What next for Brexit and how will it impact on your business?

What next for Brexit and how will it impact on your business?

Remember the Millennium bug? In the final months of 1999, the Government rallied, Y2K awareness campaigns were launched and most businesses were as prepared as they could be for whatever the eventuality. Aside from a few computer glitches, the Armageddon predicted by some did not come close to materialising.

Fast forward 16 years…

What next for Brexit and how will it impact on your business?

In the days and weeks that have followed the EU referendum result, you would have a strong case for arguing the Government and many UK businesses were much better prepared for the Millennium bug than for Brexit.

As was the case in 1999, some experts are predicting years of economic turmoil and uncertainty whilst others are viewing the result of the vote as a huge long term opportunity to redefine the UK’s place on the world stage.

With no definitive date set by the new Prime Minister for triggering Article 50 of the Lisbon treaty, which would initiate negotiations to define the UK’s future economic relationship with other European states and be the official beginning of the UK’s departure from the European Union, what can UK businesses be considering now to prepare themselves for such an uncertain future?

What economic benefits are potentially at stake for UK businesses by leaving the EU?

The European Union’s original purpose was to create an enhanced Free Trade Agreement between EU member states. Reduce tariffs and an emphasis on encouraging business dealings between European trading partners was central to the setup of the union.

5 key economic agreements that businesses currently benefit from with the UK’s membership of the EU:

  1. The existence of a single market, there are no tariffs or other barriers limiting the export of UK goods and services to any country in the EU
  2. The autonomy to provide services and establish a business in another EU member state
  3. The existence of ‘passporting’ which allows financial services, including insurance, to be bought and sold with few restrictions across EU member states
  4. Visa-free migration of the workforce within the EU
  5. Access to reduced trade tariffs called EU Free Trade Agreements, negotiated with 53 non-EU countries around the world.

What are the most likely scenarios for the UK’s economic relationship with the EU if it becomes a non-member?

The UK’s exit from the EU is an unprecedented event. So the UK government will be the first to commence the exiting process under the terms outlined in the Lisbon treaty known as Article 50. It is therefore impossible to predict the exact outcome of negotiations that will define the UK’s future economic relationship with the EU as a non-member.

Despite this uncertainty, we’ve chosen 5 possible scenarios which have been widely discussed by both leading economists and the UK government prior to the Referendum vote should the result be in favour of leave.

  1. The UK becomes part of the European Economic Area (EEA).
    As is the case with Norway, if the UK becomes an EEA country, it would have access to the single market. EU regulations and directives would still apply, the UK would still contribute to the EU budget, and it would not have an independent immigration policy. This possible scenario is predicted to have the lowest impact on the economy and trade.
  2. The UK enters into a bilateral integration treaty with the EU.
    This would involve limited UK access to the single market, but no joint agreements to provide full access for goods and services. It is predicted this scenario would have a moderate impact on the economy, trade, and immigration.
  3. A tariff-free trade agreement is made between the UK and EU.
    The UK would have its own immigration policy and an independent trade policy with likely implications for the trans-border movement of people. This scenario would provide some access to the single market and is predicted to have a moderate impact on the economy.
  4. The UK makes no access agreements and trades with the EU as a totally independent country.
    If only World Trade Organization terms apply, the UK would trade with the EU in a similar way to countries such as the U.S. UK immigration policy would become independent. This scenario is predicted to have the highest impact on the economy and the lowest likelihood that the UK would be able to trade under the single market.
  5. The UK secures a similar agreement to the Canadian model
    The UK / EU relationship is stripped back to its trade-based roots. Canada is currently ratifying one of the most far-reaching trade deals with Europe that has ever been created. Potentially the UK government could aim to replicate a very similar relationship. Such an agreement may not allow the continued passporting of financial & insurance services, however, it would undoubtedly result in the end of visa-free migration across Europe. This is likely to be the only model that would give the UK full control over immigration and remove it from the directives of the European Court of Justice.

What impact could Brexit have on your business?

