Mark Essex 30 Mar 2017 12:45pm

The rocky waters that could turn Brexit into a shipwreck

We’ve slipped the lines and set sail, but this is no ordinary voyage. Charting a course to an unknown destination, the good ship Brexit has two captains - Davis and Barnier – each trying to steer her to a different port. The waters will be choppy for two years. But will The Brexit arrive in safe harbour or flounder on the rocks?

Some businesses thought The Brexit would never leave port and delayed making a plan, reluctant to invest capital – financial or intellectual. The delivery of Theresa May’s letter to Donald Tusk on Wednesday scotched those hopes.

Now the question for businesses is not whether to prepare for a potential shipwreck (in other words a disorderly Brexit in the event of a “no deal”), but how much to invest in preparing for that possibility.

Corporate decision makers might argue – as many did on Wednesday – that the prime minister’s letter was evidence of mellower mood music from Whitehall.

They should remember just how frequently the wind changes and remind themselves of just what a disorderly Brexit could look like: lines of lorries snaking from Dover towards London, holidaymakers waiting for planes that can’t land, British shops running low on Spanish vegetables and French wine, four million EU and British citizens stuck in limbo in adopted countries.

Of course the hyperbole is also used to reinforce the point that every sane politician would seek to avoid that scenario and therefore that a disorderly Brexit is vanishingly unlikely. I believe that goodwill exists on all sides, but in an increasingly unpredictable world, a scenario like Brexit – where a lot of things all have to go right – the actual chance of failure is higher than many people realise.

Imagine our ship, The Brexit, has to navigate around six rocky hazards. Even if it has a 95% chance of making it past each one, taken together, the ship still has a worryingly-high 1 in 4 chance of being wrecked. This is why some commentators have put the chance of no deal at 1 in 3, even 50-50.

So what are these six rocks on which a deal could flounder?

1) MEPs veto the deal – possible if a majority feel the eventual agreement is too generous to Britain.

2) The UK walks away – maybe over the size of the divorce bill or if the EU refuses to discuss the terms of the exit at the same time as their future relationship – two likely sticking points early on.

3) The EU scuttles an agreement – less likely than the UK quitting, but possible if the black hole Brexit places in EU finances is blamed for a string of projects across the EU being put on the backburner.

4) A deal fails to pass the Council of Ministers – less likely since it needs the support of "only" 20 of the 27 remaining member states with 65% of the EU’s population. Yet an EU existential crisis is not beyond imagination.

5) A national or regional parliament refuses to ratify - last year’s "CETA scenario", in which the EU’s trade deal with Canada almost failed because of opposition by the regional parliament of Belgium’s Wallonia.

6) The British Parliament refuses to approve the deal – less likely since it requires a simple majority in the Commons and can be forced through the Lords.

Six rocks to avoid. Both captains are trying to avoid them, but that is no guarantee of success. Mutinies by MPs, the press or the general public; heavy political weather; and miscommunication could all lead to problems. That is why I say to any company: continue building your life raft.

Mark Essex, director of public policy, KPMG