Update Report Possible Implications for Renfrewshire of the vote to leave the European Union

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1 To: Leadership Board On: 19 September 2018 Report by: Chief Executive Heading: Update Report Possible Implications for Renfrewshire of the vote to leave the European Union 1 Summary 1.1 In September 2016, the Leadership Board considered a report which outlined the possible implications for Renfrewshire of the vote to Leave the European Union. At that time, the report noted that there was a significant degree of uncertainty in terms of the scale and nature of any implications that may arise, and that the detail of these could take several years to become fully apparent. 1.2 In the intervening period since the vote to leave, some detail has emerged in relation to for example future arrangements relating to the status of EU nationals, the development of alternative structural funds which will replace EU funding and in relation to the treatment of EU legislation in the UK post withdrawal. An agreement has also been reached between the UK and EU to establish a transition period from after the date of withdrawal in March 2019 until December 2020, which will allow for stability whilst the final arrangements of withdrawal are worked through. This transition period is however dependent on the UK and EU reaching a final agreement on withdrawal. 1.3 In recent weeks the UK Government has published a set of technical guidance notes which are intended to guide businesses, public bodies and citizens on the possible implications of the UK leaving the EU without reaching agreement referred to as no-deal Brexit. 0

2 1.4 Further detail in relation to the Council s response to the publication of these technical notes, and in relation to the information available to officers at this time on the implications of EU withdrawal is provided in the body of this report. Key messages to highlight to elected members at this stage are as follows: Following the vote to leave, the UK Government formally triggered Article 50 in March 2017, thereby initiating a process whereby the UK and the EU had a period of up to two years to reach agreement on the terms of the withdrawal. EU withdrawal date has been agreed as 29 March 2019, with a further transition period agreed to 31 December 2020 to ensure more detailed arrangements can be developed and implemented as required across agreed areas of activity. The UK Government has published it s agreed vision for the final withdrawal agreement which is now being discussed with the EU. There are two scheduled EU summits in October and December 2018 which will provide an opportunity for any potential agreement to be ratified. In principle, the UK and EU have agreed the main elements of an EU Settlement Scheme which would be put into place in the event of a withdrawal agreement being ratified by both the EU and the UK. This would allow EU nationals in the UK to apply for settled status, and also extends to UK nationals living in one of the EU member countries. In terms of the law, the main development has been the completion of the passage through Parliament of the European Union (Withdrawal) Act 2018, which essentially ensures that the EU cannot enact new laws which affect the UK, whilst retaining most of the EU law that applied to the UK on the date of withdrawal. The impact of the cessation of EU structural or regional funding continues to be explored, with the UK Government announcing plans to develop a UK Shared Prosperity Fund as a replacement funding stream. The detail on the nature and allocation of the funding is not yet available, and therefore the implications for Renfrewshire are uncertain at this time. 1

3 In terms of the economic impact, recent economic forecasts note that the absence of a UK and EU withdrawal agreement is the biggest source of economic uncertainty at a national and local level. In the short term there has been an economic boost to exports which has been of benefit to the Renfrewshire economy, however in the longer term there may be significant impacts due to importance of manufacturing and export activity to the Renfrewshire economy amongst other sectors. Work has been progressed with Community Planning Partners to consider the implications of EU withdrawal. Given the release of recent information on the EU Settlement Scheme, no deal contingency plans and the proposed withdrawal agreement, it is proposed that partner engagement is now re-established and an action plan for the Council developed specifically to inform preparations. 1.5 Elected members will be aware that the major driver of uncertainty relates to the final agreement that requires to be reached by the EU and the UK Government on withdrawal arrangements, the final detail of which remains subject to negotiation. In advance of detailed information becoming available, Council officers have continued to work with community planning partners to consider the possible implications of EU Withdrawal and essentially to be ready to respond jointly when this detail emerges. 1.6 In particular work has been undertaken to ensure that Renfrewshire Council draws down the maximum EU funding available, ahead of the cessation of the funding streams between As part of the 2018/19 budget agreed by full Council in March 2018, 4.5million was allocated for a new employability programme for Renfrewshire, with the anticipation that this would lever European funding of 2.4million bringing the total programme investment to 6.9million. It is anticipated that this additional funding could now be in the region of 4m. 1.7 As covered in this report, an agreement has been reached in terms of the settlement of EU nationals, however this will only come into effect if agreement is reached on the overall withdrawal deal. The proposed EU Settlement Scheme which will be established will come into effect later in 2018 and will run to 2020, allowing the Council an extended period of time to work with partners to communicate and engage with EU nationals living in Renfrewshire s communities and those employees affected within the Council s workforce and through commissioned service arrangements. 1.8 The UK Government recently published information relating to contingency plans that have been prepared in the event of the UK 2

