Publication - Progress report

Scottish Government overview of 'no deal' Brexit preparations

Published: 8 Oct 2019
Directorate:
External Affairs Directorate
Part of:
Brexit, Economy, International
ISBN:
9781839602443

Our preparation for 'no deal' Brexit and planning work to date, and proposed mitigations to deal with the impact on Scotland of a 'no deal' exit from the European Union.

30 page PDF

341.0 kB

30 page PDF

341.0 kB

Contents
Scottish Government overview of 'no deal' Brexit preparations
SECTION 4: Planned and Potential Actions

30 page PDF

341.0 kB

SECTION 4: Planned and Potential Actions

1: Issues most likely to require a Civil Contingencies response on Day 1

Issue

  • Likelihood of significant disruption to people and goods crossing borders. This would be most keenly felt for goods crossing the channel at the ‘short straits’ (Dover and Eurotunnel crossings primarily), with the reasonable worst-case scenario being a reduction to 40-60% of current flow on day one.
  • There is likely to be disruption to the supply of imported food, medicines, radiopharmaceuticals, blood products, medical devices and clinical consumables.
  • Disruption would affect exports of time-sensitive produce (e.g. seafood), meaning shorter shelf life and reduced freshness and quality. The knock-on effects to the industry would include lower prices, loss of sales and additional costs, with repeated delays resulting in damaged reputation and loss of customers and markets over time.
  • New UK arrangements will be required for the licensing of new medicines previously undertaken by the European Medicines Agency (EMA). A new regulatory framework for the manufacture and distribution of medicines will be required.
  • In the unlikely event that the EU does not recognise the UK as a 3rd country for exports of products of animal origin, nothing can be exported to the EU and trade in these products would stop overnight. This could result in domestic oversupply and spoilage and significant financial loss to business.
  • There is the potential for increased incidents of public disorder, with possible escalations of lawful demonstrations from Day 1 of Exit and the potential for further public disorder if impacts such as commodities shortages or major congestion at borders increase tensions.
  • Potential disruption to chemical supplies required by the water industry to treat water to ensure that is safe to drink.
  • Though the information and intelligence is developing, there is the potential for breakdown of law and order at sea and in port, and consequent risk to life and limb, and of illegal, unregulated or unreported fishing due to third party activity
  • The UK would lose access to all EU law enforcement information systems and databases such as the Schengen Information System II, which provides real time alerts for missing/wanted individuals and objects, and the European Criminal Records Information System. Alternative measures for data sharing will be far slower, more cumbersome and much less effective. Disruption of flow of personal data will impact on data relating to law enforcement and sharing systems. While Police Scotland and the Crown Office and Procurator Fiscal Service have worked together to establish operational plans to mitigate the loss of these tools and measures, the impact will be significant.

UKG Responsibilities

  • The UKG has primary responsibility for putting in place appropriate mitigations aimed at reducing impacts on transport links and maximising the flow of goods and products (food, medicines etc.) into and out of the UK. The National Audit Office noted in its report of 27 September that procurement of freight capacity is underway but the time available to put capacity in place for 31 October is extremely limited and it might not now be possible to have all the freight capacity available on that date.
  • UKG also needs to ensure that the regulatory and licensing arrangements are in place to ensure continued access to medicines, medical supplies and medical radioisotopes.
  • Responsibility for law and order at sea and in port is a matter for both reserved and devolved agencies. Marine Scotland Compliance is responsible for enforcement of marine and fisheries legislation but the UKG has responsibility for safety at sea and enforcement of the UKs borders, and defence against any hostile and/or illegal activity at sea. Marine Scotland Compliance will where possible report and collect evidence of any suspected offences or any emerging or ongoing situations which have an implication for safety at sea, including any hostile activity by or between fisheries vessels, as appropriate. Marine Scotland Compliance will work closely with Police Scotland and/or the UKG and its agencies to provide monitoring and support as appropriate. Enforcement of marine and fisheries legislation is devolved, but it is vital that there is close working between the UK Fisheries administrations to ensure a consistent approach, given the mobility of fishing vessels and the shared nature of fish stocks.
  • UKG has responsibility for putting in place appropriate mitigations for the loss of EU law enforcement tools and needs to ensure it takes account of the differences in the separate criminal justice system in Scotland and the operational interests of the Lord Advocate. Where there are no or limited contingency plans for the loss of access to EU law enforcement tools we would expect the UKG to seek a solution with the Commission and EU member states as a matter of urgency.
  • Data Protection is reserved - we expect UKG to seek an Adequacy Decision (AD) from the Commission as a matter of urgency. UKG is responsible for engaging with EU Member States to press that the UK has adequate safeguards in place to permit the continued sharing of law enforcement (LE) data under the LE Directive in the absence of an AD.

