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Prepare for cash crunch if no Brexit deal – defence body

The Treasury should prepare emergency measures to ease a cashflow crisis that could hit companies in the event of a “no-deal” Brexit, the leading body representing Britain’s aerospace and defence industry has told Philip Hammond.

Sky News has seen a letter from ADS, the trade association which counts Airbus and Rolls-Royce among its members, in which its chief executive urges the chancellor to ensure that there is sufficient liquidity to prevent companies being punished for “dipping into their overdraft or for breaching loan covenants”.

The call from Paul Everitt for the Treasury to begin contingency planning with banks and other lenders in order to avert a cashflow squeeze reflects growing anxiety across manufacturing industries about the ramifications of no deal being agreed before the UK leaves the EU.

His demands for a reprisal of the support packages put in place for industry during the 2008 financial crisis underlines the extent to which key industries are on alert for disruption to their ability to finance their operations.

Major manufacturers including Airbus have already warned that a no-deal scenario would force it to reconsider its UK investments and “long-term footprint”.

In his letter to the chancellor, sent four weeks before the budget, Mr Everitt said ongoing uncertainty had led to suppliers “of all shapes and sizes” being asked to carry at least one month’s additional stock but that most had no capacity to do so.

“For smaller suppliers, cashflow costs of carrying additional materials, finished goods is crippling, while for larger suppliers, most are already at maximum capacity and cannot carry additional stocks,” he wrote.

Mr Everitt added that a no-deal Brexit would “create significant cashflow problems for any companies that rely on just-in-time European supply chains”, and urged the Treasury and the Bank of England to “begin contingency planning with banks to ensure there is enough liquidity in the financial system to support cashflow needs”.

He wrote: “In addition, the Treasury should consider what tax measures, such as VAT and corporate tax holidays, or a boost to investment allowances to ease firms cashflow pressures.”

Mr Everitt’s warning comes weeks after a number of major car manufacturers, including BMW, said they were preparing to temporarily close UK plants at the end of next March amid doubts about the prospects for a comprehensive Brexit deal.

The sectors represented by ADS generated £74bn in revenues last year, supporting 380,000 direct jobs and more than 12,000 apprentices.

In his letter to the chancellor, Mr Everitt said ADS members were moving aviation safety certifications, either to EU countries such Germany and Ireland or to the US, to remove regulatory uncertainties.

“Some of ADS’ bigger members have put investment and supply chain decisions in the UK on hold, while others are exploring how they can flex their UK activity to non-UK sites,” he wrote.

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Mr Everitt has also been outspoken about the EU’s role in ensuring a smooth Brexit for sectors such as aerospace and defence, arguing that preparations have been hindered by the European Commission’s refusal to allow the Civil Aviation Authority and EU counterparts to discuss no-deal planning.

In its pre-budget submission, ADS also called for new investment in a series of productivity-boosting programmes such as Sharing in Growth, which needs an additional £12m of bridge funding, according to Mr Everitt.

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