SUPPORTING YOU THROUGH BREXIT

SUPPORTING YOU THROUGH BREXIT

NEWGATE’S BREXIT AUDIT AND ADVOCACY PROGRAMME

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s your business or organisation assesses the implications of the EU Referendum result, you will no doubt be preparing for the many challenges and opportunities that lie ahead. With the prospect of sustained periods of political instability, market volatility and economic uncertainty, the consequences for investor and consumer confidence, as well as the policy and regulatory environment, are likely to be significant. Organisations need reassurance that they are prepared for what is potentially the biggest political and regulatory upheaval in the UK for decades.

Newgate’s team of experienced consultants will conduct a comprehensive analysis of your business’s exposure to EU policies and funding programmes, and identify how your operations are impacted by EU regulation.

Our Brexit Audit service can: • Help management understand how Brexit might affect their business including political, regulatory and economic impacts

Organisations that give serious upfront consideration to the potential impacts of Brexit will be on the front foot when it comes to influencing Government policy on changes to laws and regulations that might have detrimental outcomes.

• Identify potential costs and benefits, as well as risks and upsides to your business • Strategically position the organisation’s response to Brexit, including engaging with and influencing UK Government and opinion formers

Reaching an informed understanding requires a thorough review of the political landscape, as well as the regulatory and economic consequences of Brexit on the business.

• Complement and challenge internal Brexit assessments and mitigation strategies

Newgate Communications offers its clients integrated communications support, providing specialists in individual disciplines – financial and corporate communications, public affairs and investment relations – working together in one team to provide advocacy, build and defend corporate reputations and demonstrate leadership.

Our Brexit Audit will inform a defined programme of public affairs activity to mitigate the impact of Brexit on your business, and shape the future policy direction of the UK Government.

Our comprehensive ‘Brexit Audit and Advocacy Programme’ helps businesses as well as organisations understand and navigate the political, regulatory and economic impacts that lie ahead, how to minimise the cost of these whilst maximising the benefits and opportunities.

What are the consequences of Brexit and how will it impact my business?

How can I reassure customers, investors, supply chains and staff?

Who should I be talking to in Government and what should I be saying?

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‘BREXIT PROOFING’ YOUR BUSINESS What does our Brexit Audit look like? LEGAL

TRADE

FUNDING

INTELLECTUAL PROPERTY

ACTION

ACTION

ACTION

ACTION

Review exposure to EU law

Review risks and uncertainties associated with potential changes to tariff and non-tariff barriers to EU market

OBJECTIVE

Review reliance on EU funding programmes

Review Intellectual Property (IP) law and how Brexit might impact that

OBJECTIVE

Identify preferred future regulatory regimes and manage risks and uncertainties associated with regulatory change

OBJECTIVE

Identify future sources of funding and shape successor funding programmes

OBJECTIVE

HR

COMMERCIAL

COALITION BUILDING

POLITICAL

ACTION

ACTION

ACTION

ACTION

OBJECTIVE

OBJECTIVE

OBJECTIVE

OBJECTIVE

Establish how future trading relations will be affected, and which alternative markets should be explored

Review commercial contracts

Review workforce

Identify opportunities to renegotiate contracts

Assess exposure to future restrictions on rights of free movement

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Identify the impact of Brexit on companies using the European Patent Office (EPO) and the European Union Intellectual Property Office (EUIPO)

Engage with trade associations and identify relevant industry-wide groups

Engage with Government Ministers and policy makers

Establish common cause with like-minded organisations to influence UK Government



Inform the Government’s negotiating strategy and protect your company’s best interests

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‘BREXIT PROOFING’ YOUR BUSINESS

LEGISLATION AND REGULATION

WORKFORCE PLANNING

SINGLE MARKET MEMBERSHIP AND MARKET ACCESS

As the UK Government begins the process of unravelling UK law from the EU, it will have to decide which regulations are to remain in place and which are to be repealed. The impact of these changes will be felt whatever the size of your business or organisation. The Government has already announced its intention to introduce a ‘Great Repeal Bill’ to repatriate and enshrine all EU laws into UK law before identifying which laws are surplus to requirement. Companies will therefore have to determine which rules they are exposed to and how this process could affect them. It also means preparing to influence government as it goes about reshaping legislation in the years and decades ahead.

