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UK Government White Paper of Brexit - 2nd February 2017

This article is for general information only. You should only act or refrain from acting after receiving full professional advice on the facts of your particular case. This article does not constitute investment advice.

Following the House of Commons vote in favour of Mrs May triggering the UK’s exit from the EU the government has today published a White Paper (consultative document) on Brexit. This gives the government’s thinking on Brexit. The following are some practical comments on the document.

EU Court

1. The European Court’s jurisdiction will end. People who have been adversely affected by the Court’s judgments in the past are likely to challenge them in the UK courts or seek to have domestic legislation enacted to change the position. This will be a disrupting force for existing businesses which have benefited from such rulings. This is going to be very unpredictable. Expect much more UK litigation.

Lobbying

2. Lobbying EU institutions will reduce sharply. Lobbyists will have to target Westminster and the devolved assemblies. This will start soon because there is less point lobbying institutions which will have less power in the UK. This is disruptive for bigger companies and gives smaller companies an advantage.

3. There are going to be more powers devolved to Scotland, Wales and Northern Ireland.

Offshore structures

4. There will be changes for Gibraltar, the Isle of Man and the Channel Islands as well as the Crown Dependencies. This is likely to affect tax planning and corporate structures in these jurisdictions which own assets or have made loans to entities in the EU. France has always viewed companies and trusts in these offshore jurisdictions with mistrust. There has been a thawing over the past few years with more transparency but this is likely to be reversed.

Immigration

5. Open immigration from the EU will stop. If immigration from non EU countries is made easier as part of trade deals, this will impact on job seekers from the EU coming here. You have to assume open immigration to the EU from the UK will end. This is unlikely to affect UK nationals retiring to France or buying holiday homes there. In fact the reverse is likely to be the case with more choice for EU nationals in non EU countries which have signed agreements with the UK to encourage investment and movement aimed at the more affluent.

6. UK nationals moving to Monaco will face possible EU travel restrictions.

Retirees

7. The graph in the White Paper shows just over 150,000 French nationals living in the UK at 2011. It shows roughly the same number of French residents in the UK at 2015. The government states “We recognise the priority placed on easy access to healthcare by UK nationals living in the EU.” This is good news for EU residents living in France. However expect any agreement on this to take some time to resolve. Most UK residents living in the EU will have voted to Remain and so will not be obvious government supporters. In addition many will not vote at the next General Election. In any event expect a tightening up on procedures for gaining access to French healthcare and possibly some additional payment by users to come in. Whilst negotiations continue fewer UK residents will retire to France.

8. The graph does not give age profiles. It is probably fair to say UK nationals in France and Spain are much older than EU residents in the UK. As such UK nationals represent more of a cost to EU health care services but in return are spending their pensions in the EU and paying tax there. More analysis of the net cost of retirees is going to take place.

9. The best retirees for a country to attract are well off people who will spend and invest locally but not take a local person’s job. It is likely non EU countries will target this market in particular Caribbean countries and the South East of the USA. This could reduce the affluence profile of UK retirees in France and Spain. It could also affect the values of higher value properties there.

Workers

10. The Government says it will not only maintain but enhance the protections and standards that benefit workers under EU law. It is difficult to see how this will happen if the plan is to globalise the UK economy as many companies outside the EU will give workers far fewer rights. In addition in order to attract businesses from outside the EU to establish here it will have to be easier to dismiss staff. The danger here is a rush to the bottom to make the UK the easiest economy in which to “hire and fire”.

Trade

11. The government wants a new customs agreement with the EU, which will support trade with the EU that is as “frictionless” as possible. Key exports for the UK to the EU are motor vehicles, chemicals and chemical products, financial services and other business services. An issue here will be compliance with EU safety and quality standards. Agricultural products will be a problem, with Commonwealth countries seeking to sell more to the UK which will affect EU exporters. Negotiations are unlikely to be “frictionless” with some EU exporters at risk of being badly affected. Prices will be lower from suppliers outside the EU which will be popular with voters.

12. On free movement of financial services across the EU there is little of substance. It seems likely companies reliant on “passporting” to sell financial services abroad will expect the worst and speed up planning to relocate staff into the EU. Unless the directors of these institutions have special insight into how matters will be resolved there must be at least a 50% chance of things going wrong which is not a risk which can be taken.

VAT

13. There is no mention of VAT in the White Paper. This is an EU tax and fundamental for supplies of goods and services both domestically and internationally. This omission is striking and it is likely to cause substantial issues in negotiations.

2nd February 2017

David Anderson