Scottish Government mitigating actions

  • Plans are being drawn up to use the old port in Stranraer to hold up to 300 HGVs if traffic flows between Northern Ireland and Scotland increase to a level that requires additional stacking capacity around the port. Transport Scotland is also working with the logistics industry to explore promotion around the ability for some goods to be moved by container through existing services from Grangemouth and Greenock Ocean Terminal – as an alternative to the short straits crossings.
  • SG and its agencies, along with the other Devolved Administrations, are named as a contracting authority on the freight capacity framework that DfT is procuring. This will allow Scottish Ministers to use the framework to secure additional freight Category 1 imports, if the UK provisions are not sufficient for Scotland’s needs. As a last resort for importing critical supplies in the event UK measures fail, Transport Scotland has developed plans for the emergency diversion of a Northern Isles freight vessel on a limited basis, whilst minimising any disruption to routes and communities impacted.
  • There is existing air freight capacity available through the market. We will continue to engage with Airports to review use of this capacity and encourage importers and exporters to consider utilising this where it would be useful to do so. However, the costs of air freight will remain prohibitively high and there are limits on which points of entry can be used for particular products.
  • SG has established a Scottish Medicines Shortage Response Group which will review evidence and intelligence, recommend action, and instigate escalation to the UK Medicines Shortage Response Group, of which SG is a member.
  • Pharmaceutical companies have been asked to stockpile an additional 6 week supply of medicines with a supply touchpoint in the EU and re-route supply routes away from the short straits ensuring continuity of medical supplies to NHS and social care providers.
  • NHS National Services Scotland (NSS) National Procurement are maintaining a larger stockholding of medical devices and clinical consumables and are part of the UK National Supply and Disruption Response Centre.
  • SG is working closely with COSLA and social care providers to help with their contingency planning.
  • The SG will continue to engage with and support public sector procurement managers/food suppliers with their contingency planning and we are working constructively with UKG counterparts.
  • SG is supporting SME food businesses with preparations for EU exit (see https://www.prepareforbrexit.scot/) and has plans in place to enable suppliers/public sector caterers to operate more flexibly.
  • SG is working with the UKG to minimise the disruptive impact of the requirement for export health certificates (EHCs). SG has led development of a risk-based approach to certification, is supporting plans to create ‘certification hubs’ and is working with local authorities to simplify charging for EHCs, but extra work is inevitable and costs will still be incurred by businesses and public authorities which we are seeking commitment from the UKG to reimburse.
  • Consideration is being given on how to best manage and prevent illegal, unregulated or unreported fishing (and the corresponding risk of clashes at sea between UK and non-UK vessels in the Scottish zone) through increasing Marine Scotland Compliance surveillance and monitoring capabilities. Marine Scotland will ensure a robust response to any illegal fishing activity by any vessel from any fleet, including taking prosecuting action against offending vessels and escalating as appropriate to the flag state of any vessel fishing illegally.
  • The SG and our operational partners, Police Scotland and the Crown Office and Procurator Fiscal Service attend the Home Office chaired Contingency Planning Steering Meetings to monitor progress and receive information on the key risks and proposed mitigating actions, so far as these are possible. Working together, Police Scotland and the Crown Office have established operational plans to mitigate the loss of EU law enforcement tools and measures.
  • Police Scotland’s Force Reserve of 300 officers has been available from 5 August to deal with any issues arising from EU exit, including in respect of ports and borders, but also in relation to possible protests and civic unrest.
  • SG is working with resilience partners to help them identify and mitigate potential civil contingencies impacts.
  • SG is working with Justice partners through the Justice Board EU sub-group to help identify and mitigate ‘No Deal’ risks across the Scottish justice system, complementing the work that is taking place on the operational response.
  • A police led multi-agency control centre will be activated at Bilston Glen to coordinate the response to any civil contingencies issues arising from EU exit. The SG Resilience Room (SGORR) will be activated to co-ordinate SG response to any civil contingencies impacts.
  • The Scottish Fire and Rescue Service has detailed and well-rehearsed command protocols and event plans in place for dealing with the EU exit period. SFRS are supporting a multi-agency response to EU exit and will at all times stand ready to react to any changing circumstances or issues presented.
  • Regulators Scottish Water and Water UK are working closely with Defra and the Devolved Administrations to ensure that contingency plans are in place. These arrangements include the provision of regular monitoring reports showing the chemical supplies across the UK and mutual aid arrangements between companies.
  • SG officials are working closely with Defra and its agency, the Veterinary Medicines Directorate (VMD), to ensure that there are sufficient supplies of vet medicines available. Vet medicines are a category 1 product and will therefore benefit from UKG additional freight capacity. We have also liaised with manufacturer and distributors and are reasonably content that there are sufficient stocks to avoid animal welfare problems immediate post EU exit.

Range of possible outcomes

  • Even if the UKG undertakes all planned mitigations in terms of border issues, on the basis of current planning assumptions there will still be a significant reduction in goods and products (both imports and exports). Inevitably there will be major consequences for Scotland – potentially disproportionate to other parts of the UK for reasons of geography.
  • Changes to the licensing processes for medicines in UK may result in slower access to new medicines and medicine shortages. It is likely that the cost of new medicines in the UK will increase.
  • Subject to intended procurement of the additional marine monitoring and surveillance capabilities, Marine Scotland Compliance resources and assets are assessed as being sufficient to deliver Marine Scotland's statutory responsibilities in a ‘No Deal’ scenario. Delivery of these responsibilities may, however, come under increasing pressure (e.g. depending on the scale of illegal activity, and whether it is geographically concentrated or widespread).
  • There may be reduced availability and choice of certain food products, including some of the fresh produce we import from the EU. Food price increases are also expected. Increases in consumer prices could pull more people into household food insecurity and increase the demand on public sector food.
  • We anticipate that rural consumers may feel price impacts more keenly as they face lower than average wages and the cost of living in rural areas is up to 35% higher than in urban areas. Added to this, many rural businesses and coastal communities in Scotland are reliant on food and drink exports.
  • Possible displacement of traffic to/from the island of Ireland may affect Scottish ports and may be difficult to predict with any degree of certainty until Day 1 or thereafter.

Requirements of the UKG

  • UKG must share real-time data and analysis on flows and potential delays at all borders so that SG can analyse the impact on Scotland and feed into resilience planning e.g. in respect of category 1 freight capacity (borders reserved but information would benefit Scotland).
  • UKG prioritises, at Dover and elsewhere, vulnerable sectors of the economy, such as live exports and fresh seafood. UKG have said that, according to policy advice, this is not practically feasible.
  • UKG to provide clarity on all aspects of how the Irish land border will operate, including customs arrangements and immigration policy and delivery strategy.
  • UKG to share data relating to the continuity of supply of medical supplies, clinical consumables, radioisotopes, and blood products, as well as ensuring regulatory frameworks are in place for the continued supply of medicines and medical radioisotopes.
  • SG would expect UKG need to meet the additional costs related to the policing of EU exit in full, recognising the unique circumstances in Scotland.
  • SG would expect UKG to meet all costs, staffing, etc. related to any increased customs capacity needs.
  • In relation to fisheries negotiations, whilst Marine Scotland is a core part of the UK delegation, there may be pressure on Defra as UKG lead on the fisheries delegation to prioritise English issues. Furthermore there is a risk that wider negotiations with the European Union will lead UKG to reach an unsatisfactory deal on fisheries or to concessions regarding such matters being made out with the usual fisheries negotiations. We will, however, continue to seek to ensure SG is appropriately represented in the UK delegation at the point we become a separate coastal state. e.g. through Interim Working Arrangement or Memorandum of Understanding. Our preferred outcome to reasonably protect Scottish interests in a sector where Scotland has the predominant interest within the UK, would be agreement from UKG to Scotland having a joint head of delegation role in Coastal States negotiations where Scottish interests are dominant.
  • UKG to take account of the differences in the separate criminal justice system in any ‘No Deal’ planning for the loss of access to key EU security and law enforcement tools and measures; share information with SG and operational partners on contingency plans, developments and proposed mitigations.
  • SG would expect UKG to review the import tariff schedule as this relates to the agriculture sectors. SG Ministers are continuing to press UKG.

