From now on until Britain has left the EU, CPA are going to post regular blogs for the comments we have seen in the press and elsewhere about Brexit, which is perhaps the most momentous event that will happen to the UK for a very long time and will have long-term implications for every citizen living in this country for good or ill. We aim to be balanced in our reports which will be divided into three categories;
- Category 1 – Positive comments on Brexit
- Category 2 – Negative comments on Brexit
- Category 3 – Neutral comments on Brexit
We posted our first blog on 12th May 2017 (CPA Brexit blog on 12/5/2017)
We posted our second blog on 16th May 2017 (CPA Brexit blog on 16/5/2017)
We posted our third blog on 17th May 2017(CPA Brexit blog on 17/5/2017)
We posted our fourth blog on 22nd May 2017(CPA Brexit blog on 22/5/2017)
We posted our fifth blog on 26th May 2017(CPA Brexit blog on 26/5/2017)
We posted our sixth blog on 2nd June 2017(CPA Brexit blog on 2/6/2017)
We posted our seventh blog on 16nd June 2017(CPA Brexit blog on 16/6/2017)
We posted our eigth blog on 29th June 2017(CPA Brexit blog on 29/6/2017)
Or see all posts referencing Brexit
Please find below our ninth Brexit blog which has been compiled today on 4th July 2017:-
BREXIT; POSITIVE COMMENT: In The Morning Account on 30th June, under the heading “UK financial services Europe’s top location” it was reported that the UK remains Europe’s leading financial services location for foreign direct investment (FDI), but sentiment is mixed, a new report says today. UK financial services attracted 99 FDI projects in 2016 – the highest level for more than a decade and up 5% on 2015, says EY’s latest survey of financial services’ attractiveness. But the lead over other countries is narrowing, with Germany recording a year-on-year rise of 18% (with 39 projects) and France 25% (with 25 projects). EY’s financial services chief for the UK, Omar Ali, said: “Despite last year’s referendum, UK financial services continued to attract record levels of investment. The UK remains a world-class place for financial services firms to do business. The talent, infrastructure, quality of life, plus deep capital markets and a robust regulatory system are hard to rival.” However, the City’s attractiveness as a place for international firms to do business fell from 74% to 62% with investors citing concern about access to markets and foreign talent after Brexit. The Daily Telegraph, Business, Page: 3 The Independent, Page: 67 Daily Mail, Page: 2 Independent i, Page: 51 The Scotsman, Page 41
BREXIT; NEUTRAL COMMENT: In The Morning Account on 30th June, under the heading “EU-wide pension scheme planned” it was reported that the European Commission has proposed a new EU-wide pension scheme that would allow workers to save into one pot regardless of whether they moved jobs between countries. The scheme would be regulated by the European Insurance and Occupational Pensions Authority and it is not yet clear if it would be available to UK savers after Brexit. The Guardian, Page: 24
BREXIT; NEGATIVE COMMENT: In The Morning Account on 1st July, under the heading “Macron luring Brit business” it was reported that the French president Emmanuel Macron is leading a campaign to lure corporate Britain to France, with upcoming plans said to include cuts to and a simplification of corporation tax and tax incentives for film makers. Estate agents say concerns over the prospect of higher taxes or visa restrictions after Brexit have led to increased demand from Brits for property in France, Spain, Italy and Portugal. The Times, Page: 7
