On Thursday June 23rd 2016, the people of Britain voted for a British exit, or Brexit, from the European Union in a landmark referendum. Eurosceptics across the continent celebrated the outcome, which also sent shockwaves throughout the international economy.Once the result was declared, the pound dropped to its lowest point since 1985. David Cameron resigned as Prime Minister, and Theresa May took office. It has been confirmed that Britain will be leaving the single market and will regain control over immigration and end the hegemony of EU laws. May supports a clean break from the EU and rejects any diluted exit deal that places the UK ‘half in and half out’ of the EU.
There is a tendency for businesses, banks and jobseekers to dislike uncertainty. After the results of the referendum was announced, there was an increase in job searches for leaving the UK, and a spike in interest towards EU member Ireland, as well as other English-speaking job markets in parts of the world away from Europe.
There are different opinions, ranging from predictions of doom to the overly optimistic, about what will take place when Britain actually leaves the EU. The real impact will only be known over the next two years of talks.
International market access
The Prime Minister has confirmed that Britain will exit the EU’s single market. The curb on the free movement of people also appears to be an inevitable aspect of the Brexit deal. No nation that is part of the single market currently implements restrictions on immigration. What does an exit from the single market mean for the UK? What sort of relationship will the UK have with Europe once it is outside the single market?
The single market
The single market views the EU as one territory with no internal borders or other regulatory hindrances to the free movement of goods and services. A functioning single market is known to improve competition and trade, enhance efficiency, improve quality and aid in the reducing of prices. The single market is considered to be one of the EU’s greatest achievements, having stimulated economic growth and helped the daily life of consumers and European businesses.
The single market aims to break down all obstacles to trading across the 500 million person territory by ensuring the four freedoms – free movement of goods, services, capital and labor.
As a member of the EU, the UK had agreed to comply with each of the freedoms, which the EU made clear was non-negotiable. The UK, being a member of the single market, has unrestrained access to 500 million customers in all member states and in turn this allows UK companies and consumers to buy goods and services from across the European continent. The single market eliminates tariffs and brings down costs and administrative barriers by having one set of rules for all EU member states.
The single market is not the same as the customs union, which facilitates free trade between EU member nations by ensuring that all members charge the same import duties to countries that are not part of the union. The members also agree not to impose tariffs on goods moving between members in the union. The customs union says nothing about the free movement of labor.
The UK cannot stay in the single market without having to follow all the red tape involved. The single market is governed by extensive legislation that aims to standardize everything from tackling climate change to setting maximum working hours. If any one member implements its own rules and does not adhere to unified standards, the single market cannot be considered a single market anymore. Countries can remain in the single market but lie outside of the customs union, like the European Economic Area countries of Iceland, Norway and Liechtenstein. This enables them to oversee their own trade deals and to stay outside of legislation. But they are still required to implement all EU legislation relating to the single market, such as the free movement of labor.
The impact of leaving the single market
A massive 44 percent of Britain’s exports go to the EU, which according to UK’s Office of National Statistics is £220bn out of £510bn. If the UK does not have a favorable trade deal with the EU, import tariffs and extra administrative costs would be placed on those exports. During the time pending a new deal, the UK would most likely have to trade using standard tariffs under World Trade Organization rules. According to an analysis conducted by the Independent, the UK would be charged at least £4.5bn per year in tariffs alone. This does not include the costs of non-tariff barriers that are difficult to measure, like the enforcement of different market regulations.
Free trade agreement
The Prime Minister has said that her government would be pursuing the option of a free trade agreement when negotiations are underway, as it is possible for the UK to have access to the single market without being a member or being part of the customs union. There could be a deal whereby the EU allows access for free trade with the members. The EU already has 56 free trade agreements with nations across the globe and is in the process of negotiating many more. This option is the most agreeable to many who voted to exit the EU, but is not as simple as it may initially seem.
