June 24, 2016
Well, the results are in and the UK’s electorate has voted by a narrow margin for the country to leave the EU. There are likely to be other developments but whatever you make of the UK’s decision to vote to leave the EU – and I think it’s fair to say most independent people think it’s inexplicable – there’s no doubt that it will have a profound impact on the UK’s economy, relationship with the world, culture, working conditions and markets. What it will mean in practice won’t be apparent for months or years, of course, but that hasn’t stopped experts who work in the property, workplace, design, legal, HR and architecture sectors having their say on its potential implications. We’ll look at these specific issues in more detail going forward but for now, here’s a round-up of those we have so far, which we’ll keep updated throughout the day as the dust settles on what will prove to be a momentous decision for the UK, Europe and rest of the world.
Peter Cheese, chief executive of the CIPD:
“Now that the British people have had their say on Britain’s future relationship with the EU and voted to leave, it’s important that the Government and UK businesses take time to properly assess the long-term impacts of any decisions that they take going forward.
“The impact of a ‘leave’ vote is much bigger than simply changing the political landscape of the UK. It stands to have a significant impact on the world of work and future planning within organisations. We need a broad and thorough consultation between government, organisations and employees across all sectors and representative bodies. The CIPD will play its part in these necessary consultations drawing on our strong base of evidence and experience of the world of work. It’s important that the Government takes the time to really understand the impact of any proposed changes and works with businesses to minimise risk to individuals, organisations and the economy.”
“For most businesses, the immediate impact of this historic decision will be limited as major changes won’t be able to occur for a while. However, employment law, immigration and the ability of employers to bring the right skills they need into their business were key themes focused on in the campaign that will potentially be subject to change going forwards, and these things will no doubt be on employers’ minds.
“Now is not the time for hasty decisions or knee-jerk reactions from government or employers. Evidence suggests that the UK’s flexible labour market already strikes the right balance between providing flexibility for employers and employment rights for workers. We would urge the Government to bear that in mind when approaching any renegotiation of our relationship with the EU or considering any changes to UK law.
“Another key element of our flexible labour market is that it enables employers to access or bring in skilled and unskilled workers from outside the UK to help support business growth and address labour shortages in our public services. It is important that this is not forgotten in any reform of the immigration system.
“Alongside the significant technicalities of a re-negotiation of a new relationship with the EU and possible further political change, it is vital the Government continues to focus working with all constituencies on the very real and strategic challenges that continue to threaten the UK’s prosperity in future years, namely the productivity, skills and employment agendas.”
Ray Perry, BIFM chief executive
“We will not know the full impact or meaning of this for years to come. It does immediately create a period of uncertainty for the UK economy and the facilities management services that supply it. The government and supporting organisations must get to grips with the task swiftly, putting partisan politics aside to lead us through any short-term volatility towards a stronger and more stable position. We need to focus on market confidence and stability.”
“The negotiation period, when Article 50 is invoked, provides an opportunity for our members to understand, adjust to and make the most of the new environment that this decision will create. Our immediate priority is to canvas the views of our members and the profession in order to understand their position. Doing so will provide us with clear and valid data to be able to respond and support those operating within the sector.”
Guy Grainger, CEO, EMEA, JLL:
“The vote for Brexit brings an unprecedented new dawn for Britain, and for Europe. In the short term we are now in a period of pronounced uncertainty. Even if it is effectively ‘business as usual’ for the UK in terms of trade and legislation until 2018, such a major change will inevitably create uncertainty in the real estate markets. In the event of a well-managed exit these impacts will be largely confined to the next two years.”
Real estate dynamics:
“In the short term we may see a weakening in occupier demand as businesses to more time to consider investment decisions. The impact on rents may be limited by tight supply, but activity will be adversely hit while initial uncertainty about direction and timing continues. Investor sentiment may also remain subdued in the short to medium term, although a drop in Sterling may provide a moment in time for some opportunistic international investors. For property markets, the initial correction may be most severe but should be followed by an upturn as opportunities re-emerge in UK core markets and benefits of weak sterling are recognised. Sentiment and relative pricing will be key.”
Possible opportunities in context:
“This event is a trigger for many investors and occupiers to make adjustments to their real estate strategy. Some decisions may continue to be put on hold, or reassessed entirely. At the same time, we expect there may also be some positive implications for other mature markets in Europe and, potentially. In the light of currency movements, international investors may be attracted to certain parts of the UK market. This could be relatively short-lived at least until currency volatility subsides and notwithstanding the underlying uncertainty which will colour sentiment for at least a couple of years.”
