TWO-and-a-half years on from the moment Britain announced it was leaving the European Union (EU) following a referendum on June 23 2016, the world is yet to see what it will look like or how it will work.
That comes despite months of negotiations between the British government and the European Commission (EC), a general election, a change in prime minister and countless proposals on everything from a hard Brexit to no Brexit.
Instead, there is a strong sense of uncertainty among politicians, businesses and the general public about what Brexit will look like as the deadline of March 29, set by the current British prime minister Mrs Theresa May as the day Britain will officially leave the EU, barrels ever closer.
In a volatile situation changing daily, many companies based in Britain, as well as those that do business within and across its borders, are becoming increasingly concerned about what it will mean for them.
May has told parliament that Brexit has come down to three options: the withdrawal agreement she has negotiated with the EU - along with a €39bn divorce bill; a “no-deal Brexit” which would see the country crash out of the union on March 29 without any sort of relationship negotiated with the EU at all; or a reversal of Brexit altogether, which the European Court of Justice ruled on December 10 was still a possibility if called for “democratically.”
But even those seemingly straightforward options were thrown into chaos on December 12 when May’s Conservative Party announced a vote of no confidence in her leadership, which she survived 200 votes to 117 before heading back to the EC and European heads of state in an attempt to gain reassurances regarding the so-called Northern Ireland backstop.
While agreed on by the European Council and May’s cabinet, the withdrawal agreement, which would see Britain remain in the customs union while an agreement is reached on the Irish border, has faced strong opposition from parliament. On December 10, May announced she was postponing the “meaningful vote” due on December 11 as it was likely to be heavily defeated.
The strong division over the agreement and Brexit in general has resulted in calls for May to resign as well as calls for a second referendum or a general election to secure a mandate from the general public.
Watching the negotiations from the sidelines with little say in the matter, but still due to be heavily affected by the outcome, is the business community, including the rail industry, which is yet to see a clear way forward. This situation inevitably affects long-term planning and investor confidence.
“The concerns for the rail industry are the concerns for any industry watching the Brexit process grind its way through the political landscape and that’s really uncertainty, that’s what concerns us the most,” says Rail Delivery Group (RDG) regional director, Mr Robert Nisbet. “When there’s uncertainty they’re just a little less likely to invest, there’s just a little more uncertainty about what they should be doing to prepare for whatever the result is.
“We’re sitting and watching, while in the back of our minds the priority is to ensure that the passenger and freight chains can keep running smoothly to deliver passengers and goods to their destinations after Brexit.”
That doesn’t mean the industry has been resting on its laurels. Instead, it has been looking for ways to advise and influence the outcome in any small way it can.
That includes the RDG’s suggestion of creating new Railway Customs Areas (RCAs) at rail freight terminals as far inland as the Midlands to avoid the need for a single border checkpoint, removing the prospect of congestion on the rail network in Kent.
Both the EU and Britain have stated they are working to avoid a hard Brexit, but as negotiations continue to stall, businesses are preparing for the worst. Following concerns that the country could exit the EU without a deal, the British Pound tumbled to its weakest level in 20 months on December 10.
“It’s difficult for us to comment while there are so many tectonic plates moving at the moment,” says Nisbet. “All I would really stick to is a general concern that as this process continues, the uncertainty remains and the potential for economic shocks to the industry could increase.
“Every delay makes the possibility of a no-deal Brexit a bigger threat and obviously to a big industry like the rail industry, we are worried for the potential for a no deal because of the uncertainty that will carry with it.”
That concern was echoed by the Rail Industry Association (RIA), the body representing Britain’s railway industry suppliers.
“No business likes uncertainty,” says senior policy manager, Mr Damian Testa, who has led RIA’s work on Brexit. “If you know what it is you can plan for it, even if it’s suboptimal. If you don’t know what it is, you don’t want to spend your time planning for something that doesn’t come to pass.
“There’s certainly a segment of our members that is saying we don’t have enough details. There are some common sense things that you can do but there are some things that are up in the air.
