The UK’s decision to leave the European Union by a majority of 17,410,742 (51.9%) to 16,141,241 (48.1%) has led to unprecedented speculation about what the future holds for the country after ending our 43-year membership of the EU. This blog seeks to address some of the key issues of the initial post-referendum landscape.
The UK has voted to leave the European Union – what happens now?
David Cameron has already announced that he will stand down as Prime Minister and leader of the Conservative Party, making it clear that the negotiations to leave the EU should be led by a new Prime Minister and Government that supported the UK’s exit. The new Conservative leader (and Prime Minister) is scheduled to be elected by 9 September at the latest. It will be the responsibility of the new Prime Minister to decide when to trigger Article 50 of the Treaty of European Union (also known as the Lisbon Treaty) and lead the negotiations to decide the terms of the UK’s exit.
What is Article 50?
Article 50 of the Treaty of European Union is the mechanism by which an EU Member State can begin the process of leaving the EU. The UK must formally notify the other 27 EU Member States of its intention to leave. This process can only be started by the UK, and at a time of the UK’s choosing. The EU cannot force the UK to invoke Article 50 to begin the withdrawal process.
Once Article 50 has been triggered, the UK will enter into a two-year period of negotiation with the European Commission to decide the terms of its exit from the EU, although many commentators expect a longer negotiating period due to the complexity of the process. During the negotiation period, EU laws will still apply in the UK and the UK will continue to participate in other EU business as normal. However, the UK will not be allowed to participate in internal EU discussions or decisions on its intention to leave.
What happens after the two-year negotiation period?
A final exit deal between the UK and the EU will need to be approved by a ‘qualified majority’ of EU governments, after obtaining the consent of the European Parliament. But if the final agreement cuts across policy areas controlled by the individual Member States, it will be classed as a ‘mixed agreement’ and will need to be ratified by EU leaders via a qualified majority vote – a majority in the European Parliament and by the remaining 27 national parliaments across the EU. Only then will the UK be able to officially leave the EU.
What happens during the next two years?
Until the UK formally leaves the EU at the end of the negotiating period, it remains a full member state with no changes as a result of the decision to leave. All existing EU funding agreements and arrangements remain valid and in place as long as the UK is still a member of the EU. UK applicants remain eligible for all EU funding available before the referendum, although this will inevitably change after the UK’s exit. While new agreements with the EU will bring new and/or restructured funding opportunities, UK organisations should seek to maximise their window of opportunity while they remain eligible for EU funds as part of a member state.
Will UK organisations be able to apply for EU funding after it leaves the EU?
Once a new agreement with the EU is in place, there will be opportunities for the UK to continue to participate in EU funding programmes despite the fact that it will no longer have status as an EU Member State. Many EU funding streams are available to non-EU countries, including key programmes such as Horizon 2020 and Erasmus+.
For example, Horizon 2020 classifies non-EU countries according to their level of research capacity, socio-economic development and whether they have an association agreement with the EU. ‘Associated Countries’ participate in Horizon 2020 under the same conditions as EU Member States. Associated Countries may apply to all programmes and instruments, individually or in consortia; automatically obtain funding if their proposal is successful; and must adhere to the same Horizon 2020 Rules of Participation as Member States.
The ten non-EU countries currently associated with Horizon 2020 are Iceland; Montenegro; Norway; Serbia; Albania; Turkey; Bosnia and Herzegovina; Israel; the Former Yugoslav Republic of Macedonia; and Moldova. If the UK seeks (and is permitted) continued participation in Horizon 2020, it is most likely to be as an associated country.
International European Interest Organisations are also automatically eligible for Horizon 2020 funding. These organisations have a majority of members from EU and Associated Countries and promote science and technology cooperation in Europe.
Erasmus+ is the EU programme for education, training, youth and sport. It currently provides opportunities for UK participants to study, work, volunteer, teach and train abroad in Europe. Currently five non-EU countries including Norway and Iceland are classed as ‘Non-EU Programme Countries’ and fully take part in Erasmus+. Other ‘Partner Countries’ that neighbour the EU are also able to take part in certain Actions, subject to specific criteria or conditions.
The examples of Horizon 2020 and Erasmus+ indicate that established routes exist for future UK participation and access to EU funding as a non-Member State, but these will be subject to negotiation and approval of the UK’s eligibility on a programme-by-programme basis.
How will leaving the EU impact funding for key UK sectors?
The impact of the decision to leave the EU has already been felt across all sectors. NCVO chief executive Sir Stuart Etherington has called for VCSE sector organisations to ‘consider what more you can do to bring communities together, whether working with other voluntary organisations or with other civic institutions’. The charity chief executives body has called for a summit to discuss the estimated annual £200 million of European Union funding the VCSE sector is set to lose from its existing arrangements, while the National Council for Voluntary Organisations (NCVO) has warned that the financial implications of leaving the EU will affect the voluntary sector more in the long term than in the immediate future.
