Alison Paines: What should charities consider when Article 50 is served?

The head of charities at the law firm Withers give advice on the issues charities might like to think about before Britain leaves the European Union

Alison Paines
Alison Paines

The Phoney War was an eight month period at the start of the Second World War, during which there were a few minor skirmishes but no major military land operations.

The analogy should not be stretched too far, but Prime Minister Theresa May's proclaimed intention to serve notice under Article 50 of the Lisbon Treaty by the end of March 2017 (nine months after the June 2016 referendum) signals that our Brexit Phoney War is ending and the Real Event set to begin.

As and when it is served, the Article 50 notice will initiate formal negotiations over "the arrangements for [the UK's] withdrawal, taking account of the framework for its future relationship with the union" - in other words, dealing with immediate issues (such as the position of EU workers currently resident in the UK) and taking account of, but not actually establishing, our future relationship.

While the UK's withdrawal terms can be approved by a qualified majority vote in the European Council, the terms of this future relationship will require unanimous approval from all other EU member states, as will any extension of the two-year negotiating period.  And it will be very difficult to get such unanimity, given that each EU member state has its own domestic stakeholders to appease.

There is therefore a real risk that, if notice is given in March 2017, the UK will cease to be in the EU in March 2019, and that we shall not, by then, have concluded all the agreements which will establish our future relationship with the EU, let alone the rest of the world.

This could mean, maybe only temporarily, a "hard brexit". In other words, the UK would be outside the EU, with no free movement of workers, no financial contribution and no obligation to apply EU laws, but UK goods exported to the EU would still have to meet EU standards, customs tariffs would apply, and provision of services would be restricted. Further, our relationship with the rest of the world via the World Trade Organisation is itself via the EU, and so would need re-negotiation.

What should charities do in these circumstances? This depends very much on what they are and what they do – the impact on a local community group will be very different from that on a university - but no charity can afford just to 'wait and see'. At the least, Brexit's various implications need to be assessed and built into each charity's risk register and forward planning.

The Charity Commission’s Guidance CC26 'Charities and Risk Management' recommends analysis of risk in the following categories: governance (affecting the board's decision-making capacity); operational (affecting the charity's day-to-day workings); financial (most risks have financial consequences); environmental and external risks (usually less easy to control); and regulatory compliance. Brexit may ultimately affect the first and last of these – as and when legislation changes – but the immediate risks for charities are likely to be in the middle three categories.

To take some examples:

  • A cancer research charity will assess loss of access to EU funding (with the government's assurance to maintain EU science funding until 2020 offering only temporary comfort) and difficulties in recruiting the best scientists for their research projects because of immigration controls; and may balance the introduction of post-Brexit barriers to cross-border clinical trial collaborations against the potential advantages of the removal of the Clinical Trials Directive's regulatory restrictions.

  • An overseas aid charity will already be reviewing its present financial commitments and future programmes in light of sterling's fall in value (affecting Euro and US dollar relationships and also NGO partnerships involving currencies pegged to the dollar), and assessing its forward currency purchasing system. Future migration controls and tariffs on movements of goods will also be relevant.

  • An environmental charity will consider potential funding and policy changes; for instance, agri-environment and climate measures that underpin environmentally sensitive farming, including organic production and forest management, are largely funded from the rural development pillar of the Common Agricultural Policy.

  • A social care provider will seek to reassure, so far as possible, its existing workforce, and assess future recruitment, retention and training strategies.

  • An independent school may analyse its pupil base to quantify exposure to particular sectors (for instance parents in the financial services sector who might relocate from the UK).

  • A food bank will anticipate immediate and ongoing increased demand, given actual and predicted price increases following sterling's fall and the possible introduction of import tariffs.

Having identified a risk, a charity then needs to assess its potential effect and adopt appropriate strategies to manage it, adjusting its business plan as necessary - which is of course much easier to say than necessarily to do. Some charities which regard themselves as potentially significantly disadvantaged are considering setting up EU affiliate organisations – in, say, the Republic of Ireland or the Netherlands - but this is not lightly undertaken.

What else should be done? Many of the legal aspects affecting charities which attracted attention immediately after the Brexit vote – in areas such as employment, data protection and VAT – have become less pressing, partly because the so-called Great Repeal Bill is intended to adopt into UK law (perhaps cutting across devolved competencies) all immediately applicable EU law, and so afford a degree of continuity.

A priority, however, for each charity which identifies significant Brexit concerns is to bring them to the government's attention – to  inform its negotiating position and future allocation of resources. Oxfam has already done this in relation to the impact of sterling's fall, and medical research charities and universities are making common cause on free movement issues. Political campaigning by charities for these purposes is entirely justifiable, if driven by their concern for the future wellbeing of their causes and beneficiaries.

Alison Paines is a partner and head of the charities and philanthropy team at the law firm Withers

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