Just two days before the looming deadline, the European Union leaders and the British government agreed on a flexible extension of the Brexit deadline, avoiding a cliff-edge exit for the second time in as many months. The new deadline would allow the country to delay its EU departure date until October 31 and offers Theresa May a chance to resolve the out-of-hand Brexit process. The new deal also offers May an option to leave earlier if the British Parliament could reach a consensus.
As companies prepare for the worst-case scenario of a chaotic no-deal split from the European Union, the costs are stacking up for U.K. industries as Britain faces another six months of Brexit limbo. Protracted confusion has adversely impacted business decisions and has led to a delay in investments by businesses across industries. Brexit-related costs for companies have also spiralled in recent months; six major firms are estimating as much as £348 million in total spending. Businesses are expecting Brexit to reduce their sales, while export is also anticipated to be negatively affected. Moreover, labour and financing costs, along with inflation is expected to rise.
Royal Bank of Scotland Group (RBS) has been preparing for several scenarios including a ‘no deal' scenario and expects to spend between $130 million and $196 million on Brexit planning. Although the impact on RBS is not as significant as it is on many other banks, as it is mostly UK-focused, it has begun using its subsidiary in the Netherlands, NatWest Markets N.V., to serve some of its non-UK customers. The group has a new banking licence for its Branch in Frankfurt and shifted billions of pounds of assets to the EU. The banking group could have paid 1,600 staff for a year.
HSBC Holdings PLC (HSBA), another banking group, which is more exposed to the bloc, has so far spent $179 million on Brexit emergency planning. The group has also applied for new licences in the UK and established new branches. According to estimates, approximately 2,500 staff could have paid for a year with those funds. The company will have to incur additional costs on hiring IT resources, office space and training. Hiscox, an insurance provider, has spent $15 million on Brexit preparations, which could also have paid 190 staff for a year. To continue to serve clients in Europe, the group has set up a new subsidiary in Luxembourg, called Hiscox S.A.
EasyJet (EZJ) has opened a new European headquarters in Austria and has spent 9 million pounds over the last two years preparing for Brexit. The is equivalent to 9,836 flights of lost earnings, representing approximately about six days of flying. AstraZeneca (AZN) has estimated preparation costs to be about $40 million. This would include preparing for new customs arrangements, duplicating testing in the EU and transferring regulatory licences, and could have funded ten clinical phase-1 trials for new drugs or paid 370 staff for a year. Babcock International Group (BAB) has spent 10 million pounds until now. The costs include setting up separate subsidiaries in Europe and could have paid 223 staff for a year with those funds.
As more time has passed since invoking Article 50, the uncertainty has persisted and has risen over recent months, with firms becoming more uncertain about whether a deal will happen at all. What post-Brexit relations will mean for market access, product regulation and the availability of migrant labour is still unclear and shows no sign of resolving. British firms that employ more labour from the EU and engage in more cross-border trade are expected to have a more adverse effect on their sales. All this will have significant implications on employment, investment and productivity; thus, impacting the long-term sustainability of the British economy.
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