So how can your business best prepare for Brexit and the end of this long-term partnership within the EU? How can you take stock of the impact and make the necessary preparations for such a wide range of scenarios? And from an insurance perspective, what will the impact be on your risks?

We’ve chosen 6 areas of business operations that almost every company or commercial organisation in the UK will need to assess and consider at some point as they plan for the future and navigate through these uncertain times.

  • Workforce & recruitment
  • Taxation
  • Accounting and business incorporation
  • Regulations
  • Business planning and costs
  • Access to the EU single market & International trading

Workforce & recruitment

The free movement of labour across the EU has been in place for over forty years. Many UK businesses rely on large numbers of EU workers in their labour force, and this is true of both skilled and unskilled workforces, from accountants to agricultural workers. Here are a few eye-watering statistics the visa-free arrangement has created. Over 1.5 million British citizens live in other countries in the EU and over half a million European students studying in the UK. The largest migrant nationality of all are from Poland with over a million Poles living in the UK. What will happen to these people?

It is widely believed that even if the UK’s final arrangement with the EU sees the end of visa-free migration, an exception will be made for those who are already located in EU countries and therefore people from other EU countries living in the UK or UK nationals living abroad will more than likely be allowed to stay where they currently reside.


Over the 40 years of EU membership, UK tax law and the EU’s impact on the UK taxation system have interacted and evolved to quite a complex degree. Post-Brexit the UK would be free to set its own VAT rate. It would also be able to depart from some EU tax measures which the UK government dislikes. An example of an ongoing tax dispute between the UK and EU is over the Financial Transactions Tax, which the UK believes is anti-competitive as far as the City of London is concerned. It is highly unlikely this will now be implemented in the UK following the Brexit vote. In principle, a UK tax system free of any EU involvement could result in significant tax changes designed to support UK businesses become more competitive than their European competitors. The reality however is likely to be more measured and less than most might expect. Any potential future tax changes will need to be weighed against the final settlement with the EU. If, as many expect, we remain closely tied to European markets, any UK government will almost certainly take the view that it’s in the UK’s best interest to closely align taxation rules with European taxation regulations.

Accounting & business incorporation

All reporting and accounting standards are already set at a global, not an EU level, so the position for day-to-day business reporting and accounting in a post-Brexit UK is very straightforward - it’s highly unlikely to come under any pressure to change.

The same cannot be said for business structures and incorporation, especially multinational businesses with a single European headquarters and individual offices or branches in other European countries. This type of structure, commonly referred to as the hub-and-spoke model, has been broadly favoured by UK companies because of the operational efficiencies it creates and it allows them to keep their capital reserves in the centre rather than being allocated across individual countries. This is all possible because of the EU’s passporting regime, which is constructed using rights of Freedom of Establishment (FoE) and Freedom of Services Act (FoS), guaranteeing EU businesses the right to deliver business services on a cross-border basis to everyone within the European Economic Area (EEA). If the passporting arrangement ceases to exist for international companies who use the UK as their headquarters, as well as many UK businesses who trade across Europe, organisations may need to completely change their corporate structures, including rethinking their countries of incorporation, places of reporting for tax and regulation, and the location of their headquarters. This is a seismic change, and the effects of it need to be carefully considered by every international business in the UK.


Despite some pre-vote campaigning suggesting a leave vote might reduce bureaucracy and some EU regulations, many experts are predicting a far more measured approach and a scenario not too dissimilar to our previous comments on taxation. In exiting the EU, the UK will gain full control over what regulations are placed on business, however in reality we should expect very little change in the regulatory environment, particularly in the area of financial services. There are two key reasons for this;

  1. If the UK is to maintain access to EU markets in highly regulated industries, such as the financial services, it will need to demonstrate it can continue to regulate to the standards that Europe requires. Switzerland is a good example of a country outside of the EU that has gone to great lengths to replicate European regulations in order to persuade the EU to allow them to access Europe’s financial services marketplace.
  2. Reversing legislation is usually costly, time consuming and often raises more challenges than solutions. Many experts believe it is more likely most political energy will be focused on ensuring continued access to European markets in regulated areas in order to continue to get access to valuable sectors, especially in finance, banking and insurance, where the UK is a recognised European and global leader.

