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Archive for January, 2019

What happened in the land of Brexit last night and what happens next?

Last night, Conservative MPs united for the first time in months around a course of action, backed by the Prime Minister on the next steps in the Brexit process. That is the most optimistic take on yesterday’s events for the Prime Minster.

A more realistic, but still generous, assessment of events is that Theresa May beat a tactical retreat to avoid yet another large defeat in Parliament that would have seen MPs seize control of the Brexit process directly. A yet more pessimistic take is that she capitulated to the ERG hard-Brexiteers and the DUP, making an almost undeliverable promise to renegotiate the Withdrawal Agreement to change or remove the hated backstop.

The facts are that the Prime Minister opened yesterday’s debate by announcing that she would seek to reopen negotiations on the Withdrawal Agreement to secure legally binding changes to the backstop. She then asked MPs to back an amendment tabled by 1922 Committee Chair Graham Brady that backed the Withdrawal Agreement as long as the backstop was replaced with unspecified ‘alternative arrangements’.

May also had some warm words for the so-called ‘Malthouse compromise’ proposals that had been hastily briefed to the media. This essentially calls for the use of technology to avoid the need for a hard border (and therefore the backstop) or for a managed no deal that takes place with a longer lead in (December 2021). This is a long way from being acceptable in Brussels but has demonstrated that the rival factions within the Conservative Party are finally coming together.

This proved to be enough to swing the Conservative Party behind her. Amendments tabled by Dominic Grieve and Yvette Cooper that would have seen MPs seize control of the Parliamentary timetable and processes in order to find an alternative approach (likely a softer Brexit) were defeated. The Brady amendment was passed. The only government defeat occurred on an amendment that expressed Parliament’s desire to avoid a no deal Brexit but is not legally binding.

Attention now turns back to Brussels. The European Commission and several remaining EU Member States (including Ireland) immediately rejected May’s call to reopen negotiations on the Withdrawal Agreement. There have been briefings to the media about the possibility of using a ‘Joint Interpretive Instrument’, essentially an addendum to the Withdrawal Agreement, that could have legal force as one possible route forward. However, it is far from clear that this meets the threshold demanded by the Brady amendment last night.

Theresa May has spent the last two years trying and failing to find a way through the hard-line positions of the DUP and ERG on one side, and the EU’s red lines on the other. She now has two more weeks to try to solve this riddle before facing MPs again on 14th February. Should she fail, we will be back to square one, with a likely repeat of last night’s series of votes on various different options.

So where does this leave us?

Firstly, the chances of a second referendum are receding. There appears to be little appetite from most MPs for this approach and without a majority in the Commons it is a non-starter.

Secondly, the chances of an immediate election are also lengthening. The Conservative Party’s (likely temporary) truce strengthens the Prime Minister’s position in power in the short-term with time now almost out to hold an election before March 29th (assuming no extension of Article 50). However, questions remain over her tenure in the medium-term and the prospect of a Corbyn-led Labour Government in the foreseeable future has not gone away.

The chances of a deal getting through Parliament will depend on two things: whether the initial no from the EU really does mean no; and whether the newly forged mood for compromise within the Conservative Party extends to considering compromises from the EU that fall short of the ERG’s redlines. The ticking clock of no deal may help nudge MPs in this direction but there is deep scepticism among other EU leaders that May can actually deliver a deal even if they offer more concessions. Changing this perception will be a key task now for the Prime Minister.

If this latest attempt at renegotiation fails, the prospect of Parliament seizing control of the process will likely be revisited. If and when MPs do get another opportunity to shape the process more directly, it seems likely that a significantly softer Brexit will be the likely outcome. But the question remains, to what end? MPs last night backed away from shouldering this responsibility. Once again, the impending prospect of no deal might make them bolder if they get another chance.

Finally, no deal remains the legal default and is looming ever larger with the clock ticking. An optimist could say last night was a step in the right direction with Conservative MPs finally uniting behind something, even if it isn’t the ultimate solution. A pessimist might say we shuffled closer to the cliff edge of no deal. Nothing has yet been resolved.

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Fast growing WA starts 2019 with new hires and promotions across the company

Following 25 percent growth in revenue in 2018 across core public affairs, health and investor services, WA Communications is starting the year with a raft of new hires and promotions. These follow a game-changing year for the company, achieving high-profile clients wins and expansion in its service offer across public affairs, investor services and corporate communications.

Dean Sowman joins WA’s health practice as an Associate Director from Portland Communications, bringing a decade of experience in public affairs, market access programmes, disease awareness campaigns and crisis management. He will work alongside Director Caroline Gordon in growing WA as a leading player in the health public affairs and PR market following significant client wins including Bayer and Sanofi.

Internally, Angus Hill has been promoted to Senior Account Director, recognising his pivotal role in cementing WA’s creds across the transport, utilities, and consumer rights sectors. Further promotions include Josh Aulak becoming a Senior Account Manager, and Beatrice Allen an Account Manager.

Announcing the promotions, Dominic Church, Managing Director of WA said:

“WA Communications is at a really exciting time in its growth. Our insight-driven approach and relentless focus on delivering against our clients’ core objectives are making the difference in a crowded market place.

But more than that, we’re determined to be known for being the best people-centred business in the industry. By showing genuine commitment to supporting and developing our team, we’re seeing our whole business thrive. It’s the solid foundation that we’ll build on – for the benefit of both our team and for our clients.”

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Re-engineering apprenticeships

Last week the government launched its new apprenticeship campaign #FireItUp. But, with apprenticeship starts still lagging behind target, does the government need to refresh its strategy?

At the 2015 General Election, David Cameron’s manifesto committed to a target of three million new apprenticeship starts by April 2020. Theresa May repeated this commitment at the snap election in 2017, with the policy appearing to have firmly made its way into core Conservative Party narrative. But with only just over a year left to reach the target, and with starts still down, the government appears to have dropped the ball.

