News & views

Thursday, August 11, 2016

From SMEs and property to construction and agriculture, we look at what a post-Brexit Britain might look like for some of the country’s most important industries and ask Managing Director of NIG Neil Manser for his insight.

Whether you voted Leave or Remain, it is undeniable that Britain’s historic vote to leave the European Union (EU) is set to have a huge impact over the coming years. What isn’t clear at this stage is exactly what that impact will be.

The announcement on June 24th sparked a dramatic fall in the value of the pound against the dollar and in share prices. And while the markets have recovered well, with the FTSE 100 hitting a 13-month high and the FTSE 250 having recovered its post-Brexit losses – there is no denying that there is still a large dose of uncertainty over what the future might hold.

Even after Prime Minister Theresa May triggers the process found in Article 50 of the Lisbon Treaty to leave the EU, the UK will have another two years to agree the terms of the separation.

Managing Director of NIG Neil Manser says: “Until the country’s withdrawal has been negotiated, EU laws and regulations will continue to apply to all UK businesses.

“But when it does finally happen, Brexit will have a significant impact on a number of stakeholders – not least Britain’s enterprises, landlords, farmers and construction professionals.”

Here, we take a look at what some of the implications of the UK’s decision to end its 40-year partnership with the EU might be for these groups.

Opportunities for businesses
One of the biggest advantages of Brexit was said to be that it would end the requirement for British businesses to abide by unpopular pieces of EU legislation, such as the agency workers’ regulations and the working time directive.

While this may prove be the case, Britain’s businesses could still end up needing to follow Europe’s regulations to get continued access to the single market without facing costly trade tariffs should a ‘Norway style’ deal be struck.

However, on the plus side, a severing of ties with the EU could give the UK the opportunity to develop stronger bonds with rapidly growing markets, allowing business owners to expand their operations in countries such as China and India more easily.

Either way, they may have to contend with a great deal of uncertainty in the short term. But, as NIG’s Neil Manser suggests, this uncertainty could present an opportunity for the country’s businesses to flourish.

“Britain’s enterprises are renowned for their ability to react quickly to a changing environment. There’s little doubt that this will be the case over the coming years and entrepreneurs will look to seize any opportunities thrown up by Brexit, while looking to manage the uncertainties.”

Landlords face growing risks – and possible opportunities
Brexit uncertainty has filtered through to other sectors too. It had an almost immediate impact on the property industry, with fund managers such as Legal & General closing some of their real estate funds to redemptions in the days after the referendum.

This compounded concerns raised in the run-up to the vote over the effect of Brexit on residential house prices. It was said, not least by Bank of England chief Mark Carney, that the UK's withdrawal from Europe would lead to a technical recession that would drive down demand - and therefore prices.

In the month after the vote, the Halifax found that house prices in the UK fell by 1%, with the analysis also finding that there were further signs house price growth was slowing. However, the lender added that it was still early to say whether the UK’s decision to leave the EU had already impacted the property market.

It was also thought that Brexit would increase mortgage bills by making it riskier for banks to lend. But it was partly to encourage lending that the Bank of England made the decision to cut interest rates from their historically low level of 0.5% to 0.25%, as well as launching a £1 billion scheme to force banks to pass on the low interest rates to their customers.

This means that landlords who have taken out tracker mortgages on their property – which vary depending on the Bank of England base rate – should see their monthly payments reduced. Someone with a 25-year £250,000 repayment tracker mortgage paying 2% interest, for instance, could end up paying as much as £30 less a month, according to estimates.

British farming in danger?
There is also a sense of risk present in the agricultural sector, as Mr Manser points out.

He says: “While some have only a passing interest in Brexit, the issues tied up in the UK’s withdrawal are very real for UK farmers, who receive a significant portion of their income from Europe.”

One of the biggest debates centres on the EU’s Common Agricultural Policy, known as the CAP. Without the fund, which contributed €3.1 billion to the UK’s agricultural sector in 2015, some feel the sector will suffer.

Among the critics of Brexit is the specialist consultancy group Agra Europe, which released a report stating that no UK Government would be able to subsidise the country’s agriculture on the scale seen by the CAP, though Farming Minister George Eustace has suggested otherwise.

Elsewhere, there have been concerns over the effect Brexit could have on UK farmers’ access to migrant workers, which are said to be vitally important to the sector. Figures from the Office for National Statistics showed there were 34,513 non UK-born workers in agriculture in 2014 alone, two-thirds of whom were said to come from the EU.

Mr Eustace has suggested that a vote to leave the EU could make it necessary for the implementation of a new system that would allow EU workers to secure employment on UK farms with special work permit provisions. It was suggested that this could be based on the old SAWS scheme, which enabled employers to hire students from Bulgaria and Romania for six months at a time.

However, efforts to put such a system in place could very much depend on the whims of the EU’s other member states and the ability of British negotiators to secure a favourable deal for our farmers.

Building a post-Brexit future
Construction professionals were largely in favour of remaining part of the EU, with a survey carried out accountants Smith and Williamson revealing that 85% of construction and real estate companies backed staying in.

According to several industry observers, the referendum result has created uncertainty among investors, which is dissuading them from pumping their money into UK infrastructure projects.

On the other hand, organisations such as the National Housing Federation (NHF) are looking to make the most of a tight spot. The NHF has called on the Government to funnel billions of pounds worth of funding set aside for home-ownership schemes into building programmes that could counter the post-Brexit blues.

Yet concerns exist elsewhere in the sector over the post-Brexit cost of construction materials. This is a particular worry for contractors involved in building high-end developments, which often rely on specialist machinery and equipment from Europe, according to Simon Rawlinson, of Arcadis.

Mr Manser says: “The flexibility with which many in construction are approaching Brexit is to be welcomed.

“This really is crunch time for all sectors of the UK economy and the way we react to the electorate’s decision to leave the EU will have a profound effect on our country for years – if not decades – to come.”

Minimising Risk
Whilst UK business owners clearly do face economic uncertainty due to macro-environmental factors, they can reduce their exposure to financial risk by ensuring that they have the right commercial insurance.

NIG partner with insurance brokers to provide cover for a wide range of commercial risks in the UK, from property owners large and small to motor fleets to a wide variety of commercial enterprises.