Side-dealing and Brexit: will it fix anything?

The UK has two-and-a-half years to negotiate a Brexit arrangement with the EU. But as every FD knows, deals that involve complicated carve-outs for special situations are a recipe for disaster.

Is there a more depressing thought than two-and-a-half more years of Brexit speculation? It doesn’t matter which side you’re on – or whether you’re an optimist or a pessimist.

For businesspeople, the run-up to March 2019 - when we’re to assume the UK will leave the EU - will be filled with a lot of administrative planning.  Matters such as company structures, budgeting, forecasting, defining and executing strategy and adapting to what are certain to be some compelling new realities.

But all that speculation is going to be tedious. Three proposals in the past month to address businesses’ Brexit fears, for example, are fascinating for FDs and others to pick over. First, we had the call for the creation of special customs zones for manufacturing imports and exports that will mean just-in-time supply chains can still function post-Brexit. Theresa May’s meeting with Nissan’s CEO in Downing Street proves she’s keen the UK keeps a car industry.

Then there’s the proposal to pay the EU billions of pounds a year to maintain some kind of passporting deal for UK financial services businesses. And Sadiq Khan’s plan to create a special carve-out deal for London, allowing freer workforce migration.

Carve-outs like this – side deals to make special allowances for particular industries or regions – look like quick-and-dirty fixes to knotty problems. And as any FD knows, quick fixes never solve anything in long-term.

Credit control is a great example. Every FD has sat across the table from an earnest salesperson making a ‘simply compelling’ case for why their client “really should be ‘off stop’ just this once” so they can book a deal.

Smart FDs know that breaking the system to allow for these exceptional circumstances is rarely a good idea. First, keeping an eye on which allowances have been made, by whom, and why, makes your life a pain. Second, once you do it for one client (or in the case of Brexit, one industry), everybody wants special treatment.

So it’s hard to see why policymakers in the European Commission would OK a Brexit deal with Britain that is just that: special treatment. 

We should try to be optimistic, of course. But those in the financial services, pharma or auto industries hoping the EU will treat the UK with special rules and side-deals should prepare to get nothing. And for stretched UK officials, every industry carve-out brings complexity they can ill-afford to resource.

Businesses over the past 30 years have embraced automation and simplicity. FDs now have powerful tools to enable them to model cash flow, profits, and costs. Exceptions to that machine are a pain – they destroy hard-won efficiencies. That’s a lesson that won’t be lost on the Brexit negotiators on both sides.

So whatever deal is struck, we can make a safe prediction that it will likely not include a raft of caveats and carve-outs. They’re nice in theory. But an automated and efficient world needs solutions that make life easy.

Whether you’re an optimist or pessimist about what comes next, it’s a good idea to think like an FD when you’re trying to imagine what Brexit might look like.