Meanwhile, the COVID-19 pandemic has ravaged city life, causing the loss of some 300,000 jobs. London now confronts the twin challenges of the economic fallout and disturbances caused by the pandemic and by Brexit.
Yet London’s many strengths should ensure that it will thrive again. Throughout its history, London has weathered many setbacks, from fire and war to more recently, substantial financial crises. With a population of nearly 9 million, it is Europe’s largest city, a renowned global centre of business and culture, whose attributes include its skilled labour, its time zone, common law and language. ‘London is a multicultural city and has a host of people who are outward looking and enterprising. All this will be here beyond the pandemic and as it adapts to Brexit,’ says Sally Shorthose, partner in the IP and Life Sciences & Healthcare group and head of Bird & Bird’s Brexit group.
Even so, much work is needed to manage the uncertainties that lie ahead. An immediate concern is the restoration of London’s economy following the pandemic. In a survey conducted by Opinium with Bird & Bird in January this year, almost half of London businesses anticipated that the pandemic would have a bigger impact on their performance over the next six to twelve months than Brexit. Although government support and remote working have sustained many businesses during the crisis, London’s cultural, tourist and hospitality sectors especially have severely suffered. It is hoped that the government’s roadmap out of lockdown and new fiscal support measures will aid London’s recovery.
‘This is fundamentally changed by the TCA,’ says Jordan Cummins, Head of Policy for London, CBI. ‘Our members were relieved a deal was achieved but realise that as it was agreed very late, not everyone’s needs would be met. We also recognise that its effect isn’t fully understood yet due to the conditions brought about by the pandemic.’
Those hoping for the continuation of frictionless trade with the EU, have been disappointed. Although the trade in goods between the UK and EU will be tariff and quota free, new non-tariff barriers now apply.
‘Large clients were well prepared for Brexit while smaller organisations were seeking advice up to the very end of the transition period having focused on keeping their heads above water whilst dealing with the pandemic,’ Shorthose explains. Access to EU markets will be less smooth and costlier than before for many businesses, Shorthose says.
‘We now effectively have three markets: GB, the EU and Northern Ireland, instead of just one. Consequently, rules on matters like packaging and regulations must be addressed for each market.’ Many of Bird & Bird’s clients have needed clarification on trade with Northern Ireland especially,’
Sally Shorthose, partner at Bird & Bird
The main challenges firms are now experiencing, the CBI says, are the increased costs and paperwork involved in trade, and grappling with the Rules of Origin and different customs authorities in the EU. ‘For some businesses who haven’t traded outside the EU, the new requirements are especially demanding,’ says Cummins.
Crucially for London, the TCA focused on the trade in goods, and while the free movement of services is generally addressed, the access of UK businesses to the EU will be subject to EU member states rules. Financial services however, are not covered by the TCA. With the services industries accounting for some 80% of London’s economy, it is feared Brexit may cause a loss of £9.5bn to London’s GDP per year. London’s position as a global leader in financial services especially, has been buoyed by its trade with the EU. Although its free access to financial firms in the EU was to be replaced by the principle of equivalence, this is yet to occur. ‘There’s real disappointment that equivalence wasn’t granted as it has been afforded to Canada and Switzerland,’ Shorthose remarks. An agreed framework for regulations between the UK and the EU is expected to be reached by late March but could take longer. So far around 7500 jobs and £1.3 trillion in assets have been lost to London in anticipation of Brexit and, in its immediate aftermath, much trading in Euro stock and swaps has left London for Amsterdam and New York.
Yet despite the competition, European financial centres are small in comparison to London and the London Stock Exchange (LSE) remains the world’s most international exchange. The city’s wealth of financial services expertise is found in few other places and the industry is likely to respond to the current challenges with its customary zeal. The government too, is keen to support it, Sally Shorthose insists. ‘Trading is a great source of tax so the government will want to preserve and boost the financial services industry to maintain the City’s health.’ This seems evident already. Trading in Swiss shares has resumed in London, reversing an EU imposed ban and changes to the LSE’s listing rules are proposed to boost London’s competitiveness. ‘AIM has proved to be a very good market and London generally is a preferred place for IPOs,’ Shorthose comments. This appears set to continue with anticipated IPOs including Deliveroo, BrewDog, and Trustpilot. Meanwhile, London is now a centre for sustainable finance.
Many other businesses underpin London’s economy, with some faring better than others in the wake of the pandemic and Brexit. The technology sector is increasingly contributing to London’s economy with technology giants like Apple and Google siting their European headquarters in the city. A surge in tech start-ups in London bodes well for further job creation. The recently announced new ‘elite’ visa, is aimed at this sector as are some of the proposed LSE listing rules amendments. New industries too like fintech and Medtech, have emerged from the integration of technology and other established services.
An area of keen government attention now is the life sciences sector, says Sally Shorthose. ‘In this sector, London is part of the Life Sciences Golden Triangle with Oxford and Cambridge and there are world-leading teaching hospitals in London which support the industry.’ Although the headquarters of the European Medical Agency has been lost to London, a new public/private funding scheme may boost funding for the industry. The life sciences too, are closely aligned to the educational sector in London, which has the highest concentration of universities and higher education institutions in the world. These institutions, however, have suffered due to the pandemic and also fear the loss of EU students – a lucrative source of income – as a result of Brexit.