2: Protecting vulnerable communities

Issue

  • UKG’s austerity and welfare reforms over the last 10 years have had a devastating impact on households in Scotland. Over 1 million people today are in relative poverty. 25% of adults with the lowest income have worried about being able to afford to eat. Almost 4 in 10 of households in the most deprived areas of Scotland already say they are not managing well.
  • Households already struggling financially will find life even harder with a ‘No Deal’ exit, but it is likely there will be new groups brought into poverty through unemployment, under employment and business loss. Initial work suggests that these latter factors could hit hardest in rural and remote rural areas.
  • The impact on financially vulnerable communities of an autumn ‘No Deal’ is greater than in the spring, as costs of living are generally higher in November-January than in April-June, with heating costs and the cost of Christmas being an added pressure for many households.
  • For example, if all other factors remain constant an increase of 5% in prices could push an additional 130,000 people into poverty in a ‘No Deal’ EU exit. This will add pressure on poverty mitigation measures already under considerable strain as a result of UKG welfare reforms and the continuing roll out of Universal Credit.
  • In rural communities where there is a heavy reliance on EU support and access to markets compounded by social isolation there is a real risk to the mental health of citizens due to the additional stress and pressure on employment and income they may experience.
  • The strain on vulnerable communities is likely to exacerbate the already stressful experiences of socially disadvantaged people. This could in turn place pressure on the services that support them including NHS and the range of services provided by local authorities, including social care and housing.

UKG Responsibilities

  • The majority of income replacement benefits, i.e. Universal Credit, Job Seeker’s Allowance, and Employment Support Allowance, are reserved to the UKG.
  • The UKG is responsible for dealing with applications for welfare support, benefit take up and ensuring people get what they are entitled to.
  • It would be reasonable to expect the UKG to review the adequacy of entitlements against an increasing cost of living, and to expedite the process for accessing entitlements – for example a reduction in the 5 week wait for Universal Credit.
  • Consumer protection and regulation of gas and electricity prices is reserved to the UK Government. The current prices for gas and electricity are protected through price caps. The current cap level is set until April 2020 and will be reviewed (based on 6 month price average) in February for the subsequent 6 months. There is no price protections for consumers of unregulated products such as heating oil. These consumers are more concentrated in the rural areas of Scotland and are already more exposed to a ‘No Deal’ exit.
  • Current UKG policy is unilaterally to continue to apply the existing EU social security coordination rules until the end of 2020, ensuring that UK benefit payments currently made to UK nationals living in other EEA member states are protected and that EEA member state nationals living in the UK retain existing entitlements to UK benefits.

Scottish Government mitigating actions

  • The SG is taking a range of mitigating actions to help maximise incomes and support for the most vulnerable communities.
  • Community food initiatives – on 25 September, we announced an additional £1 million investment in the charity FareShare to increase the help that they provide to organisations that are responding to food insecurity. This will include the purchase of additional food to supplement the availability of surplus food and donations. Organisations like community cafes, food parcel providers, and holiday clubs provide essential support for people struggling to afford healthy meals. A ‘No Deal’ exit is likely to push up the cost of living and could mean that more people are in poverty and seeking support from these organisations at a community level. This investment builds on work undertaken in the spring, and is in addition to the direct grant funding we provide community food initiatives with through the Fair Food Fund.
  • Poverty Mitigation – We are determined to do what we can to ensure individuals and families get the direct support they need, although the uncertainties of a No Deal EU exit make this challenging. In the event of a ‘No Deal’, we will establish a £7 million Rapid Poverty Mitigation Fund. This will provide local authorities with some additional flexibility to adapt to the differing demands of a ‘No Deal’. Such a fund will proportionally scale up current poverty mitigation measures including the Scottish Welfare Fund, Discretionary Housing Payments, and responses to food insecurity and fuel poverty.
  • Local Government preparedness - Work continues with COSLA to ensure local government preparedness for a ‘No Deal’ exit, ensuring that we are well sighted on Scottish Resilience Partnership plans for 31 October and that any longer term service impacts are identified. We have allocated additional funding to support Local Authority EU exit planning and co-ordination. The ability of councils to respond flexibly to unpredictable need is likely to require reprioritisation of existing resources.
  • Energy supply and prices - The Scottish Government will monitor closely the situation around energy supply and any impacts on energy prices, liaising with Ofgem and the UKG – to press for them to take action to regulate where necessary to protect consumers from any significant price increases.
  • Fuel poverty schemes - We are entering the winter period, which could compound the challenges posed by EU exit, so we will continue to deliver our fuel poverty schemes and have already put measures in place to monitor changes in demand and respond effectively. We are ensuring that we have the materials required to keep delivering energy efficiency and heating measures in the event of issues with imports and will provide all households with advice and support and fuel poor households with emergency heating if required.
  • Advice services - We will continue to engage with organisations who deliver advice services to vulnerable communities to ensure that they have considered the implications of a ‘No Deal’ EU exit and consider how Scottish Government might support them in the event that they may be required to meet additional demand for advice, including local government and the range of advice services they provide to local communities.
  • SG are working with the Rural Mental Health Forum and its members to ensure that support is available.

