Everything Businesses Need to Know About Brexit

Learn about the United Kingdom's departure and how to navigate the post-Brexit landscape.

You’ve likely heard what’s been happening across the pond in the last few years. The United Kingdom has been dealing with the effects of its decision to leave the European Union, known worldwide as Brexit, or “British exit.” After months of back and forth, it became official on 31 January 2020. 

This was a big move. 

The European Union is the United Kingdom’s biggest trading partner, contributing to close to half of its imports and exports. In 2022 alone, the UK exported 428 billion USD worth of goods and services to the European Union, amounting to 42% of its total exports. Along with trade, there are a number of ways Brexit has affected the world economy, international relations, and business dynamics. So, if you’re a business, it’s wise to be mindful of how Brexit can affect you. 

Read on to learn about the impact of Brexit on the European union and businesses worldwide. We’ll answer the commonly asked questions “Why did Britain leave the EU?”, “What is Brexit?” and more. 

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What is Brexit? A Guide for EU Citizens and Beyond

Before we get into what businesses should know about Brexit, let’s answer the question “what is Brexit?”. 

Back in 2016, the UK voted to decide if the United Kingdom remain a member of the European Union or go out on its own. Over 50% of its citizens chose to leave, so in early 2020, the UK said goodbye to the European Union. Despite Northern Ireland and the Scottish National Party voting no-deal Brexit, the motion went through.  From then until December 31, 2020, there was a transition period. During this time, things stayed the same – the UK followed EU laws, and both sides discussed the dynamics of their relationship going forward.  On December 24, 2020, the EU and the UK reached a withdrawal agreement on how they would work together in the future, considering the lack of the UK's EU membership. 

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This deal has three parts:

1. The Trade and Cooperation Agreement

The EU-UK Trade and Cooperation Agreement sets up special arrangements for things like trading goods and services, digital trade, and more. It covers intellectual property, public buying, transport, energy, fisheries, security, and more. The deal ensures fair competition and respect for rights. By exiting the EU, the UK has also left the EU customs union which allows for free trade agreements among EU members. However, the Trade and Cooperation Agreement has set out a number of free trade deals between the UK and the EU. While this trade deal not as deep as when the UK was in the EU, this agreement goes beyond regular trade deals. It's a strong start to keep our friendship and cooperation alive.

2. The Information Security Agreement

The Information Security Agreement outlines an agreement between the European Union (EU) and the United Kingdom (UK) for sharing and protecting classified information. The goal is to enhance security cooperation. It covers how they'll exchange sensitive information, ensure its security, and who can access it.  The agreement also addresses electronic sharing and oversight. This is part of a larger trade and cooperation agreement. It'll begin when both sides agree and will be formalized in different languages through diplomatic notes.

3. The Nuclear Cooperation Agreement

The Nuclear Cooperation Agreement and other agreements were negotiated during a transition period. It was signed on December 30, 2020, enforced partially on January 1, 2021, and fully from May 1, 2021. This agreement is about working together on safe and peaceful nuclear energy use. It covers sharing nuclear and non-nuclear materials, technology, and more. It also deals with managing nuclear waste, safety, and the use of radiation in various fields. The agreement enables quick data sharing during nuclear emergencies. Lastly, both parties promise to maintain high nuclear safety standards and collaborate globally to improve them.

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The Beginning of the Transition Period

As of January 1, 2021, these new rules started to apply. They marked a new era for the European Union and the United Kingdom, with far-reaching consequences throughout European Parliament and the world. 

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Why Did Britain Leave the EU?

Brexit, or the UK's exit, was a long time coming. Though it became official in 2020, things were brewing for years. The factors that ultimately drove the decision were building up over time. Let’s take a closer look at them to understand the full picture of Brexit. 

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Attitudes Towards the European Union

Public sentiment towards the United Kingdom’s membership with the European Union was in flux over the last decade. In times of economic prosperity and increased security cooperation, public support for EU membership has surged.  However, during periods marked by concerns over immigration control, economic challenges, and perceptions of limited national autonomy, sentiment towards EU membership waned.  This feeling was especially common among EU citizens who felt left behind due to changes in society and the economy. 

The Impact of the 2008 Recession 

The 2008 recession cast a long shadow throughout the world, with some experts comparing it to the fall of the Berlin Wall in 1989. It changed the way people in the United Kingdom viewed systems of authority. As the country struggled to recover, its citizens felt the brunt of the financial crisis. 

The European Union’s Austerity Measures 

After the 2008 global recession, the European Union introduced stricter rules on government borrowing and spending to reduce government debt.  This was especially noticeable in places like Greece and Italy. However, its effects were felt in the United Kingdom, too. Though these policies were intended to stabilize economies throughout the European Union, they faced widespread criticism.  Doubts about the European Union started to grow and pave the way for Brexit. 