The ill-fated levy

Blame for issues to date has largely been directed towards the decision to introduce the apprenticeship levy. Whilst the notion of the levy was largely welcomed, in practice it has been criticised for being “overly bureaucratic” and overly rigid – to the extent that less than 10 per cent of income raised from the levy has been spent.

Out with the old, in with the new 

The government has also received criticism over the implementation of the new apprenticeship standards which replace the legacy system of frameworks. With the 2020 deadline to have fully-transitioned from frameworks looming, there has been criticism of the bureaucracy and delay in approving the new standards from both providers and employers alike.

Many of the ‘trailblazer’ employers who were tasked with developing the standards have yet to receive approval from the Institute for Apprenticeships (IFA), meaning they are still operating without choice under a framework system that has been deemed “redundant” and of insufficient quality by the government.

Tinkering with the faults

Seeking to fix the faults of the levy, Chancellor Philip Hammond announced a review at Conservative Party Conference in September. He pledged to “engage with business on our plans for the long-term operation of the levy”. Reports trailing the announcement hinted reforms could include enabling employers to share up to 25 per cent of their funds with businesses in their supply chain and increasing the availability of courses in STEM subjects.

The Chancellor has already committed to halving the co-investment rate for small businesses, backed-up by £240 million of funding. Hammond also laid out plans, and crucially funding, to support the IFA in identifying gaps in the training provider market and in clearing the backlog of apprenticeship standards awaiting approval.

Apprenticeship reform will also see collaboration between HM Treasury and the Department for Education, with ministers Robert Jenrick and Anne Milton working with a range of employers and providers to consider the impact of the apprenticeship levy across sectors and regions in England.

But for many, including big industry voices, the reforms aren’t likely to go far enough. Commenting on Hammond’s announcement, Dr Adam Marshall, Director General of the British Chambers of Commerce, said “the measures announced today are an important step in the right direction… but the Chancellor must introduce greater flexibility to the apprenticeship system”.

Apprenticeship renaissance?

In an attempt to reinvigorate the apprenticeship system once again, Education Secretary Damian Hinds last week launched the #FireItUp campaign. The campaign seeks to expand the apprenticeship offering to include more ‘white-collar’ jobs like accountants, actuaries and teachers. Hinds has called it a “sad truth that outdated and snobby attitudes are still putting people off apprenticeships”, and that he wants to “shift deeply held views” of apprenticeships.

Hinds has also commended apprenticeships as an alternative to university degrees, saying that three years in an apprenticeship can be just as valuable, and workers don’t end up saddled with up to £50,000 of debt. This comes at the same time as record numbers of first-class degrees were awarded last summer, an increase of more than double in a decade.

Apprenticeship reform

With reforms on the table, is it now time to iron out some of the creases in a well-intentioned, but poorly executed system?

As Hinds suggests, his vision for apprenticeships sees them becoming the norm for white-collar jobs. The challenge therefore is to adapt a system which has traditionally served industries like engineering and construction, into one that suits 83 per cent of Britain’s workforce – the service sector.

Given the areas that government have already shifted on, including reforms to the co-investment rate, there could be scope for further reform if the sector can demonstrate benefit to both the Treasury and DfE – both in terms of economic value and in enabling more people to access quality training opportunities.

The government is keen to reconnect with business following claims that Theresa May has let relationships with business groups slide. Add to this the growing pressures of Brexit and its potential impact on the UK’s productivity and workforce, it is likely that government will be looking to appease business where it can. However, this creates a risk that providers, i.e. those actually delivering apprenticeships, will not be given due consideration during this process – which will ultimately be to the detriment of the sector and of government.

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A shot in the arm for the vaccine industry? Implications of the NHS Long Term Plan for vaccine providers

Medicines manufacturers could be forgiven for feeling overlooked by the NHS Long Term Plan, with its clear focus on prevention over pills. Their colleagues in the vaccine industry may in contrast have good reason to be optimistic. Immunisation is a cornerstone of prevention, and NHS England’s ambition is clear: there will be both investment and action to increase vaccination uptake and reduce variation.

The extension of the HPV programme to adolescent boys is a strong positive signal for industry that, where the evidence is clear, investment will follow. The taxpayer funded Vaccines Manufacturing Innovation Centre announced at the end of last year is another welcome beacon to industry, indicating the importance of vaccine manufacturing capacity to UK life sciences policy.

Delve deeper however and there is the potential for impending change in vaccine policy, with mixed implications for the sector.

Vaccines are not immune – pardon the pun – to the pricing pressure being applied the pharmaceutical industry from ever-tightening drugs budgets.  While the UK has a world-leading vaccines programme, the JCVI (the industry’s equivalent to NICE) doesn’t shy from making challenging recommendations in its efforts to maximise efficiencies and value for money. Decisions with significant implications for how vaccines are funded are due to be made soon – amongst them whether the QALY threshold for reimbursement of new vaccines should be lowered, raising the bar even higher for new products to market. Vaccines already on the market are also subject to this pressure – as highlighted by the JCVI’s proposal to drop the dosing schedule for routine infant pneumococcal vaccination.

Adding to this general sense of impending change is the “fundamental review” of immunisation standards, funding, and procurement in general practice that will take place in 2019, as announced in the Long Term Plan.

While the aim is ostensibly to improve uptake and reduce variation, it seems likely that this will also consider potential efficiencies and the wider role of the NHS in providing certain vaccinations. Public Health England has already been tasked with reviewing the appropriateness of providing NHS-funded travel vaccines, and a broader review of all NHS-funded vaccinations would feel like a natural extension.

For the travel vaccine industry, scrapping NHS reimbursement would have significant implications. There is of course a risk that travellers deprived of free vaccinations will choose simply not to be immunised, rather than pay for private services. On the other hand, both manufacturers and the private travel clinic industry could stand to benefit significantly from a more level playing field, without competition from the NHS providers able to offer free vaccines as a selling point to attract travellers who then purchase additional, chargeable vaccines.

Elsewhere, any changes to the funding and procurement of GP vaccines could entail significant administrative flux for industry, with potential movement for some vaccines centrally procured by NHS England to direct ordering by practices – and vice versa.

