Lloyd's moves; blow for Sturgeon
Brexit begins: ‘Out of EU but not out of Europe’
She also faced an immediate snub from the German chancellor Angela Merkel who rejected the prospect of early talks.
The early setbacks to the Brexit process followed the delivery of a six-page letter from Mrs May to EU Council President Donald Tusk in Brussels signalling a ‘historic moment’ in British history.
In her letter Mrs May said “a failure to reach agreement would mean our co-operation in the fight against crime and terrorism would be weakened.”
Critics accused her of trying to blackmail the other 27 EU nations. Chief EU negotiator Guy Verhofstadt said: “Our security is far too important to start bargaining it against an economic agreement.”
Mrs Merkel refused to agree to Mrs May’s request for parallel talks on withdrawal and a new deal, the German leader insisting that a Brexit deal must come first.
Lloyd’s of London, the world’s largest specialty insurance market, is setting up a Brussels office as a result of the Brexit decision.
Lloyd’s said it needs access to the single market and while its office in Belgium will house only a dozen or so staff the move will be seen as an indication of a trend.
A new poll published today shows nearly two thirds of Scots want the same trade and immigration rules as the rest of the UK after Brexit.
It is a setback to Nicola Sturgeon’s drive for independence as the First Minister is hoping to keep free movement and access to the single market. Research by NatCen found 62% thought trade and immigration rules should match those elsewhere in the UK.
Some 64% said EU migrants should face the same restrictions as those from outside the bloc – which contrasts with SNP policy.
Professor John Curtice said: “This means that on immigration in particular voters in Scotland seem to be more in tune with the stance taken by the UK government than that adopted by the Scottish Government.
“Indeed, it seems that even amongst those who voted Yes to independence in September 2014 there is a limited appetite for having a more liberal regime on EU migration in Scotland than there is in England and Wales.”
Mrs May yesterday told the Commons that Britain was ‘leaving the EU but not leaving Europe’ and she reiterated her intention that the devolved nations gain increased powers.
After signing Article 50 of the Lisbon Treaty to begin the two-year negotiations, she said: “The Article 50 process is now under way and, in accordance with the wishes of the British people, the United Kingdom is leaving the European Union. This is an historic moment from which there can be no turning back.
“We will strengthen the Union of the four nations that comprise our United Kingdom; we will negotiate as one United Kingdom, taking account of the specific interests of every nation and region of the UK…It is the expectation of the Government that the devolved administrations will see a significant increase in their decision-making power as a result of this process. We want to maintain the common travel area with the Republic of Ireland. There will be no return to the borders of the past.”
She said the rights of EU citizens living in the UK and Britons living abroad are highlighted in her letter as an “early priority” for the negotiations.
“We are going to make sure that we can strike trade agreements from outside the EU too because, important though our trade with the EU is and will remain, it is clear that the UK needs to increase significantly our trade with the fastest growing export markets in the world.
“We are going to take control of the things that matter most to us and we are going to take this opportunity to build a fairer Britain, a country that our children and grandchildren are proud to call home.”
Beyond the political rhetoric and calls from various sources that “something must be done”, what does Brexit mean in practice? What can we expect to happen in the short and long term? Analysts provide Daily Business readers with a guide to what we can expect:
What happens next?
The European Council is expected to review the UK proposals contained in the PM’s letter triggering Article 50 and draft a consultation document with the EU position to be released on 27 April.
What are Britain’s priorities?
Britain is keen on prioritising immigration control over the single market access. This perhaps means that the EU has an upper hand in the negotiations, and will insist on strong conditions on Britain in return for access to the common market. Already, the British prime minister had been warned that the European parliament will veto any Brexit deal that prevents EU citizens who move to the UK in the next two years having their rights protected – Mihir Kapadia, CEO and founder of Sun Global Investments
How long will it take to leave the EU?
If both parties show flexibility over the separation terms and sequencing, and the EU agrees that a comprehensive free trade agreement is the long-term goal, then it will be possible to move quickly to agree the transitional arrangements. The Prime Minister has sought to shape things from the outset by using her notification letter to focus EU minds on future cooperation and trade. But, however much a smooth transition is in everyone’s interests, this is a negotiation. So any deal – even a transitional one – is likely to come down to the wire – Phil Brown, trade adviser, PwC
How much will it cost?
EU countries pay into a shared multi-year budget to finance things like infrastructure projects, social programmes, scientific research and pensions for EU bureaucrats. The budget runs until 2020 and EU officials have said they expect the UK to honour its commitments even as it leaves the bloc in 2019. EU Commission President Jean-Claude Juncker said the UK will be expected to pay roughly £50 billion to settle its bill.
What changes and challenges can we expect?
