Article 50 triggered - PwC comments

 

Kevin Ellis, chairman and senior partner, said:

“The triggering of Article 50 represents an important moment for the UK. After months of uncertainty the UK is starting its formal exit path from the EU.

"There is much discussion and debate on the challenges to navigate through the negotiations on trade, immigration and customs. Of course, the ongoing relationship with the EU should not be underestimated and we must work to cultivate a healthy relationship as it is in everyone’s interests to have a competitive EU. But, for many there will be a sense of relief that we can get on with ‘the business of business’ and focus on how we can make the best of Brexit to help shape a new future for the UK.

"The Government has already sign-posted its ambition for the UK to become ‘Global Britain’ and the opportunity now is to help deliver on this because so many of our industries and services are world leading.  Our clients are already seeking to understand the opportunities that are emerging and we know that embracing the change that is coming is critical to the UK’s success both economically and societally.”

 

Laura Hinton, head of people, said:

“Although Brexit has been triggered, we don’t yet have more detail on immigration, so EU nationals living in the UK are facing continued uncertainty around their legal status.

“At PwC, we’re taking action to provide support and advice for our people such as a guidance pack produced by our legal immigration team and a helpline to address any concerns our people might have.

“Whilst we know that the UK’s decision to leave the EU will change the environment we work in, our purpose hasn’t changed, and neither has what we stand for. The diversity of our people means we have a wealth of experiences gained from different backgrounds, origins, and cultures. Because we combine these experiences with our skills, expertise, and knowledge, we can offer our clients powerful insights and options which are a key to our position as the leading professional services firm.”

 

Stephanie Hyde, head of regions, said:

“The EU referendum process exposed divisions: young versus old; urban versus rural; affluent versus deprived and nations versus regions - prompting questions about our identity not just in relation to the EU, but in relation to our communities and one another too.

“Now that the process of Brexit has been started, we must work together to close those gaps. The Government’s Industrial Strategy green paper begins to set out plans for supporting business growth across industries and across the regions.

“For UK plc to be an economic success, all our regions need to be firing on all cylinders and we remain committed to playing our part in improving productivity across and between the UK’s regions.”

 

Financial Services

Andrew Kail, head of financial services, said:

 "The UK’s financial services industry is incredibly important not only to the UK but to Europe and the rest of the world. The sector added £71.4bn to the UK’s tax revenues in the year to 31 March 2016.

 "Now that the starting gun has been fired on Article 50, the UK’s financial industry will have to start adjusting to life outside formal membership of the European Union. It remains critically important that access to markets and customers is maintained both here and overseas.

 "Inevitably the full transition to a new regime will take many financial services companies longer than two years, not least because of existing and emerging regulations. The scale and pace of change is unprecedented.  Some firms have estimated the changes would normally require between three to five years.

“Financial services companies are becoming increasingly concerned about ‘grandfathering’ the legal and regulatory validity of existing contracts. Plus they have reservations about the time and resources needed to handle the ‘re-papering’ millstone for transferring their clients to new contractual arrangements.

"There may be some genuine bottlenecks in the process such as regulatory licence applications. The situation is compounded by firms dealing with other external demands such as bank ringfencing and MiFID 2 as well wider global uncertainty and ongoing commercial pressures.

“Governments and regulators will therefore need to collaborate and agree appropriate transition plans that provide continuity of existing arrangements and preserve market stability across the UK and the EU27."

 

Mark Pugh, UK asset and wealth management leader, said:

"The asset management sector is strong, innovative and resilient.  The diversity of these global organisations and their contribution to the UK makes the continued success of the sector vitally important.

"The triggering of Article 50 gives asset managers a degree of long-awaited certainty and a set timeline to work towards. Firms must now rise to the challenge and continue to serve their customers with the passion and skill that has made the UK a leading destination for the global asset management industry.  

“The time for indecision is over - firms must now firm up their plans for various Brexit scenarios, ensuring their customers remain at the centre of everything they do. It’s important that businesses continue to press ahead with preparations to comply with any EU legislation due to be implemented in the next two years, such as MiFID II.

"We will work with our clients to help ensure that the UK’s transition out of the EU leaves the asset management industry in a strong and enduring position, whatever the negotiations bring."

 

Jim Bichard, UK insurance leader at PwC, comments:

"The triggering of Article 50 is an important moment for the UK insurance market and for all insurers operating in the UK, Europe and further afield. London is a global centre for insurance and the negotiations over the coming months will be particularly relevant for this industry. Many insurers have used the months following the referendum to make plans and we will start to see these come to fruition in the coming months.

