Possible Effects of Brexit on the External Environment of UK

The assignment focuses on the possible effect of Brexit on the external environment of UK. It analyzes the impact of Brexit in economic, legal, cultural and political environment in which the business of UK operates. The changes in external environment in which UK business operates will influence the business operation both positively and negatively.

Running head: ECONOMICS ASSIGNMENT
ECONOMICS ASSIGNMENT
Name of the Student
Name of the University
Author’s Note

1ECONOMICS ASSIGNMENT
The assignment focuses on the possible effect of Brexit on the external environment of
UK. This study analyzes on the possible changes to the environment in which UK business
operates after Brexit. Brexit is basically the potential withdrawal of UK from the European
Union (EU). The main initiator of referendum of Brexit was the ex-prime minister of UK, David
Cameron. (Glencross 2016). The referendum held on 23 rd June 2016 highlighted that near about
51.9% of participating electorate of this nation voted for leaving EU and the rest voted against it
(Howard and Kollanyi 2016). This result of Brexit vote had been interesting in account of
demographics. Larger number of younger generation voted to stay within EU while majority of
older generation voted to leave EU. This means that although UK has higher score on
individualism under Hofstede cultural model, younger generation across the globe are highly
approving of the globalization that has been increasing over the last few decades and thus are
highly inclined towards political, social and economic cooperation between the nations. The vote
of Britain to leave EU has electrified interest of leaders, investors and policy makers. Even
external as well as internal effect can occur, involving environmental concerns that might put
this nation at risk for poor environmental standards. In this assignment, the impact of Brexit in
economic, legal, cultural and political environment in which the business of UK operates is also
analyzed.
Lea (2016) opines that there might possible changes to the external environment in which
the business of UK operate owing to Brexit. In fact, the impact of Brexit has potential effects on
the environmental policy of this nation. According to Hunt and Wheeler (2017), Brexit might
create uncertainty in the business environment, which in turn might create risk in business.
Although UK has been considered as the best nation for doing business, it could change owing to
unknown impact that Brexit could bring. The organizations operating in the UK have been

2ECONOMICS ASSIGNMENT
reevaluating their long term investments owing to fear of Brexit that might impact across the EU.
It has been found out by some researcher that the business operating in UK could be less
competitive within EU market as they might face several changes in environment where they
operate. Owing to several possible changes in the external environment, the businesses might
adopt effective strategy in order to mitigate with the challenges. The competition policy in UK
has been unlikely to radically change immediate aftermath Brexit. This shows the issues of
Brexit.
It has been predicted by many researchers the UK might gain more freedom in politics
after Brexit. The changes occurring in the political environment will highly influence the
business operating in this nation. However, few possible changes that might occur in political
environment are explained below:
Low direct tax- After Brexit, the UK government will reduce the corporation tax to near about
15% from the present rate. This in turn will provide those additional pounds that are required to
be invested for the growth of business. Moreover, it will also help to attract the business of other
nation to enter UK for doing business.
High indirect tax- It has been well known fact that VAT (Value added tax) that is being added
to the product is the main contributor to revenue of this nation. Brexit will provide UK the right
to make variation in VAT. However, the government of this country has been planning to add
more products and services to present list without making comprehensive changes to present
VAT system. As a result, this will increase tax burden that is passed to the customers. However,
the businesses providing digital services should register in VAT in those nations where their
customers reside or utile MOSS ( mini- one stop shop) for registering in EU wide scheme.