4 leaving the EU without agreement being reached. This information will inform a future programme work to be progressed corporately, with partners and with communities through a community planning Brexit group. Regular updates on this programme of work will be provided to the Leadership Board in the run up to the 29 March Recommendations 2.1 It is recommended that members of the Board: 3 Background i. Note the updated information provided within this report. ii. Note the participation of officers in sessions organised by the Home Office and COSLA in relation to the EU Settlement Scheme. iii. Agree that regular update reports on the Council s preparations are provided to the Leadership Board prior to the EU withdrawal date of 29 March The EU Referendum was held on 23 June 2016, with the outcome of the vote being a decision to leave the EU. In March 2017, the UK Government triggered Article 50, thereby formally notifying the EU of the UK s intention to leave the EU, with a date set for withdrawal of 29 March Article 50 allows a period of up to 2 years for the terms of withdrawal to be agreed by both the UK and the EU. 3.2 As detailed in the following sections, the UK and EU have reached provisional agreement in relation to several key areas of negotiation:- including the cost of withdrawal (the divorce bill ) and what happens to UK citizens living elsewhere in the EU and EU citizens living in the UK. A transition period has been agreed from the proposed EU withdrawal date to 31 December, 2020, to ensure appropriate arrangements are in place and to allow businesses and others to prepare for the moment when the new post-brexit rules between the UK and the EU begin. 3.3 Elected members will be aware that the UK Government Cabinet recently set out its vision for the nature of this relationship, which is currently subject to discussion with the EU. There are several key milestone dates which will be critical to the finalisation of the withdrawal agreement: 18 October 2018 EU Summit. This is a key point of decision making which would allow time for both the UK and EU members to ratify specific legislative requirements 13 December 2018 EU Summit. This provides a further opportunity for final decisions to be ratified. 29 March 2019: Date of UK Withdrawal of the EU 31 December 2020 transition period end date. 3

5 4. Summary of implications 4.1 In September 2016, a report was submitted to the Leadership Board which outlined the potential implications of the vote to leave the EU Union, noting that significant uncertainty existed in relation to the scale and pace of the anticipated impact. Much of this uncertainty continues to exist, and is likely to do so in advance of the final withdrawal agreement being ratified by both the UK Government and the EU. 4.2 In addition, in August 2018, the UK Government published a series of technical notes which seek to inform public bodies and businesses on the possible implications of the UK leaving the EU without agreement having been jointly reached. This paper seeks to provide a summary of all available information at this time, and also to outline work which officers will progress with community planning partners to prepare effectively for EU withdrawal under either scenario. 4.3 Legal In terms of the law, the main development has been the completion of the passage through Parliament of the European Union (Withdrawal) Act 2018, which was given Royal Assent on 26 June The Act sets out to achieve three main things: It will repeal the European Communities Act 1972 on exit day which brings to an end the power of European institutions to enact new laws that directly affect the United Kingdom It will ensure that most of the EU law that applies to the UK immediately before exit day is retained It gives the UK Government wide powers available for two years after exit day to amend the retained EU laws in order to correct what are referred to as deficiencies in those laws arising as a result of the UK s withdrawal. These powers will enable changes to be made in such circumstances where for example the law is no longer of any practical application or is otherwise redundant, which confers functions on EU entities or which contains EU references that are no longer appropriate In relation to the last bullet point it is estimated that approximately 800 pieces of secondary legislation will be required to correct the known deficiencies. 4

