Are Wales’ public services ready for Brexit?

Nuria Zolle explores questions around public services ahead of the EU referendum.

Whether or not to leave the EU will be the biggest decision facing the UK for generations to come.  Campaigners on both sides are vigorously arguing the pros and cons of Brexit. So far, we’ve heard lots about the economic impact and arguments about sovereignty.  But we’ve heard very little about the implications for Wales’ public services of a vote to leave.

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The issues are complex. We have been looking at three dimensions – financial, regulation (especially workforce and procurement) and engagement. Access to EU regional development funds (£250 million a year), farming and rural support (£250 million a year) various education streams (£20 million a year) benefit public services significantly and there are spin-offs from access to the European Investment Bank (which has been worth as much as £500 million a year to Wales). We estimate that the public sector employs about 23,000 EU nationals (non-UK) and a similar number from non-EU countries, a significant element. Public service procurements are subject to EU rules and there is current debate about whether the NHS will be affected by the eventual terms of the Transatlantic Trade and Investment Partnership (TTIP) between the EU and USA.

To kick start a discussion, the Wales Public Services 2025 programme has produced a briefing paper and held a roundtable with public sector leaders and practitioners. We looked at some of the big questions: what exactly is Brexit? What are the fiscal implications for Wales? And how will Brexit impact the day-to-day delivery of public services in Wales?

Taking these questions in turn, much depends on what form Brexit would take.  The legal process is clear: the UK has 2 years to negotiate a deal unless all the other EU members agree to give more time.   The Treasury has set out that there are three basic forms of Brexit.  Option 1: UK stays in the European Economic Area – like Norway – which means it has to sing-up to some rules and make a financial contribution.  Option 2 is a bespoke deal the details of which are as yet speculation.  Option 3 is a total break and we have no formal agreement beyond that which any other member of the World Trade Organisation has.  In the event of a vote for ‘leave’ which of these we end up with has fundamental implications for Welsh public services.

One unanswered question is what say Wales would have in such negotiations.  The National Assembly for Wales is a law making body that already directly applies EU law so it cannot be treated as a bystander in this process.  Yet it is not clear what role the Welsh Government or the National Assembly would have in shaping and scrutinising the negotiations over the terms of Brexit.

Even if the negotiations were resolved relatively swiftly, there would be significant short-term uncertainties for public services. For example, what would happen to EU structural fund programmes currently programmed up until 2020. Should new projects be commissioned post 23rd June?  What would happen about access to European Investment Bank funds? What should be the response of public bodies to the prospect of changes in the EU regulatory framework in areas such as procurement and employment? Without early and clear messages on how to respond, there is a risk that public services would suspend relevant decisions and actions. A clear steer on these fundamental practical questions about Brexit would be an immediate imperative.

Looking further ahead, the implications for public spending in Wales pose some difficult questions. Because Wales is a significant beneficiary from EU membership, the bar is set quite high for Brexit to have a positive net impact on Welsh public finances. The long-term fiscal impact would depend on what was happening to the wider economy post Brexit and public spending policy at the time. But more immediately, a crucial question would be the future of the £13 billion the UK currently contributes to the EU and how far Wales would be recompensed. The simple application of the Barnett formula to whatever was allocated for regional development, for example, could mean that public finances in Wales were significantly disadvantaged. Some other mechanism would need to be developed to avoid Wales losing out.

In terms of day-to-day delivery, the implications would again depend on the nature of Brexit.  The main ones would come from changes in regulation, including employment rules and procurement. If we stay as part of the EEA most of those rules – including free movement of people across the EU – would remain in place.  But if we were to leave the EEA then there may be significant challenges with recruitment, particularly to the NHS and social care, as well as impacts on infrastructure and construction

Ultimately, for all the debate, Brexit remains a largely unknown quantity. It could pose a significant challenge for Wales’ public services with short and long term implications for those that work in and rely on them.  There is a need for further discussion and a case for some contingency planning. The risk is a situation where, were the UK to vote for Brexit on 23rd June, Wales’ public service leaders and front-line staff wake up the next day scratching their heads wondering “What on Earth do we do now?”

Nuria Zolle is a Research Associate at WPS 2025.

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