Tag: Brexit

Brexit Roundup

Impact Analysis

A leaked copy of a Government impact analysis of Brexit indicates that economic growth will be lower in the long-term, whatever final deal is agreed.   The report, titled ‘EU Exit Analysis – Cross-Whitehall Briefing’ was produced by the Department for Exiting the EU (DExEU) and is being used to inform Government discussions.  It was not planned to make the findings public, but the news site BuzzFeed has obtained a draft copy.

The analysis models three ‘off-the-shelf’ trade arrangements with the EU.  A no-deal Brexit, leaving Britain trading with Europe on World Trade Organization terms, would reduce growth by 8% compared with current projections.  A comprehensive Free-Trade Agreement (FTA) in the style of the current EU/Canadian deal would see growth 5% lower over the next 15 years.  Remaining in the Single Market with membership of the European Economic Area (EEA) would reduce growth by 2%.  All the analyses assume that a trade deal is quickly agreed with the US, and that the UK will be able to maintain the current trade deals the EU has already struck with third countries.  Any one-off costs from Brexit are not included (e.g. new customs systems).

Almost every sector of the economy included in the analysis would be negatively impacted in all three scenarios.  Interestingly, the analysis found that only the agriculture sector under the WTO scenario would not be adversely affected (the WTO scenario appears to assume the UK will mirror current EU tariffs rather than adopt a liberalised ‘cheap food’ policy).  In terms of regional effects, every part of the UK would also see lower growth under all the modelled scenarios, with the North East, the West Midlands, and Northern Ireland hardest hit.

The Government has responded to the leak by pointing-out its aspiration is not just for an off-the-shelf arrangement, but a far-deeper ‘bespoke’ UK/EU trade deal which, presumably, would have less negative impacts.  Pro-Brexit campaigners have also pointed out that the record of economic forecasts around Brexit have not been very accurate up to now.  However, the fact that the report has been produced by its own Department, and shows a large potential downside, is somewhat embarrassing for the Government.

EU Negotiating Position

The EU has agreed its negotiating position for the next round of the Brexit talks.  In stark contrast to the UK side, where arguments still rage on what type of Brexit (if any) should be pursued, it took EU Leaders less than two minutes to sign-off the mandate for the Chief negotiator, Michel Barnier.  The mandate relates mostly to the discussions over the ‘transition period’ includes  the following elements;

  • the transition should only run to 31st December 2020 (not the full two-years the UK has suggested)
  • whilst in the transition period the UK would have to accept the full acquis (body of EU laws).  This includes accepting the ‘four freedoms’, including the free movement of people, and remaining pat of the Single Market and the Customs Union
  • during the transition the UK would have to implement any new EU legislation enacted.  However, the UK would have no formal say in setting that legislation
  • the UK would need the permission of the EU to sign trade deals with other countries
  • the ‘first-stage’ agreement on Ireland, Citizens rights, and Funding should be translated into legal terms as soon as possible
  • the UK needs to provide further clarity on its proposals for a future trading relationship between the UK and EU.

The full text can be seen at – http://www.consilium.europa.eu//media/32504/xt21004-ad01re02en18.pdf

Although billed as a negotiating mandate, EU officials have indicated that what has been set out is not actually very negotiable.  They see the next stage of the talks as ‘explaining’ to the UK how things are going to be.  Both sides hope to come to an agreement on a transition period by the European Council summit in late March.

Gove and Future Farm Support

Speaking at the Oxford Farming Conference, the DEFRA Secretary, Michael Gove, has provided some clarity around the future of farm support.

It is becoming increasingly clear that, as we speculated last month, whilst the UK is in the (two year) ‘transition period’ the rules of the CAP will continue to apply.  Therefore, assuming that the transition is agreed and we do not simply crash-out of the EU on the 30th March 2019, the BPS will continue to apply in the UK for both the 2019 and 2020 year.

The 2021 year seems a grey area.  A full two-year transition would take the timing into March 2021 and it is likely that the BPS would apply once more.  However, there are noises within the EU that the transition should end on 30th December 2020 to fit in with the EU Budget periods.  If this is the case, the UK might move to a domestic agricultural policy at this point.

Whilst operating under the rules of the CAP, there is little scope for the UK to change the support system in the short term.  However, MR Gove has indicated that he wants to see BPS payments to the largest recipients ‘capped’ (which is allowed under existing EU rules).  This would not happen for the 2019 year, but would be introduced for 2020 onwards.  Of course, the devil is in the detail when it comes to capping – thresholds and rates have not been set.  A cap at the equivalent of €300,000 (as currently operates Wales) would not affect many claimants, but one set at the National Living Wage certainly would.  A ‘Command Paper’ will be published ‘later this spring’ which should set out the proposed plans for farm support and be subject to consultation.  Note that the level of capping is a devolved matter so this proposal only applies to the English BPS.

