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It has been over four years since the Brexit vote and the UK and EU seem no closer to an agreement. Crona Clohisey explains the history of the relationship between the two sides and how that affects them both today.It has been four years since the UK voted to leave the EU, a vote which is probably the most significant event to occur in the history of the EU. However, little has happened since then in the way of an agreement. The transition period ends on 31 December this year and, with an extension ruled out, the UK and the EU will need to reach an agreement on its future relationship by then; otherwise, there will be significant disruption for many businesses. Looking back at the UK’s history with the EU, we can get a better understanding of how Brexit came about. The 2016 Brexit referendum was actually the second time that the UK people were asked how they felt about their membership in the Bloc. When a vote took place in the UK in 1975, 67% supported continued membership of the then-European Communities (EC). The UK had only joined the EC two-and-a-half years earlier. In the years that followed, many observers remarked that the UK endured a troubled and even rebellious existence within the EU.Ironically, the UK had trouble joining the bloc initially. In 1961, the UK first applied for membership of the then-EEC and that application was blocked by French President Charles de Gaulle. It was reported that he was concerned that the UK membership would weaken the French voice in Europe. The French President was also afraid that the close relations between the UK and the United States would lead to the United States increasing its influence in Europe. Then, in 1967, a second application was rejected by Charles de Gaulle; the reason being that he felt the UK economy would not be suited to membership of the EEC, particularly given the UK’s practice of obtaining cheap foods from all parts of the world. The UK did eventually bring a successful application and joined in January 1973 – the same year Ireland also became a member state.Since then, the UK’s relationship with the EU has often been a divisive and a somewhat emotive issue in British politics. Margaret Thatcher, who was elected Prime Minister in 1979, had been a supporter of the EC. She even campaigned for the UK to remain in the EC in the 1975 vote. However, during the early 1980s, her view changed. She spent five years battling to lower the UK’s contribution to the EC’s budget, which she eventually won after famously demanding “we want our money back”. She was fearful of the project to create the European Monetary Union which would eventually see the creation of the Euro. She was also critical of the EU’s Single Market. Incidentally, the UK did not join the Euro, nor did it sign up to the Schengen Area, a commitment between 26 EU countries to abolish passport control and other border measures. So, it’s of no great surprise what was a complicated relationship has turned into an even more complicated divorce. The stark reality is that if the UK and the EU fail to reach agreement on a trade deal, the UK will have to trade with the EU on World Trade Organisation (WTO) terms which, in reality, has fewer benefits and high tariffs. The UK Prime Minister, Boris Johnson, has said that this would still be a “very good option” for the UK but many businesses across Ireland and the UK struggle to see how. Reduced trading costs and bureaucracy are just some of the benefits of free trade agreements, both of which will be a major factor without an agreement. Avoiding a hard border on the island of Ireland was not a dominant issue in the UK’s Brexit campaign but it has now become a huge stumbling block to a Brexit deal. With talks set to resume this month and a deal hoped by mid-October, it would seem, given the history, to be a mammoth task. 

Sep 01, 2020
Technical

Time is moving swiftly on, and it looks like not even COVID-19 could cause a transition period extension. So, where is Brexit now? Words by Akriti Gupta, Public Policy Officer, Chartered Accountants Ireland Despite the global economy and society being in turmoil because of worldwide lockdowns, Brexit has not gone away. With the COVID-19 crisis hanging over Brexit talks, most policymakers initially believed that the economic uncertainty caused by the pandemic would force the UK to request an extension to the transition period. However, the UK has now confirmed that it will not be seeking such an extension.  Four weeks of intensive negotiations later, it is also clear that little progress has been made in key areas of divergence. With a stand-off arising between the EU and UK negotiators once again, the clock is rapidly winding down to the 31 December 2020 end of transition period deadline. The language being used by negotiators on either side also shows increasing levels of frustration, with words used such as "backtracking on commitments" and "regretting the remote format".  Both sides have so far outlined sharply contrasting positions as they continue to make their individual positions clear. EU leaders maintain their position as "ambitious" and seeking a wide-ranging agreement – subject to conditions. Setting out the EU's position, chief negotiator Michel Barnier said there could be no trade deal unless the UK agreed to a "level playing field" and did not undercut EU regulations. Meanwhile, UK ministers and officials continue to maintain that being able to diverge from EU rules and standards was the essence of Brexit and the UK's "new footing as an independent sovereign nation". At the moment, it's clear that there is little intention to compromise on the key sticking points; namely the so-called "level playing field", fishing rights in UK waters, legal oversight of the European Court of Justice and binding commitments on financial markets. All these engagements can be found in the revised Political Declaration on the shape of the EU-UK relationship, designed to form the basis for a future trade agreement. However, this declaration is legally non-binding, as opposed to the Withdrawal Agreement, which has the force of an international treaty. This, in turn, highlights how the commitments made may not be fully impermeable, especially given that the UK government has also made it clear that, from their perspective, there will be no full regulatory alignment with the EU after Brexit.  Although a recent meeting between UK Prime Minister Boris Johnson and senior EU officials shows a commitment from both sides to reach a viable agreement, an impasse in the negotiations still remains. The benefit of time has ebbed away because of continuous delays to the process and further disruptions caused by the COVID-19 pandemic. With the outcome of Brexit negotiations a mystery yet again, all signs point to the prospect of a 'no deal' situation still being on the table. Although experts believe that an agreement is possible, it may be several months before meaningful compromises take place.  Once again, it is going to be down to the wire. You can learn more about the current state of Brexit and what it means for members on the Accountancy Ireland Podcast, found on www.accountancyireland.ie, Apple Podcasts and Spotify.