Others hard hit by the pandemic and Brexit include London’s cultural and creative institutions and businesses. In recent years its media and entertainment industries have boomed and its theatres, galleries and museums and wider tourism sector, are great sources of income for the city. The end of lockdown and the government’s new support package for culture and the arts will be welcome, but many in these sectors fear the loss of access to talent and funding after Brexit. All businesses, however, will have to adapt to the new market conditions, says Shorthose. ‘The good thing is we now have more scope to bring products to market more quickly. We also have to work in the longer term to make the UK a more attractive place to do business and a good home for enterprising people.’
The UK is already seeking more regulatory cooperation with the EU, but delicate balances are involved in this politically charged area. ‘The rapid delivery of the coronavirus vaccination programme in the UK has shown how the UK can benefit from its newfound autonomy (by choosing to source vaccines independently rather than joining with the rest of the EU in a collective purchase arrangement) and its freedom to react quickly to events,’ Shorthose notes. Nevertheless, it is unlikely that there would be much support for a bonfire of EU regulations already forming part of UK law and especially those in areas like employee rights. ‘A lot of EU imposed regulation has made our lives safer. If UK laws deviate much from those of the EU too, it could affect yet more of the UK’s access to EU markets,’ she says. The CBI’s Cummins agrees: ‘In the UK, regulations governing business have become enmeshed with the EU over decades. We should ensure that any changes the UK makes to them are as non-disruptive as possible. If the UK deviates markedly from EU regulation, it could add to the tensions already being experienced. In any event, firms want stable, regulatory regimes they can rely on in the longer term.
Still, some progress has already been made. The European Commission has recently given preliminary approval to the UK’s data protection standards, paving the way for an agreement to help the flow of data between the UK and the EU.
For London’s skilled, vigorous professional sector, the loss of the automatic recognition of qualifications following Brexit has been especially unsettling. The legal profession alone contributed nearly £60 billion to the UK economy in 2018. Under the TCA, the right of UK lawyers to work in the EU is now limited and subject to the national rules of EU member states. Like other international firms, Bird & Bird, with its network of EU offices manned by local lawyers, will be little affected, though the work of smaller and regional firms may be disrupted. London’s position as the home of the common law and a favoured international centre of dispute resolution is unlikely to change.
London businesses traditionally have relied on immigration for higher and lower skilled employees. Many EU nationals have especially worked in sectors like hospitality, construction and health. After the announcement of new immigration rules on 22nd October, 2020 and Brexit, new regimes for immigration and business travel are now in force.
‘Before the end of the transition period, EU nationals were able to exercise their freedom of movement rights when coming to the UK to work. Others who wanted to live and work here were more strictly assessed under a points-based system’
Yuichi Sekine, head of Bird & Bird’s Business Immigration team
Now the immigration rules apply equally to EU and non-EU nationals but although they closely resemble the previous rules, they are less stringent in some respects.
‘The skills threshold and minimum salary requirements when applying for work visas have been reduced so employers have a wider selection of jobs to sponsor,’ Sekine explains. Also, the annual cap on work visas for people applying from abroad has been suspended. ‘Employers had to advertise roles in many cases. There was a monthly allocation system and employers needed an approved allocation which all delayed the procedure. Now it’s a speedy process to sponsor someone, provided the employer has a sponsor license,’ he says. Application fees though, are unchanged. ‘The existing fees remain and are higher than those charged in other EU countries which is an indirect way to limit immigration instead of a strict annual quota. Smaller firms may have to pay less, so proportionality is built in, but the process is still costly,’ Sekine remarks. Disappointingly, the new rules make no provision for lower skilled workers and some sectors, like the hospitality sector will be unduly affected. ‘Many roles in this industry have been filled by EU nationals but this source of workers has now been cut off,’ Sekine says.
Some relief for London employers is provided by the EU Settlement Scheme which allows EU national employees already in the UK as of 31 December 2020 to apply up until the 30 June 2021 to remain. The Youth Mobility Scheme Visa and the new Graduate visa opening in July 2021 are also good avenues for sourcing labour without a sponsor licence. ‘Once the coronavirus lockdown has ended, we’ll see what happens. For lower skilled labour, employers will have to turn to the existing labour market and those who are eligible under these schemes, although this could result in an upward pressure on wages,’ says Sekine. Now too, there is the fast-track ‘elite points-based’ visa, announced in the budget, which will help some firms when it is expected to roll out by March 2022. Many organisations employing foreign nationals will have to rethink their employment strategies, Sekine warns. ‘Firms employing EU nationals will have more people to monitor if they require sponsorship under the new immigration rules. Robust systems will be needed to track and monitor visa expiry dates, retain appropriate documentation and check the right of work for all employees as they may be audited by the Home Office’. These will include identifying those EU nationals who will require a suitable work visa depending on their planned activities during their business visit, a new concern emerging from the TCA and Brexit.
London’s business community have to consider the TCA as only a reference for the UK’s future relationship with the EU. It is hoped that a deal on financial services can be reached and employers will be looking for further clarity from the government on the use of foreign labour. In the future, more trade deals with countries outside the EU may benefit London, although they may involve issues like the free movement of labour and differences in national standards. A priority for the CBI, says Cummins, is getting the government to provide more timely, simple guidance for businesses on the operation of new rules that are introduced, including rules on business travel. To navigate the challenges ahead, organisations must keep ahead of the curve. ‘They need to be vigilant and well informed – forewarned is forearmed. Trade associations are excellent sources of advice and provide useful networks. Keeping close to trusted advisors will also be more important than ever,’ says Sally Shorthose. She urges organisations to be proactive and to lobby for the regulatory changes they seek. Meanwhile, Bird & Bird will always be ready to support its clients with business-focused advice, she says.
For more information on the legal implications of Brexit, visit our Brexit In Focus page.