Brexit illustration

Brexit chaos and uncertainty threatens UK industry, businesses warn

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With the UK Government's own admission that a no-deal exit from the EU could have a more damaging impact than the 2008 financial crash, serious concerns have been voiced about the future for a wide range of industries.

Independent analysis by the IPPR (Institute for Public Policy Research) has warned that the harder Brexit options pose a significant risk to UK environmental safeguards, with the possibility of scrapping more than 200 key EU laws putting protection of food, air and water safety at risk and making it harder to meet climate change targets.

Both a no-deal Brexit or a free-trade agreement along Canadian lines would significantly weaken safeguards for UK environmental protection, according to the IPPR.

Either of what may be the two most likely Brexit outcomes would also greatly reduce current cooperation with the EU on environment and climate change, with no-deal particularly likely to impact the UK’s involvement. They would also be likely to lead to the UK being excluded from the internal energy market and the EU’s Emissions Trading System.

Although the UK could continue to adopt equally stringent environmental safeguards, the IPPR report believes there is a real risk that lesser protections could be enacted. The IPPR analysis follows the draft agreement struck between the UK and the EU, including the political declaration that set the outline framework for their future relationship.

The IPPR posits three primary means by which the EU currently influences UK environmental law, all of which would be weakened or lost following Brexit.

  1. EU legislation covering environmental policy, energy, climate change, food and farming, contained within more than 200 directives and other laws. These include laws that govern clean air and water; set standards for fuel quality and renewable energy targets; key aspects of the Common Agricultural Policy, aimed at environmentally friendly farming; and of the Common Fisheries Policy, aimed at creating sustainable fishing.
  2. 'Policing' of EU environmental law as applied in Britain by the Commission and the Court of Justice of the European Union. In the recent past, the UK has been repeatedly encouraged into taking positive action by the threat of sanctions.
  3. Financial support by the EU for environmental projects, through programmes such as the LIFE fund, which supports environmental, nature conservation and climate action; the Horizon 2020 research programme; European structural funding, supporting projects in poorer regions; and financing from the European Investment Bank. Between them, these sources contribute nearly £3 billion in funding and lending to UK-based organisations each year.

In total, IPPR analysed four possible scenarios for the UK’s departure from the EU: a single market and customs union; a ‘customs union plus’; a free-trade agreement; and exit with no deal. Only the first option - single market and customs union - would ensure the greatest continued alignment between British and EU laws on environmental protection.

IPPR’s report recommends that whatever form Brexit takes, the UK should introduce a Sustainable Economy Act as the centerpiece for an ambitious post-Brexit environmental programme. This would provide a framework for far reaching, binding targets that could go further than current EU legislation – extending them beyond climate change to biodiversity, soil fertility, air and water quality, use of plastics and other areas where urgent change is needed.

Marley Morris, IPPR senior research fellow and the author of the report, said: “The UK’s future relationship with the EU could have major implications for its environment and climate-change policy. The closer the relationship between the UK and the EU, the stronger the safeguards for environmental protections. While the UK could forge an ambitious path on the environment under any potential Brexit scenario, under no-deal there is the greatest scope for lowering current protections.”

Any Brexit deal also poses a number of unknown or unresolved threats to engineering and technology in general, directly and immediately impacting how business is conducted. Data protection is one key area, with the draft agreement aiming to maintain the prevailing state of play. The agreement currently suggests that EU data-protection law will continue to cover the UK through the transition period, which runs until the end of 2020.

Personal data can continue to flow between the UK and the EU at this time, although the recently introduced GDPR regulations - only enacted in May 2018 - are already in question. In theory, the UK will no longer be obliged to enforce GDPR post-Brexit, operating as a trusted 'third state', but given the crucial role that the flow of data plays in an increasingly digital economy, any conflict over data handling and regulation could prove problematic.  

IT issues are also a concern vis-a-vis Brexit, in the form of managing critical business information. Under the draft agreement, the underlying goal is backwards compatibility, such that any changes to networks or databases won't interrupt or disrupt the information flow. However, as UK PM Theresa May has made clear, much of this will be a subject for future negotiations, with special treaties and extraordinary agreements likely to be required to ensure full data sharing when it comes to cross-continent security and policing.

