The last few days have shown that British business is ill-prepared for Brexit.
Sterling and the London stock market have plummeted. Financial services firms in the City of London have suspended investments or announced jobs moving overseas.
One firm that recognised the need to explore the UK’s options after Brexit was QBE.
The business insurer set out the likely outturn of a ‘Leave’ vote (click here), and detailed the alternative strategies a new Brexit government could follow.
The Norwegian model
After Brexit, the UK could adopt the Norway model and join the European Economic Area, QBE said. That would give full access to the single market, but in return the UK would have to abide by EU regulations over which it would have no say, it would be unable to restrict EU immigration, and it would have to contribute towards the EU budget.
“There seems very little positivity towards this,” QBE said, quoting a Norwegian minister saying, “If you want to run Europe, you must be in Europe; If you want to be run by Europe, feel free to join Norway.”
The Canadian model
The UK could emulate Canada, which is currently ratifying “the most far-reaching trading deal with Europe” ever. While it would allow migration control, and allow the UK to break from the European Court of Justice, such a deal might not preserve passporting rights for financial services.
The Swiss model
Switzerland has built a two-way deal with the EU, allowing it access to some parts of the single market in return for accepting some EU legislation and making contributions to the EU budget.
The Swiss model “has worked well in some ways, but been problematic in others,” QBE said. Switzerland is locked in dispute with the EU on the free movement of people and, “without a vote or influence within the EU, it has proved difficult for Switzerland to get its view heard.”
“With something like the Swiss model, or a British version of the Swiss model, how insurance would be treated is far from clear,” said Gregor Irwin, chief economist at advisory firm Global Counsel, quoted by QBE. “The transition would be messy.”
The problem of regulation
Global Counsel’s Irwin agrees: “The problem for companies just now who might be looking at Brexit and thinking ‘well maybe the regulatory environment will be a little bit more relaxed because we won’t have all this Brussels regulation’, well if you’ve got access to the single market the UK will have the obligation to sign up to EU legislation, but you will have no influence over that legislation.”According to QBE, “All these models struggle to reconcile the central issue of regulatory control.”
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