How are UK businesses preparing for Brexit?
In the face of ongoing uncertainty around the world, many businesses are reconsidering their corporate structure. In the UK, some businesses are girding themselves for the prospect of a ‘no deal’ Brexit.
The UK’s Brexit divorce bill is apparently now close to being agreed, at up to £39 billion. There are, of course, many risks from Brexit that will influence the thousands of board decisions that decide the fate of UK plc. If any of these risk factors, say a reduction of EU nationals in the workforce, resonates with a company’s business model, then it will start to alter company behaviour.
So what is UK plc doing to prepare itself for the risks around Brexit?
The long position
Firstly, UK companies are ‘going long’ on volatility. The data shows record levels of cash currently being held by UK plc as a buffer. This is also true of other operational current assets, such as stock. Dozens of economists are predicting catastrophe and the OECD says the UK should slam Brexit into reverse. The long position is evidence that the current sentiment among UK businesses is that whatever happens in the long term, markets are probably going to hate it in the short term.
Currency and interest rates
At the same time, UK companies are disposing of the pound and moving assets overseas if the opportunity presents itself. They are also expecting another round of quantitative easing (QE). The Bank of England interest rate rise in November did not seem to alter UK plc sentiment, given the wider context of Brexit. More QE is something else that has been priced-in already.
Winners and losers
Lastly, UK companies are selling, renegotiating or divesting themselves of the ‘losers’ – operations that are negatively impacted by Brexit risks – and buying into the ‘winners’. The big opportunity, potentially, is being outside the customs union, outside of a tariff regime, and benefitting from world markets.
Questions of corporate structure
All of this comes back to companies having the best corporate structures in place. These are the questions forward-thinking companies are asking:
- Are there risks that can be ring-fenced?
- Can a more credible, cleaner lending proposition to the bank be presented?
- Can authority be delegated to the next generation of management teams, empowering them to be more responsive and transparent?
- Can we exploit the position the UK may find itself in, needing to rapidly become more globally competitive?
- And finally, is UK plc making best use of group tax relief, substantial shareholding exemptions and reliefs around asset transfers?