Uncertainty, Slow Change Still Surround Brexit
Nine months after the U.K. voted to leave the European Union, Prime Minister Theresa May submitted Article 50 of the Treaty on European Union to commence the exit negotiations. It will still be a while before we have a clear understanding of the path forward for the U.K. and the E.U.
For now, we'll highlight the potential implications for Harvard University travel and projects as they relate to visas, employment, research, budgeting, exports, and taxes. But first, let's start with what we know so far.
3 Things We Know about Brexit
The exit process will take at least two years to negotiate. Upon triggering Article 50, the U.K. now has two years to negotiate their exit. The exit must be agreed to by the European Parliament, the European Council, and the U.K. Parliament. With or without a deal, the U.K.'s membership will terminate at the end of the negotiation period. Any extension to the two-year negotiation period would require unanimous approval by the U.K. and the E.U. Member States.
Nothing changes during the negotiation period. The U.K. remains a full E.U. member state and all E.U. treaties and laws still apply. The U.K. will, however, start negotiating its own bilateral trade treaties with other countries (i.e. the U.S., Canada, India, et al.) in preparation for its withdrawal. It also may have to draft new legislation and develop new offices to administer functional areas once covered by the E.U.
The future is still unclear. Everything hinges on the negotiations and the kind of relationship the U.K. and E.U. agree upon. Waiting nine months to invoke Article 50 gave the U.K. time to plan a course of action. Leading up to the referendum vote, the Leave Campaign lacked a clear manifesto and platform consensus. In February 2017, the U.K. government issued a white paper outlining its goals for the negotiation process and a vision for its new partnership with the E.U. Key points include ensuring access to the E.U. Single Market, establishing its own free trade agreements with non-E.U. countries, reforming immigration policy, and removing the E.U.’s Court of Justice jurisdiction from the U.K.
On the other side, the E.U. has stated that the U.K will not have a better deal than when it was a member. Its draft guidelines—which will be modified and adopted in late April—advocate for a phased approach. Key points include focusing on separation agreements first, then revising trade relationships, settling the U.K.’s financial obligations to the E.U., preventing a legal vacuum for businesses in the U.K. versus those on the continent, securing the rights and status of E.U. citizens in the U.K. and U.K. citizens on the continent, and avoiding a hard border between the Republic of Ireland and Northern Ireland.
Northern Ireland's and Scotland's paths forward remain unclear, as both voted to remain in the E.U. and have expressed discontent with the outcome. Groups in both countries are calling for their own referendums to leave the U.K.
Harvard's Presence in the U.K.
The U.K. is a popular location for Harvard's travelers and projects. With 340 registered trips in 2016, the U.K. ranked as the fifth most popular destination for Harvard travelers (behind China, India, Italy, and Brazil, respectively). Harvard Summer School runs a study abroad program in Oxford, and Harvard Business School Publishing, Harvard University Press, and Harvard Global all operate affiliated entities in London. Additionally, our office fielded dozens of inquiries in the past year about activities in the U.K., ranging from hiring and visas to budgeting, taxes, and imports and exports.
3 Areas for Harvard Affiliates to Watch
Being aware of potential changes and making contingency plans now may help mitigate the effects on your travel or your project once the U.K.'s exit is official.
1. Immigration, Visas, and Employment
In what's becoming a worldwide trend, expect to see restrictions on freedom of movement and freedom of labor. Upon exit, citizens of the 27 other Member States will no longer be able to freely and easily travel to and work in the U.K., and the same goes for U.K. citizens in the E.U.
Employment may be more difficult post-Brexit, and competition for visas will increase as E.U. citizens may need to join the rest of the global applicant pool. It’s also possible that workers may need to have a job secured first before they can move to the U.K.
There is also likely to be greater bureaucracy in obtaining visas and work permits. E.U. citizens currently working in the U.K. may need to transition to permanent resident cards. This is currently a lengthy administrative process and can take up to six months to complete the 85-page application and biometric requirements. In the interim, programs may want to consider hiring U.K. citizens for any U.K.-based projects to mitigate potential employment disruptions.
Staff retention may also be an issue as laws governing pay, leave, bonus structures, and taxes are likely to be revised or repealed. Certain U.K. organizations may need to move or relocate in order to continue conducting business in the E.U. Banks, for example, currently benefit from passporting agreements across the E.U. that enable them to do business in other Member States without having a branch or subsidiary in country, but that may also change post-Brexit.
In light of these hypotheticals, it’s important to note that the U.K. is keenly aware that its economy and competitiveness in the global market rely on investment, expansion, and attracting top talent, so the negotiation process and any new laws would ideally support those efforts.
2. Research and Study
Just as workers may face greater bureaucracy in obtaining visas and restrictions on freedom of movement, so too could students and academics. Participation in academic and work exchange programs, such as the Erasmus Student Network, may be more difficult, and discounted domestic tuition rates may no longer apply for E.U. students in the U.K. and vice versa. Additionally, U.K. and E.U. universities may lose sources of research funding. From 2007 to 2013, the U.K. contributed €5.4 billion to research funding and received €8.8 billion in funding. While the U.K. may put its funds into more of its own universities, it could lose out on the collaboration and collective resources that are fundamental to research.
3. Budgeting, Imports/Exports, and Taxes
The pound dropped to a 31-year low immediately following the vote, and the euro also experienced a dip. Although some stability has returned, continued uncertainty could slow investment, which, in turn, would weaken the pound. Travelers and program managers should expect continued exchange rate fluctuations and budget with this volatility in mind.
The trade sector is also in for a bumpy road. The U.K. currently benefits from the E.U.’s Single Market and trade deals with the rest of the world. Following Brexit, the U.K. will leave the E.U. Customs Union and will need to negotiate its own trade deals, which can be difficult and time consuming. Imports and exports will be subject to customs procedures and tariffs separate from the E.U., potentially subjecting the flow of goods, information, services, and money across borders to double taxation. The U.K. currently relies on the revenue from the Value Added Tax (VAT), which is an E.U. tax on goods and services—including services like executive education and study abroad. Post-Brexit, the U.K. may choose to implement its own goods and services tax and to vary both the items chargeable and the rates. The bottom line: expect your bottom line costs to increase.
On the other hand, many U.K. domestic regulations (income tax, capital gains tax, corporation tax) are untouched by E.U. influence, so it’s still simpler to do business in the U.K. than in E.U. Member States such as France and Germany.
Sources to Follow
Stay tuned for updates on the negotiations and their implications as the exit process unfolds.