The Brexit, a new PM, and what it all means for UK FDs
Despite opinion polls showing that the UK’s FDs and CFOs strongly favoured Britain remaining in the EU, we are now attempting to plot a future operating on the outside.
And this historic referendum was only part of the drama, with the prime minister falling on his sword shortly followed by the end of George Osborne’s six-year tenure as chancellor of the exchequer.
UK business activity had slowed overall in the months prior to the vote as decision-makers waited on the result, but even now that we have it, certainty has not followed. Here’s what we do and don’t know, just over one month on.
New prime minister and chancellor
Theresa May has earned the top seat, and given Philip Hammond control of the country’s budget.
The latter appointment gives FDs some reason for optimism. Hammond worked in the private sector before embarking on a political career, which should give him a sympathetic ear to UK industry. In fact, in one of his first interviews, he told the BBC that he would seek to reassure businesses that keeping the country an attractive destination for investment would play a key role in Brexit negotiations.
However, it’s also worth noting that his nickname within the Conservatives is reported to be ‘Spreadsheet Phil’ in acknowledgement of his prudence, so further cuts can’t be ruled out of future Budgets.
Changes to corporate governance
May’s quest to restore social justice in Britain will include boardroom shake-up, specifically designed to bridge the gap between the pay of owners and that of their employees.
Coming to the fore, for example, will be May’s insistence that employees should be represented on company boards, as well as the abolishment of advisory shareholder votes on pay and bumper bonuses, making all votes binding.
The new PM seems happy to adopt an interventionist approach to keep big business in check.
VAT and customs
As part of membership to the EU, Britain forfeited full control over its VAT rules. Free from those shackles, many experts believe the tax could be in line for a shake-up.
Rules regarding what products and services VAT does and does not apply to will return to domestic control, and that could mean changes for the finance and insurance sectors in particular.
The fall in value of the pound has made UK products more attractive to overseas buyers. However, as post-Brexit UK will soon lose its intra-community trading status, sales into the EU will be deemed imports and exports and thus subject to customs control - with all the taxes and duties that comes with that definition.
This will hurt our global competitiveness, unless the government steps in to help. Some predict companies will flock to set up distribution hubs within the EU to skirt the extra taxes.
New FRC guidelines
The Financial Reporting Council has issued new guidelines for listed companies preparing annual and half-yearly reports following the referendum result.
Companies are urged to be clear in their interim management and strategic reports about their EU operations and the size and nature of principal risk and uncertainty. Stark currency fluctuations will also impact liability calculations and cash flow forecasts.
The objective remains to give a true and fair picture of affairs and the FRC has also made note that standard, boilerplate references to the Brexit would fall short of the disclosures required.
Investment and uncertainty
The referendum was supposed to deliver a definitive result and the UK would either carry on as before, or begin the process of leaving the EU. At that point, businesses would have clearer idea of the future and begin to invest, recruit and grow again.
However, if anything, the picture is now even less clear than before, and FD and CFO confidence has tumbled to 2012 crisis levels, according to Deloitte.
Corporate decision-makers are sticking to their defensive plans of action, with few tempted to take on any tangible level of risk right now.
That could mean slow trading and a lean few months. However, May and Hammond have taken their posts, that’s one thing that’s settled, and only as they begin to make their first moves will UK businesses be given a clearer picture of what lies ahead.
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