This has been, on the face of it, an eventful week on the Brexit
journey. However in the short term, at least, the negotiating aims
of the UK and the process by which it will commence those
negotiations remain intact. The 'Brexit Bill' was debated
in Parliament and passed the MP vote by a majority of 384.
What followed was the Brexit White Paper, setting out further
detail on the 12 negotiating principles set out by the Prime
Minister on 17th January.
There is little that is new, but the paper does provide factual
data to support the Government's position and reaffirms the
government's narrative in some key areas:
The paper makes clear that the
Government will consult on the Great Repeal Bill and the EU
legislation to be brought onto the UK statue books through the
Bill's application. The Bill will have three primary
elements: it will repeal the European Communities Act 1972; it will
preserve EU law as it stands before we leave the EU; and it will
enable changes to be made by secondary legislation to the laws that
would otherwise not function sensibly once the UK has left the EU.
This effectively provides that past European Court decisions will
continue to apply, as will EU interpretations, giving much greater
clarity regarding the status of the law.
The fact that the UK and EU's
regulatory regimes are currently converged would make it
significantly easier to negotiate a best in class Free Trade
Agreement (FTA). A stable regulatory environment would be
welcomed by business leaders as they consider adapting to changes
in trading regimes. The paper confirms "any significant policy
changes" will be underpinned by primary legislation, allowing
Parliament to scrutinise the details and presumably providing the
opportunity for business to continue a dialogue with Government on
material legislative issues for them.
The paper acknowledges that the UK
needs highly skilled migrants and students. Further, it
confirms that the UK stands ready to give certainty regarding the
outcomes for EU nationals currently residing in the UK, provided
that a reciprocal deal can be negotiated. However, the
government has made no commitment regarding entry into the UK for
unskilled and semi-skilled migrants.
There are fairly detailed analyses of
trade with the EU for certain sectors. Aside from these trade in
services gets little attention. The paper observes that the
UK has a £89 billion deficit in trade in goods deficit with
the EU; but the UK runs a £29 billion trade surplus on trade
in services. It is critical that the FTA with the EU makes
proper provision for services, which make up 80% of the UK's
overall economy. It is worth bearing in mind that just under
half of the UK's exports go to the EU but only 5% of the
EU's exports go to the UK.
There is no detail at this stage on
how the Government envisages that a Customs Agreement (as opposed
to a Customs Union) might work. Customs brokers
estimate that even in a zero tariff environment, the additional
administration costs of a new customs regime might run to
£25-50 per shipping container, an additional cost that very
quickly adds up to material sums. There is a second issues
here of goods potentially taking longer to clear customs.
On the EU Budget, the paper states
that on leaving the EU the UK will no longer be required to make
vast contributions. However, the UK will face possibly
significant 'break costs'.
Of course whatever the UK's
aspirations it must negotiate a settlement with the other EU-27.
The Government will inevitably need to compromise in some
In separate news, and against the backdrop of the machinery of
Government edging forward, it is notable that the Bank of England
has substantially increased its forecast for GDP growth this
year. The Bank now expects the economy to grow 2.0% in 2017,
up from a November forecast of 1.4%, which was itself an upgrade
from the 0.8% forecast made in August. UK consumer spending
has remained resilient, the global economy is looking in better
shape and a weak pound should boost exports. The risks to growth
come from a squeeze on consumer activity from higher inflation and
weaker investment spending. Nonetheless, the big news is that the
UK growth outlook looks much less threatening than it did in the
weeks after the referendum vote, which can only be good news for UK
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The government has been working to incorporate the changes required as a result of the OECD's work on BEPS Action 5: Harmful Tax Practices, which requires implementation of a Nexus approach to the Patent Box regime.
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