Posted by Rewan Tremethick on June 28th, 2016.
On June 23rd, the UK chose to leave the European Union by a majority of 1.3 million votes. The result came as a shock, with financial markets, betting companies and pollsters all having predicted a ‘Remain’ victory, even if only a narrow one.
People across the country and further afield are desperate to understand how a Brexit will affect them as UK politics roils in the fallout from the vote.
Those living abroad may have more to fear than most, at least during the inevitable period of upcoming uncertainty. Many UK expats were unable to even vote in the referendum,
It is important to stress the word ‘uncertainty’. No one accurately knows what will happen to the UK, or the EU, or how the two will interact going forward. With David Cameron’s resignation immediately following the vote, it is not even clear who will be the Prime Minister responsible for triggering Article 50 and leading the exit negotiations. All people can do is speculate.
With that being said, here’s a look at how UK expats could be affected by Friday’s historic decision.
It’s no exaggeration to say that many expats living in the EU could find their entire lives upended by the referendum result. Leaving the EU has the potential to see many benefits and rights of UK citizens living overseas revoked.
Speaking before the vote was held, Spanish Prime Minister Mariano Rajoy commented;
‘Above all, it would be very negative for British citizens. The EU is based on the principles of freedom of movement of people, goods and services. Leaving the EU would mean that British citizens would lose their right to move freely, work and do business within the largest market in the world.’
Free movement – one of the perks and conditions of being in the single market – allows any EU citizen to live in any other country. Your rights are staggered depending upon your circumstances, but long-term expats who have proved they are able to financially support themselves have the right to remain indefinitely, while accessing the same benefits as domestic citizens. It is this that affords you the freedom to live and work in the EU member state of your choice. Under free movement regulations, you can claim out of work benefits (provided certain criteria are met), get access to state healthcare (where applicable) and receive your full state pension.
Now that we have voted to leave the European Union, all these benefits hang in the balance. The problem is whether or not we can, or will, remain in the single market. Many ‘Leave’ campaigners were adamant we’d be able to remain a part of it, despite the fact that doing so requires paying into the EU system and accepting free movement, just like Norway and Switzerland do.
Boris Johnson has assured voters that EU benefits for UK citizens will remain intact, saying;
‘British people will still be able to go and work in the EU; to live; to travel; to study; to buy homes and to settle down. As the German equivalent of the CBI – the BDI – has very sensibly reminded us, there will continue to be free trade, and access to the single market.’
However, the UK paying money to the EU and immigration were two of the ‘Leave’ campaigns main reasons for wanting to leave, with immigration seen as being the key vote-winner. So to accept access to the single market under these conditions would be to retain the circumstances under which the country wanted to leave, while dispensing with the benefits and influence that came with them.
No one currently knows what kind of trade agreements the UK will forge, making it impossible to know whether or not expats will keep all their rights. There is a glimmer of hope here, however; even if the UK does not opt to keep free movement, ‘Leave’ campaigners have already promised that EU citizens currently living in the UK will be allowed to remain. The EU may reciprocate this deal, meaning future expats will be the only ones affected by the potentially diminished rights of UK citizens within the EU.
It would have been hard to miss the coverage of what happened to Pound (GBP) exchange rates immediately following the UK’s decision to Brexit .
As predicted before the referendum, the vote to leave the EU caused a huge sell-off and the Pound plummeted. Compared to before the votes were announced, GBP USD has fallen 12% to its lowest level in over 30 years, while GBP EUR has declined -8.5% to a two-and-a-quarter-year low.
To put that into perspective, if you had transferred £1,500 before voting day you would have received around $2250.90 or €1970.85. Just a few days later the same transfer would be worth around $2001.90 ($249 less) or €1812.60 (€158.25 less).
This will obviously have a detrimental effect on budgets and could place significant strain on the finances of many expats across the world, rather than just in Europe. As This is Money explains;
‘The worst case scenario is probably that many expats would return to the UK against their own wishes – either under their own steam for financial reasons, or because they were ousted from other EU countries should no deal be struck allowing them to stay.’
Currencies never stay still for long, however. While the currently weak state of Pound Sterling will cause many problems for expats in the short-term, the real issue is the extent to which it recovers. Returning to pre-referendum levels is unlikely for a long time, but whether Sterling will remain around current levels in the medium-term is hard to predict. This is because there are still many questions that are contributing to investor certainty, including:
Regardless of how these questions are answered, withdrawing from the European Union is expected to take two years while all the agreements and exit terms are negotiated. Add on top of this the uncertainty from the fact that no one knows when Article 50 will be triggered; EU leaders want it done immediately, but David Cameron intends to leave it to the next Prime Minister, who won’t be chosen until October.
While it’s therefore hard to forecast the direction of the Pound over the next few months, or even years, what is certain is that the current volatility is likely to continue for a long time to come.
Those living abroad on a pension could find the purse strings about to be tightened. The current level of UK state pension won’t change – that is set by the government and there is currently no anticipated change.
However, if the economy should worsen to the point where George Osborne’s forecast -£30 billion public finances black hole does appear, there’s always a risk that pensions could become the target for austerity cuts.
Another area of concern is the issue of pension increases. The UK government has agreements with all countries in the European Economic Area (EEA) to increase the pensions of those living overseas in line with pension rises in the UK. This should remain protected, but there is a risk – however remote – that it may have to be abandoned. This could have serious financial repercussions; a UK expat in Canada who retired in 2000 is still on the same rate of £67.50 per week, compared to a UK pensioner in France who now enjoys £119. If UK expats in Europe were to lose further increases, then they could find their finances get gradually tighter over the coming years and end up similarly out of pocket.
Just like any kind of expat, pensioners will also be hit by the Pound’s weaker state.
While many are desperately searching for answers, the unfortunate fact is that no one knows what is going to happen in the coming months and years. The best case scenario is that the Pound recovers and the UK manages to create a deal whereby expats in the EU get to hold onto their rights. The latter is entirely possible, but it is whether or not the UK would want to accept the reciprocal conditions for doing so that is the real issue. The worst case scenario is that UK nationals would have to apply for citizenship to remain abroad, with those who failed forced to return home.
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