The Prime Minister made her big Brexit pitch to businesses at the CBI on Monday.
Clearly, this forms a key part of the strategy to sell any Brexit deal to MPs and the public, as a quick glance at No.10’s Twitter feed shows.
But what do some of the UK’s biggest firms make of Brexit? How much of a risk is it for them? And what are they doing to prepare?
We at The UK in a Changing Europe have analysed the latest annual reports and public statements of all FTSE100 companies to see if any patterns emerge. And they do.
Essentially, these companies can be broken down into four categories in terms of how they understand their exposure to Brexit.
The most worried are those in sectors such as pharmaceuticals, air travel and banking which are highly regulated. A number have already restructured their businesses in response to the UK’s anticipated exit from the EU.
This includes companies like EasyJet, Barclays and HSBC. EasyJet have established subsidiaries in both the UK and Austria to allow them to continue their operations as now.
Similarly, Barclays have transferred billions of pounds in assets to their Irish subsidiary, while HSBC have shifted their Polish and Irish subsidiaries to their French unit. Recent reports suggest more restructuring in these sectors could even be needed.
In sectors like food retail, logistics and fashion, firms are concerned primarily about disruptions to supply chains, as well as exchange-rate movements which would affect the cost of supplies and the value of their assets.
Burberry, for instance, is seeking Authorised Economic Operator (AEO) status, which would reduce the physical checks of their goods and simplify customs procedures, to minimise any potential difficulties.
There are also widespread concerns about access to labour after Brexit. Although this is not explicitly a border issue, it of course connects directly to changes in the future UK-EU relationship.
Marks & Spencer has cited “growing market labour shortages, which may be further compounded by Brexit” as a key risk to their business.
The third group do not see Brexit as a direct risk to their businesses, and their concerns mainly relate to the indirect effects from any wider economic difficulties.
Construction firms in particular, such as the Ashtead Group and Persimmon, see the major risks as macroeconomic, with the latter saying, “ongoing economic uncertainty may reduce consumer confidence, impacting on demand and pricing for new homes”.
In short, the main concern is that Brexit could have a domino effect across the economy.
These firms also have significant worries about access to Labour; Taylor Wimpey have said “leaving the EU could impact on the availability of skilled workers given the relatively large proportion of the labour force, particularly in the South East, that is from Eastern Europe.”
The final group are those that deem Brexit to be more or less irrelevant to their activities. This includes mining, natural resource and tobacco companies such as BP, Anglo-American and Rio Tinto.
For these firms, their activities mostly take place outside the UK, and even outside Europe.
Antofagasta, a copper mining firm, has said: “As the Group has no operations or material exposure to the UK, Brexit is not expected to have any appreciable impact on the Group.”
UK business does not have a single view about Brexit. However, there are some commonalities across the four Brexit business groups identified. None, even the most directly impacted, has said that Brexit poses an existential threat to them.
It will mean varying degrees of adaptation and adjustment, but it will not mean—in their assessment—that their businesses will become non-viable as a result.
Even GlaxoSmithKline, who have estimated that Brexit will cost them £70m over the next few years and £50m per year thereafter, concluded “over the longer term, we continue to believe that Brexit will not have a material impact on our business.”
Of course, this doesn’t guard against volatility in the markets. Investors’ view of the risk Brexit poses may differ markedly from businesses themselves, and they are much more reactive to political turmoil than businesses themselves, as the hit many stocks took at the end of last week following the resignations from Cabinet showed.
Despite the recent political noise, we need to be careful not to overstate what Brexit means for some the UK’s biggest firms. For instance, Standard Life Aberdeen, an investment company, said “we consider [Brexit] to be a major regulatory change”.
In other words, it is something that many firms would rather not be dealing with, but they will accommodate it just as they do other government initiatives.
It will of course mean, and already has meant, that companies spend money on preparations and restructuring that otherwise would not have taken place.
This redirects resources from other, productive activities. However, this effect is difficult to quantify and may only become clear in the medium to long term.
Nor does what we know now help us to get a handle on the investment that has been withheld. Astrazeneca, for instance, have said they are holding back investment in the UK until they get more certainty, but few others have indicated that such decisions have been made or to what extent their investment decisions have been determined by Brexit.
There is also an irony to this Brexit preparation. It means that companies are in fact spending, which could even benefit the economy in the short run, as we at The UK in a Changing Europe pointed out in our recent Cost of No Deal report. This spending, of course, may well not be sustained.
Overall, there is a clear distinction between those in the highly regulated and border-exposed sectors who are more worried about the content of the future relationship and those in the macro-exposed and unaffected sectors which are mostly worried about uncertainty and the prospect of no deal.
Most firms would probably support the Prime Minister’s deal given the alternative of no deal.
What none of this addresses, of course, is perhaps the biggest business risk when it comes to Brexit: the impact on small businesses.
These companies have less scope to spend on contingency plans to prepare for Brexit and as a result have taken fewer, if any, measures.
Yet these businesses, with fewer than 50 employees, account for 99.3 per cent of UK firms, almost 60 per cent of private-sector employment and almost 40 per cent of turnover.
While the FTSE100 firms may get the headlines, it is small businesses who are the backbone of the British economy, and who may hold the key to whether or not Brexit is a success.
The views expressed in this analysis post are those of the authors and not necessarily those of the UK in a Changing Europe initiative.