Johnson has vowed to deliver Brexit, deal or no deal by
October 31. However, the UK is tied into the withdrawal
agreement negotiated during Theresa May’s tenure.
The EU will resist all efforts to reopen the deal while the
political declaration is open to change.
"The likelihood of Brexit not happening may have increased
in recent months, but the chances of a hard, sharp, no-deal
Brexit have increased as well," one tax executive at a FTSE 100
company told ITR.
"There will have to be a lot more discussions about
corporate tax rates and personal rates," the executive said.
"Then there is the issue of whether the EU will continue to be
the body of tax law for the foreseeable future."
The UK’s membership of the EU has guaranteed
key aspects of tax policy. If the UK leaves without a deal, the
country would find itself outside commitments to EU state aid
law, as well as customs and VAT. The UK would also lose assurances on
withholding taxes with EU
All of this could be very costly for British companies with
supply chains stretching to the continent. Few possibilities
can be ruled out given Johnson’s tendency for
surprises. The damaging consequences of no deal could leave the
UK with little choice other than to raise taxes.
"Brexit, and all of the nonsense that has followed it, has
driven the markets into ever greater uncertainty," said one
head of tax at an energy company. "The long-term economic
impact may force people to rethink tax policy."
Soon Johnson will appoint the next chancellor in what will
give a sense of where UK fiscal policy might be going. The
Conservative leader will have to shake-off the impression that
he does not care about the interests of business if they clash
with Brexit. This is where the next couple of months will be
The end of compromise
The Conservative government may have boxed itself into a
no-deal strategy. Johnson has ruled out extending the October
31 deadline and suggested the backstop on customs is "dead". If
the EU is unwilling to renegotiate the terms of the withdrawal
agreement, the UK could just crash out at the end of
There is a time limit for securing a 'soft’
Brexit, where the UK would stay aligned with EU rules or even
stay in the customs union or the single market, but there is
little chance of such a deal. Johnson has pitched his
legitimacy on delivering Brexit without compromise.
"The passage of time has cut down options in the middle
ground," said George Bull, senior partner at RSM. "It looks
like we’ll either have a complete Brexit or we
could face another referendum."
EU officials have told the British press that they think
there is an 80% chance Boris Johnson will lead the UK out with
no deal on October 31. "We’re very puzzled," one
EU official said. "He’s closed a lot of doors.
He’s closing down each and every possibility."
"This isn’t something you invent on a small
piece of paper on the corner of a table at 3am," one EU
Richard Asquith, VP for global indirect tax at Avalara,
suggested that no deal may be the most likely outcome.
"Businesses will, very reluctantly, have to climb back up
the no-deal preparation hill," Asquith told ITR.
"Another bout of restocking and hoarding, plus prolonged delays
in investment decisions."
"The last point is the most worrying," he said.
"Multinationals will now look to relocate planned UK
investments and acquisitions to Europe given the continuing
EY has forecast UK business investment to contract by 1.6%
in 2019. However, if Brexit is delayed yet again, it is
possible the UK economy would see its GDP growth fall to 1.3%
in 2020. The accounting firm projected that GDP growth might
rise to 1.5% in 2020 and 1.8% in 2021 if the leaving deadline
is met with a deal in place.
No-deal Brexit, in contrast, could mean a GDP growth rate of
0.3% in 2020. This would be a mild economic slump before rising
to 1.1% in 2021. However, it’s not a given that
the UK would be a more competitive economy in the end.
"Most small businesses don’t know how to
prepare, whether they are trading with Europe or not," Bull
said. "This uncertainty is translating into business in a very
"When we look at the bigger companies, we can see that the
UK has a weak currency and a sophisticated economy with a long
manufacturing history," he told ITR. "All of those
factors say the UK should be in prime position to see enormous
growth in manufacturing base for exports."
"What are we seeing? We are seeing the reverse," Bull said.
"We’re seeing more manufacturers pulling out of
On the other hand, there are some businesses that are open
to the idea that Brexit will be manageable, but those same
companies fear what a change of government may hold for them.
Failure could doom the Conservative Party at the next
"A change of government would mean a higher tax rate. It
would possibly mean a withholding tax on euro bonds," one tax
director at a fintech company told ITR.
"That’s everything for us because it is how our
debt comes in."
"It’s a lot of debt and that’s why
the risks are so high," the director said.
The Conservative leader will have to reassure business
leaders, settle the UK’s fiscal strategy and
deliver Brexit to satisfy his Leave supporters. All of this has
to happen in the next 100 days. The clock is ticking.