Category: Latest Feeds

Malta unmasked

Posted on by Colette Mangion

Author: George Mangion
Published on Business Today 29 October 2020

Official publications warn us of how the economy of Malta shrank 16.2% year-on-year in the second quarter of 2020, the biggest contraction ever due to the coronavirus crisis. There were widespread contractions across all main sectors of the economy.

The services sector fell by 15.7% mainly due to a 100.2% plunge in accommodation and food services as tourism halted. With these facts hurting our wellbeing, can we hide our head in the sand or shall we stand tall and face the future with courage and determination.

In fact, the latter is the wholesome attitude assumed by our prime minister when addressing the party faithful in his regular walkabouts over the island. He is reported smiling, consoling us that fewer deaths have actually occurred than the thousands predicted at the beginning of the pandemic. Again, while many EU countries are resorting to full lockdowns to stem the spread of infections (for example Britain has branded each town according to a three-tier system) yet Malta seems to tread cautiously on the introduction of a second lockdown.

The business lobby is strongly against another lockdown knowing how sales were dismal during the first lockdown. One need not ask, why is there a drop in confidence when the government is labelling its ninth budget as being the best ever? Promotion for the budget was hinged on the theme that the state has tripled welfare handouts and is paying a €5 weekly increase for pensioners – this is a generous budget.

New Covid-19 precautions issued with no mass gatherings allowed, a six-person limit is imposed and everyone venturing outside has to wear a mask or an approved visor. Bars and ‘kazini’ will be closed starting from next Thursday and reopen in the first week of December.

Why is a mask essential. This is because when sneezing many of the larger droplets will quickly settle onto nearby surfaces while smaller ones remain suspended in the air for hours, where they can be breathed in. While the behaviour of the virus-filled droplets in rooms with air conditioning and outside environments are less well understood, they are thought to settle on 2 surfaces more quickly in disturbed air.

Even experts who advocate masking of communities say their impact on stopping the spread of disease is likely to be modest. The more people in a given space wear masks at their place of work, the less viral particles are making it into the space around them, decreasing exposure and risk. Will wearing masks become a habit for us as is the case in Asian countries?  Not likely.

One bets that Malta will be the first in the Med, to become unmasked. On the contrary, in Paris, the wearing of designer masks is becoming quite fashionable.  While medical-grade masks such as the N-95 mask provide the best protection against the spread, they’re more expensive to use and in certain countries, they are mostly reserved for use by front-line healthcare workers.

Masks are really a perfectly good public health intervention mainly as a means to protect people against the droplets coming out of their respiratory tract especially from infected people. It is true that people who feel ill aren’t supposed to go out at all, but initial evidence suggests people without symptoms may also transmit the coronavirus without knowing they’re infected. Surveys show how nearly half of SARS-CoV-2 transmissions occur before the infected person shows any symptoms.

Take Italy – it has had a terrible experience with more people have now died in the land of “La Dolce Vita” than in China, where it originated.  Back home, our prime minister is gung ho.  He is ebullient about the 2021 budget proposals announced last week with generous measures which in his opinion, will help incentivise businesses.

On One TV, he proudly announced that his government wants businesses to be innovative and be up and running.  Domestic demand must be rekindled with a feelgood factor ignoring the stark fact that the number of daily infections has peaked to over 200.  This autumn, schools started late due to last-minute protective measures put in place and had to be rushed in much to the chagrin of teachers.

The private sector is by now mostly working from home except where physical handling of merchandise or working at factories are concerned.  Let us review the Labour Force Survey for Q2 2020, this estimate indicates that, during the second quarter, total employment stood at 259,523 while the unemployed persons stood at 12,031.  By elimination, inactive persons totalled 166,861 (38.1 per cent) which is higher than the EU norm.

Few appreciate that persons working in the public sector including administration, defence, education, human health and social work activities (males and females) amount to 56030.   Now the budget speech tells us that wage supplement till now, saved 100,000 jobs.  This is a singular fact.

Taking into consideration total employment of 259,523 less 56,030 state dependents, this leaves a non-public working population of 203,493 out of which almost half are kept afloat by the wage supplement scheme.