Range of possible outcomes

  • If the UKG makes the changes to Universal Credit that we are seeking, this should help increase benefit take up and ensure people get what they are entitled to, relieving the pressure – particularly on low income households, who will be hardest hit. However, if the UKG fails to promote uptake of benefits, there is a risk that more people will face financial hardship, resulting in greater reliance on SG, local authority and third sector resources.
  • If the UKG fails to introduce flexibilities within Universal Credit, the current 5-6 week wait for Universal Credit payments can put people into debt at the start of their claim. The UKG’s solution to this wait is to offer an advance of benefit that has to be repaid over a short period.
  • If the UK fails to recognise that ‘No Deal’ will lead to an increase in poverty and unemployment then they may also fail to plan for the increased staff and resource needed to respond to increases leaving communities with a lack of advice as well as queues and delays in access to the social security that people are entitled to.
  • If the UKG fails to reach agreement with the EU as a bloc or bilaterally with other EEA member states with regards to social security co-ordination, EEA nationals living in the UK could lose entitlement to benefits being paid to them in the UK from another Member State, and UK nationals living in another EEA Member State may lose entitlement to benefits paid by their state of residence.

Requirements of the UKG

  • The UKG should implement a range of temporary changes to Universal Credit to safeguard incomes. Provision of advances should be made as full as possible, and the UKG should convert the advance to a grant. It should temporarily suspend some third party deductions present within Universal Credit, or consider lowering the overall rate of deductions allowed, to increase income among vulnerable households.
  • The UKG should lift the benefits freeze on working age benefits that has been in place since April 2016 and uprate benefits in line with inflation. Given the potential volatility of the economy, the frequency of uprating should be quarterly rather than annually.
  • UKG should prepare to cope with rapid increases in people looking for Universal Credit and other benefits and advice, potentially from parts of the country that would not traditionally have high levels of uptake e.g. more rural and remote areas.
  • For the longer term, the UKG should reverse the two child limit for Universal Credit and Child Tax Credits, including the ‘rape clause’ exemption, which limits payment to two children. The UKG should remove the Benefit Cap which limits the total amount of benefits and tax credits payable to a working-age household.
  • Speed up payment and remove unnecessary barriers. The UKG should remove the conditionality requirements in respect of work preparation and search for those in receipt of Universal Credit to account for potential labour market changes which may lead to reduced jobs, hours and wages.
  • The UKG should reduce the minimum five week wait for the first payment of Universal Credit, especially when there is no guarantee of the correct payment at the end. It should also reinstate the work allowances (which is the amount of money a person can keep before their earnings affect their award).
  • The UKG should fully resource and launch a general benefit awareness campaign, including pension credit, Universal Credit and all other reserved benefits to maximise take-up of what people are entitled to and remove barriers to application. The UKG should review the current digital by default approach of Universal Credit and highlight the availability of Universal Credit to those who might be eligible, through outreach work and more mobile work coaches.
  • We also urge the UKG to reverse the change to benefits for mixed age couples so that eligibility for Pension Credit is determined by the oldest person in a couple. This change will see some couples in Scotland more than £7,000 a year worse off, before the effects of any ’No Deal’ EU exit.
  • The UKG should meet the costs related to EU exit, provide full financial compensation for the consequences of EU exit, either commit to contributing to the EU budget until the end of 2020 or ensure the guarantees cover all aspects of the 2014-20 programmes, and replace all EU funds in full beyond this – recognising Scotland's right to determine its own priorities.
  • UKG should commit to fully replace all EU funding which has been promised to support communities, including under the Asylum, Migration and Integration Fund (AMIF) for refugee integration work.

3: Supporting businesses and the Scottish economy

Issue

  • ‘No Deal’ has the potential to generate a significant economic shock which could tip the Scottish economy into recession. As well as major disruption to the movement of goods and services, it will cause further reductions and delays in investment, creating cash flow problems for businesses. These impacts are assumed to last for a number of months while a form of agreement is reached between the UKG and the EU.
  • A smaller economy will lead to a deterioration in the public finances.
  • Businesses will need to plan for and adapt to all the changes, such as customs procedures, tariffs, import and export patterns, processes and prices, skills and labour, additional administration etc., that ‘No Deal’ and any future trading relationship will bring and associated rising costs and reduced competitiveness. These changes plus possible prolonged recession are likely to result in significant numbers of business closures, especially in vulnerable sectors.
  • Market disruption may result in shortages of key products, i.e. chemicals, as well as changes in industry practices, due to fear of shortages, including inappropriate stockpiling. It will also disrupt businesses operating in integrated and just-in-time supply chains, particularly in manufacturing.
  • Non-tariff barriers, e.g. regulation and rules of origin, may prevent frictionless trade flows or stop certain Scottish exports altogether as to sell certain services, e.g. legal services, in the EU, you need to have an establishment in the EU.
  • On-going market disruption may reduce access to usual waste treatment and disposal facilities outside Scotland, which may lead to additional demands for waste services in Scotland.
  • Compliance with environmental law, including relevant industry regulations, will no longer be overseen by the European institutions.
  • Businesses will need to put safeguards in place to mitigate disruption to personal data flows, as failure to do so would mean they are not legally complaint.
  • Downturn in business will likely lead to unemployment, underemployment, stress and financial hardship.
  • Concentrated downturn in business in specific sectors or communities could compound impacts further.

UKG Responsibilities

  • Provision of regular and up to date information on UK wide business readiness support.
  • Engagement in and early information on procedures, processes, regulatory changes, tariffs etc. for businesses.
  • Announcements on day 1 tariffs, customs procedures and extent of regulatory cooperation. Day 1 tariffs, and tariff rate quotas, proposed in March need to be reviewed to take account of stakeholder views on likely catastrophic impact on particular sectors.
  • Provide clarity on the UKG’s approach to financial support, role of British Business Bank, sector compensation packages etc.
  • Action by HMT and BEIS to boost business and consumer confidence and financial liquidity, including macroeconomic stimulus, financial and/or loan support to businesses plus additional funding for the SG to meet specific Scottish needs.
  • Early and regular engagement and consultation with SG on any ‘No Deal’ business campaign and specific marketing and communications aimed at businesses.
  • Provision of robust replacement regulatory arrangements for all products and services, especially EU REACH regime for chemicals.
  • Clarity for industry on permitting process and arrangements for trans-frontier shipment of waste.

