See Part 1 of this fascinating and informative article in an earlier blog post from August 8.
The UK was due to receive around £5.3 billion of EU structural funds in the 2014-20 programme period, but it is not yet known for how long instalments these funds will continue to be paid. This is likely to depend on the date at which the UK leaves the European Union. Those poorer parts of the UK, such as Wales, which benefit from such funds have demanded that the UK Government ensure that equivalent sums be invested in their areas, but this is not guaranteed. Similarly, British farmers, who voted overwhelmingly to leave the EU, expect the British Government to replace the European subsidies on which they depend for their livelihood, but all this expenditure will be difficult at a time of little or no growth in the UK economy. The European Investment Bank has invested €42 billion in the UK over the past 10 years. Although membership of the EU is not required to access loans, the application process will be harder for the UK in future. A number of green infrastructure projects in the UK being considered by the bank could be hit by this ongoing uncertainty.
Click Read More for the financial and legal ramifications of BREXIT on local governments in the UK.
Some uncertainty has been expressed about the future of major ‘devolution deals’ (of powers and funding) to local authorities in the UK by national Government, as a result of the Brexit vote, despite reassurances by Government Ministers of no change of direction. As a result, the new Major of London, Sadiq Khan, has called for extended devolution of power to London,(where people voted overwhelmingly to remain in the EU). He has called for powers over fiscal responsibility including tax raising powers, more local control over business and skills, housing and planning, transport, health, policing and criminal justice. These demands are echoed elsewhere, with the Local Government Association assertively seeking to fill the void of national political leadership by taking on bigger roles for local authorities. It is local councils who are maintaining a sense of calm and business as usual in our communities, despite uncertainties at national level. The LGA is seeking greater delegation of powers, with support from senior Government officials, in areas of activity such as waste recycling, food hygiene, and air quality, as well as freedom to raise public funding at local level.
The UK Government's plans to scrap local authorities' Revenue Support Grant by 2020,with local government instead retaining business tax revenue locally, will mean that councils will become more exposed to likely falls in such tax revenue resulting from any economic downturn, at a time when demand for local public services is likely to grow. This uncertainty will also make long term financial planning more difficult and will encourage councils to maintain or build up their financial reserves, despite funding cuts, to cushion them from sudden changes in their financial circumstances.
The Brexit vote has also prompted warnings about the impact of prolonged uncertainty on house prices in the UK and the cost of borrowing, at a time when home ownership levels are falling in the UK and the lack of affordable houses is causing a national Housing crisis. The construction industry is highly reliant on migrant labour and limits on future free movement of labour could have an adverse impact on building costs and supply, as will the higher cost of materials because of the devaluation of Sterling. Those local authorities with a planned house building programme will need to make sure that their plans are robust and still sustainable over the next 5-10 years.
Large numbers of migrant workers also support the running of the National Health Service in Britain, as well as residential care homes, and the hotel and hospitality sector, as well as crop picking. There are concerns that future restrictions on migration will lead to acute labour shortages in employment activities that indigenous British workers choose to avoid.
Some local councils and a number of Housing Associations have seen their credit ratings down graded following the Brexit vote. This will affect their borrowing status and the rate of interest they will be required to pay on future loans.
Possible legal impacts on local councils
Key pieces of EU legislation affect activities carried out by local councils in the EU. These include Waste collection and disposal (including recycling and recovery targets), energy efficiency in buildings and in the procurement of goods and services, and trading standards. Most of these requirements have been transposed directly into secondary, UK domestic law, and so will not be automatically or immediately affected by the UK's exit from the EU. However, the UK will, after that, be able to amend and/or repeal such legislation if it chooses, as part of the Government's stated aim to ‘burn bureaucratic red tape from Europe, which stifles British companies' success’!
Leaving the EU requires the UK to implement Article 50,which is an untried process unlikely to start until the Spring of next year. (Withdrawal, on agreed terms, subject to ratification by the British Parliament and by all EU member states, would then need to happen within two years). There are two key sets of tasks that need to be completed by the UK Government:
- formulating an acceptable withdrawal agreement (setting out the terms of the ‘divorce’); and
- agreeing the future relationship between the UK and the EU, including any trade agreement, (this is likely to take 5 years and might only be possible to start after the withdrawal agreement has been achieved). The UK cannot enter into any other World trade agreements until it's withdrawal from Europe has been completed, as it is still bound by current EU agreements in the meantime.
This complex process, for which there is no plan in place yet, is likely to cost by itself £1 billion. The new UK Prime Minister, Teresa May, has stated that she wants a new, bespoke deal with Europe, the terms of which are not yet clear, and the attitude towards Britain and willingness of the EU to be helpful in such negotiations vary significantly between European countries.
Following lobbying by local government, UK Government Ministers have agreed that English local authorities will be part of the negotiation of the terms of our EU exit, with some powers being devolved directly from the EU to local government. The new Minister for Local Government, has said that: ‘When we are transferring power from the EU to Britain, I think that Whitehall [national government] is not the default destination for them.’ Recent letters from Solace to the new UK Government have stressed the importance of this and have offered our expertise to advise the Government on the best way forward.
The current climate in the UK amongst those who voted to leave the EU is hostile to any compromise. It is difficult to know how the new Government Ministers can negotiate any deal on the future of our changed relationship with the rest of Europe which will be palatable to the majority of the British people. As part of the wider transformational changes already taking place in local councils across the UK, Brexit adds further unwelcome uncertainty and challenge, but it cannot be avoided. In the best British tradition, we will simply ‘stiffen our upper lips and muddle through’, as we always do!