How Brexit is affecting businesses
On June 29, 2016, the United Kingdom (UK) voted to leave the European Union (EU). Since then David Cameron resigned as Prime Minister and Theresa May has replaced him. The value of the pound has “dropped twelve percent”, however the “FTSE 100 Index has gone up 17 percent”. (The New York Times). On March 29, 2017, Theresa May invoked Article 50 to start the process of the UK leaving the EU. Since invoking Article 50 the UK will have two years to reach an agreement with the EU on how both parties want to handle trade and the movement of people between countries in the EU and the UK. If no agreement is reached in two years then trade rules set by the World Trade Organization will go into effect which would allow for the UK to impose greater or possible unequal tariffs. This would mean the price of goods and labor that are imported and those that the UK exports would increase.
One of the reasons that UK citizens voted for Brexit was because they want to see a decrease in immigration. Since the EU allows easy passage between member countries, some fear that it is too easy to enter a country and cause harm. Once one gains citizenship in a country one can easily move between countries without many obstacles, however different countries have different requirements and security checks for becoming a citizen. Easy passage between countries can be beneficial to countries as well; many citizens of EU countries come to work in the UK. These people work in a number of different jobs from farming to finance across the UK. With the UK leaving the EU, many are unsure what will happen to these workers and some have already started to leave the UK. “Official figures reveal that the number of EU-born workers in the UK fell by 50,000 between October and December to 2.3 million” (Kollewe). With people leaving, businesses will have to find a way to make up for this lack of labor. Some businesses have started to move jobs to EU member countries while another option would be for businesses to raise labor rates for jobs that UK citizens have not been willing to do for lower rates.
Increased labor rates is not the only effect of the UK leaving the EU. Depending on the outcome of the upcoming negotiations a multitude of things could happen. Since the UK is the first to exercise article 50, no one knows how this will affect other member countries. If the UK gets a favorable deal other countries may also consider leaving to see if they can get the benefits of the EU without paying into the system. However, if the UK gets a bad deal it could discourage countries from leaving in the future. Another possible effect would be Scotland leaving the UK to join the EU. Since the majority of the Scottish population voted to stay in the EU, some have considered leaving the UK and joining the EU to stay in the single market system. This separation would further decrease the UK’s workforce and hurt their economy.
Written By Gm professional accountants, Local Accountants based in london