Brexit – The Big Issues

With Article 50 triggered, Theresa May now has two years to carry out the most complex set of negotiations in UK history. The future of Britain’s trading relationship with the EU (and ultimately the world) rests on the deal the Government can secure with Brussels. It’s kind of a big deal.

 

Here are the key (dare I suggest ‘vital’) areas that need to be agreed……and quickly!

 

 

Divorce Bill

If the preliminary skirmishes are anything to go by, the most contentious part of the negotiation is how much the UK will have to pay the EU when it leaves.

 

Figures floating about either side of the water suggest this to be as high as €60 billion, while some in the UK don’t think we should be paying anything. Hence the skirmishes. The bill relates to already agreed projects, pension payments and other commitments made by the EU which have yet to be paid for.

 

There is a very good argument that as the UK is leaving the EU, it could just walk away without handing anything over. However, this is unlikely to make the EU receptive to positive trade negotiations. On the one hand, Theresa May will be keen to get this figure as low as possible. Yet on the other, paying a bit more cash in the divorce settlement might oil the political engine for trade negotiations.

 

 

Rights of UK & EU Nationals

The Government has been under enormous pressure to guarantee the residency rights of EU workers already in the UK before the negotiations begin. So far, Theresa May has refused as she has insisted that other EU countries need to make the same guarantee for Brits living in their counties.

 

The Government has repeatedly promised to make it one of the first talking points when negotiations begin. Whilst an understanding may be reached relatively early on in the talks, it is unlikely to be legally agreed until the end of the two-period.

 

 

New Trade Deal

With the UK out of the Single Market, businesses will no longer be able sell their products into the EU without incurring tariffs unless a trade deal is agreed. If Theresa May carries out her threat of walking away without a deal, the UK would revert to World Trade Organisation (WTO) rules.

 

WTO rules would see cars sold from the UK to the EU incurring a 10% tariff, alcohol would be nearly 20% and dairy products would be more than 35%. May will have to negotiate a comprehensive free trade deal with the EU in order to remove these tariffs. However, some members of the EU may resent this.

 

To give this issue some perspective……in January 2017 alone, exports to the EU were worth £12.8billion and UK imports from the EU totalled £19.5billion.

 

Securing a comprehensive free trade deal with the EU is the jewel in the crown when it comes to the negotiations and it would be a considerable feat to complete this work in the next two years.

 

 

New Immigration System

One of the key questions for Theresa May is how the UK’s immigration system will operate after Brexit. Currently, anyone from the EU can come to live in the UK provided they have a job or find one within three months of arriving.

 

The Government said it will no longer abide by the EU’s Free Movement Directive after Brexit and will “design our immigration system to ensure that we are able to control the number of people who come here from the EU.”

 

May has ruled out adopting an Australian style points based system, which suggests a work permit system based on gaps in the UK workforce (most probably where EU migrants already dominate).

 

 

Protecting The UK’s Financial Sector

Bashing the bankers may be a national pastime in the UK (and an active hobby of my own) but without the flourishing financial sector, the UK’s economy would be seriously weakened.

 

A report for the City of London estimated the UK’s financial sector pumped £71.4billion into the Treasury in the year to March 2016 – 11.5% of all taxes collected by the Government. Or to put that another way……the banking sector is a big deal (and also explains why the Government is so supportive of it).

 

Brexit places this at risk as banks will no longer automatically have access to all the financial sectors across the EU (known as ‘passporting’).

 

Frankfurt, Paris and Dublin are already trying to woo banks away from London and Theresa May will have her work cut out to get the financial sector the same passporting rights it currently enjoys. At the same time, expect German, French and Irish Governments trying to block the move in order to get a slice of the very lucrative pie for themselves.

 

To counter this, Chancellor Philip Hammond has already suggested he will slash business rates if the EU start playing hardball in order make the UK extremely attractive for banks to set up.

 

There is an argument that the flight of bankers from the UK might ultimately prove a good thing for the UK as the economy could be rebalanced and less dependent on one sector. There would be plenty of short term pain to the economy though.

 

 

It’s fair to say that the next two years will be intriguing and (dare I suggest) fascinating. However, I’m not sure I can take two years of Sky News showing a clock counting down until we have left though!

 

The situation was perfectly summed up by Brexit Secretary David Davis……“nothing is agreed until everything is agreed”.

 

Hold on to your seat.