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Hard Brexit and the consequences for Relocation and global mobility – An interview: Gordon Kerr, lawyer

How will Brexit impact the mobility & relocation industry? How will businesses be affected by Brexit?

What are the consequences?

The mobility industry is facing immediate new hurdles in terms of moving people around. Suddenly there’s this big new hassle which is if you’re moving people between the U.K. and the European Union we now have to face immigration controls. One part of the industry will benefit as a consequences from this because immigration controls mean that people will need support with visas and work permits. 

So there will be some winners out of this: providers of these immigration services. Freedom of movement disappears, and therefore, there are new challenges and delays in moving people between the U.K. and the European Union. Many of the details of that are still being worked out.

EU citizens who are living in the U.K.

The intention is that EU citizens who are living in the U.K. will have their rights protected. Similarly, there are lots of U.K. citizens living and working in European Union countries and, subject to registration requirements, their rights should also be protected.  I think that’s one area where there is broad agreement between the U.K. and the E.U.

But, if a UK citizen is thinking of relocating to The Netherlands to set up an office in Amsterdam in December, then he or she would be subject to the same immigration requirements as an American, Indian or a Chinese citizen.  The move will be subject to compliance with Dutch immigration rules. Or Italian laws. Or French rules … as the case may be.

This is a significant change after 40 years of free movement between the U.K. and the rest of the E.U.

What what’s going to be next. Nothing’s is set in stone yet. So it creates much uncertainty for people affected by the Brexit. Maybe even worse for people on commuter assignments where you don’t have a public right now. They may not even be visible for immigration authorities.

However, they do need to show up for work every now and then.

That’s absolutely right. It must be very challenging for many people who are just waiting to find out how their lives and the lives of their families are affected. This is why I think E.U. and U.K. governments have tried to make reassuring noises. Until we know what that final stage of Brexit is going to be, there is terrible uncertainty.

Returning to EMG’s other kind of related question about the impact on businesses. One of the things we’ve seen already is the response of the UK’s large financial sector.

“Passporting” rights

There is a concept in Europe called “passporting” rights. This means that a London based bank or insurance company is entitled to offer its financial services across all E.U. countries. Now, these past passporting rights disappear are likely to disappear with Brexit, which means that UK financial companies need to comply with national rules in the Netherlands, Germany,  France etc. To avoid these compliance complications, many of the big financial institutions have now opened up additional offices within the E.U., including Amsterdam Frankfurt, Luxembourg, Paris and Dublin. 

For the moment there has been a relatively low number of financial  jobs removed from the U.K. But, depending on what arrangements are agreed on for the future, there could be substantial job losses in the U.K.’s financial sector and the growth of these jobs in the Netherlands, France, Germany, and so forth.

Another trend we can already notice is labour shortages in areas such as the leisure industry. For example tourism in a city like Edinburgh relies on an influx of people from France, Germany or Poland. They come and work for the summer and may end up staying for the whole year, working in bars, restaurants and hotels. People also come over from Eastern Europe to meet the demand for seasonal workers in British agriculture. 

Many sectors are very concerned about where seasonal labour is going to come from in future. There’s no obvious solution to that at the moment.

The Car industry post Brexit difficulties

The U.K. car industry is another problem area,  with companies like Nissan employing thousands of people in the U.K. They rely entirely on cross-border supply chains which allow car parts to be moved quickly and tariff-free.  Many components are imported from other EU countries for assembly in the U.K. and then exported across the European Union. All of that may become slower and costlier. The impact on the UK car industry of a no-deal or hard Brexit could be quite devastating.

It’s not only a money issue. It’s also timing because if you have shipments coming in and they get delayed because of customs checks.

Yes, Brexit affects the whole “ just in time” approach to car manufacturing, for example. Customs checks will severely impact many UK manufacturers.

Will Brexit affect taxes?

Generally, the tax impact of Brexit is limited because personal taxes and business taxes are mostly national taxes across the European Union. However, customs tariffs come into play here as these are a form of tax.

There is also the question of the future of U.K. VAT,  which is based on E.U. rules. It will be interesting to see whether VAT is scrapped in the U.K. and the U.K. moves over to more of an American style sales tax.

There’s been a little bit of talk about that, but of course, that would be an enormous disruption. There are signs that the Johnson government may wish to move closer to the United States following Brexit. Major concerns that many people have is we’d end up changing things like VAT as part of a US trade deal.

What would Brexit mean for British employment law?

Very little should change in practice because the U.K. government had promised that Britain will not reduce the employment rights that are fundamental to being part of the European Union. So current employee rights will be protected.  But it remains to be seen what will happen in the longer term. The will for change is enormous. One argument is that Britain, to be successful outside the EU, has to become more like a low-regulation, trading nation such as Singapore. Closer also to the United States where many employees have contracts based on employment “at will” and can be hired and fired far more quickly than in the U.K. and the E.U.

The UK government is saying “no, we will not interfere with employee rights”, but there may be a temptation to do so in the future.

Again, this connection to the U.S.

