What Theresa May's Brexit deal means for UK industry and services
A breakdown of key sectors and how they could be impacted by Theresa May's Brexit vision
As Britain’s Prime Minister returns to the UK ahead of a crucial vote on her deal, both supporters of her Brexit vision and opponents will be scrutinising the text line by line. But what does her deal mean for UK industry and services, in particular key areas of the economy?
Manufacturing and trade
Manufacturing accounts for around 10 percent of the UK’s GDP and over half of all manufactured exports by value went to the EU in the 12 months before the Brexit vote, according to ONS data.
May’s deal would see the UK enter a transition period, which would represent a standstill in current arrangements and offer a “more harmonious, slower” and less disruptive break with the European economy, according to an analysis taken by Deloitte.
Perhaps the biggest concern is access to labour. The movement of people is not separate from the trade in goods, and very often the two go hand in hand. Despite the highly mechanised process in much of the manufacturing industry, people and the ability to hire with ease is something the UK has benefited from massively over decades. Under May’s vision that is yet to be fleshed out in text, EU workers could receive seasonal permits and rights to work in the UK – but not under the terms and conditions enjoyed previously.
Any deal agreed will have to focus on the impact of supply chains, that currently see parts and products often moved between multiple countries in the same day without red tape. Leaving both the single market and customs union would severely impact that flow.
As for trade in goods, nothing would immediately change, because of the transition period keeping the UK in both the single market and customs union. There will be little economic effect on ending the chance of a no-deal. What is key is probably what happens after the transition period ends a further two years down the line. The government will attempt to get a trade agreement with the EU that mitigates that harm, but that remains to be seen.
Theresa May wants the UK to leave the EU’s single market and customs union altogether at the end of the transistion. British trade would eventually lose the harmonising framework of sharing a customs union and the single market. Containers throughput at the ports would face increased red tape, raising costs as more checks must be made. International shipping lines that use the UK for shipping containers directly to the UK and as a temporary pitstop for other destinations might not face insurmountable hurdles.
According to research from the Drewry Maritime Research group, the UK imports more containers from Asia than any other North European country, even Germany.
However, research also predicts “a small reduction in UK-EU maritime volume.” Theresa May’s deal to end freedom of movement could severely hamper the ability for shipping companies to bring in EU workers.
“Restrictions on the right of EU workers to work in the UK maritime sector (an international sector by definition) could harm the UK shipping cluster,” says the British International Freight Association.
Whatever Mrs May’s assurances on a continued relationship with the EU, banks say the damage inflicted by Brexit wrangling has already scarred the industry. The top 10 investment banks have already spent at least £1bn on preparing for the UK’s impending exit from the EU.
Financial services and firms in the City rely on ‘EU passporting’ rules that allow them to trade freely and smoothly without red tape with all other EU member states. May’s deal hasn’t made it clear whether banks in the UK will gain access to EU markets, but negotiators could seek regulatory compliance similar to Norway and Switzerland to allow banks to continue selling products and services across the bloc.
According to a survey by EY, the accountancy firm, 7,000 jobs could leave London. The financial services sector employed 1.1 million people in the UK in 2017, according to the latest statistics from the House of Commons Library, and contributed £119bn to the UK economy, or 6.5 percent of total economic output.
As for Britons going abroad to use their bank cards in the EU, the UK government has warned transaction surcharges may be more expensive post-Brexit, but most likely not as high compared to a no-deal Brexit. A transition period would not see any immediate changes.
Whatever the outcome of Brexit, London’s financial muscle is under threat.
The status quo would remain for a further two years of Mrs May’s deal is agreed, before a comprehensive air services deal is agreed after 2020.
If the UK receives third country recognition in May’s deal, passengers and baggage won’t have to undergo separate screening on flights between the UK and the EU. Visa free travel for short trips and the use of e-gates at border controls could help avoid delays.
Eliminating free movement of people and goods raises concerns about the availability of parts to support day-to-day operations, which could impact production lines of new aircraft, and parts needed for maintenance.
The UK manages £1.8 trillion worth of investments, making it the third largest insurance industry in the world, according to the ABI. By leaving the EU, the biggest risk is that Britain could lose its passport rights to freely underwrite policies and insure across the European borders.
The UK insurance market will no longer be bound by EU laws, meaning that it can create a whole new set of rules and regulations if it wants to. The EU framework currently known as Solvency II is the one size that fits all policy for all EU countries that offer insurance products for vehicles, homes, businesses and more.
Theresa May plans to leave the single market, meaning financial services companies will no longer be able to use their ‘passporting’ rights to sell to the EU. These ‘passporting’ rights currently allow such companies to sell to EU countries without barriers. The loss of rights would mean a new set of regulatory rules for financial services would need to be made in order for insurance companies to continue to sell outside of the UK. If May’s plan goes ahead, negotiators could set up a similar framework to Norway and Switzerland that effectively comply with EU rules with some room for regulatory flexibility.
Updated: March 12, 2019 03:38 PM