Deloitte Brexit Briefing | 9 Brexit - Possible options over the short and medium term
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Deloitte Brexit Briefing | 9 Brexit – Possible options over the short and medium term January 2019
Deloitte Brexit Briefings
Perspectives on Brexit
Deloitte Brexit Briefings series The current edition
The United Kingdom’s decision in June 2016 to leave the EU will have In our current edition, ‘Brexit – Possible options over the short
a far-reaching economic and political impact. For German companies, and medium term’, we analyse the current status of the Brexit
Brexit means a fundamental change in the business environment. negotiations. Our goal is to provide an overview over the possible
outcomes both in the upcoming months as well as years. A
In this context, the Deloitte Brexit Briefings examine the core Brexit
special focus lies on the impact of a no-deal Brexit.
themes and risks from economic, strategic, taxation and legal
perspectives, and are intended to provide orientation about the
complex effects of Brexit and the Brexit process.
June 2017
May 2017
March 2017
Feb 2017
2018 Deloitte 2Brexit negotiations The road ahead: What has happened and what will happen next? 2018 Deloitte 3
Brexit | Meilensteine
What has happened so far: the most important milestones
12 Nov 15 Jan
29 March EU und UK agree on Britisches Parliament
23 June Artikel 50 triggered an exit deal rejects exit deal
Brexit Referendum
6 July
13 Juli Chequers Plan
25 Nov
Theresa May wird EU Heads of State and
Premierministerin Government agree to
(PM) Brexit deal
2017
2018
2019
2016
12 Dez 16 Jan
Theresa May wins Theresa May wins vote
24 June 8 June vote of no confidence of no confidence
UK snap elections triggered by Tories triggered by opposition
David Cameron steps
down as Prime
Minister 26 June 14 Nov
EU (Withdrawal) Britisches Cabinet
Act becomes law signs off on deal
Source: Deloitte Research
2018 Deloitte 4Brexit | Mechanism
The basic mechanism behind the Brexit negotiations remains unchanged
Negotiations between
EU and UK
British Parliament
Agreement No agreement
accepts
British Parliament
rejects
Withdrawal of Second UK demands UK demands Second Withdrawal of
Article 50 referendum new negotiations new negotiations referendum Article 50
EU rejects EU accepts EU rejects
EU exit EU exit United Kingdom
with deal no deal remains in the EU
Source: Deloitte Research
2018 Deloitte 5Brexit | The road ahead
The road ahead: There are many possible outcomes for the upcoming weeks
Possible delay on a final decision Final outcome
New elections Second referendum Extension of Article 50 Withdrawal agreement No Deal
If...: If...: If...: If...: If...:
• Successful vote of no • PM and asks for extension of • UK Parliament agrees to the
• UK Parliament rejects all exit
confidence against the • PM proposes a second negotiation phase after current or a new deal
agreements
government by the opposition referendum to Parliament consulting with Parliament • and Europeans Heads of State
• and negotiation phase is not
• or two-third majority of MPs • and UK Parliament agrees • and EU Member States agree and Government and EU
extended
call for early general elections unanimously Parliament agree to the deal
...then: ...then: ...then: ...then: ...then:
• Election: the current timetable • Second referendum: the
of concluding an exit current timetable of
agreement by Mar 2019 concluding an exit agreement • Negotiation phase is • Exit agreement comes into
extended force in Mar 2019 • If nothing else happens, the
cannot be met by Mar 2019 cannot be met
default option would be a no-
• Options include extending • Options include extending • Timescale uncertain • Transition phase with further deal Brexit on March 29
Article 50 (with EU Article 50 (with EU negotiations until Dec 2020
agreement), No-Deal Brexit or agreement), No-Deal Brexit or
withdrawing from the exit withdrawing from the exit
Source: Deloitte Research
2018 Deloitte 6Brexit | The road ahead
Down the road: No end to uncertainty expected in the coming years
If there is agreement from the
British Parliament and the EU
countries, the ratification process If the British Parliament does not
continues on both sides: accept the exit agreement, the If nothing happens to stop Brexit,
Jan – Mar 2019 British government has 21 days the default option is that the UK
• UK: EU (Withdrawal) Bill
to submit a new plan to will leave on 29 March.
anchored in legislation
Parliament.
