Despite the UK Parliament in principle agreeing to the Brexit deal negotiated between Prime Minister Johnson and the European Union, the departure of the UK from the EU was yet again delayed - until 31 January 2020. This averted a no deal Brexit on 31 October. Tax adviser Jan-Willem Thoen, who leads the Brexit Desk for PwC Nederland, points to the progress made, but also warns that things can still end up completely differently than expected.
‘It was not 29 March, 12 April or 31 October 2019. Will 31 January 2020 go down in history as the day when the UK and the EU broke up? Still nothing is certain when it comes to Brexit', says Jan-Willem Thoen, even though this third delay is different from the previous ones.. After all, there is now an exit agreement between the UK and the EU which in principle the UK Parliament has agreed to. The previous Prime Minister, Theresa May, had not yet reached that point with her deal.
This political progress was halted almost immediately as parliament wanted more time than the remaining three days to deal with the legislation needed to implement the deal. With the delay granted by the EU, time has been granted to Prime Minister Johnson who has called for elections to be held on 12 December. He hopes that this will enable him to obtain a majority in Parliament for his Conservative party and to implement the legislation needed.
Thoen: 'The opinion polls offer the Tories good opportunities, but as with any elections many things can still change. If the majority in the UK Parliament would adopt the legislation needed to implement Brexit by 31 January or earlier, then Brexit will be a fact. If, after the elections, the UK Parliament is unable to ratify the current deal, all options will again be on the table: ranging from another delay, renegotiations or evan a no deal Brexit. If well prepared, companies will already have made preparations for the latter.'
What happens if the UK leaves the EU with a deal on 31 January? Thoen: 'Then the transition period until the end of 2020 will start. That moment does not coincide with the end of the Multiannual Financial Framework, the EU budget, by chance. If even more time is needed for the transition, a one-off delay can be agreed for one or two years. Then the UK will have to pay EU contributions again which will be difficult to sell in the British Parliament. During the transition period, all EU rules will remain in force for the UK. With a deal on 31 January, there will be little change for citizens and businesses for the rest of the year. During this period, the EU and the UK want to shape the future trade relationship. A date to look forward to is 1 July 2020, when the choice must be made to possibly extend the transition period.'
'The opinion polls offer the Tories good opportunities, but as with any elections many things can still change. If, after 12 December, the UK Parliament is unable to ratify the current deal, all options will again be on the table: ranging from another delay, renegotiations or evan a no deal Brexit.'
Thoen: 'Everyone has an interest in a trade agreement because the economic interconnectedness of the region will not disappear after Brexit. But also in this case, the negotiations will be tough ones. The EU has already said that it only wants an agreement with a lot of market access if, the UK for example guarantees the same high environmental and employment standards as the EU, but also applies the EU's state aid framework and other 'level playing field' rules. But if Brexit continues to damage the UK economy, the UK will see a greater need to deregulate and to stimulate, thereby compromising the EU's desired level playing field.'
What can this turn out to be at the end of 2020? Thoen: 'We can summarise the risk as a post deal hard Brexit. The political deal about the departure will be closed, but the deal about the trade relationship can be lacking, so that in economic terms the parties will still break up with slamming doors. For businesses, such a scenario will strongly resemble a no deal Brexit, with customs formalities and tariffs, but also uncertainty, for example, for British employees in the EU and vice versa.'
How can companies deal with this uncertainty? As far as Thoen is concerned, no one should let themselves be lulled to sleep: 'Political progress has been made laboriously, but an end to the instability is not in sight. It may well be that the lack of clarity persists until the end of 2022, the maximum extension of the transition period. I advise companies to continue implementing preparations that have been made for a no deal Brexit. And when making new business decisions, keep in mind the possibility of a hard Brexit. I am referring to all considerations concerning new investments, location and specifically to the issues we have already mentioned: customs and supply chain, direct tax, workforce policy and legal matters.'
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