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Brexit Update

September 23, 2016 5:00:00 AM EDT | By: Michelle Dopps

uk_flag_govt_building_small.png“Brexit means Brexit” is a phrase that has been used a few times now by British Prime Minister Theresa May to underscore the UK government’s commitment to follow through on the will of the majority of June 23 voters for the UK to leave the EU. Yet three months since that vote which sent shockwaves throughout Europe and beyond, there is still very little certainty about what Britain’s withdrawal from the EU will mean in both economic and political senses in the UK, the EU and beyond. Since the referendum all kinds of possible consequences continue to be suggested by all manner of commentators.  But hard facts about either the process or outcomes relating to Britain’s quitting the EU are still scant. Some of the few certainties relating to Brexit at this time:

  • The UK government has not committed itself to any specific date to invoke formally Article 50 of the Lisbon Treaty which is the required step to trigger the start of the UK’s disengagement from the EU. What is certain is that this will not happen in 2016. The UK government has cited the need for it to first work out in detail Britain’s bargaining position for withdrawal before triggering the two year-long disengagement process
  • Since the formal process of Britain exiting the EU has yet to commence, there is no change at all in the status of either EU citizens living and working in the UK or UK citizens living and working in EU member states
  • The prospects for a ‘do over’ or second referendum on the issue of the UK’s membership of the EU are slim. Neither the governing Conservative Party nor the leader of the opposition Labour Party supports this. However, a contender for the upcoming leadership election for the opposition is a proponent of a second referendum

The Political Agenda:

Migration remains top of the political agenda in the UK.

In July the Brexit minister in the UK cabinet, David Davis, warned that if there is a "surge" of EU migrants who come to Britain in a bid to beat the deadline of the UK leaving the union, these migrants might not be given the right to stay. Other ministers are also on record as opposing the full guarantee of EU citizens' rights without a reciprocal deal for Britons living in other EU countries.  Davis referenced the need to secure a "generous settlement" for both EU nationals in the UK and Britons living in Europe. Early in September Prime Minister Theresa May ruled out the prospect of a points-based system for migration citing the need for a more subjective system to give the UK government better control over immigration. Beyond this however, there is no known detail about what a system favoured by the UK government will look like. There appears to be majority public support for continued ‘friendly’ migration policies aimed at skilled workers from the EU into the UK on the one hand and more restrictive policies aimed at less skilled workers on the other.

It is clear that the British government aims ultimately to negotiate a deal which will leave intact as much as possible the UK’s free access to the EU market whilst at the same time giving it complete freedom over its migration policy. This is not going to be easy.

Just last week, immediately after the EU's first major meeting without the UK, a group of Central European EU members known as the Visegrad Four (representing Hungary, Poland, the Czech Republic and Slovakia) announced they will veto any Brexit deal between the EU and the UK that would limit EU citizens’ rights to work in the UK.

Economic Consequences:

The negative impact on the UK economy predicted by many as a result of the vote to leave the EU has not yet materialized. In fact, unemployment fell in July, tourism has boomed with the fall of the pound and overall retail spending has increased. The UK services sector (which accounts for about 80% of the UK economy) posted a record rise in August. And the EU economy as a whole thus far seems to have absorbed the shock of the Brexit vote with Eurozone economic activity posting its highest figures for seven months in August, according to Markit, an economic information and analytics company. However, there has also been a substantial fall in hiring with a Markit/REC survey showing figures for permanent hiring in July 2016 dropping to levels not seen since the 2009 recession.

The pound continues to trade at record lows against the US dollar hitting a three-year low of $1.2869 in August - a fall of more than 15% against pre-referendum levels. Against the euro, it is now worth around €1.19, a fall of around 12%.

The UK government is in active pursuit of bilateral trade deals outside the EU with multiple dialogues in progress. However, as retired British trade negotiator Roderick Abbott told Reuters "Nobody with any sense from China, the U.S., Brazil or wherever is going to engage with the UK other than a friendly drink in the bar until the UK has a regime with the EU". The fact that the £18 Billion Hinckley Point nuclear power plant which comprises French investment and Chinese technology was given the go-ahead last week by the UK government may have more than a little to do with British hopes to influence current and future trade negotiations.

In early September Japan's government warned that Brexit could result in Japanese firms moving their European head offices out of Britain "if EU laws cease to be applicable in the UK."  Japanese firms including Hitachi, Toyota, Nissan, Honda and Nomura employ an estimated 140,000 workers in the UK.

Global Mobility Aspects:

The Forum for Expatriate Management (FEM) has just released its Managing the Mobility Function 2016 survey. This is the first broad-based survey to probe (albeit briefly) for the views of global mobility professionals on the impact of Brexit. Some key findings:

  • Do you think Brexit will change the willingness of multinationals to do business in Britain? The 165 survey respondents split evenly between those who think ‘yes’, those who think ‘no’ and those who are unsure
  • On the question of whether assignments in the UK are likely to rise, stay the same or fall following Brexit, the majority of respondents opted for ‘Stay the same’ or ‘Don’t know.’ 19% of respondents expect a fall in Long Term Assignments and 24% expect a fall in Permanent Transfers
  • 72% of respondents expect that where their organization’s regional global mobility function is currently based in the UK that this will remain so. 24% were ‘Unsure.’

These findings underscore the prevailing and pervasive air of uncertainty about the future consequences of Brexit in almost any context. 

Conclusion:

We continue to be in a holding pattern pending developments that will bring to light the real and substantive changes that ultimately will impact multiple aspects of workforce planning. Such aspects include visa, work and residency regulations, pensions portability, reciprocity of healthcare costs between the UK and EU member states.  In the meantime, companies should be using this period to become fully conversant with their UK and EU workforce profiles and be able quickly to model the consequences of outcomes and alternative strategies once substantive facts in these and related areas become available.

As we have previously advised it is essential that employers communicate regularly with your assignees and employees who may be affected by the Brexit, specifically reinforcing what is known and avoiding unhelpful speculation. Do not overlook the fact that any uncertainty felt by your employees will extend to all accompanying family members as well.

Lexicon Relocation continues to closely monitor the Brexit landscape and is well-positioned to provide advice and assistance with the above to affected companies and clients relocating employees to the U.K. and Europe.

Sources:

BAL / Brexit Bulletin /12 September 2016

BBC /G20: Is Theresa May changing the language of Brexit? / 4 September 2016

BBC / Brexit Britain: What has actually happened so far? / 5 September 2016

BBC / Brexit: Japan warns firms may move European HQ out of Britain / 5 September 2016

BBC / Work permits among Brexit options, home secretary says / 11 September 2016

BBC / Visegrad Group of EU states 'could veto Brexit deal' / 18 September 2016

Forum for Expatriate Management / Managing the Global Mobility Function /September 2016

Re:locate Global / Brexit is a reality – will it bring a new era for global mobility? / 24 June 2016

Re:locate Global / UK ‘scoping’ a dozen trade deals outside the EU / 18 July 2016

Reuters / Britain faces long road to post-Brexit trade deals / 7 September 2016

Topics: UK domestic, Brexit, EU

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