• EU: EU Parliament votes on exit
agreement
Brexit Day
29 March 2019 The United Kingdom officially leaves the EU, unless both sides agree to an extension of the negotiating phase
as per Article 50 or an exit from Brexit.
If an exit agreement has been If Article 50 is extended,
No-deal Brexit if EU and UK do
concluded, the transition phase negotiations continue between the
Mar 2019 – not reach an agreement and the
begins in March 2019, during UK and EU - the United Kingdom
Dec 2020 negotiation phase is not extended.
which the future economic remains part of the EU during this
WTO rules apply to trade.
partnership is negotiated. time.
End of transition phase – future economic partnership comes into force unless the UK and EU agree an
extension of the negotiation phase.
From Dec 2020
If the transition phase ends without any future economic partnership agreed, the backstop comes into force.
Source: Deloitte Research
2018 Deloitte 7Brexit negotiations Exit agreement vs. No Deal 2018 Deloitte 8
Brexit | Exit agreement
What are the six key points in the current withdrawal agreement?
01 04
Transition phase Goods trade
• 29 Mar 2019 to 31 Dec 2020 • During the transition phase, UK and EU remain in a
• UK continues to comply with EU regulations, customs union under EU regulations, therefore no
but loses membership of EU institutions customs duties or goods controls are necessary
• Transition phase can be extended once for a • During a Backstop the whole of UK would form a
definite period single customs territory with the EU. Northern
• Decision about extension must be made Ireland would further align with the EU single
before 1 Jul 2020 market on goods standards, agriculture production
and veterinary controls.
02 05
Backstop Financial settlement
• If the transition phase ends without • EU and UK agree on a financial settlement of
agreement, the UK and EU remain in a approx. EUR 44 billion
customs union - for an indefinite period • This consists of contributions to the EU budget and
• This backstop can only be lifted with British commitments made in the past
agreement from both parties • In case of an extension of the transition phase,
further payments become due
03 06
Citizen rights Governance
• EU citizens living in the UK and UK citizens • A committee with representatives of both parties
living in the EU retain all of their rights, was founded to deal with all legal questions to do
including during the transition phase with the exit agreement
• Free movement of people - one of the four • The ECJ remains the jurisdiction for all questions
basic freedoms of the EU - ends relating to EU law
• Travelling without visa should however
remain possible in future
Source: European Commission
2018 Deloitte 9Brexit | British Parliament
320 votes are required in Parliament to approve a deal – however, the parties are
fragmented and a majority Parliament assent remains unlikely
Distribution of seats by party in the British Parliament (N=650)*
12 21
35
Conservative
Democratic Unionist Party
Labour 315
Scottish National Party
Liberal Democrat
257
Other
10
Source: UK Parliament, Deloitte Research
*11 Members of Parliament will not vote: The Speaker and his three deputies are not allowed to participate, 7 members of the Northern Irish Sinn Fein party refuse to take their seats in parliament.
2018 Deloitte 10Brexit | No Deal
The situation after a disordered Brexit would be chaotic - an overview in numbers
10 percent customs duties 154 million passengers
could arise for cars alone according to the World a year fly from Great Britain to the EU, plus 457
Trade Organisation (WTO). Lowering the level of thousand tonnes in freight. Without a specific
duties bilaterally without a full free trade agreement, European airlines would no longer
agreement is prohibited by WTO regulations. have access to British airports, and vice versa,
However, the UK could choose to levy applied British airlines could not longer fly to European
rather than bound tariff rates provided this rate airports.
is granted to all WTO members.
11,000 HGVs 75 percent of derivatives trading
travel to Calais every day. Passport and in euros is conducted in London, according to
customs controls would be necessary at the the Bank for International Settlement. Without
border with Great Britain. This could lead to a specific agreement, European customers
long delays, especially for the economy; would no longer have access to clearing
Imperial College London estimates that a delay services after a no-deal Brexit. However, the
of two minutes per HGV in Dover and at the European Commission has already announced
Eurotunnel would lead to a traffic jam of 47 that it would temporarily classify British clearing
kilometres. houses as equivalent to those in the EU.
