What are the business implications of Brexit?
After the shock and confusion which greeted the result of the referendum on 24 June, some limited clarity is beginning to emerge about the implications and the possible shape of the UK’s relationship with the European Union and its other 27 member states after the vote. It seems that we are in for a very long haul to sort out the fine detail over many years, a task which will consume huge amounts civil service resources, public spending and Parliamentary time (both nationally and in the devolved administrations) probably for the next five years. The implications will be far and wide for business, public services and the not for profit sector.
Pushing the start button on Brexit
Article 50 (2) of the Lisbon Treaty states:
‘In the light of the guidelines provided by the European Council, the Union shall negotiate and conclude an agreement with that State, setting out the arrangements for its withdrawal, taking account of the framework for its future relationship with the Union. It shall be concluded on behalf of the Union by the Council, acting by a qualified majority, after obtaining the consent of the European Parliament.’
Nothing changes formally until the UK gives a notice under Article 50 of the Lisbon Treaty that it wishes to leave the European Union. Once that notice is served, there is a two year period to negotiate the terms of the UK’s exit. The exit agreement has to be approved (a) by a majority in the European Parliament (which interestingly will include our own MEPs – 73 out of 751 in total) and (b) by at least 15 out of the other 27 member states, representing at least 65% of the EU’s population. If no agreement is reached by the end of the two year period, then we simply leave with no transitional arrangements in place and EU laws, rights and obligations would cease to apply to the UK from that date (unless our Parliament opted to keep them alive) and no trade agreement with EU countries for the future. If that happened, the UK and EU would begin to impose tariffs on each others’ imports, increasing the price of goods and services. 48% of our exports go to EU countries and 54% of our imports come from there. The rights of millions of individuals and businesses would remain unresolved. The two year period can only be extended if all 27 member states agree to extend it.
It is self-evident that obtaining the agreement of at least 15 out of 27 nations and the EU Parliament to the terms of the exit agreement in such a short space of time will be a tall order. There is likely to be ‘horse trading’ between nations over issues which concern them most: for example, Denmark and Spain may be particularly concerned to block a wider deal unless they get what they want on fisheries policy, Germany may be particularly concerned with car exports and so on. MEPs are also likely to be very concerned to protect the rights of EU citizens living and working in the UK. Time will not be on the UK’s side and our negotiating position may not be particularly strong. Any politically motivated precipitous action to limit immigration by the UK could provoke retaliation and delay by the other countries, descending quickly into market disruption.
One critical area to get right will be the issue of acquired rights. An estimated 2 million UK citizens live and work in other EU countries, while around 3 million EU citizens live and work in the UK. Detailed arrangements will be necessary to cover rights acquired prior to the UK’s withdrawal. The arrangements would need to cover residence rights, rights to take up employment or self-employment, and rights to health care and social security. There will need to be agreement on the dates from which acquired rights would be recognised (the date of the referendum?), and transitional arrangements for those not qualifying for acquired rights.
Large areas of social and economic policy are underpinned by EU legislation. It would cause great legal and commercial uncertainty if all these laws simply disappeared overnight (take for example public procurement, Working Time and TUPE regulations, health and safety, environmental regulations, consumer protection, cross border divorce settlements and child custody arrangements, and intellectual property laws). Therefore, it is likely that most of them would have to be preserved in UK domestic law by ministers making orders under sweeping delegated powers to keep them in force until such time as a massive sifting and review process can take place over the coming years. Ministers are likely to have very extensive powers during this period which may not be fully amenable to Parliamentary scrutiny.
It is worth noting also that the agreement to limit ‘in work’ benefits to a 4 year qualifying period and capping child benefits negotiated with the EU in February has now fallen away as result of the referendum result, so in the short term we may actually see an increase in immigration and benefit payments. Under a previous deal newly arrived EU migrants are banned from claiming jobseeker’s allowance for three months. If they have not found a job within six months they can be required to leave. EU migrant workers in the UK who lose their job, through no fault of their own, are entitled to the same benefits as UK citizens, including jobseekers’ allowance and housing benefit, for six months.
It has been suggested that the terms of a new trade agreement could be negotiated in parallel with the exit agreement. Article 50(2) uses the words ‘taking account of the framework for its future relationship with the Union’ which would appear to lend some weight to this. However, the EU’s trade commissioner Cecilia Malmstrom stated on 30 June that negotiations on a new trade agreement cannot begin until the exit agreement is complete