3ECONOMICS ASSIGNMENT
Reduction in funding- UK has been considered as epicenter for the financial activities for EU.
Brexit will cause this nation to lose huge amount of trade with the EU, which in turn will make
this less profitable destination for the international banks. As a result, the jobs of financial
service will move out of this country and hence will decrease available funding for the domestic
businesses.
Increasing cost on compliance as well as administration- This nation has been the strong
advocate of anti-tax evasion policy. However, the present policies allow the multinational
enterprise to exploit loopholes in tax system for shifting profits legally to less tax jurisdictions. ()
opines that serrated policy will be imminent after Brexit. However, changes in present laws will
increase the compliance as well as administrative costs for the existing business operating in this
nation.
According to some economists, the UK economic growth will decline after the Brexit.
There will be uncertainty over the relationships between Britain and other EU countries, which
in turn will damage the investor’s confidence to invest in the business of this nation. After this
Brexit, increase in cost of trade as well as tariffs would probably decline investments in this
nation. This in turn will adversely affect on inflows of FDI (foreign direct investment) in this
country (Dhingra et al. 2016) Therefore, this uncertainty of the trade relations between EU and
UK will also reduce FDI in this nation and this in turn will reduce the demand of UK pound.
With decrease in currency value, the producers will see increase in total import cost. It has been
predicted by few economists that the export businesses in this nation will reduce after Brexit
since the total costs will increase with increased tariffs. Thus, the UK businesses will become
less competitive globally and in EU markets. Even if these businesses will strategize to decrease
prices of product for maintaining competitive edge, it would lower their profit margin. In

4ECONOMICS ASSIGNMENT
addition to this, the total number of people searching for jobs outside UK will increase and hence
this will adversely impact on the UK businesses. However, these businesses will face deficiency
of skilled labor and thereby the total productivity in business will decline. Thus there will be
large gap between demand and supply of skilled labor.
On the contrary, it will increase opportunity of business of making free trade agreements
with the nations across the globe (Portes and Forte 2017). Few nations such as China, Australia
might move towards making trade deals with this country after Brexit. Apart from this, it will
further decline barriers to service industries of UK such as banking, insurance and so on.
Furthermore, the business will also benefit from complying with lesser obligations as well as
regulations of EU. They will not be indebted to pay huge amount of pounds towards the
membership cost of EU (Busch and Matthes 2016). From the perspective of the UK businesses,
this nation would be free to negotiate as well as trade with other nations globally according to
their terms. Thus, it will also open several prospects of the UK business from outside EU.
Overall, these changes in economic environment will influence the business in UK both
positively and negatively. This reflects the present trading arrangements for the UK international
businesses.

5ECONOMICS ASSIGNMENT
Figure1: Job seekers in UK looking abroad after Brexit
Source:(Curtice 2016)
Figure2: Graph reflects value of Pound against US dollar in the year 2016
Source: (Whitman 2017)
After Brexit, changes in legal environment will influence the business especially the
small businesses operating in UK. The companies Act 2006 has been the main legislation
impacting the operation of businesses of UK. This Act includes- provisions relating to
shareholders rights, disclosure of companies information and other accounting information of
business. After Brexit, it is expected that there will certain changes in the companies Act, which
in turn will adversely affect the operations in UK business (Schoof et al. 2015). Besides this,
several commercial contracts can be unaffected after Brexit. In fact, these contracts will stay in
full effect and the rights as well as obligations of the parties will be highly unaffected. Therefore,
few contracts such as franchise agreements, IP licenses might still include territorial restrictions
referring to EU. This contract might probably need amendment after Brexit. In addition to this,
IP (Intellectual property) laws might also change owing to exit of UK from EU. The

6ECONOMICS ASSIGNMENT
CJEU( Court of Justice of the European Union) authority can cease for being binding and thus
become persuasive after Brexit. However, the businesses operating in this nation might seek
trade mark registrations for avoiding uncertainty after Brexit. There are few areas of the
employment law in UK such as law regarding unfair dismissal and National Minimum Wage are
outside of EU law and thereby are regulated by this nation’s legislation. It has been predicted by
some economists that there will less changes in this law after Brexit. Additionally, the
immigration law will possibly change after Brexit. The present Prime Minister of UK has
committed that immigration will considerably reduce in face of opposition from UK businesses
(Tilford 2015). In fact, the citizens of EU will have no right to work and stay in UK following
Brexit. As a result, the UK businesses might face challenge regarding shortage of skilled
laborers. On the contrary, the startups businesses might continue to have some tax advantages.
This tax relief for the investors will facilitate to generate many start-up activities. This in turn
will help these businesses to reduce the risk and grow at higher rate. Some schemes such SEIS,
EIS will also aid smaller as well as higher risk enterprises increase finance by providing several
attractive tax relief to these investors on some new company’s shares. Overall, some researcher
found out that the enterprises operating in UK might fail to organize regulation changes owing to
changes in legal environment after Brexit.
Britain has been considered as the globe’s cultural capital and is also known as cultural
superpower. There will be changes in the cultural environment in which the UK’s international
business operates aftermath Brexit. One of the socio- cultural aspects that will change after
Brexit is migration. This mainly concerns the citizens of UK working across the EU as well as
the EU people working in UK. However, new laws for the visas will be adopted, which in turn
will make work migration procedure across the regions of this nation highly complicated.

