Personal Finance

How Will Brexit Affect Our Household Finances?

Remember Brexit, the ‘B’ word that’s shorthand for the United Kingdom’s departure from the European Union?

Before coronavirus came along to dominate our lives so dramatically, Brexit had itself been one of the biggest stories of recent times.

Given the green light following the 2016 referendum, and after several delays along the way, Brexit formally took place at the end of January 2020, heralding the start of a lengthy de-coupling process.

The EU is the UK’s largest trading partner – according to the government, in 2019 43% of all UK exports were sent to the EU. So as we adjust to the new reality, it’s worth thinking about the potential impact of the changes on the finances of individuals and businesses alike.

From driving on the Continent to pet passports, from foreign currency to interest rates, and from healthcare to mobile phone roaming charges, there are lots of unresolved questions to consider.

Traversing the transition period

The pandemic has taken centre-stage in recent months. At the same time, the UK government has been negotiating its post-Brexit relationship with the EU during a so-called ‘transition period’ that began in February 2020 and, crucially, ends on 31 December this year.

Until then, the UK’s rules remain in sync with those of the EU’s, which means no discernible changes for its citizens.

For example, Brits on holiday in the EU who require medical assistance remain eligible for state healthcare (on the same terms as a local resident) thanks to reciprocal arrangements with the remaining 27 EU countries – the EHIC scheme.

During the summer, however, the UK government launched its Check, Change, Go campaign to remind individuals and businesses not only of the looming 31 December deadline and prepare them for life after the transition period.

That’s because from next year rules start to change, especially around activities such as foreign travel, although to what extent still largely depends on the outcome of those ongoing UK/EU negotiations – which remain largely unresolved.

Michel Barnier, the EU’s chief negotiator, has been gloomy about the lack of progress being made by both sides. Fishing quotas are just one thorny problem that stands in the path of a resolution.

Negative comments tend to be associated with the increased likelihood of the UK leaving the EU with a hard, or no-deal, Brexit. According to financial experts this scenario, in particular, could have significant consequences for the UK economy which, in turn, may affect the pound in our pocket.

Whether you’re a traveler, a pet owner or simply the chief financial officer of your household, here’s what to keep on your Brexit watch-list over the coming months.

Driving in Europe

During the transition period, UK driving licences remain eligible for use in the remaining 27 EU member countries and the other countries in the European Economic Area (EEA) –Iceland, Liechtenstein and Norway.

From 1 January 2021, and depending on the EEA destination and duration of stay, it may also be necessary to take out an international driving permit. These currently cost £5.50 and are available from the Post Office.

In addition, the current advice from the Association of British Insurers is that UK drivers planning to take their vehicles to the EU from 2021 onwards, including the Republic of Ireland, should make arrangements to carry a so-called ‘Green Card’ in time for when they travel.

A Green Card is an internationally recognised proof of motor insurance that typically lasts for up to 90 days.

You might be able to get one free of charge from your insurer, or you may be charged an admin fee of, say, £25.

Crucially, it can take anything from a week to a month to process, and systems may be placed under stress if there is high demand. A point worth bearing in mind for anyone planning to take their car overseas next year.

If you’re driving a vehicle that is registered and insured in the host country (such as a rental car) then a Green Card is not required.

However, you should check the driving regulations for any country you’re driving through or to, to make sure you have any required equipment (such as a warning triangle or a breathalyser) and your car is compliant (regarding things such as headlights and licence plates).

Passport control

According to the UK government, it may be necessary for a holder of a British passport to renew their passport early if they are traveling to EU countries (excluding the Republic of Ireland), Switzerland, Norway, Iceland and Liechtenstein from 1 January 2021.

On the day of travel, the passport needs to have at least six months’ validity left, plus be less than 10 years old.

With passport applications currently taking longer than the usual three weeks’ processing time (thanks to Covid-19), the advice for UK travelers heading abroad early in the 2021 is not to leave renewal too late or countries could refuse you entry.

Pets

Under the EU Pet Travel Scheme (PETS), UK pet owners wishing to travel to an EU country with an animal such as a cat, dog (including assistance dogs) or ferret can currently do so providing the animal holds a valid EU pet passport.

A passport can be obtained once the pet has been microchipped by a vet, received a rabies vaccination/booster and, for dogs travelling to certain countries, received tapeworm treatment.

From the start of next year, however, the rules change because Great Britain (England, Scotland and Wales) effectively drops out of PETS before looking to re-enter in one of three categorisations: unlisted; Part 1 listed; Part 2 listed.

The final status has yet to be decided and the current advice from the UK government is that pet owners should contact their vet at least four months before their chosen travel date.

This is in case the UK moves to unlisted status, which would require blood tests to be carried out on the animal in question and then checked with an EU-approved laboratory, all of which takes time.

Unlisted status would also require pet owners to take their animal to a vet no more than 10 days before travel to get an Animal Health Certificate.

There are slightly different arrangements for pet travel from Northern Ireland and more can be found out from the relevant NI Direct Government Services webpage.

EHIC/travel insurance

Until the end of 2020, UK travelers to EEA countries, plus Switzerland, are still eligible for and can continue to use the European Health Insurance Card (EHIC).

