate, which doesn’t bode well for the UK’s larger negotiations.

We haven’t yet seen a clear plan from the UK government and there’s
not a lot of confidence that they actually have one. With elections in France, Germany and the Netherlands over the next year, and extreme parties gaining traction across the continent, we will see further uncertainty which can’t be good for the economy.

The Autumn Statement saw the Government looking to £122bn of extra borrowing compared with the outlook before the EU Referendum and 2017 growth downgraded from 2.2% to 1.4%. Companies will be nervous about committing their own investment with such worrying Government numbers.

Having said that, at present the UK is the fastest growing of the G7, the employment rate is at a record high and a recession has not been forecast by the Government. Growth has been restricted but less so than in other countries.

How has your business been affected by Brexit so far?

Brexit will affect our business in two ways.

The first is what legislative changes will occur which will affect how we operate and more importantly how this will change our advice to our clients. Quite simply because Article 50 has not been triggered I don’t anticipate any material legislative changes resulting from Brexit for at least 18 months e.g. changes in employment law and cross border insolvency.

Secondly and more importantly, it is the financial impact of Brexit on businesses in the UK that will in turn affect our business. If businesses begin to struggle then we are likely to expect an increased number of enquiries regarding restructuring and viability advice. Also, if investment in this country starts to diminish then it may become more difficult to rescue businesses through going concern sales if purchasers become more cautious and start to stockpile cash reserves rather than spend them through targeting acquisitions.

I don’t think we have begun to see the true impact of this yet. Whilst in the last month it would appear there have been a steady increase in the number of regional insolvencies in the construction sector, I have not seen a significant increase in the number of corporate insolvencies since the referendum. There are still a large number of well run businesses who have significant reserves who are looking to expand their operations through acquisition or organic growth. The corporate finance market in the North at present still appears to be going strong. This may be simply due to the fact that no one knows what the impact will be, so it’s business as usual for most.

Those businesses that rely on importing their raw materials will be feeling the effects of the depreciation of the pound, however conversely those that have significant customer bases overseas will be enjoying a period of increased sales revenues. As usual, one business’s rain is another’s sunshine.

What we can see however is that inflation on general household goods and fuel is starting to increase and this is going to start hurting those families that are ‘just about managing’. Fuel increases will also start to pinch the bottom line of businesses who have exposure here. Whether there will be an increase in personal insolvencies all depends how those individuals are managing their credit, and the line that financial institutions will take in either extending credit limits or ensuring these are maintained within their limits.

Government stealth cuts to funding, grants and other related schemes are also likely to impact businesses who rely heavily on income streams from the public sector. We have seen an increase in corporate failure amongst those businesses specialising in training and whilst this is still a big sector, it may well replace marketing as the first line of expenditure to be cut if SME businesses start to feel the pinch.

Do you think we’ll see a second referendum?

No, I think we will see another general election before a second referendum. The whole political spectrum surrounding Brexit is viewed as nothing but embarrassing by the general British public. The latest court ruling, possible appeals and awaited government vote on the referendum, together with Boris Johnson’s threat of stopping prosecco imports to the country if Italy doesn’t give free trade to the UK, does not fill anyone with confidence.

The government need to take a strong line, all parties need to act together to get it through Parliament and then concentrate on the important tasks at hand. The upcoming general elections across Europe throughout 2017 and the anticipation of more Trump style politicians across the continent means however political turmoil is likely to continue for some time. The issue of implementing a universal plan for Brexit is likely to be way down the list of priorities for most European nations as they try to sort out their own houses.

Put simply, if we have the above then a complete political meltdown will have ensued.

What can businesses do to protect themselves following Brexit?

It’s all about being a good boy scout.

Review the core components of your business: suppliers, customers, employees, systems and processes and your overall business plan.

Examine these individually in the light of uncertainty following Brexit. If your business is volatile to cost fluctuations through exchange and interest rates or relies on a particular raw material that is price sensitive, then prepare your forecasts on a number of bases applying sensitivity analysis. If you export as well, consider holding foreign currency reserves. Effective cash management is essential if your business is to get through uncertain times.