219,000 EU citizens
came to the UK in the year ending June 2018. 45 million medicines
Although the rights of EU citizens living in the are transported every month from the UK to the
UK long-term are supposedly secure even in EU. Due to delays and traffic jams in Calais,
case of a no-deal Brexit, this does not clarify these might not reach the EU in time.
the right of residence for many other European
citizens.
Source: WTO, UK Parliament, Imperial College London, ONS, Eurostat, Bank for International Settlement
2018 Deloitte 11Brexit | No Deal
The immediate effects of a no-deal Brexit on growth would be manageable for many
European countries on a macro level, but...
Effect of No Deal on gross domestic product compared to UK remaining in
the EU (% difference in GDP level in Q4 2020)
Whereas the effect on the other EU Member States appears
United Kingdom -2,1 comparatively low across various studies, the forecasts for the
Ireland -1,4 British economy fluctuate considerably due to the large number
Poland -0,8 of uncertain factors.
Czech Republic -0,7
Slovakia -0,6
Denmark -0,6 The NIESR think tank, for example, estimates that in case of
Greece -0,6 No Deal, British GDP would fall by 5.5% compared to its level
Sweden -0,4 if the UK remained in the EU until 2030.
Finland -0,3 The ‘UK in a Changing Europe’ group predicts that British
Portugal -0,3 GDP per capita would fall between 3.5% and 8.7% over the
Hungary -0,3 next ten years as a result of No Deal.
Belgium -0,3
The Bank of England also estimates that UK GDP could fall by
Netherlands -0,2
up to 8% in the worst case if the United Kingdom and the
Italy -0,2
European Union cannot agree on a deal. During the 2007/08
Spain -0,2
global financial crisis, the British economy shrank by
France -0,2
6.25%.
Germany -0,2
Austria -0,1
Croatia -0,1
In absolute terms, a 0,2% lower GDP for Germany would
Romania -0,1 result in a 7 billion EUR lower prosperity level.
Bulgaria 0,0
-2,5 -2 -1,5 -1 -0,5 0
Source: Oxford Economics, NIESR, UK in a Changing Europe, Bank of England
2018 Deloitte 12Brexit | No Deal
...individual industries would be strongly affected
Brexit Briefing III: Connectedness of German industries with UK Brexit Briefing V: Effects of no-deal
a hard Brexit on automotive manufacturers
Retail
1,000 German companies have subsidiaries in the UK, this includes 160 of the largest If vehicle manufacturers pass on this cost increase 1:1 to their customers, the price of a car in the
German corporations United Kingdom would increase by € 3,700 on average.
These 160 large German companies employ around 400,000 people in the UK and Taking British consumer behaviour into account, sales in the United Kingdom are expected to fall
achieve revenues of approx. EUR 150 billion by approx. 550,000 vehicles (-19%) in the year of EU exit.
The automotive sector is the most valuable, achieving revenues of EUR 40.1 billion, followed by
the energy sector and the transport and logistics sector with revenues amounting to EUR 24.3 Total turnover from vehicles in the UK will decline by approx. € 12.4 billion (-18%)
billion and EUR 20.6 billion respectively.
The sectors with the highest employment are transport and logistics (95,700 employees), Based on the declines in sales and turnover, approx. 18,000 jobs in the German automotive
finance and insurance (59,100 employees) and retail (44,600 employees). industry would be endangered directly.
