The impact of Brexit on businesses

Chloe Weaver Date published: Jan 28, 21

Brexit seems to have taken a back seat amid the panic of the pandemic, but now that the UK has finally left the EU with a trade deal, what will be the impact of Brexit on businesses?

The EU and Britain finally struck a trade deal, marking the expiration of any post-Brexit transitional arrangements. For better or worse, most industries have been hit with changes to regulations and policies. So, how will leaving the EU affect businesses? We have summarised each key sector to help you prepare for what comes next.

Finance

The UK is already heading towards the worst annual decline in GDP in more than 300 years due to the global pandemic. Adding finance and Brexit to the mix has not presented the financial sector with much hope. The Prime Minister has admitted that the Brexit trade deal “perhaps does not go as far as we would like” in terms of access to EU markets for financial services.

Passporting may be the most pressing issue the industry will have to face post-Brexit. Passporting allows financial institutions to sell their products and services to the rest of the EU without any sort of licence. By leaving the EU, the UK will have to say goodbye to these rights.

London’s financial sector has already started to feel the effects of Brexit, with nearly £5.5bn of EU share dealing transferring away from the city to facilities in European capitals.

Passporting has been a major reason why many financial institutions have headquarters in London, so losing these privileges will have a knock-on effect on the capital. However, the UK’s Financial Conduct Authority (FCA) has worked with other UK authorities to introduce the temporary permissions regime (TPR). This will allow firms that are based in the European Economic Area to continue operating in the UK with passporting rights, within the scale of their current permissions and for a limited period.

Rishi Sunak has vowed that the UK will remain an “open, attractive international financial centre” from January, with the UK placing a heavy emphasis on green initiatives. There is hope that Brexit could provide banks and insurers with the stimulation to restructure the financial system to focus on big data, artificial intelligence and fast-growing green technologies.

Financial services lobby groups have urged the EU and UK to quickly build on the trade deal and agree on common regulatory standards. The two sides are trying to draft a document of understanding for future co-operation on financial services by the end of March.

Energy

Despite COVID-19 and Brexit, the energy sector has gone from strength to strength in the last year. Favourable weather conditions at the start of 2020 and new wind and solar installations saw renewable energy sources surpassing fossil fuels for the first time in history.

Accounting for 15 pages of the 1,246-page trade deal, it is business as usual for the industry. New trading arrangements for a continued flow of energy between the UK and the EU will be implemented by April 2022.

Brexit has resulted in Britain leaving the greenhouse gas EU Emissions Trading System (EU ETS), replacing it with UK ETS. Much like the EU system, the UK ETS covers energy-intensive industries, the power generation sector and aviation. However, the UK ETS will look to reduce the cap on allowed emissions by 5% and is said to represent the world’s first net-zero carbon cap and trade market, aimed at decarbonising completely by 2050.

2020 saw renewable energy usage break records globally and arguably the EU has supported the UK's emission wins so far. Climate change will remain a key issue for both the UK and the EU. Under the agreement, the UK will remain committed to the Paris Agreement and both parties must promote energy efficiency and the use of energy from renewable sources.

With the government’s ten-point plan for a green industrial revolution, the next few years are set to be monumental for Britain’s energy sector and some were worried that Brexit would affect the funding of Research and Development (R&D) in the industry. However, the trade deal seems to have bypassed this problem, with the future of energy and Brexit still looking bright.

Healthcare

Incorporating Brexit and healthcare together has not been an easy job. Brexit will indisputably bring changes to the healthcare industry, in particular how medical devices are regulated and brought to market in the UK. The Medicines and Healthcare products Regulatory Agency (MHRA) announced that Britain will no longer need to conform to the planned EU Medical Device Regulation (MDR) and its associated In Vitro Diagnostics Medical Device Regulation (IVDR) post-Brexit.

From January 2021, MHRA market authorisations will only apply to the UK, and new drugs will need separate EU approval. This could result in delayed access to new treatments. New customs checks at borders and paperwork to complete could also result in potential delays initially.