Mr Gove stated that there should be a ‘five year period’ after BPS 2019 to allow farmers to adjust to a new regime.  This suggest a BPS-like area payment would continue until 2024 and after that, any payment would only be for ‘public goods’.  However, claimants should not necessarily conclude that the BPS in its current form, and at its current level will be around until 2024.  Firstly, MR Gove indicated that, once outside of the restrictions of the CAP (2021 or 2022) rules such a Greening and Cross-compliance could be ditched.  Against this positive, we believe that payment rates will taper down in the period 2021 to 2024 in order to ‘wean’ farmers off direct payments, and to free-up funds for other programmes.  To summarise all this (assuming a transition deal with Europe is agreed);

  • 2019: BPS – same rules as now
  • 2020:  BPS, but with capping – detailed rules awaited
  • 2021: likely to be as per 2020, but could first year of British Agricultural Policy
  • 2022: almost certainly BAP (unless transition period is extended) – phasing down of Direct Payments likely to start (capping still in place)
  • 2023 and 2024: phasing continues as new ‘public goods’ schemes begin to be rolled-out
  • 2025: no more direct support

Other headline points from the speech include;

  • a guarantee that no one entering into the existing Countryside Stewardship Scheme will be unfairly disadvantaged in any transition to new arrangements
  • a commitment to simplify the CSS application process so that it can be completed in a working day
  • a new food standards measure to promote best practice and assist in marketing UK produce at home and abroad
  • changing procurement rules to help get more British food into public institutions and improving diets to reduce health issues

The full text of Mr Gove’s speech can be found at – https://www.gov.uk/government/speeches/farming-for-the-next-generation

Brexit Progress

Trade Talks Can Start

EU leaders meeting on the 15th December rubber-stamped the deal that allows the Brexit talks to move to the next stage.  With the ‘divorce’ issues ‘significantly progressed’ (or more accurately in the case of Ireland, fudged), then the UK and EU can move on to discuss the future relationship.  In fact, Stage 2 of the talks may well focus on the ‘transition period’ being the most urgent matter, with a Stage 3 covering the long-term arrangements.

In terms of the next step, it appears that the talks may not start until the spring, as the EU-27 need to agree on a revised negotiating mandate. The next opportunity for this is a summit in late March.  Some informal discussions could well start before this however, as both sides are keen to press on. Even so, all this leaves very little time if an agreement (even if just on the transition period) is to be agreed by autumn 2018 in order to be ratified by EU Members by March 2019.

Divorce and Transition

Following the divorce deal, various prominent Brexiteers, not least the Brexit Secretary David Davis, suggested that it would not be honoured if no trade deal was forthcoming, especially on the payment of a financial settlement to the EU. Also, on the Irish border question, the UK Government has promised (at least) three things – no hard border, the UK to leave the Customs Union and no different treatment of Northern Ireland compared to the rest of the UK.  Only any two of these three things can actually be delivered.

The EU was quick to push back on the status of the deal, stating that a condition for moving onto Phase 2 was the translation of the Phase 1 deal into a legally enforceable agreement.

In terms of the transition period, Europe is clear that the UK must follow the full EU ‘acquis’ (i.e. body of rules and regulation) during this period. The UK Government has indicated this might be for two years’ duration.  This would mean continuing membership of the Customs Union, full freedom of movement of labour, plus the continued jurisdiction for the European Court of Justice.  During this period the UK would not be involved in the EU decision-making process.  These points are highly inflammatory to pro-Leave campaigners. The Conservative MP Jacob Rees-Mogg is quoted that the plans would turn the UK into a ‘vassal’ of the EU.  It is possible that the terms might be amended during the next phase of talks, but we would not bet on this.

The terms of the transition period will be influenced by what any final future trading relationship looks like. It may seem rather bizarre this far into the process, but the Cabinet is only now discussing for the first time what the UK’s preferred arrangement is for any final trade agreement. Getting agreement will not be easy with the different views in the Government (which is why it hasn’t been tried up until now).

Commons Vote

The Government lost its first vote in the Brexit process on the 13th December.  A number of Conservative MPs joined the opposition to insert an amendment in the EU Withdrawal Bill requiring that any final Brexit deal must be put before Parliament before it is implemented.  It is not clear how much this changes the dynamic of Brexit, but it certainly adds to the complexity of managing the process for the Government. It perhaps points to a slightly softer Brexit.

Effect on Farming

At the outset, it should be stated that an agreement, either on transition or a future long-term relationship, is still by no means guaranteed. The UK could still slip out of the EU on the 29th March 2019 with ‘no deal’ and all the upheaval that entails.  However, the events of the last couple of weeks make this slightly less likely.  Also, the transition deal that is being proposed, at least from the EU side, indicates there could be very little change for farming until 2021.  Trade in agricultural goods with the EU would carry-on much as it does at present – meaning little upheaval in markets and prices.  There would still be free movement of labour, so the issues of staff availability, especially in the fresh produce sector, may be postponed.  It also seems likely that the CAP, and thus the BPS would also continue to operate in the UK for the two years of transition.  Overall then, perhaps little change in the short-term.  But the reckoning will only have been delayed.  Businesses should still treat the next few years as a period to get themselves into the best possible shape to deal with the uncertainties ahead.  

