Brexit - Four Months on… Where are we Now?

We held our second webinar on Brexit and its implications for mobility during October and our brilliant legal team, Gordon Kerr and Stuart McWilliams at Morton Fraser took an in depth look at where things are headed. Dominic Tidey summarises the session…

We are now four months on from the morning we woke up to the news that the UK would be leaving the EU, and although speculation is rife throughout the world’s press about what this will mean, there are a now a few predictions we can make with more certainty than we could on that dramatic June day.

The UK has a new Prime Minister, Theresa May who has appointed the ministers who will be responsible for guiding the UK through the transition. The appointment of Boris Johnson to the post of Foreign Secretary raised eyebrows across the UK political landscape as he had been instrumental in the Leave campaign both as an MP and as Mayor of London.

Where Theresa May was an ardent Remainer, she took a big political gamble of placing such a high profile Leave campaigner in such a visible global role. David Davis was appointed to the post of Secretary of State for Leaving the European Union and will oversee all the various components involved in deconstructing the UK’s links to the Union.

These components involve two major legal challenges. Firstly, the process of triggering Article 50 which will begin the two year timeline to exit. The government has announced that Article 50 will be invoked by the end of March 2017. This will then launch the 2 year period for negotiating.

By April 2019 the UK should have exited the EU but given the scale of the undertaking this may be an unrealistic target. Secondly, the laws enacted by the EU during the UK’s membership all apply to the UK legal catalogue. The UK has to incorporate all this legislation onto its own statute books and then decide which to retain and which to remove or amend. This is a very large task!

Following the governments’ decision to trigger Article 50 in March next year, the Prime Minister announced at the Conservative party conference, that they are looking at a Hard Brexit. Gordon Kerr, Director of Employee Mobility at Morton Fraser explains; “Hard Brexit means that the UK government will demand to have control over immigration. This means that following the UK’s departure there will be some kind of restriction on free movement of people between the EU and the UK.

Secondly and as a consequence, there will be restrictions on the UK’s access to the single market as it’s unlikely that the UK will be permitted to remain part of it. Thirdly there is now significant uncertainty around whether pass-porting rights for financial institutions will be kept in place. This refers to the aspect of EU law which says if a financial institution is based in one EU country, it can operate in all other states without any restriction. If the UK is no longer part of the pass-porting arrangement, it has major implications for the future of London as a financial hub.”

Following the referendum, it was widely speculated that the UK would adopt a model similar to that operated by Switzerland and Norway, with partial free movement and access to the single market, but as the UK government started to take the temperature of public opinion it quickly became clear that the primary reason for the Leave vote was immigration.

Norway and Switzerland allow free movement of people from the EU in return for access to the single market, but now that Britain has indicated it will stop free movement, the scale of the difficulty of the negotiations is becoming clear. Add to this the sheer complexity of the voting system within the EU and the task is daunting for the UK government. All 28 states must agree for negotiations to succeed and taking into account the recent refusal of Wallonia to agree to the EU Canada trade deal, there are some tricky meetings ahead.

The negotiations will be focussed on many areas of the future relationship the UK has with the EU, but also on its future relationships with every other country in the world. The EU negotiates trade deals as a bloc. Individual countries have ceded this power to the EU negotiators and one of the challenges facing the UK is re-establishing this function as a department of government. Not only will the UK have to renegotiate its agreements with the other 27 EU countries, it also has to build new agreements with all of its other trading partners, crucially the USA and Canada, Australia, New Zealand and China.

A further complication comes in the form of the place of EU agencies both in terms of their physical presence in the UK and as regulatory bodies. Gordon again; “One example is The European Medical Agency (EMA) which is based in the UK. With 900 staff, once the UK leaves the EU, those teams will be moved back into the Union. One of the features of these agencies is the ‘clustering’ that takes place as a result of where they’re based. It makes sense for the big pharmaceutical companies to be based close to the EMA, especially for their drug testing departments. This will represent a large number of people working currently in the UK, migrating to the new base of the agencies they work for or are clustered with.”

There is no doubt that markets hate uncertainty and the only certainty about Brexit is uncertainty. The recent unprecedented drop in the value of Sterling on the announcement of a Hard Brexit shows how jittery the markets are. This could have an impact on the kinds of investment decisions multinational companies are making or at the very least, cause them to postpone them which will have an impact on economic growth. However, there was reason for the Prime Minister of the UK to allow herself a big grin when Nissan recently confirmed it would continue to build the new Qashqai and X-Trail models at its UK plant. The Japanese company’s commitment to the UK had been in doubt with rumours that it would move production on a Brexit vote, to Romania, so this is a significant vote of confidence in a post-Brexit Britain.

So what does this mean for immigration? At this stage there is still a great deal of speculation, but the original idea of an Australian style points based system seems to have been ruled out. Stuart McWilliam; “The government moved away from a points based system in 2010 and is unlikely to reinstate it. Instead, there are now two options. First is taking the existing Tier 2 visa system we have and applying it to across the board, regardless of whether the individual is from an EU member state. From a relocation context this is a worst case scenario as it would make getting people in on assignment much harder than it is now. The second scenario is a middle ground, with EU nationals needing a work permit but not requiring a Tier 2 visa. This would still increase the burden on companies relocating staff into the UK from the EU, but would not be as complex as the Tier 2 system which currently applies only to non EU residents.”

There were three important questions raised in the session. Firstly, is there any likelihood of a reversal of the referendum vote? In short the answer was no. It is possible that a general election in the UK could lead to a situation where a major political party opposed to Article 50 and Brexit could win, but that would be a very tough political situation to be in.

Second, given the 13bn fine levied against Apple’s operations in Dublin by the EU, could a non EU UK lower corporation tax to attract inward investment? In short, yes that could and may happen. Lastly, could Brexit lead to Scotland leaving the UK? In short, yes it could. So for every answer right now, there are many more questions, but we will keep members as up to date as we can.

Dominic Tidey is the COO of EuRA and the editor of the European.
Contact him at dominic@eurarelocation.com or on Twitter @tideyeura