What Is Brexodus?
Brexodus, a compound word made up of the words "Brexit" and "exodus," refers to the prediction that the United Kingdom's (U.K.) exit from the European Union (EU) will lead numerous individuals and corporations to leave the U.K.
- Brexodus refers to the prediction that the U.K.'s exit from the EU will motivate numerous individuals and corporations to leave the U.K..
- The U.K. formally separated from the EU on Jan. 31, 2020, and ended the transition period during which it operated under EU rules on Dec. 31, 2020.
- The U.K.-EU Trade and Cooperation Agreement (TCA), which governs post-Brexit trade between the U.K. and EU, went into effect on Jan. 1, 2021.
- Brexit, as facilitated by the TCA, burdens businesses and individuals with new paperwork and regulations on cross-channel trade.
- The COVID-19 pandemic makes it difficult to determine the immediate impact of Brexit, because it is hard to disentangle how much emigration is caused by Brexit and how much is due to the pandemic.
The U.K. voted to leave the EU in a 2016 referendum. Almost four years later, the U.K. officially separated from the EU on Jan. 31, 2020, pursuant to a withdrawal agreement. The U.K. remained subject to EU law and participated in the single market and customs union through 2020.
By 2017, some U.K.-based businesses, particularly in the finance industry, had already begun to establish subsidiaries in and transfer personnel to the EU. This was in anticipation of the need for a legal and operational presence there to be able to continue to conduct business.
On Jan. 1, 2021, the U.K.-EU Trade and Cooperation Agreement (TCA) went into effect. The TCA allows trade in goods between the U.K. and EU to continue without tariffs and quotas. However, it did not prevent the introduction of costly red-tape and border controls, and left issues related to financial services, standards for goods, and the establishment of a regulatory “level playing field” unsettled. While the TCA prevented a no-deal Brexit, the worst potential outcome, it entails substantial changes for U.K. and EU businesses and individuals.
Brexit is likely to have profound effects but its long-term impact remains uncertain. This has been complicated by the onset of the COVID-19 pandemic, which occurred at the same time as the U.K.'s exit from the EU. The enormous effect of the pandemic on both the U.K.'s economy and on U.K. immigration make it difficult to tell what effects are caused by Brexit and which stem from the pandemic.
Brexodus for Individuals
Between the 2016 referendum and the January 2020 withdrawal, some predictions of emigration from the U.K. due to Brexit ran into the tens or even hundreds of thousands, with especially significant losses projected for London. According to The Guardian, in 2017, Deloitte found that the uncertainty surrounding Brexit prompted 47% of highly skilled EU workers to consider leaving the country within five years.
However, these estimates greatly overstated Brexit’s immediate impact. From 2017 through 2019, the number of immigrants from the EU dropped significantly, but a mass exodus of EU-born residents didn't occur either. When the COVID-19 pandemic occurred in 2020, emigration rose substantially. The problem is due to the scale of the pandemic, the effect of Brexit is likely overshadowed by the effect of the pandemic, and it is therefore difficult to tell the exact scale of each.
In 2019, EU-born individuals were 5.5% of the U.K. population. Nearly half of these 5.5% cited work-related reasons for residing in the U.K. Until 2019, more EU citizens moved to the U.K. than departed. From 2004 to 2017, the number of EU migrants (defined as people born in EU countries in the dataset we used) in the U.K., increased steadily. While EU immigration declined substantially after the 2017 referendum, the overall number of EU migrants in the U.K. remained relatively stable from 2017 through 2019, at approximately 3.5 million. Additionally, in 2019, emigration of U.K. citizens to the EU hit a 10-year high, estimated at 84,000.
Overall emigration from the U.K. increased dramatically in 2020. However, Covid-19, rather than Brexit, is widely cited as the cause. In the 12 months ending June 30, 2020, the number of EU migrants in the U.K. declined approximately 340,000 out of a total decline in the U.K.’s foreign-born population of 893,000 or 10%. However, the University of Oxford based Migration Observatory, which assessed the data, states that there is "significant uncertainty" about the numbers due to the difficulty of collecting data, especially during the pandemic.
In 2019, the U.K. instituted the EU Settlement Scheme to allow EU individuals currently or recently living in the U.K. to apply to stay. By Dec. 31, 2020, 4.9 million applications were filed ahead of the June 30, 2021, deadline. This number includes approximately 4.8 million applications from individuals already residing in the U.K. Questions arose because total applications exceed the 2019 estimate of 3.715 million EU citizens living in the U.K. However, the difference may be attributable to individuals who left the U.K. but still had a right to return, and potential double counting of reapplications to update applicants’ status from pre-settled to settled.
In 2019 approximately 1.3 million U.K.-born citizens were living in the EU. Although processes for their continuing EU residence have not been implemented in all members states, it is expected that they will have the right to continue residing in the EU.
Brexit will affect individuals changing residences and traveling for business or pleasure between the EU and U.K. beyond the pandemic. Already individuals crossing the English Channel in either direction face new challenges: from visa and passport rules to local requirements for professional and employment qualifications.
Brexodus for Businesses
Brexit's effect on immigration also challenges companies’ operations and their ability to recruit staff from neighboring countries in addition to the significant burdens it already imposes on trade in goods.
Financial services companies such as banks, insurers, and asset managers are among the businesses most concerned about Brexit’s impact. Many international firms had London headquarters for their EU clients because of "passporting" arrangements, which allowed them to operate across the bloc without setting up local subsidiaries. With Brexit, these arrangements have ended. British firms may not face any less competition at home however. In January 2020, the U.K. Financial Conduct Authority reported over a thousand applications for EU financial service firms to operate in the U.K. after the final separation.
London's financial workers were not relocating to Europe in the enormous numbers originally suggested. However, by October 2020, financial services firms operating in the U.K. had shifted approximately 7,500 employees and more than 1.2 trillion pounds ($1.6 trillion) of assets to the EU ahead of Brexit, and more followed.
London has lost substantial stock trading activity to Amsterdam because the EU now requires EU companies’ stock to be traded within the union. London has lost additional business due to the fact that derivatives priced in Euros must be settled within the EU. Generally, commentators expect London to continue as a major global financial center, but acknowledge its dominance may decline as some activities shift abroad.
Additional industries including automotive, agriculture, food, chemicals, and plastics also face difficulties. In January, British exports to the EU were 2/3’s lower than a year ago. Shipping that formerly required one or two days was taking two or three weeks for deliveries. New paperwork requirements have been increasing costs and border delays for goods are slowing production of auto parts and causing produce, meat and fish spoilage.
The departure of EU workers is most likely to affect British industries with substantial EU personnel. These include hospitality, transportation, and manufacturing, 10% of more of the workforce of each is EU-born. Even when the British economy recovers from the pandemic, post-Brexit residency rules may still hamper efforts to recruit EU personnel.
Whether business will adapt to the new rules and overcome problems, or whether business will contend long-term with a difficult, new normal, is an open question.