EU exit FAQs Contents The elevator pitch: why EU exit matters to housing associations, in 60 seconds... 2 Why should the Government care what EU exit means for housing associations?... 2 Process... 2 What is Article 50?... 2 What is the Great Repeal Bill?... 3 How will the exit process work?... 3 Policy impact... 3 What will EU exit mean for construction?... 3 What will EU exit mean for social care?... 4 What will EU exit mean for investment?... 4 What will EU exit mean for regulation?... 5 What will EU exit mean for public procurement / OJEU?... 6 What will EU exit mean for the housing market and housing demand?... 6 How will the impacts of EU exit for housing associations vary across the country?... 6 What does leaving the Single Market mean for housing associations?... 7 What is State Aid and what does EU exit mean for it?... 8 What would be the impact of a no deal scenario for housing associations?... 8 Response... 8 How can I support my board to consider EU exit risks for our business?... 8 How are our members responding to EU exit challenges?... 8 What has the Federation been doing about EU exit?... 8 What is DCLG doing about EU exit?... 9 What are other stakeholders doing / thinking / saying about EU exit?.. Error! Bookmark not defined. 1
The elevator pitch: why EU exit matters to housing associations, in 60 seconds Like any business, housing associations will be impacted by changes to the political, legal and economic environment after we leave the EU. But there are a few key themes which are especially relevant. EU exit won t create new challenges for the sector, but it might accelerate and/or escalate existing difficulties. Our members tell us that the three priorities are: access to skilled and unskilled labour in social care and construction roles, low-cost access to construction materials and countercompetitive, long-term investment. The data: If current recruitment / retirement rates in construction remain stable, in the next ten years we are likely to lose 20-25% of the construction workforce with or without EU exit. EU nationals have been a growing proportion of the UK construction workforce (roughly 7% in 2014). On any one day in adult social care in the UK there are 90,000 job vacancies. There are also 90,000 EU nationals working in the UK adult social care workforce. We have a 4.9bn trade deficit in construction materials with the EU (2015). The European Investment Bank has invested roughly 5.5bn in UK social housing. Housing associations also receive money through the European Social Fund and the European Regional Development Fund. Why should the Government care what EU exit means for housing associations? Roughly 80% of housing association executives voted to remain in the EU, but 64% of our customers voted to leave. We have a compelling offer to make as organisations invested in our communities, for the long term, as employers, landlords, and commissioners and deliverers of public services. We have direct routes into disadvantaged communities, and know how to deliver services which transform people s lives. If the Government shares our sense of purpose, we want to work with them. If they want to end the housing crisis, and deliver a Brexit that works for everyone, they need to work with us. Process What is Article 50? Article 50 is the notice clause in the employment contract that binds the UK to the EU. When you give notice to your employer of your intention to leave your job, you trigger the notice clause in your contract. Legally, your relationship remains unchanged for the duration of that notice period all of your rights and responsibilities remain intact. Politically, your relationship has changed. On the date that your notice period ends, your legal relationship is dissolved entirely, although you might agree during your notice period that some specific rights and responsibilities might continue. Article 50 is the notice clause in our contract of membership of the EU the Treaty on the European Union. And it operates in exactly the same way as a notice clause in an employment contract. 2
What is the Great Repeal Bill? The Government will pass a Great Repeal Bill which will repeal the European Communities Act (ECA) 1972 (the UK legislation which formalised our membership of the EU and made provision for all existing and future EU law to have direct effect in UK domestic law). If the Great Repeal Bill were to only repeal the ECA, all EU law from data protection to free movement rights would be wiped away instantly. The Government doesn t want this to happen. To ensure legal certainty for businesses and individuals as far as possible, the Government wants to transpose (a legal term for converting) all existing EU law into UK domestic law through the Great Repeal Bill. A White Paper has been published, and the Bill will be formally announced in the Queen s Speech later this year. The Government s intention is that a decision taken by a judge the day before the Bill gets Royal Assent will be taken in exactly the same way as a decision taken the day after. How will the exit process work? After Article 50 (29 March), divorce negotiations begin. This will disentangle the UK from its formal membership of the European Union. There is plenty of speculation which suggests that the actual beginning of negotiations will not be immediately after Article 50 (because the EU will first have to respond, and there will be a lot of cross-referencing in diaries to schedule talks). We will have to wait and see what actually happens. The UK has said in the letter formally triggering Article 50 that it intends to negotiate our divorce and the terms of our new legal relationship with the EU in parallel, during the 2 year notice period. The EU has said that negotiations must be sequential i.e. we must first divorce and then negotiate any new arrangement. It is not yet clear how this conflict will be resolved, but it has implications for business certainty. If we can negotiate in parallel, we are more likely to secure a smooth transition from one set of arrangements to the next. If negotiations must be sequential, this will be more difficult and there might be a sort of limbo state for a while where there is less clarity and certainty about which arrangements apply. Policy impact What will EU exit mean for construction? Before factoring in EU exit, the construction sector already has a considerable skills challenge. If current recruitment and retirement rates remain stable, projections suggest we will lose 20-25% of the current construction workforce over the next ten years. Over the last ten years, the proportion of non-uk EU nationals in the construction workforce has almost doubled (3.65% 2007; 7.06% 2014), but has still not been able to plug the gap in the sector created by an ageing workforce. In 2015 we had a 4.9bn trade deficit in construction materials with the EU. We import glass from Italy, bricks from Belgium and Denmark, wood from Sweden and Estonia, and, increasingly, off-site construction materials from Germany and the Netherlands. We are already seeing materials cost inflation due to the fall in the value of the Pound. 3