Brexit Breakthrough

Sufficient progress has been made in the Exit strand of the Brexit negotiations for the talks to move on to discuss future trading relationships.  This is the eventual outcome of a week of intense diplomacy ahead of a Summit of EU leaders on the 14th and 15th December.  The prospect of a ‘no deal’ Brexit has receded slightly with this announcement, but it is really only the end-of-the beginning, and it can be argued that the more difficult negotiation task still lies ahead.  Even getting to the point we are now at involved a degree of ‘fudge’ on a number of issues with a deliberate vagueness in some of the language and putting-off decisions on tricky details until later.

As previously outlined, the Exit talks focused on three main areas.  Below is a brief summary of what has been agreed in each of them

The ‘Divorce Bill’.  No figures have been included in the text of the agreement.  However, a methodology for calculating the bill has been detailed.  Most observers think this will end up in the range £35-£40bn.  The UK will not have to send a large cheque to the EU on the 29th March 2019 – the UK’s commitments will be honoured when they fall due.  Potentially some of them a number of years hence.  During any ‘transition period’ (previously indicated by Teresa May to be up to two years) the UK will continue to make full contributions to the EU Budget.  Given that the UK is paying-in during this period, it seems reasonable to suppose that we will also continue to benefit from EU funds during this period – including Common Agricultural Policy funding.  Whether that also means the rules of the CAP still apply during the transition period is therefore an interesting question.

Rights of EU/UK Citizens.  EU citizens who move to the UK under EU free movement rules before Brexit day will be able to remain.  They will have equal access to social security, health care, education and employment as UK citizens and will be able to apply for ‘settled status’ allowing them to remain on a permanent basis.  The rights will be lost if they stay out of the UK for more than five years.  There will be ‘reunification’ rights for spouses and children to come to the UK.  UK citizens in the EU will have reciprocal rights.  These rights will be enshrined in UK law, but will also be overseen by the European Court of Justice (ECJ) for eight years after the day of Brexit.  The jurisdiction of the ECJ was a large issue for some Brexiteers. 

The Irish Border:  This was the issue that nearly derailed the agreement.  The agreement reiterates that there will be no hard border on the island of Ireland (as the Irish Government demanded).  But also that there will be ‘no new regulatory barriers’ between Northern Ireland and the rest of the UK – a phrase seemingly put in to pacify the Ulster Unionists who could not accept earlier proposals for a special status for Northern Ireland.  In the event of no trade deal being agreed then there would be ‘regulatory alignment’ between the Northern Ireland and the EU to facilitate cross-border trade.  The hope is for a comprehensive EU/UK trade deal so this provision is never enacted.  However, to prevent either a hard border on Ireland, or divergence between the UK and NI, such a deal would have to align UK and EU standards pretty closely.  This would point towards a softer version of Brexit or this month’s agreement would have merely postponed difficult choices until later in the process.

The next stage of talks are likely to focus on the transition period after March 2019, as this is the most pressing.  Only later (stage 3?) will the final shape of the long-term EU/UK relationship start to become clear.  It is believed that the transition deal needs to be completed by autumn 2018 in time for it to be ratified by March 2019.

The full text of the ‘agreement’ can be found at – https://ec.europa.eu/commission/sites/beta-political/files/1_en_act_communication.pdf

Brexit and Rural Scotland

A report has been issued into how Brexit will impact Rural Scotland.  Prepared by the National Council of Rural Advisors, it is an document ahead of a more detailed set of recommendations to Ministers in the spring.  The main areas of concern outlined (not surprisingly) are access to labour, trade, funding for rural areas, and regulation post-Brexit.  The report can be found at – http://www.gov.scot/Resource/0052/00528196.pdf

Brexit Roundup – Progress (Or Lack Of)

Little has seemingly shifted in the Brexit talks this month.  The next big event will be the Summit of EU Heads of State on the 14th and 15th of December.  After failing to get agreement to move onto the Trade element of the talks in October, the UK Government will be hopeful of breaking the impasse next month.  It is rumoured that the UK might make an offer on the ‘divorce payment’ ahead of the meeting to push the talks forward.  A figure of £40bn has been mooted, although this still falls short of what the EU is likely to be looking for.  We have previously outlined how money was proving to be the biggest obstacle within the ‘Exit issues’ preventing the next stage of the negotiations starting.  Just to show how difficult and complex the process is, the last few days have seen the issue of the Irish border move to centre-stage in terms of being a deal-breaker.

Thursday the 9th November 2017 marked the mid-point between the Referendum on the UK’s membership of the EU, and the date of exit. It can be safely stated that half of the work in preparing for Brexit has not yet been completed.

Meanwhile, the UK Government has confirmed the precise time of leaving (should all go to plan) will be 11pm on Friday 29th March 2019 (midnight Brussels time).