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Brexit: How Much Impact Would It Really Have On The UK’s Regulatory Sphere?

Brexit: How Much Impact Would It Really Have On The UK’s Regulatory Sphere?

Fran Hutchison

To Brexit or not to Brexit? That is the question. The impact of Brexit has now been widely discussed and various “helpful” studies and reports have been published by government bodies, think tanks and other interested parties, each setting out statistical analysis in support of either the leave or remain campaigns. With so much being said about Brexit, and so much of it contradictory, it would be easy to decide that you are sick of hearing about “it” and cast your vote on 23 June without really considering the issues.

A big ticket item for most voters, and definitely for business, is uncertainty. The only thing certain about a change as drastic as removal of our country from the EU is that uncertainty will follow. Those who are risk averse by nature will probably be drawn to voting to stay in the EU whereas others would argue that the risks (mainly posed by uncertainty) of leaving the EU are worth taking for the “freedom” it will (or should we say “may”?) provide.

Those specialising in health and safety, anti-corruption and export and sanctions regulation face interesting issues raised by the possibility of Brexit. Each of these regimes is founded, to a greater or lesser extent, on UK policy and UK legislation and is already largely framed, monitored and enforced by the UK. As such it would be easy to dismiss Brexit as being of little relevance to these areas of law. But on looking under the surface some interesting issues emerge...

The UK’s “Gold-Plated” Health and Safety Regime...

The UK is regularly seen as a leader; often setting the regulatory bar higher than most other nations globally. The health and safety regime in the UK is founded on the Health and Safety at Work (etc) Act 1974 which created a broad goal-setting regime where the employer (rather than the government) assesses the risks which their business poses and decides how best to control those risks. This regime, which was in place prior to the EU’s Framework Directive on health and safety and which did not require amendment to fulfil the requirements of the Directive, has been augmented by various pieces of EU legislation which add prescriptive requirements (in areas such as risk assessment, work equipment, major accident hazard control and prevention of fire and explosions to name a few) to the UK’s goal-setting duties.

One argument of the leave campaign is that the UK would be free to liberate SMEs from the tyranny of superfluous “red tape”.  The EU’s prescriptive health and safety requirements have regularly been described as voluminous, unnecessary and overly complicated; particularly burdensome for SMEs. However, it could be argued that these additional regulations add flesh to the bones of the opaque goal-setting duties of the UK regime. It is interesting to note that a recent study found that very little health and safety deregulation would be politically feasible post-Brexit. The only adaptations it considered likely were to adapt current asbestos and excessive noise regulations to better suit UK circumstances and to factor in the size and nature of individual businesses. (The same study found that most cost savings in deregulation would likely be found by scrapping some employment regulations such as the Agency Workers Regulations.)

It is difficult to see how leaving the EU would have a detrimental impact on the UK’s current health and safety standards although the lone goal-setting regime without the immovable EU regulation would admittedly leave the regime more vulnerable to regular change as controlling political parties come in and out of power. One thing is certain, any change in the current legislation which is considered as a threat to health or safety will not garner public support.

The Strictest Anti-Corruption Legislation in the World...

Similar to the UK’s “gold-standard” health and safety regime, the UK’s Bribery Act 2010, is well-known as one of the strictest anti-bribery laws in the world. The Bribery Act was borne out of the UK’s commitment to the OECD’s anti-corruption convention in 1997 and was not based on an EU law. As the promulgation, monitoring and enforcement of this Act is all well within the UK’s control, a Brexit is unlikely to have any meaningful impact on this area of law. But is there another possible impact in this area – that of communication between regulators? It is well known that the EU sets out a policing framework in which information sharing between countries is facilitated. It is unclear how this arrangement would be affected by a Brexit. It is possible that Brexit could lead to difficulties for regulators in obtaining information from authorities in other EU countries which is so often a key part in corruption investigations which usually have an international element. That said, any such disruption is perhaps likely to be temporary given the mutual benefits of any such information sharing. After all, the UK does have these arrangements in place with countries which are not in the EU – the US being an important example.

The Politically-Charged World of Export and Sanctions Controls

Of the three areas addressed in this blog, the most significant impact of Brexit would naturally be seen in relation to export and sanctions controls. The ability to control export and place restrictions on how your country’s citizens and businesses deal with other countries is a key political tool. At present much of the policy informing this area of law comes down from the UN which the UK would still be bound by even if it left the EU. Although Brexit would technically provide the UK with the freedom to depart from the EU’s methods of implementation of the UN’s mandates, it is difficult to predict whether and why any future UK government would seek to apply different restrictions. Much would depend on the politics involved.

Any such differentiation between EU and UK trade rules could have interesting effects – it could mean that UK business or EU business (depending on where the more stringent rules are applied) is disadvantaged by an uneven playing field. The recent easing of EU sanctions on Iran provides a recent example of how differences in trade law have a huge impact on opportunities for business – the US sanctions still restrict US businesses to such a great extent that Iran remains off limits for most US business while EU businesses have already been developing profitable relations with Iran.

It is difficult to see how a Brexit would result in a change to the tenor or substance of the current politically motivated sanctions regulations in place (in relation to Russia, Syria and Iran for example) which do not appear to be at odds with the government’s policy in relation to those countries. The hidden political manoeuvring which unavoidably accompanies the production of these rules would remain post-Brexit and, unlike other areas of law, these rules are no stranger to frequent and sudden change.

In terms of the immediate impact of a Brexit on sanctions and export, the UK currently has primary legislation in place which provides power to apply export and other controls in relation to goods of any description and to designate financial sanctions targets where terrorist concerns apply and these powers are not dependent on the EU (although the repeal of the European Communities Act 1972 would require some new laws to be passed to fill in any gaps created). As such there is unlikely to be a period in which the UK is legislatively paralysed and unable to take action in these areas. However, depending on the trade deals which are available for trade with the EU and other countries post-Brexit, businesses which rely on import and export may immediately be affected by huge trade tariff changes. Although trade deals are not essential for business with third countries (and the EU does not currently have a trade deal with many of the UK’s important trade partners, such as China), the unknown factor of post-Brexit tariff rates could cause significant disruption to the business world. This uncertainty should be factored into any contracts so that contractual changes (or terminations) required post-Brexit can be dealt with without incurring liability.

Summary

In coming to a decision on how to vote in the Brexit referendum, it may be helpful to consider whether the UK would have done things materially differently had it not been a member of the EU. The UK’s tendency to gold-plate EU standards or set the bar higher than other countries could lead you to answer this question in the negative. But is this a reason to remain or to leave? One thing is certain; there are no simple answers when it comes to the questions raised by Brexit.

We have examined various facts around the EU referendum process, links to which can be found here. Over the coming weeks prior to 23 June, our specialists will be publishing further analysis of how their sectors may be affected if the UK votes to leave the EU, to help you understand the areas of uncertainty and assess the potential risks to your business.

Please do get in touch if you have any queries over how your business could be affected by the UK vote to leave the EU.

Fran Hutchison
Senior Solicitor 

LChalmers