IoD: Issues for Action Global Business

General Election 2019

IoD: Issues for Action

Global Business

IoD: Issues for Action Global Business

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Jonathan GeldartDirector General, Institute of Directors

Foreword

IoD members are deeply engaged with the global economy. A majority engage in outward international trade, while over half also count citizens from overseas among their workforce.

Brexit has made our trading relationship with the rest of the world a totemic issue. Through surveys, seminars, events, and extensive discussions with IoD members across the country, a recurring theme is that business leaders want the next Government to get to grips with the details. Building upon these discussions, this paper provides a number of concrete recommendations to help UK businesses ride out the present uncertainty and capitalise on the considerable opportunities on offer around the world, under a range of potential Brexit scenarios.

A worldwide economic slowdown, trade frictions, and heightened concerns around emerging issues like data security have each contributed to a deceleration in the growth of commerce between countries. These circumstances would in themselves make it a crucial time for action to support British enterprise on the world stage. The prospect of Brexit – which could undoubtedly shake up the way firms interact with the world at large – renders this all the more pressing.

Whatever the eventual form of our relationship with the EU, the next Government must take a strategic approach to the Brexit process, and to the issue of trade and migration more widely, that pays close heed to the front-line perspective of businesses.

About the IoD The IoD believes that better directors make for better businesses, which in turn can create a better economy and society. Our Royal Charter sets out a mission to support, develop, and represent our members, while more widely promoting skill and integrity on the part of all directors, and fostering a climate favourable to entrepreneurial activity. Ahead of the 2019 General Election, the IoD will be releasing a set of papers to outline steps that any party could take forward to further these goals, based on consultation with members and research by the IoD’s policy team.

Founded in 1903, the IoD is the UK’s leading organisation for individual directors. It is an independent, non-party political organisation, with membership drawn from right across the business spectrum, including the public and third sectors, with around 70% consisting of directors from small and medium-sized enterprises.


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Brexit• Deliver more targeted financial assistance for Brexit

planning and adjustment

• Commit to a proper adjustment period before any new relationship with the EU comes into effect

• Step up preparation and communication on the trade deal continuity process

• Take steps to protect Northern Ireland’s place in the UK internal market

• Supply Northern Ireland Office and NI Civil Servants with greater resource to manage Brexit planning

• Ensure Brexit-facing departments have a helpline and/or communication outpost for businesses to engage with directly

Trade• Commit to a “trade sense check” principle and impact

assessment criterion for new regulation

• Make imports part of the government’s narrative for trade policy and trade promotion

• Review or delay the decision to scrap Low Value Consignment Relief in conjunction with Brexit

• Put trade facilitation – and a cross-governmental Single Window-type system to streamline import/export procedures – at the heart of DIT’s policy objectives

• Promote and provide training on the new Incoterms 2020 changes

• Publish clear negotiating objectives (and defensive priorities) before each and every new trade negotiation

• Create more flexibility within the Tradeshow Access Programme

Migration• Involve business in the design of the new immigration

system

• Confirm there will be no net migration target

• Prioritise a preferential and reciprocal agreement on movement of people and labour with the EU after Brexit

• Improve the accuracy of migration data

• Ensure the new immigration system is easy to use and understand for businesses

• Remove the Immigration Skills Charge

Executive summary


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BrexitBrexit uncertainty remains a challenge for business. Further support is required to help businesses companies prepare and adjust to new trading and regulatory terms with the EU. With the nature of Brexit undecided, our recommendations directly below are not exclusive to either a deal or no-deal scenario, and are largely applicable in both cases, though in the latter scenario we would expect amplified support in the noted areas.

Deliver more targeted financial assistance for Brexit planning and adjustment Many SMEs do not have the time, resource or capacity to manage the complex entirety of what matters for Brexit readiness themselves – particularly in advance of knowing what the full range of changes may be. They need hands on expertise from professional, legal and accountancy among other areas to prepare for and manage new compliance requirements in full.

In addition to setting out its WTO-compliant approach to any compensation that may be needed, the Government should help offset the cost of accessing such help by introducing a voucher scheme (akin to Irish, Dutch and French governments) and/or making Brexit planning and adjustment tax-deductible for SMEs. This will be a necessary initiative to companies well into any Brexit and/or transition period given the inevitable increase in compliance and costs for trade that being outside of the Single Market and any customs union would bring.

Customs training grants run by HMRC should also be extended, with a particular emphasis on IT software training to encourage firms to take more ownership of their own trade management systems and supply chains when dealing with Brexit change.