Obviously, this is a precarious situation. This wage supplement scheme was originally meant to end last June but was extended five times on a monthly basis up to October. The finance minister after consultation with various stakeholders and unions decided to extend the scheme up to March next year.  This is a generous welfare benefit to 100,000 workers, some of which are actually working on a three-day week.

One must, of course, be cautious not to sound too magnanimous about the living conditions of such workers.  Most earn no overtime and are living on a replica of Victor Hugo’s miserable conditions. The more negative news is the effect of a No-Deal Brexit which now seems more imminent than ever.

For many factories and importers who for many years did substantial business with the UK, the worst-case scenario will probably mean a slower volume of business next year until diversification takes place. In the eventuality of a no-deal, the Chamber of Commerce and the Malta Business Bureau are urging Maltese businesses to prepare for all eventualities.

A joint statement stated that “while fully convinced on the need of a comprehensive partnership deal with the UK, the chamber and the MBB are calling on Maltese businesses not to be caught off guard, particularly at this moment when businesses might be focusing on finding a way to navigate through the COVID-19 crisis”.

In conclusion, following every great crisis, the world witnessed an increase in innovation, and new business ideas and models, consequently – the budget proposals currently debated in Parliament should ideally help innovators and start-ups overcome difficulties when climbing the slippery slope.

George Mangion

 

Author: George Mangion
Published on Business Today 29 October 2020
Get in touch: info@pkfmalta.com

Malta’s main Budget Highlights for 2021

Posted on by Colette Mangion
Malta’s main Budget Highlights for 2021, summarised by our advisory team at #PKFMalta. 

#Social Security measures, #Parents and families, #Elderly & pensions, #Taxes, #Businesses, #Healthcare, #Transport, #Property, #Gozo and #Tourism, #Environmental measures.

All details found here: https://bit.ly/35mln6u

‘Budget 2021 A Flurry Of Expectations’ – PKF’s George Mangion

Posted on by Colette Mangion

Author: George Mangion
Published on The Malta Chamber 8 October 2020

With uncertainty surrounding how long the world will have to deal with COVID-19, PKF’s Senior Partner, George Mangion, remarked that businesses are not to blame for “taking a pause for thought before taking any big spending decisions”. “Shoppers may also be nervous about a full return to normal with the miserable experience of sanitised socialising potentially combining to dampen spending,” he remarked in the run-up to the Budget 2021 announcement.

This year is a tough one for Prof Edward Scicluna, who some weeks ago published the pre-Budget document for 2021, commented Mr Mangion.

Malta being no exception, suffered its first total lockdown for all schools, university, colleges, airports, gyms, bars, restaurants, hotels, English language schools – with such organisations facing zero revenue between March and June.

“We also have our own home-grown troubles such as a debt-laden national airline having sacked 69 ex-captains and flight officers but now the Economy minister offered them temporary jobs with the State bureaucracy- at full pay.

“Employers are asking for a reduced vat from 18 per cent to 15 per cent and a lower rate of 5 per cent on hospitality and restaurants.”

He added that many fear austerity is expected in the 2021 budget, to be announced on 19th October, “such as the introduction of pseudo taxes and tougher sanctions by MFSA and FIAU raiding the offices of corporate service providers (under a shower of Moneyval scrutiny)”.

Mr Mangion highlighted fears raised by low-income workers and pensioners, who stress they will not be able to survive another year without appropriate welfare benefits.

He went on to comment on the importance of Government aid packages to “soothe the pains of economic operators” caused by the pandemic.

The construction and real estate sector was given life support with a huge reduction in tax due on property purchases under Promise of Sale agreements as of 9th June 2020, as well as new purchases on the first €400,000.

The announcement of a wage supplement started at the beginning of April which up to the beginning of July, around 16,612 businesses have benefitted from the wage supplement scheme, covering a total of 79,576 employees. Government has since confirmed it will last beyond October.

“This scheme was beneficial to delay mass redundancies during the lockdown period albeit it created a false picture of the fragile job situation.”

Other innovative measures aimed at reducing business costs included the quarantine leave grant of €350 given to employers or full-time employees.

A token reduction of electricity charge granted this month to annex A and B and C claimants for 50 per cent of ARMS’s charge- capped to a varying rate per company (many expected an across the board reduction in energy tariffs given the severe drop in LNG prices).

Another measure was the deferral of some tax payments due in the months of July and August are to be settled by end of May 2021.

