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Brexit: What we know so far

August 2018 

Two years on from the UK’s referendum on membership of the European Union, we have updated our overview of what we know so far about Brexit.

When is Brexit?

The UK will leave the European Union at 11pm on 29 March 2019, two years after Prime Minister May invoked the Article 50 process for withdrawal, and nearly three years after the June 2016 referendum on the UK’s membership of the EU.

However, an implementation period will see the UK remain subject to EU rules until 31 December 2020.

What was agreed in phase one?

The key areas that the EU wanted settled were around citizens’ rights, the financial settlement and the Irish border. An agreement in principle^ on these three areas was reached on 8 December 2017 under the caveat that nothing is agreed until everything is agreed; the next phase of negotiations could then see changes made to this agreement but the EU in particular has stressed^ (PDF†) that phase two will only progress “as long as all commitments undertaken during the first phase are respected in full.”

Citizens’ rights
EU27 citizens in the UK and vice versa will be entitled to remain if they are resident in the country by the date of the UK’s withdrawal, as will family members including children born or adopted after Brexit. These citizens will be able to apply for a status that confirms their leave to remain in a way that must avoid “unnecessary administrative burdens”. Those who have their status confirmed are free to leave the country for a continuous period of five years without losing that status.

Any disputes relating to citizens’ rights in the UK will be subject to established case law from the European Court of Justice (CJEU), but will only be referred to the CJEU if UK courts decide it is necessary; this part of the agreement will be valid for eight years after the citizen’s status application.

Financial settlement
The UK and EU have agreed of the methodology for calculating the financial settlement, but a precise amount isn’t written in the agreement. However, while addressing Parliament, the PM confirmed^ this would be in the region of £35-39bn.

Transition period

A transition or implementation period will begin after the UK leaves the EU in March 2019, and will end on 31 December 2020, a little shorter than the two year period the Prime Minister proposed in her speech in Florence^ in September 2017 which was seen by many as an attempt to introduce a more conciliatory tone in negotiations between the United Kingdom and the EU.

The hope is that this will give the UK time to introduce a new immigration system and mean that businesses will only have to plan for one set of changes in the nature of the relationship between the UK and the EU.

The implementation period will see trade continue on “current terms” – in other words the UK would not leave the Single Market or Customs Union until the end of this period. But, the UK will be able to sign and ratify its own trade deals – including the future trade agreement with the UK.

The EU explained^ (PDF†) that the UK will have to continue to adhere to all existing EU regulations during this period, including the “four freedoms” of movement of goods, capital, services and people.

The single market

The PM has repeatedly stated that she does not intend the UK to remain a member of the EU’s single market. As early as her Lancaster House speech^ in January 2017, where the PM set out her 12 key aims for Brexit negotiations, she stated, "What I am proposing cannot mean membership of the Single Market."

She explained that European leaders have made it clear that membership of the single market means signing up to the "four freedoms" of movement of goods, capital, services and people – something that would "to all intents and purposes mean not leaving the EU at all."

Future relationship

Phase two of the negotiations started in March 2018 and is expected to end by the autumn. However any future relationship between the UK and the EU cannot be formally agreed until the UK ceases to be a member of the Union in March 2019, when it will become a third country.

The EU have tended towards the view that that the UK can expect similar access as that available to others, depending on what they want.

So if the UK is seeking membership of the Single Market it would gain similar access as Norway. If the UK wants a free trade agreement and to have an independent trade policy, it would gain similar access to Canada. If the UK wanted bilateral relationships with different EU member states, it would have similar access to Switzerland. This is based on a desire to respect EU Directives on the single market and customs union.

The UK has set out its two preferred options.

  1. A customs partnership where the UK would mirror the EU’s tariffs and rules of origin for goods arriving in the UK and intended for the EU. However there would be a mechanism for the UK to be able to apply its own tariffs on goods only intended for the UK
  2. A “highly streamlined” customs arrangement that would see goods able to travel across UK/EU borders without a requirement for customs declarations partly by mutual recognition of trusted trader schemes.

