Brexit - the legal view

The legal view
The legal view


The European Union is built on the core principle of freedom of movement for EU workers. This principle, enshrined in the EU treaties, works in parallel with the other three basic freedoms in the single market: freedom of goods, capital and services. Under this framework, any EU citizen has the right to establish a business or seek work including on a self-employed basis in the United Kingdom without having first to obtain the approval of the Government (ie a work permit). In practical terms this means that UK businesses can employ EU migrants on the same basis as UK nationals without going through additional procedures and incurring additional costs.

Initially, the Prime Minister stated that freedom of movement of workers would be "at the very heart of my renegotiation strategy for Europe". However, as freedom of movement is a fundamental right directly derived from the EU Treaty, any curtailment of these rights by a Member State could lead to breach of EU treaties and have significant consequences for any businesses operating in the UK. Not only would the UK’s exit affect its citizens but it would also impact businesses’ recruitment processes.


Negotiations would need to take place regarding the trading of goods between the UK and the EU. If the UK does decide to exit the EU, the free movement of goods under which goods circulate without any barriers within the EU Single Market could also be impacted. From a legal perspective, this means that the UK would need to enter into separate trade agreements with EU Member States to maintain the trade benefits that exist as part of the EU. There are several trading options available to the UK but they may not be preferable to the current agreements in place. For example, if the UK were to adopt a similar trading stance to Norway and simply be a member of the European Economic Area rather than a member of the EU, it could be part of the single market. However, the disadvantage of this is that the UK would have to accept EU laws and regulations without input as to how they are made. In contrast, Switzerland is not a member of the EU or EEA but has tariff-free access to the EU Single Market for the export of goods, but not of services

Financial Services

The City of London currently enjoys a position as the 5th largest global city economy, and is responsible for 10 per cent of GDP in the United Kingdom. As a referendum on the UK’s membership of the EU edges closer to reality, the financial services sector has started to look more closely at the potential impact of a Brexit. There are currently over 250 foreign banks with UK branches, making the most of the sector’s strong history in the country combined with the ease of business being conducted in English. UK membership of the EU also facilitates the access of such institutions to the EU Single Market, benefiting from tariff-free movement of goods and capital. The UK financial services sector also benefits from free movement of people between Member States. There are an estimated 2.2 million EU citizens in the UK, a large proportion of which works in the City and contributes to its economic output. Membership of the EU also provides assurance to foreign investors that banks based in the UK are regulated and supervised by some of the strictest financial authorities in the world.

A Brexit could mean the loss of most, if not all, of these benefits. Certain US banks are already contemplating a move to Dublin or Hong Kong should the UK relinquish its membership of the Union. Such a loss of presence could have a significant knock-on effect for the UK economy. It would also provide less collective reassurance for other foreign banks as to locating themselves in the UK, potential enforcement of tariffs in relation to goods, services and capital, and loss of European employees who may have to move back to other Member States. In addition, the UK risks becoming a ‘third country’ in terms of still being subject to the EU’s regulatory regime in order to be able to access EU markets, whilst lacking power to influence such a regime. The UK’s own financial sector regulations may also need to be relaxed and revised to enable banks to maintain some position in the EU market.

Tomorrow we distil the facts and figures from six key pieces of Brexit research…