IT IS
EXTREMELY
DIFFICULT
TO PREDICT
WHAT
THE TRUE
OUTCOME
will be if the
UK votes to
leave the EU on
23rd June. If the “no vote” wins, it will
not simply be a case of walking away
from Europe – instead a lengthy and
complex process of negotiation will
begin.
Under Article 50 of the Lisbon
Treaty the UK will have up to two
years to negotiate an exit settlement and a
number of
commentators
anticipate that
it could take
this long for
any deal to be
reached. It is
the terms of
the settlement and any new trade agreement between
the UK and the remaining EU that will
truly shape what the future holds.
It is generally agreed that there
are five possible models for Brexit
based upon four different existing
relationships between Norway,
Switzerland, Turkey and South Korea
and the EU. The fifth model is the
World Trade Organisation model.
Whatever the deal, it will affect
business.
Employment
Lee Ashwood, an employment law
solicitor at law rm Eversheds, says
that European law has had quite an
impact on employers who now have
to give their workers paid holidays
and time off to look after their sick
children, cannot have their staff work
unlimited hours or go without rest
breaks, and cannot treat their workers
or job applicants less favourably
because of their sexual orientation,
religious beliefs or age.
He notes: “Whether those
restrictions on employers will disappear
in the event of a Brexit will depend on
the UK’s ongoing relationship with the
EU and the political will of the UK’s
government at the time.”
It is impossible to predict with any
certainty what changes there would
be if the UK were able to completely
free itself of being subject to any EU
influence on its employment laws.
Ashwood points out that, for example, it would require a very brave
government to remove the right to
paid holiday that is currently enshrined
in UK law and to make it lawful to
discriminate against some because they
are, say, gay or a Muslim.
On the other hand, we could
see changes to some laws that may
follow Brexit. Here Ashwood looks
to the current confusion over how to
calculate holiday pay when someone
earns commission or works overtime –
“these issues could be eradicated by the
UK deciding itself upon the calculation
formula free of EU influence”.
And of course, there is also the issue
of whether or not the UK would have
to agree to continue to provide the
unconditional right to work in the UK
that Europeans have at the moment,
but again this would be subject to the
terms of the exit agreement.
Ashwood warns on this though:
“Should the terms of Brexit prevent free movement of people, it could
cause businesses who have previously
looked to the wider EU to fill skills
gaps in the UK difficulty in terms of
recruitment due to requirements to
overcome immigration restrictions.”
But overall, in the event of a Brexit,
it seems highly unlikely that there will
be any sudden radical change to UK
employment law and certainly not in
the near future.
Regulation
Moving on, there are clearly some areas
of UK domestic legislation that will
worry some in relation to Brexit. But
David Roberts, a principal associate at Eversheds, says that in the short
term there are unlikely to be any
discernible changes to many of the
areas of corporate regulation which
have originated from Europe – “many
EU directives will have already been
implemented into domestic legislation
such as those setting out requirements
in respect of health and safety, for
example”.
He also says that the legislation will
not automatically fall away on Brexit,
and it is questionable whether there
is likely to be any appetite to repeal
such laws which clearly set out high
standards of practice.
“Further,” says Roberts, “even where
EU legislation has a direct effect there
is domestic legislation which creates a domestic enforcement framework.”
Therefore, he suggests the UK may
continue to rely upon existing EU
legislation or its principles even if
technically the directive’s effect falls
away.
But while we have existing laws
based on past EU legislation, what of
the future? Andy Bagnall, the CBI’s
Director of Campaigns, says the UK
has one of the most competitive
regulatory environments in the
developed world, “and currently has significant
influence over
standards,
helping to
design them
instead of just
accepting them.
It is not clear
how that would
be affected
outside of
the European
Union but we would certainly reduce
our influence inside the EU by giving
up our seats in the European Council
and Parliament”.
Taxation and accounting
And what of tax? Paul Gilleran, a tax
accountant at Roslyns, sees Brexit as
possibly changing the way UK tax is
administered. Take VAT for example:
it’s an EU tax and a significant part of treasury annual tax income. Gilleran
says there are speci c conditions on
the rates that a member state must
charge under EU law.
But for Gilleran, Brexit could help
sales: “If the UK leaves the EU then
the government could decide to
abolish VAT. However, given the large
revenue generated it would be replaced
with a similar tax on the sale of goods
and services.” He adds that taking the
EU out of the equation may give the
opportunity to have lower sales tax rates.
Gilleran sees little
change to
corporation
tax and
income tax as
they are not
controlled by the EU.
However, as
the UK has many overseas investors it would need
to remain competitive with the rate of
corporation tax charged.
Overseas trading relationship
Trade is the bedrock of the EU and
the terms of any trade agreements
which the UK is able to negotiate with
the remaining member states could be
significant to all rms.
Any agreement would apply to all
EU states and it would not be a case
of separate deals being struck with
individual members. Indeed, Bagnall
reckons that if the UK’s relationship
with the EU changed from full
membership to something like that of
Norway or Switzerland, UK businesses
would face paperwork and costs they
don’t currently have, through reporting
of rules of origin and VAT.
“If the UK failed to secure a deal
with the EU, relying on trade under
World Trade Organisation rules,
tariffs could be applied to imports and
exports between the EU and UK.”
Bagnall adds: “If the UK were to
leave the EU, it may have to negotiate
the trade agreements it has with over 50
countries again from scratch which is
likely to be time-consuming and unlikely
to yield better terms than what we
currently have through the EU.”
All of this means that firms could in
theory see the price of goods increase.
In contrast UK exporters may struggle
to export their products to the EU
marketplace.
It’s entirely possible that depending
on the trade agreements we enter into
with other countries around the world it
may then be the case that the UK finds
itself importing products from other
nations outside of the EU on more
favourable trading terms.
But while trade agreements are one
part of the story, so the effect of Brexit
on currency is another. David Johnson,
director of Halo Financial, thinks there
is a real risk to currency: “If you were
a hedge fund or investment manager
and you had the option over the next
three months to push funds into the
uncertainty of the pound or elsewhere,
my guess is that you would seek more
certainty and less risk.”
Further uncertainty and sterling
may well slip to the bottom of its long
term range against the euro. That, says
Johnson, would take it to somewhere
between €1.15 and €1.20. Against the
US dollar, sterling is caught in a range
between $1.40 and $1.45.
In summary
Ultimately, the sterling-euro rate isn’t
a one-way bet even if the polls move
towards Brexit and there will follow
volatile trading conditions in the pre-
and post-referendum periods.
For businesses, however, the cost
of imported products could change
wildly, making razor-thin margins
more problematic. One thing is
clear: a separation will not be an easy
process of negotiation and will take a
considerable period of time to resolve.