Jun 30, 2020
Technical

With over three years of back and forth, extensions and negotiations, the Brexit issue is currently the last thing on our minds. As the world gets to grips with the COVID-19 crisis, the Brexit deadline draws closer and closer with no trade deal in sight. WORDS BY AKRITI GUPTA Brexit had been dominating headlines for quite some time, only to be swiftly replaced by reports of the worldwide outbreak of the COVID-19 pandemic. While the British government no longer participates in EU decision-making institutions, the country remains bound by its rules and enjoys the benefits of membership during the transition period lasting until 31 December 2020.  However, given the COVID-19 pandemic, it is increasingly likely the UK government will need to extend this timeline or risk additional economic shocks. With both the UK and EU working hard to mitigate the impact of the pandemic, it is highlighting the post-Brexit regulatory and coordination challenges ahead. With only one round of negotiations having taken place so far, the Brexit process has mostly been parked due to the pandemic outbreak. As reported, the two sides were cordial but faced “very serious divergences,” in the words of EU chief negotiator Michel Barnier. Following Michel Barnier testing positive for the virus, and his negotiation team and UK counterpart, David Frost, under self-isolation, the EU and UK have said there will be three further negotiating rounds by video conference before both sides must take stock of the progress of the future relationship negotiations by mid-June. The three rounds will be on the weeks beginning 20 April, 11 May and 1 June. EU-UK Joint Committee  The first meeting of the EU-UK Joint Committee, set up to implement the Brexit Withdrawal Agreement, was held via video link at the end of March. During the meeting, the UK Cabinet Office Minister Michael Gove, and European Commission Vice President Maroš Šefčovič largely agreed on the importance for the UK to set out its plans over the coming months in regard to the implementation of the Protocol on Ireland/Northern Ireland.  The European Commission also said that there is an urgent need for the UK to present a detailed timetable on how it will prepare for customs formalities for goods moving from Great Britain to Northern Ireland. Additionally, both sides have decided to launch the work of the six Specialised Committees – covering issues such as citizens’ rights, other separation provisions, Ireland/Northern Ireland, Gibraltar, sovereign base areas in Cyprus and financial provisions – on the key areas for the implementation of the Withdrawal Agreement.  Coronavirus v Brexit The detailed legal obligations of both parties are clearly set out in the Withdrawal Agreement. With the Joint Committee legally obligated to meet at least once a year, they will now work closely to prepare for its next meeting, currently foreseen for June. If the UK were to adhere to its strict timetable of deciding to leave the EU without their much-coveted deal by June of this year, the current climate, in addition to a post-coronavirus economy, threatens an economic disaster of high multitudes. Brexit is not immune to the coronavirus. However, it is now up to the decision-makers to see if they can vaccinate the economy against it.  The UK is currently in a transition period with the EU until the end of the year, 31 December 2020.  Akriti Gupta is a Public Policy Officer in Chartered Accountants Ireland.

