- This article was originally published on 26 February 2019, and has been updated to reflect subsequent changes in the political situation
Brexit is in deadlock. The previous Prime Minister’s deal was overwhelmingly rejected by parliament, with no agreement in the House of Commons on an alternative. Boris Johnson has become Prime Minister, and has said he is prepared to leave without a deal if the European Union does not drop its demands for a backstop on the Irish border. With the clock ticking down to 31 October, when the UK is currently expected to leave the EU, and neither side wanting to back down, charities should prepare for the worst – a no-deal Brexit.
So what can charities do to prepare for a no-deal scenario?
Employment laws will be hugely affected by Brexit, but are unlikely to change dramatically overnight in the event of no deal. The charity sector consultant Gill Taylor says that, although most of the UK’s employment law stems from EU directives, "there will be no cliff-edge crisis for employment rights" on 31 October.
EU staff in the UK will have to apply for "settled status" to be able to live and work in the UK indefinitely, or "pre-settled status" if they have lived in the UK for fewer than five years. Irish staff will not be affected because their right to work in the UK is covered by other agreements that are not dependent on EU membership.
Taylor says that the best advice for employers is to familiarise themselves with Home Office guidance on the subject and to audit their workforces. They should also ensure their policies and procedures are compliant with right-to-work legislation.
Importantly, charities with European staff should ensure they have support in place and can provide advice to employees in what could be a stressful and uncertain time.
Almost all projections for a no-deal Brexit indicate that it would have substantial short and long-term impacts on the UK’s economy. An article by Janet Mui, global economist for Cazenove Capital, says that if there is no deal the introduction of significant trade tariffs and full customs checks would probably lead to a recession. Advice from the Scottish government says that the Scottish economy could contract by 7 per cent in the event of no deal, and the pound could devalue by between 10 per cent and 30 per cent. The UK government has said that tariffs will be placed on some EU products in the event of a no-deal Brexit to protect British businesses. EU tariffs in place on non-EU countries currently range from almost 1 per cent to more than 40 per cent, with foods generally attracting tariffs of more than 10 per cent.
If a recession occurred, charities would face significant challenges. The loss of income in both the private and public sectors would have a knock-on effect on the funding available for charities at local and national level, and would be likely to lead to a rise in demand on charitable services. If businesses were to cut substantial numbers of jobs after a no-deal Brexit, the government would have less tax revenue and therefore less means to provide funding for the charity sector. The double-edged sword of increased demand on charities, especially those operating in poorer areas, and lower levels of funding would have a big impact.
Much will depend on what agreements come about to prevent a chaotic no deal, but in the worst-case scenario there could be food and medicine shortages, and customs-check chaos at seaports, international rail terminals and airports. The government previously guaranteed to cover the costs of EU-funded programmes until the end of 2020.
Emma Flower, associate for charities and philanthropy at the law firm Withers, says that charities should carry out risk assessments to gauge how no deal could affect them. Contingency plans should then be drawn up to address any areas where a charity would be particularly hard hit. Charities should also familiarise themselves with various notices published by the government about the preparations for a no-deal Brexit.
Charities hold approximately £108bn in investment assets, and although many small and medium-sized charities are not lucky enough to have investments to rely on, they are a vital source of funding for those charities that do.
Kate Rogers, head of policy at Cazenove Charities, says charities should look to diversify their investments ahead of Brexit, which would make them more likely to weather the potential economic storm. She advises charities to check their exposure to the UK economy, in particular because the pound is likely to be weak.
Andrew Wauchope, senior investment director at Psigma Investment Management, echoes Rogers’ comments. He says it is vital for charity boards to review their existing investments and general financial position in advance of the departure date.
"The most effective way to reduce the risks from a no-deal Brexit is to ensure their portfolios are broadly diversified," he says. "Asset classes rarely move together and having a range of asset classes should ensure that investment portfolios avoid the worst of any market volatility we see."
Wauchope says that investment portfolios should be diversified internationally to avoid the worst of the impact on the British economy in the event of no deal. Trustees should also ensure they are holding sufficient cash for short-term contingencies.
International development charities
Given the cross-border nature of their work, international development charities are among those in the sector most vulnerable to the negative impacts of a no-deal Brexit. But the government has taken some steps to underwrite the value of European civil protection and humanitarian aid operations. Many funds for charities working in the world’s poorest countries will still be open to UK charities after Brexit because of their membership of the Organisation for Economic Cooperation and Development.
But for those operating in so-called "middle-income countries", the international development umbrella body Bond says that UK charities will no longer be eligible for European Development Fund or Development Cooperation Instrument finance. Other funds, such as the EU Facility for Refugees in Turkey or Providing Humanitarian Assistance in Sahel Emergencies, will be closed to UK charities.
Bond has voiced concerns that a no-deal Brexit would in effect remove the UK’s influence over future European aid programmes, which would have been covered by a deal with the EU.