The Horrors of Brexit
31st October 2019
“So we are getting ready to come out on October the 31st. Come what may . . . Do or die. Come what may.” – Boris Johnson, Prime Minister
It’s Halloween season and there is nothing more horrifying than the current affairs of Brexit. Brexit began in 2016 when 17,410,742 (51.9% of voters) voted to leave the European Union. After many delays and two changes in Prime Minister, the current UK Prime Minister, Boris Johnson, campaigned for Brexit to be done by 31st October 2019. However, once again, it was delayed. We must now wait until January 2020 to see if a deal goes through. However, this depends on the outcome of the upcoming general election on 12th December. Every week that passes, the UK loses £440 million, which in turn, negatively affects the performance of UK markets and businesses. According to a study by the National Institute of Economic and Social Research, if Boris Johnson’s current deal passes, the UK economy is set to suffer a £70 billion loss in ten years’ time. However, the Treasury has stated that it is planning to gain a more ambitious deal with the EU than the study focuses on.
So how will Brexit affect UK businesses and the accounting and finance industry?
- Currently UK firms report under “EU adopted IAS” for accounts. However, upon leaving the EU, we will transfer to “UK adopted IAS”. Initially standards will be the same, but they may change in the future.
- After the UK leaves the EU, businesses will have to apply VAT to trading with EU countries in the same way as when trading with non-EU countries. In the long term, the UK will be able to set its own VAT rates but the UK’s short-term policy is to stay as close to the current position as possible.
- According to MSCI, a no-deal Brexit could weaken the UK stock market by 15%.
There is always a chance of a recession, especially in such an uncertain climate with Brexit. When the outcome is uncertain, there are no guarantees.
The current GDP of the UK is £2.829 trillion, however according to KPMG, we are facing an estimated decrease in our GDP by 1.5% in the event of a no-deal Brexit. This would equate to a loss of £42 billion. This could potentially lead to the first recession since the housing crisis of 2009.
Companies are uncertain about the effects of Brexit just like everybody else. Therefore, they are not investing or hiring new employees because confidence is low. This behaviour on a large scale is exemplary of triggering a recession.
Furthermore, due to the delay of Brexit, the setting of the Budget has also been delayed.
Opinion of our bloggers:
“Brexit is going on for far too long, the delays are bringing the mood of the nation down to a low depressing level. The majority voted to leave so we should do just that. Try our best to negotiate a deal, although refuse to be held hostage by the EU. Cut our losses and move on.”
The final word
The nightmare we are experiencing with Brexit does not have to be so devastating to the UK and EU relationship. We can still work on deals with the European Union after Brexit has been completed and we could work alongside the European Free Trade Association, operating parallel to the EU and still being involved in the single market. This would be similar to how Norway currently operates with the EU.
The Financial Review team