May 01, 2020
Technical

After a runaway election for the Conservatives in December, and a successful Brexit vote last week, it looks like the United Kingdom will be leaving the European Union on 31 January,  but what does that mean for an EU-UK trade deal? By Akriti Gupta With British MPs having given their final backing to UK Prime Minister Boris Johnson’s Brexit deal on 9 January 2020, the UK is now set to leave the European Union (EU) on 31 January 2020 with a deal in place. This approval comes following a mercurial, three-year-long debate over the outcome of the UK’s decision to exit the EU.   The House of Commons voted 330 to 231 in favour of the Brexit Withdrawal Agreement Bill, giving it three weeks to pass through the House of Lords and receive Royal Assent to meet the Brexit deadline. The latest vote gives approval to the 11-month transition period starting at 11PM (GMT) on 31 January 2020, after which the UK will cease to be an EU member state but will continue to follow its rules and contribute to its budget.Moving forward  As UK Brexit Minister Stephen Barclay emphatically concluded the vote (“It is time to get Brexit done, this bill does so.”), the focus turned to upcoming talks on establishing a long-term UK-EU trade deal. Mr Johnson is confident that the transition period is a sufficient amount of time to negotiate a viable trade deal, but his EU counterparts are less optimistic about reaching an agreement by 31 December 2020. However, while the new EU Commission President Ursula Von der Leyen stresses the necessity to uphold the integrity of the European Union, she also highlights the importance of establishing a partnership “beyond trade” with the UK. Even though there is much to be said about the future of the UK-EU trade partnership, areas such as climate action, data protection, fisheries, energy, transport, financial services, and security are key areas that have yet to be touched upon.    As we look forward to the UK navigating the unchartered waters of negotiating a viable trade agreement with the EU, the clock continues to tick. In the words of Ms Von der Leyen, the story of old friends and new beginnings continues.  

Jan 13, 2020
Technical

Neil Gibson, Chief Economist at EY Ireland, explains why giveaway budgets are no longer the reward for Ireland’s economic success. This year’s Budget announcement was a clear indication that, despite the country’s positive economic position, the budgets of old – punctuated by tax cuts and giveaways – have likely been consigned to the history books. Instead, the focus is firmly on public service delivery, targeted and time-limited supports and risk mitigation. No-deal now the base case The first 15 minutes of Minister Donohoe’s speech was dedicated to dealing with a no-deal Brexit, indicating how significant the Government expected the impact to be. The base case for the economic forecasts is now a ‘no-deal’ outcome, growth is expected to fall from 5.5% this year to just 0.7% in 2020. The intent to provide funding to mitigate adverse Brexit effects was prudent, but its effectiveness will be determined by how quickly and effectually this is deployed. In the event of a no-deal outcome, some businesses will need very rapid support to solve cash-flow challenges but there can be no expectation that this will become a long-term source of support. The money must be used to buy time and then help firms to adapt to the new trading conditions, assuming no-deal conditions persist. There will need to be flexibility in the deployment of support, and it was slightly surprising how detailed the commitments were to different schemes and departments. Amazingly, at the time of writing, it remains unclear what form of deal, if any, will be struck. Time to adjust Budget expectations To get a sense of the room, we surveyed attendees at our EY Budget event and it seems Budget 2020 may have fallen short of expectations more broadly, with the majority of respondents saying they felt ‘exactly the same as before’ while 19% felt ‘disappointed’, 16% felt ‘reassured’, 3% felt ‘worried’. Nobody felt ‘inspired’. Budget analysis often focuses on the individual. Who is better or worse off, and by how much? Understandable, but there is growing recognition that money is not the only barometer of success. What of our healthcare and education systems? Our safety and, increasingly, what of the health of our planet? We are being asked to think less inwardly – to look at the bigger picture, the community and the world around us. This was never going to be a giveaway budget. Minister Donohoe, correctly, pointed to the risks facing the Irish economy and the fact that, even after five years of impressive growth, the economy is only just balancing the books. Looking at the infrastructure and public policy needs and the challenge of tackling climate change, it is fair to say that the era of widespread tax cuts and giveaways is long gone. Now, the public faces into a potential era of tax increases as further tax receipts will be required to fund public expenditure. The carbon tax announcement, for example, demonstrates how the linking of tax to beneficial spending plans could become more common. The ring-fencing of tax receipts to resolve specific economic or societal questions can often be easier for people to accept and tougher for businesses to argue with. Supporting that, 74% of business-people surveyed feel the €6 carbon tax increase per tonne does not go far enough, according to the EY Budget poll. Ring-fencing may be more electorally palatable, but it runs the risk of creating a very fragmented tax and expenditure system. It can also reduce the flexibility needed to adjust to unforeseen circumstances. Caution required The cautious and restrained Budget 2020 may seem at odds with an economy that is one of the world’s fastest-growing developed economies and more than 50% larger in GNP terms than it was five years ago. But Minister Donohoe, as expected, highlighted the twin threats of a global slowdown and Brexit as reasons to avoid any sweeping giveaways. Most economists would approve of this restraint at the peak of the cycle, regardless of the reasons, though it is worth remembering that economists usually do not run for election. The reality is that, despite Ireland’s well-documented growth, it is just about balancing the books and with a net debt of close to €180 billion, there is very little capacity to deal with future slowdowns. If Ireland cannot pay off debt at the peak of the cycle, what does that tell us about its economic foundations? Public expenditure has risen strongly in line with tax revenue, despite the messages of restraint and welfare savings, as the labour market has improved. Our growing population, the legacy of underinvestment in infrastructure, well-documented shortfalls in health spending and a rising recognition of education’s relative spending deficit lessens the Minister’s ability to adhere to so-called ‘counter-cyclical’ economic policy (i.e. spending less money when the economy is growing rapidly and more money in a time of slow growth). The harsh reality is that more tax will be required, or a renewed effort will be necessary to find efficiencies in what Ireland currently spends. Neither option will be popular, and this is before we tackle the climate change and emissions crisis. Perhaps the cautious and restrained tone is therefore justified – giveaways will not be the reward for Ireland’s success.