“Many questioned whether cash flow should have been a top priority given that most SME’s had no revenue and not just direct cash grants for furlough workers. In fact, local banks are licking their wounds suffered from low-performing loans and show a subdued appetite for new risks.

“This heaps more pain for SME’s seeking credit. Other ideas, which regrettable were only palliatives and not cures, were the ( one -time ) free distribution of €100 cash vouchers to residents which cannot be cashed but used in restaurants, certain shops and hotels( one hopes another tranche is issued).”

Mr Mangion further commented that, in retrospect, last year, the surplus stood at 0.5 per cent of GDP, meaning a surplus of €71.0 million.

The Pre-Budget document predicted that the surplus is expected to turn to a deficit of 8.7 per cent of GDP in 2020 and another deficit of 4.0 per cent next year.

“One may begrudge the deficit due mainly to a massive drop in exports this year- anticipated to decline by 12.1 per cent.

“It is no consolation, that imports will decline by 8 per cent, as this means a lower domestic demand as well as lower capital goods formation.

“With hindsight, the glory years of 2016, 2017,2018,2019 were partially resulting from an increase in domestic demand fueled by large imports of ex-pat workers (approximately 70,000), the cashing of passport sales and an explosion in the issue of building permits which contributed largely to the affluence.

“Cash from the future sale of passports is expected to drop under tougher rules recently issued to secure better scrutiny.

“The popular wish is for the 2021 budget to act as the enzyme in the Petri dish, acting as a catalyst to facilitate faster reactions among economic agents.”

George Mangion

The Government will be unveiling the much-anticipated Budget 2021 on 19th October 2020.

Author: George Mangion
Published on The Malta Chamber 8 October 2020
Get in touch: info@pkfmalta.com

 

The resurgence of crypto exuberance

Posted on by Colette Mangion

Author: George Mangion
Published on The Malta Independent 17 September 2020

Another thing that appears to concern crypto evangelists are burning questions pertaining to the technical design China will be using for its digital money system.

Facebook’s attempt last year to launch its pioneering coin “Libra” was ill-fated. The original plan was for Libra to be backed by a basket of sovereign currencies, with dollars making up 50 per cent of the basket.

Not surprisingly, its plans to launch a blockchain-based payment system stirred strong resentment among governments, banks and financial regulators. In Europe, French and German central banks blatantly showed their anger against such a seamless system of settlement.

They attacked Facebook for its loose management of extensive customer databases used for marketing purposes. Without any doubt, the authorities’ biggest fear is the growing influence of this IT behemoth on their monetary hegemony.

But Facebook’s early attempts have not gone unnoticed or unrewarded. With the global economy racing to embrace digital payments, central banks are looking to the future and investigating how to support innovation while maintaining monetary policy and financial stability as they issue and distribute currency.

In fact, 80 per cent of central banks surveyed are engaging in some form of Central Bank Digital Currencies (CBDCs) work, and about 40 per cent of central banks have progressed from conceptual research to experimenting with form and design. Recently, Mastercard announced a proprietary virtual testing environment for central banks to facilitate the evaluation of CBDC use in public.

The platform enables the simulation of issuance, distribution and exchange of CBDCs between banks, financial service providers and consumers. Central banks, commercial banks, and tech and advisory firms are being invited to partner with Mastercard to assess CBDC tech designs, validate use cases and evaluate interoperability with existing payment rails available for consumers and businesses today.

Welcome to the game – MasterCard. This is a leader in operating multiple payment trails and convening partners to ensure a level playing field for everyone – from banks to businesses to mobile network operators – in order to bring the most people possible into the digital economy.  In its global reach for digital payments network, MasterCard wants to harness its expertise to enable the practical, safe and secure development of digital currencies.

It is actively driving innovation with the public sector, banks, fintechs, and advisory firms in the exploration of CBDCs, working with partners that are aligned to its core values and principles. In reality, one can vouch that CBDCs are designed to be equivalent in value to a nation’s paper currency and subject to the same government-backed guarantees.

In addition to printing money, central banks can issue CBDCs as a digital representation of a country’s fiat currency. Having discussed Facebook and MasterCard adventures into the arena, let us examine what is the state of play in Asia-notably China. China has in 2017, banned cryptocurrency exchanges and so-called initial coin offerings amid a broad effort to reduce risk to its financial system and clamp down on so-called shadow banking.