Post-Brexit, many businesses will be facing significant talent and HR challenges. The financial services sector, for instance, employs huge numbers of EU nationals, as do the NHS and Higher Education sectors. Many of these employees are concerned about their future in the UK and will be seeking some guarantees from the Government about their long-term status. A significant portion of UK employment law is derived from EU law, including the legislation that governs maternity and paternity leave, and paid holiday. Some of this domestic legislation has been ‘gold plated’ beyond the basic requirements of EU law, but future employment legislation may be affected by the nature of our exit from the EU.

It should be noted that leaving the EU does not necessarily mean the UK will lose its membership of the European Single Market. It would, in theory, be possible to retain membership through continued compliance with the Four Freedoms (in what has been referred to by some as “Soft Brexit”). This outcome, however, looks increasingly unlikely given recent signals from the UK Government as to how it intends to approach Brexit negotiations.

Legislative and Regulatory Change

Four Freedoms

Goods

People

The Prime Minister confirmed in her major Brexit speech at Lancaster House that UK control of its own borders is a ‘red line’ for the Government in its discussion with EU leaders. This, she explicitly confirmed for the first time, precludes the UK from membership of the Single Market.

Capital

Services

The UK’s membership of the European Single Market is of considerable importance for businesses focused on the trading and free movement of goods and services across the continent. Under the Single Market, barriers to trade for some industries – such as internal borders, tariffs and other regulatory obstacles – have been removed between member states and national rules have been harmonised at EU level to ensure common rules and standards.

– – – –

The The The The

Free Free Free Free

Movement Movement Movement Movement

of of of of

Goods Services People Capital

Both the Chancellor and Prime Minister have hinted the Government may seek a “phased process of implementation” (also known as a “transitional deal”) to help smooth the Brexit process in order to avoid disrupting Britain’s financial stability. This would suggest Britain’s withdrawal from the European Union may be far from straightforward, and may take longer than the two years originally envisaged from the triggering of Article 50.

There are a raft of EU laws and regulations that could potentially change in addition to potential direct and indirect economic impacts to consider that could arise as a consequence of Brexit. The extent to which an organisation is affected will depend on how much it currently benefits from the Four Freedoms and how much the Four Freedoms are affected by Brexit.

This approach makes it even more important that you are making your needs known to government.

Whilst the UK Government has agreed to honour EU funding to certain sectors, including universities and agriculture up until 2020, there are no such guarantees that current levels of EU funding will be matched beyond then. This necessitates the early identification of successor funding programmes and new commercial opportunities and international partners.

Most UK law is harmonious with existing EU regulation. Will these change, and if so, how?

However, there have been some indications that the Government will aim to secure access to the single market for some industries and sectors that are considered strategically important. In her Brexit speech, the Prime Minister hinted at the possibility of making “appropriate contribution” to retain access to certain aspects of the single market. The EU’s chief Brexit negotiator, Michel Barnier, has even hinted that he favours a “special relationship” with the City of London after Britain has left the bloc.

The European Single Market guarantees ‘Four Freedoms’ and therefore requires members to comply with the following:

FUNDING

Legislative and Regulatory Change

Employment Rights

Data Protection

Competition Law

Trade Tariffs

Consumer Protection and Product

Intellectual Property

INVESTORS Market fluctuations show that some investors fear the cost of Brexit to the UK economy. Investors want assurance from their investee companies that the cost of Brexit to their business has been calculated and that everything is being done to mitigate the potential downsides and maximise new opportunities.

While no two sectors are the same, there are a number of issues that businesses and organisations should be actively considering as part of their post-Brexit planning.

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‘BREXIT PROOFING’ YOUR BUSINESS

OPPORTUNITIES TO INFLUENCE THE GOVERNMENT It is important that businesses ensure their voices are heard during the months ahead as the post-Brexit world takes shape.