Migration and Political Unrest: How European Parliament Reacted

The Arab Spring of 2010 created waves of change across the Middle East and North Africa that reached Europe, including the UK. The arrival of immigrants raised worries about how well the UK government and the European Commission handled the situation. Chancellor Angela Merkel's choice to open Germany's borders added to fears about immigration control, contributing to concerns linked to Brexit.

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A Tale of Two Campaigns

Brexit's campaign had two distinct sides. 

One was led by figures like Boris Johnson, appealing to those seeking a formal and conservative approach. The other, driven by Nigel Farage, rallied people who felt left out and unhappy with the way things were.  Surprisingly, this double approach didn't weaken the campaign; it actually attracted a wider range of UK citizens. So, Brexit came from a mix of concerns surrounding the economy, immigration, dissatisfaction with EU policies, and how the campaign was run. These factors all came together to shape the outcome of the 2016 referendum, changing the UK's future relationship with the European Union for good.

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The Impact of Brexit on European Union: What Businesses Need to Keep in Mind

Now that you have some understanding of what is Brexit and why it happened, it’s important to explore how it can affect your business. 

Supply chain issues

Brexit has notably impacted British manufacturers and retailers engaged in trade with businesses worldwide. Supply chain disruptions can be felt beyond the borders of the United Kingdom and Europe. 

So, if you’re involved in any of the following businesses or industries, you might feel the impact of Brexit and new EU rules.

Manufacturers and Retailers

Traditional manufacturers and retailers relying on imports and exports between the UK and EU may encounter delays, added paperwork, and potential tariff expenses. Such changes can disrupt production schedules and inventory management.

Logistics and Transportation

Logistics, shipping, and transportation providers are pivotal in the supply chain. Brexit-driven alterations can lead to border delays, heightened administrative procedures, and possible shortages of drivers or capacity, all affecting the movement of goods.

Wholesalers and Distributors

Wholesalers and distributors may face hurdles in efficiently receiving and distributing goods. Shipment delays, customs checks, and shifts in tax regulations can contribute to disruptions in their supply chain processes.

Manufacturing and Raw Materials

Businesses reliant on raw materials or components sourced from the UK or EU might experience delays, impacting their manufacturing. Tariffs or additional costs could alter their product cost structure.

Physical Retail Stores

Traditional retail stores relying on imports from the UK or EU could experience supply chain disruptions. Shipment delays might lead to stock shortages or reduced product availability in stores.

Food and Agriculture

The food and agriculture sector is sensitive to supply chain disruptions. Tariffs, regulatory changes, and border check delays can affect the timely delivery of perishable goods, influencing food availability and pricing.

Automotive and Manufacturing

Industries like automotive manufacturing, with intricate supply chains spanning countries and components, can be significantly affected. Part delays can disrupt production lines and output.

Pharmaceutical and Healthcare

Healthcare relies on consistent access to medicines and medical supplies. Supply chain issues could impact availability, potentially affecting healthcare delivery.

‍Shipping Times

One big concern to keep in mind is shipping times. Shipments crossing the Schengen border, which covers most of the European Union, by road were delayed by 38% in 2022. 

The average speed of shipments from pickup to delivery, considering breaks and waiting times, faced obstacles, too. Shipments crossing the Schengen border moved at an average speed of 3.9 miles per hour in the fourth quarter of 2022, while goods within their region moved faster at 4.9 mph.  So, if you’re shipping orders to customers or relying on British manufacturers for your materials, you must factor these delays in. 

There's also a financial side to it. Brexit might mean more paperwork and checks, which can cost you extra. Longer shipping times could mean higher shipping costs, storage fees, and fines if you miss delivery promises. So, you need to plan your finances with these in mind. If you send products to the U.K. and the EU, working with a good freight forwarder is smart. They'll help you with the needed paperwork, like customs forms. This helps you avoid delays and problems. If your business crosses the U.K.-EU borders, get ready for changes. You might need to pay new taxes and duties. Having good plans to deal with these changes is crucial to avoid surprises.

Meeting customs rules is a must. Not following them can lead to shipment holds, fines, and disruptions in getting your products. Getting help from customs experts is a good idea to keep things smooth. Be ready for possible delays and checks at borders. This could mess up delivery times. Having backup plans and telling customers about possible delays can save your business's reputation. In short, handling Brexit challenges is important for your online business. Stay updated, fix your shipping processes, work with experts, adjust your money plans, and keep customers in the loop. 

This way, you can deal with Brexit and keep your business running well.