Three years ago, digital currencies were branded as an easy platform to move money out of China, potentially adding to capital outflows that would undermine the yuan’s value. The weather chart in 2020 shows a more relaxed picture.  In fact, officials from the People’s Bank of China have hinted in recent weeks that the nation is almost ready to launch a digital version of its currency, the renminbi, to replace physical cash for consumer payments.

One may question – why is the central bank still venturing in such a digital currency today when its own electronic payment methods are so developed? The answer is that the new platform will vastly enhance the control of monetary sovereignty and legal currency status in China.  It is an understatement to say that to date electronic payment methods are already ubiquitous in China. Popular mobile payment apps, handle vast amounts of payments per quarter, are quickly eliminating cash transactions.

How will the new platform work? Consumers and businesses could download a digital wallet onto their mobile phone and fill it with money from their account at a commercial bank. This is similar to going to an ATM. They then use that money – dubbed Digital Currency Electronic Payment, or DCEP – like cash to make and receive payments directly with anyone else who also has a digital wallet. A late August report from influential Forbes magazine suggested it could go live as early as November/December.

There are a number of unanswered questions about how it will work, ranging from whether it will use a blockchain or how private the system will be.  Despite the unknown, recent public comments by central bank officials have shed some light on the timeline for and motivation behind the project.

China’s digital currency would “bear some similarities” to Libra (mentioned above), but according to reliable sources, the forthcoming currency would strengthen the Communist People’s republic resolve to improve its controls against the proliferation of anonymous payments thereby fighting money laundering.

This creates an advantage since the new digital tokens could be used even without an internet connection, a feature that Libra’s creators have not promised. This leads us to comment on the origins of a leading coin Bitcoin in Asia. Since 2012, the Hong Kong Bitcoin Association has been one of the strongest local communities focused on Bitcoin. It stresses that a golden rule for Bitcoin is that transactions are irreversible and preaches to the faithful that it is not suitable for money laundering.

Back to China’s potential new venture, one notes how trials have been held this year in a handful of cities and tests have started with some e-wallets and online apps, albeit slowed down due to the Covid-19 pandemic with its penchant for social distancing. Such COVID 19 restrictions have on the contrary ushered a new sense of urgency.

Unlike cryptocurrencies such as Bitcoin, dealing in the digital yuan won’t have any presumption of anonymity, and its value will be as stable as the physical yuan, which will be circulating around too. Behind China’s rush is a desire to manage technological change on its own terms. Another thing that appears to concern crypto evangelists is burning questions pertaining to the technical design China will be using for its digital money system.

So far – the answer is that we don’t know yet, but we might learn soon enough.

George Mangion

 

Author: George Mangion
Published on The Malta Independent 17 September 2020
Get in touch: info@pkfmalta.com

 

MGA Publishes Directive on the Calculation of Compliance Contribution

Posted on by Colette Mangion

Source: MGA
Published on 13/08/2018

Directive on the Calculation of Compliance Contribution
In exercise of the power conferred by article 7(2) of the Gaming Act, 2018 (Cap. 583 of the Laws of Malta), the Malta Gaming Authority is hereby issuing the following directive in order to clarify the manner in which applicable fees are calculated in terms of the Gaming Licence Fees Regulations.

Part I – Preliminary
1. The short title of this Directive is the Directive on the Calculation of Compliance Contribution 2018.
2. This Directive is applicable as of the date of entry into force of the Gaming Licence Fees Regulations.

Part II – Definitions
3. (1) In this Directive, save as provided in sub-article (2) of this article, all words and phrases shall have the same meaning as prescribed in the Gaming Definitions Regulations or the Gaming Licence Fees Regulations.

(2) In this Directive, unless the context otherwise requires:
“Shared progressive jackpot” means a prize pot shared across multiple licensees and operators, which prize pot increases by each additional contribution by players of the relevant licensees and operators.

