Fiscally a vote to leave means the return of UK’s contributions to the EU budget, offering choices on the pace of deficit reduction. From 2010 to 2015, the UK’s average annual gross contribution to the EU amounted to around £16.8 billion. However the UK also receives a rebate and funding from various EU initiatives. This means that the UK’s average annual net contribution to the EU budget over these same years is estimated to be around £8.8 billion, or around 0.5% of GDP.
With a vote to leave the EU, although in the near term budgetary contributions to the EU must still be made, and funding flows into the UK will continue, there will no longer be a requirement to make these contributions beyond the expected two year negotiation period (unless these become part of a deal similar to the Norwegian or Swiss models). But the UK will also cease to receive funding from the EU too (e.g. in relation to the Common Agricultural Policy, regional development and research and development).
For those who need to keep the machinery of state running, there will be other impacts of Brexit, which will differ according to the extent of exposure of each public sector organisation to the EU. For some, like central government departments, there will now be significant transitional work as EU responsibilities move back to the UK.
Policy choices will also need to be made on whether or not to re-create EU Funds but in a Brexit form. This will in turn impact on devolved administrations and local government, particularly if EU funds are not fully replaced. Scotland could also call for a new referendum on the back of the vote to exit the EU.
For others in education and health, where talent mobility is an important issue, it may be that certain parts will be greatly affected. For instance, universities will have concerns about loss of access to EU research funding and student mobility schemes.
And across the public sector, there will also be an impact on public sector bodies as employers, whether that’s in terms of changes to UK employment law (e.g. Working Time Regulations 1998, Agency Worker Regulations 2010) or to government procurement, which is currently subject to EU law.
Of course, in the aftermath of the vote to leave the vast bulk of delivery of public services will need to continue on a day to day basis in parallel with Brexit negotiations, which will add uncertainty to the cocktail of short term fiscal austerity as well as longer term demographic challenges.
Clearly nothing will change overnight, with full transition out of the EU taking anywhere between two and ten years. But even so public servants will now need to commit the plans in their head to paper and get ready.
Leaving the EU is likely to make trade with EU more difficult and expensive. With 53 EU deals to replace, and 72 more in process of negotiation, there is an urgent need to ramp up government capacity and capability.
The UK will no longer be required to make a financial contribution to the EU (assuming it does not opt to remain a member of the EEA). This could lead to acceleration of deficit/debt reduction plans. But policy makers also need to consider whether to re-create some or all of the EU Funds from which the UK currently receives payments.
Brexit will mean an end to EU regulation. But it could also mean that UK businesses have to adapt to a different set of UK regulations which could be just as costly. Public sector organisations will need to adapt as employers and in their role as policy makers to design new regulations taking account of any new freedoms.
Within the public sector, some sectors like education and health which have relied on the EU single market for talent mobility (students and staff) will feel a strong impact. In transition, some like central government departments will face a peak workload short term as powers return from Brussels and legislation/policy needs re-setting.
Brexit will impact on business decisions to invest and trade with the UK. This means that devolved administrations and local governments will need to re-double their efforts to attract business regionally and locally, but with uncertainty in the short term on whether EU Funds which benefit the regions are to be fully replaced.
The UK will now need to change its migration policies. Currently EU citizens have been able to live and work in the UK without restrictions. Government will need to re-set this policy and employers across sectors will need adjust their talent policies. This will be particularly important for organisations with many EU nationals on their staff.
Uncertainty will continue during the exit negotiations. As this major change to the UK’s position in the world has wide reaching implications for businesses, there will be an impact on investment, growth and the public finances. As a consequence, there may be further squeezing of public sector budgets.
The return of powers from the EU will not stop with the UK Parliament. Scotland is likely to call for a referendum to try to stay in the EU; LEPs and Combined Authorities may also be concerned at a loss of EU Funds and have to make the case for their replacement funds. The speed of devo deals may also slow as attention in government focuses on Brexit negotations
Partner, PwC United Kingdom
Tel: +44 (0)20 7804 1704
Nick C Jones
Director of PwC’s Public Services Research, PwC United Kingdom
Tel: +44 (0)20 7213 1593