Brexit what next? - Full presentation

1. 1
Brexit: What next?
Understanding the implications for businesses

2. 2
Mark Hughes, GroupCEO
Manchester Growth Company

3. 3

4. 4

5. 5
MGC Purpose
Brexit: What next?
Understanding the implications for businesses

6. 6
Panel
Sir Richard
Leese CBE
Growth Lead
GMCA
Ros Kellaway
Head of
Competition, EU and
Regulatory
Eversheds
Mark Gregory
Chief
Economist
EY
Dr Catherine
Raines
Chief
Executive
UKTI
Richard Topliss
Managing Director
for Corporate &
Commercial
Banking in North
of England, RBS

7. 7
MGC Purpose
Sir Richard Leese CBE
Growth Lead, Greater Manchester Combined Authority

8. 8
MGC Purpose
Ros Kellaway
Head of Competition, EU and Regulatory, Eversheds

9. Making Sense of Brexit
What will it mean to leave the EU?
26 July 2016
Partner
Ros Kellaway

10. 1. Mechanism for leaving the EU
2. EFTA and the EEA
3. Five Brexit models
4. Trading with the Rest of the World
5. How could Brexit impact your business?
6. How can Eversheds help?
Agenda

11. Eversheds LLP | 27/07/2016 |Eversheds LLP | 27/07/2016 |
• Article 50 sets out the formal mechanism to leave the EU
• UK must take a decision to leave the EU “in accordance with
its own constitutional requirements”
• Outcome of Referendum advisory to the Government -
result does not trigger Article 50
• Government must formally trigger Article 50 process by
giving notice to the European Council
• Will an Act of Parliament be needed or can the Government
use its Royal Prerogative powers?
• At least 7 private actions arguing that an Act of Parliament is
needed – case will be heard in October 2016
Article 50 Treaty on the European Union
Mechanism for Leaving the EU (1)

12. Eversheds LLP | 27/07/2016 |Eversheds LLP | 27/07/2016 |
• When will Article 50 notice be given?
• Not in 2016 – expected early 2017
• When will the UK leave the EU?
• Date the withdrawal agreement comes into force; or
• Two years after the notification unless unanimously
extended by the European Council and the UK
Timing
Mechanism for Leaving the EU (2)

13. Eversheds LLP | 27/07/2016 |Eversheds LLP | 27/07/2016 |
• UK/EU negotiate and conclude an agreement setting out
the withdrawal arrangements taking account the
framework for future relationship together
• Two agreements?
• Withdrawal agreement – needs to be agreed by European
Parliament and Council
• Trade agreement – will need:
• European Parliament approval
• Unanimous consent and ratification of all Member States
Article 50 Treaty on the European Union
Mechanism for Leaving the EU (3)

14. Eversheds LLP | 27/07/2016 |Eversheds LLP | 27/07/2016 |
• Free trade arrangement founded in 1960 by Austria,
Denmark, Norway, Portugal, Sweden, Switzerland and the UK
• EFTA has said it would welcome an application from the UK to
re-join EFTA
• Current members: Iceland, Lichtenstein, Norway and
Switzerland
• EFTA has free trade agreements with 37 countries and is
negotiating others
• EFTA States free to negotiate their own free trade
agreements e.g. Switzerland with China and Japan
• Being a member of EFTA does not give access to the Internal
Market
European Free Trade Area (“EFTA”)

15. Eversheds LLP | 27/07/2016 |Eversheds LLP | 27/07/2016 |
• Founded in 1992 and effective in 1994
• Intended to create closer cooperation between EU and
EFTA, pending EFTA States accession to the EU
• EU Member States and three EFTA States (Iceland,
Lichtenstein and Norway)
• Access to the Internal Market governed by EEA
Agreement – all four freedoms but outside Common
Agricultural Policy and Common Fisheries Policy
• EEA minus free movement of people?
European Economic Area (“EEA”)

16. Eversheds LLP | 27/07/2016 |
Free movement of
goods
Yes excluding
certain agricultural
& fishery products
Varies by product
based on bilateral
agreements
Yes Yes
Yes subject to
WTO rules
Free movement of
people Yes
Yes - for
employed persons No Possible No
Free movement of
services /
establishment
Yes Yes – industry
specific
No Possible No
EU representation No but veto
through EEA
No No No No
EU budget Yes (reduced) Yes (reduced) No No No
Bound by
EU/Third Country
FTAs
No - can negotiate
alone or through
EFTA
No - can
negotiate alone or
through EFTA
Must apply
EU’s common
external tariff
to third
countries
No No
Five Brexit Models

