Brexit: A dark tunnel or a brave new world?
Iain Russell reflects on the wide-ranging impact that withdrawal from the EU may have on rural businesses.
While most people in the UK await further details of how Brexit will affect them personally, Whitehall is a beehive of activity preparing for the contingency plan that never was.
It is already one of the largest, most complicated and important tasks ever faced by the Civil Service as it tries to unravel more than 40 years of EU influence. We are still at the preliminary stages of this herculean undertaking. The public cannot, however, expect all to be revealed in the near future, as once a strategy has been agreed by the Prime Minister, we must enter into negotiations with both EU and non-EU countries privately. How can we expect to secure the best possible deal if we have already shown the world our hand?
The triggering of Article 50 of the Lisbon Treaty has, of course, dominated so much of the debate and is now looming large early next year. A more locally pressing issue is how to strengthen the internal relationship with the devolved nations. Scotland and Northern Ireland's remain vote having been overshadowed, means that both countries will seek to secure the best possible deal from Westminster and expect to be included and have equal leverage in the Brexit process. The murmurings of a second Scottish independence referendum ebb and flow, but provide an added incentive to ensure that external trade negotiations benefit the UK as a whole.
So who is in charge of Brexit? Whoever it is, and if Brexit means Brexit, will it be gung-ho or measured? Interestingly, the UK government has yet to concede that either the UK or Scottish Parliaments should play any role in the triggering or negotiation process. Both legislatures have however set up inquiries and in particular the Scottish Parliament's European and External Affairs Committee has asked for and taken evidence on the devolution settlement, UK and Scots law, Scotland's funding settlement from Westminster, and the rights of EU citizens in Scotland. However, the extent to which either the UK or Scottish Parliament will be involved in some, all or indeed any of the process remains unclear.
From an agricultural perspective, new trade deals are essential to ensure future food security. A major barrier to progress in this area is the divide between rural and urban populations reflected in the supply chain. Although the concept of buying British has gained momentum, for most people cost is still the deciding factor. It is unlikely that Westminster will subsidise farmers and bear the cost of production to prevent inflation in food prices, which are at an all-time low, despite the UK being a net food importer.
Roughly 12,295 EU regulations covering everything from food safety to consumer and banking rules are likely to be adopted into UK legislation. As the mounting pressure to formally withdraw from the EU does not leave enough time for in-depth scrutiny this may be of benefit to the UK as if we continue to trade with Europe we would need to remain EU compliant.
The CAP is undoubtedly flawed and in need of reform, but whether the UK has the resources and competence to create a new model policy that has been tailored to suit the needs of each devolved nation is yet to be revealed. A move away from the stringent requirements of EU law may allow agriculture in the UK to progress faster.
Funding for Pillar II equivalents and measures that increase biodiversity, protect the environment and have visible benefits to the wider public are likely to remain an important part of DEFRA's agenda. One non-headline area which could 'make or break' Britain's performance as it enters this transitory phase is the level of government investment into research and development for agriculture and the environment.
It is hoped the Government will acknowledge and utilise the UK's present status as a world leader in areas such as pesticide resistant crops, agricultural engineering and other tertiary and quaternary related services. These are some of the UK's most valuable, exportable assets which are already being marketed globally. If executed well, the UK's agricultural sector could become a model which other countries wish to emulate.
The fisheries and aquaculture sector is one area in which government officials have been most pro-active. The EU's Common Fisheries Policy has always been controversial, but future UK legislation would have to ensure that the industry remained heavily regulated in order to continue to restore fish stocks. The transient nature of fish stocks make it imperative for the UK to enter into negotiations with other EU and non-EU countries in a co-operative manner if a sensible and beneficial outcome is to be obtained.
In the forestry sector, the initial signs are that existing grant scheme contracts will be honoured but continued public funding will be vital if the Scottish Government's planting targets of 60,000ha of new woodland by 2020 are to be met. Although future competition for public funding is likely to be strong, the current low value of Sterling is having a positive effect on the UK timber industry as foreign timber becomes increasingly expensive to import.
The importance of timber as a renewable resource through carbon sequestration combined with a predicted global shortage in the medium to long term suggests that the forestry sector will continue to do good business post-Brexit.
The rural property market has slowed slightly as prospective purchasers wait for further details of how exactly Brexit will occur. However, those who are firmly rooted in Scotland are still buying at current market prices which have not dropped since before the outcome of the vote. Positively, the weaker exchange rate with the Euro and other currencies has increased the number of international buyers looking at the UK as a place of investment, further cementing our position on the world stage.
The biggest single issue that will affect every aspect of business life is free movement (of people and trade), one of the founding pillars of the EU. UK legislation has often gone further than EU requirements and by retaining stability in employment the impacts on business should be minimal.
Most employees already sign the agreement to work outside the EU Working Hours Directive. Seasonal labourers and EU nationals are essential to the hospitality, leisure and tourism industries, and in soft fruit and vegetable production. If the UK wishes to retain free trade with Europe and access to the single market, immigration will be one of the major bargaining chips of the EU, as has been the case with Switzerland's negotiations.
The associated rural legal landscape will also undoubtedly change. To what extent will EU derived legislation, once relied upon to balance Scotland's greater devolutionary/statutory power, no longer provide a leg to stand on in a post-Brexit environment? Would Salvesen v Riddell still be found to be 'outside the legislative competence of the Scottish Parliament'? Where will the Scottish law of succession and UK tax reliefs sit within a non-EU, devolved and independence fidgety Scotland? Intellectual property rights, procurement rights and charitable status - status quo or a new world?
The Brexit story so far is confusing and the end is uncertain.
The Office for National Statistics announced that 'the referendum result appears, so far, not to have had a major impact on the UK economy" and is upping its forecast for UK growth, although small business confidence is at a four-year low. Calm before the storm? A gentle slide out of the EU at a pace which reassures and maintains confidence or a slow motion car crash with passengers bickering as the cliff edge approaches?
We will of course be watching for policy updates to agriculture, forestry, fisheries and property as the Brexit negotiations get underway, as well as providing advice to all our clients on how best to prepare and position for future changes.
Originally published in our Rural Matters Autumn/Winter publication in October 2016.
Iain works from the Inverness and Edinburgh offices and is involved in wide-ranging management; consultancy and valuation work throughout Scotland. He has worked in central Scotland, south east England, overseas and London. The Chairman of Galbraith, Iain also heads up our Rural team.