The word “Brexit” has become overused and aggravating to all of us due to an exit not happening quick enough, or because its happening and we don’t want it, or (more likely) because we’re just plain sick of the whole issue, and we no longer care if it’s going to be hard, soft or medium rare.
For those who still have the will to think about Brexit, I am looking at some of the repercussions of what we do know about the economic and legal factors concerning our staged exit from the EU, and what we can do to both mitigate the risks and make the most of the opportunities.
Is Brexit a false dawn?
First off (to remind us of the obvious) THERE IS NO BREXIT and it looks very unlikely to happen any time soon. What we have now is a referendum vote, some ongoing legal challenges, political leadership who appear caught in the headlights of an overwhelmingly difficult situation, and widespread confusion.
When could Brexit happen?
In the absence of the ratification by Parliament of any early EU withdrawal agreement reached between Britain and Member States, Britain will not exit until two years after Article 50 has been triggered – so we could realistically be looking at a an exit from the EU during 2019.
The legalities of this process are explained very well in paragraphs 9 to 14 of the Miller v SoS judgement. The assurance of parliamentary ratification was provided at the time of the hearing, although since then this assurance appears to have been withdrawn by May.
Could it be later still? Yes, due to legal challenges and how long it may take for Parliament to approve any legislation that repeals the 1972 EC Communities Act prior to the triggering of Article 50. This now looks likely following the delivery of a timely reminder of some constitutional law basics in the Miller v SoS judgement – which is of course subject to the Supreme Court’s decision on appeal, due soon.
Was the predicted downturn in the economy false hype?
The Independent reported recently that the pre-referendum vote predictions of a downturn were “horribly wrong” and went on on to set out the “real reasons why Brexit is succeeding”. I think we can spot the flaw here – there has been no Brexit, consequently there are no changes in our legal relationship with the EU at all.
At this stage, the only economic changes that can be expected are ones caused by businesses changing their plans due to the anticipatory effect of Britain’s future EU exit – i.e. no more freedom of movement, capital, services and goods between member countries.
Were the economic forecasts “flawed”? We can see from this overview of post-Brexit economic predictions published in the Financial Times in June that they are proven defective only so far as they presumed Britain would exit the EU soon after the Referendum vote.
Comprehensive evaluations which look at the longer term impacts of an exit on the UK economy, such as this report from PwC (well worth a read), which forecasts reduced GDP increases until around 2030 then recovery, may still prove to be accurate.
Article 50 has been around for several years and refers to the retention of EU membership during a two year exit negotiating period; outside of mainstream media and politics this was known, discussed and published long before the Referendum vote.
So what is the effect of this on our business?
Even if we do not have clients in Europe, our businesses are inextricably linked with EU supply chains and we utilise free capital and movement provisions – goods we purchase from businesses in other Member States are not subject to import and export taxes, our staff may be from EU Member countries, and the cost of our business premise, liability and motor insurance is (often) low because UK insurance brokers have access to a single insurance market spanning 28 countries.
However the biggest single effect on our business in the short term is more likely to be caused by uncertainty in Britain’s future and the consequent gradual slow down of our economy until we exit, then potentially a recession once we do actually exit, hopefully not before.
As the UK’s exit becomes more certain and the curtain of confusion hopefully lifts, we may see businesses committing to restructuring plans, which will have a knock on effect on our work as providers of legal services.
Is it too hopeful to expect that trade and free movement provisions will be retained? That seems unlikely (as May has recently confirmed) given that accepting the full complement of free movement provisions has been essential to EU Membership for many decades now. Perhaps we could expect some benefits such as the retention of an import/export tariff free trading in goods between us and other Member States, similar to Turkey’s current arrangement?
The main effects on our business providing legal services could be caused by:
1. A decrease in public spending on legal services due to the effects of inflation, and a potential freeze on pay and/or redundancies.
2. An increase in the cost of essential business expenditure including insurance, staff costs and prices paid for goods and services.
3. A knock-on effect caused by our business clients also changing their business plans, including potentially a move out of Britain to ensure they maintain the benefits of EU free movement provisions.
4. Costs arising from changes in business plans both in order to make the most of any opportunities presented by Brexit, and to mitigate the risk of a potential downturn in business caused by 1 and 3.
1 and 2 will most likely take the greatest effect on our business following an actual EU exit, whilst 3 and 4 have started to happen already, and could build further momentum over the coming months as the government publish their exit strategy, and we await the decision in Miller v SoS and any consequent government re-alignment and parliamentary involvement.
What can we do about it?
The Brexit process has been a story of such comic (for some) ineptitude and uncertainty that many of us may not have properly sat down and thoroughly considered and planned for the implications of Brexit on our business, or attempts may have descended into political arguments and disagreement in the Board Room.
Information on the effects of Brexit on the economy is widely available (although there’s not a lot on the Government’s website including the homepage for the Department for Exiting the EU), and it could be a good time to address the repercussions and think about making the most of the potential opportunities.
Paul Wood’s article on EU exit business planning sets out a suggested process on how to begin planning for change, and the relocation of parts of our business to to an country remaining within the EU is not impossible – Ireland has been mentioned, many times. You’re not alone in thinking about this – most of the financial sector is predicted to move large parts of its business out of the UK.
Comments and disagreements with any or all of the above are as always very welcome.