17. Eversheds LLP | 27/07/2016 |Eversheds LLP | 27/07/2016 |
• On Brexit, UK will lose benefit of EU’s free trade
agreements but will be able to negotiate its own free
trade agreements
• Already interest from a number of countries – Australia,
Canada, China, Ghana, India, Mexico, New Zealand,
South Korea, US
• Preliminary talks with India
• UK can negotiate terms of free trade agreements but
cannot conclude them before Brexit – exclusive EU
competence
Trading with the Rest of the World

18. Eversheds LLP | 27/07/2016 |Eversheds LLP | 27/07/2016 |
• Supply chains – do they cross the UK and other EU Member
States?
• Risks of and opportunities from ceasing to be in the Customs
Union
• Loss of EU trade deals
• New trade deals
• Recruitment of people from the UK for your EU operations
and vice-versa
• Effect on contracts
How could Brexit impact your business?

19. Eversheds LLP | 27/07/2016 |Eversheds LLP | 27/07/2016 |
• Brexit will not impact all sectors equally – each business needs to
consider what it will mean for them
• Eversheds has a team of experts that can advise you on the
potential impact Brexit will have on your business
• We can help you identify the specific risks, challenges and
opportunities for your business to manage your exposure and
help you prepare a “Brexit ready” plan
• We can help you lobby for Brexit arrangements for your sector
• Further information is available on Eversheds’ Brexit webpage -
www.eversheds.com/brexit
How can Eversheds help?

20. eversheds.com
©2015 Eversheds LLP
Eversheds LLP is a limited liability partnership
Partner
Competition, EU and
Regulatory
+44 20 7919 4882
roskellaway@Eversheds.com
Ros Kellaway

21. 21
MGC Purpose
Mark Gregory
Chief Economist, EY (Item Club)

22. What does Brexit mean for
business?
Mark Gregory
27th July 2016

23. Brexit: A rejection of “the best of both worlds”…
62.0%
55.8%
46.3%
42.0%
42.3%
47.5%
41.2%
40.7%
47.4%
43.5%
48.2%
59.9%
38.0%
44.2%
53.7%
58.0%
57.7%
52.5%
58.8%
59.3%
52.6%
56.5%
51.8%
40.1%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Scotland
North West
Yorkshire & the Humber
East Midlands
South West
South East
Results by Region
Remain Leave
Page 23

24. …to great surprise.
Page 24
3.2
3 2.9 2.9
2.7 2.6
2.3 2.3 2.2
2 2
1.8 1.7 1.6
0
0.5
1
1.5
2
2.5
3
3.5
Reading
London
Cambridg
e
Luton
Bristol
Manchest
er
Leeds
Southamp
ton
Birmingha
m
Liverpool
Sheffield
Hull
Newcastl
e
Stoke-on-
Trent
GVA growth annual average (2015-18)
Source: EY and EY ITEM Club.

25. Brexit means Brexit, but what does Brexit mean for
business?
Regulatory
Trade Agreements
Labour
UK Economic
Scenarios
1
Policy
Direction2
Brexit
Drivers
3
Now
Infrastructure, Inclusive growth, Skills, Regions, Redistribution,
Housing
Macro- Economic
environment
Negotiation period
Reshaped
economy
New
International
environment
Page 25
Q3 data & Autumn
statement

26. 26
-29%
-22%
-14%
-12%
-12%
-10%
-7%
-7%
-6%
-5%
-5%
-4%
-3%
-2%
-1%
0%
0%
1%
2%
4%
4%
6%
7%
-35% -30% -25% -20% -15% -10% -5% 0% 5% 10%
Homebuilding
Retailing
Transportation
Capital Goods
Automobiles and Components
Software and Services
Food and Staples Retailing
Technology Hardware and Equipment
Telecommunication Services
Materials
Utilities
Pharmaceuticals, Biotechnology and Life Sciences
5-day share price performance by sub-sector from market close on Thursday 23rd June 2016 to market
close on Thursday 30th June 2016
Source: Cap IQ
Weaker correlation to
domestic demand
Correlated with domestic
demand -24%
Initial market impact – don’t be fooled.
Sectors

27. “The kindness of strangers” provides a clue to the future…
27
-35
-30
-25
-20
-15
-10
-5
0
5
10
15
20
25
1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015
Source: Haver Analytics
£ bn
Current
account
UK: Current account
Invisibles
Visibles