Immigrant labour: In important areas like hospitality, construction and technology, businesses will struggle to survive and certainly to improve productivity without continued access to overseas talent pools – Ann Francke, CEO, Chartered Management Institute
The Immigration Bill is likely to be the first bill off the block. Businesses have to do three things – understand the impact that migrants have in their existing workforce; fully understand how their business will work with the published Industrial Strategy; and be agile and take part in the debates concerning third country agreements – Julia Onslow-Cole, global head of immigration, PwC
There will inevitably be reduced migration which will put pressure on the availability of labour, in particular amongst science, engineering and technical roles. Net migration from the EU was estimated at around 185,000 in 2015, of which 73% had a job waiting or came to look for a job. Therefore EU migrants accounted for around 135,000 UK jobs. While unemployment currently stands at around 1.8m, replacing skilled jobs will be much harder than it might appear. Negotiations with the EU are certain to be complicated, and a spirit of compromise is expected. I believe we will see a measured reduction in migration, and a new UK focus on reaching the hard-to-help unemployed. We predict that companies will form relationships with foreign organisations initially to attempt to get this labour through some alternative route, but apart from those well-organised groups this will be time consuming and complex – Brian Williamson of Jumpstart
Investment and growth: Some businesses may hold back investment plans over the next couple of years, due to the uncertainty. These factors are likely to be a dampener on UK economic growth while the Article 50 negotiations are progressing. As a result we expect UK economic growth to slow to 1.6% this year and 1.4% in 2018, the slowest growth experienced since the Euro crisis in 2011/12. The longer term outlook for the UK economy will depend on the success of the negotiations with the other EU countries and our ability to maintain a high degree of open access to EU markets – Andrew Sentance, senior economic adviser, PwC
Financial services: The full transition to a new regime will take many financial services companies longer than two years, not least because of existing and emerging regulations. The scale and pace of change is unprecedented. Some firms have estimated the changes would normally require between three to five years. There may be some genuine bottlenecks in the process such as regulatory licence applications. The situation is compounded by firms dealing with other external demands such as bank ringfencing and MiFID 2 as well wider global uncertainty and ongoing commercial pressures – Andrew Kail, head of financial services, PwC
So what won’t change?
Accountancy: We firmly believe that there is no reason to anticipate any change to the global recognition and portability of the ACCA [Association of Chartered Certified Accountants] Qualification – John Williams, head of ACCA
Whisky: Some aspects of doing business won’t change for Scotch post-Brexit. Under World Trade Organisation rules, Scotch will continue to benefit from a zero tariff on exports to the EU. In many other markets Scotch will also continue to see existing zero tariffs, for example in the US, Canada, and Mexico, as these are offered to all countries already – Julie Hesketh-Laird, acting CEO, Scotch Whisky Association
Deal activity: The UK and London will remain a leading, if not the leading, place to live and work in Europe due to the capital markets, legal framework and domestic expertise. The deals market paused in mid-2016 to digest the Brexit vote, but came back strongly later in the year, and this will continue into 2017. Article 50 is already discounted in the minds of deal-makers so I see no pending shock to deal activity – James Fillingham, deals partner, PwC
What are the opportunities?
Business start-ups: We are looking ahead with optimism and see this as a golden opportunity for British businesses to flourish. The UK has an exceptional track record for innovation and a post-Brexit Britain could see innovative high-growth businesses generating even greater value – right across the country. We will be continuing our work to build a connected supply of finance for growth businesses to support them on their journey from startup through to scale up. The UK has an abundance of fantastic entrepreneurs and high-growth early-stage businesses and we believe the future for them is bright – Jenny Tooth, CEO of UK Business Angels Association
Tax reform: Tax may not feel like a priority, but lots of our taxes are EU ones. There’s a real opportunity to create a tax system fit for the future. Outside the EU there will be more freedom on tax incentives, so tax can be used to support the Industrial Strategy. There is the opportunity to use tax policy to help particular industries, regions, and groups of people – Kevin Nicholson, head of tax, PwC
How will it affect the pound?
The pound slid (today) despite the strength it had shown against the dollar and the euro in the past few days. As anticipated, analysts can expect a number of fluctuations in sterling in the days to come. With the prospect of Brexit long since affecting the pound, there is a chance that triggering Article 50 will not have as extensive an impact on the currency as the referendum result. Furthermore, the possibility remains of a rise in the pound as negotiations get under way, as seen earlier in the pound’s rally when the Prime Minister initially announced the date of triggering Article 50, and also due to the fact that markets will have more details over the nature of the UK’s departure. Analysts and investors will be watching very closely at how the pound reacts over the coming days – Paresh Davdra, CEO and Co-Founder of RationalFX
The fall in sterling since the Brexit vote provided a boost to the value of UK large-caps, given the largely international makeup of the FTSE 100. However, it is also bringing some economic upside, stimulating a much awaited rebalancing of the economy, as exporters and manufacturers benefit from the cheaper pound. And, for the most part, we are yet to see the negative effects of Brexit many touted as inevitable, such as the movement of major company headquarters or a plunge in consumer confidence – Nancy Curtin, chief investment officer at Close Brothers Asset Management
To us, it seems likely that currency markets will be where most of the action will play out. Sterling is likely to take a few blows, as the trade and current account deficits start to wain as long as negotiations continue. But depending on how acrimonious the fight and how disunited the EU-27 appear, the euro too may not emerge from the contest unscathed – Howard Cunningham, Newton Investment Management
What are passporting rights and why are they important?
With growing indications of a Hard Brexit from the prime minister, any loss of passporting rights would be a big problem for the City of London. The Financial Conduct Authority (FCA) said earlier this year that 5,500 UK companies rely on passporting rights, and if the UK cedes these rights, rival financial centres in the EU will step up efforts to woo banks and firms out of London. While it would be expensive to move operations out of the UK and into cities such as Dublin, Frankfurt and Paris, banks and firms many undertake such moves in the next two years as sensible contingency planning and to de-risk their businesses going forward. Given the sheer complexity and scope of the negotiations, it will be very difficult for detailed agreements to be reached within the two year timetable – Mihir Kapadia, CEO and Founder of Sun Global Investments