Brexit Update 24th August 2018

By September 7, 2018 Brexit Updates

Top 3 developments  

    • Technical Papers Released
    • UK to protect EU citizen status in no-deal scenario
    • EU to get touch on financial service market access post-Brexit

UK Update

Government releases no-deal advice

The UK Government has released 24 of an expected 70-80 technical papers, found here, providing technical advice to businesses, charities and others on the preparations they can make for a no-deal exit. The papers, which cover everything from future trade and customs arrangements to medical equipment and farming subsidies, were warmly welcomed by the CBI which represents many businesses across the UK. However, other groups poured scorn on the plans, such as the National Farmers Union who said nothing new was contained in papers covering their industry, with a no deal outcome running ‘completely contrary to our desire for trade to be as friction free as possible’.

Following the release, business largely through its support behind the Chequers plan being negotiated by the Government as the best outcome of negotiations. SNP leader Nicola Sturgeon said a no-deal Brexit would be an ‘unmitigated disaster’, whilst the People’s Vote campaign said the plans relied on ‘the goodwill of EU countries’ to be realised.

The EU responded to the publications saying they were continuing to work for a deal, but that it was right that plans were made for a no deal outcome. Additional publications will be made available over the coming weeks and will end in late September. Negotiations over a deal are due to end in October, however Michel Barnier indicated that they could run as late as November to allow both sides to exhaust all means to reach agreement and head off a no-deal scenario.

Raab seeks end to Brexit ‘scare stories’

Brexit Secretary Dominic Raab has sought to address concerns over medicine shortages, saying that the UK would continue to recognise batch tests on medicines conducted in EU states and regulations around their production. He had previously said that ‘scare stories’ over shortages in medicine were ‘very far from the truth’, and that additional preparations for a no-deal outcome supplemented existing backstops. The move also comes after Politico surveyed 38 NHS trusts on their preparations for a No-Deal Brexit.

Of the 38, only 3 had undertaken any kind of planning or impact assessment for a no-deal scenario. A letter from NHS Providers, an industry trade association, leaked to the media, underlined his concerns over no-deal preparations, saying the UK would be affected from ‘day one’ of leaving the EU. The Government is expected to step up preparations even further if a break in the deadlock over the withdrawal agreement and future framework cannot be resolved.

Call for two years further freedom of movement after Brexit

Britain would face labour shortages in London and the south-east from a no-deal Brexit unless freedom of movement was extended, according to a Centre for Cities thinktank report. The report warned cities such as Oxford, Cambridge and London are heavily reliant on EU migrants, making them particularly vulnerable to tougher immigration rules should Britain cash out without a deal. Andrew Carter, chief executive of Centre for Cities, said: ‘[the government] should continue to allow EU migrants to come and work in UK cities for at least the next two years, even if there is no Brexit deal in place. This will be crucial in helping cities avoid a cliff edge in terms of recruiting the workers they need.’ EU migration has fallen since the referendum, suggesting the UK has already become less attractive for many European workers. The report found migration from the rest of the EU has dropped in 51 out of 58 English and Welsh cities since the referendum was held two years ago.

£80 billion blow if no-deal prevails

Chancellor Philip Hammond has come under fire from Brexiteers after warning that a no-deal outcome would blow an £80 billion hole in the public finances. A letter to Nicky Morgan MP, which highlighted the figure, was released by the Treasury on the same morning as Brexit Secretary Dominic Raab’s speech on preparations for a no-deal Brexit. The influential European Research Group (ERG) of Conservative Brexiteer MPs has urged May to ‘chuck chequers’, and instead pursue a free trade agreement, similar to that of Canada and the EU. Brexiteers believe the Treasury has sought to thwart Brexit, whilst Hammond has insisted that remaining close to the EU, as set out in the Chequers proposal, remains the best option for the UK.

Full Steam Ahead

Liam Fox announced aspirations to overtake the economies of France and Italy and challenge Germany in his supporting speech for the publication of the Government’s Export Strategy. The strategy highlights opportunities in the Middle East and Asia, whilst also outlining the Government’s aim to raise the contribution exports make to UK GDP from 30% to 35%. Carolyn Fairbairn, Director General of the Confederation of British Industry, said, “We estimate that in every region of the country, there are around 10% of businesses that could export, but don’t, and we look forward to working alongside the government to support and inspire them to seize the opportunity”. The Department for International Trade is currently undertaking consultations on future trade agreements with states including the US and New Zealand, as well as accession to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). The UK will be able to negotiate and sign trade agreements with third states during the implementation period, with many expected to be finalised beyond the end of the period.

