Today’s speech by Prime Minister Theresa May sought to clarify the long-term plans for Britain’s exit from the European Union, including the details of the UK leaving the single market.
For UK businesses in growth sectors facing an acute skills shortage, remaining in the single market has been a priority for which they have been lobbying. Recent research from CitySprint backed this: only 28 per cent of business owners are confident that Government can protect their business from impact of Article 50.
Lobbying to stay
Business leaders from sectors as diverse as fintech and robotics voiced the case for being a part of the single market. Robert Gordon, CEO of Hitachi Capital, believes that the impact of the uncertainty following the vote to leave has already taken its toll on the UK economy. Months ago, he responded to PM May’s speech at the CBI annual symposium. “We want to hear a firm commitment from Theresa May about the UK’s future membership of the single market,” he said. The alternative finance provider had carried out research with the CEBR, which revealed that the UK’s vote to leave the EU had cost the economy £65.5 billion in delayed investment.
“The fact that 70 per cent of businesses would resume investment if current issues were resolved sends a clear message from businesses to the UK government – businesses are ready and willing to invest, they just need the assurance from the Government,” he said then.
Commenting on today’s announcement, Gordon believes that Brexit is what businesses make of it. “Business leaders must now take charge and forge new global relationships in this post Brexit world, after all it is businesses rather than politicians which are the real drivers of trade and industry,” he said.
Serial fintech entrepreneur Daniel Döderlein, has been very vocal about the negative impact leaving the single market could have for fintech and banking in the UK. “Personally, I think banks and fintechs are screwed if they have to operate from the UK without access to the single market and poor taxation rules. Some banks have started to realise this and are making plans to set up office elsewhere. UK fintechs will also get hurt, and if they don’t get some single (PSD2) access, they’ll have to move to get their license inside the EU… And that may leave Level 39 empty,” he said.
Current passporting legislation allows international banks to access European markets whilst being based in London or anywhere in the UK. Leaving the single market, however, restricts this access, which suggests that the financial services industry will be required to have passporting agreements both in the UK and in Europe, effectively separating their operations.
Chief executive of the British Banking Association, Anthony Browne, had warned that international banks had organised contingency plans in case the Brexit negotiations don’t protect rules related to financial services. While he didn’t claim that banks would pull out of the UK fully, that may be a possibility now that the UK is poised to leave the single market.
Figures from last September reveals that of the 13,484 firms using passporting, 8,008 are on inbound passports, meaning they are from firms from EU or EEA member states seeking the right to do business here. Taking this argument into account, surely the financial sector in the EU has as much to lose from the loss of UK passporting as we do.
An October study by NGA Human Resources and Moorepay suggests otherwise. All of the surveyed UK businesses agreed that access to the single market is the biggest advantage of the EU membership and one that two in three large businesses and 54 per cent of SMEs would like to retain post-Brexit.
No more single labour market
While only around 6 per cent of the UK’s SMEs export to the single market, many more rely on it for workers, or are part of EU-wide supply chains.
Peninsula Employment Law director Alan Price believes that for many employers, the Prime Minister’s confirmation that immigration will be controlled domestically is one of the most important objectives of her speech today. “For businesses that rely heavily on large number of immigration workers, such as agriculture, food and drink and manufacturing, future curbs may restrict their ability to recruit and retain workforce levels needed to continue with current production levels. A lack of available workers could also lead to an increase in wages as need outstrips supply; whilst positive for workers this may not be viable for certain companies,” he explained.
The speech also confirmed that existing worker rights deriving from Europe will be maintained and protected in the future as they are fully enshrined in domestic law. The Prime Minister went on to pledge that worker rights will be built on, which according to Price is assurance that drastic changes are not likely to be forthcoming.
Theresa May set out her plan for a phased approach to Brexit. “There will be an agreed plan in place by the end of the two year negotiating period and then a period of phased implementation of the arrangements in the EU and Britain. Whilst this provides certainty that there will be no sudden change, businesses may not feel reassured about this plan because some issues, such as immigration changes, are likely to take longer than others and may lead to longer periods of uncertainty,” Price added.
What about the talent pool?
With a hard brexit on the horizon, what does this mean for skills migration and global talent markets? Resourcing firm, BPS World believes this will be one of the main challenges facing employers this year. A hard Brexit is almost certain to hinder the UK’s ability to attract talent, particularly in the high-value digital, technical and engineering industries where recruiters are already struggling with severe skills shortages. This follows the publication of a report by the firm: “Brexit: What the World is Saying” which reveals the global impact of this decision, and how other countries believe it will impact on skills.
BPS World founder Simon Conington is one of the many urging the government to ensure that the UK continues to have access to skilled professional from Europe, particularly in the sectors where there are already skills shortages, or face a sharp decline in the UK’s ability to compete.’“2017 is going to be a pivotal year for the UK economy. The decisions the government makes now on the implementation of Brexit will affect our ability to attract the talent we need to grow. The impact will be felt immediately as talent will not come to the UK if they know they will have to leave within two years,” he said.
Although the UK will not be leaving the EU until 2019 we can expect an announcement this year on the shape of Brexit and what it will mean in practice by March 2017. Under a hard-Brexit’ freedom of movement would be restricted and it would be as difficult for talent to be recruited from France as from India or the US. It is this that alarms those at the sharp end of skills shortages.
Not all bad
Paul Goodman, chairman of the National Association of Commercial Finance Brokers (NACFB), believes that doom-and-gloom rhetoric is just that. “After months of refusing to give a running commentary on Britain’s plans to leave the EU, Theresa May has given us the firmest look at what Brexit actually looks like. As the PM herself indicated, the portents of economic doom that were predicted in the run-up to the vote are now nowhere to be seen. Instead, the continuing positive economic data tallies with what we’ve been seeing on the ground – namely that small businesses are keen to continue borrowing even as the government firms up what Brexit truly means for business.”
Hard Brexit or no, figures released by the International Monetary Fund (IMF) underline the uncertain worldwide outlook. The IMF predicts that the UK’s economy will initially show resilience in 2017, but has cut its earlier prediction of 1.7 per cent growth in 2018 to 1.4 per cent, compared with the 1.1 per cent that financial information firm Dun & Bradstreet is forecasting.
The firm’s senior economist, Markus Kuger, believes the speculation around Brexit has been huge over the past year, and with a hard Brexit on the table, businesses will need to make sure they implement a calm and cautious approach before making any rash decisions. “With levels of uncertainty reaching a peak, companies must analyse Theresa May’s words very carefully,” he advised. “Even with Article 50 invoked, the UK won’t fully leave the EU until early 2019 at the earliest, and firms must evaluate all growth opportunities while continuing to prepare for any implications Brexit brings forth.”