It’s not inconceivable that NHS England may also review its centralised procurement procedures for routine immunisations, with an eye on incentivising best value for tenders.

As is evident, the potential impacts of the review on vaccine manufacturers and the broader supply industry could be substantial, for better or for worse. Questions around the scope of the review remain – prudent action at this stage would be to champion wherever possible the crucial role of vaccines in achieving the Long Term Plan’s ambitions to transform prevention and public health.

 

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The Polish Paradox: how investors can navigate Poland’s new normal

Poland has long been viewed as one of the most attractive countries in Europe for foreign investment. A highly skilled workforce, comparatively low labour costs and enviable geographic links to major European countries contribute to Poland’s ranking as the second largest Foreign Direct Investment (FDI) destination by jobs created in Europe, ahead of major economies like Germany.

Opportunities for investors look set to increase over the next decade, with a generation of pioneering Polish businesses established after the fall of communism now seeking new ownership as their founders retire. While this potentially creates an attractive investment landscape, business opportunities are complicated by Poland’s ruling Law and Justice (PiS) party, which has struggled to balance the Polish reliance on FDI with the nationalist policies preferred by it’s traditional supporters. This is a factor that potential investors will have to seriously consider before entering the market.

One of the major attractions the Polish market holds is its enviable economic stability. Following the 2008 financial crisis, Poland was the only country within the Eurozone to avoid a recession, a fact the Polish government has been keen to publicise. In the thirty years since the end of communism in Poland, the economy has been boosted by pioneering entrepreneurs taking advantage of Poland’s newly open markets. As the generation approaches retirement, Poland’s Ministry of Enterprise and Technology estimates that one million family run businesses will have to consider succession issues in the next ten years. Many of these businesses are likely to move outside of family control, with the Poznań based Family Business Institute finding that just eight per cent of Polish business heirs want to take over the family business.

These dynamics offer a major opportunity for foreign investors, but only if they can successfully navigate the policies and approach of the nationalist PiS government, and the complex and often contradictory attitude it holds towards foreign investment. A recurring theme in PiS’s economic policy has been its willingness to renationalise or buy significant stakes in companies in strategic sectors that are bought by foreign investors. This has been particularly prevalent in the finance sector. Following the renationalisation of some previously foreign owned banks, the Polish government now owns 40 per cent of all banking assets in Poland. Nationalist and protectionist economic policies such as these are hugely popular with the working class, rural voters who make up PiS’s electoral base.

Despite the trend toward renationalisation, there is acknowledgement within PiS, and particularly by the current Prime Minister Mateusz Morawiecki, that FDI is crucial for maintaining the party’s popularity. New generous welfare policies, such as the reversal of a planned rise in the pension age and new child benefit payments, mean FDI is needed to ensure the country’s deficit does not grow above the EU limit of three per cent, or the Polish constitutional limit of a debt to GDP ratio of 60 per cent. PiS, therefore, walks a tightrope between maintaining credibility with its nationalist base and avoiding an exodus of foreign investors from the country.

PiS has a famously difficult relationship with the EU, which dominates the image of the party abroad. Attempts to reform the judiciary in Poland, including forcibly retiring existing senior judges and giving the government greater powers to appoint replacements of it’s own choosing, resulted in a protracted battle with the EU. In December 2018, PiS announced that the changes would be reversed, effectively ending the long running dispute. However, PiS remains Eurosceptic and prone to courting confrontation with the EU, a policy that may have more serious consequences for investors now that the European Parliament has approved measures to freeze EU funding for members who “undermine democratic values”. The proposals will now move to the European Council, consisting of the leaders of all EU member states. The measures are likely to be a source of confrontation as the Council negotiates the budget, with the most confrontational EU member states – Poland and Hungary – currently being net recipients of EU money.

It’s an election year in Poland, with voters deciding on the new government no later than 1 November 2019. Polish politics is deeply divided between the beneficiaries of PiS’s populist social policies (typically more rural, working class voters), and supporters of the more socially liberal, pro-business Civil Platform. Despite this, PiS has a nine point lead in the polls, and has consistently maintained a lead since winning the last election, held on 25 October 2015, making a change of government this year unlikely. With PiS firmly in control of Polish politics, investors will have to learn to navigate the risks posed by the government in order to reap the potentially significant rewards of the Polish economy.

 

 

 

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Getting under the bonnet of vehicle connectivity

The car has evolved significantly over the last century. The driving experience, however, has largely remained the same. But this is changing. Most headlines to date have focused on driverless cars in the context of future mobility. Unsurprising really, but more interesting is not who might be driving cars in the future, but what’s currently happening under our bonnets.

Nowadays, being disconnected from the world is alien to most of us because we now see connectivity as a need rather than a luxury. Vehicle connectivity is central to this behavioural shift and already driving a huge number of innovations that will transform all our travel experiences.

It’s not about getting from A to B anymore but doing so in a way that facilitates our accessing a host of new experiences and connectivity features within our cars. In-car safety (e.g. integrated cameras, self-braking), vehicle to vehicle safety that allows cars to effectively talk to one another helping to prevent accidents, data tracking to record vehicle usage, infotainment that connects us to things like Spotify and, of course, 4G WIFI hotspots, are all in high consumer demand.

Interest from original equipment manufacturers (OEMs), government and third-parties will also increase this year. Eager to harness its potential whilst also overcoming its many challenges, questions remain as to whether existing car manufacturers will be able to keep hold of their vehicles’ data. It’s likely irresistible pressure to provide access to third parties, both to create new types of services but new revenue streams too, will soon prevail.

The amount of data a vehicle generates is set to explode but monetising this huge increase in operational data is easier said than done for OEMs who have historically fallen behind market disruptors. There are also questions about whether consumers want to see an increase in vehicle connectivity. Though considered highly beneficial in countries like China, it isn’t in countries like Germany, for example. Consumers’ willingness to pay for connected data services will surely also come into question as let’s face it, we’ve all come to expect basic services and apps for free.