Jane Duncan, President, RIBA:
“The RIBA is a global organisation that supports its members, validates schools of architecture and champions the importance of a quality built environment around the world. UK architecture talent is incredibly resilient and we will continue to ensure that our profession has a bright future, whatever the operating environment.
“Clearly there is uncertainty about the timescales and impact on a range of issues important to our industry including free movement in the EU for architects as well as students, trading and material sourcing, inward investment relationships, EU procurement rules and the effect on the construction sector if restrictions are placed on EU migration.
“In common with other UK businesses and organisations, the RIBA is assessing the short and longer term effect of the withdrawal on our members and the Institute and we will provide further guidance in due course.
“Most importantly, we will work with colleagues in industry and government to ensure that architects have a strong voice in the coming weeks, months and years.”
David Allen Green, from his excellent blog:
1. The EU referendum result, by itself, has no legal impact. It was an advisory not a mandatory referendum. (See my FT post here.)
2. All UK law – including that drawn from the EU – remains in place today just as it was yesterday. Nothing in yesterday’s result affects the applicability or enforceability of any UK or EU law.
3. The legally significant thing is not the referendum result but any Article 50 notification. There is no indication any UK politician is any rush to press that “red button”. Once pressed, that will give a two year period before the UK leaves the EU (unless EU Member States unanimously agree otherwise). Any fundamental legal change as a result of the Leave vote will not (and cannot) be until 2018 at the earliest.
4. It is perfectly possible the Article 50 red button is never pressed – for example if there is a “new deal” and a second referendum. There is, after all, a tradition of EU-related referendums being repeated in Member States until there is the “correct” answer.
5. On available information, there is no plausible legal challenge to the referendum result.
Melanie Leech, chief executive of the British Property Federation:
“The effect of the result has been immediate, and we are already seeing market turbulence and a fall in the pound. The priority for the government and the Bank of England must now be to stabilise the position and maintain confidence in the UK.
“It is now clear that there will be political changes ahead, but we will continue to work in partnership with government and other stakeholders so that the real estate industry, which is a considerable contributor to UK GDP, can continue to support the economy and create great places.
“The negotiation process is going to be long and complicated, and there will be many unknowns ahead. Our priority is that the government maintains focus on existing national priorities such as housing and that it makes decisions on major infrastructure projects, such as airport capacity and maintaining momentum around HS2, swiftly.”
John Forrester, EMEA chief executive of Cushman & Wakefield:
“The property sector has probably followed the EU referendum more closely than any other industry and has witnessed the impact of the uncertainty and speculation in the run up to the vote.
“While the decision of the UK electorate is now confirmed, a period of further uncertainty is unavoidable as businesses, the financial markets and the political establishment in the UK, Europe and globally come to terms with what this means.
“Clearly the impact of this decision will be felt beyond the UK’s shores as the UK is the EU’s third largest market by population. We are therefore entering a period of unprecedented change as markets and sectors adapt. What is clear is that in any scenario there will always be opportunities and those will become clear in the weeks and months ahead.”
Andy Pyle, UK head of real estate at KPMG:
“Until the dust starts to settle, the impact of the UK’s exit from the EU on the real estate market is difficult to determine and uncertainty will prevail.
“Whilst this uncertainty over timing and the UK’s future trading relationship with the EU remains, we expect the majority of UK companies will focus their attention on assessing the impact on their business. We would expect their appetite to enter new property leases and increase their liabilities would diminish, leading to a general dip in occupier demand. It’s also reasonable to expect that, while there could be an impact across the UK as a whole, there will be significant variations in that impact across the regions and in different property asset classes. Given the potential for banks to need to transfer business undertaken in London into the Eurozone, we could see a particular decline in London’s dominant position as Europe’s leading financial and business centre, which would impact real estate demand in the City in particular.
“Similarly, we would expect investors will carefully assess the impact before making major decisions as to whether to buy or sell property. We have seen a significant slow-down in the volume of transactions in the run up to the referendum and it’s likely that will continue. This is consistent with what international investors told us when we surveyed them in March*, but the majority also told us they expected to continue to invest in the UK going forward, regardless of whether the UK left the EU.
“Should sterling go into tailspin in the next few days, weeks and months, international investors playing the long game are more likely to jump on what could be a once in a lifetime chance to get hold of ‘cheap’ property. While this won’t be limited to real estate, the enduring rule of law and objectivity of private property protection in the UK, will make investing at a low point in the market very attractive. Given the strength of the UK property market and its track record of bouncing back, it’s likely to be seen as a relatively safe bet, despite currency turmoil.