Scottish Government mitigating actions

  • Any UK fiscal expansion will have an effect on the Scottish budget through Barnett consequentials or the Block Grant Adjustments. Any additional consequentials would need to be targeted at further mitigation measures including the demand led pressures on Scotland’s devolved benefits arising from higher unemployment from ‘No Deal’.
  • Business preparedness and support – SG has worked with Scottish Enterprise to reinforce the Scotland wide Prepare for Brexit (PfB) programme targeting business which includes: an information campaign, guidance website and support call centre, PfB roadshows and PfB grants.
  • Local Government is working closely with local businesses encouraging them to prepare for Brexit and offering support where appropriate. Business Gateway and Scottish Enterprise are amongst the organisations providing local support. COSLA is working with a number of enterprise agencies in conjunction with SG on how to support businesses as they prepare.
  • Access to finance - The High Street banks have indicated they will support business; in the event that some businesses would not receive support from banks, then the UKG have provided guarantees under the Enterprise Finance Guarantee (EFG) Scheme. SG and its enterprise agencies will consider support in the event that some viable businesses do not receive support from the banks or EFG.
  • We will monitor the performance of banks using newly established survey data.
  • SG will liaise with the relevant parties (the FiSAB Banking and Economy Forum plus UKG and the British Business Bank) to support a realistic and long term appetite for lending amongst banks
  • Environment - SG has undertaken a significant package of work to ensure that environmental law continues to operate in the event of a ‘No Deal’ exit. This work will ensure that regulatory regimes will continue to operate and environmental standards will continue to be met. SG has agreed to participate in new UK-wide chemicals regulatory arrangements to replace the existing EU REACH regime. SG has undertaken work to analyse landfill capacity in Scotland, to ensure sufficient capacity exists if some waste export routes are no longer available. SG is in regular contact with the local authority waste managers’ network. This has helped us understand potential impacts of EU exit on local authority waste service obligations, including the possibility of additional costs arising from market disruptions. SG is developing an approach to environmental governance ready for a potential ‘No Deal’ exit. Work will continue on the development of a longer term system.
  • Personal Data Flows – While data protection is reserved, the SG is proactively engaging with the UKG, to effectively manage this issue. SG plan to raise awareness of UKG and ICO guidance for escalating personal data flow issues to businesses, to ensure better preparedness. SG will maintain engagement with Scottish public bodies, to raise awareness of guidance and processes for escalating data flow issues, post-EU exit.

Range of possible outcomes

  • SG interventions will not be able to fully mitigate the scale of economic and business impacts that are anticipated, especially if there is a prolonged recession with long term cash-flow impacts on businesses.
  • The OBR fiscal risks report shows that a ‘No Deal’ exit could increase UK public borrowing by £30 billion per annum from 2020-21 compared to an orderly exit. SG analysis suggests that this could reduce revenues in Scotland by £2.5 billion a year.
  • ‘No Deal’ exit has the potential to generate a significant economic shock which could tip the Scottish economy into recession. Depending on the way in which a ‘No Deal’ EU exit evolves, there is the potential for the economy to contract by between 2.5%-7% and for the level of unemployment to increase by as much as 100,000.
  • Without agreements on freedom of movement and establishment, Scotland’s £117bn service industry would face significant disruption and barriers to trade. £5bn of service exports are currently to the EU.
  • For small Scottish service providers who export, the requirement to set up a presence in other EU countries where this does not currently exist may be too costly, and the loss of regulatory alignment or the impact of trade reservations may make it impossible for trade to continue, e.g. some legal services.
  • Scotland currently benefits from reduced tariffs and friction when trading the countries covered by the EU’s trade deals. If the UK is unable to secure agreement with third countries that these deals should be continued after exit then Scottish exports (including of food) will no longer benefit from the current preferential trading terms.
  • While the UK will allow organisations to continue to transfer personal data to the EU as now, a gap is expected before the EU grants the UK data adequacy. Any regulatory action could cause organisations to be cautious, in a way which disrupts personal data flows.
  • Proposed communications and industry engagement will support industry best practice and awareness of regulatory implications in the event of disruption to the chemicals and waste markets but will not be able to completely mitigate the impact of wider trade disruption.
  • Interim environmental governance arrangements would create a mechanism to monitor environmental standards but cannot fully replace the oversight provided by the European institutions.

Requirements of the UKG

  • Taxes: A temporary VAT reduction to address the loss of consumer and business confidence. A temporary cut should help to bring forward consumption, as it did following the global financial crisis. With greater freedom to set VAT policy, having left the EU, temporary reductions in rates/coverage could also be used to address particular social or sectoral needs.
  • Spending: A significant increase in the UK budget so that the public investment backlog caused by a decade of austerity can be addressed. Capital spending would not only provide a stimulus but could also be targeted at climate change policies, helping to deliver long-term outcomes.
  • Funding: Assurance that extra costs from Brexit are covered, such as the immediate detriment relating to EU funding, and an assurance that additional costs on our demand-led services, such as Social Security, resulting from EU exit, are addressed.
  • A supportive macroeconomic framework – incorporating base rates, exchange rates, quantitative easing and terms of trade.
  • Full financial compensation for economic loss / costs of mitigation activity.
  • Action to maintain the lending appetite of banks on terms that businesses can afford and that takes account of the structure and needs of small firms prevalent in the Scottish economy.
  • Clear and early commitment that British Business Bank will increase levels of supports and lending guarantees to retail banks.
  • Guarantee of financial support to local economies and communities through European Structural Funds which correctly provide £780m over the period 2014-20 and successor Shared Prosperity Fund.
  • Ensure UK REACH is robust and will be fully operational on exit, with appropriate contingency plans in place.
  • High-quality information sharing on contingency response arrangements and industry communications (particularly on waste and chemicals).

