Brexit Update – A collection of recent news (29 October – 10 November 2017)

November 10, 2017

According to reports, David Davis, secretary of state for exiting the EU, has told his Cabinet colleagues that HMRC will require up to 5,000 additional members of staff next year to cope with the additional demands of Brexit. This follows a recent hearing of the Commons Public Accounts Committee on the future of customs, at which HMRC’s chief executive and permanent secretary Jon Thompson said the department was reviewing its priorities in the light of Brexit. When questioned about delivery of the customs declaration service, Thompson said that in the event of a ‘no deal’ Brexit scenario, an estimated 3,000 to 5,000 additional HMRC staff would need to be recruited. Thompson explained that HMRC has already been given £78m of the £250m set aside for contingency planning in 2017/18, but he said that ‘in the most extreme version’ of Brexit there would be an estimated additional cost of £300m-£450m.

EU leaders are preparing for the collapse of Theresa May’s government before the New Year, and fear chaos over Brexit talks as Priti Patel quits. Brussels is giving Britain two to three weeks to set out how much it is prepared to pay in the Brexit divorce settlement, warning that the EU will otherwise struggle to prepare this year for a transition deal the UK badly wants. According to the informal deadline, unless London makes a big financial offer this month, the bloc may be unable to adopt guidelines for the transition talks at a crucial summit in December. Theresa May has warned she will not “tolerate” attempts to derail the UK’s exit from the EU, as the government spelled out the precise hour of Britain’s departure. However, she is ready to increase Britain’s offer to the EU over the £20bn Brexit divorce bill, after signs that the hard Eurosceptics in her party will tolerate paying more money to break the deadlock in negotiations.

The former diplomat who drafted article 50, Lord Kerr, says the UK could opt to reverse Brexit up to the moment it leaves, even if a date for the country’s departure from European Union were added to the withdrawal bill, as Theresa May plans. The UK’s exit from the EU should be prevented due to the “far-reaching impact” Brexit would have, Germany’s Council of Economic Experts, which advises Chancellor Angela Merkel, said. Experts in fields such as customs say Britain may need more time to prepare for Brexit. Ireland is demanding that the UK remain part of the customs union after Brexit to avoid a hard border. According to reports, Ireland has called for a transition period of up to five years after the UK leaves the EU in March 2019, in a sign of Dublin’s mounting concern that it will suffer collateral damage from Brexit. According to a new report, Brexit will have nearly twice the impact on the economy of the north of England as it will on London.

Baroness Falkner of Margravine, Chair of the EU Financial Affairs Sub-Committee, said that ‘witness after witness, told us that the financial services industry won’t be able to continue servicing cross-border clients after 2019 if a transition period is not agreed by the end of this year. The UK’s financial services industry will be severely hit—as will EU counterparties.’ A group of large financial institutions with big London operations, led by Wall Street’s pre-eminent banks, have told the US commerce secretary that Britain’s unstable government and slow progress in Brexit planning may force them to start moving thousands of jobs out of the City in the near future. The warnings came during a closed-door meeting between executives from the banks, which included JPMorgan Chase, Goldman Sachs and HSBC, and Wilbur Ross, the US commerce secretary, during his visit to London. Daniele Nouy, head of supervision at the European Central Bank, said about 50 banks have discussed their Brexit business-relocation plans with authorities in the European Union.

The Chartered Institute of Procurement and Supply (CIPS) has published a report which suggests that nearly two-thirds (63%) of EU businesses who work with UK suppliers expect to move some of their supply chain out of the UK as a result of Brexit. The report suggests a dramatic shift compared to May 2017 when it was suggested only 44% of businesses expected to move out of the UK.

The UK housing market continued to stumble in October, with new data from the Royal Institution of Chartered Surveyors showing subdued demand and expectations of falling prices. Germany has overtaken the UK as commercial property investors’ location of choice, as cities vie for business from firms looking to move jobs due to Brexit. The steel industry has warned that British jobs would be at risk if the government decides not to match the EU’s tough stance on dumped imports after Brexit.

The Trade Bill has entered Parliament. The Customs Bill is expected to follow shortly. The government believes the two Bills will ‘set the groundwork’ for the UK to become an independent global trading nation and provide ‘necessary certainty’ for businesses and international trading partners. Key measures in the Trade Bill include provisions to implement existing trade agreements, which the government says will ensure UK companies continue to have access to major government contracts worth £1.3bn. Key measures in the Customs Bill include the creation of a new UK tariff regime. Experts suggest that while the Bills seek to ‘fill the regulatory void’ created by Brexit, the EU is likely to challenge or at least question the details. The EU, according to Adam Cygan, Professor of Law at the University of Leicester, may be cautious about agreeing to the proposal during negotiations. If the UK implements existing trade deals, for example, the EU may be concerned the UK may seek more favourable terms or access with third countries compared with the EU27 should it wish to renegotiate these deals after Brexit—once the UK has left the common commercial policy. Post-Brexit, the Customs Bill, if enacted, will enable the UK to set its own VAT rates for goods. The UK will also set levy customs when goods enter the UK. This Bill will also be subject to debate. UK is hoping to have a FTA with EU that will not see duty paid on goods entering and leaving UK but this is still subject to negotiations. In the event of no deal (WTO tariffs) then this Bill will enable duty to be collected when goods enter UK from EU.

With Brexit talks between London and Brussels bogged down, Britain’s best hope for some progress preparing for life outside the EU may come from Washington. The US and UK recently began negotiations on a provisional aviation agreement, without which no flights between the countries would be permitted after Brexit.

 

Important Dates Ahead

  • October-December 2017: divorce principles should be agreed
  • 14/15 November 2017: Brexit legislation to be debated in Parliament
  • 22 November 2017: Autumn Budget
  • December 2017: EU Council meeting to re-assess the progress of the Brexit negotiations and whether second stage of negotiations can commence
  • October 2018: Bernier’s deadline to agree exit deal and ratification process should begin
  • 29 March 2019: Brexit negotiations end and UK formally exits the EU
  • 30 March 2019 – December 2020: Transitional Period (TBC)