As the insurer LV= points out, the EHIC is not an alternative to travel insurance. For example, it doesn’t cover the cost of private medical healthcare, nor the costs of being flown back to the UK following an emergency.

But it does give the holder access during a temporary stay to the same medical care that is provided in state facilities to nationals of those countries.

The UK government advises that you should buy travel insurance with healthcare cover before going on holiday, and that’s it’s particularly important for travelers with pre-existing medical conditions to obtain the right cover.

At the time of writing, UK state pensioners living in the EU before the end of 2020 will be able to use their EHIC beyond 2020. The EHIC will also be valid for UK students who start a course in the EU before the end of 2020 until their course finishes.

It’s worth noting that many travel insurers have adapted their policies to take account of coronavirus risks, so it’s worth checking for exclusions and restrictions on cover when you buy your policy.

Mobile phones

In June 2017, EU’s Roam Like At Home rules were adopted across the EEA, which meant that when, say, a UK mobile phone user made calls or sent texts from anywhere in this jurisdiction, they only used their UK allowance (or pay-as-you-go rate) as they would have done at home, subject to ‘fair usage’ rules. 

These rules only apply to the end of this year, however, and the UK government has said that mobile providers do not necessarily need to stick to this arrangement from 2021 onwards.

That said, Three has told its customers it will continue to give them free roaming from 2021, while EE says it has no plans to introduce roaming charges whatever the outcome of the trade talks.

Financial protection

EU directives have, for decades, determined much of the UK’s financial services legislation.

This means that banks and other financial services providers from this side of the Channel have been able to offer banking and lending services across the EU without individual country regulation – and vice-versa.

Should a bank go bust, the Financial Services Compensation Scheme means savers are protected up to £85,000 per person, per institution, provided their money is with a UK-regulated institution.

This includes major high street names like Santander which, despite having a Spanish parent company, holds a UK banking licence.

The good news is that this ring-fencing will continue post-Brexit, although there might be a slight change in the level of protection afforded as it is currently based on EU rules that say member states need to offer €100,000 in protection.

Good financial housekeeping

Trade negotiations in Brussels may seem far-removed from the aspirations of savers and investors in the UK. But today’s talks between the UK and EU could easily impact on tomorrow’s consumer finances. So it pays to be prepared.

Vince Smith-Hughes, director of specialist business support at insurer Prudential, says: “None of us has a crystal ball about the outcome of all the negotiations. But to keep our personal finances in order, it always pays first and foremost to hope for the best and plan for the worst.

“If possible, it’s always a good idea to have sufficient funds that can be easily accessed in the event of financial emergencies.

“Ideally, this would amount to at least three months’ income. If, say, you’ve saved money from cancelling a holiday because of the pandemic, or have just had fewer outgoings over recent months thanks to lockdown, then consider re-directing this cash into a rainy-day fund.”

Laura Suter, personal finance analyst at broker AJ Bell, comments: “Ordinarily, to Brexit-proof your finances you’d need to know what interest rates are doing, and in which direction they’re headed.

“If they are likely to rise then, typically, you’d lock in good deals for any debt you have, but keep cash savings accessible so you can take advantage of higher interest rates – with the opposite being true if interest rates are likely to fall.

“The tricky thing at the moment is anticipating the way that the Bank of England is likely to move on interest rates, because not only does it depend on the outcome of the Brexit trade talks, it also depends on how the Covid-19 crisis develops.”

“Because of the pandemic, we’ve already seen the Bank slash the base rate this year from 0.75pc to 0.1pc. But we may not have hit the floor yet, as the Bank hasn’t ruled out moving to a negative interest rate.”

If this were to happen, UK savers would face the previously unheard-of scenario of essentially paying for the privilege of having their money on deposit.

Accountancy firm KPMG has forecast that UK interest rates will remain at 0.1pc both this year and next.

Rather than guess which way rates might go, Suter advises that savers should instead look to get the best deal they can on their cash without tying up their money for too long: “The best easy-access savings account that allows unlimited withdrawals at the moment pays 1% from NS&I.”

Managing debt

While some borrowers during lockdown were able to reduce their debt, others have had to ramp it up significantly.

Suter says: “Anyone with high-cost debt should try and switch it to a better deal now rather than waiting, because hanging around for definite signposts on Brexit means you’ll just be racking up more interest in the interim.

“Keep on top of overdraft debt, too, as that has become more expensive recently. It can be easy to ignore and quickly ends up costing even more than a payday loan.”

Becky O’Connor, personal finance specialist at Royal London, comments: “There is no Brexit justification, so far, to cancel Christmas, but equally it’s prudent not to blow all your spare cash in these times of uncertainty with the negotiations still ongoing.

“One of the main threats to our finances is a weaker currency. If the trade talks don’t turn out so well and the prospect of a no-deal Brexit became more of a reality, then sterling is likely to be the big casualty. We saw this after the 2016 referendum and it’s likely we’d see it again.”

O’Conner points out that sterling weakened following the original referendum and hasn’t recovered, currently standing around the €1.12 mark.

She suggests that anyone planning a future trip to Europe might consider exchanging now to mitigate volatility, perhaps holding the money in a borderless multi-currency account in the meantime.

Alternatively, for some certainty, would-be travelers could decide to buy half the sum they’re going to need at the best possible rate now and then exchange the remaining half of their cash nearer the time of their trip.

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