What can we do about it? Maximising the opportunities presented by Modern Methods of Construction might partially mitigate the skills challenge because off-site construction usually requires fewer people to build the same number of homes (and they are built more quickly) Housing associations have a track record of delivering skills, apprenticeships and employment support projects. Some of these have supported people into the construction sector. If we are to plug the skills gap created by recruitment / retention ratios, which might be exacerbated by post-brexit immigration policy, housing associations might have a role to play in training their own customers to do some of these jobs. What will EU exit mean for social care? On any one day in adult social care in England there are 90,000 vacancies. There are also 90,000 non-uk EU nationals in the adult social care workforce. Roles are low-paid (necessarily in order to keep businesses viable), there are few opportunities for progression, and the sector has a reputation as an unattractive career choice. Many housing associations, particularly in London and the South East, already struggle to recruit and retain staff in care roles. EU exit might therefore have implications for supported housing and the wider social care sector if skills shortages become more severe. What can we do about it? Although there is a challenge to recruit and retain support staff in supported housing, the challenge is less severe than in social care and the health service, and it is often less staff-intensive to deliver support in someone s own home. This means that securing a stable and flourishing supported housing sector could reduce the burden on other social care and health services. Certainty about future funding of supported housing, and low cost access to land, are important to give supported housing organisations the breathing space to be innovative Housing associations are interested in trying to make support roles more attractive to people, or developing new routes for progression to encourage new people into the workforce Housing associations have an interest in exploring the potential of technology to improve care service delivery, and ensure that staff time is spent with people in need of care as much as possible, rather than in the administration of care services. But they need control over business costs and possibly also investment in order to do this. Some things which have begun to be discussed include Artificial Intelligence so that people can register their care needs verbally in a way that is automatically translated into an electronic request. What will EU exit mean for investment? Housing associations do not generally have difficulty attracting private finance, in a stable macro-economic environment. 4
Some associations are concerned about future access to private finance, depending on how the economy reacts to EU exit. The more notice we have about what the post-exit arrangements might be, the less volatile the markets are likely to be (because markets like certainty). Some housing associations have benefited from loans through the European Investment Bank directly or via The Housing Finance Corporation. We do not know whether the EIB will continue to grant British organisations loans once we have left the EU. Our latest intelligence suggests that they are still agreeing deals with British organisations at the moment, but that could change once Article 50 is triggered. We will have to see. The UK s ongoing status as a shareholder state of the EIB will be subject to negotiation. A number of housing associations have benefited from European Regional Development Fund grants (especially in the North East and South West; routed through DCLG) or European Social Fund grants (especially in Yorkshire and the Humber; routed through DWP). Our access to these funds outside the EU will almost certainly be terminated. The Government is currently considering possible alternative funding sources for regeneration and green retrofit (ERDF) and employment and skills work (ESF). What can we do about it? One of the best ways to insulate businesses from the risk created by political uncertainty is to control business costs as much as possible. Using resources as effectively as possible is one way to do this. Some housing associations have realised the power of their balance sheets and no longer depend on any national government grant funding for development The Government can support housing associations by giving clarity about future rent policy (ideally rent freedom) and low cost access to land There might be opportunities for housing associations to defend funding for employment and skills and/or regeneration work (currently funded by ESF / ERDF) through local devolution What will EU exit mean for regulation? Most EU-related regulation won t change until amendments are made to the Great Repeal Bill. The sorts of policy we can expect might be amended (which haven t been before because they were exclusively EU competencies) include: Data protection VAT Employment law Environmental law Energy regulation Some EU regulation is part of our trading framework with the EU. Now that our trading arrangements are changing, this regulation might change too. 5
What will EU exit mean for public procurement / OJEU? The EU law public procurement regime dictates the process that public authorities must comply with when advertising contracts for services over a particular value (such as waste management contracts). Since 2004, housing associations in England have been considered public authorities for the purposes of compliance with these rules. Compliance takes a lot of time and costs money for housing associations. The regime is commonly referred to as OJEU. The OJEU is the Official Journal in the European Union, which is where procurement notices must be published under EU rules. Many housing associations would like to be excluded from the OJEU regime, and there has already been some activity in the sector campaigning for this to happen post-exit. The UK as a whole is likely to continue to comply with the OJEU regime. This is because we begin negotiations from legal consistency, and public procurement might not be a political priority for negotiating changes. What will EU exit mean for the housing market and housing demand? The Government s stated intention is to guarantee the rights of EU nationals currently living and working in the UK. If they are able to achieve agreement with the EU on this, we are unlikely to see a mass exodus, radically reducing levels of housing demand. We already have a housing deficit. We know that we need about 250,000 new homes every year to meet current