Pessimism over Brexit's impact is deepening
The transitional deal between the UK and EU has poured some oil on troubled waters but the forecast on Brexit’s impact is mostly negative.
What will Brexit look like?
Following the provisional agreement announced in late March, we have a clearer idea, at least for the duration of the transitional period, from 30 March – the UK’s first day as an ex-member state of the European Union – up to the end of December 2020.
During the transition phase, “post-Brexit” will look remarkably similar to “pre-Brexit”.
The UK will no longer send any MEPs to the European Parliament, but it will abide by the rules and regulations of the Single Market, and will remain party to the EU’s trade deals, including any new deals. EU nationals coming to the UK during the period will enjoy the same rights as those who arrived before 30 March, as will UK nationals moving to an EU state.
The word “will” demands an important caveat, however. Even though the EU’s Council of Ministers endorsed the transition agreement, with a minimum of discussion, on 23 March, it remains the case that “nothing is agreed until everything is agreed” and so, like the hints of world supremacy made by a certain Danish lager, anything that is said about the transition needs to end with the word “probably”.
The latest ICAS Brexit Tracker survey, in association with leading law firm Brodies LLP, is based on responses from ICAS members in early April, just over a week after the details of the agreement were published.
What did CAs think?
Overall, 48% felt the March agreement was “quite helpful” or “very helpful”, as opposed to 43% who said it was “very unhelpful” or “quite unhelpful”. There was not a significant difference between the views of CAs in large and small firms, in this regard.
On specific elements in the agreement, however, respondents were more positive. The top three (weighted) aspects, in descending order, were:
- the UK will continue to be party to EU trade deals during the transition;
- rights for EU nationals arriving in the UK up to the end of the transition will be the same as those arriving pre-Brexit; and
- the UK will be able to start negotiating its own trade deals during the transition.
The least popular aspect was the agreement that the Common Fisheries Policy will apply to UK waters during the transition. This was the only issue which a majority felt was “unhelpful” and it had received a large amount of negative coverage in the media prior to the Tracker survey.
Over the last six months of negotiations, members’ preferences for the outcome have not changed drastically. Just fewer than 60% would still rather see the UK as a participant in the Single Market, while around 30% prefer a free-trade deal.
Increased confidence that the Government will achieve its stated objectives isn't matched by confidence about what might happen to the economy after that.
Expectations, however, have changed over the period, with 41% now believing the UK government will get its free-trade deal (autumn 2017: 36%) and 23% predicting that the UK will exit the transition agreement with no free-trade deal in place (autumn 2017: 29%). That marks a big step forward from spring 2017, when 41% of respondents expected that the UK would be leaving the EU and Single Market without a free-trade deal in place.
The Brexit Tracker indicates declining confidence, however, compared with the winter 2017/18 poll. The Tracker charts optimism/pessimism on a 100-point sliding scale, with 50 indicating “very optimistic” and -50 indicating “very pessimistic”. The perceived impact so far has fallen from -8 to -10, and the expected impact post-Brexit for the UK economy has fallen from -15 to -18. Pessimism over the expected impact on the respondent’s own organisation has abated slightly, up to -14 from -15.
So, slightly increased confidence that the UK Government will achieve its stated objectives does not appear matched by confidence about what might happen to the economy after that.
This time round we distinguished between expectations for the period after Brexit but before the end of the transition period, and expectations about what will happen after the end of the transition.
For all respondents, optimism/pessimism for the transition was rated at -11, indicating that most see little difference between life in the transition period and the current environment. That is probably not surprising, given that during this period the Single Market, the Customs Union and the “Four Freedoms” (including freedom of movement for the labour force) will continue to apply to the UK, even after the UK has withdrawn from the EU’s governing institutions.
40% of large organisations, 40% say they have considered location issues, 51% have reviewed supply chain issues and 61% have considered HR and regulatory issues.
Drilling down into the different groups of respondents, there is a marked difference between those in large (250 employees and above) and small organisations (including small practitioners). For example, respondents in large organisations rated “impact so far” as -14 (small: -7) and “impact post-transition” as -18 (small: -11). One would expect that smaller organisations, with less exposure to an international marketplace, would be less concerned about any post-Brexit trade barriers.
Respondents based in Scotland have seen less impact so far (-10) than those in the rest of the UK (-14), and anticipate less impact post-transition (-13) compared with the rest of the UK (-18), but this could reflect the fact that CAs based outside Scotland are more likely to be working with larger organisations.
In terms of being ready for Brexit there appears to be some progress, especially for larger organisations. Of the large organisations, 40% say they have considered location issues, 51% have reviewed supply chain issues and 61% have considered HR and regulatory issues.
Regarding economic predictions, 90% of respondents now expect to see interest rates rising (with 41% expecting to see the Bank of England rate reach 1.5% over the next two years); views remain mixed on sterling’s prospects; and slightly fewer (65% as opposed to 70% in the last survey) see inflation rising.
Finally, because polls like this can often be seen as concentrating on negatives, we asked what were the positives members saw in Brexit? Some saw none, but the table (facing page, top right) highlights some of the plus points identified by CAs.
Around 350 members responded to the latest Tracker survey, of which 57% were based in Scotland, 29% in the rest of the UK, 6% elsewhere in the EU and 8% elsewhere in the world. Our thanks, as ever, go to all those who took part.
What's good about Brexit?
We asked respondents what they thought some of the positive aspects of Brexit might be. Many felt there was nothing good that could be said about it, but some of the positive aspects ICAS members suggested include:
- That we can set policies that will benefit us as a nation and can help other nations because we want to, not because we have to.* Regaining our sovereignty.
- Ability to enter into free-trade agreements with other countries.
- Increases the likelihood of Scottish independence.
- A chance for the UK to become more competitive, as a necessity and with less red tape.
- Transparency. The grossly over-the-top funding from the public purse of many public-private initiatives has quietly come to light as a result of the Brexit process.
- The reduction in the sterling [rate] caused by Brexit is overall a good thing for the UK.
- Controlling immigration.