Parliamentary Scrutiny (2017) The Prime Minister has already bowed to political and legal pressure by conceding that there should be Parliamentary scrutiny of the Government’s proposals and that the final Brexit deal should be put to a vote in both Houses of Parliament. This presents an invaluable opportunity for businesses to feed their views and inform the Government’s negotiating position.

Many businesses, particularly smaller businesses, prefer to adopt a ‘wait and see’ approach. But with Brexit, this approach is unlikely to serve them well. It is important that businesses do not leave it to the Government to decide what their sector or industry needs or wants. Unless businesses advocate for themselves, no-one else will.

Great Repeal Bill (May 2017) The Prime Minister has revealed her plans for a “Great Repeal Bill”, to be introduced in the Queen’s Speech in the Spring. The aim of the legislation will be to end the authority of EU law by converting all its provisions into British law on the day of exit from the bloc. At the same time, the 1972 European Communities Act giving direct effect to all EU law will be repealed.

It is essential that all businesses across the UK, regardless of size, take a proactive approach to public affairs to ensure that their needs are being heard by those who will be negotiating Britain’s exit from the European Union.

Initially, all EU laws will be transposed into British law. There will then be an opportunity to scrutinise, amend, repeal or improve any aspect of EU law. There will almost certainly be a huge number of requests for changes from MPs, peers and third parties determined to get rid of, or improve EU regulations. The Government has indicated that it will consult widely with business and third parties to help inform which regulations should be protected and which should be repealed.

Whilst the UK government embarks on its negotiated withdrawal from the EU, there are no shortage of opportunities to shape and influence the government’s position.

Possible Early General Election (2017) Whilst Theresa May has consistently ruled out an early general election, a snap poll cannot be ruled out entirely. The detailed work of formulating party manifestos and policy platforms presents a further opportunity for businesses and organisations to engage with political leaders and to inform their policy positions.

Article 50 Negotiations (March 2017) The formal process of leaving the EU is set out in Article 50 of the EU’s Lisbon Treaty. This Article, triggered by the UK Government, provides for a two-year period for the UK to conclude its withdrawal and negotiate a framework for its future relationship with the Union.

Continuation of work towards the UK’s formal exit (2018) In addition to establishing domestic regimes in areas where regulation and licensing is currently done at an EU level, there will also be a need to establish successor funding streams to existing EU funding programmes.

The Prime Minister has already indicated that she intends to trigger Article 50 no later than March 2017, which would imply the UK leaving the EU by 2019. However, this timetable has already been threatened by the High Court Judgement which ruled that Article 50 could only be triggered by Parliament rather than by Government.

2017

March 2017

Article 50 Negotiations

May 2017

UK Leaves the EU (2019) Under the Government’s timetable, the expectation is that by March 2019, the UK will have ceased to be a member of the EU. The precise terms of our Brexit withdrawal will finally become clear.

Spring 2017

Great Repeal Bill Parliamentary Scrutiny

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‘BREXIT PROOFING’ YOUR BUSINESS HOW WILL YOUR SECTOR BE AFFECTED?

2018

Continuation of work towards the UK’s formal exit Possible Early General Election 8

2019

The UK leaves the EU



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“THE LOSS OF PASSPORTING RIGHTS FOR THE CITY COULD POTENTIALLY JEOPARDISE LONDON’S PLACE AS A PRE-EMINENT FINANCIAL CENTRE.”

FINANCIAL SERVICES An exit from the EU that includes exit from the Single Market could have an enormous impact on the financial services industry. The loss of passporting rights for some parts of the City could potentially jeopardise London’s place as a pre-eminent financial centre. The UK Government will need to decide how much EU regulation they are willing to retain, and how much of the existing provision is retained or rescinded has the potential to change drastically the way the UK financial sector is regulated. Ongoing political and economic uncertainty is also a concern for the sector, with devaluations of the pound and volatility in equities markets adding further pressure. One thing is for certain, financial services will need to keep a close eye on the negotiations and take a proactive approach to engaging with Government to inform what shape Brexit will take.

