Tim Sarson, International Tax and Location Strategy Partner, gives a temperature check from businesses following the latest leadership announcement.
In our weather as in our politics, temperatures are rising. Outside Downing Street on Wednesday afternoon the mercury was tipping 30 Celsius. Inside, Boris Johnson would have been pondering how much hotter things will get on Brexit between now and our due departure in 99 days’ time.
Some businesses are already feeling the heat. Our customs team recently told me they’d seen a spike in requests for help in no-deal planning, in particular from foreign businesses.
On the currency markets the pound has fallen 2% in a month, while Moody’s and Goldman Sachs warned this week that Johnson’s victory had increased the chances of a no-deal Brexit. Meanwhile most of our banking clients have fully reactivated no-deal mitigation exercises according to Richard Bernau from our financial services practice on KPMG’s Brexit podcast this week. Banks are calculating what emergency funding SMEs might need if things turn ugly he says. Clear signs (if any were needed) that virtually every business in the country should be dusting off their no-deal preparations … or starting them if they’d ridden their luck back in March.
And yet, with the UK arguably closer now than it has ever been to a no-deal scenario, the general level of business nervousness, or concerted action, is lower than I saw back in January.
That seems incredible looking at this dispassionately. To understand why that is let’s stretch the heat analogy further – to the case of the boiling frog. Someone, somewhere, once said if you throw a frog into a boiling pan of water then the frog will jump straight out again (understandably). But put that same unfortunate frog into a pan of cold water and raise the temperature slowly and it stays put – familiarity acclimatises it to the growing discomfort, and blinds it to the danger it’s in.
Business is now in the same position as that frog. Having stewed in the warming waters of Brexit for such a long time – and having become so familiar with the raised threat level – we are losing the ability to sense when things are becoming critical.
We could add another apocryphal (but persuasive) parallel: Brexit is now like the boy who cried wolf. We steeled ourselves for our original planned exit on March 29 but nothing happened. Then a second date with destiny – April 12 – came and went. Nada. So too did the threat that Europe could rescind the extension to Article 50.
Further bolstered by politicians’ reassurances that we can thrive under a no-deal as well as our inclination to wait to hear how our new PM will get us out of this impasse, and it’s easy to see how continued vacillation can be rationalised.
If any of these tendencies sound familiar – I get it. I’m even seduced by them sometimes. Unfortunately they in no way correspond to the very real – and rising –possibility of no-deal. Remember what happened to the boy who cried wolf in Aesop’s fable – he was eaten. Things didn’t end too well for that frog either.
To read more of my thoughts on Brexit, visit my LinkedIn profile.
This article represents the views of the author only, and does not necessarily represent the views or professional advice of KPMG in the UK. You can register for the email subscription list of this column and expert views from our Brexit leaders
© 2020 KPMG LLP, a UK limited liability partnership, and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.
KPMG International Cooperative (“KPMG International”) is a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm.