What’s Happening Now: The UK in Post-Brexit Transition
Halfway through 2021, the UK’s stature in the post-Brexit phase remains bleak as the persistence of political wrangling between matters of Northern Ireland, the EU single market, and the domestic economy crash continues.
More than half a year has passed after the ‘divorce’ was sealed, but the UK is struggling to put the continent on better footing due to the disputes in the rather ‘flawed’ Brexit Trade Cooperation Agreement (TCA) signed effective on 1 January 2021. Let’s put a spotlight on some important facets to better understand the implications of the UK’s exit from the EU.
How is the UK after Brexit?
Drastic labour shortage in the UK
The UK is facing a supply crunch since the second quarter of the year as there is an existing shortage of lorry drivers to deliver the needed food and materials. In an interview with one of the local farmers, it was reported that pickups are now only at once a week frequency. The integrity of their fruits is affected as they only have a five-day shelf life, so if not delivered to the supermarket every day, the products can rot and cost them a living.
Brexit imposition and COVID-19’s surge snatched the top grounds for the exodus of hauliers to the EU, which nudged business lobby groups to call for the provision of UK temporary visas to EU truck drivers.
UK’s Business Secretary Kwasi Kwarteng addressed this concern by urging employers to hire UK-based professionals, especially that their migration policies have recently been modified. However, the business groups strongly feel against it, asserting that the government needs to adopt a more pragmatic approach, rather than suggesting to hire a domestic workforce to solve short-term labour market shortages. If kept longer, the scarcity of hauliers can put increasing pressure on their frail supply chains, and further impede the UK’s post-pandemic recovery. Other proposed solutions suggest that a balance between flexible immigration for international talents and renewed efforts in domestic training is needed for the labour sector to move forward.
Call for renegotiation on Northern Ireland protocol
Both [UK and EU] parties share the common goal of maintaining peace in the restive province of Northern Ireland through the protocol. But the prevailing tension between Brussels and London in terms of checks and borders feebly awakes an old strain.
The deal prevents the hardening of the border between the Republic of Ireland (EU) and Northern Ireland (UK) by keeping the latter a part of the EU’s single market although according to the unionists, this erodes NI’s political position as part of the UK. Last July, the British government published a command paper to renegotiate the NI protocol and move grace periods further until a solution is made. The European Commission was quick in staunching this plead, saying that the UK has to adhere to the drawn-out deals of the divorce.
How do these port checks work?
The real score in the deal is allowing the NI region to move goods freely around the EU, with additional paperwork for products coming in between Northern Ireland and the rest of the United Kingdom.
EU safety food rules stipulate that goods such as eggs and meats entering Northern Ireland from England, Scotland, or Wales need to be inspected in the Irish sea before entering the European jurisdiction, while products such as chilled meat are fully prohibited to enter the single market.
What's the sausage row about?
Last November 2020, UK Prime Minister Boris Johnson reaffirmed that nothing can stop ‘the Great British sausage from making it to Belfast’.
Known as the sausage row, the prohibition of chilled meat (such as sausages and minced meat) products from the EU is getting a lot of attention these days. The bloc’s customs and the market follows a common standard that is monitored and enforced in the entire EU, but since the UK has left the single market, they are now considered a third-country albeit British regulatory standards almost mirrors that of the EU. The European institutions cannot simply assume that the UK laws are as strictly implemented and followed as theirs.
A grace period has been given to the UK since January. It may have been extended until 30 September, but the EU is pertinent in pushing through with the checks as soon as the grace period is over.
The bigger picture in Northern Ireland’s post-Brexit scenario
The sausage row is merely a red herring, as NI businesses put it. There are other major issues at hand that will dictate UK and EU’s relationship after the divorce. Riots and diplomatic tensions have formed and threaten to flare more if concessions are not made.
A growing concern for UK suppliers is the looming new border checks after the grace period ends. Food products coming in from Northern Ireland will be subject to more administration from the EU. One of which is the need for Export Health Certification (EHC) for products of animal origin (meat, fish, eggs, and dairy), and a pre-notification to EU authorities before reaching an EU destination.
Simply put, as a spot for border checks between GB-EU trades, Northern Ireland is set to host stricter regulatory inspections for both blocs as the post-Brexit transitions happen.
Impact of Brexit on the UK financial sector
Yes, the war for food products is strong, but for UK’s strongest export— financial services— the contention turned out stark.
Though the EU has made the UK a premier financial hub, the latter still opted to divorce from the bloc to assert its Global Britain vision, which is theoretical at best.
Prior to Brexit, the UK’s financial services relationship with the EU member states was founded on ‘passporting’ where they are allowed to do business in the European Economic Arena (EEA) without needing further authorisations. The ‘passports’ are a guarantee that an EU firm met the regulatory and supervisory standards and are eligible for establishing their hubs in the bloc to make trades with minimal permissions. But Great Britain’s withdrawal from the EU also meant severing the passporting solutions for them.
Brexit was a tumultuous change in the years-old practise that came with a lot of uncertainty. Businesses cannot take such intense pressure under an unreliable environment, which led more than 440 UK-based financial services firms to relocate their headquarters to EU and New York financial hubs.
According to New Financial, there has been a massive redistribution of hubs all over the EU this 2021, higher than the existing forecast of 269. This move has a reported value of £900 billion in bank assets, and yet it already makes up 10% of the UK’s banking system. On the other hand, insurance firms and asset managers have already transferred £100 billion in assets and funds to the EU.
However, while the post-Brexit transition progresses, numbers are expected to go higher as there are delays in relocation due to travel restrictions brought about by the pandemic.
How is UK’s financial industry?
Like the issues with border checks, the British government expected a leeway in accessing the European financial markets, which the EU immediately dismissed. They stood their ground in not allowing the UK to enjoy participation in the bloc’s finance industry as before.
In the drawn deal of TCA, the UK came up with a [much] replicated version of the EU’s equivalence structure and granted them 27 equivalence decisions founded on the framework for third-country access to UK financial markets. However, the EU is yet to decide on what equivalence decisions to bestow the UK. As of the moment, they have given temporary equivalence to key financial institutions in the UK until mid-2022. Their signed Memorandum of Understanding (MoU) last March 2021 states their voluntary cooperation of financial regulations. So unless they are granted equivalence privileges, UK’s access to EU financial markets is the same as that of the third-country businesses.
The TCA also influenced the mobility rights of the financial services industry. UK-based firms can send employees to the EU provided they comply with the varying rules of their destination state particularly today when there is a thicket of requirements to go to and from EU countries.
However, the UK government tries to be nimble at this point. The City may be affected by the Brexit policies, but they are confident that London’s financial hub will remain preeminent in the coming years. They are positive that though Frankfurt, Paris, Dublin, and Luxembourg are rising to the ranks of the City, London will continue to stand as a leading financial centre with expansive economic ties in the US and Asia, alongside New York.
The UK’s post-Brexit environment today is only the tip of the changes about to come sooner. Once grace periods and deals are finalised, we can expect the beginning of a high-stakes and precarious journey in the UK and expect a reverberating financial impact.
Don’t let the Brexit qualms affect your finance and accounting processes. Given the right talents to get you through troubled waters, you can keep up with any regulatory changes that may come in the Brexit transition. Learn how our in-house experts can transform your F&A processes to a more agile and efficient one by reading our latest whitepaper D&V Philippines’ Solutions for Modern Accounting Firms. You can also contact us today and talk with our account managers about your finance and accounting needs.