OEMs’ potential to realise benefits from being in control of a vehicle’s data is enormous. This can range from knowing which parts of a vehicle are likely to fail and when, real-time data that’s sent from vehicle sensors to identify problems early or knowing a customer’s driving behaviour that helps design better, more customized customer experiences, ultimately improving brand affinity and loyalty.

However, not every automaker is well positioned to succeed at every stage of the connected vehicle value chain. As a result, though in possession of a vehicle’s data, they are reluctant to give this up as, understandably, want to control every point in the value chain. For years, many OEMs have attempted to build the entire mobility data ecosystem themselves, but only by partnering with outside organisations can the monetisation of vehicle data develop to its full potential.

Many OEMs have also failed to hide their collective vulnerability to market disruptors looking for ways to bypass them. For instance, for user-based insurance, the addition of a simple plug-in allows insurance companies to gain access to vehicle usage data which means being able to avoid the need to interface with OEMs.

There’s also a question of data protection. Generally, consumers are more willing to share their data for services or features that have a perceived benefit, but trust would be lost if the data OEMs share is compromised in any way. Keeping this trust and brand loyalty whilst also trying to use customers’ data to create better and more personalised experiences for them will be a huge challenge.

Similarly, who owns a vehicle’s data and who gets to use it will also be key questions that need answering before vehicle connectivity really takes off. The most interesting data sets are often the ones that are shared across connected ecosystems that include consumers, OEMs, and service providers. However, studies have shown consumers aren’t fully comfortable with one type of company managing their connected data. Naturally, this will help make the case for why OEMs should give up their total control over their vehicles’ data as they simply aren’t best placed to make the most of it.

Vehicle connectivity is the future and OEMs will need to capitalise on the opportunities it brings, not only for them, but for society as whole quickly. If they don’t then they risk losing out to more agile and non-traditional competitors.

And so, what’s happening under our bonnets now and in the future will create far more disruptive changes to the automotive industry and how we travel in the short-to-medium term, than any increase in cars’ ability to drive themselves.

 

 

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What are the Brexit options now?

Tonight is the night that Parliament will finally be given its say on Theresa May’s Brexit deal. After weeks of delay, the question on everyone’s lips is not whether Parliament will reject Mrs May’s deal, but by how much she will lose. With just hours left until the vote, there is no indication that enough MPs have switched their public opposition to the deal to prevent a significant defeat for the government.

It is time, therefore, to take a look ahead at the potential scenarios that might play out in the coming weeks. We have outlined below our analysis of several potential outcomes from the current chaos.

 

Defeat so big – May has to go?

There is talk of tonight’s defeat surpassing the worst defeat for a government in living memory. So is there a chance this could precipitate a move against May that could force her downfall or her voluntary resignation? In short, no. Theresa May has given no indication that she has any intent of stepping aside and even the most strident critics of her deal have not called for the Prime Minister to resign. Indeed, the DUP have stated they will continue to support her government in a confidence vote.

Likelihood: not happening

 

Parliament takes control

What of recent press reports that MPs are mobilising to seize control of the business of the House of Commons to prevent a no deal Brexit? Nick Boles is reportedly ‘plotting’ to pass a Bill that would force the government to seek an extension to Article 50 or to revoke Article 50 altogether. Even if control over the Commons order paper was wrestled away from the government, this would still be a very tall order to organise and pass before March 29th and is not realistic. Furthermore, proposals for the Liaison Committee to take control of the process from the government were quickly dismissed by the chair and vice-chair of the Liaison Committee. While Parliament is certainly flexing its muscles, it cannot ultimately seize total control of the Brexit process.

Likelihood: not happening

 

May’s deal passes at the second (or third) attempt

The government has had plenty of time to plan its next steps should Parliament reject the deal first time round. One of the most likely next steps will be simply to have another go in a second parliamentary vote, and perhaps even a third attempt too.

The success of this approach will be influenced by a number of factors. First up, the scale of the defeat in the first vote. Losing by more than 200 votes will make it much harder to simply ask MPs to try again, whereas a better than expected showing for the government will encourage them that all is not lost. The fact that 100 Conservative MPs voted against her in the no-confidence vote is likely to set the benchmark against which the scale of defeat is measured.

Secondly, can the PM secure any further concessions from the EU? So far the Commission and remaining member states have held firm to the line that there can be no change whatsoever to the legal text of the Withdrawal Agreement. Clarifications were offered round the sides of the deal on the EU’s desire to avoid using the backstop (while stopping short of placing a time limit on it) in the build up to tonight’s vote but it is difficult to see how much more can be offered.

Thirdly, will MPs be given the opportunity to test parliamentary opinion on other alternatives? A series of votes on alternatives such as no deal, Norway-plus or a second referendum might actually play into the Prime Minister’s hands if it demonstrated that none of them can actually command a Commons majority.

Finally, the way in which the world outside Westminster responds to a rejection of the deal can’t be ignored. The markets have been subdued for some time due to Brexit uncertainty and a drastic reaction to rejection of May’s deal (such as a sterling crash or a major crisis in the FTSE 100) might give MPs something else to think about. However, given the widespread expectation that the deal will fall at the first vote it is entirely possible that this outcome is already built into market assumptions.

So what needs to change between tonight’s anticipated defeat and a successful subsequent attempt? The most likely route to reversing the result will involve Theresa May providing concessions targeting Labour MPs on issues such as employment rights, the growing realisation that other alternatives are not realistic options and the simple fact that the clock continues to tick towards no deal. It may also include giving a more specific, and accelerated, timetable for the Prime Minister’s departure.

Likelihood: The most likely outcome, but one which requires the Prime Minister to limit the scale of tonight’s defeat and for Parliament to test and fail to agree on several alternatives.

Timing: It will need to happen soon and would probably require a short (‘technical’) extension to Article 50 (see below).

Implication: This may allow a return to something resembling normal service in UK politics but May will have been severely weakened and it is likely that more detail on an accelerated and specific timetable for her resignation will have formed part of the process of getting approval.