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“BREXIT COULD POTENTIALLY REDUCE THE CURRENT EMPHASIS ON RENEWABLE ENERGY DEVELOPMENT, AS MUCH POLITICAL DIRECTION AND FUNDING COMES DIRECTLY FROM THE EU.” ENERGY Leaving the EU could dramatically impact the UK’s energy sector, both in terms of our influence over European energy and climate change policy, and in terms of trade. The sector will therefore need to understand and proactively influence the ongoing negotiations. Brexit could potentially reduce the current emphasis on renewable energy development, as much political direction and funding comes directly from the EU. The UK is a large importer of overseas energy, but this could become more expensive depending on what our future relationship with the EU looks like in terms of trade tariffs. Brexit could impact on the construction of new undersea cables which will carry electricity to and from Britain. Some leading energy companies have already urged the Government to ensure that Britain remains part of the EU’s Internal Energy Market (IEM), which allows smooth trading for electricity and gas across the EU. Leaving the IEM has the potential to result in higher costs for the sector and for consumers due to increased import and export costs.

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“POTENTIAL LIMITS ON FREE MOVEMENT OF LABOUR COULD RESULT IN A SKILLS SHORTAGE FOR THE CONSTRUCTION SECTOR.”

CONSTRUCTION AND PROPERTY The UK construction industry accounts for approximately 6.5 per cent of GDP and employs over 2.9 million people. Forecasts for growth have already been revised downwards by some commentators in wake of the Brexit vote and ongoing uncertainty remains troubling for the sector. Leaving the EU would terminate Britain’s membership of the European Investment Bank (EIB), an organisation which has invested more than £16 billion in UK infrastructure projects over the past three years. Where future funding for such projects would come from remains unclear. The construction industry will need to keep a close eye on any trade deal negotiations which may lead to higher costs for importing and exporting, especially if the UK leaves the Single Market and has to comply with World Trade Organisation rules. In 2015, 7 per cent of workers employed in the UK construction industry were born in the EU. Potential limits on free movement of labour could result in a skills shortage for some in the sector.

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MANUFACTURING The EU market accounts for 45 per cent of UK goods exports. While we do not yet know what form our ongoing relationship with the EU will take, it is vital that companies monitor and successfully navigate and plan for any changes on the horizon, especially around increased costs. Ongoing political and economic uncertainty often leads to lower consumer spending, which in turn has a knock-on effect on the manufacturing industry. Devaluation of the pound and fluctuations in exchange rates will be of concern to manufacturers that may be impacted by rising import costs, but could be an advantage for those selling overseas as prices become more competitive. The EU invests heavily in manufacturing innovation programmes, with 15 per cent of its annual £9 billion budget being invested in the UK. Leaving the EU would terminate our involvement with EU schemes such as Horizon 2020, leading to a potential funding deficit for the sector. In 2015, 10 per cent of workers employed in UK manufacturing were born in the EU. The ending of the free movement of labour could result in a skills shortage for the sector.

“DEVALUATION OF THE POUND AND FLUCTUATIONS IN EXCHANGE RATES WILL BE OF CONCERN TO MANUFACTURERS THAT MAY BE IMPACTED BY RISING IMPORT COSTS.” NEWGATE COMMUNICATIONS

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“THE BODY OF EU PHARMACEUTICAL LAW IS IMPORTANT TO AN INDUSTRY THAT IS TRULY GLOBAL AND WHERE, WITH THE EXCEPTION OF PRICING, THERE IS A SINGLE MARKET.”

LIFE SCIENCES There are numerous ways in which the UK’s departure from the EU will impact the pharmaceutical industry. The vast majority of new medicines are approved by the European Medicines Agency (EMA), rather than national regulators. What will the relationship between the UK and the EMA be following Brexit? The body of EU pharmaceutical law is important to an industry that is truly global and where, with the exception of pricing, there is a single market. The Clinic Trial Regulation, which is due to be implemented across the EU in 2018, is a good example. It provides for a single application for clinical trials across the EU, through a single portal and with an associated EU-wide database. Brexit could result in the UK not having access to this system, adding to the administrative burden of UK companies wishing to undertake multi-centre trials throughout the EU and in the UK. Another area which will be of great concern to the life sciences sector will be the future of vital EU R&D funding programmes, such as the Innovative Medicines Initiative and Horizon 2020. The European Medicines Agency is currently located in London, and employs several hundred people. Concerns over the future location of the EMA have been raised, and its future may be determined by the nature of the final agreement between the EU and the UK.

