Brexit: the legal implications

"Brexit" is the term commonly used to refer to a UK exit from the EU.

The UK Government has committed to holding a referendum on the UK’s continuing membership of the EU on 23 June 2016 on the basis of the settlement agreement negotiated by the prime minister, David Cameron.

The basis for remaining

The Government’s stated four-point plan for reform included: protecting non-Eurozone countries within the single market (important for the City of London); a British opt-out from "ever closer union"; improving competition and reducing regulation; and the ability to restrict access to welfare payments for migrant workers. The deal that was agreed at the European Council meeting on 18-19 February 2016 will come into effect only if the UK votes to remain in the EU. It included the following:

Safeguards for non-Eurozone Member States: The UK sought safeguards that the Eurozone Member States would not be able to legislate against the interests of non-Eurozone businesses. The settlement provides that legislation must respect the rights of Member States whose currency is not the euro, that any discrimination against individuals or businesses based on the currency of the State in which they are based is prohibited, and that any differing treatment must be based on objective reasons.

The UK also sought to ensure that responsibility for maintaining financial stability in a non-Eurozone State was clearly allocated to the financial authorities of that State. This point was important to the City of London, where the Bank of England has had sole responsibility for ensuring financial stability in the UK. The agreement states that measures taken to preserve the stability of non-Eurozone Member States (including supervision and resolution of financial institutions and markets and macro-prudential responsibilities) are a matter for their national authorities and are their own budgetary responsibility. However, this principle is subject to:

• the development of the single rule book - a unified regulatory framework for the EU financial sector in order to complete the single market in financial services)
• EU macro-prudential supervisory mechanisms to prevent and mitigate systemic financial risk, and
• existing EU powers to take necessary action to respond to threats to financial stability.

These points will be enshrined in a future Treaty change. The UK will also have the right to escalate an issue relating to the application of the settlement to the European Council for discussion.

Ever closer union: An acknowledgement that the UK is not committed to further political integration, and that in a future Treaty change, it will be made clear that the reference to “ever-closer union” does not apply to the UK, was agreed.

Competitiveness: Language committing the EU to increase competitiveness and lower administrative burdens was agreed.

Welfare: The compromise “emergency brake” permits a seven year period within which a graduated restriction on in–work benefits to newly arrived migrants may be imposed for four years. It will be possible to index payment of child benefit according to the cost of living or benefit rates of the country where the child lives, subject to a transition period, so that existing claimants would see reductions only in 2020.

These changes will be implemented only if the UK decides to stay in the EU.

The consequences of a Brexit will stem largely from how the UK Government chooses to develop its relationship with the EU post-Brexit. In practice this will be the subject of negotiation between a referendum in favour of an exit and the implementation of that exit.

There is likely to be a period of perhaps two years between a referendum outcome in favour of an exit and the final departure of the UK from the EU.