What is a ‘cliff-edge Brexit’ and what does it mean?

When it was first announced as we enacted article 50 in March of this year, that we would be leaving the EU in its entirety 24 months later, there was a certain ease brought about by what felt like a fairly long time. As we now enter the final stretch of Summer 2017 the ‘tick tock’ of the clock is getting increasingly louder with each passing day.

What is a ‘cliff-edge Brexit’ and what does it mean?

The volume is gradually increasing day by day, interspersed with the relentless bickering and open warfare of the government as they appear to scrabbling for a coherent plan and message for what is going to happen when we finally leave. Phillip Hammond, to his credit, appears to be a voice of sense in a cacophony of rigid ideology and dogma espoused by the likes of David Davis, the Brexit secretary. Each time the chancellor reveals plans for a transitional deal it seems inevitable that Davis or his acolytes dig their heels in further in pursuit of a ‘Hard Brexit’ or, what some are calling, a ‘cliff-edge Brexit’.

‘Cliff-edge Brexit’ has been slowly edging its way into the political zeitgeist for a number of months now. Here we’ll attempt to whittle down that definition with concern to business, property and investment for our readers who may be concerned by it.

When we talk about cliff-edge we take it to mean that the current arrangements for co-operation with the EU would end overnight in March 2019. That would include trade, customs, labour, security and legal. As it stands right now food, manufacturing products and other goods traded with the EU, including financial institutions can all trade between themselves without barriers, checks or trade tariffs. These are currently what are up for discussion in negotiations between the British contingent and the EU team, but there is growing concern that a deal won’t be agreed and, instead, we will simply cease to have any sort of arrangement the day after.

Should this happen we can safely assume that this would cause absolute chaos at ports, airports, and other border crossings as all the previous arrangements we held became null and void and instead, we assume, things would revert back to World Trade Organisation (WTO) rules with 20% added to the price of almost everything overnight, and customs forms having to be completed for all imports and exports, potentially adding on masses of admin work, delaying these trades for an unworkable amount of time.

Migration and people coming into the country would suddenly be under the same restrictions as other parts of the world such as Africa, Asia and America, meaning that inbound flights from the EU could face mountainous queues and vice versa for Brits travelling across the EU.

Business, it would be assumed, would almost overnight be forced to stop recruiting from the EU and the NHS, one of the largest EU recruiters, would suddenly be in crisis as it was unable to easily recruit doctors and nurses.

Further to this disruption would be the possibility of a loss of London’s EU ‘banking passport’, as reported by the BBC last year. According to them financial companies and banks can be approved to do business in one member state of the EU, or the slightly wider European Economic Area (EEA), and then ply their trade across the region without having to be separately authorised in each country.

The EEA is comprised of the EU, Norway, Iceland and Liechtenstein, all of whom have access to the EU’s single market. A bank using this system can do business from its domestic branch to a customer in another country, or equally is able to create a new overseas division.

This system is commonly used by all kinds of financial firms in the EU. It is also utilised by companies from outside the EEA, including Switzerland and the US. With many organisations choosing to set up branches in the UK’s capital London, if the banking passport is no longer available to British-based firms, then some operations would clearly have to shift to a location inside the EEA.

It is very difficult at this point to know to what extent British business would be affected, and in turn, how many jobs.

It’s all rather hard to say. In terms of property investment and transferring money the positive side of this is that Sterling would almost certainly drop further, meaning excellent value for foreign investors in currency exchange. Further to this for domestic investors there’s a high likelihood that, as one of the economy’s safest assets, investment would pour further into off-plan and residential property as well as commercial, meaning that values would almost certainly rise, and quickly.

Whilst economic havoc would be unleashed in almost every other area we can presume with as much certainty as we can that in property things would either stay very much the same or, alternatively, actually benefit from the uncertainty as investors seek safe haven for their money.

Whatever the outcome of the Brexit negotiations we remain confident that business, property and trade will find naturally all find their footing in a new, independent Britain.

Intus Lettings vertical - April 2019

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