Boris Johnson’s Brexit Problem: An Army of Workers Off Work

Britain’s flagship job support program may have dulled the economic pain of the coronavirus crisis, but it is storing up a future problem for Prime Minister Boris Johnson: with many employees furloughed, businesses haven’t got enough staff to prepare for Brexit.

“We can’t contact many of the people we need to,” said Jon Swallow, co-founder of Jordon Freight Ltd., based at Felixstowe, Britain’s largest container port. “The people currently dealing with the paperwork, the systems, they’re on furlough.”

Swallow’s experience highlights a major challenge for the U.K. as the relationship with its largest trading partner faces a disruptive overhaul at the same time as a severe recession triggered by the pandemic. At the end of the year, about half of Britain’s imports and exports will require new customs documentation and processes due to its departure from the European Union, extra work for which firms are ill-prepared.

Building new warehouses, training staff to file customs entries and installing new IT systems to handle the demands of post-Brexit trade have all been hit by staff being furloughed, according to Ross Denton, a trade lawyer at Baker McKenzie in London who advises FTSE 100 companies and multinationals on their preparations.

“It’s 100% dropped off everybody’s radar,” Denton said. “All of these things will be slowed down.”

“Not Optimistic”

It isn’t just about preparing for there being no deal by the end of the year. Companies in the U.K. face upheaval even if Britain achieves its goal of reaching a free-trade agreement with the EU similar to the one Canada signed with the bloc. While such a deal would avoid most tariffs on goods, it would still create new non-tariff barriers to trade in the form of red tape and paperwork.

The latest round of talks between the two sides made little progress, and the EU’s chief negotiator Michel Barnier said he is “not optimistic” about a deal. In a dramatic intervention this week, U.K. negotiator David Frost complained the bloc is treating Britain as “unworthy” of a fair agreement. Without an accord, trade between Britain and the EU would face steep tariffs on products including cars, beef and dairy.

Chancellor of the Exchequer Rishi Sunak this month extended the furlough program—which sees the government pay 80% of the wages of employees not working—through to the end of October, though employers will be required to make a financial contribution to the program from August onwards. Latest figures show the government is paying the wages for about 10 million jobs.

For Swallow, the risk of keeping staff off work beyond the summer is that it will create a sudden Brexit rush at the end of the year, by which time it would be too late to prepare. He pointed to one potential problem: rapidly inputting customs data to allow the fast transit of goods crossing the English Channel on roll-on, roll-off ferries.

Logistical Challenge

“We need to be able to test systems back and forth at scale,” said Swallow. “We need to know that people are ready and aligned with us.”

The logistical challenge has been exacerbated by the coronavirus disrupting plans to train thousands of new customs agents needed to keep trade flowing. An additional 200 million customs declarations will have to be filed annually to maintain normal levels of U.K.-EU trade, according to an estimate by Britain’s tax authority, and the country faces an acute shortage of trained professionals to do the work.

Another worry is that firms fighting for survival due to the virus will put off Brexit planning to conserve resources and even for fear they may not stay afloat beyond 2020, according to Richard Burge, chief executive officer at the London Chamber of Commerce and Industry.

“We are going to start seeing redundancies,” he said. “There may be a sense of despair, and there’s nothing the government can do.”

One hope firms are clinging to is that the U.K. will delay the final stage of Brexit by another year or two—something Johnson’s government has repeatedly ruled out. Many companies are waiting for official confirmation at the end of June about any extension before turning again to their Brexit plans, said Marc Bunch, a global trade lead at accounting firm EY in London.

“Companies have fingers and toes crossed for an extension, but I can’t see it,” he said, adding that many of the staff responsible for executing Brexit work among his clients have been furloughed. “Clients are doing their warm-up routines at the moment: they’re talking team tactics, but they’re not on the pitch.”