Intellectual Property

Brexit has implications for your business's Intellectual Property (IP) landscape that you should consider. Changes might occur in how your trademarks, copyrights, and patents are recognized and protected.  Understanding these alterations is crucial to ensure your IP assets remain secure. Licensing agreements could also be affected by Brexit's regulatory shifts. Ensuring the continued validity and enforceability of these agreements is essential.  Keep a close eye on any changes affecting your IP rights and licensing arrangements, and adapt your strategies accordingly.

Regulation Changes Post Transition Period

Brexit has brought about a wave of regulatory changes, particularly in industries like pharmaceuticals and finance. Staying updated on these changes is vital for businesses to operate smoothly.  Let's explore why keeping a close watch on regulatory shifts after Brexit is essential: The pharmaceutical sector relies on regulations for safety, testing, and approvals. With Brexit, the UK now has its own rules that differ from the EU's. If this could impact your business, stay updated and maintain compliance.  Brexit has also reshaped regulations in finance. Licensing, compliance, and cross-border operations for financial services have shifted. If your business operates in the financial sector, staying updated on these regulatory changes is vital.  Regularly review your compliance measures, consider seeking expert advice, and make sure your operations align with the new regulations. This proactive approach will help you navigate the changing landscape effectively and stay competitive.

Money Worries

The Pound Sterling faced a tough time in 2022, but it's making a comeback this year, rising by 15% against the US Dollar from its low point in September. Looking back, 2022 was marked by economic challenges, post-Brexit issues, and high inflation, discouraging investors. The Truss/Kwarteng budget worsened matters, sending interest rates up, investors away, and the Pound down to record lows. However, a budget shift and the rise of Rishi Sunak as the new Prime Minister brought some stability for 2023.

In a surprising twist, the UK's economy in 2023 has done better than expected. Despite the IMF's predictions of a mild recession and labeling the UK as the weakest among G7 economies, ‌actual performance exceeded these gloomy forecasts. Yet, it's important to note that the UK's growth over the past year was a modest 0.6%, lagging behind the US and EU. The Pound's bounce back is largely due to it outperforming dismal predictions. Currency values can be confusing, as short-term movements are influenced by whether they align with or deviate from market expectations.

However, there's a less positive side to consider. The UK's inflation rate has surpassed projections, making it one of the highest in the OECD. This high inflation affects the cost of living and consequently impacts the Pound's value. Economic, political, and global factors shape the Pound’s recovery in 2023. While the UK's economy shows resilience, growth remains slow. Maintaining this upward trend in a changing global landscape is a challenge. Economic signals, policy shifts, and market sentiment influence the Pound’s performance. Staying informed and adaptable is crucial in this dynamic setting for smart financial decisions.

Currency fluctuations due to Brexit impact costs and profits. Hedge against currency swings with financial tools, diversify suppliers, and keep flexible pricing. These steps help businesses navigate challenges and maintain stability.

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People and Jobs

Brexit has also brought uncertainty to the job market. Employers and employees alike have been uneasy about the future UK-EU relationship. This caution has led to slower hiring across industries, making job competition fierce.

So, if you’re looking to hire employees in the United Kingdom, it’s important to be mindful of how the changes can impact the process. For example, if you’re a Canadian company looking to hire in the UK, you could face shifts in immigration policies, changes to qualification requirements, and potential delays due to shifting regulations.  Let’s talk about how Brexit has impacted immigration policies. The end of free movement with the EU introduced a new immigration system in the UK. This has had a notable impact on foreign workers and, as a result, has caused challenges in sectors like hospitality and healthcare that rely heavily on international talent.   Brexit has also brought changes to how businesses operate in the UK. Businesses are looking for new trade routes, without easy access to the EU market.. This has created opportunities in fields like finance and technology, but sectors like manufacturing are facing challenges. To navigate this post-Brexit landscape, there are certain steps you need to take. Ensure to stay updated on regulations and create strategies to manage changes to immigration policy. 

Also, make sure to stay adaptable. Try to adopt flexible hiring practices and employee development to stay nimble. 

To sum up, Brexit has had noticeable effects on the UK job market. However, if you arm yourself with the right knowledge and take the right approach, you can find growth opportunities.  

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Borderless Is Here to Help

Now that you have some insight into the impact of brexit on the European Union, and can answer the following questions “Why did Britain leave the EU?” and “What is Brexit?”, you can better understand how the whole situation can impact your business.  By arming yourself with this knowledge, you can take the proper steps to mitigate risks and drive growth. If you need help along the way, reach out to our team at Borderless. We can help you hire an employee through an EOR in the United Kingdom and throughout the European Union.  Plus, we’ll make sure you maintain compliance and navigate these changes brought on by Brexit. Book a demo today.

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Disclaimer

Borderless does not provide legal services or legal advice to anyone. This includes customers, contractors, employees, partners, and the general public. We are not lawyers or paralegals. Please read our full disclaimer here.