Read more analysis of the government and EU positions on the future relationship.

Examples of other EU trading relationships

EEA (single market only) – the Norwegian model – requires UK to remain fully compliant with EU legislation, meaning that current regulation and timelines for adoption of new legislation would remain in force, as would the free movement of people. The PM has all-but ruled this out.

EFTA (European Free Trade Association) – the Swiss model - a number of bilateral agreements on free trade for specific industries including much of the service sector. This has been all-but ruled out by the EU, while free movement still applies so it is also unlikely to be acceptable to the UK.

Comprehensive Economic and Trade Agreement (CETA) - the Canadian model – free trade agreement for most areas notably excluding nearly all services.

Parliamentary approval

The government has already agreed to an amendment to require the final deal between the UK and EU to be approved by Parliament. The deal will also be subject to approval by the European Parliament.

Alongside the European Union (Withdrawal) Bill, the government announced a total of eight Brexit-related Bills in the Queen’s Speech in June 2017, four of which have so far been introduced. Different factions in both the Conservative and Labour parties mean each of these are likely to face numerous amendments.

Eight Brexit bills

Bills before Parliament or approved

  1. European Union (Withdrawal) Act – this is the main vehicle by which the European Communities Act 1972 is repealed, and received Royal Assent in June 2018. In many ways it might be more accurately called the transposing Bill – as it will transpose many of the regulations created by the EU into UK law, and also provides the framework for parliamentary approval of the withdrawal agreement.
  2. Customs Bill – this will ensure that the UK has a standalone UK customs regime on exit, covering the import and export of goods. 
  3. Trade Bill – unable to formally negotiate with other countries until we have left the EU in March 2019, this Bill will put in place the framework to set UK trade policy.
  4. Nuclear Safeguards Act – transferring powers from Euratom to the UK’s Office for Nuclear Regulation. Became law in June 2018.
  5. Sanctions and Anti-Money Laundering Act – this enables the UK to make its own decision on non-UN sanctions, while also retaining compliance with international law after the UK leaves the EU.

    Bills yet to be introduced
  6. Immigration Bill – this will allow the Government ‘to control the number of people coming here from Europe while still allowing us to attract the brightest and best.’ 
  7. Fisheries Bill –the inclusion of this Bill highlights this as one key area where the UK will move on from EU regulations at the first opportunity, rather than simply relying on the transposed rules covered in the Repeal Bill.
  8. Agriculture Bill – the Government explained this would ‘provide stability to farmers as we leave the EU’.2

June Summit 2018

Packed agenda and the Irish Border issue

During the June Summit, not only was there frustration towards the UK from Brussels, as the UK still had yet to articulate their Brexit plan, but there were a number of other critical issues that were placed on the agenda. For Brussels, Brexit alone is not necessarily their first priority, with other broader issues facing the European Union vying for their attention – such as the migrant crisis, trade wars and the Irish Border issue. The Irish border question perhaps gives the greatest clues as to what any future relationship with the EU could look like.

The Irish Border poses a considerable frustration to the EU, particularly due to the lack of progression on this issue, which they consider a big piece of the Brexit negotiation jigsaw. Through the Belgian lens, Ireland is seen as one of the smallest member states within the EU, and would benefit substantially with European support.

In essence the EU is pressing the UK to deliver a solution in respect of the Good Friday agreement, whilst also ensuring there isn’t a hard border. This is coupled with the fact that Ireland themselves don’t want to be isolated later in the year as the only Memner State who doesn’t agree to the Withdrawal Agreement, so there is a fine balancing act at play.

July White Paper – the fallout

The UK finally articulated what it sees as the fundamental building blocks of the future relationship when Theresa May gathered her Cabinet at Chequers to force a common position upon them.

The agreed position sees a watering down of the substance of the Government’s original negotiating red lines (as set out at Lancaster/Mansion House) whilst still allowing the Prime Minister to claim the underlying principles of these red lines are being upheld.