Part III – Basis for the Calculation of Gaming Revenue
4. In calculating the compliance contribution due in terms of the Gaming Licence Fees Regulations, licensees shall refer to the definition of gaming revenue within the same regulations, and, for the avoidance of doubt, licensees shall refer to the below formula in calculating gaming revenue:
(A + B) – (C + B) = Gaming Revenue
A = totality of real money wagers1;
B = totality of bonus wagers and other player financial incentives, as per the definition in article 8 of this Directive; and
C = totality of withdrawable winnings, which for the avoidance of doubt excludes bonus winnings or other winnings that are not instantly redeemable.

1 This includes real money deposits or winnings held in the player’s account but does not include any amounts falling within the definition of B. However, items falling under the definition in article 8(ii) shall still be included under A, if, after they’ve been received by a player (at which point they are required to be listed as B), they are subsequently wagered by the player.

5. In calculating the compliance contribution due in terms of the Gaming Licence Fees Regulations, licensees operating Type 3 and Type 4 gaming services shall refer to the definition of ‘charge’ within the same regulations, and, for the avoidance of doubt, licensees shall calculate the ‘charge’ as follows:

a. If the licensee’s revenue is derived as a part or percentage of the player’s contribution, then the ‘charge’ shall constitute that part or percentage of the totality of real money wagers by players playing in terms of the MGA licence after deducting any player financial incentives wagered which fall under the definition in article 8(ii) below; and/or
b. If the licensee’s revenue is derived in any way other than the above, then the ‘charge’ shall constitute the gross portion of monies that are economically retained2 by the licensee after only deducting any player financial incentives wagered which fall under the definition in article 8(ii) below.

6. The licensee shall, upon request by the Authority, provide data relating to:
a. the totality of real money wagers;
b. the totality of player incentives, which include jackpot contributions and bonus wagers and other player financial incentives;
c. the totality of real money winnings, excluding bonus winnings or other winnings that are not instantly redeemable; and
d. jackpot winnings constituting a seeded amount, and/or jackpot contributions listed as player financial incentives.
7. Real money winnings also include winnings awarded other than in fiat currency denomination, such as movable or immovable property, trips, tournament entry fees, virtual goods and currency amongst other things, which prizes shall be valued according to the lower of the market value at the time of the winning and the price paid by the licensee to purchase said prize, and in the absence of a purchase price, the deemed value shall be the market price at
the time of the winning:

Provided that the licensee may, at any time, be requested to provide a breakdown of all winnings not paid out in fiat currency and included as part of real money winnings, including a description of each item, and the appropriate value:
Provided further that incentives given to players which are not directly related to game winnings, such as prizes awarded as part of a marketing scheme, shall not be included as part of ‘real money winnings’ for any purposes of this Directive.

2
For the avoidance of doubt, the direct cost of tickets incurred in pursuit of the provision of lottery messenger services shall not be considered part of the monies economically retained by the licensee. This reasoning shall not extend to direct costs of tickets incurred as part of a risk hedging strategy for a secondary lottery offer.

8. For the purposes of this Directive the phrase ‘bonus wagers and other player financial incentives’ is restricted to include player incentives (such as promotional gaming credits, free bets, bonus bets, bonus wagers and other forms of player credit or player credit equivalents) where:
(i) the use or consumption of the player incentive by the player is effectively equivalent
to a real money wager by the player in that it may directly result in real money winnings that are instantly redeemable by the player 3;
or
(ii) where the player financial incentive is, in the hands of the player, immediately
equivalent to a real money winning which is instantly redeemable by the player,
at the time when they are used or consumed by the player (for items falling under (i) above) or received by the player (for items falling under (ii) above
4) as the case may be, and the term ‘bonus wagers’ and / or ‘player financial incentives’ shall, wherever used in this Directive, be read and construed accordingly.
Provided that where a licensee offers jackpots containing a portion of the prize which is seeded capital, the portion of the jackpot prize that is seeded capital shall, if won, be included as part of the totality of real money winnings, and in the case of a shared progressive jackpot, if won, the licensee shall only deduct the portion of the seeded capital which it contributed directly itself, if any. Provided further that any portion of real money wagers that is contributed towards a
local jackpot or a shared progressive jackpot shall be excluded from real money wagers for the purposes of articles 4 and 5 of this Directive but shall be included as part of player financial incentives for all purposes of this Directive. Similarly, therefore any local jackpot and shared progressive jackpot winnings derived from the contribution referred to in the preceding sentence shall be excluded from real money winnings for the purposes of articles 4 and 5 of
this Directive:
For the avoidance of any doubt the reference to ‘any portion of real money wagers that is contributed towards a jackpot or a shared progressive jackpot’ above shall not be interpreted to refer to any amounts of the real money wagers which are payable by way of royalties or by way of any other fees due to any other person and shall only be interpreted to refer to any portion of the real money wagers contributed to the prize pot.

