Updated: 07 December, 2018
Whether you are for it or against it, Brexit uncertainty lingers in the air like a dense fog rolling over the Thames. Both small businesses and large ones don’t know exactly what’s to come and neither do the experts. Will the UK still have access to the single market? Will we reach a deal with the EU before the upcoming deadline? Will there be a second referendum? There are so many questions still left unanswered. Let’s have a look at what we do know so far.
As this blog is quite long, I thought a short table of contents might be useful:
What a week for May
Brexit has seen a lot of drama in the past 2 years since the initial referendum. However, this week could be considered the most dramatic so far. Theresa May suffered some crushing defeats for her Brexit plans as parliament found her government in contempt for the first time in history. This came about as a result of the government refusing to show the full legal advice provided to them on the deal reached with the EU.
On top of that, MPs have won the right to influence what the government does next if the vote on May’s deal falls flat on December 11th. Considering that plenty of fellow party members are against the deal and the DUP, which is propping up May’s government, are against any deal where Northern Ireland is treated differently than the rest of the UK, it seems quite likely that the deal will be rejected.
It doesn’t end there either. There are rumblings of a vote of no confidence coming up which could end Theresa May’s run as prime minister, thus throwing the Brexit process into deeper chaos.
So what’s next? A parliamentary vote on the Brexit deal will happen on Tuesday. What happens after that is still up in the air.
It seems that the EU is giving hints as to what they’d like to see happen. In fact, earlier in the week, a top European law officer claimed that the UK should be able to cancel its withdrawal from the EU without the consent of the other member states. They are, in essence, saying that the ball is still in the UK’s court in case they change their mind about leaving. In other words, they are confirming that if a second referendum were to be held and reverses the outcome of the first vote, they would be welcome to remain.
NHS and auto-industry expected to suffer from a no-deal
There are so many issues left unresolved and so many industries that want answers. Whether it’s the haulage sector’s need for driving permits if a no-deal situation happens, auto-parts manufacturers closing factories, or the ever-challenging Irish border issue, it seems that a smooth Brexit is the farthest thing from people’s minds.
Experts are warning that the NHS should expect over 50,000 nursing vacancies by the end of the transition period in 2021. That number is expected to grow to 70,000 workers by 2025. At least the NHS is working on recruiting as they are even advertising on the news sites that are reporting these alarming statistics.
The video at the top of this article is a nurse recruitment ad
EU workers in the UK
Theresa May stated that high-skilled workers would be prioritised with no preferential treatment for people from the EU compared with workers from the rest of the world. Was this a move as a response to the (lack of) feedback she is getting from her EU counterparts? Perhaps, but this policy will affect low-skilled workers and this has retailers worried.
The British Retail Consortium has stated that these policies should be based on the economy's needs rather than skill-levels and salaries. This mirrors the concerns that swirled around the Wimbledon strawberries controversy this past summer as it was revealed the fruit was being subsidised in order to keep prices affordable. Brexit critics were quick to point out that strawberries (and other soft fruits) will become more expensive and will need to be imported if no deal is reached in time.
While SMEs may feel some of the positive (and immediate) impacts of the Brexit vote, some of the industry titans have been making (or not making) moves based on the vote.
As the sterling keeps fluctuating, some retailers such as John Lewis have warned that prices may increase. Supermarket giant, Sainsbury’s, is trying very hard not to pass the increased import prices over to their customers, but some items will inevitably cost more.
Companies like Vodafone and Visa are strongly considering relocating offices (and jobs) to mainland Europe. Other companies have delayed big projects as a direct result of the vote, including Nissan, who planned on investing in their Sunderland plant, or Siemens, who have delayed their investments in wind turbines and want to rethink their strategies. On the other hand, HSBC has ruled out moving out of their London offices even though it was under consideration initially following the vote.
So, what about the people selling British products and what impact will this new economy have on their jobs? Urban centres across the UK have been focused on selling to the EU for years. According to the think-tank Centre for Cities, about 46% of exports from British urban centres go to the EU, while 15% go to the US and only 4% go to China.
These numbers are sure to change once the UK officially leaves the EU and Britain is free to make entirely new trade agreements with countries around the world. Since the UK will be free to make their own trade agreements, arranging them as quickly as possible is imperative to the British economy.
Now that the votes have been cast, Scotland is a surely going to want to hold another vote, right? Not so fast. Polls have varied, but so far this hasn’t been a huge indicator of whether or not Scots have dramatically changed their minds since 2014. According to the London School of Economics and Political Science, there are three major factors as to why a Scottish independence vote might not happen.
Firstly, even though Scots were clearly in favour of staying in the EU, leaving the UK is another story. Leaving the UK is a much bigger question of national identity. Polls have been wrong before, and current poll results aren’t convincing enough to rush into another vote. Scots seem to be fine playing it safe with the status quo for the foreseeable future.
Secondly, the EU hasn’t exactly sent the strongest signals that it wants Scotland in the EU, so joining (or remaining in) the EU is not even a sure bet.
Thirdly, Brexit has become normalised. In the months following the vote, things have remained relatively calm and it seems that every day life hasn’t been disrupted very much, so many people may be unwilling to shake things up with another dramatic vote too quickly.
How is the outside world reacting to Brexit? More specifically, are international shoppers still buying British?
Currency and cross-border sales
Well, it’s no secret that the sterling has taken a bit of a tumble, but that couldn’t have surprised anyone when considering the outcome of the vote. Uncertainty is guaranteed to affect currencies.
If we look towards Europe specifically, the immediate impact showed that no big changes occurred in terms of Europeans buying British. The International Post Corporation released the results of an October 2016 poll recently. Digital buyers who made cross-border purchases in seven major European markets were surveyed.