28. …and if the “sledgehammer” comes out…
0
1
2
3
4
5
6
2004 2006 2008 2010 2012 2014 2016 2018 2020
UK: Bank Rate & 20-year bond yield
%
Source : EY ITEM Club
Bank Rate
20-year
government
bond yield
Forecast
28

29. …its dearer holidays and higher prices at home…
70
75
80
85
90
95
100
105
110
2004 2006 2008 2010 2012 2014 2016 2018 2020
UK: Sterling effective exchange rate
Jan 2005 = 100
Source : EY ITEM Club
Forecast
29
-1
0
1
2
3
4
5
2004 2006 2008 2010 2012 2014 2016 2018 2020
UK: CPI inflation
% year
Source : EY ITEM Club
Forecast

30. …leaving net exports as the one bright spot in the outlook.
-5
-4
-3
-2
-1
0
1
2
3
4
2004 2006 2008 2010 2012 2014 2016 2018 2020
Domestic demand Net exports GDP growth
UK: Contributions to GDP growth
% year
Source : EY ITEM Club
Forecast
30

31. A significant downgrade, but what do economists know?
-5%
-4%
-3%
-2%
-1%
0%
1%
2%
3%
4%
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Actual / Pre-vote Post-vote
Pre- and post-vote projections for UK real economic growth
Page 31
Source: EY analysis.

32. The three legs of Brexit
Trade Migration Regulation
Page 32
The key drivers of the future state.

33. Financial services in the firing line.
Page 33
UK FS trade with EU
8.6 8.9
13.6
17.1
20.4
18.9
17.5
20.0 19.6 19.3
1.8 2.1
4.3 4.6 5.4
3.6 3.6 4.3
3.2 2.9
0.0
5.0
10.0
15.0
20.0
25.0
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
£bn
Exports Imports
Source: Capital Economics

34. The end of Thatcherism?
The domestic policy response
 Infrastructure – roads, rail
 Skills
 Devolution
 Industrial Policy
 Manufacturing
 Energy/renewables
 Digital
 Housing
 Tax – VAT, online, Business Rates
 Executive pay
0.8
0.9
1
1.1
1.2
1.3
1.4
1.5
2-Jun-16
4-Jun-16
6-Jun-16
8-Jun-16
10-Jun-16
12-Jun-16
14-Jun-16
16-Jun-16
18-Jun-16
20-Jun-16
22-Jun-16
24-Jun-16
26-Jun-16
28-Jun-16
30-Jun-16
Yields on 10 year UK government bonds
Page 34
Source: EY and EY ITEM Club.

35. The return of Empire?
Time to re-invent trade
 The UK is a key part of the global
trade jigsaw
 How hard can it be to negotiate a
trade deal?
 Domestic policy has to support trade
activity
 Devolution
 Skills
 Industrial policy and procurement
 UK trade strategy has to be more
integrated
 FDI
 Exports
 ODI
 Migration/Education
 Education
Page 35

36. mgregory@uk.ey.com
@markgregoryey
Thank you

37. 37
MGC Purpose
Dr Catherine Raines
Chief Executive, UKTI

38. Dr Catherine Raines
CEO UKTI
Building trade and investment prospects for the UK and
supporting the Northern Powerhouse

39. Our new Ministerial team
Liam Fox MP
Secretary of State for International Trade and President of the Board of Trade
Greg Hands MP
Minister of State
Lord Price
Minister of State
for Trade and Investment
Mark Garnier MP
Parliamentary Under
Secretary of State

40. A global network

41. 41
Our targets are clear
£1 trillion
‘stretch’
export
target
£1.5 trillion
ambition
for
Investment
100,000+
exporters &
#1 in
Europe for
Investment

42. International Expo – Astana

43. Driving the Northern Powerhouse

44. Partners are key to success

45. Get involved
www.exportingisgreat.gov.uk

46. 46
Brexit: What next? – panel session

47. 47
Panel
Sir Richard
Leese CBE
Growth Lead
GMCA
Ros Kellaway
Head of
Competition, EU and
Regulatory
Eversheds
Mark Gregory
Chief
Economist
EY
Dr Catherine
Raines
Chief
Executive
UKTI
Richard Topliss
Managing Director
for Corporate &
Commercial
Banking in North
of England, RBS

48. 48
Brexit: What next?