Source: Deloitte Research
2018 Deloitte 13There are four key areas for European companies to consider
Growth Indirect
Strategy risks
Product Suppier Logistic and
Exports Regulation tariff processes
Risks
Market Ability to
Tariffs Restructuring
Regulation
Market Supply Chain supply
&
Extended Enterprise
Transfer
pricing
Funding Brexit
Profit
subsidiary
Topics
Tax
Indirect Capital Global Group Legal
Tax Tax
Flows Structure
Corporate
Tax
Local Employee Location
Tariffs
Content Mobility Organization Strategy
Finance
Valuation
2018 Deloitte 14Brexit Strategic Response Team
Economic Research Legal
Dr Alexander Börsch Julius Elting Dr Mathias Hanten Dr Julia Sierig Christofer Rudolf Mellert
Director Research Research Analyst Partner Banking & Finance Partner Employment Law Partner Deloitte Legal
Law
Tel: +49 89 29036 8689 Tel: +49 89 29036 6486 Tel: +49 71 16696267 Tel: +49 211 8772 2947
Tel: +49 69 71918 8424
aboersch@deloitte.de jelting@deloitte.de mhanten@deloitte.de jsierig@deloitte.de cmellert@deloitte.de
Strategy &
Scenario Planning Tax
Markus Kircher
Dr Florian Klein Diana Imhof Claudia Sendlbeck- Dr Alexander Linn
Partner Transfer Pricing Schickor
Head of Center for the (Tax) Director FSI Partner International
Long View Cross Border Tax Director Mergers & Business Tax
Tel: +49 69 7569 57011 Acquisitions (Tax)
Tel: +49 69 9713 7386 Tel: +49 69 75695116021 Tel: +49 89 29036 8558
mkircher@deloitte.de Tel: +49 89 2903 68301
fklein@deloitte.de dimhof@deloitte.de allinn@deloitte.de
csendlbeck@deloitte.de
Real Estate Consulting /
EU Customs Law Risk Advisory Location Strategy
Michael Schäfer Bettina Mertgen Volker Linde Anton David Schweizer Olaf Babinet
Partner Global Trade Director Global Trade
Advisory Advisory Partner Risk Advisory Senior Manager Risk Director Strategy &
Advisory Operations
Tel: +49 621 1590 1869 Tel: +49 621 1590 1869 Tel: +49 221 87722399
Tel: +49 711 16554117251 Tel: +49 211 8772 4592
Email: Email: vlinde@deloitte.de
micschaefer@deloitte.de micschaefer@deloitte.de olababinet@deloitte.de
aschweizer@deloitte.de
Financial Services & Banking Operations
Clive Laurence King Carl-Friedrich Mueller Alexander Weber
Tilmann Bolze Thomas Peek
Director Financial Director Financial Services Senior Manager Finance Director Finance & Risk
Director Financial
Services Consulting Services Assurance Assurance & Risk Operations Operations
Tel: +49 30 25468 325 Tel: +49 69 75695 6562 Tel: +49 89 29036 8912 Tel: +49 69 9713 7441
Tel: +49 69 9713 7441
tbolze@deloitte.de tpeek@deloitte.de CKing@deloitte.de alweber@deloitte.de
carmueller@deloitte.de
2018 Deloitte 15This presentation contains general information only, and none of Deloitte GmbH Wirtschaftsprüfungsgesellschaft or Deloitte Touche Tohmatsu Limited (“DTTL”), any of DTTL’s member firms, or any of the foregoing’s affiliates (collectively, the “Deloitte Network”) are, by means of this presentation, rendering professional advice or services. In particular this presentation cannot be used as a substitute for such professional advice. No entity in the Deloitte Network shall be responsible for any loss whatsoever sustained by any person who relies on this presentation. This presentation is to be treated confidential. Any disclosure to third parties – in whole or in part – is subject to our prior written consent. Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee (“DTTL”), its network of member firms, and their related entities. DTTL and each of its member firms are legally separate and independent entities. DTTL (also referred to as “Deloitte Global”) does not provide services to clients. Please see www.deloitte.com/de/UeberUns for a more detailed description of DTTL and its member firms. Deloitte provides audit, risk advisory, tax, financial advisory and consulting services to public and private clients spanning multiple industries; legal advisory services in Germany are provided by Deloitte Legal. With a globally connected network of member firms in more than 150 countries, Deloitte brings world-class capabilities and high-quality service to clients, delivering the insights they need to address their most complex business challenges. Deloitte’s approximately 286,000 professionals are committed to making an impact that matters.
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