6 4.3.3 The Act and particularly the repeal of the 1972 Act has huge legal significance for the United Kingdom because much of the EU law that currently applies in the UK does so through the 1972 Act. The other provisions recognise that it would not be possible within the available timescale for the UK Parliament to legislate in relation to every EU law individually. It also recognises that EU law covers some areas which a UK Parliament would have legislated on anyway if the UK had not been a member of the EU The Act doesn t explicitly deal with any transition period beyond exit day but would not prevent a transition period being part of a withdrawal agreement between the UK and the EU. Section 9 of the Act allows the Government to make provisions for the implementation of a withdrawal agreement before exit day provided legislation approving the withdrawal agreement has been enacted After exit day, the UK Courts will not be bound by decisions of the European Court but may have regard to those decisions. One consequence of this could be that the European Court could decide that a piece of EU legislation enacted before exit day was invalid. But that declaration of invalidity would not apply in the UK and the invalid law would remain in place here In addition, after exit day the EU s Charter of Fundamental Rights will no longer apply and UK citizens will no longer have the ability to use Francovitch claims which enable individuals to seek damages from the national government where the individual has suffered a loss as a result of the national government failing to implement or properly implement a European Directive The next legal issue concerns devolved powers which the European Union (Withdrawal) Act does impact. Ongoing discussions are underway between the UK Government and the devolved administrations in relation to these issues In relation to the UK s withdrawal from the EU, the UK triggered Article 50 by notice in March Article 50 provides that the EU will negotiate and conclude an agreement with the withdrawing country setting out the arrangements for the withdrawal The EU treaties then cease to apply to the leaving nation when the withdrawal agreement enters into force or failing approval of any withdrawal agreement, two years after the notification unless the European Council unanimously agrees to extend the period. 5

7 Withdrawal without joint agreement on terms, is what is commonly referred to as no-deal Brexit. 4.4 Economic impact In terms of the economy, it is clear from published data sources that the economic performance of the UK and Scottish Government has been sluggish relative to historic levels, and in comparison with other major economies. Economic commentators report that uncertainty in relation to EU withdrawal has been a major contributor to the current levels of performance. The latest available data (Quarter 1 of 2018) shows that both Scottish and UK GDP grew at around half the rate of the rest of the EU around 0.2% compared to 0.4%. This relatively poor performance is partially attributable to the impact of the Beast from the East severe weather which was experienced - more recent information appears to suggest that quarter 2 growth will be stronger In its latest Economic Commentary, the Fraser of Allander Institute forecasts a 1.2% increase in Scottish GDP in 2018 and 1.3% growth in 2019, making its outlook more optimistic than the government s own official forecaster, the Scottish Fiscal Commission. In its latest assessment, the Institute concludes that Brexit remains the greatest risk to Scotland s economic recovery and that the current absence of an agreement with the EU risked holding back Scotland s recovery. However, is recognised that the agreed transition timeline for exit has helped businesses plan ahead Growth in food and drink exports, as well as improving sentiment in the oil and gas sector appear to be driving improving performance; but the Institute also comments that improved productivity is still required, with investment in digital skills being critical to this The Bank of England s latest Inflation report outlines a gently increasing Bank rate in response to slightly increasing GDP and the current above target level of inflation caused by Sterling s depreciation following the Brexit vote and increasing energy prices. The Bank also recognised that their forecasts could be significantly impacted by individual s and business s response to the EU withdrawal process. The Bank of England Governor, Mark Carney, also recently highlighted the risks to the UK economy and banking system of a no-deal Brexit being highly undesirable, with disruption to trade and economic activity and higher prices for a period of time. 6

8 4.4.5 The economic impact of Brexit is now highly dependent on the exit route. A no-deal scenario would result in higher costs driven by the introduction of tariffs on goods exported to the EU averaging around 4% based on data compiled by the CBI, impacting on the competitiveness of UK businesses; and also on households who would require to bear the costs of imported goods, including food, which could disproportionately affect lower income households (as a higher percentage of their income is spent on groceries) In a recent letter to the chair of the UK Parliament s Treasury Select Committee, the Chancellor Phillip Hammond warned that large fiscal consequences could arise as a result of a no deal Brexit scenario. In his letter he referred to government analysis undertaken early this year which had estimated that a no-deal scenario could result in GDP falling by as much as 10 per cent, with borrowing being 80bn a year higher by Impact on the local economy and local businesses As outlined in the section above, there remains a large degree of uncertainty as to the likely impact of EU withdrawal on the Renfrewshire and Scottish economies. The UK Government s agreement on a transition period with the EU to March 2020 provides a degree of comfort for those businesses and organisations potentially facing the most significant consequences. In terms of employment sectors in the Renfrewshire economy that may be most impacted by withdrawal, these are likely to include the following: Aviation; Food and Drink; Manufacturing; Higher and Further Education; Healthcare Exporting conditions (as noted above) have been favourable in recent times and this has resulted in better trading conditions for many of Scotland s manufacturing businesses that have established overseas markets such as the USA. The USA is Scotland s largest single country receiver of goods. Given that Renfrewshire is home to several significant exporting businesses this will have had knock-on effects locally. The FAI report that international manufactured exports are up by 30% on 2010 levels. 7

