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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.
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.”
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.
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.
The Irish border question perhaps gives the greatest clues as to what any future relationship with the EU could look like. Both sides have agreed that the existing principles of both Northern Ireland’s place within the UK internal market and the Republic’s place in the EU Internal Market and Customs Union must be respected.
The UK’s intention, explains the phase one agreement, is to avoid a hard border through the overall EU-UK relationship to be negotiated in phase two. If such an agreement is not reached the UK will propose new solutions – likely to be technology-led – and failing that the UK will “maintain full alignment” with the EU’s Internal Market and Customs Union rules.
In a concession to the DUP, the agreement also made clear that the UK will not create any regulatory barriers between Northern Ireland and the rest of the UK, writing:
“In all circumstances, the United Kingdom will continue to ensure the same unfettered access for Northern Ireland's businesses to the whole of the United Kingdom internal market.”
The transition period (see below) will allow both sides time to hammer out more specific proposals.
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 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."
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.
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.
In the current EU budget period of 2014-2020 there is a total of €16.4bn of planned investment in the UK through 17 regional and national programmes.
The Treasury has provided guarantees for regional investment funds that are agreed before the UK leaves the EU. The Welsh government^ is leading calls for replacement funding equivalent to that which the nation would have received from the EU, after Brexit.
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.
Bills before Parliament
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.
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.
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