Development post Brexit - what may or may not happen?
Thursday, 11th August 2016
In the wake of the vote to leave the EU, the potential impact of Brexit on development needs to be considered, specifically in terms of environmental regulations and State aid, as well as the possible impact on UK infrastructure projects, in particular the proposed Heathrow expansion and Hinkley Point C, says Mark Northey, a Partner in the Projects Team at Ashfords LLP.
First, it is important to bear in mind that until the UK leaves the EU, the UK continues to be bound by all existing EU law. It is only following conclusion of the withdrawal process, for which a two year period is allowed, that things may change.
Following the withdrawal, subject to the terms of the post Brexit agreements (as to which see more below), the UK will no longer be bound by EU directives which have direct effect. However, much EU law has been enshrined by UK legislation and such legislation will continue to apply until and unless repealed. Much legislation is uncontentious and will remain on law until it needs updating.
What then can developers expect following withdrawal? As with much of the post Brexit world, the position is difficult to predict as so much will depend on the outcome of future trade negotiations and the nature of the UK's relationship with the EU and its member states going forward. It may be that to facilitate trade the terms of such relationships will require the UK to continue to comply with some or all of the requirements on the remaining member states.
In terms of environmental legislation, much of this is derived from EU Law. If access to the single market is to be retained the UK will probably have to continue to comply with EU environmental law.
If a bespoke agreement is reached it is possible that EU environmental law will no longer apply and the UK would be free to repeal the UK legislation that implements it.
For example, air quality laws are derived from the EU Ambient Air Quality Directive but this has been implemented in the UK by the Air Quality Standards Regulations 2010. The UK has struggled to comply with the required standards and this is an area in which the government might be tempted to review and relax the regulations.
In terms of wildlife, certain habitats and species are protected by two EU Directives - Habitats and Wild Birds Directive - which again are implemented in the UK by the Conservation of Habitats and Species Regulations 2010. Again, the regulations will continue to apply until and unless repealed or amended.
State aid, however, is one area in which the obligations derive directly from EU law and are not separately implemented by domestic legislation. As such, any State aid regulation post-Brexit is likely to be governed by the terms of any agreement between the UK and the EU in respect of its relationship going forward.
If that relationship is based on EEA membership then compliance with a similar framework of State aid rules will be required. Alternatively, if the UK relies on its World Trade Organisation ("WTO") membership in respect of future trading, it would still be bound by WTO rules albeit these are narrower than the EU State aid regime.
Funding is one area in which significant change is anticipated. Access to EU funding will cease on exit as will access to European Investment Bank ("EIB") loans. However, the UK government may choose to step in to borrow (and lend) itself in order to ensure that important projects are not stalled due to a lack of EIB funding. There had already been a move in this direction with government guarantees and the Green Investment Bank.
What then of large schemes such as Hinkley Point C and Heathrow's third runway?
Hinkley has been beset by continual delays and, whilst the Chairman of EDF states that Brexit will not impact on the plans, some think that Brexit may be the final straw for the future of Hinkley.
Much will depend on the appetite of those in the seat of power which may well differ from that of the incumbents. At the very least, further delay is likely and the final investment decision is likely to get pushed out past September.
In respect of Heathrow, whilst a relaxation in air quality regulation might lessen one obstacle to Heathrow expansion, the timetable for the decision, which was imminent, will now be delayed.
Again, the outcome for Heathrow is likely to be very much dependant on the future leadership of the government although support for the scheme has been voiced by numerous construction business leaders.
In these post-vote, pre-Brexit days, it seems there are more questions than answers.