With a year to go, Dan Roberts takes a look at the unresolved issues forcing firms to take evasive action

With only a year to go until Britain leaves the EU, a mounting backlog of unresolved problems is causing business to take evasive action – despite government attempts to buy more time with a transition deal.

More than half of large companies have already put emergency contingency plans into action, according to a survey, and in key sectors such as insurance and transport there are warnings of higher prices and disruption for customers if the fragile truce breaks down.

British and EU governments last week agreed to postpone discussions over Northern Ireland in order to provisionally agree that a 21-month transition phase could begin after March 2019, but only so long as outstanding disagreements are solved nearer the time.

The fudge has met with scepticism in the City, where leading law firms including Ashurst and DLA Piper warn it “provides no legal certainty”. A survey by the law firm Pinsent Masons found 51% of companies had triggered their plans for a no-deal Brexit, including shifting work abroad to European subsidiaries.

Some lobbyists are instead calling on the Bank of England and other regulators to allow them to act as if the deal were watertight in order to avoid further disruption. “Without such political guidance, firms will have to assume that March 2019 is the UK exit date and plans will need to be executed accordingly,” warned Stephen Jones, the chief executive of UK Finance, which represents banks and mortgage lenders.

But in the wider economy, business leaders say there is no substitute for urgent progress at the talks in Brussels. “From product standards, to VAT, to customs, to immigration – businesses need answers fast,” said Adam Marshall, the director general of the British Chambers of Commerce. “With one year to go until the UK’s formal exit from the EU, negotiators must redouble their efforts to find pragmatic solutions to the many real-world questions firms face all across the UK.”

Facebook Twitter Pinterest A British passport and EHIC card. Photograph: Alamy

One of the most pressing challenges is faced by the insurance industry, which has warned that millions of car and travel policies being sold today could be in limbo if the transition deal fails to materialise.

Annual contracts taken out now for coverage starting next month will take companies beyond the date of departure from the EU. Yet there is almost no clarity on how cross-border regulations will apply in future.

This is a particular problem for travel insurance policies that rely on the reciprocal system of European health insurance cards (Ehic) to defray the cost of emergency treatment in member states. Though industry leaders say it is highly unlikely that the short-term absence of an Ehic replacement would lead to any policies being declared void, prolonged uncertainty would quickly push up costs.

“There is an inevitable cost to insurance policies if you remove the current framework and you don’t replace it with something that works,” said Huw Evans, the director general of the Association of British Insurers.

A similar cloud hangs over car insurance policies that allow drivers to travel on the continent without the need for additional paperwork, known as green cards, to prove they are covered. Until it is clear whether this requirement for non-member states will be waived, insurers and drivers could be falling foul of local laws.

Most alarmingly of all, overseas payouts made under long-term policies such as annuities or corporate liability cover may become illegal in some cases if the UK insurer is not licensed to operate in an EU member state. This is already putting off cross-border activity and forcing insurers to set up local subsidiaries, but represents a ticking timebomb for older contracts unless a replacement for the so-called “passporting” system is found.

“The real issue is less new business and more business that has already been written which in many cases long, long predate Brexit,” added Evans. “The Bank of England estimated there are 30 million of these policy-holders across the EU, of whom 6 million are in the UK.”

Facebook Twitter Pinterest Cargo lorries wait to get on ferries in front of the white cliffs of Dover. Photograph: Bloomberg/Bloomberg via Getty Images

A host of practical challenges is also bedevilling the haulage industry, which cannot circumvent hard borders simply by moving work to foreign subsidiaries in the way that financial services can.

The biggest worry, say truckers, remains the lack of any progress in agreeing new systems for avoiding customs checks. “Even a small delay of two additional minutes per truck could result in tailbacks of 29 miles at the borders during peak hours,” warned James Hookham, the deputy chief executive of the Freight Transport Association. “This would create uncertainty and potential damage to deeply integrated and time-sensitive supply chains.”

