The Brexit Newsletter: 10 May edition

With Common Travel Area (CTA) rules and customs preparedness on the Brexit agenda, what are the headlines dominating the news?

  • Ireland and UK CTA Agreement delivers a rare positive Brexit story
  • UK Government and Labour talks continue with little evidence of significant progress
  • Significant proportion of Irish business still not Brexit-customs-ready
Business people discussing a report at meeting in a brightly-lit office.

Business insights

We believe that it is prudent for companies to continue to plan for a hard (no-deal) exit. It continues to be a risk despite the European Council granting the UK an extension to Article 50 until 31 October.

While it is good news that the UK did not leave the EU without a deal on 12 April, there is still no certainty as to the final shape and timing of Brexit. No-deal remains a risk until withdrawal from the EU is formally agreed.

While we hope that a positive outcome can be agreed before 31 October, the political uncertainties at Westminster mean that the possibility of no-deal cannot be completely removed.

If a deal cannot be agreed before 22 May, the UK must participate in the European parliamentary elections. Theresa May is not in favour of this.

Despite the Irish economy continuing to perform well, the National Competitiveness Council has warned of possible threats to the competitiveness of businesses in Ireland. Businesses need to keep a firm eye on being prepared for any outcome.

What are the implications for business?

While there is breathing space with no deal being avoided for the moment, we are entering a further prolonged period of uncertainty as to how and when the UK leaves the EU. The key thing is to use the time wisely. Businesses need to stay agile as Brexit stops being a moment in time and becomes the backdrop for strategy and investment decisions.

For some businesses, the wheels are already in motion. This extension will mean they need to decide whether to pause their Brexit preparations and keep their options open, roll back preparations, or re-evaluate their options on a more strategic basis. Many businesses now need to manage rolling, costly uncertainty as best they can, with no clarity as to when it might end. A challenge for businesses now is what to do and not to be complacent.

Many financial services firms had already pressed the button on moving part of their business to Dublin. They will likely continue to do so, but with a bit more time now given for them to complete transfers and get authorisations in place.

Another key risk factor for many Irish businesses is the value of Sterling. The Central Bank has warned that Sterling could fall close to parity with the Euro in the event of a no-deal crash out. This would cause significant competitive pressures and businesses will need to watch this space.

The UK leaving under the Withdrawal Agreement would be ideal for Irish businesses as the UK would enter the transition period. Our trading arrangements would remain as they are now until at least the end of 2020.

Companies should leverage this extension to advance their preparations. Even if you are well prepared, reassess your plans in the light of the extra time.

While Irish businesses would hope the Withdrawal Agreement to be agreed or for a softer 'Customs Union or Single Market' style Brexit, nothing is certain. The granting of more time is good news. However, the long-term future UK-EU relationship remains unclear. It will be very important for Ireland to keep in close contact with our UK and European colleagues as developments unfold.

Customs-Brexit preparedness

Niall Cody, Chairman of the Revenue Commissioners, revealed that despite a 110% increase in EORI applications in 2019, compared with all of 2018, there is still a significant proportion of businesses identified as trading with the UK who have not registered for EORI. Revenue once again highlighted that having an EORI number is the minimum requirement for businesses that wish to trade with, or through, the UK when they leave the UK.

Cody encouraged companies to get an EORI number, warning that "if businesses do not have a customs (EORI) registration, they are running a real and unnecessary risk that their business will experience significant delays and problems moving goods post-Brexit".

The CTA (Common Travel Area) and Ireland’s business proposition

The Government this week signed a Memorandum of Understanding (MoU) on the CTA with the UK Government. The EU-UK Withdrawal Agreement permits the UK and Ireland to make arrangements to maintain the CTA. The MoU reaffirms the existing CTA arrangements between Ireland and the UK regardless of Brexit’s final outcome.

This development is critical as it means Ireland will be the only location in which both UK and European talent can travel, study and work without restriction.

London developments

Prime Minister May, this week, survived a potential threat to her leadership of the Conservative Party. A panel of the 1922 Committee of Conservative backbenchers decided against changing party rules on leadership challenges that would have enabled another confidence motion in the PM before December.

While the 1922 Committee of Conservative Backbenchers have been calling on the PM to establish a timetable for her departure, the PM has yet to elaborate on this other than saying that she will step down once the withdrawal phase of the Brexit negotiations are concluded.

Pro-Brexit MPs within the 1922 Committee believe that an immediate leadership contest is required to allow the Party to choose a new leader over the summer parliament recess. The PM has agreed to meet with the 1922 Committee panel next week, although little is known about the nature of that meeting.

With talks between Labour and the Government yet to deliver a compromise solution, further discussions are set for next week. Labour acknowledged that both Parties are working to establish the scope of a potential compromise agreement. While David Lidington, defacto deputy PM, acknowledged talks had been difficult, a Government spokesman indicated that there would be "further exchanges of documents as Parties seek to nail down the details".

Brussels latest: economic growth

While the EU noted that the European Economy will continue to expand for the seventh year in a row in 2019, with real GDP growth expected across all Member States, the European Commission’s Spring economic forecast (7 May) saw the EU moderate its growth forecasts.

The EuroArea is now expected to grow at 1.2% and 1.5% across 2019 and 2020 respectively. EU forecasts last autumn predicted EuroArea growth of 1.9% for 2019 and 1.7% for 2020. The Commission expect global growth outside the EU to decrease from 3.9% in 2018 to 3.6% in 2019 before rebounding to 3.8% in 2020. Geopolitical tension, global trade policy uncertainty, declining trend in global manufacturing, and Brexit are currently all weighing on growth prospects.

Although the Commission reduced Ireland’s short-term growth forecasts for 2019 and 2020 to 3.8% and 3.4% respectively, Ireland’s growth dynamics continue to be strong and outperforming all major EU economies. Uncertainty relating to Brexit along with possible changes in the international taxation and trade environment represent the most significant potential threats to the Ireland’s economic outlook.

Contact us

David McGee

Partner, PwC Ireland (Republic of)

Tel: +353 1 792 8785

John O'Loughlin

Partner, PwC Ireland (Republic of)

Tel: +353 1 792 6093

Andrew O'Callaghan

Partner, PwC Ireland (Republic of)

Tel: +353 1 792 6247

Owen McFeely

Director, PwC Ireland (Republic of)

Tel: 353 1 792 8162

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