BREXIT; NEGATIVE COMMENT: In The Morning Account on 2nd July, under the heading “Europe luring UK non-doms” Tax experts say the super-rich are being tempted to leave Britain for other European countries such as Italy as non-doms are lured with rival schemes. George Osborne introduced charges for non-doms to maintain their status and the current Chancellor Philip Hammond had been planning to force longstanding non-doms to pay the full tax on their foreign earnings, the Mail’s Alex Hawkes reports. Italy has launched an attractive non-dom system, as have Malta and Portugal while France is in the process of reforming its system. Mr Hawkes points out that the 116,000 people in the UK claiming non-dom status paid £6.5bn in income tax two years ago, and wonders whether, with concerns over Brexit and a possible tightening of UK rules, the UK will soon lose some of this income. Jo Bateson, at KPMG’s private client division, said clients were looking at the Italian model but the UK still remains one of the best places to be. The Mail on Sunday, Page: 85
BREXIT; NEUTRAL COMMENT: In The Morning Account on 3rd July, under the heading “Brexit rejected the march towards a unified state” The Telegraph’s Charles Orton-Jones examines how the EU is driving towards closer integration, making it clear that the option for the UK really is to leave or “join the march towards a unified state.” The EU has plans to harmonise taxes through the Common Consolidated Corporate Tax Base while French President Emmanuel Macron is leading the push towards a convergence of EU corporate taxation. Pierre Moscovici, European commissioner for economic and financial affairs, stated last week that EU control of taxes was necessary for “our mission” and backed a pan-European FTT on shares and bond trading. Income tax and social benefits are next, he declared. Add to this plans for an EU army and a classic deception becomes apparent, says Orton-Jones – that of claiming to “respect the rights of member states, while manoeuvring to annex those rights.” The Daily Telegraph, Page: 14
BREXIT; POSITIVE COMMENT: In The Morning Account on 3rd July, under the heading “Post-Brexit UK will see return to strong growth” it was reported that new forecasts from the Centre for Economics and Business Research (CEBR) predict the UK economy overall will grow by just 1.3% this year – down from an earlier forecast of 1.7%. The forecast for 2018 has also been revised down to 1.2%, putting the UK on course for the slowest GDP growth since 2009. However, the CEBR assessment is less downbeat on the Brexit outcome. It believes a deal with the EU will emerge and that confidence will rebound, leading to stronger growth after 2018. The CEBR expects GDP to expand by 1.6% in 2019 and by 1.9% in 2020, upward revisions from pre-election forecasts of 1.5% and 1.8%. Nina Skero, head of macro¬ economics at the CEBR, said: “Our data on confidence show that the newly created political uncertainty is highly likely to weigh on growth in the short term. This means that we now do not expect an interest rate rise until the end of 2018.” The Times, Page: 43 Independent i, Page: 40 The Scotsman, Page: 1, 6-7, 24 Yorkshire Post, Page: 15 The Press and Journal, Page: 35
BREXIT; NEUTRAL COMMENT: In Accountancy Age, Alia Shoaib suggested that post Brexit, the VAT threshold should be raised. VAT was first introduced in 1973 as a stipulation of joining the EU. Since its introduction, the threshold at which VAT is charged has steadily increased to £85,000 in the UK – the highest in the EU.Since its introduction, the threshold at which VAT is charged has steadily increased to £85,000 in the UK – the highest in the EU. According to the AAT 2017 VAT Survey, 36% of AAT members support a greater increase of the VAT threshold, compared with only 9% of members supporting a reduction to £0. Meanwhile, 33% of members responded they would like to see the current £85,000 threshold maintained. Along with clarifications about thresholds, there is the need for simplification in the VAT system – with 36% of AAT members saying they would like to see boundaries of VAT rates to be examined or simplified.