In the three months since the Brexit vote, we can see that the UK still ranks in the top five for each of those countries. Topping the list was Ireland with 61% and Italy with 24%. France and Germany both hit 18% as well. It seems that as long as the UK is still in the EU, Europeans will continue buying from them.
Outside of Europe
If you run a business that deals in cross-border sales, then there’s a good chance that you’ve seen international sales go up. People have jumped at the chance to buy British as the currency exchange has hit points that it hasn’t seen in a couple decades.
Although retailers might be losing out on the exchange rate, they seem to be more than making up for it in volume sales. In fact, PayPal recently announced that small and medium businesses (SMEs) in the UK who sell abroad saw sales go up.
The total amount being spent by international buyers rose 13% per transaction in the 6 months following the Brexit vote. However, UK businesses rely heavily on exports to the EU and it’s anyone’s guess how this will look when the Brexit process is finally completed. A lot of this depends on the negotiations dealing with access to the single market.
Even if we just look at the immediate impact, there is also a negative side to the slide in the sterling’s value to the euro. Sir Isaac Newton said it best with his famous quote: Every action has an equal and opposite reaction. As exports have increased, British businesses have also seen the cost of importing goods naturally go up, as well as the cost of petrol.
Who will be buying British in the future?
With Brexit looming, nations around the world are planning for this Post-Brexit world. Some have already started talks. New Zealand for example is eager to reach a new deal with the UK. They already have a trading relationship worth about £3 billion, while Great Britain is also the second largest foreign investor in New Zealand.
What happens with China will be crucial. The UK has been seen by China as the backdoor into Europe, but will this still be the case? As China takes a leading role in Pacific trade with the RCEP trade agreement and in Africa and South Asia with the One Belt, One Road policy, will the UK be able to engage in these partnerships by linking in through Commonwealth countries? China is a powerhouse whether we like it or not and getting in on the action is very important in a post-Brexit world.
We can’t forget the EU either. Brexit may seem like a divorce from Europe, but the reality is that maintaining a good trade partnership is in both party’s best interests. The EU may take a hard-line approach, wanting to send a message to the other 27 member countries that being a part of the EU is better than being out of it.
In the meantime, Theresa May seemed to hint that the UK might offer great tax incentives to lure companies and investors from Europe to London. In the end, it makes the most sense to reach a mutually beneficial deal for both sides.
It’s clear that the UK relies heavily on the EU for their exports. This will probably change once everything is said and done. The question is just how dramatically things will change because both the UK and the EU will try to get the best deal possible that serves their own interests while also trying to grow. Only time will tell.
The EU Market
Currently the EU market covers 28 countries with 500 million potential customers. Not being part of the EU eliminates the privileges of free trade, free movement of goods and services (and people), and with it cuts off direct access to a massive pool of prospective buyers.
Along with Germany and France, the UK belongs to the strongest markets in the EU. But in the event of a Brexit, the internal market will be harmed. The UK will lose it's most important trading partners (excluding the US and China) with countries like Germany or upcoming markets including Spain.
Unwinding the relationship
The exact impact cannot be predicted yet, as this will mainly depend on what kind of relationship is going to be negotiated between the EU and the UK. But, according to Art. 50 of the EU Treaty which sets out the process of withdrawing from the Union, the UK must negotiate its new relationship terms within two years.
Leaving the EU in the first place puts the UK in the position of a third county, i.e. a country that is not a member of the European Union. Depending on the outcome of the negotiations, this might be dealt with differently. However, if the status remains the one of a third country, this will have major effects.
Customs and duties & export costs
In the current situation, it is doubtful if any of the four freedoms will continue to be applicable for the UK. For e-commerce, this would mean that goods from the UK to the EU won't be sold in the internal market, but from a third country to the EU. Therefore, customs duties might apply, making EU trade more expensive for UK retailers, especially for those in fashion who have succeeded in selling to countries like Germany, and could now struggle to remain competitive as EU consumers are attracted to more affordable offerings from other Member States (where no additional charges apply).
Particularly for small and medium size retailers, the cost of exporting to the EU will hinder their capacity to thrive, especially given that they will not be able to form strategic partnerships or retail co-operations easily, as some of the bigger brands can. As a result, imports to and exports from the UK will suffer.
The internal UK market might remain strong – because of its size, it could technically survive. Yet, this is only beneficial for those retailers focusing solely on the UK and will inhibit future opportunities for cross border commerce.
Consumer and competition laws
The laws relevant for e-commerce are mainly harmonised. The Consumer rights directive recently harmonised a lot of consumer protection laws and the even more recent UK initiative, the Consumer Rights Act 2015, made sure that the overhaul of the consumer protection landscape was in line with EU law.
Competition law is also harmonised. Harmonisation also means that the jurisdiction of the European Court of Justice is accepted. Simplifying the laws and harmonising them was a big step to offer greater internationalisation opportunities. A Brexit will probably lead to a situation where the current laws are not repealed, however, eventually the interpretation of legislation will change, when English courts will not be required to consider the rulings of the ECJ.
Loss for both sides
A Brexit is not just a one-sided loss for the UK. The EU also loses an influential market. Particularly given that European consumers look to the UK for branded items and electronic goods, despite the fact that new trends and innovations arise in the US.
Ultimately, without the benefits of the internal market, customers can't be expected to embrace the UK, but will look for alternatives and even if British retailers are happy with their results on home soil, they should be wary of the growth opportunity a Brexit would deprive them of.
What happens next is anyone’s guess. With calls for a second referendum or at least a vote on the final deal, it seems many UK citizens are unhappy with where things are headed. Can Theresa May complete the uphill task? Will Brexit actually happen?