Now that the UK and EU will not be obliged to adhere to the same standards in future, there will be non-tariff barriers such as regulatory requirements. The deal includes an agreement that both parties will recognise each other’s inspections of manufacturing premises for medicinal products. But it does not include a mutual recognition agreement on conformity assessment, meaning that the UK and EU will both have to assess that products are safe to be authorised and marketed in their territories.

However, the EU and the UK have agreed on no tariffs and quotas being introduced to imports and exports, including medicines, medical devices and medical/non-medical consumables.

Brexit will also result in CE marking being replaced by UK Conformity Assessed (UKCA) marking. UKCA marking will be essential for the trade of medical devices to England, Scotland and Wales but will not apply to Northern Ireland.

The workforce behind the UK’s healthcare system will also face big changes. Any form of Brexit will make the UK a less appealing destination for EU health professionals. The UK has had to bid farewell to the freedom of movement for EU citizens and will now enforce a new points-based immigration system for people wanting to come and work in the UK. Most healthcare workers will meet the entry criteria, but most care workers will not.

Life sciences

The UK will remain a key contributor to the European life sciences market, however, one of the biggest adjustments is the European Medicines Agency (EMA) relocating from London to Amsterdam. Although countries such as Norway and life sciences powerhouse Switzerland are not members of the EU, they still have established agreements with the EMA and the European Economic Area (EEA). This brings some hope that the UK can develop future agreements post-Brexit.

Britain’s participation in research initiatives such as Horizons Europe will still go ahead, however, Britain’s removal from the Erasmus scheme may have a big knock-on effect for R&D into the life sciences sector.

The government has announced that a replacement of the Erasmus exchange programme for UK students will be available in 2022. The Turin scheme will see a £100m investment to provide funding for about 35,000 students to go on placements around the world from September.

To tackle such challenges presented to the life sciences industry after Brexit, the Government has announced an early legislative bill. The Medicines and Medical Devices Bill has almost completed its passage through Parliament. It creates the structure for the UK Government to legislate for updates or changes to existing laws on human and veterinary medicines, clinical trials and medical devices.

The Bill places an obligation on corporations to have robust compliance procedures in place to prevent the risk of financial penalties and possibly criminal prosecutions.

Aviation

The aviation sector managed to avoid a no-deal scenario. The dispute between Brexit and aviation has been a complicated one, but the new trade agreement now ensures direct connectivity between the EU and the UK.

Under the deal, UK and EU air carriers will continue to benefit from flyover rights and operating rights on routes between the two parties. However, the UK will lose the right to operate the transport of goods or passengers between two places in the same country by a transport operator from another country.

The agreement provides the UK with the rights for air carriers to operate on routes from the UK via intermediate points to points in the EU and vice-versa.

The trade deal will also grant first, second, third and fourth freedom rights to each other’s air carriers. Put simply, this means that the EU and the UK will be able to fly across each other’s territory without landing, to make stops for non-traffic purposes and to provide scheduled and non-scheduled air transport services.

Additionally, the agreement grants the UK with fifth freedom rights. This allows all-cargo flights which make stops to offload cargo in the territory of a Member State or the UK before departing for a third-country destination. However, cargo fifth freedoms are only authorized if agreed between the UK and EU member states bilaterally.

The trade deal also provides for mutual recognition of certificates of airworthiness, certificates of competency and licences issued or validated by the EU or UK’s competent authorities.

However, Brexit has resulted in Britain no longer participating in or contributing to shaping standards in the EU Aviation Safety Agency. Businesses working in the aviation industry need to take action to ensure they continue to hold appropriate safety certificates and approvals. Both sides will keep each other informed of proposed changes to safety laws and standards, alongside aiding each other on threats to the security of civil aviation, conforming to ICAO standards.

Aerospace and defence

The UK has a world-leading aerospace and defence industry, directly employing 114,000 people, including 4,500 apprentices. The industry is closely aligned with Europe as the UK hosts several pan-European companies, and half of all exports in 2019 were destined for the EU.

It comes as no surprise that the UK aerospace, defence, space and security industries welcome the deal on the UK’s future relationship with the EU.
The agreement states that there will be no tariffs on raw materials and unfinished parts. This removes the risks of substantial costs in the supply chain that would affect development, production, maintenance in the sector.