“The sensible view of a business would be that you’re going to invest when you know what it is you’re investing in and what your return is going to be, so you can see that [uncertainty] is going to dampen investment because you don’t want to make the wrong investment.
“Particularly for some of our members that are multi-nationals, they’ll have some headquarters in mainland Europe. Some of the anecdotal stuff is that they are needing to provide more confidence around what the return on investment will be, purely because of the uncertainty around Brexit. It’s still OK to invest but it’s another level of assurance that they’re looking for because again, the degree of detail is not there.”
Framework
Even if Britain is able to pass the withdrawal agreement through parliament, which as IRJ went to press was looking increasingly unlikely in its current form, the British government will still need to negotiate a framework for the future UK-EU relationship to decide what trade between the two parties will look like. This will require unanimous approval from the EC, European Parliament, all 27 EU member states and the British parliament.
That framework would be negotiated during a transition period, referred to by the British government as an “implementation period,” beginning on March 29 and lasting until December 31 2020. During this time, Britain will have no formal say in making or amending EU rules and regulations, but will have to follow them to the letter. The advantage of transition is that it buys more time for businesses and governments to prepare for a new regime, and smooths the path out of the EU as opposed to crashing out of it overnight.
In October, the Rail Safety and Standards Board (RSSB) published a statement confirming that Britain will continue to abide by EU rail standards and protocols after it leaves the EU, even in the event of a hard Brexit. This was followed by two guidance papers published by the Department for Transport (DfT) outlining how rail transport and rail safety standards would work in Britain following a hard Brexit.
“Regardless of whether the government strikes a deal with the EU or not, the legal requirements designed to promote common safety and technical principles across all EU railways will still need to be met by British rail companies and suppliers,” the RSSB states.
This means European Technical Specifications for Interoperability (TSIs) will continue to apply during the transition period if Britain reaches a deal with the EU. If no deal is reached, TSIs will be adapted as domestic legislation and published as National Technical Specification Notices by the secretary of state for transport.
European standards are only affected by EU membership if they are referred to in EU directives. According to RSSB, this affects less than 20% of applicable standards. The application of European standards from CEN, Cenelec and ETSI, as well as international standards such as ISO, IEC and ITU, is unaffected by Britain’s departure from the EU.
In the lead up to Brexit, RIA published a Brexit position paper which outlined its “key asks” from Brexit, regardless of the type of withdrawal. This included a commitment to the clear and consistent application of railway standards, a point largely assured by the RSSB’s statement.
However, the DfT would retain the flexibility to diverge from the TSIs in specific circumstances - a move that could be both beneficial and detrimental to the industry.
“Looking at this dispassionately, you wouldn’t expect any divergence to happen on day one of Brexit, the issue is going to be in the future when the EU Agency for Railways either develops new TSIs or it amends existing TSIs that don’t reflect the GB network,” Testa says. “That’s when you’re more likely to see UK divergence and then it’s the question of what does that mean commercially and I guess it depends what the divergence is but there is a risk that you could end up creating a two tier market.”
“If you’re outside of the UK you almost need to have a product line for the UK and a product line for the EU, and the UK is obviously not as large a market as the EU, so does that dampen the attractiveness of doing business in the UK?
“The DfT will be the final pen-holder on any decision to diverge but they are very keen to have industry engagement before they make their decision.”
Companies based in Britain will also lose their right to act as a notified body, which allows them to certify products for use across the EU.
“You may well have got your product approval from a UK notified body, which will be valid on the March 29, but - in a no deal scenario - from March 30, it won’t be recognised in the 27 member states. So you would then have to get it recertified in a member state. If you’ve never had to do that before that’s a challenge, but also it’s an additional cost to your business.”
Citizens’ rights
Immigration was a contentious issue both before and after the referendum, and continues to play a major part in the negotiations, including what rights European and British citizens will have to live and work across borders.
Britain’s rail industry could be heavily affected as around 20% of its workforce comes from the EU. If a line was drawn across the centre of England, almost half of the rail supply networks’ workforce south of that line comes from the EU 27.