Brexit is based on perhaps much blue-collar sentiment. The sentiment that translates into thinking like “They are stealing our jobs” and “we want our country back”. 

One of the ironies of the whole Brexit campaign is that support has come from people who are working in car factories and people who are working in agriculture who perhaps will be the most negatively affected by Brexit.

A classic example is the fishing industry.

So fishermen have been persuaded that by leaving the E.U. we can keep foreign boats like French and Spanish out of U.K. waters. This will result in perhaps more fish being caught. However, to sell that fish into the European Union (into France and Spain etc.) we would need to have open borders. So, on the one hand, we can catch more fish, but we can’t sell it because it will be subject to E.U. tariffs in future. There are many ironic twists like that. You feel that many people who voted for Brexit were not given all the facts.

You know what you will be having for Christmas?

Well, local products for sure – and not relying on imported food!

How would Brexit affect either small businesses and more specifically, startups.

For U.K. entrepreneurs there will be restrictions in the future in selling products and services in mainland Europe. The Brexit supporters will be saying that new opportunities will now exist in the United States and in India and China. So the fact that you lose some access into European Union countries will be more than offset by these deals we’re going to get into with other countries.

So again it depends on whether you’re an optimist or a pessimist about the impact of Brexit. Many people are sceptical about the ability of UK businesses to continue to compete effectively in European markets, and the opportunities elsewhere in the world really will not be comparable.

With startups, there is, of course, another risk. Attracting talented people from let’s say cheaper countries in the E.U. or for markets where there is already a shortage like for instance I.T.

I agree.  It will depend ultimately on what the new U.K. immigration rules are. So you could end up with rules that are very favourable to the I.T. sector or the hospitality sector, and it makes it easy to bring people in from the E.U. or India, for example. There is a fundamental irony there, in that one of the drivers for people voting for Brexit, was to have control over immigration. In practice that meant, in most people’s minds, reducing levels of immigration into the U.K. 

But immigration levels are hardly discussed at all now because the far more significant threat to the UK is that current sources of specialist labour, in areas such as IT, will dry up. Therefore, if anything, Britain is likely to become more open to immigration, but it will be a new mix of E.U. and non-E.U. immigration, with the latter category, probably increasing particularly.

I don’t think that is what Brexit supporters necessarily voted for, but that is an outcome that will be essential to growing businesses in the U.K.

Mostly, they voted because they were annoyed by something else. Their vote was more connected to a protest.

Definitely. There were so many assertions and promises made during the Referendum campaign. Sadly I think a lesson to come out of this and a recommendation to other countries in the E.U. is never to hold a referendum on E.U. membership because it just produces the most terrible politics and a very uninformed campaign of half-truths.

I think that, in the context of a referendum argument, the subtleties and nuances all get lost. It’s all about headlines. The voices that try to be balanced are drowned out by fundamentalists and populists. Their arguments drown out the far more subtle, and I would say intelligent discussions that people were trying to have about the genuine pros and cons of E.U. membership. How the E.U. could be improved. How the U.K. could be working with countries like the Netherlands to improve the European Union. 

Britain’s EU membership is hanging by a thread at the moment. But the U.K. parliament may still agree either to a general election or to a second referendum. If that happens very quickly it’s just possible that the U.K. could agree with the EU an extension to the current 31st October.  So it’s just possible to see a scenario where the U.K. would remain in the E.U. but obviously as time goes by it’s looking less likely.

If Brexit is stopped, there is no doubt that Britain will continue to be a very divided country for many years to come. There’s also the question now of whether countries like France and Germany would want the U.K. back in, and possibly to remain a disruptive force. And if Brexit goes ahead, then the danger is that there is no way back for Britain, particularly if the country gets closer to the USA and sets a very different course from the EU. 

The European Union has operated quite impressively throughout this negotiating period. I think that many in the U.K. assumed that at some stage there would be national tensions. I think it’s to the credit of the European Union and its negotiators that it has remained, at least through British eyes, remarkably united and may emerge from this as a stronger unit.

It’s also fair to say that most countries in the European Union must have been put off by the U.K.’s experience of departing the EU and the political damage it’s done to the U.K.  The extent of economic damage to the UK – and possibly also to the EU – remains to be seen.

Is there a way to Brexit-proof your business.

I think the answer is probably no. However, what you can do is identify where the risk areas are. So there’ll be some businesses where it’s evident they are facing tariffs because they export goods to the European Union or indeed import goods to the U.K. If you’re in the financial services sector you will be concerned about passporting rights and seeking a solution to that. For many businesses, it’s not so much about becoming Brexit-proof as just taking steps to predict and minimise the impact of Brexit.

We’ve touched on businesses in the U.K. that rely on E.U. workers in various sectors.

I’m not sure you can do much about that because you’re then reliant on what will be the new U.K. rules on immigration. So I think you can identify where the risks lie, and in some areas, you may be able to do something about it and minimise the impact of these new risks. However, ultimately, Brexit is a pretty fundamental thing. Many businesses will be affected in ways that we cannot fully predict.

End of part two – Check out part one

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