Security for EU Citizens in UK

Dominic Raab has said the government would “move swiftly” to secure the position of EU nationals living in the UK in the event of a no-deal Brexit. The comments provide added certainty to the many EU citizens living and working in the UK. Under proposals, EU citizens will maintain existing access to the NHS and benefits payments. UK contingency plans for a no-deal outcome are said rely on the current availability of labour. EU27 states are yet to set out whether they would provide the same safeguards. Immigration policy for non-EU citizens remains the responsibility of EU states individually, meaning the UK will need to negotiate bilateral agreements with member states in the event of a no-deal to secure protections for UK citizens, unless and EU wide position is taken.

Border concerns

The UK Government has come under fire after suggesting that businesses trading across the Irish border should “ask Dublin” about any no-deal arrangements they need to consider. The technical paper on trade set out preparations businesses can make to plan for a no-deal including seeking support from logistics companies and customs experts if they are engaged in cross-EU trade, it further asked them to consult others in the supply chain on any new tariffs and checks that may come in to place. Chair of the Brexit Select Committee, Hilary Benn, described guidance on seeking advice from the Irish government “an abdication of responsibility”, whilst Sinn Fein said the technical paper betrayed the commitment to a backstop in any scenario.

Whilst both sides have committed not to erect a hard border, it remains to be seen what no-deal preparations both the EU and UK have made to account for physical trade across the border with consideration for customs controls. The UK made up 12% of Ireland’s trade in goods in 2017, with the UK also used as a ‘land bridge’ between Ireland and EU markets. The EU Commission has tabled plans to bypass UK waters in the event of a no-deal Brexit, to allow Irish goods to flow into EU markets. All sides however remain committed to reaching a deal that would lead to less disruption for business.

EU Update

Italy attacks EU spending rules

After Tuesday’s bridge collapse in Genoa, Italy. Italian Deputy Prime Minister, Matteo Salvini, suggested that EU spending rules had hindered the country’s ability to keep its infrastructure safe. EU budget chief Gunther Oettinger hit back at Salvini saying it is ‘very human’ to blame someone else. Oettinger had previously come under fire in May after being accused of lecturing Italians how to vote. Commission spokesperson Christian Spahr also dismissed Salvini’s remarks, emphasising how much money the EU has provided to Italy in recent years.

Following the collapse, Italy is planning “enormous investment” in a maintenance operation for Italian infrastructure, “deficit, GDP or European rules” having no bearing on the project according to Undersecretary Giancarlo Giorgetti. Autostrade, who was responsible for maintaining the bridge, is currently under investigation for the collapse and is expected to make payments well in excess of five hundred million euros for associated works and compensation.

Greece warns ‘no-deal’ Brexit would plunge country into ‘financial and political instability’

Greece has warned it will need additional financial aid from Brussels in a ‘no-deal’ Brexit scenario, raising the spectre of bitter EU in-fighting over how the UK plugs the gap left by the UK. Adding to this the EU’s budget commissioner has warned that Europe will need to find an extra £20bn a year after Brexit if it wants to invest in ambitious new plans for defence and border protection. Athens has warned that the financial fallout from a no-deal Brexit would leave the country facing ‘increased financial and political instability’ until 2020 at the earliest. Although Brussels remains adamant it is prepared for a ‘no-deal’ Brexit, the Greek warnings point to the pressures poorer member states would face if the UK and EU fail to reach a deal and no-deal contingencies are set in motion.

EU to ‘get tough’ on UK market access

EU Commission Euro leader Valdis Dombrovskis has said he welcomes UK proposals to build market access for the City of London around EU rules, known as ‘equivalence’. But he said market access could never be taken for granted, with Brussels determined to toughen its assessments of whether countries could meet the conditions. Mr Dombrovskis said Brussels was not offering any kind of ‘super equivalence’ to the UK, and that assessments of whether Britain qualified would require individual assessments ‘sector by sector and legislation by legislation’.

UK banks are expected to remain open for EU business in after Brexit, with the Treasury telling the city it would not be seeking to enter tit-for-tat restrictions on EU banks if reciprocity was pursued. Current UK rules allow non-EU banks to operate wholesale services but not retail services. The Bank of England is working with the European Central bank to prepare for the UK’s exit. However, in the case of a no-deal scenario, Britain is expected to treat EU states largely as it does third states, meaning additional requirements may become applicable. Deloitte’s Brexit Leader has said that the EU “has not given any indication that it won’t allow UK banks to establish branches in the bloc”, which will be welcomed by banks once confirmed.

Upcoming Key Dates

    • August-September: 70+ technical papers released on No-Deal preparations
    • 4th September: Parliament Returns
    • 20th September: Meeting between EU Member States in Austria
    • 18th October: EU Council Summit, including sign off of the EU Withdrawal Agreement
    • 29th March 2019: UK planned exit from the European Union
    • 30th March 2019: UK planned transition period.
    • 31st December 2020: UK planned exit from the transition agreement.