Uncertainty, Slow Change Still Surround Brexit
Debate, controversy, and delay have been hallmarks of Brexit negotiations. Although the U.K. technically left the European Union at 6 pm EST on January 31, 2020, the two sides still have much to negotiate. It will be a while before we have a clear understanding of the path forward.
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. Let's start with what we know so far.
3 Things We Know about Brexit
The exit process is taking longer than anticipated
Since voting to leave the E.U. in June 2016, the U.K. received three extensions to negotiate its withdrawal agreement. Next up will be an 11-month transition period to negotiate U.K.-E.U. relations going forward.
Nothing changes during the 11-month transition period
Although the U.K. isn't an E.U. member state anymore, the U.K. remains subject to all E.U. treaties and laws during the transition period, which is expected to last until at least the end of 2020. In addition to negotiating trade and security arrangements with the E.U., the U.K. will negotiate its own bilateral trade treaties with other countries (i.e. the U.S., Canada, India, et al.). It also may have to draft new legislation and develop new offices to administer functional areas once covered by the E.U. It's a tight timeline to complete full deals, and partial deals or delays may be needed.
The future is still unclear
Everything hinges on the negotiations and the kind of relationship the U.K. agrees upon with the E.U. and the world. Expect trade, immigration, legal jurisdiction, and the border between the Republic of Ireland and Northern Ireland to be key points of contention.
Similarly, 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 1,075 registered trips in 2019, the U.K. ranked as the top destination for Harvard affiliates (followed by China, South Africa, Italy, and France). 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 fields dozens of inquiries every year about activities in the U.K., ranging from hiring and visas to budgeting, taxes, and imports and exports.
Harvard Global is preparing to establish an E.U. entity that will enable us to continue employing researchers and staff throughout the E.U. on behalf of Harvard's Schools and centers.
3 Areas for Harvard Affiliates to Watch
Be mindful of potential changes, and start making contingency plans during the transition period to help mitigate adverse effects on your travel or your project.
Immigration, Visas, and Employment
In what's becoming a worldwide trend, expect to see restrictions on freedom of movement and freedom of labor. After the transition period, citizens of the 27 other Member States may 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. In March 2019, the U.K. enacted the E.U. Settlement Scheme to enable E.U. citizens already in the U.K. or planning to arrive prior to December 31, 2020 to apply for Settled or Pre-Settled Status.
Employment may be more difficult post-Brexit. Competition for visas may increase if E.U. citizens 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's also likely to be more 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 could be revised or repealed. In 2018, the U.K. Parliament passed the E.U. Withdrawal Act to preserve E.U.-derived law prior to the date of exit, but retained laws will still be different from continued laws. 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.
Research and Study
Students and academics may also face greater bureaucracy in obtaining visas and restrictions on freedom of movement. 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. A recent analysis by The Royal Society shows the U.K.’s annual share of E.U. research funding has fallen by 28 percent, or half a billion Euros, since 2015.
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 a positive note, 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.