levels of growing demand. Even if we do see a reduction in the numbers of EU migrants arriving in the UK, demand will still remain high. Most EU nationals (and other migrants) live in the private rented sector. The number of EU nationals in social housing in the UK is roughly proportionate to the number of EU nationals in the wider population. While some might try to predict what impact triggering Article 50 will have on the economy, and what the subsequent impact might be on house prices, what is clear is that we will still need to provide good quality homes for people that they can afford to live in. Housing associations ambition to meet housing needs will not waver as a result of EU exit, even if the means by which we deliver might change. How will the impacts of EU exit for housing associations vary across the country? London Highest exposure to construction and social care skills shortages High exposure to construction materials inflation Some have accessed EIB loans For ESF-funded employment and skills programmes to be continued in the future, there will need to be a new form of funding (the Work and Health Programme will not be sufficient because the levels of funding are too low, and there is likely to be less scope for innovation in delivery). 6
South East High exposure to construction and social care skills shortages Some have accessed EIB loans Some have accessed ESF funding East of England Medium exposure to construction and social care skills shortages Some have accessed EU sources of funding East Midlands High levels of EU migration Medium exposure to construction and social care skills shortages Some have accessed EU sources of funding West Midlands Medium exposure to construction and social care skills shortages Lots of examples of innovation in Modern Methods of Construction and skills training Some have accessed EU sources of funding, especially ERDF South West Significant access to EU funding, including ERDF and ESF Very quickly ageing population; skills shortages could be an issue North West Significant access to EU funding, including in devolution deals especially ESF Medium exposure to skills shortages Yorkshire & Humber Significant access to ESF finance Medium exposure to skills shortages North East Low exposure to skills shortages High dependency on EU funding, especially ERDF What does leaving the Single Market mean for housing associations? Leaving the Single Market and ending the jurisdiction of the Court of Justice of the European Union means there will be more opportunities to revisit health and safety, data protection, VAT and other forms of regulation. This represents an opportunity for housing associations to ensure we get the right balance between ensuring we are doing things consistently well and not unnecessarily constraining business innovation, which might provide better outcomes for people and communities. It will be important for housing associations that the UK secures as frictionless trade as possible, and a sensible immigration policy, outside the Single Market. 7
What is State Aid and what does EU exit mean for it? State Aid rules are designed to prevent the Government from giving particular organisations an unfair advantage (whether financial or otherwise) when competing for business in the market. Similar rules exist in other trading arrangements called subsidies rules, but State Aid is the term that the EU uses. Generally, State Aid law prevents the Government from giving grant funding. There are a series of exceptions which apply. Housing association grant is protected by the Services of General Economic Interest (SGEI) exception which is contained in Protocol 26 to the EU treaties. Outside the EU, the EU treaties (and therefore Protocol 26) will no longer apply. It is very likely that the new EU UK trade agreement will incorporate the State Aid regime in one form or another, and it might be incorporated verbatim. It will be important for housing associations that the Protocol 26 exceptions which protect social housing grant are carried over too. What would be the impact of a no deal scenario for housing associations? In a no deal scenario, the UK would not have achieved its desired Free Trade Agreement with the EU after exit. There might be tariffs applied to EU imports, which could increase the cost of construction material imports, and therefore the cost of construction more generally. There would be considerable flexibility for the UK Government to revisit regulatory frameworks, including relating to public procurement. This would of course be subject to parliamentary discretion. Response How can I support my board to consider EU exit risks for our business? The Federation produced a briefing for boards which outlines a menu of business risks (pages 4-7) along with their dependencies and an analysis of which parts of the sector are most likely to be exposed to each risk. How are our members responding to EU exit challenges? A number of housing associations are working innovatively to deliver their business objectives in ways which might insulate them from some of the potential impacts of EU exit for the sector. From reducing their business dependence on grant funding or investing in their communities and delivering part of the public service reform agenda, to maximising the opportunities of technology in construction and care, or delivering skills and training programmes to build the workforce of the future. More on the housing association response. What has the Federation been doing about EU exit? The Federation s EU negotiations project group had the following objectives for the 12 months October 2016 17: i. The Federation and our members will have worked with government and other key stakeholders to mitigate risks and take advantage of opportunities raised by the vote to leave the EU 8
ii. iii. We will have used the catalyst of the Brexit vote as an opportunity to raise the profile of the housing association offer to government, the press and the public We will have supported our members to understand what Brexit means for their business, and enabled them to plan effectively for any business impact We have produced briefings, delivered presentations, and worked with stakeholders to identify the risks and opportunities associated with EU exit and raise the profile of the housing association offer to Government and support associations to plan effectively for any business impact. In March 2017 we published Brexit and Beyond: making a success of EU exit in housing to demonstrate to the Government what housing associations want to do differently to make a success of EU exit for their businesses and communities. What is DCLG doing about EU exit? DCLG is actively working with the Department for Exiting the EU and other Government departments to shape the exit process. They have actively sought stakeholder engagement, with which the Federation has consistently engaged. 9