IBISWorld presents a collection of fast facts on how Brexit has affected each sector of the UK economy.
Following the end of the transition period, the key issues facing the Agriculture, Forestry and Fishing sector include significant changes to farming subsidies, disputes regarding fishing quotas and reduced access to EU labour markets. Having previously received a large proportion of their income through the EU’s Common Agricultural Policy, sweeping policy changes have the potential to threaten the viability of UK farmers.
- The UK and the EU have agreed a deal on sharing fish stocksin 2022 amid an ongoing dispute with France over access to British waters. In 2022, the UK fleet will be allowed to catch approximately 140,000 tonnes of fish, down from 160,000 tonnes in 2021. Under the EU-UK Tra#1de and Cooperation Agreement (TCA), 25% of EU boats’ fishing rights in UK waters will be transferred to the UK fishing fleet between 2021 and 2026.
- According to a report from Parliament’s Public Accounts Committee, the UK government has not established any way to measure whether £2.4 billion of annual farm payments through the Environmental Land Management (ELM) scheme will provide value for money. The report also raised concerns that incentives to convert farmland to other uses will result in increased reliance on food imports.
- The UK government has confirmed that it plans to pay farmers and landowners for restoring biodiversity from 2023, through the Local Nature Recovery scheme. This incentive will form part of the UK’s post-Brexit Agricultural Bill.
- As part of Prime Minister Liz Truss’s plan to boost economic growth, UK ministers are currently reviewing plans for payments under the ELM scheme, with a return to EU-style subsidies one of the options being considered.
- In order to address labour shortage in the sector, the UK government has announced an extension of the Seasonal Worker visa route to the end of 2024, allowing foreign workers to come to the UK for up to six months to pick both edible and ornamental crops.
- The NFU has raised significant concerns regarding the UK-New Zealand Free Trade Agreement (FTA), which includes the gradual liberalisation of imports of sheep meat, beef, butter, cheese and fresh apples from New Zealand. According to the NFU, lower production costs in New Zealand could result in UK farmers being undercut by imports. In contrast, New Zealand, a relatively small market, already benefits from low tariffs, limiting the advantages of the FTA for exporters to New Zealand. The NFU has also called for safeguards for sensitive sectors such as beef and pork during negotiations for a new FTA between the UK and Canada.
- According to a survey of British Berry Growers’ members, annual waste that could be solely attributed to a lack of access to pickers increased from £18.7 million in 2020 to £36.5 million in 2021. This increase can be partly attributed to the limited number of seasonal visas for overseas workers, which declined in each of the three years through 2021.
- Defra has committed £12.5 million of investment into vertical farming as part of plans to drive home grown fruit and vegetable production and drive the growth of high-tech horticulture.
Following the end of the transition period, the key issues facing the Mining sector are the supply chain, investment and regulation. There are both opportunities and challenges for the sector that have arisen from the UK’s exit from the EU.
- The EU-UK trade deal is likely to be beneficial for the Mining sector, as it is expected to keep trade volumes high and allow mining companies to build supply agreements with overseas companies. However, non-tariff barriers, such as customs checks and new paperwork, have increased supply chain costs for mining operators, with the cost of exporting and importing specialist equipment, vehicle parts and mined products increasing. Nevertheless, the UK’s exit from the EU opens up the possibility of new trade deals that can boost the trade of raw materials and strengthen the supply chain.
- The mining sector stands to benefit from increased domestic investment as the UK government focuses more on boosting domestic productivity and reducing reliance on foreign goods, including minerals. Additionally, there have been reports that the mining sector could be key to boosting renewable energy in the short term. For example, British Lithium extracted battery-grade lithium carbonated from granite mined at a pilot plant in Cornwall. This could help to build a reliable domestic supply chain for electric vehicle batteries rather than having to depend entirely on imports. In turn, the government could allow and invest in further explorations and new mines, aiding the sector. On 22 July 2022, the Department for Business, Energy and Industrial Strategy released a policy paper titled ‘Resilience for the Future: The UK’s critical minerals strategy’. It states that the UK must make its supply chains ‘more resilient and more diverse to support British industries of the future, deliver on our energy transition and protect our national security.’
- The UK government has agreed to allow more oil and gas wellsto be drilled in the North Sea, with the North Sea oil and gas industry aiming to cut its carbon emissions and transition away from fossil fuels. The joint venture investment would be up to £16 billion, supporting 40,000 jobs.
- Despite difficulties to trade since the end of the EU-UK transition period, UK oil and gas exports from the UK to the EU have risen in recent months, particularly the volume of natural gas, amid Russia’s war in Ukraine and the EU’s aim to diversify energy supplies away from Russia. In July 2022, UK fuel exports accounted for £800 million of the country’s £1.3 billion goods export increase to the EU. Fuel exports to the bloc more than doubled compared with July 2021. At the same time, gas exports to the EU reached £900 million in July 2022, nearly three times more than the previous year. This trade in fuels has been played a key part in supporting UK exports to the bloc.
- Now that the UK has left the EU, the government has the freedom to amend environmental legislation, which could have both positive and negative effects on the sector going forward. However, with net-zero targets in place, coal mining is likely to continue its decline in the coming years.
Following the end of the transition period, the key issues faced by the Manufacturing sector are costs associated with meeting new legislation, disruption to EU-UK trade and reduced access to labour. Exporters have recovered from a sharp initial drop in trade volumes immediately following the end of the transition period; however, the direct and indirect effects of increased administrative barriers to trade and reduced access to labour present a continued challenge for manufacturers.
- Research conducted in January 2022 by UK in a Changing Europe concluded that the end of the transition period has brought adverse impacts for UK manufacturing. This was attributed to the TCA not fully replacing the frictionless trade and market integration that existed before it.
- In the Office for National Statistics’ (ONS) Business Insights and Impact on the UK Economy survey, 48.2% of manufacturing firms surveyed stated that they had incurred extra costs between 20 September and 2 October 2022 as a result of the end of the EU-UK transition period. This is significantly above the economy-wide figure, with the majority of cost increases attributed additional transportation costs and extra costs in the prices of goods and services imported.
- According to Make UK, 42% of manufacturers have increased the proportion of suppliers based in Great Britain over the past two years.
- According to the ONS, the value goods exports to the EU was 11.8% lower in 2021 than during 2018. In contrast, the value of goods exports to non-EU countries declined by just 5.6% compared with 2018. EU exports recorded a sharp drop in Q1 2021 and, despite recording a sustained recovery since, volumes remained below pre-pandemic seasonal average towards the latter part of 2021. Nevertheless, the value of EU exports recovered to above 2018 levels in December 2021.
- The UK government has extended the deadline for companies in Great Britain to display the UKCA mark on new and existing products from 1 January 2022 to 1 January 2023. The new legislation covers all products that previously carried the EU’s CE marking. The government has also announced easements to the certification, in response to widespread concern regarding cost pressures caused by the transition to the new regime. These changes include recognising EU tests on existing products and dropping the requirement for imported parts to carry a UKCA mark before being fitted.
- According to Make UK, Brexit-supporting regions are becoming increasingly dependent on the EU for their manufacturing exports. Overall, 49% of British exports were destined for the trade bloc in 2021.
- According to a report published by the Public Accounts Committee, the Competition and Markets Authority, Food Standards Agency and the Health and Safety Executive have been particularly affected by Brexit. Challenges have stemmed mainly from recruitment difficulties, a shortage of expertise and exclusion from EU information-sharing networks.
- The share of manufacturers in Northern Ireland struggling with the Northern Ireland Protocol, which governs trade in the region, declined from 41.3% in July 2021 to 23.9% in January 2022, according to a survey conducted by Manufacturing NI. This is expected to have facilitated increased trade volumes between Ireland and Northern Ireland, with the Central Statistics Office (CSO) noting a 23% increase in the value of exports to Ireland from Northern Ireland and a 42% rise in the value of imports from Ireland to Northern Ireland.
Following the end of the transition period, the UK has left the EU internal energy market. While the EU-UK TCA provides a broadly similar framework for the EU and UK energy markets, the energy sector has faced a reduction in the efficiency of trade through interconnectors, placing upward pressure on electricity prices.
- The TCA ensures continued tariff-free trade of electricity through interconnectors and generally follows the same principles set out in existing EU legislation, such as providing exemptions from requirements for third-party access and unbundling. However, Great Britain has lost access to implicit day-ahead and intraday market coupling arrangements on GB electricity interconnectors.
- The de-coupling of UK and EU energy markets has had a significant indirect effect on Ireland’s energy market. Ireland’s Single Electricity Market (SEM) trades energy with Europe via two interconnectors running through Great Britain; these supply between 15% and 30% of typical demand on the SEM. Therefore, less-efficient interconnector flows between the EU and the UK spurred increased price volatility in early 2021, though this is expected to have eased as operators have become more accustomed to the new trade arrangements.
- The UK is yet to secure an agreement with the European Commission regarding new trade rules, despite previously agreeing as part of the TCA that a framework for future electricity trading would come into effect this year.
- UK Prime Minister Liz Truss has ruled out extending a windfall tax on excess profit of firms in the energy sector, contrasting the EU’s decision to impose windfall taxes on certain energy and fossil fuel companies. This highlights the UK’s divergence from EU policy.
- At a meeting between 44 European leaders, Czech Prime Minister Petr Fiala confirmed plans to renew the UK’s participation in the North Seas Energy Cooperation, which the UK previously left following the end of the EU-UK transition period. This would help to strengthen European energy co-operation, with the scheme supporting the construction of wind farms and interconnectors.
- According to the CSO, exports of energy from Northern Ireland to Ireland totalled €218 between January and May 2022. This was more than double the value recorded in the same period in 2021, aided by growth in energy prices and the Northern Ireland protocol.
- After withdrawing from the European Atomic Energy Community (Euratom), Britain signed a 21-page Nuclear Cooperation Agreement (NCA) with Euratom on 1 January 2021. The NCA closely tracks the Euratom treaty, ensuring continued supply of nuclear materials and equipment to the UK. The UK has also put in place new bilateral nuclear cooperation agreements with Canada, the US and Australia.
- Despite having the freedom to set its own VAT rates following the end of the transition period, the UK government has ruled out removing VAT from domestic gas and electricity bills amid soaring energy costs.
Following the end of the transition period, the key concerns for the Construction sector relate to access to labour, the supply of raw materials and access to funding. Contractors have consistently noted frictions arising from the end of the transition period as a weight on growth within the sector.
- According to the ONS, the number of EU-born construction workers declined by 42% between 2017 and 2020, compared with a 4% decline in UK-born workers over the same period. The tightening of immigration rules from 1 January 2021 has limited access to EU labour markets, exacerbating these labour shortages. As a result, wage growth in the construction sector has outpaced the wider economy throughout 2021, though this is somewhat distorted by the large number of construction employees being on furlough in 2020.
- According to the ONS Business Insights and Impact on the UK Economy survey, 30.8% of firms surveyed in the construction sector stated that they faced increased costs between 20 September and 2 October 2022 compared with the same period in the previous year, as a result of the end of the EU-UK transition period. Costs associated with changing supply chains and transportation were the main causes of this.
- Following the loss of funding from the EU Infrastructure Bank, the UK launched a new UK Infrastructure Bank (UKIB) on 17 June 2021. The UKIB will provide £22 billion of funding for infrastructure projects through an initial capital fund of £12 billion and up to £10 billion of government guarantees.
- Approximately 60% of imported materials used in the UK construction sector are imported from the EU. Therefore, additional red tape implemented at UK ports has lengthened lead times in the sector. For example, in May 2021, the Timber Trade Federation stated that Brexit-related complications have squeezed UK timber stocks.
- In order to ease materials shortages faced by the construction sector, the UK government extended the deadline to replace the EU’s CE markings, which are used to certify construction products, with the new UKCA marking from January 2022 to January 2023. However, the Construction Products Association has noted a lack of testing capacity to meet this new deadline, with the Construction Leadership Council estimating that the inability to certify radiators in the UK could delay the construction of over 150,000 homes in a single year. In response to these concerns, the government has eased the bureaucratic demands associated with the introduction of the safety and quality assurance mark, with changes including the recognition of EU tests on existing products for the basis of awarding a UKCA mark. However, the government remains committed to the deadline for adopting the UKCA marking of 1 January 2023.
Following the end of the transition period, the key issues facing the Wholesale Trade sector are labour shortages and non-tariff barriers. Similar to other sectors in the economy, wholesale operators have reported severe labour shortages that have disrupted operations and supply chains. Additionally, red tape when trading with the EU has created some trade friction and increased costs for wholesalers, hurting exports and import.
- One of the biggest challenges faced by wholesalers has been a lack of labour, with operators reporting staff shortages in operational roles within depots. Moreover, truck driver shortages, arising from border friction following Brexit and because many former drivers have returned to their home countries, have significantly affected wholesalers and logistics companies. The Financial Times reported that the end of the EU transition period and the effects of the COVID-19 pandemic have left the UK short of an estimated 100,000 hauliers to carry goods to warehouses and retailers.
- Traffic chaos at Britain’s key ports has made trade with the bloc more time-consuming, unreliable and expensive, damaging the UK’s reputation. This has made EU drivers reluctant to take work in the UK in order to avoid the long traffic jams.
- According to a survey from the Chartered Institute of Procurement and Supply published in August 2022, 40% of UK organisations switched at least one international supplier to a domestic alternative in the last year. Of those, 70% cited domestic suppliers as more reliable and 59% cited shorter lead times as the reason for the switch. 36% of UK supply chain professionals are expressing a desire to switch to more UK suppliers in the future, which is partly down to Brexit.
- Global trade has rebounded strongly from the challenges presented by the COVID-19 pandemic. However, UK goods exports to the EU fell by 15.6% to £12.4 billion in the first half of 2022, highlighting the trade friction caused by Brexit. Moreover, data from the ONS states that UK current account deficit in the second quarter of 2022 has fallen to its worse level on record, accounting for 8.3% of GDP, up from 2.6% in 2021. This has been attributed to the weak performance of UK exports and a surge in imports, which highlight the effects of Brexit, though other macroeconomic factors have also played a part in the current year.
- Ramsden International, the leading UK wholesale exporter of British grocery brands, has reported the first loss in its history due to sales taking a hit from new Brexit rules.
- The UK government imposed yet another delay on border checks on EU imports, until at least the end of 2023, to prevent worsening supply chain issues. This has been the fourth time the introduction of full checks has been pushed back. Former Brexit minister Jacob Rees-Mogg has argued this will save £1 billion a year, though some industries, including vets, farmers and port operators, have criticised the move.
Following the end of the transition period, the key issues facing the Retail sector are disruption to trade and additional customs controls and border checks on goods imported for resale. However, the effect of the end of the transition period is difficult to untangle from that of COVID-19.
- Following the UK’s withdrawal from the EU, the VAT rebate on luxury goods, which permitted foreign consumers to claim back the 20% VAT on luxury purchases made in the UK, was removed on 1 January 2022. According to the Centre for Economics and Business Research, the removal of the VAT rebate has seen a huge drop in international visitors to UK luxury brands by nearly 7.3%, resulting in a £1.8 billion loss.
- According to a 2021 survey conducted by the UK Fashion and Textile Association, 98% of UK fashion businesses experienced higher costs through bureaucracy and paperwork, 92% experienced increased freight costs, 83% increased customers costs, 53% cancelled orders from EU customers and 44% an increase in returned or rejected items due to customs costs and VAT issue. Overall, according to a survey from the British Chamber of Commerce, just 8% of firms agreed that the EU-UK TCA has enabled their business to grow or increase sales, while 54% disagreed. The survey also highlighted the burden is falling on smaller operators employing fewer than 250 people.
- Retailers are reassessing supply chains and sourcing agreements with distribution and logistics agreements. 25% of survey respondents from a RetailX Fashion Sector survey were reconsidering relocating operations elsewhere in the EU to streamline and bring down logistics, staffing and manufacturing costs. 39% would move to the EU if they were offered tax advantages. 91% want a visa scheme to make it easier for creatives to operate across the UK and EU.
- Additional customers charges and delivery delays are discouraging consumers from other EU nations from shopping on UK e-commerce sites. In a survey conducted on behalf of the Irish Competition and Consumer Protection Commission, 44% of Irish respondents reported they were buying less from British sites after the UK’s exit from the EU, with 16% having stopped buying from them completely. The majority cited experiencing problems when making purchases, with less than half of these finding a resolution.
- On 1 January 2022, new border controls on animal and plant products from the EU came in effect. All importers are required to make a full customs declaration on goods entering the UK from the EU or other countries. Industry bodies, such as the British Frozen Food Federation, have warned new border controls may result in delays and major disruptions to food supply chains. Traders will no longer be able to delay completing full import customs declarations for up to 175 days, a measure that was introduced to cope with the initial disruption following the end of the transition period.
Following the end of the transition period, key issues facing the Transportation and Storage sector include changing aviation rules, disruption to international trade and reduced access to EU labour markets. The EU-UK TCA ensures minimal disruption for UK airlines, though new immigration rules have exacerbated labour shortages in the logistics sector.
- UK airlines no longer enjoy traffic rights inside the EU and EU airlines no longer enjoy domestic UK traffic rights. This means that UK airlines are no longer allowed to provide intra-EU flights, while EU operators are not able to provide domestic UK flights. The impact of this is fairly minimal, as airlines that previously took advantage of these rights have established subsidiaries to preserve them.
- Chartered and freight airlines have been affected by new red tape relating to non-scheduled flights following the end of the transition period. Carriers running non-scheduled flights now have to apply for a permit from individual EU member states when they want to fly there. This process can often take days, causing several smaller airlines to lose a significant amount of business.
- Additional administrative burdens associated with the trade of goods between the UK and the EU has contributed to significant disruption at ports since the end of the transition period. Most recently, the introduction of complex new customs declarations and rules-of-origin forms since 1 January 2022 has contributed to significant delays for lorry drivers carrying goods imported from the EU.
- Changes to freedom of movement rules following the end of the transition period has exacerbated labour shortages within the Freight Road Transport industry. According to Freightlink, at least 15,000 European drivers have left the UK due to the UK’s exit from the EU.
- According to the ONS Business Insights and Impact on the UK Economy survey, 26% of firms surveyed in the Transportation and Storage sector stated that they faced increased costs between 20 September and 2 October 2022 compared with the same period in the previous year as a result of the end of the EU-UK transition period. Extra costs in the prices of goods and services imported and additional transportation costs were the main causes of these increases.
- Trials are set to take place in October 2022 for the EU’s incoming Entry/Exit System (EES). The new system, which is due to be introduced in May 2023, will collect biometric data in the form of fingerprints and captured facial images from non-EU travellers each time they cross an EU external border. There are fears among industry leaders that the new system could cause significant disruption at UK borders.
- According to the ONS, the value goods exports to the EU was 1111.8% lower in 2021 than during 2018. In contrast the value of goods exports to non-EU countries declined by just 5.6% compared with 2018. Imports from EU countries declined by 16.8% between 2018 and 2021, compared with a 12.5% increase in imports from non-EU countries.
- The aviation sector has displayed a growing trend of UK airlines leasing European-owned aircraft, enabling airlines to bypass the requirement for flight crew to hold a British visa and avoid Brexit related staff shortages.
Following the end of the transition period, the key issues facing the Accommodation and Food Services sector are labour shortages and higher input prices. The sector has been one of, if not the most affected by the staff shortages since the start of 2021, when the points-based immigration system came into force. Moreover, due to many of the sector’s inputs being purchased from abroad, trade friction and red tape since the end of the transition period have increased costs and weighed on the sector’s performance.
- The biggest issue facing businesses in the sector is the severe labour shortage since 1 January 2021, largely due to Brexit but also exacerbated by the COVID-19 pandemic. Thousands of workers have returned to their home countries or taken other jobs over 2021. Pubs, bars, cafes, restaurants and hotels have all been severely affected by the lack of labour, while job vacancies have surged. In July 2022, the ONS found that 54% of businesses in the sector reported they were experiencing a shortage of workers.
- According to data from recruiter Caterer.com based on a survey conducted in July 2022, the number of EU citizens working in the hospitality has plunged by approximately 41% to 172,000 EU citizens, compared with the pre-pandemic level of 293,000 EU citizens. The drivers behind this have been the effects of the UK’s exit from the EU and the COVID-19 pandemic. Staff shortages are having an effect on industry output. In the aforementioned survey, 43% of businesses said they had to cut back operations because of staff shortages, while about 25% of businesses reported more applications from British candidates.
- A report led by academics from the Oxford University found that there had been a large decline in the number of EU workers in the hospitality sector, with shortages exacerbated by Brexit. However, rather than employers raising wages to attract staff, they have mostly cut output. In a survey of 207 businesses by trade body the British Institute of Innkeeping from July 2022, 15% of independent pub operators have said their business is no longer viable, predicting they would have to close permanently, while nearly 50% said they have had to reduce trading hours due to labour shortages, as reported by the Financial Times. Additionally, 75% of independent pubs have open vacancies and around 25% have had to close their doors for one or more trading days because of shortage of staff.
- Over 65 hospitality leaders urged the government to ease visa rules for staff in order to save the sector under the new Brexit rules. According to these hospitality leaders, roles such as chefs, bartenders and sommeliers must be added to the shortage occupations list. The government has previously said the industry should train British staff instead, although businesses have responded there is not enough labour to fill the vacant roles, with labour shortages in other sectors as well.
- UKHospitality has said that in the longer term it wants the government to review the effects of the new immigration system on the competitiveness and recovery of the hospitality sector. Any easing of entry requirements for EU workers in the future, although unlikely in the short term, would be beneficial to the sector. At the end of May 2022, UKHospitality launched a nationwide hospitality workforce strategy as it seeks to help plug the sector’s 170,000 jobs gap.
- New paperwork, border checks and controls that are now required when trading with the EU have increased purchase costs for businesses in the sector, with input prices rising. Higher transportation costs and extended lead times have also weighed on the sector’s performance. As a result, operators may look into changing suppliers, attempting to avoid importing products from the EU.
Following the end of the transition period, the key issues facing the Information sector mainly relate to labour, funding and regulation. Loss of funding and regulatory changes may hinder the sector’s growth, straying away from EU frameworks. However, this also offers the opportunity for the government to step in to fund and introduce legislation that supports technology and other business start-ups and innovation in the UK.
- Businesses in the sector may face difficulties recruiting talent from overseas due to the points-based immigration system. This may impede growth in the sector, as it relies on highly skilled staff. According to the Recruitment and Employment Confederation, approximately one-fifth of technology positions in London were filled by EU citizens in 2019. In June 2022, BT’s Openreach division has claimed that Brexit is slowing superfast broadband roll-out, criticising the process of hiring skilled workers from the EU bloc.
- The UK is no longer part of the Creative Europe programme, reducing funding for businesses in the sector. UK businesses are also excluded from the new European Innovation Council Fund, which is designed to support start-ups. The UK has also lost the benefit of participating in the Digital Single Market (DSM).
- As the UK is no longer part of the DSM, the UK’s leading mobile network operators have reintroduced roaming charges for some customers in 2022. The government has legislated to protect consumers from unexpected charges, ensuring that obligations on mobile operators to apply a financial limit on mobile data usage while abroad are retained in UK law.
- If the EU decides to block Britain’s continued participation in the Copernicus earth observation programme, it will instead be looking to play a bigger role in the European Space Agency. The UK government had originally planned £750 million for future contributions to EU’s Copernicus, and is now looking to reallocate this money elsewhere.
- The Financial Times has reported that the UK has launched legal proceedings against the EU for preventing its access to key science and research programmes, including Horizon Europe, Euratom and Copernicus.
- The UK now has the freedom to introduce new legislation and diverge from EU frameworks. As such, the government introduced the Online Safety Bill in March 2022. Additionally, in June 2022, the UK government unveiled a new UK Digital Strategy with the aim to make the UK a global tech superpower by addressing tech sector skills, investment and infrastructure. Over £12 billion in venture capital funding has been secured by UK tech start-ups and scaleups since the start of the year, which is more than the whole of 2020. It puts the UK just behind the US and ahead of China on funding secured by tech start-up firms.
- At the end of August 2022, the government announced that tough new security rules broadband and mobile companies will have to follow to better protect UK networks from potential cyberattacks are due to be brought into force from October 2022. This comes as the government’s Telecoms Supply Chain Review found providers often have little incentive to adopt the best security practices. Ofcom will oversee, monitor and enforce the new legal duties and have the power to carry out inspections of telecoms firms’ premises and systems to ensure they’re meeting their obligations. If companies fail to meet their duties, the regulator will be able to issue fines of up to 10% of turnover or, in the case of a continuing contravention, £100,000 per day.
- In June 2022, the government released the response to the consultation on the reform of the UK data protection regime, titled ‘Data: a new direction’, with which it aims to strengthen UK personal data protection and reduce burdens on businesses.
Following the end of the transition period, the key issues facing the Finance and Insurance sector are loss of passporting rights, equivalence, regulatory uncertainty and labour. The regulation of the UK Financial Services and Insurance market is governed by a number of key regulations, many of which were not covered in EU-UK TCA.
- In July 2022, the insurance and long-term savings industry submitted its response to the government’s consultation on Solvency II. A key objective to reforming the EU-derived legislation is to unlock long-term capital to support growth and investment in infrastructure. However, the Association of British Insurers has argued the current proposals would not achieve the suggested release of 10 to 15% of capital for re-investment and life insurance firms would have to hold more capital than currently required, preventing them from being able to provide the funds that are needed for investment across the UK. In September, the Treasury noted former chancellor Kwasi Kwarteng would announce the long-awaited reforms, which will include changing the EU’s Solvency II directive on insurance firms, in October, though this is likely to be delayed following the change in Chancellor.
- The Markets in Financial Instruments Directive II (MiFID II) is an EU initiative to standardise, regulate and improve transparency in the European financial markets. The regulations administer compliance requirements for all financial firms and aim to protect investors from financial misappropriation like the one seen in 2008 and affects all aspects of financial trading, investing and professions. For instance, it aims to mitigate and reduce dark pools, private and anonymous financial exchanges to a maximum of 8% volume in 12 months. They also aim to minimise over-the-counter trading, which can be controversial sometimes. It has applied since January 2018. Key proposed UK reforms include giving firms greater choice about where they can trade and allowing them to get the best price for investors, as well as Simplifying the regulation of prospectuses and removing unnecessary red tape. Like Solvency II, changes were to be announced in October 2022, but are likely pushed back following the change in Chancellor.
- The Financial Services and Markets Bill, a key piece of legislation to boost the UK’s financial services sector after leaving the EU, was introduced to Parliament on 20 July 2022. The bill includes changes to the framework within which financial services regulators operate, reform of the regime for wholesale capital markets and addressing important issues affecting communities across the country, such as fraud and access to cash. Core elements include regulating stablecoins and easing insurance capital rules. Previous estimates by the Pension Insurance Corporation suggest UK-specific reform of Solvency II would free up an additional £2 billion per annum to invest in productive finance in the short term, including £500 million to invest in renewables or green assets and boost the sector’s competitiveness and attract foreign investment.
- The loss of passporting rights and continued uncertainty resulted in many financial institutions establishing or expanding operations in European countries, moving branches and staff away from the UK. This has contributed to declining establishment and employment numbers in the Finance and Insurance sector over the past five years.
- The UK Treasury has moved to regulated mini-bonds, which are bonds that cannot be traded to the public. The move comes after the failure of mini-bond provider London Capital & Finance in early 2019, which exposed investors to losses of £237 million and affected the savings of 11,600 customers. It forms part of a series of post-Brexit reforms to capital market rules published following a consultation with the City last year.
- As declared in the TCA, the EU and UK agreed a Memorandum of Understanding (MoU) at the end of March 2021 to create ‘the framework for voluntary regulatory cooperation in financial services between the UK and the EU’ and established the Joint EU-UK Financial Regulatory Forum, which will serve as a platform to facilitate dialogue on financial services issues. However, the MoU did not include provisions on equivalence. UK financial institutions have faced significant regulatory hurdles in order to continue in the provision of their services in the EU, with these additional regulations putting domestic financial institutions at a competitive disadvantage compared with their European peers.
- Clearing houses are a body through which derivatives and securities trading takes place; they monitor transactions and provides a system for financial settlement and are critical in preserving market instability. EU access to UK clearing houses was due to end in June 2022. However, in January 2022, Brussels started negotiations to extend access to UK clearing systems until 2025.
Following the end of the transition period, the key issues facing the Real Estate and Rental and Leasing sector are immigration rules, investment and relocation.
- ONS data states that net migration of EU nationals to the UK turned negative in 2020 and this is likely to have continued in 2021. This poses a problem for the sector as it hinders demand for real estate, rental and leasing services.
- The uncertainty surrounding Brexit encouraged some companies to relocate offices and move away from the UK, or at least reduce their investment and expansion plans, with non-residential property sales activity declining since the EU referendum. According to HMRC data, UK non-residential property transaction volumes, seasonally adjusted, declined by 7.9% between 2016-17 and 2019-20.
- Residential property transaction volumes have remained strong, with HMRC data showing that there were 7.24 million transactions between July 2016 and May 2022, a rise of 14.4% on the previous six years. Nevertheless, according to estate agency Knight Frank, while UK regions saw significant growth in house prices and overall, UK house prices have risen by 32% between July 2016 and May 2022, central London has recorded a 16% decline in prices since Brexit. Overall, house prices in London have grown by 12.7% over the period, far behind the rest of the country.
- Estate agent Benham and Reeves states that nearly 250,000 homes are owned by overseas buyers, with the total market value of foreign homes standing at £90.7 billion across England and Wales, as reported by City AM. This suggests that Brexit has not led to an exodus of foreign homeowners.
- The avoidance of no-deal Brexit and reduced uncertainty on that front are likely to attract investment in the UK property market from international buyers. Recent data from non-profit organisation the Centre for Public Data has found that the number of homes in England and Wales owned by overseas buyers has almost tripled in the past decade, with residents from tax havens and Asia in particular flooding into the market. Moreover, as uncertainty has waned, large commercial property deals have taken place, with £5 billion worth of investment in London real estate taking place over the first quarter of 2022, suggesting that the capital has remained attractive for foreign investors.
- As cross-border movement has become more complicated, Britons wanting to move to the EU are finding it more difficult, with visas in place and each country having its own residency requirements. This may have put off some Britons from looking for homes abroad and instead led them to buy a house in the UK, which benefits the sector.
Following the end of the transition period, the key issues facing the Professional, Scientific and Technical Services sector are labour, exports and regulation. The EU-UK TCA deal contained little provisions on professional services.
- TheCityUK has stated that nine months after the end of the transition period, financial and related professional services firms were reporting significant cost increases to secure high-skilled talent, as otherwise they would become less competitive on the global stage.
- The lack of mutual recognition of professional qualifications hindered the sector and some industries within the sector have lost out, particularly professional services firms. For example, UK lawyers lost the ability to automatically work in the EU, making UK law firms less competitive and some may relocate offices to the EU or open new offices in the EU. Architects have also warned that winning work in the EU has become harder. Nevertheless, those who already have qualifications accepted in the EU will continue to have that recognition.
