INSIGHT: What might the Brexit mean for your business?
Now that the UK has voted to leave the EU, we take a look at some of the possible effects of the so-called Brexit on UK businesses.
24th June 2016
Within hours of the EU referendum’s “Leave” result, David Cameron had stated his intention to resign and Sterling and FTSE were falling.
Our favourite quote of the morning was on Twitter from @SoVeryBritish: “We’re going to need a bigger kettle” and indeed, following this historic vote, a very large quantity of tea will be needed to fuel the extensive negotiations that lie ahead.
The predictions about what might now happen to the UK economy are difficult to call. It is impossible to say for sure what the impact will be on businesses, but business owners should be prepared to face some of the following issues.
Two years to sort out our departure
In the immediate aftermath of the vote, the UK government will probably give notice to the EU of our intention to leave the EU. (We say “probably” because there are other options.) The government will then have two years to negotiate how our departure will be effected. This will lead to uncertainty and may affect both consumer and business confidence in the UK. That uncertainty might be exacerbated if that two year period is prolonged – and many expect the negotiations could take longer. Some even think it could take up to 10 years to sort out the UK’s “disentanglement” from the EU.
Need to renegotiate trade contracts
The government will also have to renegotiate trade contracts with the EU. This could also take a long time and, in the interim, foreign investors are likely to be nervous about investing their money into the UK. Domestic projects with foreign investment could therefore stall, be delayed or be cancelled.
Individual trading relationships between UK and European businesses post Brexit might be affected for a variety of reasons. For example, UK exports/imports might cost more because of tax duties or trade tariffs. Businesses are likely to have to renegotiate their individual contracts with their trading partners which in itself will require management time and incur expenses such as legal fees.
The value of Sterling has already fallen and is likely to remain unstable, resulting in the rise of the costs of imports.
Longer term, the UK might take back control of its exchange rate policy with a view to strengthening its economic advantage – although this would be subject to the requirements of the International Monetary Fund of which the UK is a member.
The laws relating to the buying and selling of property and land are unlikely to be affected by the Brexit. Developers should be prepared to accept that UK property might be less appealing as an investment to foreign businesses.
Employment law issues
UK law incorporates a substantial number of EU employment laws and regulations that affect employees, employers and the workplace. It is not clear whether or to what extent the government will overturn, replace or amend such laws, but some changes are inevitable after the Brexit takes legal effect.
Please Susan Mayall’s article on what could happen to employment laws: What effect might the Brexit have in the workplace?
Recruiting – and keeping - staff
European nationals have a right to work anywhere in the EU. By being part of the EU and a part of the single market, the UK accepts the rights of EU nationals to enter and work in Britain without a visa. A Brexit would do away with this workers’ right to free movement. This would restrict the ability of businesses to recruit EU nationals – with or without skills – to work in the UK.
Without workers’ freedom of movement rights in the EU, there will be a reduced pool of employees in the UK from which to recruit. As a consequence, salaries will probably rise. This could hit service industries like those in the leisure sector as well as the construction industry who have relied heavily on EU workers in recent years. There will have to be a keen focus on staff training – and the training of future staff.
No one knows how EU workers, especially unskilled workers, who already work in the UK will be treated. Will they be allowed to stay? While David Cameron has given some reassurance about the continuation of workers’ freedom of movement – for now – the truth is, we really don’t know.
The EU might introduce trade tariffs and these in themselves could seriously affect the trading position of businesses with import/export business in Europe.
It is possible that the UK could negotiate access to the single market after Brexit – but the EU might insist on freedom of movement for EU nationals and being subject to EU laws in return.
Imports and exports would become more expensive as taxes are levied by those EU states who would no longer be our free trade partners. This will have a direct effect on the price of goods in the UK – including the basics.
Risks for loan agreements
Brexit might amount to a change in circumstances that triggers lenders’ rights to terminate or accelerate loans under loan agreements – with potentially disastrous effects for the businesses concerned.
Into the unknown
There are so many other aspects to the Brexit that it is impossible to comment on them all here. From our health and safety laws to taking back control of our fishing zones, from agricultural policies to fewer economic restraints, from the application of EU laws to the UK to whether we remain a signatory to the European Convention on Human Rights or change the Human Rights Act 1998 – all will have to be review now that we have voted to leave the EU.
Suffice to say the Brexit is going to mean a lot of work for the politicians, the lawyers, business leaders and the courts. Whether it is worth all that effort and upheaval, only time will tell.
To discuss how the decision to leave the EU might affect your business, speak to one of our commercial team:
- Christopher Burke on dispute resolution issues
- Keith Kennedy on commercial and corporate law issues
- Richard Eastwood on financial services and wealth management
- Susan Mayall on employment law issues
- Michael Pitt on property law issues (purchases, sales, development work, conveyancing and landlord and tenant law)
Also in this issue of Insight
- What might the Brexit mean for your business?
- What effect might the Brexit have in the workplace?
- A Brexit it is then! What now?
- Where has the Brexit vote left the investors?
Please note that the information and opinions contained in this article are not intended to be comprehensive, nor to provide legal advice. No responsibility for its accuracy or correctness is assumed by Pearson Solicitors and Financial Advisers Ltd or any of its members or employees. Professional legal advice should be obtained before taking, or refraining from taking, any action as a result of this article.
This blog was posted some time ago and its contents may now be out of date. For the latest legal position relating to these issues, get in touch with the author - or make an enquiry now.