On June 23 2016, a referendum was held in the UK on its membership of the European Union. The result was to leave the EU, with voters backing Brexit by 52% to 48%.

Over the coming months, Hill+Knowlton Strategies will be providing an analysis of political and policy updates on an ongoing basis on Brexit, as well as offering its counsel on the strategic implications for businesses.

What happens next?

The Treaty on European Union specifies what needs to be done. The UK will need to signify its intention to leave the EU to the European Council. It will then remain a full member of the EU until a withdrawal treaty has been concluded, which will take up to two years. If an agreement has not been negotiated by the end of the two year period, the UK will cease to be a member of the Union, unless there is an extension agreed unanimously by all Member States, as set out by Article 50 TEU.

At the European Council Summit last week, EU leaders agreed that the next UK Prime Minister should “trigger without delay” Article 50, but made it clear that they would not wait forever for Britain to formally begin its secession. After discussions with Prime Minister Cameron, European Council President Donald Tusk said “we all recognized that the process of an orderly exit was in everyone’s and especially the U.K.’s interest”. German Chancellor Angela Merkel mentioned that “I see no possibility to reverse this. We would do well to accept this reality”.

Until officially withdrawing from the EU, legally, the UK will have the right to amend, negotiate and vote on EU legislation, and EU law will continue to apply within the UK. Furthermore, any piece of EU legislation that has a deadline to be implemented before the UK withdraws will also have to be implemented. This is key for businesses relying on legislation that will apply to the UK. For example, the EU’s new data protection and cyber security rules that have an implementation deadline in 2018, or recently agreed rules on payment services – the list goes on.

There is also a political question on whether the UK can credibly maintain its right to vote and influence future policy and legislation. The question has been raised by Ian Duncan, a Scottish Conservative MEP, who tendered his resignation as rapporteur on the revision of the Emissions Trading System just hours after it became apparent that Britain had voted in favour of a Brexit.

The UK’s European Commissioner, Jonathan Hill, resigned from his post the day after the referendum result was announced, and will leave the Commission on July 15. His current portfolio (financial services) will be transferred to Latvian Commissioner Valdis Dombrovskis. Meanwhile, David Cameron has said that it is up to the next Prime Minister to nominate a new Commissioner. This nomination will have to receive the backing from the European Parliament, and will be given their portfolio by the President of the European Commission.

Latest Developments in Brussels

The European Parliament, held an extraordinary meeting on Tuesday 28 June to discuss the referendum result. The Parliament approved a set of suggestions that should be taken, including that Article 50 TEU should be enacted immediately, and that the UK should not take up its EU Presidency role in 2017.

The heads of government of the remaining 27 EU Member States met on Wednesday 29 June, and emphasized that there will be “no single market a la carte” for the UK. Jean-Claude Juncker, President of the European Commission, said anyone wanting access to the EU’s internal market had to adhere to strict criteria “without exception”. President of the European Council, Donald Tusk, announced that there would be another meeting of the 27 EU leaders (without the UK) on 16 September 2016.

On 7 July, Member State Ambassadors to the EU will meet, with Brexit due to be high on the agenda. This will be the second meeting of Ambassadors since the European Council Summit on 28-29 June.

Implications for Business

There is no doubt that this referendum has led to an earthquake politically in the UK, Europe and the World. There is a sense that after this result it cannot be business as usual for policy makers.

The primary concern for businesses should be to investigate to what extent they are covered by EU regulations, especially in highly regulated sectors such as financial services, pharmaceuticals, chemicals, food, technology, energy and health-related industries. They should also assess to what extent a UK departure from the EU would affect their regulatory environment. Secondly, companies should assess what the importance is of their UK operations on a global level, such as whether headquarters are located in London, or whether they use the UK to access the EU or vice versa.

Another factor to bear in mind for businesses is the exit negotiations for the UK, namely which institution will lead the negotiations. Article 50 TEU mentions that the Council concludes the withdrawal treaty of a Member State, however, it was reported last week that the institutions were still at odds as to which one should lead negotiations, either the Commission or the Council. If the Council is the institution to take the lead, which is the most likely scenario, then businesses wanting to provide recommendations on the UK’s exit conditions will also have to engage with Member States.

Latest Developments in the UK

The political fallout in the UK has been huge, with an impending Conservative and Labour leader contest.

Contenders to succeed David Cameron as leader of the Conservative Party and Prime Minister have declared their intention to stand for the position. Work and Pensions Secretary Stephen Crabb, Home Secretary Theresa May, Justice Secretary Michael Gove, Energy minister Andrea Leadsom and former defence secretary Liam Fox have all announced their intention to stand. Surprisingly, Boris Johnson ruled himself out of the race. The next leader of the Conservative Party will have a significant impact on when negotiations formally begin for the UK withdrawal from the EU. Both Theresa May and Michael Gove have already said that they would not trigger Article 50 TEU until 2017. The announcement of the next leader of the Conservative Party will take place on 9 September 2016.

Meanwhile, Labour leader Jeremy Corbyn is facing significant challenges with several resignations from his Shadow Cabinet, and the no-confidence motion against him. Several Labour MPs have called on Corbyn to step down from his position, and are preparing for a leadership contest. Corbyn has maintained that he would not “betray” his supporters by resigning, and has every intention of running again for to be the Labour leader. Former shadow business secretary Angela Eagle has already announced her intention to challenge Corbyn, and is understood to have the support of the 51 MPs needed to mount a challenge.

Leader of the UK Independence Party, Nigel Farage, resigned on 4 July as leader of the party, citing that “I now feel that I’ve done my bit, that I couldn’t possibly achieve more”. Farage will continue his role as a Member of the European Parliament in order to “watch the renegotiation process in Brussels like a hawk”.

Going forward, the House of Commons must hold a vote on the referendum, and whether to approve its result. This raises questions, with some MPs already announcing that they will vote against the result. Some commentators are even calling for a second referendum although this is politically unthinkable and has been ruled out by Cameron. The next Prime Minister (whether he/she is from the remain or leave side of the referendum) will almost certainly be the one to trigger Article 50, however, the big task of the next leader will be how to bring a severely divided country back together.

The constitutional crisis that has arisen as a result of the referendum continues. While England and Wales voted to leave, Northern Ireland and Scotland voted to remain. Nicola Sturgeon, First Minister of Scotland, has voiced the prospect of a second Scottish independence referendum, which is now very likely. Polls have shown support for independence at over 50%. Sturgeon headed to Brussels on 29 June for discussions with EU leaders, seeking to secure Scotland’s position in the Union. Sturgeon emphasised that she was “determined” to protect Scotland’s interests. Spain’s Prime Minister, Mariano Rajoy, however, poured cold water on Sturgeon’s plan, by stating his opposition to talks with the Scottish government over a possible future EU membership bid. “We are totally against. The treaties are totally against and I think everyone is totally against,” Rajoy said.

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