7ECONOMICS ASSIGNMENT
However, this will affect the operations in UK business with other nations. The effect of EU
policies on the culture will likely to occur after Brexit. There is also a probability that this nation
will become one of the competitors to EU in foreign cultural relations. It has been stated by
Springford and Whyte (2014) that, the risk in UK business will increase since it will be directly
exposed to cultural, economic, reputational and intellectual damage. For example, from the
decreased level of foreign cultural exchanges at that time when it is required to develop the
strategy mainly for post- Brexit worldwide engagement. Moreover, there might be conflicts
within the nation regarding religion, ethnicity, race and so on. This in turn will adversely impact
on the UK business as the buying behavior of the citizens residing in UK will change owing to
change in socio- cultural environment.
Although predicting changes in external environment of UK after Brexit might be highly
challenging, it is basically unquestionable that Brexit would bring numerous changes in political,
cultural, legal, economic, environmental changes. However, these changes in external
environment in which UK business operates will influence the business operation both positively
and negatively. Brexit definitely needs plenty of negotiations between UK and the EU. If both
EU and UK do not compromise, then it can have adverse consequences in the whole world.
Moreover, the potential adverse consequences of Brexit could be avoided if UK maintains
friendly relationship with EU and work collaboratively for improving global situation. The
businesses will also have to implement effective strategizes in order to maintain edge in the
competitive business environment.

8ECONOMICS ASSIGNMENT
References
Busch, B. and Matthes, J., 2016. Brexit-the economic impact: A meta-analysis (No. 10/2016).
IW-Report.
Curtice, J., 2016. Brexit: Behind the referendum. Political insight, 7(2), pp.4-7.
Dhingra, S. and Sampson, T., 2016. UK-EU relations after Brexit: What is best for the UK
economy. Brexit Beckons: Thinking ahead by leading economists.
Dhingra, S., Ottaviano, G., Sampson, T. and Van Reenen, J., 2016. The impact of Brexit on
foreign investment in the UK. BREXIT 2016, 24.
Franks, J.R., 2016. Some implications of Brexit for UK agricultural environmental
policy. Centre for Rural Economy.
Glencross, A., 2016. Why the UK Voted for Brexit: David Cameron's Great Miscalculation.
Springer.
Howard, P.N. and Kollanyi, B., 2016. Bots,# strongerin, and# brexit: Computational propaganda
during the uk-eu referendum. Browser Download This Paper.
Hunt, A. and Wheeler, B., 2017. Brexit: All you need to know about the UK leaving the
EU. BBC News, 25.
Lea, R., 2016. Post-Brexit trading options for the UK. Arbuthnot Banking Group, 4, pp.1-16.
Portes, J. and Forte, G., 2017. The economic impact of Brexit-induced reductions in
migration. Oxford Review of Economic Policy, 33(suppl_1), pp.S31-S44.

9ECONOMICS ASSIGNMENT
Sampson, T., 2017. Brexit: The economics of international disintegration. Journal of Economic
Perspectives, 31(4), pp.163-84.1
Schoof, U., Petersen, T., Aichele, R. and Felbermayr, G., 2015. Brexit–potential economic
consequences if the UK exits the EU. Bertelsmann Stiftung, 8.
Springford, J. and Whyte, P., 2014. The consequences of Brexit for the City of London. London:
Centre for European Reform.
Tilford, S., 2015. Britain, immigration and Brexit. CER Bulletin, 30, pp.64-162.
Wadsworth, J., Dhingra, S., Ottaviano, G. and Van Reenen, J., 2016. Brexit and the Impact of
Immigration on the UK. CEP Brexit Analysis, (5), pp.34-53.
Whitman, R.G., 2017. Devolved external affairs: the impact of Brexit. Chatham House.