4: Supporting the Rural Economy, including Fisheries and Agriculture, and the Environment

Issue

  • At a national level, rural areas are more at risk from EU exit impacts, with remote areas being particularly vulnerable, especially where a high proportion of residents work in EU exit-sensitive industries and where the loss of EU investment such as the Common Agricultural Policy will be most impactful.
  • The short term threat is cash flow for agricultural and agri-food businesses, with specific threats to those in export markets – notably sheep and beef in relation to the risk of 40% tariffs and businesses exporting perishable products and those requiring Export Health Certificates (EHCs).
  • EHCs are required in relation to the export of products of animal origin to the EU. There are associated costs - one of several potential causes of disruption and cost that could have a severe cumulative impact on affected businesses and their supply chains.
  • Marine Scotland analysis indicates that micro-businesses on the west coast of Scotland exporting shellfish are most vulnerable to an economic shock associated with a ‘No Deal’ exit, principally as they focus on the export of fresh or live produce, are therefore acutely vulnerable to delays, and are largely unable to land elsewhere or redirect exports to other markets.
  • There will be a need for additional certification of plant for planting and plant products exports to the EU, in the form of phytosanitary certificates.
  • Scotland is responsible for around 80% of seed potato exports, with 15% of the Scottish crop exported to the EU. The ability of the seed industry to mitigate or find alternative markets is limited as crops are currently being harvested with a view to continued access to European and third country markets as the export season starts in mid-October. The EU imposes strict import conditions on seed potatoes from third countries, which the UK would be. The EU has refused UKG’s application for an equivalence agreement until the withdrawal agreement negotiations have concluded. Without access to the European market there will be a significant impact on seed potato producers.
  • On-going lack of long term certainty about future funding following the current EU budget round will impact on the resilience of land managers and on long term planning and investment in environmental outcomes – this could significantly impact our response to the global climate emergency. EU funding, totalling £535 million, provides vital support for the delivery of environmental and climate change outcomes.
  • Delays at the border may lead to restrictions in the availability of veterinary medicines.

UKG Responsibilities

  • Tariffs and Borders are reserved. UKG set out in March its proposed Day 1 ‘No Deal’ tariffs, but has not legislated for them. There is significant concern from stakeholders, particularly where tariffs have been lowered. SG Ministers are continuing to press for these to be reviewed.
  • We continue to lobby UKG to prioritise/fast-track perishable products (most especially fresh or live seafood produce) at Dover and other relevant seaports/airports, although little progress has been made in securing such a guarantee.
  • In the event of a ‘No Deal’ EU exit the UKG needs to seek equivalence agreements in other areas, such as organics, as soon as possible – without this, exports are still possible but lose the benefits of organic certification.
  • Longer term, it would be expected that UKG would introduce mitigations across the rural economy and agri-business sector to minimise the shocks of ‘No Deal’ exit and to mitigate the loss of EU investment via the Common Agricultural Policy.
  • On the seed potato issue, in the absence of an equivalence agreement with the EU, we would expect the UKG to engage Member States directly to work out bilateral arrangements, involving SG officials. Bilateral negotiations have not yet started.
  • SG also working with UKG and other DAs on sheep compensation scheme, which will be operated by SG but with expectation that funding is from HMT – see below.
  • For fisheries, we expect a UK-wide IT system for the management and processing of catch certificates post-EU exit.
  • Policy on veterinary medicines is reserved, and the UKG leads on ensuring the availability of supply.

Scottish Government mitigating actions

  • A Basic Payment Scheme (BPS) 2019 loan scheme has been established. This provides earlier cash flow and certainty of payment date in October rather than in the Common Agricultural Policy: Dec – Jun. It applies to c.18,000 businesses that are eligible for BPS. We have already made payments totalling over £327 million to 13,400 farmers and crofters so far. A 2019 National Less Favoured Area Support Scheme loan scheme offering farmers and crofters access to up to 95% of their CAP Less Favoured Area Support Scheme (LFASS) 2019 payment in January has already been agreed. The SG has experience of organising and implementing support schemes in response to extraordinary circumstances. The cost associated with any such scheme would depend on the scale and impact of the event and overall market conditions at the time.
  • Plant health is devolved and therefore the responsibility for additional work issuing phytosanitary certificates will fall to the Horticulture and Marketing Inspectorate at Science and Advice Scottish Agriculture (SASA) in relation to seed potatoes given the EU has refused an equivalence agreement with UKG the SG will continue to work with UKG to negotiate/establish with the EU to minimise impact in the event of a ‘No Deal’.
  • Development is being taken forward for an alternative longer term support mechanism for rural micro enterprises (2024 onwards) where needed.
  • Extensive stakeholder engagement to raise awareness of the actions that businesses need to take to continue to trade with, or land fish into, the EU in a ‘No Deal’ scenario is ongoing. Guidance for Marine Scotland Coastal Offices to help them address front-line customer queries relating to EU exit and sign-post to suitable sources of information where appropriate is also being provided.
  • Further possible interventions to support the resilience or indeed recovery of the seafood sector.
  • The SG is working closely with Defra on the steps being taken to maintain adequate supplies of veterinary medicines.

Range of Possible Outcomes

  • We expect to be granted 3rd country status, a decision is likely around 11 October, and animal product exports to continue with some disruption. Some diversion to non-EU markets may be possible e.g. for salmon exports.
  • Trade disruption is likely due to the EU’s refusal to consider UKG’s application for equivalence in trade in seed and plant propagating materials. Third country applications for equivalence agreements can take up to 2 years. As an ex-Member State the EU may approve the UK application more quickly, but it is likely that most types of seed and propagating material will no longer be exported to EU countries for an extended period.
  • Some cost/ disruption mitigation may be possible where businesses' resources include cash flow and trained staff with capability and capacity to act – e.g. to look for alternatives to existing imports.
  • On the issue of EHCs, there is likely to be workable system in place to deliver additional certificates but unlikely to be able to avoid the need for EHCs altogether, despite calls on UKG to pursue dynamic alignment with EU and a derogation from EHC requirements.
  • Recovery and resilience may change business behaviour and/or have market distorting effects.