Such a scenario could paralyse British manufacturing and quickly lead to empty shelves in the shops, according to the Food and Drink Federation. “There is much to do in a short space of time to strike an agreement which matches our current ease of trading with the EU,” said its director general, Ian Wright. “70% of our trade is with the EU – every day raw materials and finished products travel seamlessly over the Channel and the Irish Sea.”

And yet, there has been almost no practical work done to agree new systems of streamlining border checks, at least according to those in charge of liaising with the government. “I don’t see any work being done,” said Peter MacSwiney, the co-chair of an industry working group set up by HMRC. “We have not met this year because there was nothing happening. The next meeting was postponed until after EU council.”

Hauliers also face a looming crisis due to a shortage of licences for their drivers to operate on the continent. Under existing international treaties there are only between 103 and 1,224 permits a year available per non-member state to cover each trip into the EU. The UK government has been forced to consider draconian rationing schemes to work out how they would be shared among an industry that makes more than 300,000 journeys a year with 75,000 British lorries.

Even if the transition agreement survives, time is running out. “There is still much detail to be agreed in the two-and-a-half years between now and the end of the transition period – a tiny period of time in business terms considering the scale of the challenge,” added Hookham. “It is now critical that both sides focus closely on trading arrangements to minimise the potential for delays, which will otherwise hit supply chains and economies on all sides hard.”

Facebook Twitter Pinterest A Ryanair plane being guided to park in Weeze, western Germany. The airline has warned it will need to issue tickets with a caveat allowing them to be cancelled. Photograph: Arnulf Stoffel/AFP/Getty Images

An extreme example of the licensing issue could come among airlines, which benefit from aviation services agreements across the EU and with third-party countries such as the US.

With no replacement in sight yet for either, some airlines such as Ryanair have been forced to warn they will soon need to issue tickets that contain a caveat allowing them to be cancelled.

“If there is no regulatory alternative to Open Skies, we will have to consider a change to our terms and conditions for travel to and from the UK after 1 April 2019, as will every other airline,” said a spokeswoman for Ryanair. “We will review this ahead of the announcement of our summer 2019 schedule, which go on sale in the autumn of 2018.”

Although a transition deal provides some respite from this threat, it could return in many guises, according to lawyers specialising in contract law.

“It’s particularly acute in industries where your ability to perform a contract depends on a licence,” said James Smethurst of the law firm Freshfields. “Subject to overriding consumer protection laws, which limit the extent that suppliers can unilaterally change the terms of a contract, there are things that you could do contractually to relieve yourself from some of the potential consequences of a hard Brexit.”

“Where there isn’t that option and you are facing the loss of the licence, that is harder to draft around, other than simply the ability to terminate the contract if it is unlawful to provide the service.”

Facebook Twitter Pinterest Share traders in London. Many investment banks have begun transferring businesses to other countries to protect themselves against a hard Brexit. Photograph: Daniel Leal-Olivas/AFP/Getty Images

In the case of some industries, such as derivatives trading, contracts can be for eye-watering sums of money. The Bank for International Settlements estimates that the gross notional value of outstanding derivatives in the world is between $450tn and $500tn (£317tn to £353tn) – many of them between clients in different jurisdictions after Brexit.

Unlike insurers, the industry would still be legally able to make payments and honour the contract itself if there is no replacement regulatory permission granted. But a Brexit deal that does not include financial services could greatly complicate the process of transferring outstanding derivatives contacts or packaging them up in ways demanded by regulators.

This in turn is expected to force many investment banks to begin the complex and risky process of transferring business to other countries to protect themselves against the risk of a hard Brexit.

“Existing trades won’t become invalid whatever happens, but making changes to those trades could become more difficult,” said Scott O’Malia, the chief executive of the International Swaps and Derivatives Association. “Without some kind of agreement or legislation, firms might decide to transfer business to local subsidiaries to ensure there’s no interruption.”

“This is a real and present urgent matter,” added O’Malia.“For both sides.”