Beginning our departure from the EU

Adam Jackson Adam Jackson

Negotiations to leave the EU and forge a new relationship have started. Watch Adam Jackson, Director of Public Policy explore what happens next, the impact of the general election and how businesses should react.

Brexit – where are we?

One year on from the referendum result we do not have a much clearer vision of what ‘Brexit’ means beyond Theresa May’s Lancaster House speech. What we do know is that Brexit is essentially four things:

  1. Agreeing our departure - completing the Article 50 talks that will take the UK out of the EU
  2. Defining our new relationship with the European Union - replacing our current membership with a new relationship
  3. Negotiating new Trade Agreements around the world  - building new global partnerships to replace and expand those ‘third-party’ agreements lost through leaving the EU
  4. Developing domestic legislation - preventing any legal vacuum and to replace EU programmes

Negotiations – what happens next?

While the UK formally began the process of leaving the EU in March, negotiations proper began this week.

As I set out in ‘The table is set for Brexit negotiations’ the EU Council will pursue a two-phase approach to negotiations, wanting to make ‘significant’ progress on the departure details before discussing the future EU-UK relationship. The UK will prioritise departure progress, allowing talks on the future relationship to begin by autumn.

General Election – what impact will it have?

It is too early to say.

A hung Parliament gives MPs more influence. This may encourage greater cross-party consensus. Equally, it also provides fertile ground for divisions in both main parties.

In terms of Theresa May's cabinet reshuffle, first impressions are that power seems more evenly split between those who:

  1. want to retain closer links with Europe (eg based on the EEA model)
  2. want a light relationship (eg outside the customs union - see our guide to different models of trading relationships with the EU) and who are prepared to walk away if necessary without any formal deal in place.

Philip Hammond's Mansion House speech on 20 June signalled slight shifts from the government's previous position - with a stronger emphasis on a transitional period, ensuring immigration works for employers and the economy, and a frictionless customs regime.

The election result puts the UK in a weaker negotiating position with the EU, with no clear mandate for any approach and a fragile UK government. This suggests two broad scenarios for March 2019: an orderly Brexit or a chaotic Brexit.

In an ‘orderly Brexit’, there is an agreed transition providing business with clarity over outcomes and time to prepare for the new reality. Broad principles of the future EU-UK relationship may be agreed by March 2019, with further detail to follow. The UK may remain in elements of the Single Market for a 2 or 3 year period whilst final details are negotiated and the UK gradually leaves and adopts its new relationship.

In a ‘chaotic Brexit’ scenario talks break down, the UK government or parliament may not reach an agreement and time runs out. The UK leaves the EU with no agreement and resorts to trading under WTO rules: it is a short, sharp break.

With so many influencing factors is hard to know which, if either, is more likely.

What should businesses do?

Given the uncertainty, we advise clients to base risk and opportunity planning around the scenario that entails the biggest change over shortest period of time - a chaotic/hard Brexit in March 2019 – and to work back from that to assess other outcomes involving more gradual change.

Our Brexit guidance will help you think about the potential impacts of Brexit and the opportunities it will create for your organisation. Putting in the hard work with planning now will put you in the best place to react when the details of Brexit become clear.

Read our guidance on Brexit and explore how we can help

Trade: rethinking cross border activity

Exploring potential changes to trade and supply chains

Talent: shaping your future workforce

Retaining and recruiting the skills you need through Brexit

Finance and operations: adapting processes and systems

Exploring the key issues around finance and business infrastructure