 

Article 50 extension

If the UK is to avoid a no deal Brexit, this now looks almost inevitable. Even if May’s deal is approved tonight, we are still on a very tight timetable to get the relevant legislation implementing the Withdrawal Agreement on the statute books by March 29th. Any further delay means that an extension is likely to be required for any sort of deal to be ratified without the clock ticking down to a no deal scenario that nearly everyone wants to avoid.

However, it is important to distinguish between two different Article 50 extension scenarios. The most likely outcome would be what the European Commission has described as a ‘technical’ extension. This would be for a month or two simply to allow more time for the deal to be ratified once the UK Parliament approves it in the meaningful vote. This would be very likely in the scenario considered above where the deal is approved at the second or third attempt.

The much trickier scenario would be a longer-term extension intended to facilitate the reopening of substantive negotiations. The EU has been clear that there can be no changes made to the legal text of the Withdrawal Agreement and a longer-term extension would likely only be considered if there was a material change in the UK political landscape, or a radical shift in the UK’s negotiating position. This most likely means a decision to hold a second referendum or a General Election.

Furthermore, it is important to remember that the decision to extend Article 50 must have the unanimous backing of all remaining member states. One single dissenter can block an extension and trigger no deal.

Likelihood: Very likely for a ‘technical’ extension but anything more substantial could only be the result of a significant change in the UK political landscape (such as a second referendum or a General Election).

Timing: Likely to push Brexit day back by a month or two.

Implication: Brexit is delayed but not reversed while more time is dedicated to passing Brexit-related legislation rather than focusing on domestic priorities.

 

No Deal

In one sense, a no deal Brexit is getting more likely with every day that passes without an alternative approach being agreed. No deal remains the default scenario that will happen by automatic operation of law on March 29th 2019. There are only two ways to avoid no deal; vote for May’s deal or extend (or revoke) Article 50. If the whole Brexit saga has demonstrated anything, it is that opposing no deal is much easier than finding a viable alternative.

Likelihood: Getting more likely by the day.

Timing: 29th March 2019.

Implication: A severe economic shock and a step into truly uncharted territory which could bring an end to Theresa May’s premiership, or even the Conservative government.

 

Second Referendum

Support for a second referendum has grown within Parliament in recent weeks but both the government and the Labour front bench still strongly oppose it. It is therefore difficult to see how a parliamentary majority in favour can be manufactured. The position adopted by Jeremy Corbyn is critical. If he decides to swing behind a so-called ‘people’s vote’ it could be a game changer. But that is a very big if.

The official position of the Labour Party is to first push for a General Election with all other options remaining on the table if they fail to secure this. But Jeremy Corbyn has given no indication that he is willing to swing his support behind a second referendum.

There is also genuine concern among many MPs of all persuasions around the potential impact on trust in the democratic process if a second referendum is held. Furthermore, the divisiveness of the first referendum and its consequences for the tone of political debate will still weigh heavily in the minds of many MPs. For now, this looks unlikely but it can’t yet be completely discounted.

Likelihood: Slim but not impossible.

Timing: If Parliament is to express a preference for this it will need to do so soon after tonight’s vote, although fierce debates over the precise nature of the question and passing enabling legislation could take months.

Implication: Huge. Potentially a loss of what little trust there is left in the democratic process as well as yet more (much more) valuable time spent focusing on something other than domestic policy priorities.

 

General Election

The likelihood of a General Election taking place before 2022 has significantly increased as a result of the political turbulence surrounding Brexit and the weakening of May’s already fragile minority government. However, there is very little appetite among Conservative MPs and (crucially) the DUP for an immediate (pre-March 29th) election. The spectre of a Jeremy Corbyn led Labour Government casts a very long shadow and is likely to ensure that the Conservative and DUP benches support May in the vote of confidence that Labour plans to call following defeat in tonight’s vote. Nevertheless, the medium-term reality is that governing without a Commons majority is extremely difficult. If the fallout from tonight’s vote further hastens May’s departure as Prime Minister, her successor is likely to seek their own (stronger) mandate well before 2022.

The one scenario with the potential to trigger an election before March 29th would be if the government decides to pursue a managed no deal Brexit. In this scenario, several remain supporting Conservative MPs have indicated they may go as far as resigning the whip and voting against the government in a confidence motion. Whilst extreme, this scenario is no longer unimaginable.

Likelihood: Increasingly likely in the medium term, possibly later in 2019 or Spring 2020.

Timing: Not necessarily before March 29th unless the Conservative Party splits over impending no deal Brexit.

Implication: Opens the door to a Corbyn administration.

 

Whatever the outcome of tonight’s vote, the UK is set for a period of continued political uncertainty which will be challenging to navigate. If you are interested in the support of our expert team of consultants, please do get in touch.

 

 

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Is the retail market in need of some retail therapy?

You would be forgiven for thinking that something isn’t quite right when the Great British tradition of shopping fails to materialise over the Christmas period.

The cautious spending habits of consumers highlights a worrying trend for the UK’s retail sector. With business rates set to rise and the country facing the cliff edge of a no-deal Brexit, can the sector rebound in 2019?

If it can, it certainly hasn’t got off to a great start.

The British Retail Consortium have released a series of alarming figures, showing that retail sales in December plummeted to their lowest rate in a decade and total retail sales showed 0 per cent year on year growth during the month. However, where there are losers, there are also winners. While big names like Mothercare (-11.4 per cent) and Debenhams (-3.4 per cent) suffered plummeting sales, two-thirds of households took the decision to shop in either Aldi or Lidl over the Christmas period. This highlights how the economic uncertainty surrounding the country is impacting individual households spending decisions (to the benefit of discounted stores).

While some retailers have had a good Christmas, the entire sector is likely to be affected by the prospect of a no-deal Brexit. Surprisingly back in November, almost a quarter of Britain’s leading retailers had done nothing to prepare for the country crashing out of the EU. Confident perhaps that the government would secure a deal that Parliament could enshrine into law. Two months on and with a parliament no closer to agreeing the Prime Minister’s Brexit deal, the sector is now taking precautionary action. Large brands like Tesco and Marks & Spencer are stockpiling food, while Lidl has taken steps to beef up its customs operation. The fear of higher tariffs and shortages of goods is real. We will just have to see if retailers have left it too late.

Away from the no-deal planning, the government is starting to plan for life outside of the EU. In December, the Home Office published its white paper on what the UK’s future immigration system could look like and this is likely to affect the way the British retailers operate. They will have welcomed proposals to remove the cap on the Tier 2 visa, a five-year scheme which currently has a cap on the amount of people that are able to use it for entry into the UK. The scheme will now be opened to anyone outside the UK, ensuring retailers can access skilled labour and offer the security of a long-term job. On the flip-side, the government are proposing to limit the amount of lower skilled labour entering the UK with proposals to introduce a time limited route for temporary short-term workers, for a maximum of 12 months. Retailers rely on access to lower skilled labour and these restrictions could leave employers unable to fill vacancies.

In search of respite, UK retailers should look ahead to the year ahead as an opportunity to turn the tide back in their favour. Ironically, whilst the government is committed to making sure that markets work for consumers, they have overlooked the needs of some sectors, like retail, that need a boost. Faced with workforce constraints, UK retailers are set to face greater financial pressures as April’s business rate increases will see retailers fork out an extra £180 million under the revaluation system. Labour have boosted their pro-business credentials and criticised the hike, highlighting the good will on all sides to generate a retail recovery. Last year the Treasury rejected calls from retailers to reform business rates. With a weakened government and supportive opposition, key fiscal events (like the Spending Review) and the Queen’s Speech should be seen as opportunities to try and secure business rate reform.

While the UK’s retailers haven’t had the start to 2019 they may have hoped for, the year offers opportunities as well as obstacles. The Prime Minister has shown she is prepared to intervene in markets where they are not working for consumers, yet it may now be time to help support the retail sector, to ensure parts of the high street are not forced to close down. They might have their backs to the wall, but the time is now for retailers to showcase what more government can do to help create a thriving sector that works better for industry, and ultimately consumers.

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Three tough tests ahead for the food and drink industry in 2019

Last November reports circulated that the humble Mars Bar saved the UK from a no-deal Brexit catastrophe. According to several newspapers, Michael Gove, Secretary of State for Defra, sounded the alarm after learning that two vital, perishable ingredients used in the manufacture of Mars Bars would be unavailable in the event of no deal.

As it turned out, the story was largely fake news, whipped-up by a Gove SpAd (who has since resigned) as part of Gove’s manoeuvring which (almost) saw him end up as Brexit Secretary 3.0.

The story goes to show that the food and drink industry, the largest of all the UK’s manufacturing sectors, is right in the thick of it politically, facing a barrage of short and long-term threats across a number of fronts.

Until now, many of these challenges have been bubbling on the horizon, but in 2019 many of these will come into play for real.

Here are the top political and regulatory challenges for food and drink businesses in 2019 that investors should be aware of, and what the sector can do to combat them.

Sustainability – piling the pressure on packaging

Arguably the biggest regulatory headache facing food and drink brands in the UK is sustainability. Environmental regulation has been one of the few hits of post-2015 Tory policy, and it has put the spotlight firmly on those sectors whose processes and products contribute most heavily to environmental issues.

The Autumn Budget introduced a new tax on single-use plastics, which comes into force in 2022 and will apply to all packaging that doesn’t include at least 30 per cent recycled content. The government’s Waste Reduction Strategy, published in December, also maps out reforms to the Packaging Producer Responsibility System, increasing industry’s contribution towards the disposal and management of plastic products.

Much like the sugar levy, both of these measures are aimed at pushing industry to implement more sustainable packaging more quickly, rather than being revenue-raisers in their own right. But any changes enforced on companies operating a global supply chain will cause unwanted hassle and potential price increases for consumers.

Changing the approach to plastics isn’t as easy as just cutting back. Cucumbers, for example, get wrapped in 500 tonnes of plastic a year – but removing this would cut their shelf life from two weeks to just three days.

While packaging and plastics are the big issues facing brands, manufacturers and producers have their own challenges. The dairy and farming sectors have come under increased pressure recently for perceived adverse environmental impacts, in particular their contribution to global warming. Despite having made great strides towards cutting their carbon footprints in recent years, eco-conscious consumers are turning away from meat and dairy products, opening up new market opportunities for alternative product categories.

Obesity – the ‘big debate’ just gets bigger

Few issues touch a cultural nerve more regularly and deeply than the ‘obesity debate.’ While rates of smoking and drinking have dipped in recent years, obesity is on the rise. Not many weeks go by without front-page splashes on the spiralling obesity crisis, particularly amongst young people.

Pre-2013, the food and drink sector’s relationship with the Department of Health was relatively rosy – the Responsibility Deal included voluntary targets, set by industry and government, but was seen as too lenient.

Since the inception of Public Health England and the ramping up of campaign groups like Action on Sugar, pressure has mounted on manufacturers and retailers alike to reformulate products and change advertising practices.

The marquee policy to-date has been the introduction of the soft drinks levy, but 2019 and 2020 will see a new wave of additional responsibilities for food and drink, including cutting sugar by 20 per cent by 2020, the restriction of the advertisement of HFSS products on certain TV slots, and the removal of supermarket promotions such as 2-for-1 deals.

If the sector fails to achieve the reformulation targets set by PHE, mooted expansion of the sugar tax to include puddings, milkshakes and fruit juice is a very real possibility.

Decisions about how deep the interventions from government will be on obesity-reduction will be as much about the politics as the evidence. While there is a vociferous anti-sugar campaign, backed by a cross-party group of prominent MPs, there is equally a backlash to the nanny-stateism implications of PHE’s policy programme.

Matt Hancock, the prevention-mad Health Secretary, has recently described his desire to move away from population-wide interventions (including minimum alcohol unit pricing) and target interventions at those who need them most. Positive signs for the sector, but as ever the proof of the pudding will be in the eating.

Brexit – food and drink feels the brunt of political uncertainty

Not many industries can claim to be unaffected by Brexit. But neither can many say they would be as deeply or swiftly affected as the food and drink sector.

