More Brexit uncertainty as court requires Parliamentary vote

It appears the only thing certain about Brexit is the uncertainty it has unleashed. The High Court ruled Thursday that the British government would have to seek a Parliamentary vote on whether to trigger Article 50, which would mark the official start of the process by which the UK would leave the EU.

In the weeks following the referendum, Prime Minister Theresa May pledged to set that process in motion by March 2017. As yet, little detail about the process or the terms sought in negotiations to leave has been provided, either to members or Parliament or to the general public.

The lack of detail about Britain’s future relationship with the EU, and in particular continued access to employment talent and the single market, has had many repercussions in just over four months since the result of the referendum was announced.

After the June 23rd referendum, the value of the British pound fell to historic lows against the US dollar and the euro, financial services companies began to consider relocating European operations away from London, many companies imposed recruitment freezes, and consumer confidence dropped.

Despite the government’s statement that it would appeal today’s decision in the Supreme Court, with a hearing scheduled for early December, the High Court decision led to a rally for the pound.

But the ruling generates further uncertainty, primarily as to how members of Parliament will vote. If they chose to reflect the votes of their constituency in the June referendum, it could be very close, notes Dave Wyborn, ACMA, CGMA, finance manager of UK-based digital agency Dauntless. The referendum result was 52% leave and 48% remain.

“I still believe that most big business leaders believe that Brexit is not going to be good for the UK economy,” said Martin Thomas, FCMA, CGMA, who spent 34 years in finance at Unilever and led the company’s global strategic planning function. The UK, he said, wants to retain a trading relationship within Europe, which could be negotiated.

Piotr Malinowski, ACMA, CGMA, a finance project manager at Virgin Media in northern England, said that short term, it’s difficult to know what has changed.

“There are a couple of milestones ahead of us,” he said. “We don’t know which way the appeal will go, what Parliament will agree on, whether or not it’s going to end up in a General Election. We don’t know what the government is trying to achieve or what the EU stance will be.”

The weak pound provided opportunities for some UK businesses. Dauntless provides software development services, such as building mobile web apps. As it’s largely internet-based, Dauntless can sell its products anywhere in the world.

“Attracting American clients has been a little bit easier than it has in the past because the exchange rate was in their favour,” Wyborn said. “The amount of work we do with America has actually increased since the Brexit vote was announced. Part of that increase would have happened anyway, but the exchange rate difference has been positive for us.”

With so many unknown factors, Malinowski advocates staying flexible, and Thomas said organisations should continue to focus on in-depth scenario planning.

“You can think about whether it’s a soft Brexit or a hard Brexit, but no Brexit is also an option that seriously has to be considered,” Thomas said. “And it seems to me that that’s what the financial markets have today reflected in the currency trading, a recognition that it may never happen.”

Business concerns

Sixty-six per cent of employers believed that their business in the UK would be significantly affected by Britain’s vote to leave the EU, according to a survey conducted by Willis Towers Watson one month after the vote. The same survey found that only 33% of the companies represented had conducted any scenario planning.

The impact Brexit would have on the UK economy was the greatest concern for UK business leaders, according to a Grant Thornton poll published in September. The top concerns were:

• Impact of a general decline in the UK economy, 73.7%
• Impact of exchange rate movements, 56.9%
• Declining consumer confidence, 54.5%

—Samantha White (swhite@aicpa.org) and Neil Amato (namato@aicpa.org) are CGMA Magazine senior editors.