- In May 2021, the UK introduced the Professional Qualifications Bill, allowing foreign professionals to have their qualifications recognised in Britain where they met UK standards, with regulators given autonomy to assess those qualifications and seek reciprocal deals, as reported by the Financial Times.
- Brussels has blocked the UK from joining the Lugano Convention, which determines which countries’ courts have jurisdiction over disputes. This has further adversely affected legal firms, as it creates complications on divorce settlements and child maintenance awards.
- UK service exports were cumulatively £113 billion lower from 2016 to 2019 than they would have been had the UK not voted to leave the EU in June 2016, according to Aston University. Financial services exports were the hardest hit over the four-year period.
- A campaign called Stick to Science has been launched by scientists in an attempt to persuade the EU to allow the UK and Switzerland to partake in its seven-year Horizon Europe initiative, which is a research and development programme worth €95 billion. Membership to the programme would be significantly beneficial through its support of science, collaboration and competitiveness.
- It has been reported that the EU is blocking UK scientists from participating in Horizon Europe amid a row over post-Brexit trade in Northern Ireland. As a result, the UK could walk away from the multibillion initiative, something which has been criticised by British scientists. In June 2022, then science minister George Freeman stated that he would be rolling out £15 billion of funding from September 2022 if the UK is excluded from EU science programmes such as Horizon, Copernicus and Euratom. Nevertheless, British scientists have warned that loss of membership in the Horizon Europe programme could have a serious impact on the future of UK research, with top academics potentially preparing to leave the country if membership is not negotiated.
- At the end of May 2022, The Financial Times reported that the UK and Sweden had signed a cooperation agreement in life sciences, aimed at strengthening academic research and commercial collaboration as Britain seeks to deepen scientific ties with other nations after Brexit.
Following the end of the transition period, the key issues facing the Education sector are the end of freedom of movement for international students and funding, particularly for tertiary level educational providers. However, the effect of the end of the transition period is difficult to untangle from that of COVID-19.
- Since the EU referendum, researchers have voiced concerns over the UK losing access to EU research funds, Horizon Europe. Horizon Europe will run until 2027 includes the prestigious European Research Council (ERC), which awards unrivalled fellowships for basic research and has a budget of €95 billion (£84.1 billion). The TCA included provisions for the UK to become an ‘associate’ member of Horizon Europe, which would give UK-based researchers most of the same rights to funding as scientists in EU nations. Despite 18 months of talks on association, however, negotiations have stalled due to a disagreement on how to implement a border between the Republic of Ireland. In August 2022, the UK government launched formal consultations with the EU, in an effort to end persistent delays to the UK’s access to EU scientific research programmes, including Horizon Europe. However, senior scientists and vice chancellors are warning the government is no longer committed to a deal on associate membership, and the scientific community have cautioned that top academics are preparing to go overseas in the face of losing funding. The effect of brain drain won’t be instantaneous, but felt over the medium to long term.
- In February 2022, the UK announced plans to spend £6 billion over three years on a new global science fund, known as Plan B, if the EU refuses to let the country take part in its Horizon Europe research programme. However, a key issue with a new global science fund is the uncertainty and unclear terms, unlike Horizon Europe, which has been established for many years. University researchers have commented the uncertainty is already leading to a downward spiral in collaborative activity between scientists in the UK and on the continent.
- In the meantime, almost 150 UK-based researchers won ERC fellowships in the council’s first funding call, but the EU has now said that UK researchers can take up the grants only if they transfer to an institution in an EU member country. At present, 18 scholars have opted to do so; a further eight are waiting for transfers to be approved. The ERC has cancelled the grants of 115 successful applicants and a further 6 awardees have asked for more time to make a decision because of extenuating circumstances.
- According to UCAS, UK universities have recorded a 53.1% decline in the number of university applicants from the EU between 2020 and 2022. At the same time, the number of non-EU international students increased 24.9%. The number of undergraduate applications and places for students from the EU have been affected by a range of factors, including changes to student support arrangements and higher fees. Additionally, ministers have expressed concerns over the number of dependents international students can bring to the UK, which is up to six, and have alluded to plans to restrict the number of dependents, placing further pressure on international enrolment numbers.
- According to data from Universities UK International, the number of academics from other major European countries working in UK higher education, including Italy, Germany, France and Netherlands, has declined. This is likely largely the result of academics facing visa fees. However, the downward trend was not universal: the number of Irish academics working in the UK rose by 2.1% , while there were also increases from Spain (0.4%), Poland (2.1%) and Portugal (2.4%).
Following the end of the transition period, the key issues facing Healthcare and Social Assistance sector are labour, supply of pharmaceuticals and medical devices and divergent legislation. The effect of the end of the transition period is difficult to untangle from that of COVID-19.
- In September 2022, the Medicines and Healthcare products Regulatory Agency (MHRA) appointed the first new UK Approved Body to certify medical devices since Brexit. Dekra, based in Buckinghamshire, will undertake assessments for general medical devices, known as Part II designation, for any potential organisation to become approved to certify medical devices in the UK. The company is part of Deutscher Kraftfahrzeug-Überwachungs-Verein eV, which has revenue of over €3.5 billion and employs 47,770 people in over 60 countries on all six continents.
