Chancellor of the Exchequer Sajid Javid’s suggestion that the UK may be diverging completely from European rules and regulations after Brexit has caused alarm across the business community.

In an interview with the FT on Friday 17 January, Javid said that there would be no alignment with EU rules once the UK leaves the union. The government is expected to formally take the country out of Europe on 31 January, after which there will be an 11-month transition period.

“There will not be alignment, we will not be a rule taker, we will not be in the single market and we will not be in the customs union, and we will do this by the end of the year,” he said.

Earlier this month, European Commission President Ursula von der Leyen said that the EU’s offer of tariff-free, quota-free trade would be dependent on the UK’s continued alignment with its core rules and regulations.

Until last week, it had been understood that the UK’s relationship with Europe would largely be based on equivalence – agreements that can be withdrawn by the EU if the UK departs from its standards. Wholesale divergence could leave Financial Services and the wider UK services sector vulnerable, along with other industries, such as manufacturing.

Last year, Bloomberg’s Brexit Impact Tracker found that several banks – including Barclays, JPMorgan, and Javid’s former employer Deutsche Bank – had moved over €830 billion (nearly $900 billion) in balance sheet assets out of the UK to Ireland or Germany since 2016.

Bank of America, Barclays, Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs, HSBC, JPMorgan, Morgan Stanley, Nomura, Société Générale, Standard Chartered, and UBS were among those relocating hundreds of staff. Others, including Barclays and Santander, took a charge on the ongoing impact of Brexit.

Over the weekend, the UK’s aerospace and automotive industries were among those criticising Javid’s comments. The Society of Motor Manufacturers and Traders issued a statement saying that building vehicles specifically for the UK market would massively increase manufacturers’ costs. “Our priority is to avoid expensive tariffs and other ‘behind the border’ barriers that limit market access,” it said.

A senior aerospace insider told the FT that he was “surprised by the terseness of the statement. “We do need alignment, particularly around the European Union Aviation Safety Agency. And with Reach, the chemicals regulations. We are no different from the automotive industry in that regard.”

“Unless we continue our alignment with the EU on this, UK manufacturers will fall foul of global rules for the export of high value components like engines, wings and powertrains to European assembly plants, as well as the export of finished products,” added the Unite union.

The Food and Drink Federation said ending regulatory alignment with the EU could lead to price rises for British consumers, while the Confederation of British Industry (CBI) urged the government not to treat the right to diverge from EU regulations as an obligation to do so.

In Friday’s interview, Javid said that UK businesses had already had more than three years to prepare for the reality of a new relationship with Europe. However, the problem is that businesses have been given little consistent detail about how that relationship will change.

Prior to the 2016 referendum, Javid himself was clear on the problems that Brexit would cause. In May 2016, in a Telegraph article titled ‘The only thing leaving the EU guarantees is a lost decade for British business’ (which is published on Javid’s own website), he wrote:

“For anyone who cares about British jobs, it comes down to one key question. Do businesses want the benefits and security of continued access to the Single Market, or the instability and uncertainty of a lost decade?

“The world’s largest economic bloc, it gives every business in Britain access to 500 million customers with no barriers, no tariffs, and no local legislation to worry about. It’s no surprise that nearly half of our exports go to other EU nations, exports that are linked to three million jobs here in the UK.

“Of course, the Brexit camp say we don’t have to be a member of the EU to benefit from all this. That, should we vote to leave, Brussels would instantly offer us full and easy access to the Single Market and influence over regulations. All the good stuff, none of the bad. It sounds like a no-brainer. But it’s just not realistic.

“Almost 80 percent of British jobs are part of the service sector – everything from that TV company to pensions to education. It’s a sector with exports of £226 billion, nearly half of which go to Europe.

“But of the trade agreements the EU has with more than 50 countries around the world, not one gives service industries the same level of guaranteed access as the Single Market. Not one. […] And that’s because services are complex and highly regulated.

“Unless the exporting country submits to the importing country’s rules and local regulator, access will be denied. Maybe the EU will break the habit of a lifetime and come up with something new just for us. But I wouldn’t want to bet the jobs of millions of British workers on it.”

  • The lack of regulatory equivalence or a signed EU trade agreement would have other significant impacts for the UK, most seriously on data exchange. Without a data adequacy agreement with the EU, UK organisations may be able to send data to data centres in continental Europe, but not process it or get it back – according to the Information Commissioner’s Office at a Westminster eForum GDPR event in 2019.

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