“And of course, there is a consideration over how migration will be dealt with – our construction industry relies heavily on EU workers. Should rules change to limit those workers, we will see an even bigger skills deficit in the industry, with a knock on effect on both the commercial and residential property markets. While that may be a longer term concern, given the time any changes to migration rules are likely to take, it’s a distinct possibility.
“While the actual impact will take time to play out, what’s important is that the Government and the industry recognises that as terms are defined and agreed, it is vital to maintain the attractiveness of the UK as a place to invest in property. Outside of those involved directly in the market, the wider UK economy has significant exposure to the real estate market – just think about the property investments made by our pension funds.”
Richard Jones, Institution of Occupational Safety and Health (IOSH) Head of Policy and Public Affairs:
“Post-Brexit, the UK now has less influence over EU law. Now we’re exiting, it’s vital the UK continues to apply our successful risk-based health and safety system, which includes laws from EU directives, because it’s been found to be fit for purpose by several independent reviews and is respected and imitated across the world. IOSH will continue to promote agreed international standards and to defend against any erosion of health and safety protections. As UK organisations will want to continue to trade with Europe, it will be in everyone’s interest to maintain the status quo. The UK has already helped to influence sound foundations for European health and safety and beyond and our expertise will continue to be sought and valued.”
Fiona McGhie, Public Law expert at Irwin Mitchell:
“The common law and legislation in the UK have provided rights and protections for people with disabilities.
“In addition both the EU and the UK have ratified the UN Convention on the Rights of Persons with Disabilities (CRPD) which guarantees equality of rights of disabled people before the law on issues such as health, education, employment, access to justice and independent living. The UK is also a signatory to the European Convention on Human Rights (ECHR) which prohibits discrimination on the grounds of disability (Article 14) and offers protection for people with disabilities through a number of the other articles. The Human Rights Act incorporates these rights into domestic legislation.
“The UK has developed a string of positive legislation for the protection of the rights of those with disabilities, most notably the Equality Act 2010. This Act consolidated a large amount of existing legislation (including those relating to other protected characteristics such as race, religion, gender and sexual orientation). This and previous legislation were introduced to ensure compliance with a number of EU equality directives.
“Membership of the EU offers a large degree of protection for people with disabilities because of its directives on equality. However, if that protection was removed by a vote to leave the EU, people with disabilities would still benefit from the CRPD and the ECHR. It is unlikely that Equality Act would be repealed should the UK leave the EU, as we would still need to comply with the other international conventions which we have ratified. However, people with disabilities would not benefit from any further directives or regulations that the EU issued on disability rights and would be reliant on domestic legislation and common law keeping pace with the advancement of the rights of people with disabilities.
“What Brexit would affect is the ability to potentially rely on the European Charter of Fundamental Rights (CFR) which in particular includes many wider social and economic rights, such as the rights to fair and just working conditions, to healthcare and to have personal data protected. If disabled people wished to try and strike down UK legislation as incompatible with rights under CFR under EU law – that avenue may not be available after the vote to leave.”
Mercer, various commentators:
The electoral commission announced today that the result of the UK’s referendum on membership of the European Union was a victory for the “leave” campaign. However, companies still face great uncertainty until the UK’s ‘exit strategy’ is defined and trade negotiations with the EU are completed.
According to Deborah Cooper, Partner at Mercer, “The UK has not woken up to find itself outside the EU but, by accepting the referendum results, the UK government has packed its bags and is walking towards the door. The next stage is for the UK to invoke Article 50, officially notifying the European Council of the UK’s intention to leave and beginning the formal process of separation. Although this process could be started right away, the government could choose not to invoke Article 50 immediately and develop its exit strategy before initiating the official negotiations. In either case, the uncertainty will breed market volatility.”
According to Mark Quinn, Partner in Mercer’s Talent business, “The immediate implications for companies and employees will depend on their circumstances. In the short term, companies should be analysing exposure they have to the UK and Europe in respect of their workforce’s organisational profiles and their reward plans. While we don’t know yet what restrictions will be imposed on, say, the free movement of people, it is evident that political, economic, legislative and market uncertainty is unlikely to clear any time soon. Strong employee communications will be critical for companies over the coming months.”
Impact on pensions
According to Deborah Cooper, Partner at Mercer, “There will be continued market volatility impacting on the health of the UK’s defined benefit (DB) schemes as UK, European and global markets weigh up the likely implications. Increased volatility in gilt yields and sterling may have further impact on pension schemes. Trustee boards should already be monitoring events closely and should consider the impact of future market moves on scheme funding positions, sponsor covenants, as well as their financing and risk management strategies. Boards should review exposure to currency risks and how that might affect future investment strategy and current funding levels.”