The scientific community has been especially distraught about the prospect of Brexit, in any form, ever since the referendum result in 2016 and the draft agreement has done little to assuage its fears. Lip service is paid in the agreement to the general principle of "appropriate arrangements" where necesssary, although this can only work where any decision is in the relevant parties' "mutual interest".

The question of freedom of movement is also key to the scientific and research community, as well as business in general. According to a recent estimate by the Royal Society, nearly one-fifth of researchers currently working in the UK come from the EU. Under the draft agreement, EU citizens and their families will be allowed to continue to live and work in the UK until the end of 2020. After this time, EU citizens will be entitled to remain in the UK, providing they take up residence for at least five years.

The draft deal also means that the UK will leave Euratom, the European Atomic Energy Community which regulates nuclear activity, meaning that Britain will have to ensure that its own nuclear industry meets international atomic rules. It has also been noted that the draft agreement makes no mention of the International Thermonuclear Experimental Reactor (ITER), a major nuclear-fusion experiment based in France with a companion testing facility in Oxford.

According to a member survey conducted this week by the Society of Motor Manufacturers and Traders (SMMT), three-quarters of UK automotive businesses fear a ‘no-deal’ Brexit will threaten their future viability. The gloomy prediction was revealed at the SMMT's annual dinner in London, describing the worst-case Brexit scenario as potentially a "catastrophic blow to the British auto industry".

At another transport event this week, attendees at the Railway Industry Association (RIA) parliamentary reception - an audience of MPs and industry representatives - heard from RIA chief executive Darren Caplan that the rail industry has been told it must “focus on the positives” to attract the talent it needs and to take advantage of post-Brexit opportunities.

Meanwhile, the UK financial industry is facing a headache of its own in maintaining safe and secure transactions post-Brexit, given the complex banking connections between the UK and the EU. The Bank of England recently announced that UK banks passed this year's 'stress test' which at least suggests that the banks are as well prepared as they can be, given the myriad unknowns. The likely chaos that Brexit will precipitate across Europe, regardless of the deal, is disturbing for financial institutions already under pressure from organised crime, money laundering, spoofing, phishing and other types of financial fraud.

"The potential impact of a Brexit-related ‘identity crisis’, with consumers moving their money and their citizenship around Europe, would only make matters worse,' said Rene Hendrikse, EMEA MD, Mitek, a company that provides identity-verification technology for 6,000 banks worldwide. "Not having the right tech in place could put banks at further risk – and this risk would be passed directly onto consumers.

“For banks hoping to comply with strict regulatory pressure, maintain the trust of their industry and of consumers following a successful stress test, and to deal with the potentially catastrophic impact of Brexit, digital transformation is no longer a desire – but an urgent requirement."

While UK banks performed well in the Bank of England's recent stress tests, their performance in the European Banking Authority's stress tests earlier this year was poor, as Lee Thorpe, head of risk business solutions at SAS UK & Ireland, points out.  

“At a time when economic uncertainty is top of mind across the industry, a robust performance is required," said Thorpe. "Following on from the test, financial institutions must continue to ensure that they map out as wide a range of scenarios as possible, to mitigate the potential consequences of Brexit. They need to constantly update crisis responses using analytically-crafted scenarios so they can react to any market restrictions that result in an economic downturn as quickly as customers and the nation reacts.

“There’s no excuse for incomplete or high-level crisis analysis – banks need to make the effort pre-crisis to ensure their analysis and therefore decisions are as thorough as possible.

“Banks must make a greater effort to automate and industrialise their risk analysis capabilities to ensure they have sufficient technical capabilities and capital to survive during rapidly changing and potentially extreme economic circumstances."

Undoubtedly, Brexit presents what will be one of the biggest challenges in living memory for businesses and industries across the board in the UK. The uncertainty of the future has been the core concern for many people for the last two and a half years; this anxiety is only heightening as the UK's final days of full, unfettered EU membership draw near.

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