On Thursday 23rd June, the UK voted to leave the European Union (EU) in the EU referendum, becoming the first country to exit in the history of the EU. 60% of London- the business capital of the UK, voted to remain in the EU and media giant Richard Branson, CEO of Virgin, stated that he was “one of the few business people who can remember how difficult it was before the EU was formed,” after backing the UK to remain. Directors from the likes of Toyota UK, Vauxhall, Jaguar Land Rover and BMW also added their voices to the ‘Remain’ message. The European Union is currently the UK’s biggest trading market, meaning that the potential impact on sales could be significant. There are over 60,000 companies in the UK that have a European holding company, and 1,480 companies in Europe that have a UK holding company. The UK and Europe has operated in a single market for a long time and a Brexit may affect the relationships within company group structures as well as trade.
So what does it mean for business when the UK voted out?
• Britain will need to re-negotiate a new trade deal with the EU
Once the UK’s formal decision to leave the EU has been notified to the European Council of EU leaders, the UK has a two year window where new negotiations need to take place. Discussions need to be had to discuss exporting and importing goods, the basis for continued trade to and from the EU and regulations on issues such as environmental, health and safety standards. There is also a risk that the EU will impose quotas, which will limit the amount of goods and services that can be sold into Europe. The UK has exported £91,507,846,184 since the start of 2016, and more than eight out of 10 UK-made cars are sold abroad. There is a fear that trade will slow down now that the Brexit decision has been made as it will be harder to trade with Europe out of the European Union. Britain may be seen as less attractive to trade with now it is out of the EU, however it could be argued that the UK can now negotiate its own terms when it comes to importing and exporting goods. The fastest growing economies in the world are in Asia and Africa and leaving the EU gives Britain more freedom to trade with these countries. It could encourage businesses to be more creative in their selling in order to take advantage of new opportunities on offer.
• Free movement within the EU is now affected
Here in the UK, there are 739,005 European Directors, however it will now be harder for Europeans to live and work in Britain, and vice versa for Brits in Europe. Not only will it be harder for migrants choosing to move to the UK, it will also be more difficult to travel in and out of European countries for British citizens. There are 109,117 companies in the UK who have a European company in their group structure, not to mention UK companies who have offices throughout Europe. Traveling freely to these offices will prove to be more difficult than before unless the UK can negotiate a passport control deal for business.
• Investment could be affected
Whatever relationship the UK may form with the EU as a non-member, it is unlikely that British businesses will enjoy the full, preferential access that they currently get to the single market. Global businesses looking to expand are more than likely going to be wary when investing in businesses in Britain. The uncertainty over the next two years could cause businesses to be hesitant with opportunities to expand into Britain or even trade with the UK until they are certain of the new rules and regulations that will come from the Brexit. Tariffs and fees may also go up as Britain are no longer part of the EU, making it even more difficult for a European company to trade in Britain.
• Funding could be affected
In 2014-2015, the UK was the number one destination for foreign direct investment in the EU with the USA, India and France being the largest contributors. Foreign investors who see investment opportunities in UK companies as a gateway to accessing EU markets may be put off by our departure. Start-ups could suffer with lack of EU funding, however it could be argued that now Britain isn’t contributing into the UK we have more money to spend on our home soil for start-ups and small businesses.
With the UK in uproar over the referendum, the only thing we know for certain is that change is about to come. Our exit from the EU could mean we are open to new negotiations in new markets and better trading conditions, on the other hand it could put a lot of stress on the UK economy if we fail to rebuild bridges with Europe.