The 12 Myths of Brexit

Caroline Turnbull-Hall Director Regulation and Legal Issues, PwC United Kingdom Dec 13, 2019

While Brexit deadlines have been and gone, many Brexit myths have lingered on. From whether no deal is off the table to the future trade relationship between the UK and the EU, we dispel 12 Brexit myths that we commonly hear, and explain why it’s now a case of ‘Brexit as usual’ for business in the UK.

1. No deal is off the table

No deal is still possible on 31 January 2020, and indeed if we leave in January it is possible again on 31 December 2020. 

As a result of the outcome of the General Election, no deal in January has become less likely, but it does remain the legal default until the UK and EU Parliaments ratify a Withdrawal Agreement, and it is one that every business needs to be prepared for.

Even if the UK leaves the EU with a deal, there is still the possibility of a ‘trade no deal’, if the UK and the EU do not reach an agreement on the future economic relationship by the end of the implementation period (planned for 31 December 2020). 

2. Get Brexit done

Brexit will not be ‘done’ on 31 January 2020, or indeed by 31 December 2020 or 31 December 2022. 

Getting a Withdrawal Agreement approved by the UK Parliament is not the end of Brexit; it is only the end of the beginning. Whether or not the UK leaves with a deal, there will be a second stage of lengthy negotiations to agree the future trading relationship between the UK and the EU. 

Leaving the EU is the first stage in what will be a long period of change to the UK’s trading relationship with the EU and the rest of the world. This will become the new normal - so it’s time to move to a mindset of ‘Brexit as usual’, where Brexit becomes less about the moment in time, and more about how businesses move forward in a new, dynamic environment.

3. It will be all over by 31 January 2020

As with the ‘get Brexit done’ myth, above, leaving with a deal on 31 January 2020 is only the end of the beginning.

If the new Government gets Parliament’s approval for the current deal, and the UK is able to leave the EU by 31 January 2020, phase two of the negotiations will start, addressing the future economic partnership between the UK and the EU, which may take many months, or years, to finalise.

4. A new Government will be able to get the deal approved by 31 January 2020

This is possible, but the timing will be tight.

With the Conservative victory in the General Election, but only around 16 planned sitting days in January for the EU (Withdrawal Agreement) Bill (WAB) to be reintroduced to Parliament and become law, getting the WAB through the legislative process in time is not a fait accompli. A short technical extension might be required for the UK processes, and ratification in the European Parliament, to be completed.

Businesses need to stay agile in their planning.

5. Could the UK leave the EU before 31 January?

It is highly unlikely that the new Conservative Government will be able to pass the Withdrawal Agreement Bill in time to leave the EU before 31 January.

The terms of the latest extension allowed for the UK to leave the EU on 1 December 2019 (now passed) or 1 January 2020 (highly unlikely), if the deal is approved in the previous month, otherwise the default date is 31 January 2020.

6.  A trade deal will be sorted by 31 December 2020

While Boris Johnson has stated that eleven months is “bags of time” to agree a trade deal, others do not share his optimism, as trade deals typically take many years to agree.

If, and when, the UK leaves the EU with a deal, the implementation period starts, during which time the UK, although not a member state, will adhere to EU law. The Withdrawal Agreement provides for an implementation period to 31 December 2020, which may be extended by mutual agreement to 31 December 2022 at the latest. Any agreement to extend the implementation period beyond 31 December 2020 must be made by 1 July 2020. 

Once the UK has left the EU, the second phase of negotiations is expected to begin immediately to agree the future economic partnership. If a trade deal or an extension has not been agreed by the end of 2020 (or 2022), the default position is that either the UK will trade with the EU on WTO terms, and there will be a ‘trade no deal’, or there will be a very simple trade deal rather than the ambitious deal which is the Prime Minister’s aim.

7. A UK-EU trade deal will be "one of the easiest in human history" 

Trade deals are complex to negotiate and agree, even if they are relatively simple agreements. The UK is looking to agree an ambitious free trade deal with the EU, which may seek to include provisions covering trade in services, and it is optimistic to think that this will be agreed in fewer than seven years. 

The negotiations of the future economic relationship between the UK and EU will go further than a free trade agreement. In some areas it will involve the UK being granted equivalence and adequacy decisions by the European Commission.

Apart from the complexity of any negotiations, there is also a harder EU process to ratify a free trade deal. There must be unanimity in Council, a majority in Parliament as well as ratification by all national and regional parliaments, so any one member state could veto the deal.

8. Once the UK leaves the EU, all the EU derived regulations can be scrapped

While it is true that the UK will be able to determine its own regulatory agenda, the policy rationale behind much of that legislation will still apply.

Whether or not the UK leaves with a deal, the UK statute book will, at least initially, remain in line with the EU, either due to the operation of the transition period, or the no-deal legislation that will apply otherwise. 

Additionally there are aspects of the future economic partnership that may not be included in any future UK-EU free trade agreement, and which will be dealt with under existing EU third country regimes. These would require the UK to have regulations that are equivalent to those in the EU. Michel Barnier, who is the chief negotiator for the EU, has stressed the need for the UK to remain aligned to EU regulation as market access will be “proportional to the commitments taken to the common rules …”. The extent to which the Conservative Government wants to diverge from EU regulation, and the extent to which this will be acceptable to the EU, remains to be seen. 

9. Lots of businesses have 'left' the UK due to Brexit

While it is true that many businesses, from financial services to manufacturing, have considered, or established, subsidiaries elsewhere in the EU as part of their Brexit contingency planning, in our experience those moves have generally been relatively low.

For example, many financial services firms established subsidiaries elsewhere in the EU and activated their plans in advance of the 29 March 2019 exit date, but this has generally not resulted in businesses leaving the UK wholesale.

10. Brexit will result in hundreds of thousands of job losses

Similar to the question about businesses leaving the UK, the moves have been fairly small to date.

In financial services, for example, we know that some regulators have been insisting on regulatory compliance and real substance in newly established subsidiaries, but we have not seen a significant number of jobs moving from the UK to mainland Europe.

However, our latest UK Economic Outlook shows signs that jobs growth has weakened recently, suggested that Brexit-related uncertainty may be having an impact. We project UK economic growth to remain modest at 1.2% in 2019 and around 1% in 2020, somewhat below its long-term average rate of around 2%. These projections assume an orderly exit from the EU.

11. Equivalence equals passporting for financial services

This is a crucial question for financial services. However, in comparison to passporting rights, equivalence offers piecemeal and limited access to the single market.

Passporting is a legal mechanism that allows financial services companies based and regulated in one EU member state, and authorised under one of the EU’s single market directives, to do business in other member states on the basis of their home state authorisation.

Equivalence is a concept that is used to expedite cross border trading between different markets (e.g. the EU and a third country) that recognise each others’ regulatory standards. Some EU financial legislation accepts the principle of equivalence, but not all. For example, there is no equivalence provision for commercial banking or primary insurance. 

12. London will be a lightly regulated “Singapore-on-Thames” after Brexit

This is actually two myths in one!

Firstly, the UK financial service authorities have stressed that they want a robust level of regulation of financial services post-Brexit and, secondly, Singapore is a very well regulated financial centre.

However, this myth does raise important questions about what the UK’s new narrative and place in the world when it leaves the EU. Business, government and citizens all have a role to play in shaping and bringing to life a future vision for the country that builds on the UK’s strengths.

Contact us

Caroline Turnbull-Hall

Director Regulation and Legal Issues, PwC United Kingdom

Tel: +44 (0)7718 966482

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