Commit to a proper adjustment period before any new relationship with the EU comes into effect Any withdrawal agreement is expected to have a transition period during which a new future relationship with the EU will be negotiated. Given that many businesses will only be able to adjust once the new terms are agreed and made public, it is essential that enough time is given for end users to adapt to any changes. This is standard practice not only for most trade agreements but also with respect to new domestic regulation. While extending the transition would likely be the easiest way of doing this, a separate phased implementation period could also be agreed with the EU. We would recommend at least 6-12 months, although some sectors may require longer provisions.

Step up preparation and communication on the trade deal continuity process The Government has not yet been able to fully roll over a number of key existing preferential trade arrangements with countries that the UK has through its EU membership. More resource should be allocated, including for and beyond public communication, to improve the tie-up between DIT and HMRC in particular so that business is clear on what practical changes are agreed on customs issues at the border with third countries (beyond just policy moves between UK and third country trade ministries).


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Take steps to protect Northern Ireland’s place in the UK internal market If the current withdrawal agreement is passed, much greater effort will be needed to safeguard Northern Ireland’s place in the domestic market to ensure it is not left at a domestic disadvantage as a result of any increased burdens on trade with the rest of Great Britain. The UK should commit to dynamically aligning with EU rules governing commerce that Northern Ireland is obliged to follow under the new protocol if the future relationship is not ready by the end of 2020, if a future government does not wish to extend the transition period. Should this not prove possible, it will need to ensure there are clear non-discrimination provisions that Northern Irish businesses can use to protect against any unfair ruptures in trade with those in Great Britain as a result of new costs from the protocol coming into effect on its own. The government should also commit to bearing the costs of any new “administrative procedures”.

Supply Northern Ireland Office and NI Civil Servants with greater resource to manage Brexit planning In the continued absence of an Executive, businesses in NI are in the greatest need of clarity, guidance and support, both in terms of exploring/developing alternative

arrangements to the backstop and managing no-deal preparedness/Brexit adjustment. There has been minimal guidance issued so far to industry in this part of the UK, and much more substantive engagement is needed between traders and government (central and devolved) to map out a stable path forwards. We would also like to see the Government collaborate with the Irish government on beefing up both Intertrade Ireland to improve financial support for trade across the island and strengthen the work of both the North-South Ministerial Council and the British-Irish Council, as these institutions will be integral to representing the interests of Northern Ireland for north-south and east-west trade after Brexit.

Ensure Brexit-facing departments have a helpline and/or communication outpost for businesses to engage with directly – DEFRA, HMRC, BEIS and DIT are the subject of many business’ queries in relation to planning guidance, and while Government cannot issue legal advice to end users, they would benefit from having a more real-time means of engaging with traders’ questions. More resource should be directed towards filling this gap.

TradeCommit to a “trade sense check” principle and impact assessment criterion for new regulation All too often, the trade-distorting effect of domestic business and commerce regulation are only considered after the fact, when the extraterritorial impact becomes clear. To minimise this and the potential for trade disputes with other countries, the new government should make it a priority for all departments to explicitly consider the potential trade consequences of all new regulation affecting business (and procurement), and demonstrate that it has been designed in the least trade-distorting way possible. This principle should also be reflected as its own criterion in impact assessments for relevant legislation.

The Digital Services Tax should accordingly be put back out to consultation (on first principles), as this will likely have major implications for the UK’s trade relations given there is already multilateral action taking place on this within the OECD. At the very least, the UK should not move unilaterally on the DST before the live proposals of the OECD have had time to make headway.

Make imports part of the government’s narrative for trade policy and trade promotion For too long, successive governments have only singled out exports as a priority for both trade policy and trade promotion. A large share of IoD members


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import as well as export, and the benefits to reducing trade barriers, in particular import restrictions, for consuming and processing industries are not communicated enough by policymakers. The new government should not seek to promote exports over imports, as trade is not a zero-sum game in today’s modern world of integrated supply and value chains. A network of both export and import champions should be promoted by Government.

Review or delay the decision to scrap Low Value Consignment Relief in conjunction with Brexit It is currently government policy to eradicate the relief of import VAT on consignments with a low value (£15 or less) in conjunction with Brexit, (currently proposed in the event of a no-deal exit from the EU). While there are moves in other parts of the world to do this to tackle VAT fraud, the speed and timing of this could significantly add to the burden on traders already overwhelmed by other trade and compliance changes associated with Brexit. This change should categorically not come into effect in conjunction with a no-deal exit, and should preferably be linked to EU implementation (changes to LVCR are currently going through the EU legislative process) so that sellers and traders are not set at a competitive disadvantage on one side of the Channel.