"It is vitally important for insurers to continue communicating regularly with the government, regulators and trade bodies to ensure negotiations with the EU include actions to preserve a healthy and vibrant UK insurance market.

"The UK is a truly global insurance hub. By embracing the changes brought about by Brexit, I am confident it will continue to thrive."

 

Jane Portas, insurance regulation partner at PwC, commented:

"The UK's insurance industry is incredibly robust and has gone through huge amounts of regulatory change in the past few years. Solvency II and the Insurance Distribution Directive are two key areas on which the industry will be looking for clarity in the coming months. If changes are made to existing and planned regulation, the industry will expect the government to do everything possible to ensure the UK gains some form of mutual recognition allowing for equivalence, and that it remains a global hub for insurance including participation of EU insurers."

 

Sandra Dowling, UK real estate leader, commented:

"Our Emerging Trends in Real Estate survey revealed confidence in the UK’s ability to weather Brexit, and global investors with broader diverse geographical investments appear relatively sanguine and measured in their view towards the UK's medium to long term prospects.

"The triggering of Article 50 will prompt companies across all industries to think about how Brexit will impact the property they hold or occupy. The real estate industry should use Brexit, alongside wider global political and social changes, as a catalyst for much needed innovation in the UK property market.

"We are living through some very uncertain times from a geopolitical perspective yet, against the backdrop of uncertainty, it is striking how much confidence there is in the real estate market, particularly among global investors. Cross-border capital flows are expected to remain strong throughout 2017.

"It is widely accepted that in the aftermath of the referendum the real estate industry focused too heavily on the UK market and did not consider the implications of Brexit on the European real estate market as a whole. Companies should ensure they view the coming months of negotiations holistically and include Brexit plans in their wider business strategies."

 

The economy

Andrew Sentance, senior economic adviser, said:

"Triggering Article 50 is not a shock like the EU Referendum result. It has been widely signalled by the government that this would happen in March, so it is no great surprise.

"Most likely, we face another two years of uncertainty before a new relationship between the UK and the EU is properly agreed. During this period we will probably see some bouts of financial volatility affecting the value of the pound and reduced business and financial confidence. Some businesses may hold back investment plans over the next couple of years, due to the uncertainty surrounding the UK's future relationship with Europe. These factors are likely to be a dampener on UK economic growth while the Article 50 negotiations are progressing.

"As a result we expect UK economic growth to slow to 1.6% this year and 1.4% in 2018, the slowest growth experienced since the Euro crisis in 2011/12. The longer term outlook for the UK economy will depend on the success of the negotiations with the other EU countries and our ability to maintain a high degree of open access to EU markets."

 

Trade

Phil Brown, PwC trade advisor, said:

"The countdown starts now. But the possible ‘landing zones’ will only emerge over the coming weeks as the EU-27 agrees the Commission’s negotiating mandate. The European Parliament has a veto over the final deal, so its position and non-negotiables will matter too.

"Technically everything is possible, but it will come down to politics and timing.  If both parties show flexibility over the separation terms and sequencing, and the EU agrees that a comprehensive free trade agreement is the long-term goal, then it will be possible to move quickly to agree the transitional arrangements.  The Prime Minister has sought to shape things from the outset by using her notification letter to focus EU minds on future cooperation and trade. But, however much a smooth transition is in everyone’s interests, this is a negotiation.  So any deal – even a transitional one – is likely to come down to the wire.    

"This makes it imperative that early progress is made on agreeing practical measures that can facilitate trade even in the absence of a 'grand bargain', such as customs cooperation and the recognition of standards.

"The UK must also press ahead ambitiously with implementation of its industrial strategy to enhance the UK’s productivity and competitiveness, alongside scaled-up and well-targeted export promotion support.  These will be key to sustained export-led growth, and realising the opportunities from striking new trade deals with the world’s largest and fastest growing economies, such as the US, China and India.

"For business, now is the time to take action to mitigate the risks and prepare to take advantage of the new opportunities."

 

Immigration

Julia Onslow-Cole,  global head of immigration, said:

"The Immigration Bill is likely to be the first bill off the block. Business will have to be ready to speak up if there are policies that will impact growth.

"We hope the triggering of Article 50 will lead to a resolution of the immigration status of EU nationals in the UK and UK nationals abroad. This should be the first point on the agenda which would allow businesses to plan effectively for the future.

"Businesses have to do three things - understand the impact that migrants have in their existing workforce; fully understand how their business will work with the published Industrial Strategy; and be agile and take part in the debates concerning third country agreements.

"Our research has identified key skills gaps in a number of sectors. This is the time for businesses to speak up to inform negotiations about what their concerns are to ensure future business growth."

