What Brexit means for your finances in 2017

In June 2016, the day after the European Union referendum vote, I wrote an instant first impressions news analysis guide on what Brexit is likely to mean for your finances. Now for the start of 2017, I’m braving revisiting that guide – in the form of this blog, to see how well it stacks up and what has changed.

To make it easy to see, I’m going to do it as a quick commentary on the original text, with all the updates in this colour (red)…

The UK has voted to leave the European Union, in a landmark referendum result – and many have questions and worries over their personal finances following the outcome.

Here MoneySavingExpert.com founder Martin Lewis attempts to answer queries on mortgages, savings, holiday money, flight delays, consumer rights and lots more in his Brexit Q&A…

What a monumental decision. This will be a very different Britain. And regardless of how you voted, we need to work together to ensure it’s for the better. There’s a risk there will be financial pain to get there, but if so, the country has chosen it’s a price worth paying.

Many of you have been sending me questions via my Twitter and Facebook feeds with queries and concerns about the personal finance impact, so I want to bash out some answers as best I can.

This isn’t easy. Brexit seems to have caused political anarchy.

And of course we’ve since had Donald Trump’s victory in the US presidential election, that has many similarities. In both cases the reasons will be mixed – some will have voted primarily due to an issue or the candidate himself – others’ votes will have been aimed at giving the political classes a bloody nose.

Yet a yearning for things to be different seems to be the driving force for both, and people were willing to vote for Brexit or Trump as the instrument of that change.

We have huge Labour and Tory splits. Some people are pushing to renege on the referendum by calling for a second one. And the union could potentially split.

Not much has changed on this since…

From this point on though, I’m going to assume that Brexit will happen as was voted for.

I still think that is the right assumption. The only major change is the High Court ruling that legally it must be Parliament, not executive power (ie, the Government), that does this (an appeal against this ruling is being heard in the Supreme Court). I don’t see that changing the big picture of Brexit, but it may influence its shape at the periphery.

The underlying political problem caused by the Brexit vote, though, is that we had a black and white question covering a rainbow of issues. Many, including the PM, have used the Brexit vote to impute many things – such as ‘people want to leave the single market’, or they want a ‘crackdown on immigration’. And certainly there will be many who voted Brexit who this chimes with – however not all.

And with a vote as tight as it was – at 52% to 48% – it only takes 1 in 25 Brexit voters to disagree on an element (eg, those who don’t want the EU but do want the single market) to potentially mean that the majority view is the other way. That of course assumes remainers are homogeneous too, which is equally wrong.

Yet a recent Twitter poll I did on the single market and people’s Brexit vote, while far from a representative sample, did indicate the possibility that more leavers are pro the single market than remainers are anti it.

The truth is, on a whole host of Brexit related issues, we don’t know what the majority of Britons actually want, nor what is best. All we know is that on 23 June 2016 most people chose for us to leave the EU. That was done by a national plebiscite – ie, direct democracy, bypassing our usual system of representative democracy (where we vote for MPs then they decide).

I very much support referenda on vast scale issues of long-term constitutional change such as this, but the poor design of this one has left us in the lurch. We have bound our politicians to one outcome, but left it open to a vast range of interpretations – a recipe for sloth, inconsistency and uncertainty.

Part I: What's going to change and when will it happen?

Before I get into the nitty-gritty, it’s worth looking at the big picture. Brexit is a sizeable upheaval. Most of it won’t happen immediatelyou can say that again sister!, so it’s important to understand the timeline. I split the changes into three.

1. Sentiment & market changes – already started, lasting a few years. These are changes caused by market movements and sentiment. That’s because the fact we’re leaving the EU will change some of the financial decisions people make. So anything governed by stock market, currency values and, to a lesser extent, interest rates could see change straightaway.

Yet it isn’t just City sentiment either. Some people have told me their home-buying chain’s been broken by buyers pulling out, others that their income’s hit as companies are putting projects on hold, and yet more just retrenching from everyday transactions. I’ve even been asked: “I’m in the middle of changing bank account, should I stop?” 

Thankfully this fear factor has lessened quite substantially since the knee jerk initial shock. And people have got on with things, or for the pessimists, at least they’ve accepted the certainty of uncertainty. 

It isn’t to argue these changes aren’t or shouldn’t be real. After all, they’re not based on anything tangible, rather how people feel. Yet it is possible to talk ourselves into recession – as if people act in a way that it’s happening, it becomes a self-fulfilling prophecy.

The most important thing to do is keep calm, carry on and act normal. If we can manage to do that collectively, the impact of this sentiment change will be minimal.

I’m very glad I took this stance straightaway. In fact the video I did at 7am on the day of the result, see below, where I pushed for calm after being swamped on social media by panicked questions, was watched an outrageous number of times, hitting nearly one million views by the end of the day. I hope it did some good.

