Business backs May’s deal for fear of something far worse

Analysis: What business leaders want more than anything is clarity, says Sean O’Grady, which is why they see the PM’s deal as providing light at the end of the tunnel

Can Theresa May carry her party with her? (Getty)

If the political reaction to Theresa May’s putative Brexit deal has been lukewarm – at best – that from business has been more positive, if still rather grudging and limited.

It is as if business leaders have already accepted the prime minister’s basic proposition – that hers is the only deal in town and that the only alternative is no deal. They also discern that the most likely future path is for the UK to stay in the EU customs union. This is because:

1. It will be guaranteed to do so during the transition period;
2. The transition period could easily be extended;
3. It will be impossible for the UK to leave the customs union without the EU’s acquiescence and;
4. The indications from leaked Brussels documents are that the EU sees UK membership of the customs union as the central feature of the future trading relationship.

For 29 months, those in business have sought clarity and found only fog. For now, and despite every sign that the deal will be rejected by the Commons (at least initially) they are urging its acceptance – if only as the classic lesser of two evils.

Mike Hawes, head of the Society of Motor Manufacturers and Traders – representing millions of jobs and major UK export sector – was typical of many when he said: “For the automotive industry, Brexit is about damage limitation. The outline agreement is a positive step in avoiding the devastating consequences of no deal and securing a transition period.”

The CBI echoed that view, saying: “This deal is a compromise, including for business, but it offers that essential transition period as a step back from the cliff edge.”

The business world has for the most part tried throughout the Brexit process to be as apolitical as possible. One of the more outspoken companies is Young’s, the pub firm, which said: “We have got as much as we can from a business perspective, and we need politicians to support this.”

Markets believe that if there is a hard Brexit after all, the hit to the UK economy will be so bad it would need substantial devaluation of the pound

That provides an interesting counterpoint to the vocal pro-Brexit boss of Wetherspoon, Tim Martin, whose objections to the EU’s protectionism are well-known. Small business too has usually been more divided than big business, though in Northern Ireland, understandably, there is near unanimous support for the no hard-border deal secured by the government.

The verdict of investors can be read more easily in the pound’s value, share prices and trading volumes than in press releases. As political backing for the Brexit deal started to unravel this week a familiar pattern re-emerged, reversing the upswing we had seen when it seemed there was solid cabinet support.

Shares sank in companies that relied heavily on the UK market – housebuilders and banks for example – while those that are global and whose earnings are mostly non-sterling enjoyed a boost (because their euro, yen and dollar profits would buy more pounds when they are “brought home”). Markets believe that if there is a hard Brexit after all, the hit to the UK economy would be so bad it would need substantial devaluation of the pound to make UK exports cheaper and overcome tariff disadvantages.

There is a wider question, too, about the Brexit debate, which was colourfully summed up when Boris Johnson, when still foreign secretary, was reported as saying “f*** business” in an overheated exchange. In other words, whatever the CBI wants is not necessarily the best for the UK economy as a whole.

Thus, the Brexit debate can be seen as an argument between the producer interest – big business – and the consumer interest – families. The EU, through tariffs and other barriers, protects its business, especially farming, from global competition. The bloc provides a supply of cheap labour and makes food, clothing and many manufactured goods more expensive than they need be. For the public, yes, jobs would be lost in the short term in a hard Brexit, but there would be gains as the budgets of lower-income families would go further in the shops.

So, just as in the referendum two years ago, business is mostly hostile to Brexit, as well as frustrated about the continuing uncertainties. Even now, business leaders have no clear idea about what the business environment will be like after 11pm on 29 March 2019.