9. No portion of the real money wagers, or of the gaming revenue that is attributable to any portion due in terms of gaming tax, VAT, income tax, corporate tax and other taxes, shall be excluded from the calculation of the totality of real money wagers, or the totality of gaming revenue, as applicable.

3For example, a bonus wager, a free spin or a free bet, whereby any winnings derived therefrom would be directly and immediately redeemable by the player.
4 Following this, any use or consumption of the financial incentive by the player within the context of a wager, shall be equivalent to be a real money wager as per the definition of A in article 4 of this Directive.

10. There shall be no deductions allowed other than those specified in this Directive.
Part IV – Minimum Compliance Contribution

11. The minimum compliance contribution shall start accruing on the day when the relevant game type approval is issued, as applicable.
12. With respect to the payment of the minimum compliance contribution in terms of regulation
6(1)(a) of the Gaming Licence Fees Regulations, the minimum amount payable on the twentieth (20th) day of that month commencing immediately after the month in which the licence period commences shall be deemed to be the minimum stipulated in the provisos to regulations 3(2), 3(3), 3(4) and 3(5) of the Gaming Licence Fees Regulations, pro-rated accordingly for that specific month, and for the avoidance of doubt, the full minimum amount shall not be due until a full licence period elapses.

13. Without prejudice to the provisions of regulation 27(3) of the Gaming Authorisations Regulations, the compliance contribution shall continue accruing until the day that the licensee informs the Authority that following the applicable termination procedures, the gaming operations under the purview of the applicable licence or approval have halted, and that the Authority is able to confirm the same:

Provided that if the amount due is the minimum compliance contribution, it shall be pro-rated accordingly according to the number of days of that particular month during which the gaming activity was still operational.

14. Licensees approved by the Authority as being start-up undertakings shall refer to regulation 9 of the Gaming Licence Fees Regulations, and to the Directive on Start-Up Undertakings (Directive 1 of 2018) for the applicability of the compliance contribution towards the same.

Source: MGA
Published on 13/08/2018

Brexit Take-off

Posted on by Colette Mangion

Author: James Camilleri

The UK’s determination to go ahead with its Brexit plans will spell into lengthy negotiation proceedings that are not only time-consuming but also very costly.[1] Meanwhile, the UK’s Prime Minister Theresa May is intent on invoking Article 50 of the Treaty of the European Union (TEU) by the end of March. This article gives a Member State the right to withdraw from the European Union (EU) and was introduced in the Lisbon Treaty. Once Article 50 is invoked, it provides that negotiations are open for two years after which the state’s membership is terminated.

Given that the UK has been a part of the EU for 43 years, there are literally thousands of subjects that need to be discussed.[2] In fact the amount of work is so astounding that keeping up to the two-year deadline will be an achievement. To the UK’s disadvantage is also the fact that this is all ‘uncharted territory’ meaning they cannot rely on past experiences to find their way about.

At the heart of the Brexit deal is the trade aspect that is something the UK cannot deny that it wants to maintain. This puts the UK in an awkward position since on the one hand it wishes to sever ties with the EU but on the other it knows that it cannot afford to lose the income generated with a huge global market as is the EU. Negotiations of a trade nature do not only involve the EU institutions but is a matter pertinent to the other players, meaning the EU Member States.[3] The issue is a sensitive one since the other Member States may feel cheated by the fact that the UK is renouncing to its obligations with the EU but is still able to enjoy the benefits of a single market.