Of course things like a drop in the pound do have a real impact – as has been much covered, it will impact holiday costs, petrol prices and other supplies. Plus it makes imports more expensive, though it does help exporters as it reduces their prices.

However, it’s worth remembering the pound rate moves every day. The fact it’s dropped doesn’t mean it’ll stay there – it could rise, or, for that matter, fall further. Much of the coverage has acted as if this is a done deal, rather than an ongoing continuum of price change, which is more accurate.

The pound is still in the doldrums, though far more against the dollar than the euro, and for the moment, until the next big change, this looks to be an ongoing revaluation. 

Of course the impact of that is pretty straightforward. Things are getting more expensive if either a) we import them or the constituent materials; or b) they’re supplied by a non-UK firm. The famous Marmite-gate is an example of this, but it has also factored into more significant areas – it’s one of the reasons (the other being wholesale price rises) for the rapid increase in gas and electricity prices.

Equally though, while the effect is smaller, it has boosted UK exports which helps some sectors of the economy, and the hope is that will trickle down to the population as a whole.

Many people ask me how long the pound will stay weak. My answer is still ‘no idea’ – if we knew where the currency markets were going – they’d already be there, as people would’ve bought and sold based on that.

While it may sound strange, last week we were uncertain over whether things would be uncertain. At least now we know they will be. And as we had to in the financial crisis of 2007, people will adapt and get used to that uncertainty. At the moment, some of the reaction, especially for those who voted remain, is just shock.

Warning: Let’s not talk ourselves into a recessionhere’s a two-minute clip from Radio 5 Live on Mon 27 Jun, but better to listen to it in context of the whole programme.

2. New Government changes – starts September 2016.

Update Tuesday 12 July: With the uncontested Conservative leadership contest, this has happened much more quickly than expected, with Theresa May becoming Prime Minister on 13 July 2016.

David Cameron has resigned as Prime Minister. We will almost certainly have a new Conservative Government in place by September. There is even an outside chance that a general election will be called, though that is unlikely, as it would require a two thirds majority of the House of Commons to vote for it.

A new Government and Chancellor may have different priorities, though if it’s Conservative it’ll likely be on roughly the same track. It could change benefits policy for example, as there have been disputes within the Tory party over that. It could even see the bedroom tax repealed (that’s speculation, but we know it hasn’t worked and a clean start makes a U-turn easier).

We’ll likely have a different course for budgets and legislation too. The main Conservative party divisions have not been over personal finance, however, so it’s unlikely we’ll see too much unplanned, substantial policy change in this area.

I think this nailed the generality but sadly not the specific. We’ve already seen policy change on the back of the new administration. For example, the scrapping of the secondary annuities market, and it’s still early days. Theresa May’s Government has tried to distance itself from Cameron’s – who knows where that’ll take us?

3. Rule, trade and immigration changes – starts September 2018 at the earliest. The UK has not left the EU. For that to happen, the Government almost certainly has to enact Article 50 of the Treaty of Lisbon.

David Cameron has said he won’t do this, so it’ll be for the new Prime Minister in September – and even when that happens, while there is a maximum two year formal negotiating period, many expect in practice it may last a lot longer, so we’re likely talking late 2018 at the earliest. Now far more likely to be early 2019.

That means all existing rules and regulations that derive from our membership of the European Union – whether relating to mobile roaming, EHICs, the Mortgage Credit Directive or flight delays – currently remain unchanged due to the vote (though there may be other reasons for change). And they’re likely to remain that way for two years and quite possibly longer. 

There’s been much talk of workers’ rights and other rights changes when we leave the EU, but little has been mentioned about consumer rights. I’ve been pushing the Government to set up a Brexit consumer rights committee with all the senior people from organisations such as MSE, Which?, Citizens Advice, to be on it. It’s looking positive at the moment.

This is also the timing for the change of our trade relationship with the EU. And it’s very important to understand this…

It’s the trade changes that most independent economists were predicting would be the big hit on the UK economy – they haven’t happened yet – and won’t for a while.

And of course the predictions may be wrong; there are some economists who argue it will be beneficial. It’s right for me to say at this point that I am one of those people who said the odds were it would have a negative impact on the economy (see my how to vote blog).

Yet we won’t know who’s right for a good while, and regardless of how you voted, we need to work together to try to ensure problems don’t occur. I would be delighted to be proved overcautious.

Of course, the knowledge that the rules will change may trigger some moves earlier. For example, companies have mooted leaving the UK as it may no longer access EU markets – our national aim now must be to try to attract others in to make up for it.

I think the jury is still out here, little has changed, except perhaps the US election result, which is good or bad for a trade negotiation with Britain depending on who you believe –until the Trump administration actually starts and puts policies into play we won’t really get a good idea.

Overall though I think I am more positive than I was about this on the day of the vote. I still believe when we leave there’ll likely be continued shock in the short term, but let’s hope the road won’t be that bumpy.