BREXIT; NEUTRAL COMMENT:Emma Smith Wrote in AccountancyAge: The Brexit negotiations have begun, but what do we currently know about the financial Brexit divorce settlement? Charles Proctor of Fladgate LLP explores the situation so far. The Brexit divorce talks got underway in Brussels on 19 June. They did not begin well for the UK – it dropped its insistence that trade talks should run in parallel with the negotiation of the UK’s financial contributions as a consequence of Brexit. This may have resulted from the weakened authority of the government following the election result and a general perception – justified or not – that the outcome of the vote argues for a softer form of Brexit.Even so, there is still no guarantee as to the likely format of Brexit. The eventual deal has to be approved by all remaining member states, and each will have a different agenda. There must still be a possibility that the talks will founder, given that the level of the Brexit bill is likely to become apparent long before the development of a framework for a future trading relationship. Amidst all the uncertainty, what do we actually know, as of now? The EU has divided the talks into two stages. The initial stage comprises a number of items, including mutual residence rights for citizens currently living in the EU/UK, and the Irish border issue. Inevitably, however, the focus will be on another aspect – the need for an “orderly financial settlement”. Stage two of the negotiations – including preliminary discussions of the future trade relationship—will begin only when the Council decides that “sufficient progress” has been made on the first stage. In other words, there must be an agreed methodology for the calculation of the Brexit cheque, before moving on to other matters. There is, however, a significant gap between the EU’s expectations and the UK’s legal obligations under the EU Treaties. The EU has published a working paper on its financial position for Brexit. It states that the UK must meet its share of all commitments undertaken while it remained a member of the Union. This appears to mean all expenditure contemplated by the EU’s multiannual financial framework (MFF). The current MFF was negotiated in 2013 and expires on 31 December 2020. The EU’s stance therefore contemplates that the UK would continue to contribute to the EU’s finances for 21 months following its departure from the Union. Given the size of the UK’s net contributions, this could be a significant sticking point. The working paper also considers that the UK should pick up a share of ongoing pension obligations to EU staff, and other continuing liabilities. It is also stated that the UK should withdraw from the European Investment Bank but maintain its funding position. All of these items will be contentious from a UK perspective. Especially in the case of the MFF, the relevant regulation contemplates that the numbers may be reworked in order to deal with unforeseen situations, so the EU should cut its coat according to its cloth. Faced with a no doubt substantial bill for Brexit, how will the UK respond? As a starting point, the EU’s working paper appears to contemplate a level of payments that goes significantly beyond the UK’s base legal liability under the EU Treaties. The basic rule is that the Treaties will cease to apply to the UK from the effective date of withdrawal (29 March 2019, unless extended by mutual agreement). So, under current arrangements, the UK cannot be compelled to make any payments to the EU beyond that date. Equally, if somewhat technically, the UK may argue that it does not pay “contributions” to the EU. Rather, it simply collects a portion of VAT, customs duties and other items as agent for the EU and hands over those amounts as a part of the EU’s own resources. Again, these collection agency arrangements would come to an end on 29 March 2019, and any EU entitlement to a share of those proceeds must lapse. In summary, therefore, the UK may be expected to argue for a cut-off date of 29 March 2019 in relation to both liabilities and payments. The object of the negotiation process contemplated by Article 50 of the Lisbon Treaty is to secure a withdrawal agreement that provides some certainty to both sides. If such an agreement can be concluded, then this will clearly resolve some of the ambiguities that have been noted. It should, however, be appreciated that the withdrawal document should also take account of the framework for the future relationship between the UK and the EU – it is difficult to see how that objective can be achieved if the nature of that relationship is not open for discussion during stage one of the talks. At all events, if no such agreement is reached, the respective sides may have to fall back on the general rules noted above. The first-day agreement to sequence the Brexit talks may have operated to the significant disadvantage of the UK, in the sense that the Brexit cheque might have been seen as one of its best negotiating strengths. On the other hand, a failure to concede the point could well have led to the breakdown of the talks on day one. This would have made it much more difficult to reach an agreement of any kind and, most probably, would have put the sterling exchange rate under even greater pressure. It may perhaps be dawning on the UK government that it has fewer bargaining chips, and less room for manoeuvre, than it had originally thought. Given that it has agreed to the EU’s timetable, the UK must now proceed to negotiate the divorce arrangements with all possible speed. This will enable it to pass the “sufficient progress” test, so that the EU Council will authorise preliminary negotiations about a trade deal. This may in turn help to build international confidence in the UK’s economic future. But all of this will be subject to many political contingencies, and the time available for negotiations is short. The fear must be that the UK will be writing a large cheque for very little return.
D S Baber
Managing Director