9 4.5.3 It is worth taking the time to place the implications of EU Withdrawal within the context of current investment in the local economy. Since December 2017 Renfrewshire has benefited from a number of investments related to its manufacturing sector associated with the Airport Investment Area. Some of the key investments announced to date are listed below. These amount in total to some 240 million in identified investment that will take place over the next few years in the local economy. Over and above this are the proposed 3 City Deal projects for Renfrewshire which account for about 270 million of the Glasgow City Region s 1 billion infrastructure programme Although large in themselves these investments will result in further decisions by companies and organisations to locate in Renfrewshire because of this initial spend. Together this will have the effect of generating significant levels of new employment for local residents and the wider city region. NMIS - 65 million investment for what will be Scotland s only national manufacturing institute and act as an outreach location for all of Scotland s manufacturing business and universities to collaborate on new initiatives to develop Scotland s advanced manufacturing capabilities; MMIC - 56 million Medical Manufacturing Innovation Centre for the pharmaceutical industry; Future Forge million new facility to be built at AFRC will help businesses across industries including oil and gas, automotive, nuclear and rail, by using the latest forging techniques to develop next generation lightweight metal products. Lightweight Manufacturing Centre million opened 2018 at former Doosan site in Renfrew. The new centre allows Scottish companies to develop new manufacturing processes using lightweight materials such as titanium and carbon fibre, increasingly used in the aerospace, automotive, oil and gas and renewables industries. AFRC - 96 million additional funding announced by HM Treasury August 2018 for catapult centres (part of 800 million UK govt investment in such centres). AFRC is Scotland's only high-value manufacturing catapult centre. 4.6 EU funding For more than thirty years, the EU has been at the heart of regional development in the UK. The EU Structural Funds principally the European Regional Development Fund and the European Social Fund have co-financed a vast range of initiatives to promote regional economic growth. 8

10 4.6.2 In the present EU spending round ( ) the UK is set to receive a total of 9bn from the Structural Funds with Scotland receiving just under 800m As part of the divorce bill agreed in December 2017 the UK will continue to draw on the EU Structural Funds as normal up to the end of 2020, even though Brexit itself is likely in March 2019, and projects committed by the end of 2020 will be able to carry on spending EU funds until the end of Beyond the end of 2020 the EU funding for new projects will come to an end The Council receives EU funding directly in relation to a number of priority areas such as employability and economic development. The current EU Structural Funds Programme has provided around 2M per annum to the Council and was committed in two tranches by the Scottish Government ( and ). The first tranche of funding (around 6M) has been fully committed to the council and is secure. Confirmation of the second tranche applications round is expected imminently and must be fully signed off at all levels of the Scottish Government prior to the UK leaving the EU in March An additional 4M is anticipated for Renfrewshire Council The other way in which the EU presently shapes UK regional policy is through the EU State Aid rules. These define the extent to which financial support can be offered to companies to help promote growth and jobs, setting the limits on the value of the aid and the parameters of the UK Assisted Area map The future role of the EU State Aid rules is uncertain. The working assumption is that the present rules will continue to apply during the transition period up to the end of UK Shared Prosperity Fund The Westminster government intends to establish a UK Shared Prosperity Fund to replace the EU Structural Funds. A number of issues remain unresolved at present in relation to this Fund, specifically in terms of how much funding will available through this route, how will it be allocated and what will it be used to fund. Until this information is available it is not possible to determine the specific implications for Renfrewshire. 9