In line with the UK’s parliamentary procedure, a bill, called the European Union (Notification of Withdrawal) Bill, is being discussed in parliament. This Bill permits the Prime Minister to notify the Council of the European Union that the UK is formally triggering Article 50 TEU thus unfolding the negotiations process to withdraw from the European Union. This bill has passed through the House of Commons and is at present being discussed in the House of Lords. The House of Lords has requested changes to be made to the Bill forwarded by the House of Commons, therefore these changes have to be further approved by the House of Commons.[4] In the last turn of developments, the House of Commons has rejected two amendments of the House of Lords which, however, have not insisted to these amendments. Therefore, the Bill is all set for the Royal Assent.[5]

Amongst the salient points of the Brexit debate is that the results of the referendum cannot be ignored but there is also the fact that a large number of people voted to remain in the EU. [6] The country is still so divided on this point that Lord Owen, an Independent Social Democrat, pointed out it is possible to reconsider the UK’s position to leave all through the two-year negotiation process, when technically the UK will continue to be a full member of the EU.[7] On the other hand, Lord Bridges, Minister for the Department for Exiting the European Union, said the Bill should be passed as swiftly as possible allowing negotiations to proceed[8] – this would help to reduce the current state of uncertainty.

As an example, the effects of Brexit on the UK aviation industry would be influenced by the impacts on economic activity and the sterling (GBP) exchange rate. It is estimated that the repercussions will be negative: there will be a slowdown in economic activity and the sterling exchange rate will fall.[9] The weakening of the GBP makes travelling out of the UK more expensive for its residents because less goods and services can be purchased with a given amount of pounds sterling. This works vice versa for people visiting the UK as they will see the purchasing power of their currency vis-a-vis the pound sterling expand, encouraging foreigners to travel to the UK. Ideally, there could be an offsetting effect; however the estimates predict a decrease in air passengers to the UK of between 3-5% by the year 2020.[10]

The UK’s share of international trade is dominated by the European Union. Despite all efforts of the UK government not to lose international trade ties with the EU, it is not realistic to picture a situation where the UK is no longer a member of the EU and still enjoy the same level of trade with the other Member States. Consequently, because of the reliance of UK trade with EU Member States, a reduction in international trade will be inevitable. The Organisation for Economic Co-operation and Development (OECD) estimates a decrease in UK international trade levels of 10-20% by the year 2030.[11] This will negatively impact the UK’s air freight market.

Legislation is a fundamental aspect of the European Union and from an aviation perspective the EU has imposed on the Member States various measures governing issues of consumer protection, safety, security and the environment.[12] This was one of the arguments of the Leave campaigners – to rid the UK of the restraining legal instruments of the EU institutions. However, the UK’s necessity to maintain strong ties with the EU means that it will still be exposed to European aviation legislations. This is in the face of the reduced power of the UK government to participate in the decision-making processes of the EU. A case in point is membership to the European Common Aviation Area (ECAA) which permits access to the Europe’s single market in aviation services – the Single Aviation Market. Membership to the ECAA involves compliance with aviation laws by the EU.

The ECAA is open to non-EU members and, though the UK has for long been a proponent of liberalizing the aviation services market, it would be the simplest way for the UK to have access to the Single Aviation Market.[13] However, this entails having to comply with European Union laws on aviation bringing the UK back to where it started from. To make matters worse, the European Union does not only mean access to the Single Aviation Market but also to other aviation services agreements, notably that with the US, in the EU-US agreement. As a member of the ECAA, the UK could be a party to the EU-US agreement, such as Norway and Iceland have done.[14] On the other hand, the UK may take idea from the EU-US agreement and decide to go for an EU-UK agreement, allowing the UK to compromise its exposure to EU aviation laws. Without going in to the merits of an EU-UK aviation agreement, this could result in higher prices for UK carriers[15] opening the door to new opportunities for non-UK based carries.

Now that the UK government has been given the go-ahead by parliament to continue on the road to Brexit, rumours about a second independence referendum in Scotland are gathering momentum.[16] Nicola Sturgeon, First Minister of Scotland and leader of the Scottish National Party (SNP), has declared she will ask the Scottish Parliament to grant permission for a second referendum, which she wants to be held before Britain exits the European Union, that is, between autumn of 2018 and spring of 2019.[17]

Considering the SNP has a substantial majority in the Scottish Parliament it is easy to picture the scenario of Ms Sturgeon’s request being given the green light. On the contrary, Theresa May is reluctant in allowing the referendum to proceed before the Brexit negotiations are done with, accusing the Scottish First Minister of creating ‘uncertainty and division’.[18] Technically, it is improbable for Mrs May to deny the Scottish people the right to a referendum but she could object to the referendum taking place before Britain has left the EU.[19]