Requirements of the UKG

  • Fair funding settlement post-EU exit, the rapid resolution of the convergence issue and for assurance around sheep compensation and potentially other compensation measures in future.
  • Action on EHCs and related issues, including dynamic alignment with the EU on standards and pursuit of a derogation. We are also seeking to ensure that costs of any impacts of EHCs are met by UKG, rather than SG, Scottish local authorities or businesses.
  • Action on seed potatoes and ensure priority is given by the UK Department for International Trade (DIT) and Defra trade teams to urgently negotiate access to European markets to ensure the continuing operability of the industry.
  • UKG need to recognise the specific vulnerability of the Scottish seafood sector and factor this into their planning around trade and transportation therefore must prioritise/fast-track perishable products (most especially fresh or live seafood produce) at Dover and other relevant seaports/airports.
  • UKG honours the HMT funding Guarantees and ensures that these do not result in any gaps of funding in relation to what would have been expected from the EU in the 2014-20 budget round.
  • Provide assurances that all lost EU funding will be replaced in full, in the short, medium and long term, including Scotland’s fair share of the overall CAP budget inclusive of the Bew recommendations, until 2022 and that ongoing access is secured to EU programmes where this is possible.

5: Labour Market Interventions: Employability and Skills Support

Issue

  • The impacts of ‘No Deal’ may include rising unemployment and increasing precariousness of work and labour shortages. The demand for labour may drop leading to reduced economic activity, hours and income, plus increases in underemployment and precarious employment. It is expected there will be variable impact depending on geographic area and sector.
  • The economy may contract by up to 7% in a year and the level of unemployment increase by as much as 100,000.
  • Some effects may be felt immediately in sectors that are closely associated with EU trade, such as agriculture and fishing. Effects are likely to grow and spread more widely across the economy throughout 2020.
  • There may also be labour shortages and skills gaps as a result of reduced inwards migration (either due to restrictions of free movement or to the UK being perceived as a less attractive location to work) across a range of sectors and regions.
  • Demand for certain types of education and training will change to reflect changes in the economy and available labour force.

UKG Responsibilities

  • UKG (DWP) has responsibility for initially supporting those who may be made unemployed. Their priority is likely to be processing new claimants to ensure they receive Universal Credit entitlements.
  • The UKG are responsible for the guarantees on European Structural Funding (ESF) - between 2015 – 18, 11,000 college students have been funded through ESF funds).
  • Immigration is reserved – so it is understood that the UKG is responsible for the UK framework, which will drive impacts in this area.

Scottish Government mitigating actions

  • The majority of SG measures to support the labour market are already being delivered. Measures include:

    o Partnership Actions for Continuing Employment (PACE);

    o Employability support, including partnership with Local Government;

    o Fair Start Scotland, focused on those most disadvantaged in the labour market;

    o Skills for Growth;

    o Apprenticeships;

    o Individual Training Accounts, and Flexible Workforce Development Fund.
  • In addition we are developing Talent Attraction Scotland to support individuals and families to relocate Scotland from UK.
  • We are also exploring opportunities to help those at risk of losing their jobs in sectors most at risk of decline under ‘No Deal’ and transition those individuals into areas of continued economic growth in Scotland.
  • The SG, through the Scottish Funding Council (SFC), will work with the college and university sectors to ensure they are able to respond quickly and flexibly in providing upskilling to meet the requirements of a changing, post EU exit labour market.

Range of possible outcomes

  • While the interventions outlined could be introduced to help individuals who may lose their jobs find alternative employment, success will be dependent upon the creation of new employment opportunities and/or the training being provided matching areas with existing employment opportunities/skills gaps.
  • The extent of mitigation will depend on the ability to match skills needs to existing skilled workers/retraining success.
  • If significant numbers of people are made unemployed, this is likely to increase pressure on Jobcentre Plus staff and could reduce their ability to deliver other functions.
  • Success will also depend on the capacity of colleges and universities to adapt their course provision quickly in response to emerging labour market demands.

Requirements of the UKG

  • The UKG should remove the conditionality requirements in respect of work preparation and search for those in receipt of Universal Credit, to account for potential labour market changes which may lead to reduced jobs, hours and wages. Speed up payment of benefits.
  • UKG need to continue/confirm their guarantee on funding European Structural Funding (ESF) to the college sector until the closure of the existing programmes.

6: Protecting citizens’ rights and international connections

Issue

  • Any form of EU exit that sees an end to Freedom of Movement risks serious negative impacts on inward migration to Scotland – and thus on Scotland's workforce, and the long-term prospects for Scotland's population. The specific impacts are wholly dependent on the UKG’s future immigration policy in the event of EU exit.
  • EU citizens may not wish to stay or may be discouraged from coming to Scotland to work or study by the political climate in the UK and/or immigration policies.
  • ‘No Deal’ exit will have a serious negative impact on EU citizens’ rights. For example, if the UKG does not reach agreement on reciprocal health arrangements, UK citizens would immediately lose the right to these arrangements when abroad.
  • The UKG has been attempting to negotiate bilateral reciprocal healthcare arrangements, under existing terms, on a UK wide basis in the event of a ‘No Deal’, with EEA countries and Switzerland. Nearly all member states have now passed legislation to protect UK nationals’ rights in ‘No Deal’ (the two member states yet to pass legislation, Romania and Croatia, have indicated that they will do so ahead of Exit Day). However, the extent to which measures reciprocate the UK offer varies significantly.
  • Failure of EEA member states, except Switzerland, to reciprocate ‘No Deal’ arrangements for recognition of professional qualifications could restrict the ability of regulated professionals to work outside the UK. With the exception of Spain, it is unlikely that many formal bilateral agreements will be in place on exit day if the UK leaves the EU without a ratified deal. The EU Commission’s view is that Member States should refrain from bilateral discussions and agreements with the United Kingdom, which would undermine EU unity.
  • Clinical trials could be delayed or halted due to a reduction in the supply of investigational medicinal products (IMPs) from the EU. This may have potential impacts on patient care for those participating in clinical trials involving IMPs.
  • EU withdrawal poses a risk to the recruitment and retention of staff in the health and social care workforce. These sectors employ significant numbers of EU citizens, with particular concentrations of EU staff in some regions and specialities.
  • Although free movement will effectively continue until December 2020, EU citizens coming to the UK after EU exit to live, work or study will need to apply for Euro Temporary Leave to Remain - a non-extendable 3 year visa which raises significant issues, particularly for Scottish Universities. This decision to grant only 3 years’ leave to remain to EU citizens arriving after Brexit does not work for Scotland and discriminates against Scottish higher education institutions where most degree courses are 4 years. Scottish students currently studying overseas may be unable to complete their studies, resulting in additional demand for places in Scotland.