11 4.7 EU Nationals and Employees In December 2017, the UK Government reached agreement with the EU regarding the rights of EU nationals living in the UK (for after it has withdrawn from the EU). The agreement reached was that EU citizens legally residing in the UK as at 29 March 2019 (the proposed date of withdrawal) will be allowed to stay in the UK An EU Settlement Scheme will open later this year which will require EU citizens living in the UK to apply for settled status if they wish to continue to live within the UK after June For Irish citizens or those who have indefinite leave to remain in the UK are not required to apply for settled status For those who have lived in the UK for 5 years and above continuously, they will be able to apply for settled status. For those who haven t lived in the UK for 5 years they will be able to apply for pre-settled status. Associated costs for applying for settled or pre-settled status are for adults and for children Settled status will enable individuals to continue to live and work in the UK as long as they want and provides access to, public services, public funds and pensions and British citizenship if applicable In May 2018 National Records of Scotland released estimates of country of birth and nationality (2017) that estimates 4,000 people are currently living in Renfrewshire who were born in the EU The Council will aim to actively support all Council employees who could be affected by the exit process, but particularly any EU nationals who are employees of the Council. At present 22 employees are identified as being EU nationals through the recruitment and work permit process. The Council will provide communications across the general workforce from September 2018 signposting employees to for further information and link in specifically with those employees who have disclosed this information through the equality monitoring process. 10

12 4.7.7 In August 2018, officers from the Council participated in an information session that had been offered to local authorities in relation to the EU Settlement Scheme. The session was facilitated by COSLA and the Home Office, and provided an overview as to how EU citizens and their families can apply for settled status and how Councils will play a role in communicating the system to local communities. They provided details of user guidance, information and toolkits for employers, local authorities, and third sector and also explored issues around vulnerable users, those with complex needs and access issues. Officers will now engage with EU nationals employed within the Council as outlined above and develop plans with wider community planning partners on the best way to disseminate this information across local business and communities. 4.8 Community Planning partners Regular discussions have been held with community planning partners on the possible implications of EU withdrawal for Renfrewshire. A working group was initially assembled and chaired by the Chief Executive, and it was agreed this would be reconvened when formal detail on withdrawal was released. Given the emergence of information available on the EU settlement scheme, no-deal contingency plans and on the proposed EU withdrawal agreement, it is now proposed that this group is re-established A special item on Brexit preparations was considered as part of the meeting of the Community Planning Partnership Executive Group on 22 August Following discussion on the key issues currently identified, there was full support for reconvening a Brexit working group with support from KPMG. All partners were particularly keen to engage and to share information on preparations within their own respective organisation. The next meeting of the Brexit working group is currently being scheduled for late September / October A council officer working group will also be established to ensure a work programme is taken forward to put into place required arrangements with the Council specifically. 11

13 4.9 Opportunities for local government to engage In terms of opportunities for local government to engage with the UK and Scottish Governments and with EU officials, there are several strands of activity which are regularly considered and reported through COSLA. Work continues to be progressed to develop replacement arrangements for the Committee of the Regions, which currently allows UK local authority associations to be involved in the EU policy formulation process. Statements from the UK Government at a ministerial level suggest that some form of mechanism would be developed to allow for twice yearly high level meetings between UK ministers and local authority organisations. It will be necessary for any proposed agreement on this new structure to be approved by both the Cabinet Office and the four local government associations. The Joint Ministerial Committee which is currently comprised of ministers from the UK and devolved government is currently under review, and there may be an opportunity for local government organisations to contribute to the work of the committee more proactively going forward. COSLA has established an officer group to consider preparedness for Brexit across local government and Government departments and agencies The Council will remain actively involved and engaged with COSLA as they progress their work and engagement with national governments on Brexit. Implications of the Report 1. Financial the Brexit vote presents significant economic and financial risks for the Council as outlined in the report. 2. HR & Organisational Development as outlined in the report. 3. Council Plan & Community Planning as outlined in the report. 4. Legal as outlined in the report. 5. Property/Assets No implications. 6. Information Technology No implications. 12

14 7. Equality & Human Rights - The Recommendations contained within this report have been assessed in relation to their impact on equalities and human rights. No negative impacts on equality groups or potential for infringement of individuals human rights have been identified arising from the recommendations contained in the report. If required following implementation, the actual impact of the recommendations and the mitigating actions will be reviewed and monitored, and the results of the assessment will be published on the Council s website. 8. Health & Safety No implications. 9. Procurement as outlined in the report. 10. Risk - as outlined in the report. 11. Privacy Impact No implications. 12. COSLA Policy position as outlined in the report. Author: Laura McIntyre, Head of Policy and Commissioning