Businesses in Britain face “confusion and uncertainty” over the post-Brexit regulatory regime with the UK having to maintain or copy the work of no fewer than 34 European regulators, the CBI employers’ group has warned.
With sectors from life sciences to medicine to financial services under the auspices of EU watchdogs, Theresa May, prime minister, must decide whether to extricate the UK from all of those bodies after leaving the bloc.
Questioned on the issue in the Commons on Monday, Mrs May said no decision had been made and the Brexit department was studying all of the regulators before making a decision: “We need to look with great care and consideration at the wide range of our relationships with Europe,” she replied.
Yet staying under the auspices of any European regulator would leave Britain under the influence of the European Court of Justice — breaching a Brexit “red line” set by the prime minister herself in her speech to the Conservative party conference this autumn. “We are not leaving only to return to the jurisdiction of the European Court of Justice,” she said.
Replicating work currently performed by EU agencies by setting up UK equivalents would come at a “huge cost” to taxpayers, said Pat McFadden, a senior Labour MP. “It would be sensible to approach these European agencies on a case-by-case basis. But the issue of the ECJ is a problem that the prime minister has created for herself by making this a red line.”
Even in areas where the UK already has a relevant agency, those organisations would need extra resources and staff. A recent report by Deloitte estimated that Brexit could involve the recruitment of up to 30,000 new bureaucrats working in areas ranging from border control to regulation.
Neither the British government nor the CBI is able to put a price tag on the cost of replicating European regulators in the UK to keep the rules for business as similar as possible. But ADS, the aerospace industry lobby group, has put an estimate of up to £400m over a decade just to copy the European Aviation Safety Agency, which regulates the industry.
The aerospace and aviation sectors, which contributed £52bn to UK GDP last year, are deeply concerned at the prospect that Britain will pull out of the EASA, which sets rules for certification of everything from aircraft and their components to flight training schools. Recreating a domestic regulatory system in the UK would be expensive and take years, say executives.
“The [UK’s] Civil Aviation Authority has been run down considerably because many of the staff have gone to work at EASA,” said Simon Whalley, external affairs director at the Royal Aeronautical Society. “That’s where competence has been transferred.” As the aviation and aerospace industries have to fund their own regulation, reversing that process would be “a considerable burden”, he said.
In its report released on Wednesday compiled after interviews with thousands of companies and smaller trade associations, the CBI raised concerns about issues including immigration and tariffs and calls for a “smooth exit” from the EU to avoid disruption to a range of industries.
But it also raised the issue of regulation and the growing concerns from many industries about who will regulate them and from where after Brexit. “Businesses are seeking as much stability and clarity as possible,” the report said. It warned that a worst-case “cliff edge” scenario would mean “regulatory confusion and uncertainty affecting businesses in every sector”.
The government has promised to enact a “Great Repeal Bill” to carry over existing EU regulations into British law during the next two years. That, however, will not end the uncertainty, according to CBI members, who want to know the identity of their future regulators.
Various industries, including life sciences, aviation, technology, food and drink and financial services, have called for interim arrangements to minimise disruption. “UK policymakers have only limited time, resource and political capital available in the two-year Article 50 period,” the CBI said, referring to the deadline for the UK to thrash out a deal with Brussels.
In addition, many contracts depend on EU law. Several sectors, including chemicals, plastics and technology, want assurances these will not face challenges as a result of regulatory changes.
Companies also have concerns over regulatory divergence: how the UK will manage to keep tabs on changes to EU law as it continues to evolve after Brexit to prevent exporters falling foul of legislation across the Channel. “The EU is not a static organisation and its regulatory framework will continue to evolve . . . this presents numerous challenges,” the report said.
The Engineering Employers Federation has issued a similar warning about how Britain will still be subject to EU legislation — for example, consumer protection and environmental — after Brexit. Areas of concern include chemicals and plastics, which is mainly regulated by Europe at present through regulations such as Reach and Coshh (affecting chemicals and hazardous substances). “The UK must therefore prioritise a strong level of ongoing co-operation and consultative engagement with the EU on regulatory developments and changes, even after Britain leaves the EU and creates a new form of relationship,” the EEF said.
John Steel, a barrister who has been legal adviser to several airports and airlines, warned that the uncertainty over how airspace was regulated could hinder the UK’s much needed airport expansion. The question of whether Britain remains a part of the European Common Aviation Area is crucial to maintaining the dynamism of the UK aviation sector.
“The EU organises . . . the multilateral agreements for the use of international airspace by UK airlines in and across Europe,” he said.
“We would have to restart negotiations of bilaterals with all 36 countries that are members of the ECAA. We don’t know what the new terms would be and how long this would take. If we come out of any of these agreements it could have a significant and potentially damaging effect on our ability to expand any of our major airports. It would certainly undermine confidence.”
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