September 2016 Credit Management magazine

OPINION
THE UK
FILES FOR
DIVORCE
Adam Bernstein on what this landmark
vote could mean for UK plc.
THE electorate has spoken and in a
stunning victory for the Brexit campaign,
the UK is to leave the European Union
(EU). The result is another blow for
the polling profession – they didn’t predict the
outcome for the 2015 election and appear to have
got it wrong again. But what does the vote really
mean?
The first point to note is that article 50 of the
Lisbon Treaty, the clause that determines how a
member state leaves the EU, is not, despite the
former Prime Minister David Cameron’s original
promise, going to be triggered immediately. Not
unsurprisingly, Mr Cameron resigned saying
that it will be the job of a new party leader and
PM to start the exit process. That person is now
Theresa May. But if law firm Mishcon de Reya
wins its argument, article 50 will not be triggered
until Parliament repeals the 1972 European
Communities Act – the legislation which enshrines
the UK’s membership of the EU – irrespective of
what politicians declare. Indeed, it’s worth noting
that a referendum isn’t binding – it’s indicative
only. However, in a democracy it’s a moot point
and we will now surely leave the EU. The questions
to be answered now are when will we leave and
where will the process take us?
Immediately after the vote was announced Mr
Cameron tried to steady the ship – something
that Mark Carney, Governor of the Bank of
England, and George Osborne, Chancellor of the
Exchequer at the time also wanted to do. However,
the markets were clearly in a panic. Consider that
in the summer of 2015 the pound against the euro
had risen to €1.42, but by the start of week of the
vote it was down to €1.24. As the polls closed it
Clearly half of the country sees value in our leaving
the EU and it’s entirely possible that this may turn out
to be the right decision. One thing is certain, we –
private citizens and those in business – are now slowly
walking towards a brave new world. It’s time to get out
and polish the crystal ball and work for the best.
had risen to €1.31 but once the vote result was
made public it dropped through the floor to €1.22.
Despite having a new government and some form
of stability it has fallen further to (at the time of
writing – 2 August) €1.18. The dollar did something
similar and fell to €1.32 – a 10 percent fall to a rate
not seen since 1985 – and has stayed there. Not
good but could be worse.
The London stock market has been in just as
much turmoil and had fallen more than eight
percent over the morning after the vote before
recovering to only being four percent down –
again, something not seen since the collapse of
Lehman Brothers in 2008, the precursor to the last
recession. Other global markets have followed
suit – Italy was down 11 percent, Germany fell
7.5 percent and France had lost nine percent.
By 2 August, London was five percent up on the
pre-vote close while other markets recovered too
but some were still struggling – Italy is 10 percent
down, Germany less than one percent up, and
France is three percent down. The only saving
grace is, as Mr Carney put it, that the banks have
more cash in reserve and have been stress tested
so that bank failure is very unlikely. (That said, RBS
was reportedly in a weaker position that its rivals).
WHAT NOW?
Well UK law, at least that based on EU legislation,
isn’t going to change overnight and in many
cases will mirror whatever Brussels passes. Why?
Because if the UK is to trade with Europe it’ll have
to comply with its rules, even though it’s on the
outside and unable to exert any influence. In other
domestic matters, such as health and safety and
employment law, the former follows much which
is commonsense and with regard to the latter, it
would take a very brave government to repeal
legislation that gives, for example, workers holiday
entitlements and rest breaks while protecting
individuals from discrimination. What will be
interesting to see is how, post exit, UK firms do
in recruiting staff as it’s entirely possible that the
automatic right of EU nationals to live and work in
the UK could be curtailed (and vice versa). Indeed,
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September 2016 www.cicm.com
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