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“THE ENDING OF THE FREE MOVEMENT OF LABOUR COULD RESULT IN A DRAMATIC SKILLS SHORTAGE FOR THE RETAIL SECTOR.”

RETAIL Although consumer spending remains high, things may change once Brexit negotiations get underway. The recent devaluation of the pound is good news for tourists (the UK is less expensive) but may be worrying for retailers who buy a significant amount of goods from overseas and will be impacted by rising import costs. One area that retailers will want to keep a close eye on is the trade deals that the UK negotiates with the EU, especially around any introduction of tariffs on UK goods. Ending free movement of labour could result in a skills shortage for the sector. Should the UK Government decide to repeal or amend EU employment legislation, retailers operating across the EU will have to navigate multiple legal frameworks, with ensuing regulatory and operational costs.

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‘BREXIT PROOFING’ YOUR BUSINESS HOW WILL YOUR SECTOR BE AFFECTED?

TELECOMS, MEDIA AND TECHNOLOGY (TMT) The EU has been active in recent years trying to construct a Digital Single Market. Banning mobile phone roaming charges, devising common data retention, rules on the supply of digital content and for the online and distance sales of goods were all part of that effort. These are seen by many as onerous for business but good for consumers. Will, for example, future UK Governments move in step with evolving EU law in this area or will some of these rules be repealed? Similarly, the EU is seeking to agree ambitious domestic content targets as part of its ‘digital agenda for Europe’. It is unclear whether the UK Government will continue to apply these targets, initiate new ones, or scrap them altogether. The TMT sector will need to keep a close eye on this area which will help determine the future direction of the industry.

“THE EU IS SEEKING TO AGREE AMBITIOUS DOMESTIC CONTENT TARGETS AS PART OF ITS ‘DIGITAL AGENDA FOR EUROPE’ AND IT IS UNCLEAR WHETHER THE UK GOVERNMENT WILL CONTINUE TO APPLY THESE TARGETS, INITIATE NEW ONES, OR SCRAP THEM ALTOGETHER.” NEWGATE COMMUNICATIONS

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HIGHER EDUCATION Higher Education providers have been one of the most vocal sectors in raising concerns about the impact of Brexit. One of the biggest questions will be the future status of EU students studying in the UK. Similarly, the UK’s involvement in schemes that allow British students to study across the EU is potentially under threat too. Another concern will be the future of funding programmes such as Horizon 2020 and the European Research Council. Universities UK has estimated that British universities benefit from £1.2 billion a year in European research funding, the loss of which would be a major blow to the sector. Conversely, the Higher Education sector is well placed to benefit from the Government’s determination to forge new international partnerships.

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“UNIVERSITIES UK HAS ESTIMATED THAT BRITISH UNIVERSITIES BENEFIT FROM £1.2 BILLION A YEAR IN EUROPEAN RESEARCH FUNDING, THE LOSS OF WHICH WOULD BE A MAJOR BLOW TO THE SECTOR.”



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“THE BIGGEST IMPACT OF BREXIT ON THE AGRICULTURAL SECTOR WILL BE THE WITHDRAWAL OF CAP SUPPORT AND WHAT, IF ANYTHING, WILL REPLACE IT.”

AGRICULTURE, FISHERIES AND FOOD The Common Agricultural Policy (CAP) accounts for nearly 40 per cent of the EU’s budget and provides UK farmers with almost £3.1 billion in direct payments. In total, 55 per cent of UK total income from farming currently comes from CAP support. The biggest impact of Brexit on the agricultural sector will be the removal of CAP support and what, if anything, will replace it. Migrant labour plays a vital role in the agricultural sector. According to the ONS, EU-born workers account for 65 per cent of the sector’s work force. Should the UK cease to be a member of the EU’s freedom of movement rules, then a major skills shortage could afflict the sector. The potential loss of 500 million consumers and increased trade tariffs also means that the sector will want to be on the front foot with Government in protecting tariff-free market access.