Put trade facilitation – and a cross-governmental Single Window-type system to streamline import/export procedures - at the heart of DIT’s policy objectives Border costs for business should be minimized as far possible. The private sector should be integrated into the development of solutions to take advantage of emerging technologies and the Internet of Things to implement a more modern customs platform and ecosystem for trade. More work is needed to create better linkages between government departments and agencies involved in trade at the border (DEFRA/DAERA, HMRC, Border Force, Home Office etc.) to make it speed up in practice. More resource and effort should be prioritised to engage trade and industry on moving toward more self-assessment with respect to customs-related compliance, and HMRC should be tasked with exploring ways to delink physical customs clearance of goods from fiscal clearance in the future.

Promote and provide training on the new Incoterms 2020 changes As Brexit approaches, understanding the division of fiscal responsibility between importers and exporters (for instance, how the costs and payment of tariffs are allocated), and generally between customers and suppliers, is essential for business continuity and commercial contracts. Incoterms, first introduced by the International Chamber of Commerce in 1936, help

traders understand their responsibilities and has just been updated. This will be essential for companies to understand not only for their Brexit planning needs, but also wider trade management systems.

Publish clear negotiating objectives (and defensive priorities) before each and every new trade negotiation Whatever the future of Brexit, it is essential for the incoming government to take a more transparent and proactive approach to future trade policy. This is essential to ensuring both business and public support for trade liberalisation going forward. Clear publication of negotiating objectives -and any red lines where they may apply- are essential before embarking on new trade talks, and this must start with the EU. It would be difficult for business leaders to wholeheartedly support trade negotiations with new markets without these objectives or knowing what baseline the UK aims to agree with the EU, as after Brexit there would be no status quo with its largest market to rely on.

Create more flexibility within the Tradeshow Access Programme The current system of funding within the TAP is too rigid for exporters to take full advantage of, limiting the takeup and value of this DIT scheme. Instead of limiting it to government-selected trade shows, businesses should either be able to use grants towards any overseas fair or the scheme should move away from grants and allow traders to claim back the costs of attending these from government. To ensure taxpayer value for money, the latter option could be linked to overseas business development that arises out of attending the trade fair.


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Immigration

Involve business in the design of the new immigration system Companies know immigration rules are likely to change, but not what that change will look like. A points-based element is not unusual in immigration systems (the current Tier 2 General Worker Visa has eligibility requirements), and could work alongside other visas such as for students, seasonal labourers and intra-company transfers. Government must take account of demand from business as a key factor when any changes are made. At present, the proposed £30,000 Tier 2 migrant salary threshold is a particular concern, preventing businesses from recruiting for a number of high-skilled and in-demand roles from abroad, and risks limiting the UK’s ability to compete for international skillsets. If some form of salary cap is to remain, at most it should be set at the 25th percentile of the occupational role, and be regularly reviewed.

Confirm there will be no net migration target Aiming for an arbitrary level of immigration is at odds with the needs of businesses. A limit is likely to be counterproductive when the country needs to compete on the global stage for talent and access workers with specific skillsets. International labour mobility more broadly ought to be integrated into turning ‘Global Britain’ a comprehensive strategy.

Prioritise a preferential and reciprocal agreement on movement of people and labour with the EU after Brexit Free movement has been an important provision for British business and IoD members, particularly for facilitating trade across borders. Almost two-thirds of directors overall say the ability to freely move people and labour between the UK and EU has been important for their organisation, rising further in importance among those who trade internationally. In the absence of the existing free movement accord with the EU, a reciprocal preferential deal allowing for ease of movement of workers, businesses and people should form part of the new relationship with the EU after Brexit. This consistently ranks as a top priority for negotiations among IoD members.

Improve the accuracy of migration data The recent downgrade of immigration data by the ONS from official statistics to experimental highlights the importance of improving the record-keeping of people entering and exiting the UK. This will help support the role of immigration in the UK’s skills system. As such, the Government should review and develop the collection, and recording, of migration data.

Ensure the new immigration system is easy to use and understand for businesses The level of complexity and bureaucracy firms face in applying for visas and work permits impacts negatively on their ability to compete for talent from abroad. The new immigration system should be tested appropriately before it is fully launched to ensure businesses, particularly SMEs, can navigate it easily without having to consult costly external advice.

Remove the Immigration Skills Charge The charge—£364 for small businesses, and £1000 for larger firms for a year— acts as an additional hurdle to skilled migration from the rest of the world. Its intention to support training and upskilling of the domestic workforce is also largely moot as many businesses who employ from abroad also invest in training domestically—that is the case for nine out of ten IoD members.

The Institute of Directors

The IoD has been supporting businesses and the people who run them since 1903. As the UK’s longest running and leading business organisation, the IoD is dedicated to supporting its members, encouraging entrepreneurial activity and promoting responsible business practice for the benefit of the business community and society as a whole.

iod.com

For further information on this report, please contact:

Allie Renison Head of Europe and Trade Policy +44 (0)20 3614 3366 [email protected]

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IoD: Issues for Action Global Business