During negotiations, a free trade deal is more favorable to the EU as it is the largest customs union in the world on the basis of economic output. Hence it may be that Britain, if it wants to trade with Europe, would be subjected to most of the rules that apply to member states, and as a non-EU member state, it would not be able to influence legislation. Prime Minister May has warned that it would harm the EU if it were to scupper a free trade pact with Britain by pushing for punitive terms. Since the UK is the smaller partner, it would likely be the most damaged by the dissolution of such a deal. These types of deals also take years to materialize; for example, the EU-Canada trade deal was finalized after seven years. Once a free trade agreement is implemented, Britain’s imports to the single market would still be subject to a lot of red tape.
If Britain were to exit the single market and customs union, the UK would not have to agree to the free movement of labor. One of the most divisive aspects of Brexit has been immigration and a high percentage of people voted to leave in order for it to be reduced. But others have maintained that significant proportions of the economy, and the NHS in particular, hugely depend on inward migration.
The UK would still retain the power of limiting the number of migrants entering its shores from outside the EU. But the government has as yet not provided adequate detail as to how it would manage immigration in order to ensure that businesses can still hire people with the skills they require. A points-based system has been proposed, but there are very few examples of this working properly in other countries. Britain will also not have to adhere to some EU laws, but it will have to meet many standards if wants to retain access to the single market through a trade deal.
What does leaving the EU mean for expats?
There are worries among nationals of other EU nations who work in Britain about whether they will be able to stay there after Brexit. Currently, nationals of any member EU member state can work anywhere within the EU under the freedom of movement rules. But the negotiations of the terms of Brexit may take away the right to work in the UK.
Since this is still an early stage of the process, there is a lack of certainty as to what is going to happen. But many experts do not expect any immediate change. The free movement of workers will definitely be affected, but the changes to legislation are likely to take place as part of a gradual process.
In theory, nationals of EU states will no longer have the automatic right to work in the UK, but this will be part of the negotiations to determine the new trading relationship between the UK and the EU. Some experts maintain that EU nationals who are already working in the UK may have rights under UK laws, based on how long they’ve been living and working there. It could be that many will be allowed to stay in return for a similar agreement for UK citizens currently working in EU member countries. Things might be different for those who go to the UK in the future. It is likely that hiring personnel from the EU member states will still be allowed, but there may be extra administrative costs involved, such as visa applications.
The Brexit negotiations may affect an EU citizen’s ability to stay in the UK in the long term. Those who move to the UK after the Brexit cannot expect to be able to live there in the long term when they arrive. There may also be restrictions on the type of workers that will be permitted to look for jobs in the UK. If the UK adopts a model similar to that in the US or Australia, then visas may be granted for workers in professions that have been identified as a having a specific requirement.
As for the position of UK nationals who are employed in EU member states, there is a view that they won’t be asked to leave, as all parties would refrain from such measures for fear of retaliation.
Both those living overseas and those in the UK will likely have adequate time to consider how to respond to any changes that may come into to effect. There are also a number of UK nationals who moved abroad before the UK joined the EU and such individuals would continue to live in Europe following Brexit. The EU has already stated that they will respect individual property rights, and new mutual agreements are likely to be put in place to tackle issues like residency, visas and work permits. Since there are millions of British nationals living in EU countries and a large number of Europeans living and working in the UK, new bilateral and multilateral agreements need to be agreed upon to maintain most of the current benefits, including healthcare.
It is in the economic interests of both the EU and the UK to continue to offer and have access to the entire range of financial and related professional products and services without the need to have a commercial presence in both markets. For this to happen, both parties will need to agree on the following:
• The creation of a framework for the mutual recognition of regulatory arrangements, building on and extending beyond the existing equivalence arrangements.
• Continued detailed cooperation between the Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA), the European Supervisory Authorities and Member States’ competent authorities, and the Bank of England and the European Central Bank (ECB). This will be similar to arrangements with non-EU regulators such as the United States.
• The ability to trade and provide agreed services to existing and new customers, transact business with them, and manage their money efficiently.
• The acceptance of professional qualifications, practice rights, standards for regulated products and services and specifically prudential regulation laid down by the relevant arrangements.
• Non-discriminatory access to market infrastructure and free cross-border data flow.
These proposals need to be added to a long-term, stable framework that can only be altered through formal agreement. The EU would maintain the same access for UK-based businesses, products and services, and vice versa. This framework should not in any way affect the ability of the EU or the UK to create similar arrangements with other countries.