 

Deals/M&A

James Fillingham, deals partner, said:

"The future is still bright for the UK as a hub for deals activity. Regardless of leaving the EU, The UK and London will remain a leading, if not the leading, place to live and work in Europe due to the capital markets, legal framework and domestic expertise.

"The deals market paused in mid-2016 to digest the Brexit vote, but came back strongly later in the year, and this will continue into 2017. Article 50 is already discounted in the minds of deal-makers so I see no pending shock to deal activity."

 

Tax

Kevin Nicholson, head of tax, said;

"The triggering of Article 50 gives a real impetus to make tax reform a reality. Tax may not feel like a priority, but lots of our taxes are EU ones. As the Budget furore over taxing the self-employed shows, changing tax is fraught with difficulty. Unless consultation starts now, we risk big complications later.

"There's a real opportunity to create a tax system fit for the future. Outside the EU there will be more freedom on tax incentives, so tax can be used to support the Industrial Strategy. There is the opportunity to use tax policy to help particular industries, regions, and groups of people.

"Now is the time for a proper consultation on what this all means in practice - what’s the overall vision and what tangible changes will get us there?"

 

Pharmaceuticals/life sciences

Jo Pisani, pharmaceutical and life science consulting leader, said:

“Life Sciences is a strong and vibrant industry in the UK making a significant contribution to taxes and overall GDP, as well as providing highly skilled employment. In addition, the industry is delivering life-saving and life-enhancing medical technologies.

“While EU transition will inevitably raise some challenges there is a real opportunity for the sector to grasp the chance to reinvigorate the UK industry and to maintain and, even improve, our world leading position."

PwC’s report for the Association of the British Pharmaceutical Industry on the economic footprint of UK life sciences can be accessed here

 

Energy markets and supply

Stuart Cook, PwC's head of utility strategy and regulation, said:

“The size and lifespan of investments in the energy sector means that decisions taken today will not materialise for years, sometimes decades, to come. Stable regulation and policy is critical, underpinning investment in this sector. This is why, wherever possible, securing early commitments on the status of key energy sector policies and regulation, post-Brexit, should be a priority.

“The UK energy and utilities sector, like many others across the economy, is hoping that Article 50 negotiations will result in as much access to European markets as possible. This includes Europe's energy trading markets, sources of investment funding and the European markets for goods and labour.

“The UK energy market is supported by physical connections with continental Europe through the gas and electricity interconnectors. The status of these interconnectors will be an important feature of the arrangements established with the 27 remaining EU nations. Security of supply and the affordability of energy could be put at risk if Brexit has an adverse impact on the operation of the interconnectors.

“The Government will also need to consider how best to accommodate a large number of EU energy market regulations if we are to successfully tackle the ongoing energy trilemma challenge of affordability, secure supply and decarbonisation.”

 

Technology

Jon Andrews, head of technology and investments at PwC, said:

“Technology is already helping to reshape and rebalance the future of our economy. For post-Brexit success this needs to remain high on the government’s agenda, which means creating the right environment for tech hubs and innovation to flourish right across the UK.  

“The UK has the ideal foundations to lead the way on the development and use of emerging technologies and is already world-leading in areas such as Machine Learning. It is encouraging that the government is prioritising this through its Digital Strategy and the investment outlined in the Budget.

“The focus now should be on creating a flexible regulatory environment, establishing a favourable immigration regime, providing lifelong skills learning for everyone and investing in emerging technologies research. This will be more important than ever in the post-Brexit environment.

“Given the fast-paced nature of change, it’s vital that the government creates the right framework that is flexible enough to support the UK’s vision to be the leading place for technology investment and innovation - now and in the future.”

 

Strategy& - Fit for Growth

Louise Fletcher, partner in PwC’s strategy consultancy business, Strategy&, commented:

"Businesses and government departments alike need to be agile and able to quickly assess the potential impact of Brexit. This means being razor sharp on identifying future priorities and opportunities, whilst working hard to manage and control costs.

“Leading through uncertain times requires a focus on the issues within your control - identifying where efficiencies can be made, analysing the sensitivity of costs to possible changes, workforce planning, and considering your key trade and supply chain partnerships. For example, might alternative supplier arrangements need to be put in place? How might your existing customer base or revenue streams be constrained or threatened?

“The organisations in pole position to achieve profitable growth and lead post-Brexit will be those with thoughtful plans in place to enable quick and controlled responses, aligned with their chosen strategy.”

 

Ends

 

Media contact:

Katherine Howbrook, PwC media relations, Tel: 020 7212 2711/07595 609 737, Email: [email protected]