The sector has always been unanimously clear that any potential Brexit scenario offers an inferior option to the status quo of EU membership. Food and drink trade is unique, with perishable products often needing to be consumed within days of importing and therefore any changes in trading terms which lead to border delays would be catastrophic.

Pragmatically, the industry is now pushing for future trade alignment and market access as close as possible to the status quo, but as time ticks by the reality of a no-deal is leading retailers and producers to plan for the worst. Many businesses are already beginning to stockpile ingredients and products and prepare for potentially extreme volatilities in the price of butter, milk and other daily essentials.

What would be even worse for UK business would be non-reciprocation on tariffs in order to keep supermarket prices low. EU tariffs on food and drink are up to 90% in some cases, and UK exporters could be left high and dry if the UK chooses not to impose similar tariffs on EU goods.

The government’s Immigration White Paper also creates unique challenges for the food and drink sector, which relies often on European labour for seasonal or short-term work and is already experiencing a workforce deficit. If the government sticks to its preferred approach of prioritising high-skilled foreign workers, the challenges will only mount.

Looking forward, even in a best-case scenario new foreign trade deals would spell trouble for some parts of the sector.

For example, trade with America, Australia and New Zealand might entail cheaper imports, creating new competition for the UK market. Still, there is no doubt that UK food and drink has the potential to thrive in global markets and exporters have had growing success in Asia and Africa in recent years – but support (financial and strategic) from the Department of International Trade will be essential.

Silver linings

Despite these challenges, it’s worth remembering this is an industry growing, innovating and investing all the time. Last year Britvic, Diageo and Muller all made new capital investments of more than £50, million, and they are not alone.

What is more, there is a balance of views both within government and politics more broadly, and the food and drink sector is not without its supporters. Engaging these supporters and bringing them out to bat on each of the issues impacting the industry will be a significant factor in the industry’s success in 2019 and beyond.

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Corporate governance reform and risks in balancing the boardroom

Although a central factor to business’ success or failure, the issue of corporate governance has not historically tended to excite great passions amongst policymakers beyond the usual party-political posturing. However, over the past two years it has become a more contested area of reform, with a rash of policy proposals from both sides that will interest and potentially concern investors. Changes being brought by government will impact how companies report and are overseen, while more radical proposals from the Labour Party represent a further risk for investors, given they would alter the way companies are owned and managed at the top level.

Government reforms

In Theresa May’s 2016 leadership speech, she pledged to implement “changes in the way that big business is governed”. This included mandating places for workers on company boards and making shareholder votes on corporate pay binding, instead of advisory as they are currently.

Encountering the political reality of governing with no overall majority and resistance from Philip Hammond’s Treasury, which was concerned about upsetting business, May’s proposals have been watered down. Instead of the stronger proposals suggested by the Prime Minister before the election, companies reporting on financial years starting after 1 January 2019, will have to adhere to several new lesser requirements:

These measures follow a similar pattern to other new reporting requirements brought in by Theresa May, such as gender and ethnicity pay gap reporting, where public databases of performance have been created. We are likely to see similar stories in the press highlighting the worst offenders with high CEO-worker pay gaps, or the most clashes with shareholders over pay, such as those at Direct Line, and housebuilder Persimmon.

There are particular problems with the CEO-worker pay ratio which may distort who receives bad coverage by emphasising where CEOs are paid significantly more than workers. Some industries such as financial services tend to have limited numbers of well paid employees, so their ratios will be small, while retailers employ larger workforces on smaller salaries so will have considerably worse ratios. For example, McDonalds’ CEO was paid 3,101 times the average worker in 2017. In addition, because the ratio is based on CEO to average worker pay, changes in CEO pay year-on-year will have a large effect on the ratio. Because CEO pay tends to vary significantly with performance the ratio will also jump around, rather than showing clear trends.

These issues may prove a boon for private equity looking to take listed companies private, as they will not be subject to the same level of scrutiny. This has led to wider concerns the proposals will accelerate the trend for companies to go private, or not to list as they grow, meaning they are not subject to the same level of shareholder scrutiny.

Labour risks

Not to be outflanked on the left, Labour leader Jeremy Corbyn and Shadow Chancellor John McDonnell came forward with proposals of their own for corporate governance at their 2018 Party Conference. If elected, Labour said it would ensure both public and private companies with a workforce of over 250 set aside at least one third of their boardroom positions (a minimum of two) for representatives elected by the workers.

While on the surface this idea seems extreme, the model exists in other countries and we can look to Germany for an example of the actual effect such a policy is likely to have on assets. German companies operate a two-tier system, with a management board made of the senior executives and the CEO, and a non-executive supervisory board, consisting of shareholder and employee representatives.

The model has been quite extensively studied around the world. One troubling finding is that the system reduces the market-to book ratio of companies by 31 per cent on average, likely meaning a loss for shareholders as the model is implemented. There is also evidence such companies have higher staffing levels which can negatively impact profits. Shareholder and employee interests align in other areas which may provide benefit. Both are incentivised to ensure the company is a going concern by limiting risky management behaviour and executive pay.

Any potential benefit in the long term, however, is likely to be wiped out by Labour’s other eye-catching policy for company structures. For example, large companies would have to hand over ten per cent of their equity to workers. There will be a cap on the earnings received by workers and the state will take the rest, so there are questions over whether the policy is really a cooperative model. Whoever benefits, it is clear shareholders would take a ten per cent cut on the value of existing shares – no doubt the most hard-line left wing policy put forward by Corbyn’s Labour Party.

While May’s reforms will lead to public recriminations for the companies with the most egregious pay structures and a shakeup of some boardrooms, the greater risk clearly comes from Labour’s attempts to redistribute corporate power. It is this which investors must keep a watchful eye on.

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Winners and losers from the NHS Long-Term Plan

The launch of the NHS Long-Term Plan is intended to set the direction for NHS policymaking for the next 10 years. The 134-page report signals a shift in priorities and an evolution of focus. As always, this means winners and losers.