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WORKFORCE PLANNING A significant proportion of UK employment law is derived from the EU, including legislation that governs maternity and paternity leave, agency workers’ rights, the entitlement to paid holiday and the protection of employment upon the transfer of a business. Although some of this legislation has been expanded by the UK Government and goes beyond the EU’s basic requirements, the UK may choose to repeal or strengthen these existing requirements upon leaving the EU. This will largely be determined by the political will of the UK Government, and crucially, its backbench MPs. One of the main challenges for workforce planning following Brexit will be dictated by whether the UK retains laws on the free movement of labour. The Government has signalled that it is not willing to surrender its control over immigration and therefore this could result in skills shortages for sectors disproportionately reliant on overseas workers.

“A SIGNIFICANT PROPORTION OF UK EMPLOYMENT LAW IS DERIVED FROM THE EU, INCLUDING LEGISLATION THAT GOVERNS MATERNITY AND PATERNITY LEAVE, AGENCY WORKERS’ RIGHTS, THE ENTITLEMENT TO PAID HOLIDAY AND THE PROTECTION OF EMPLOYMENT UPON THE TRANSFER OF A BUSINESS.” NEWGATE COMMUNICATIONS

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OUR PUBLIC AFFAIRS TEAM

Gavin started off as a senior official in the House of Commons, and his specialism during his more than a decade working in communications is in working with clients whose activities are affected by, or under threat, from the political and regulatory world. Since leaving Parliament he has helped big infrastructure projects like Crossrail, HS2 and Hinkley Point move forward, smoothed the way for investment in the UK by the likes of Huawei and Kraft Foods, and supported bids by Siemens for major public sector contracts. He’s also been a PRCA boardmember, and Deputy Chair of the APPC, as well as studying for an MBA. GAVIN DEVINE, CHIEF EXECUTIVE [email protected]

Simon has spent more than a quarter of a century in public affairs, in consultancies and in-house, in Brussels as well as London. He has a particular focus on regulated industries, and has helped many clients shape the regulatory landscape in several policy areas.

SIMON GENTRY, PARTNER [email protected]

His in-house roles have included stints at SmithKline Beecham, later GSK, and the insurance trade body, the ABI. As a consultant his clients have encompassed leading names from the worlds of health, financial services and technology, such as Microsoft, Visa, Abbott Laboratories, Three, AstraZeneca, StubHub/Ebay and the ATM Industry Association.

For more than a decade, Gareth has provided public affairs advice and support to a wide range of clients, helping them to engage with audiences in Westminster and Whitehall and supporting them on a range of public policy, legislative and regulatory issues. Gareth has extensive experience of sectors including financial services, support services and energy, and is expert in the complex political and regulatory environments of those industries. His clients have included Lloyds Banking Group, Investec, Capital One, UK Onshore Oil and Gas, TalkTalk and G4S. GARETH JONES, ASSOCIATE PARTNER [email protected]

Tomos brings to Newgate unique insight into the way Government works, having been both a civil servant and a Special Adviser to two Cabinet Ministers. He began his working life as a politics lecturer, becoming an expert on devolution and the Conservative Party. Tomos then worked for the Welsh Government before being seconded to Whitehall, where he became Special Adviser to two Secretaries of State. He steered major constitutional legislation through Parliament, delivered the largest city growth deal in the UK, and supported the Government’s response to the steel crisis. His policy interests include energy, infrastructure and higher education. TOMOS DAVIES, ASSOCIATE PARTNER [email protected]

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If you would like to discuss our Brexit Audit service, or explore the range of other services that Newgate has to offer, please don’t hesitate to contact Newgate’s Public Affairs team. NEWGATE COMMUNICATIONS Sky Light City Tower, 50 Basinghall Street London, EC2V 5DE T: +44 (0) 20 7680 6550 newgatecomms.com

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