Two Years on from the EU Referendum – What London businesses need from Brexit

In October 2016, LCCI released the first instalment in its series of Brexit reports entitled ‘London Business and Brexit, Reactions, expectations and requirements’. The report found that London businesses hoped for clarity on the expectations and requirements of Brexit including around UK-EU trade arrangements, access to EU employees and supply chain impacts.

Our third and latest Brexit report – ‘Two Years on from the EU Referendum’ – finds that in many areas, uncertainty remains, with an absence of detail from Ministers on the absolutely key requirements for our members and wider business.

Not only this, the most recent paper finds that many of the concerns expressed in the aftermath of the referendum are currently being realised. For example, LCCI polling has found that 49% of London businesses have experienced increased costs because of the decline in the value of the pound since the referendum and 27% raised their prices as a consequence.

Uncertainty and a lack of clarity may also help explain why the confidence of London’s businesses has continued to decline after the vote, as evidenced by LCCI’s Capital 500 Quarterly Economic Survey. This has shown two main trends:

  • A significant drop in the balance figures for all analysed business performance and confidence indicators in the capital in the first Capital 500 poll following the EU referendum. 
  • Since then – figures that have generally remained lower than before the referendum outcome.

The report stresses that this cannot be the new normal for London businesses, and that the Government must take concrete steps to address the Capital’s long-term domestic priorities including making sure young Londoners have the right skills to succeed in the jobs of tomorrow; that rising business costs are addressed before they can undermine competitiveness; and that the capital’s pressing infrastructure needs are met.

Additionally, the Government must ensure that a Brexit deal is secured that works for London businesses, including an orderly withdrawal and positive new relationship with the EU.

LCCI polling since the referendum has consistently found that avoiding a ‘cliff edge’ is the top priority for London business leaders. Only 10% of London businesses believed that WTO rules should form the basis for Britain's future EU relationship with the EU, while 89% favoured a more integrated relationship.

Additionally, businesses leaders have consistently stressed that a period of transition needs to be established between the UK and the EU to ensure businesses have time to adapt to the new trading environment, reduced access to EU workers and potential supply chain complications.

The UK Government and the EU have agreed a transition period to run for about 90 weeks from March 2019 to December 2020. However, LCCI believes such a period would not give businesses enough time to adapt to the new trading environment – whatever that may be.

The proposed 90-week transition period is not enough for London business. A 3 to 5-year transition, under the current UK-EU arrangements, would be a reasonable period to support business needs.

In addition, LCCI continues to campaign for positive new trade arrangements with the EU, while keeping tariffs on trade with the bloc as low as possible and minimising non-tariff barriers including customs procedures and documentation, as well as divergence of standards and regulation.

Like the previous two Brexit reports the new report also continues to highlight migration as the primary concern for many London business leaders following the referendum. This is unsurprising given London’s reliance on EU workers; excluding sole traders, 40% of London businesses reported they employ workers from the EU, and 34% said they would be affected by increased restrictions on hiring non-UK EU staff.

Given its reliance on foreign labour, London must get the flexible migration system it needs post-Brexit.

With the clock ticking on Brexit, LCCI urges the Mayor to look at drawing-up a template for a dedicated Shortage Occupation List for London (LSOL) – like Scotland already has – and to convene the capital’s civic and business leaders to design a proposal for a future work permit system for our capital.

Finally, the new report finds that a third of London businesses (33%) believe they would need external support to work out or implement adaptations to their business for any of the tested potential changes to trade with the EU – in areas like changes to VAT legislation, tariffs, amending contracts that refer to the EU, introduction of proof of origin requirements when selling into the EU and data regulation.

In anticipation of the impacts of Brexit, it is more important than ever that London businesses have access to the information they need on topics like customs and migration, as well as the more complex areas that Brexit may affect including contract law, intellectual property rights, origin documentation, VAT and which regulatory agencies businesses should work with. LCCI is concerned about the lack of progress in this area, while the needs for information and advice are abundantly clear.

The Mayor of London should look to minimise insecurity for London businesses by liaising with LCCI and other business groups on creating a Brexit ‘Help Desk’ resource to offer advice and information to London businesses.

For more information please find a copy of the report here.