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On Thursday 23rd June 2016 the people of the United Kingdom voted to leave the European Union. What is the European Union, what is Brexit and how will the vote impact the UK?
The history of the European Economic Community and the creation of the European Union
On the 1st January 1973 The United Kingdom made a controversial move and joined the European Economic Community along with Denmark and Ireland. The Labour government wanted to renegotiate the terms of membership but eventually conceded and instead a referendum of the UK’s membership of the European Economic Community was held – where 67% of the British people voted in favour of continued membership. The European Economic Community had six founding members and the aim was to bring about more economic integration through a common market and a customs union.
In 1992 the Maastricht Treaty was signed, and this created the European Union into which the EEC was rolled, consequently the European Economic Community was renamed the European Community to indicate it represented more than just economic integration. From then onwards several treaties were signed such as the Amsterdam Treaty in 1997 which developed security policies and the Nice treaty in 2001 which worked to reform the EU’s institutions and reinforce cooperation in defence and judicial policy. More recently, the Lisbon treaty was signed in 2007 which extended the powers of the European Parliament and was the catalyst that brought about the referendum in 2016 as many who wanted to leave campaigned so on a loss of sovereignty. In 2009 the institutions from the EC were absorbed into the EU and the EC ceased to exist.
UK’s negotiations to leave the EU
On Thursday 23rd June 2016 the British public voted to leave the European Union by 51.89% for Leave to 48.11% to Remain. The UK is currently negotiating a deal to leave the European Union in unprecedented circumstances and are facing many hurdles due to the small margin to vote to leave, and a minority government struggling to pass any bills through parliament due to a lack of majority vote.
Earlier this year, the previous Prime Minister Theresa May proposed a deal to leave the European Union to parliament. It was voted upon but rejected twice in parliament and the speaker rejected the deal being brought to a third vote unless significant changes were made. An amendment was made, and the deal was brought before parliament for a third time, but it was voted down again. Reasons for rejection include the backstop agreement that will in effect tie Northern Ireland to the EU through the border with the Republic. This is a sensitive issue and one of the most contentious as an open border with the Republic of Ireland was one of the terms of the Good Friday Agreement that brought about peace in Northern Ireland. By some MPs that want to leave, it is seen as undemocratic because it means the UK will not fully leave the EU and there will be extra customs checks between mainland Britain and Northern Ireland, but to others it is seen as necessary to uphold the peace in Northern Ireland, and other members of the EU including the Republic of Ireland will not agree to an exit deal without it.
Another contentious issue is the amount the UK has agreed to pay the EU as part of a financial settlement that was outlined in the deal. Currently that amount stands at £33 billion and is calculated as part of what the UK would have paid if they continued membership of the EU, as during the transition period the UK – EU relationship would stay the same as they try to negotiate a new trade deal. Some MPs have argued that if the UK leaves the EU without an exit deal, they are not obliged to pay the financial settlement, whereas others have cited the UK’s contractual obligations to continue with the contributions.
The future of the UK outside of the EU
Currently, the UK is legally bound to leave the EU with a deal by the 31st October 2019. If a deal is not agreed to, the UK will have to ask the EU for an extension. Most economists have placed leaving under a “no deal” as one of the worst outcomes which would have the most negative effect on the UK’s economy. The fact that the government is now bound by law to avoid a no deal, at least until the 31st October 2019, has allayed most economists’ concerns. It’s likely that MPs will block any move to leave without a deal thereafter and these are likely to be successful as the opposition parties now make up the majority in parliament.
Falling pound makes investment more attractive
Although the UK is economically stable and a law has been passed to restrict the government from leaving without a deal, the uncertainty during the negotiation period has influenced the value of the pound. A no deal Brexit has been blocked and this has temporarily buoyed the pound, but over the three years from the vote to leave the EU, it has decreased significantly in value compared to other currencies, from 1.3 euros to the pound before the referendum in 2016 to 1.1 euros to the pound as of 9th September 2019. This makes investments in the UK from overseas attractive, and the UK remains the third favourite place for foreign direct investment, indicating confidence in the market.
Certainly, the enthusiasm from overseas investors for UK property has not been dampened. 2018 saw record levels of overseas investment in London with Asia accounting for the largest share with £3.6bn in bought property. Although there has been a shift in the sources of capital, the favourable exchange rate and the advantages of investing in the UK have outweighed the concerns of the UK’s withdrawal from the EU.
Contact One Touch Property today to learn more about how Brexit can provide opportunities to invest in UK property for South Africans. One Touch Property will be in South Africa visiting Durban, Johannesburg and Cape Town between 7th and 18th October 2019. They will be holding one-to-one consultations with potential investors providing them with guidance regarding the UK property investment sector.
Contact them today to arrange a consultation.