- The launch of new medicines has long lead times and regulatory strategies are planned months or years in advance. To provide suitable timeframe for the right strategies to be developed, the European Commission Decision Reliance Procedure (ECDRP) has been extended by 12 months to apply across Great Britain until 31 December 2023, to ensure the population continue to have timely access to medicines while MHRA develop proposals for a new international reliance framework. The ECDRP allows a company to submit a product that has received approval from the EMA to the MHRA. The MHRA can grant a licence with a lighter touch review than they would normally conduct for that medicinal product, relying on the EMA’s decision.
- Despite the implementation of the Health and Care Worker Visa (HCWV), a fast-track visa route that also provides exemptions from the Immigration Health Surcharge, the Health and Social Care sector is plagued by workforce shortages and uncertainty with regard to future staffing. For nursing and health visitors, there has been a shift from EEA to non-EEA applicants. According to NHS Workforce Data in September 2021, the proportion of EU or EEA joiners fell from 19% in 2015-16 to 6.1% nine months after the end of the transition period. Further, the proportion of nurse joiners reporting a non-EU or -EEA nationality rose to 25% in 2019-20 before falling to 19% in 2020-21, while data from the Nursing and Midwifery Council (NMC) suggests almost 11,000 international nurses joined the NMC register over the first half of 2021-22, more than in the whole of 2020-21.
- The HCWV is not available to those in adult social care and labour shortages are particularly evident. To tackle shortages, in January 2022, care workers, care assistants and home care worker positions were added to the Home Offices’ shortage occupation list and immigration requirements were temporarily eased. However, according to figures from Skills for Care, the social care workforce has shrunk for the first time in almost a decade despite rising demand and bed congestion in hospitalsfuelled by a lack of care places. England is expected to need close to 500,000 more care staff by the middle of the next decade, but in 2021 there was a net fall in the workforce of 50,000 people, leaving about 165,000 jobs vacant. The association notes the £500 million workforce fund created month by the government in September as insufficient to fill the labour gap and councils are calling for £3 billion to be pumped into better pay and recruitment.
- The UK is falling behind the US and EU in attracting and approving new innovative medicines following the end of the transition period in January 2021. According to an approval audit conducted by Imperial College London on behalf of the MHRA, only 35 so-called novel medicines were approved for use in the UK in 2021 compared with 40 in the EU and 52 in the US. It has been suggested this lag is due to the smaller size of the UK market compared to the EU and US, as it is now independently regulated from the EU and additional regulatory burden. The fall in approvals for innovative medicines has highlighted concerns regarding the attractiveness of medicine R&D over the long term.
- Officials at the MHRA have warned that regulatory changes as a result of the UK’s exit from the EU could cost the regulator between £20 million and £30 million per annum. Until the UK’s exit from the EU, MHRA had earned a significant amount from the European Medicines Agency for its work assessing new drugs for use across the EU, but the senior MHRA official said they would have to adapt to a new setup post-transition period as a result of the changes.
- Uncertainty remains surrounding the long-term implications of withdrawal on the supply of medicines remain due to divergent legislation. For instance, the UK has not implemented some aspects of the 2011 EU Falsified Medicines Directive, which introduced a system of unique identifiers and security seals on each pack of medicines to guard against fraudulent products. The UK lags behind reforms intended to improve safety and cooperation, which is expected to pose an obstacle to the supply of medicines.
Following the end of the transition period, the key issues facing the Arts, Entertainment and Recreation sector are access to funding, particularly for creative industries, and free movement of labour for professional sports clubs.
- Following the UK’s exit from the EU, the UK musical entertainment sector, including festivals, face challenges. One of the main issues is bands of all sizes now need a carnet – an international customs document detailing every instrument and equipment, with the serial numbers – to be allowed to go between the UK and EU with all their equipment, costing a minimum of £600. As well as increasing costs and paperwork for British bands wanting to travel across the Channel, EU bands wanting to come and play UK festivals face the same barriers.
- Prior to 1 January 2021, operators in the Arts and Entertainment industries, such as motion picture producers, benefitted significantly from funding from the EU. The industry previously received funding through the Creative Europe programme, a framework programme set up by the European Commission to provide grants of up to €1 million (£841,000) or 10% of eligible costs (whichever is lower) to TV series that had the potential to circulate within the EU and further afield. These series had to be produced by independent producers and had to be based in a country that participates in the MEDIA sub-programme. Following the UK’s exit from the EU, UK operators will no longer benefit from the Creative Europe programme. However, towards the end of 2020, the UK government set up a pilot Global Screen Fund of £7 million to partially replace funds disbursed from the Creative Europe programme.
- In February 2022, the UK government pledged £50 million for creative businesses across the UK. The investment includes £21 million to help build on the international success of the UK film industry through a three-year UK Global Screen Fund. This follows a successful one-year pilot of the scheme that has boosted the global reach of UK independent productions. £18 million of funding will support creative businesses outside of London as they create new economic opportunities in their areas. £8 million will help start-up video game developersacross the UK create new games. This additional funding is expected to help replace the lost funding from Creative Europe.
- Restrictions on the movement of labour are particularly relevant to those operating in the Sports Clubs industry. From January 2022, overseas football players anticipating transfers from the EU to the UK will need a Governing Body Endorsement (GBE). This new rule brings them in line with footballers being transferred from non-EU countries to teams in the Premier League. Similarly, sports clubs can only sign a maximum of three under-21 players if they need to get a GBE and they will not be permitted to sign more than six overseas players in a single season.
Source from IBISWorld
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