Business planning and costs

The universal opinion of almost every financial expert and economist is Brexit will increase business costs to some extent. The degree of that impact in the long term is impossible to predict until negotiations with the EU have reached their conclusion. There is no doubt markets have experienced a turbulent few weeks and businesses that have currency exposure have already felt the impact.

Increased business costs

Despite the outlook of some to be a negative one, other experts are less pessimistic, accepting that whilst the long term impact of Brexit is uncertain, their opinion is the UK’s economic outlook does not hinge completely on the outcome of the negotiations with the EU. The next milestone is the UK’s autumn budget. New Chancellor of the Exchequer, Philip Hammond, wasted no time in decided not to implement a post Brexit emergency budget which had been promised by his predecessor. Therefore, no immediate changes to tax have been introduced following the vote however attention will turn sharply towards 11 Downing Street after the summer when the Autumn Statement is announced.

Access to the EU single market and International trading

In many people’s opinion, the most contentious question that exists on how Brexit will impact the future of UK & EU business. Why is this such a critical subject that will have significant implications on how we trade with not only Europe but also the rest of the world?

  1. Trading with other EU member states
    The EU’s single market is the world’s biggest, with over half of all UK exports being imported by EU member states. So, one of the toughest challenges facing the UK government in any future negotiations will be how Britain can continue to get access to the single market. At one end of the spectrum is some form of free trade agreement with the EU where UK businesses can continue to trade without tariffs. At the opposite end is no trade deal being reached which would result in Britain trading with the EU via a common external tariff, often referred to as the ‘World Trade Organisation option’. This would broadly mean an average of 4% increase on all goods shipped by the UK into the EEA, with some products (e.g. car parts) being subject to a 10% tariff.
  2. Trading with non-EU countries
    Like Switzerland, Britain would be free to negotiate its own trade agreements with the rest of the world. Many would argue that’s easier said than done. The EU has negotiated no less than 53 Free Trade Agreements with non-EU countries which has helped British companies benefit from preferential EU trading terms with those international markets. By leaving the EU, Britain will no longer automatically be able to trade under those terms. It would therefore be down to the UK to negotiate a new deal with each of those countries. The task is a significant one, described by The Economist as “a huge challenge given the lack of trade negotiators and the length of time even simple trade talks take”. Taking a more positive outlook on the UK’s prospects, in recent years Switzerland has achieved a Free Trade Agreement with China, something the EU has so far failed to deliver.

In summary, losing free trade access to EU member state markets as well as having to renegotiate new trade deals with 53 non-EU countries just to maintain the status quo should be a major concern to UK business. Irrespective of your opinion on whether it’s an economic mountain to climb or an economic inconvenience, one certainty is that the cost to the consumer will rise if access to free trade is lost.

Steve Bamforth
Steve Bamforth

Steve Bamforth, Group Chief Executive at Griffiths & Armour commented, “Whilst we understand the recent referendum vote and result in favour of the UK leaving the EU will have some long term effects, it is far too early to understand the full implications for businesses and the insurance and financial sector as a whole. I would like to personally reassure our clients that the team at Griffiths & Armour will continue to monitor developments as they evolve over the coming weeks, months and indeed years, providing information to our clients that will help their organisation navigate through the period of transition, manage risk and support them in working through whatever changes they may face into the future”. Steve added, “Exiting the EU will take many years and we should expect little or no change in the immediate term. Our message is that it is very much business as usual, the referendum result has no immediate changes or implications for how your business insurance cover operates”

Griffiths & Armour will continue to provide our clients in the UK and internationally with the same high levels of service they have become accustomed too, our priority and commitment remains the same; putting our clients’ interests first, each time, every time.

If you have any questions regarding this article or how the various points raised may affect your business, our team are on hand and ready to help. Please request a call back and a member of our team will be in touch very soon.

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