Leaving the EU will present particular challenges for the higher education sector. During the last seven-year EU funding programme (FP7), the UK received almost €1.1 billion (almost 25% of available funds) from EU academic mobility and foreign exchange programmes. There are around 125,000 EU students in the UK, estimated to contribute an estimated £2.7 billion to the British economy, as well as 19,000 jobs. In a statement responding to the referendum result, Dame Julia Goodfellow, President of Universities UK, said that the focus would now be on ‘securing support that allows our universities to continue to be global in their outlook, internationally networked and an attractive destination for talented people from across Europe’.
With the 2015 Autumn Statement having set public sector spending by central government up to 2020, the Local Government Association (LGA) has called for the Government to protect the £5.3 billion of EU regeneration funding allocated to communities in England for the same period. The LGA is also requesting a role for local government in exit negotiations, as EU laws and regulations impact on many council services, such as waste, employment, health and safety, consumer protection and trading and environmental standards.
The economic impact of the referendum result has created particular uncertainty for housing associations, although leading figures in the sector have urged caution. EU rules on ‘state aid’ restrict where government can provide grants, but make an exception for social housing. However, it is standard practice in most non-EU trade deals to prohibit state grants without exception, posing a risk to future funding for the social housing sector.
David Orr, chief executive at the said: ‘We recognise the uncertainty that this result will bring to the sector and we are working with our housing associations members to support them to continue delivering the homes and services this country needs. Whatever happens there is still a housing crisis and we remain committed to ending it.’
What does leaving the EU mean for areas that have received large amounts of EU funding in the past?
One of the more notable trends of the EU referendum was that of regions receiving high levels of EU funding voting Leave. Despite Wales receiving between an estimated €653 and €747 million in EU investment per year, 53% of its voters voted Leave. Responding to the referendum result, First Minister Carwyn Jones called for continued participation for Wales in major EU programmes until the end of 2020; and a promise from the Government that Wales would not ‘lose a penny’ as a result of withdrawal from the EU.
A similar demand was made by John Pollard, leader of Cornwall Council, where 56% of voters supported Leave. Mr Pollard said that Cornwall would insist the region ‘receives investment equal to that provided by the EU programme’.
With no post-EU economic plan yet in place, the Government is unlikely to commit to any long-term, large-scale investment until negotiations with the EU are complete. Regions receiving high levels of EU funding face an uncertain economic climate in the short term with no clear plan to address massive shortfalls in funding, although it must be stressed that current funding arrangements remain in place until the process of withdrawal from the EU is completed.
One possible measure to redress the future loss of EU funding would be a revision of the Barnett Formula, which dictates the level of public spending in Scotland, Wales and Northern Ireland and is based on the population of each nation and which powers are devolved to them. However, the current political instability – particularly with regards to the Scottish Government’s stated desire to remain part of the EU – would seem to preclude any immediate redistribution.
What can UK organisations do now?
Don’t panic! The delay in triggering Article 50 and the expected protracted negotiation process gives organisations some lead time to prepare resilience strategies and identify potential alternative funding sources. Across all sectors, organisations already involved in EU partnerships or receiving EU funding should seek to strengthen those relationships. UK groups, organisations and bodies are natural partners and collaborators with their European counterparts based on their shared history and achievements. By emphasising their common aims, objectives and values ahead of entering into new, restructured relationships with the EU, UK organisations can lessen the impact of exit.
Organisations should also begin exploring alternatives to EU funding, whether that be through new international partnerships and funding streams, or via alternative fundraising methods. For example, according to European Commission figures, approximately €4.2 billion was successfully raised through crowdfunding platforms in the EU in 2015, compared with €1.6 billion in 2014. Of that, the UK had by far the largest amount raised and number of projects funded through crowdfunding of all EU countries. The 2015 UK Alternative Finance Report showed that the average deal size in the United Kingdom stood at £523,978, a large increase from the 2014 average of £199,095.
David Cameron has set up a cross-government unit comprising officials from the Treasury, Foreign Office and Cabinet Office to ‘lead intensive civil service work on the issues that will need to be worked through in order to present options and advice to a new Prime Minister and a new Cabinet’. This unit, led by Cabinet minister Oliver Letwin, is expected to report in the autumn. Once exit negotiations with the EU begin, the process of working through an estimated 80,000 pages of EU agreements enacted over the past five decades may also create opportunities for organisations to provide support services in a range of fields.
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