“Most of those jobs are the lower skill level and skill level 2 and 3, so no one is suggesting those workers are going to disappear overnight, but what you can see is as projects and programmes come to an end, you may well see some homeward migration and then there may well be a challenge around recruitment and retention,” Testa says.
The British government and the EC have sought to give some assurances, including that:
- British citizens in the EU, and EU citizens in Britain, will retain their residency and social security rights after Brexit
- citizens who take up residency in another EU country during the transition period (including Britain) will be allowed to stay in that country after the transition, and
- anyone that stays in the same EU country for five years will be allowed to apply for permanent residence.
But whether those assurances will remain in the event of a hard Brexit adds another layer of complexity to the question.
While things may seem all doom-and-gloom, Testa says RIA and the industry are trying to remain positive while looking to take advantage of other opportunities that may arise.
“When we talk to the government, what we say is there are challenges and opportunities,” Testa says. “We’re very keen to be positive so for us the opportunities are increasing exports but also it’s about including rail as part of any future free trade agreements.”
The EU currently has around 50 free trade agreements in place, which Britain will cease to be a part of come March 30. Instead, it will have to begin negotiations on new agreements - which are typically years in the making - while trading under World Trade Organisation (WTO) rules.
RIA has also called clarity on the future trading and operating arrangements following Brexit. While the British government has proposed a common rule book for trading goods, it is unclear how the trade of services will be managed, a concern that adds layers of complexity for rail companies, which often operate contracts that combine both goods and services.
Again, many of the requests from the industry are not due to be decided until the debate on the future relationship framework, whenever that will be. Until that happens, RIA is advising its members to prepare for any eventuality.
“Whilst we don’t have the level of detail that would be most helpful, there are still some common sense things that can be done to prepare whatever the outcome,” Testa says.
That includes researching the WTO tariff rules and regimes and how they may be applied, to be prepared if they do come into effect following a no-deal Brexit.
As the debate rages on in the first few weeks of 2019 with no end in sight, the only thing that is certain is that the Brexit conundrum will have an impact on Britain and the EU for years to come. What that impact will be, is yet to be seen.
Reviews to look at rail’s future in Britain
WHILE the debate on Brexit is set to affect the rail industry’s external future relationship with Europe and the rest of the world, two reviews are due to be completed this year which may have a significant internal impact.
In response to the disruption caused by the introduction of the May 2018 timetable, the British government has launched a comprehensive review of the structure of Britain’s railways. Headed by British Airways chief executive, Mr Keith Williams, the government will publish a white paper on the review’s recommendations with the aim of implementing reforms from 2020 onwards.
Billed by the Department for Transport (DfT) as the most significant structural assessment of Britain’s railways since privatisation in the mid-1990s, the Williams Review will “analyse all aspects of the industry, alongside the country’s changing travel and work patterns,” while considering how track and train can be integrated more closely.
RDG regional director, Mr Robert Nisbet, says the industry has set out six outcomes it wants to see from the review:
- customers at the heart: a reformed railway which unlocks a new generation of innovation and investment and, where it makes sense, offers choice for customers
- clear accountability: building a structure that creates confidence in the railways’ leadership, making it clear where the buck stops when things go wrong
- delivering value-for-money: avoiding a return to the days when running costs were deep in the red, lines were closed and stations were boarded up
- driving economic growth: incentivising investment for the long-term, expanding the network and growing and re-balancing Britain’s economy
- strengthening communities: ensuring towns and cities across the country get the maximum benefit from a railway, and
- inspiring our people: ensuring those who work on the railway feel more involved and invested in the industry.
Fares review
THE Rail Delivery Group (RDG) is also working with the government to launch a review into the country’s fare system, which it says is outdated and confusing for passengers.
The RDG has called for “root and branch reform” after research by KPMG found that only 34% of rail customers were very confident they had bought the best value ticket for their last journey and 29% were very satisfied with the experience of buying their ticket.
“If you talk to passengers, you talk to industry and you talk to government, everybody agrees that the fares system is overly complicated, and almost preserves a moment in time back in the 1990s when the railways were privatised,” Nisbet says.
Nisbet says the RDG is currently developing its proposals which it plans to present to government early this year.