There were concerns that R&D would be significantly affected by Brexit. However, the deal confirms the UK will continue to participate in the EU’s flagship €80bn Horizon Europe programme as a paying associate member for seven years.

Aerospace design, production and maintenance organisations will need to take action to ensure they continue to hold appropriate safety certificates.

Rail

The rail industry is already facing an unprecedented skills shortage and the abolishment of freedom of movement may further this problem. The industry may be on the cusp of an infrastructure revolution but could be hindered by a lack of diversity and an ageing workforce that could lead to a retirement cliff edge.

For decades, the UK has been dependent on Europe for a continual surge of talent to fill roles such as engineers and construction workers, so the decision to leave the EU will affect working visa arrangements due to the new immigration system. In turn, this could lead to major skill gaps and a workforce shortage when it comes to projects such as High Speed 2 (HS2).

The EU's rail technical standards and safety regulations will no longer have a direct impact in Britain from 1st January 2021. The UK is permitted to maintain identical standards after Brexit and there will be a sufficient level of flexibility for the UK to diverge from or keep pace with Technical Specifications for Interoperability (TSIs).

The changes also enable the recognition of EU certificates and assessments against EU rules to avoid the re-checking of vehicles, subsystems and components where the applicable UK requirements remain equivalent to the EU post-Brexit.

Manufacturing

Manufacturing accounts for around 10% of the UK economy and the industry is tightly linked with the EU in numerous ways. Nearly half of UK exports and imports of manufactured goods go to, and come from, the EU. So how will manufacturing and Brexit work?

The trade agreement has provided manufacturers with tariff-free trade, meaning the disruption from a no-deal Brexit has been avoided. But businesses will need to complete additional paperwork and declarations when moving goods across the border.

This could potentially result in additional compliance costs in either completing the excess paperwork or appointing a customs broker to do so. This news comes as job numbers continue to fall and shortages in materials have heightened.

The impact of Coronavirus and the threat of a no-deal Brexit saw delays at ports and borders over December and January, however, the true impact of extra regulations and border checks will only become evident in the months ahead.

Construction

Construction industry leaders across the UK have welcomed the trade deal with the EU. The agreements reached allows the continued importation of vital building products from the EU without any additional tariffs. This will enable construction companies to continue to forecast the cost and availability of importation and exportation of products and materials reliably.

Much like the rail industry, the construction sector relies heavily on foreign migrant labour for skilled roles. Brexit will end the right of EU workers to have freedom of movement to the UK, which could cause a fall in the immigration of skilled labour.

Another concern for the construction industry and Brexit, is that there is now no automatic recognition of UK architect qualifications in EU states. UK architects wanting to work in the EU will not only struggle with recognition but also with visas and residency. The trade deal states some short-term business visitors can work in an EU country for a maximum of 90 days within a 180-day period. But there are restrictions on what activities they can perform. For example, anything that involves directly selling goods to the public will require a working visa.

Brexit will also result in the UK no longer having access to the European Investment Bank (EIB). Losing this stream of income may deal a considerable blow to the delivery of big infrastructure projects such as HS2.

However, it is not all doom and gloom for the industry. The UK may be able to negotiate and develop its own trade agreements with other countries that have large construction industries, such as China and the USA.

Food and drink

The food and drink industry breathed a sigh of relief as the agreement between the UK and the EU meant all food imports from the EU will not be subjected to any tariffs and will be traded freely.

This means there will be no instant price rises for food, however, Brexit food standards could affect many suppliers in terms of safety, quality and delivery timescales.

Some businesses in the food and drink industry have already experienced delays due to the additional paperwork that's now needed when trading with the EU, and Northern Ireland is still applying the EU's customs rules at its ports. This has disrupted Northern Ireland's food supply in January, as some logistics operators remain unaware that customs checks are needed on goods travelling from Britain across the Irish Sea. There are also new processes in place for the export of animal and plant products, which will now require sanitary and phytosanitary checks.

Exporters will also need to conform to new labelling standards when selling to customers in the EU. All these changes may result in extra costs to food and beverage businesses.

How can your business stay compliant post-Brexit?

The impact of Brexit on businesses has resulted in significant changes to regulations and operational standards. Discover what software solutions we offer to help ensure your business is compliant with the new requirements.