UKG Responsibilities

  • Immigration is reserved – so it is understood that the UKG is responsible for the UK framework, which will drive impacts in this area.
  • One key question is whether the UKG would be prepared to introduce a ‘regional’ approach to immigration policy, or to devolve aspects of immigration policy. This is within its powers, but would be subject to legislation.
  • The UKG has responsibility for the EU Settlement Scheme and needs to publicise and manage that process more effectively.
  • Skilled worker salary thresholds currently proposed by the UKG exceed the minimum starting salary of key workers, including nurses. The UKG should act to ensure a minimum level that will maintain Scotland’s ability to recruit key workers from outside the UK.
  • The role of the UKG is also critical in reaching agreement on reciprocal health arrangements.
  • The UKG is working with clinical trial sponsors regarding EU exit plans for importing IMPs and will put in place advisory arrangements.
  • The UKG is responsible for the guarantees in relation to, and will lead negotiations on the UK’s future participation in, Erasmus and Horizon 2020/Horizon Europe.

Scottish Government mitigating actions

  • SG will continue to press for changes to the EU Settlement Scheme to safeguard the rights of citizens including making the scheme declaratory, abolishing ‘pre-settled status’, introducing a legislative underpinning for the Scheme and providing the option of written proof of status.
  • Recognition of professional qualifications is conducted through regulatory bodies and is a complex mix of reserved and devolved competence. As such, officials have worked closely since early 2018 with the UKG (BEIS and DHSC) to mitigate a potential ‘No Deal’ exit. Full mitigation achieved in January 2019.
  • As set out above, reciprocal healthcare is administered and funded by the UKG and will have a strong relationship to immigration legislation.
  • SG will maintain and intensify the 'Stay in Scotland' campaign.
  • SG will enhance the Talent Attraction activity through the establishment of a ‘Welcome to Scotland' resource including developing actions to ensure EU citizens in Scotland are not discriminated against.
  • SG will maintain the 'International Recruitment Unit' within NHS Scotland until at least December 2020. The Unit is providing expert support on the immigration process and regulatory requirements to work in Scotland, as well as matching people to job opportunities.
  • NHS Research Scotland will support advisory arrangements put in place by UKG regarding clinical trials.
  • SG has guaranteed continuation of existing funding arrangements for EU students entering into further or higher education in Scotland up to the 2020-21 academic year.
  • SG will continue to provide student support for Scottish domiciled students studying in the EU as part of the fundable Portability Scheme in the 2019-20 academic year.
  • SG has confirmed that eligible Scottish domiciled students who have to return from the EU to complete their studies will still be able to access student support and tuition fee support.
  • SG will further develop Scotland’s alumni network to maximise our influence internationally.
  • SG will explore options to allow Scotland to remain part of the current and future Erasmus and Horizon programmes.

Range of possible outcomes

  • All of Scotland’s projected population growth will come from migration (from the rest of the UK or overseas). Scotland’s population growth has slowed since the EU referendum.
  • If the UKG persists with the proposals in the Immigration White Paper, including the salary threshold, the ending of Freedom of Movement, then Scotland’s working age population could decline by 3-5% over the next 5 years. This decline will be more acute in rural areas.
  • If the UKG fails to deliver the EU Settlement Scheme effectively then EU citizens currently in the UK who fail to apply will lose the legal right to stay.
  • If the right agreements are achieved, it should be possible to maintain the current reciprocal health arrangements and mutual recognition of professional qualifications. If the right agreements are not achieved, this is likely to have a substantial negative impact on availability of key professionals, and/or the healthcare arrangements available to UK citizens in the EU.
  • The SG’s efforts to maintain a positive environment for non-UK EU nationals would at best only partially mitigate the cumulative effects of these impacts.

Requirements of the UKG

  • That the UKG provides urgent clarification on future immigration policy given the high level of uncertainty and confusion about the status of the Immigration White Paper and future immigration plans.
  • That the UKG amends its policy to grant only 3 years’ leave to remain to EU citizens arriving after EU exit, increasing this to at least four years to accommodate the Scottish situation, where degree courses are typically four years.
  • That the UKG continues to engage with EU Member States on UK citizens’ rights.
  • That the UKG guarantee the rights of all EU citizens currently living in the UK.
  • That the EU Settlement Scheme should be a ‘declaratory’ rather than an ‘application’ process.
  • That pre-settled status is abolished so that EU citizens are granted settled status immediately, removing the need for a further application in the future.
  • That EU citizens should be given physical proof of their rights if they request it, to minimise the risk of discrimination.
  • That the UKG agree to allow regional differentiation within the immigration system.
  • That the UKG agree to the co-creation of a tailored immigration route for Scotland to address population challenges of rural areas through pilot schemes (in line with the then Home Secretary’s written Parliamentary Statement on 23 July 2019 accepting a recommendation from the Migration Advisory Committee to develop pilots to support migration to rural and remote communities).
  • That discussions and legislation on reciprocal healthcare respect the legislative competence of the Scottish Parliament and the protocols agreed between the SG and the Scottish Parliament as regards EU exit legislation.
  • Clarify that UKG HMT Guarantee will be extended to cover all aspects of Erasmus+ and Horizon 2020.
  • That the UKG seeks to remain a full participant in current and future Erasmus+, Horizon 2020 and Horizon Europe Programmes or, if that is not possible, ensures that any alternative arrangements are funded in their entirety, replicate the full benefits of the existing schemes and are co-produced and implemented in partnership with the devolved administrations.

Contact

Email: jeff.maguire@gov.scot