Breakthrough moment in Brexit talks

Susie Walker

Susie Walker

Partner and Head of Tax and Brexit Team

08 December 2017

    After last Monday’s disappointing meeting between Theresa May and Jean-Claude Juncker, an agreement has been reached today allowing trade talks to be commenced later in the month. This is certainly the breakthrough moment that the UK and the rest of Europe have been waiting on.

    In an early morning news conference in Brussels, European Commission President Jean-Claude Juncker declared “sufficient progress” has now been achieved in the initial stages of Brexit. 

    Where are we now?

    The main points to be taken from the agreement are:

    • There will be no ‘hard border’ between Northern Ireland and the Republic of Ireland

    • EU citizens in the UK and vice versa, will have their rights protected

    • The ‘divorce bill’ will amount to between £35bn and £40bn including budget contributions during a two-year ‘transition period after March 2019’,

    • The European Court of Justice will retain a role in the UK justice system after Brexit.

    The European Council will vote next week to approve the detail, which will allow trade talks to begin.

    What does this mean for the UK?

    It means that the United Kingdom will have just over a year to reach an agreement with the rest of Europe on what relations will be like post Brexit.

    The divorce bill will likely be paid over several years and the exact amount that will be paid will not be known for some time. The Prime Minister has said that this will be “fair to the British taxpayer”.

    There will be no customs barrier between Ireland and the UK. While there is a long way to go before the final details of what this agreement will look like, an agreement has been reached nonetheless. 

    Theresa May has asked for a two-year transition period during which the UK will continue to follow the ‘existing structure of EU rules and regulations.

    Regarding the European Court of Justice (ECJ), Theresa May’s official spokesman has indicated that the decision to refer cases would be ‘entirely voluntary’ for UK courts and the ECJ would not have the power to call in cases.

    After the announcement, Sterling was initially at a six month high against the Euro.

    What next?

    The UK will remain a member of the EU’s custom union and single market during any transition period after March 2019, as per a leaked copy of the European Council guidelines for the forthcoming trade talks. This means that the UK will keep all of the EU’s four freedoms – goods, services, capital and labour. Remaining a member of the customs union will limit the UK’s ability to negotiate new trade deals with countries outside the EU. However, it is possible that informal talks may begin.

    The Prime Minister has told MPs that the UK will leave the single market and customs union in March 2019 and that freedom of movement “as we know it” will end.

    The second phase of Brexit talks will be welcomed by businesses as it will begin to map out what trade deals will be available following the UK leaving the EU. What is known is that any trade deal that is reached should remain true to the referendum result by taking back control of UK laws, money and borders.

    Bank of England officials have been calling for a transition deal to be agreed before the new year to help smooth the UK’s exit from the EU. Many industry leaders are calling for greater detail and clarity to be provided as soon as possible so that appropriate planning can take place. The Government will want to clarify details soon to prevent foreign businesses putting into motion their contingency plans to relocate offices from the UK into central Europe.

    On 13 December, the European Parliament will debate and vote on the joint report announced today. They will want to clarify the arrangements for citizens’ rights, the Irish border and the divorce bill. On 14/15 December the remaining EU27 will meet at the European Council summit where they are expected to give the go ahead to progress onto trade talks and the transition period.

    However, the EU has told Theresa May that it not begin discussing the terms of a trade relationship with the UK until February at the earliest and this is only if the Prime Minister provides a clear vision of Britain’s position.

    So, while trade talks are close to being given the green light, there remains uncertainty as to when these talks will take place. What is known is that they should begin as early as possible to afford all involved parties the longest period to prepare and implement their post-Brexit plans. 

    Preparing your business for the transition

    To best prepare for Brexit it is important to understand how your business operates across the EU and how it interacts with the various charges and tariffs currently in place.

    It may take a significant amount of time to fully analyse the impact that any of the possible Brexit outcomes will have on your business and as such you should start to plan now for the uncertain future ahead.