As such, the Chequers proposals and subsequent White Paper mark a ‘softer’ Brexit stance by the Government than previously set out. That said, at the same time as prioritising close alignment on trade in goods, the Government has clearly adjusted downwards it expectations for reciprocity on services - noting, in a nod to Brexiteers - that this will give the UK greater freedom to set its own rules.

While it is likely that the EU will reject many aspects of the UK's position as trying to cherry-pick single market access, the Chequers Agreement and White Paper should allow talks to progress and potential 'landing zones' to emerge. There is no question that serious challenges in the negotiations remain, particularly within the Consertaive Party – Chequers led to the resignations of both David Davis and Boris Johnson.

Whilst Theresa May still remains Prime Minister, the hard-core Brexiters within the Tory party have fiercely opposed the White Paper and there is a strong risk that the Brexiteers will use the Conservative Party Conference as a platform to try and kill off the fundamental principles of Chequers.

Therefore, there is considerable short-term volatility, with May maintaining a balancing act between the Brexiters in her cabinet and the remainers.

In terms of the content itself of the actual White Paper PDF†^ (2MB - opens in a new window), at a high level, the paper states that:

  • The UK will maintain a "common rulebook" for goods including agri-food, covering only those rules necessary to provide for frictionless trade at the border
  • A treaty will be signed committing the UK to "continued harmonisation" with EU rules – avoiding friction at the UK-EU border, including Northern Ireland
  • Parliament will have the ability to "choose" to diverge from the EU rules, recognising there could be proportionate implications for the operation of the future relationship where the UK and the EU had a common rulebook
  • There will be different arrangements for services, with greater regulatory flexibility; in particular the UK proposes new economic and regulatory arrangements for financial services, preserving the mutual benefits of integrated markets and protecting financial stability while respecting the right of the UK and the EU to control access to their own markets
  • A "joint institutional framework" will be established to interpret UK-EU agreements
  • The ECJ will no longer have jurisdiction in the UK - but UK courts will have to pay "due regard" to EU case law in areas of complete alignment with EU rules
  • The borders between the UK and EU will be treated as a "combined customs territory" which would enable the UK to control its own tariffs for trade with the rest of the world and ensure businesses paid the right or no tariff
  • The free movement of people between the UK and the EU will end and a "mobility framework" will be set up to allow UK and EU citizens to travel to each other's territories.

For UK industry, it is disappointing to see the Government step back from the ambitious ask of mutual market recognition. It is attempting to be pragmatic and to maximise the potential for success in the negotiations. The Government has not in any way 'abandoned' the corporate industry in the UK, and it evidently remains a priority for the negotiations. The next steps will be for the government to review the details of what improvements to the current equivalence regime could, and should, look like.

Negotiation end

In theory, the negotiation period could last longer than two years. Article 50 states that the negotiating period can be extended beyond two years subject to the unanimous agreement of the European Council. The stated aim of both sides, however, remains to conclude negotiations in time for the European Council summit on 18 October 2018.

Barclays’ commitments to our clients

We are engaging with our regulators to extend the services of our fully licensed banking entity in Ireland, to ensure continued access to the EU-27 financial markets. Should the UK’s withdrawal from the EU result in a loss of relevant passports for the industry, the entity would be able to provide our clients with the gateway to European markets, including intra-EU payments, lending and deposit-taking.

We continue to develop specific propositions for our corporate clients to meet their funding, cash management and risk management needs, and continue to add innovative solutions to help them navigate potential changes.

We continue to invest in our European business and are rolling out a consistent product suite across all major European geographies so that clients can enjoy the same level of service regardless of their location.

While Brexit unfolds, we stand close to our clients in helping them understand the potential impacts on their underlying business – and corporate treasury – models, and will support them in delivering solutions to help them manage changes in their supply chain from our suite of trade and working capital financing, payments, and liquidity solutions.

If you have any questions on how Barclays is preparing for Brexit, please speak to your relationship manager.

Loan markets have remained open for business despite market volatility.

Importers and exporters need to start thinking about how they might seize potential new opportunities after Brexit.