As the dust begins to settle on yesterday’s plan, we take an early look at the beneficiaries of this plan, and areas left out in the cold.

Winners:

Primary and community care networks – the new poster child of the NHS?

In line with Matt Hancock’s own priorities, prevention was the buzzword in advance of the official launch, and the expanded role of community care was borne out in the detail. One of the centrepieces of the plan is the roll out of primary care networks (an evolution of the GP Federations) backed by £4.5bn of funding by 2023/24 to deliver meaningful integration at the community-level. Out-of-hospital care is once again the name of the game for NHS planners – although this longstanding ambition is notoriously hard to deliver on the ground.

Mental health services – big on ambition, but challenges remain

As heavily trailed, mental health services for both adults and children figure significantly in the NHS Long Term Plan. Parity of esteem may finally be turning from words into action. Well known to be one of Theresa May’s pet policy areas, a number of eye-catching initiatives – such as mental health ambulances and services for 0-25 year olds – make it into the plan, alongside the renewed commitment for faster growth in mental health services funding against the overall NHS budget. However, realising the ambitions the plan sets out for the sector is unlikely to be plain sailing, given funding earmarked for mental health has failed to reach the frontline in the past and deep-rooted workforce and capacity issues remain.

Theresa May – an NHS plan a day keeps Brexit away

Yesterday’s announcement was – for once – a relative success for the Prime Minister. Having had to postpone publication from 2018, this was May’s opportunity to set the news agenda with important and ambitious domestic policy. Rather than another day solely dominated by a Brexit back-and-forth, she was able to come out with a proactive and positive message which, on the whole, has gone down pretty well.

Digitised GP consultations – the gardens of Babylon

Under the Long-Term Plan, digital-first primary care will become a new option for every patient within five years, drastically increasing the availability and uptake of services such as GP-at-hand. Good news for providers, but these services are not without controversy, and this move will not go unnoticed by the small army of clinicians on Twitter who describe them as untested and unsafe. As a vocal proponent of the digital approach, the inclusion of this measure is a win for the Health Secretary.

Global health recruiters – looking further afield for NHS talent

The workforce implementation plan, due to be published later this year, will have a major focus on recruiting NHS staff from overseas. An expansion of the Medical Training Initiative to ensure clinical trainees from around the world can learn in the NHS is being considered, while the government’s Immigration White Paper also gives the NHS more opportunities to bring in new talent from outside of the EU. However, the gaps are significant and growing, and there remain major question marks around the nursing and social care workforce when it comes to international recruitment.

Losers:

NHS managers – what’s another strategy among friends?

Nigel Edwards, CEO of the Nuffield Trust, reiterated his concerns about the capacity for rolling out such wide-ranging changes in an already stretched and reorganisation-fatigued organisation. For NHS managers, the Long-Term Plan represents yet another document to be implemented, in some cases with additional checklists and bureaucracy, at a time when the integrated care systems programme was just beginning to bed in. A new set of responsibilities and targets, alongside new uncertainty over the statutory role of CCGs, does little to ease the headaches of front-line planners and commissioners.

Local authority funding – the elephant in the room

Few in local government would have been under any illusion that the NHS plan would equate to a spending bonanza on social care and public health, but for all its warm words, the document gave scant comfort. Decisions over social care and public health funding have been deferred until the spending review expected in the spring, while services are desperately struggling to cope with demand. For a plan so focused on prevention, commentators have been quick to point out that local authority public health budgets continue to be cut. Floating a possible solution of reabsorbing some public health services – such as sexual health – back into the NHS is likely to irritate rather than comfort.

The life sciences sector – limited language on innovation in treatment

The Long-Term Plan launched with two clear messages – that decreasing demand is the aim and that prevention is better than cure. Primary prevention and earlier diagnosis has taken precedent over world-class treatment, with medicines featuring sparingly in the document. Pharma is well aware that the battles on pricing and access will take place elsewhere, but for industry already feeling under pressure in the UK market, mentions of the role of innovative treatment would not have gone amiss. Still, there are green shoots for anyone involved in genomics, and nods to the growing importance of precision medicines.

2012 Health and Social Care Act – another nail in the coffin?

The NHS plan represents another step towards unpicking the Health and Social Care Act. As requested, Simon Stevens (in consultation of course) spells out exactly which parts he would most like to remove through primary legislation, should the opportunity become available. The plan describes primary legislation as having the potential to ‘rapidly accelerate’ the progress on service integration as well as cut out counter-productive and bureaucratic competition and compulsory tendering processes. In truth, a Brexit dominated 2019 makes it very unlikely that MPs will have the chance to get their teeth into a health bill, so the existing fudge will have to do.

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Bayer appoints WA Health to lead government affairs for cardiovascular disease

WA Health, the specialist health practice of WA Communications, has been appointed by Bayer to lead the government affairs brief for their blockbuster cardiovascular brand.

WA was brought in following a competitive pitch and will focus on supporting market access preparations for their expansion into coronary or peripheral arterial disease (CAD / PAD) as well as Bayer’s traditional stronghold in anticoagulation for stroke prevention.

The account is being led by WA Health’s director Caroline Gordon, who joined the company last summer from Incisive Health, reporting to Bayer’s Government and Industry Affairs Manager, Andrew Brown.

Andrew Brown, Bayer’s Government and Industry Affairs Manager said:‘We’re very happy to be working with the team at WA on our cardiovascular disease government affairs brief. WA’s ideas really stood out to us during the pitch process and we’re excited to be working with them during this critical phase. We’re confident it’s going to be a strong partnership.’

Caroline Gordon, Director at WA said: ‘This is a flagship win for WA Health and exactly the kind of work we thrive on. We’re delighted to add Bayer to our growing client list. It’s been a really strong few months for the WA team across our specialisms in health and wellbeing and we’re all hugely looking forward to building on this success in 2019.’

This win comes off the back of a successful period for WA Health, having recently secured projects across Sanofi’s oncology portfolio, corporate communications for Takeda and retained work supporting the UK launch of Camurus’ opioid replacement therapy treatment.

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