Nov 05, 2019
Technical

The past few weeks have seen a significant amount of development in the realm of Brexit. Akriti Gupta brings us through the recent happenings. 17 October 2019 Following intensive negotiations, a Brexit deal was agreed on between the United Kingdom (UK) and the European Union (EU), with the commercial elements focusing on issues of customs and VAT. Customs Republic of Ireland to Northern Ireland No customs obligations apply if you move your goods from Northern Ireland (NI) to the Republic of Ireland (Ireland), or vice versa, nor are there restrictions on quantities moving. Northern Ireland to Great Britain  No customs obligations apply here as NI is part of the UK customs territory. Great Britain to Northern Ireland  Goods moved from Great Britain (GB) to NI will not be subject to customs obligations unless the good is “at risk” of being moved into the EU afterwards. In such cases, customs will be charged when goods move from CB to NI with rebates available if the goods remain in the UK and are not transmitted onwards to the Republic of Ireland or elsewhere in the EU.  VAT NI will remain aligned with EU VAT laws. However, the UK will keep the VAT revenues collected in NI.  For example: A trader in Ireland purchases goods to the total value of €10,000 from NI. The NI company zero rates the goods supplied to Ireland. The Irish trader then self-accounts for VAT on the reverse charge basis at the 23% rate applicable in Ireland (€2,300). In most cases, the Irish trader can also then claim an input credit of €2,300. The status quo remains, and no cash flow issues arise between Ireland and NI.  It’s important to note that the proposals set out that the UK may apply VAT exemptions and reduced rates that are applicable in Ireland to supplies of goods taxable in NI.  19 October 2019 Upon reconvening on 19 October, the UK House of Commons voted in favour of the Letwin Amendment, which enables the UK to withhold approval for the Brexit deal, until legislation to implement the deal has been passed by the government.  The UK Prime Minister Boris Johnson officially requested another Brexit extension from the EU until the end of January 2020. This is in line with the terms of the Benn Act, passed in September, to ensure that the UK government does not leave the EU without a deal. The EU is currently considering the extension but will need the consent of all EU27 member states to grant it. If the EU refuses to grant the UK a delay to Brexit, then the UK Parliament has until 31 October to pass a deal and the associated legislation.  22 October 2019 The UK Parliament’s bid to hold a ‘meaningful vote’ – a vote within the House of Commons on a government motion to approve the Withdrawal Agreement – was rejected by the Speaker of the House, John Bercow. The UK government also published the full text of the EU Withdrawal Agreement Bill later that day. That night, UK MPs voted to approve the Withdrawal Agreement Bill in principle on its second reading. However, they simultaneously rejected Prime Minister Boris Johnson’s proposal to push the Bill through Parliament within an accelerated three-day timeframe.  Taoiseach Leo Varadkar has confirmed his support for EU Council President Donald Tusk’s proposal to grant the UK an extension to the Brexit process. Meanwhile, the EU27 member states are currently considering the request.  (The outcome of the EU extension was still unknown at the time of writing. An extension was granted and an election in the UK has been called for 12 December.)

Nov 05, 2019