According to Dr. Brian Henderson, DC & Financial Wellness Partner at Mercer “This is going to be a more turbulent time for defined contribution (DC) members looking to provide income from their retirement savings. Many people could now see their financial health and their pensions suffer some short-term volatility. Those planning for the future may have to scale back on their aspirations; long-term savers may be able to navigate the choppy waters, but those with more immediate needs may find themselves taking in water. Anyone seeking security, whether it’s coping with debt repayment or perhaps seeking an income for life may find themselves particularity vulnerable.”
Impact on company workforces and pay
“It’s likely that restrictions will be placed on EU workers within the UK workforce so companies should review their workforce plans”, says Mark Quinn, Head of Mercer’s Talent business in the UK, “particularly retail, leisure and services employers who employ a large number of EU citizens. New bi-lateral agreements may be required for those organisations off-shoring from the UK into the EU and we will also have to wait and see if non-UK multi-nationals will think it still appropriate to have their European headquarters remain in London.
“UK companies will have to gear up for likely change in UK employment and labour market regulation and certain elements are likely to become more favourable to employers, although this may well create a more turbulent employee relations environment. The UK banking sector is likely to seek changes in banking regulation, particularly as it affects pay. We may see an end to the bonus caps and other EU-sponsored controls although the Financial Conduct Authority and Prudential Regulation Authority will want to ensure that the direction and spirit of the Financial Standards Board’s requirements continue to be fully met in the UK.
“The restrictions and changes in the UK labour market for key skills at both executive and employee levels will impact on competitive pay levels in the UK and, of course, there may be an increase in costs for UK workers living and working within the EU, so companies will have to respond to that.”
Impact on health and safety
According to Simon Griffiths, Principal in Mercer’s Healthcare business, “Companies should be considering the impact of an end to reciprocity on state healthcare costs for foreign nationals across member states. This could lead to a lack of state accessible primary and secondary care for expats – a concern for mobility teams. We may also see an increase in bureaucracy for expat workers including the compulsory company healthcare provision. We also need clarity on how personal data is managed and stored by multi-nationals as separation occurs.”
Phil Foster, MD of Love Energy Savings:
Increase in energy prices
One of the biggest expenditures for small businesses will be their energy, and the UK public have been warned recently that leaving the EU could have negative consequences on our bills.
With the possibility of rising energy prices, small business owners should look to cut back wherever they can. This can include introducing some energy efficiency policies for your office, whether that’s greener LED lightbulbs, installing bigger windows for more natural light or adding movement detectors to turn off your lights automatically. There are so many small changes to be made, and they all add up to save a great deal of money for SMEs.
Changes in airfares
For small businesses who are looking to grow outside of the UK, airfares will be crucial. But if prices spike following the exit from the EU, entrepreneurs who may already be keeping a close eye on their bank balance may struggle to afford the journeys to the mainland.
But thanks to modern technology, travelling hundreds of miles isn’t the only way to conduct a successful business meeting. There are dozens of different programs available to hold voice and video conference calls – all you need is a strong internet connection. My advice would be to consider investing in some decent computers, internet and software packages to ensure you keep communication with your clients, partners and customers a top priority.
For SME owners, one of the issues that is now front of mind, will be how this affects their recruitment strategy.
UK businesses of all shapes and sizes have, at some point or another, relied on the European Union to supplement their workforce. The UK is still in the midst of a skills shortage, and EU migrants have provided many of the vital skills that we were lacking. There is a chance that the UK will no longer be the talent magnet it used to be, resulting in more bureaucracy and a reduced candidate pool for SMEs to dive into.
However, the alternative view is that the Brexit will actually improve recruitment options for UK businesses. There is a very real possibility that the UK may now introduce a points-based system, such as that used in Australia, which could result in us welcoming in higher quality candidates.
The ability of the UK to allow in more migrants from outside of the EU, without exceeding any immigration quota, will also be something to keep an eye on. By no longer having to give preference to EU workers, opportunities open up for those coming to the UK from India, China and beyond. This is surely great news for those seeking STEM candidates.
However, the status of current EU migrants, and whether they will have to return to Europe, as well as how easy it will be for people to migrate into the UK for work, is not yet known. While the freedom of movement policy may still apply if the UK choose to remain part of the single market, there is a possibility that the need for Visas will complicate the recruitment process, making it more expensive and therefore deterring SMEs from hiring non-nationals. Ultimately, this may hinder how businesses grow in the future.