Ms Sturgeon’s argument cannot be brushed aside: Scotland ‘stands at a hugely important crossroads … we didn’t choose to be in this position … the stakes are high’.[20] This means choosing between either leaving the EU or becoming an independent country. It is less than three years since an independence referendum was defeated in Scotland by a vote of 55-45.[21] The EU institutions in Brussels have warned Scotland would have to re-apply to join the EU if it goes ahead with its plans for independence.[22] In contrast to Ms Sturgeon’s expectations of being speedily ushered into EU membership – with other countries waiting for their turn to join the EU, Scotland’s application process could last for years.

The leader of the SNP was not in favour of leaving the single market in what has been termed a ‘hard Brexit’.[23] On the other hand, the economic future of Scotland as an independent country is said to be riddled with difficulties. Top economist Paul Johnson, director of the Institute for Fiscal Studies, cautioned of an ‘economic chaos’ – the country having to choose between raising taxes or cutting spending.[24] He also pointed out Scotland may be cornered into having to adopt the euro to be able to stay in the EU.

Mr Johnson presented the situation that taxes collected per person from Scotland were similar to those collected throughout the UK. However, the rate of spending in Scotland was higher per person than in the rest of the UK. This state of unbalance was compensated by an inflow of money from the UK in favour of Scotland. Severing this inflow would have to be made up for by an increase in taxes.[25]

Author: James Camilleri
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[1] ‘Jean-Claude Juncker: UK faces hefty Brexit bill’ (BBC News, 22 February 2017) <http://www.bbc.com/news/uk-politics-39042876> accessed 8 March 2017.

[2] Ibid.

[3] Ibid.

[4] ‘European Union (Notification of Withdrawal) Bill 2016-17’ (WWW.Parliament.UK) <http://services.parliament.uk/bills/2016-17/europeanunionnotificationofwithdrawal.html> accessed 10 March 2017.

[5] Ibid accessed 15 March 2017.

[6] 51.9% voted to leave against 48.1% who voted to remain. (BBC News) <http://www.bbc.com/news/politics/eu_referendum/results> accessed 8 March 2017.

[7] ‘Lamont: Remainers’ ‘duty’ not to undermine Brexit talks’ (BBC News, 22 February 2017) <http://www.bbc.com/news/uk-politics-39038115> accessed 8 March 2017.

[8] Ibid.

[9] IATA, ‘The impact of ‘BREXIT’ on UK Air Transport’ (2016) <http://www.iata.org/publications/economic-briefings/impact-of-brexit.pdf> accessed 10 March 2017.

[10] Ibid.

[11] OECD Publishing, ‘The Economic Consequences of Brexit: A Taxing Decision’ (2016) <https://www.oecd.org/eco/The-Economic-consequences-of-Brexit-27-april-2016.pdf> accessed 10 March 2017.

[12] Ibid.

[13] Ibid.

[14] Ibid.

[15] ‘Seizing the Brexit opportunity’ (IATA, 13 October 2016) < http://airlines.iata.org/analysis/seizing-the-brexit-opportunity> accessed 10 March 2017.

[16] Stephen Castle, ‘Parliament Clears Way for ‘Brexit’ Talks as Scottish Vow Independence Vote’ (The New York Times, 13 March 2017) <https://www.nytimes.com/2017/03/13/world/europe/britain-brexit-scotland-independence.html> accessed 17 March 2017.

[17] Ibid.

[18] ‘Plan for second Scottish referendum ‘deeply regrettable’’ (RTÉ, 13 March 2017) <https://www.rte.ie/news/brexit/2017/0313/859342-brexit-scotland/> accessed 17 March 2017.

[19] Jason Groves and John Stevens, ‘Hands off our Brexit, Nicola! Theresa May to insist new Scottish referendum must be held AFTER Britain leaves the EU’ (Mail Online, 14 March 2017) <http://www.dailymail.co.uk/news/article-4310906/Sturgeon-demands-new-Scottish-poll-UK-heads-exit.html> accessed 17 March 2017.

[20] RTÉ (n 18).

[21] Ibid.

[22] Ibid.

[23] Groves and Stevens (n 19).

[24] Ibid.

[25] Ibid.