Following the prime minister's speech and the verdict of the supreme court, we have a clearer understanding of the government's vision for the UK outside the European Union. Here's more on the vision, what happens next and what it means for your business.
What we know following Theresa May's Brexit speech
The prime minister's speech set out the Government's 12-point plan. Here are the six key takeaways:
- The UK will control immigration from the EU
The prime minister confirmed that Brexit will see the end of free movement between the EU and the UK.
- The jurisdiction of the ECJ in the UK will end
"We will take back control of our laws and bring an end to the jurisdiction of the European Court of Justice in Britain".
- The UK will leave the EU single market
The government has made clear that its approach to immigration and the supremacy of UK courts rule out our future membership of the single market.
Whilst not seeking membership of the single market, the UK is prepared to make an "appropriate contribution" to gain preferential access to it.
- The UK will leave the EU Customs Union
In seeking to secure independent trade deals around the world, the PM made it clear that the UK will want to set its own tariffs for goods and services from non-EU countries. This rules out full membership of the EU Customs Union (which creates common external tariffs as well as tariff free borders within the union).
- Regulations will remain the same at the point of Brexit; employment laws will be maintained
The Great Repeal Bill announced last year will ensure EU legislation is transferred into UK law. Theresa May reaffirmed that this would not lead to a reduction in worker's rights, stating instead that they would be "enhanced" (referring to proposals to give workers a voice on FTSE 350 boards).
- Default position is WTO
The statement that "no deal is better than a bad deal", suggests the prime minister is willing to walk away from the negotiations empty handed. This would mean the UK would have to trade with the EU under WTO conditions.
What will the government seek in negotiations with the EU?
A new Free Trade Agreement with EU by March 2019
Theresa May wants to agree a "a new, comprehensive, bold and ambitious Free Trade Agreement" with Europe by the time the two-year Article 50 process has concluded. This may include some form of customs agreement.
A smooth transition
In an attempt to minimise a "cliff-edge" and give businesses time to plan and prepare for new arrangements, the prime minister hopes to negotiate a phased implementation process.
To guarantee rights to remain for existing EU nationals in the UK
The government has said it wants to guarantee quickly the rights of EU citizens living in the UK to remain, but this needs a reciprocal guarantee from EU leaders to maintain the rights of UK nationals in other member states.
A continuation of the Common Travel Area with the Republic of Ireland
The government will look for a practical solution that allows the maintenance of the Common Travel Area with the Republic of Ireland, while protecting the integrity of the UK's immigration system.
Continued access to the "best and brightest"
The government has said it aims to control immigration numbers and maintain the UK's openness to top international talent. No details have been provided on how this may translate into policy or practical arrangements. The focus in Theresa May’s speech on "best and brightest" leaves it uncertain what approach the government will take in sectors heavily dependent on lower skilled and seasonal workers from the EU.
What this all means for your organisation
Once negotiations start, they will be influenced by a wide range of external factors as the different EU leaders influence the process. During this period of negotiation, organisations should keep under review the impact on areas such foreign exchange rates and EU workers and supply chain, and assume that uncertainty may create some instability and volatility. As always this may create opportunities as well as risks.
Clarification of the government’s position does allow organisations to firm up contingency plans, reviewing their strategy based on the end of UK membership of the single market and customs union and tighter controls on EU workers and students.
Grant Thornton UK is working closely with clients as they review strategic plans, offering support in:
- reviewing their talent and workforce plans and considering options for lower dependency on EU workers
- reviewing supply chain risk and opportunities, including foreign exchange rates and costs associated with being outside the single market and customs union
- reviewing relations with key customers in EU
- identifying new growth markets outside the EU
- reviewing revenue forecast modeling, particularly in sectors that may depend on EU funding and be subject to variable demand
- assessing regulatory risk of being outside single market and options for maintaining client offer in the rest of the EU
- reviewing their cost base and identifying possible cost reductions.
What happens next?
Government will "trigger" Article 50 (the formal notification to leave, and start of negotiations) towards the end of March. Following the supreme court judgment, an Act of Parliament will be required before this can happen. This could give rise to some attempts in Parliament to set negotiating aims or a formal approval process into statute, though we do not expect it to hinder the Government's timeframe of triggering in March.
Theresa May confirmed that parliament will vote on the final deal that is negotiated with the EU. The pound rallied on this, but we should not assume it will mean a ‘softer’ Brexit.
The other EU leaders will meet in late March or early April to agree their proposals for how the process of Brexit is carried out – crucially a timetable for negotiating our future relationship (including trade access) to the EU.
In practice very little substance is likely to be agreed in negotiations between the UK and EU before October 2017. Between now and autumn, a series of elections in EU states will determine the overall approach of the EU leaders the UK is negotiating with.
There are elections in the Netherlands (March 2017); France (May 2017); and Germany (September/October). There is also a possibility of an early election in Italy in 2017. These could change the political landscape of Europe – and will determine the mood and positions of EU leaders. Brexit negotiations are unlikely to make much headway until the results of these elections are known.
Article 50 negotiations should be complete by March 2019 - the end of the two-year period - but could be extended. Equally, the EU head negotiator has suggested that in order to complete all EU ratifications in time for March 2019, the actual negotiations will need to be complete six months earlier.
So we may see most negotiations taking place in 12 months: October 2017 to October 2018.
Ultimately, there remains considerable uncertainty, which will continue until the final deal is agreed.
All organisations should update their contingency plans and assess opportunities and risks. For those organisations with especially long lead times or larger businesses, it may be time to start moving to more detailed implementation planning to ensure a smooth business transition.
Read our guidance on Brexit and explore how we can help
Exploring potential changes to trade and supply chains
Retaining and recruiting the skills you need through Brexit
Exploring the key issues around finance and business infrastructure