The Government has released the first of a tranche of papers outlining how different industries would be affected by a no-deal Brexit. They include details on how the financial services industry, covering banking, insurance and pensions, would change as a result of a ‘no deal’.

Much of the information in the technical papers raised potential issues, but provided few solutions on how to overcome the problems raised, or in some cases how exactly the problems would occur. But using those papers, we’ve summarised the biggest issues facing your finances in the event of a no-deal Brexit.

HIGHER CARD CHARGES

If we left the European Union with no deal it’s clear for two reasons that Brits would pay higher debit and credit card charges when they travelled abroad.

First, the UK would no longer be part of a central payment system used to process transactions in euros. This means that processing payments made by a British person, using their UK bank card while they are in Europe, would take longer and be more costly.

Second, a ban on so-called rip-off fees would no longer apply to UK customers. In January this year an EU-wide ban was brought in for certain card charges, which stopped companies being able to charge you based on the method you used to pay.

Before this ban everyone was familiar with the issue of, for example, booking cheap flights on Ryanair and then discovering that to use certain credit or debit cards charges would cost them an extra £5 or £10.

There were often also higher charges at online retailers for using online payment systems, such as PayPal. The EU ban put an end to charging based on how you pay. However, the Government warns that in a no-deal Brexit the UK would be outside this EU law, and so this ruling would no longer apply – leaving retailers able to charge these ‘rip-off’ fees once again.

PENSIONERS ABROAD

The biggest warning in the technical papers was for the 300,000+ UK pensioners who live in another EU country, and are using bank accounts, insurance or pensions in the UK.

The technical papers state British citizens living in the European Union could be denied access to their own money: ‘In the absence of action from the EU, EEA-based customers of UK firms currently passporting into the EEA (European Economic Area), including UK citizens living in the EEA, may lose the ability to access existing lending and deposit services, and insurance contracts due to UK firms losing their right to passport to the EU.’

Put simply, a no-deal Brexit could result in some UK firms not having the right permissions to operate in EU countries. This includes the insurance companies which pay out an annuity, which is a pension income for life, to UK individuals living in the EU.

There are ways around this though. The financial services companies could set up an EU base, or create a reciprocal agreement with an EU-based company, to give them the right permissions to continue operating. However, until it’s clear that they need to invest this money and make these changes, they are unlikely to do so.

Hugh Savill, director of regulation at the Association of British Insurers, says: ‘Obviously insurers want to meet their commitments to their customers, but this problem has the potential to affect millions of insurance customers, including UK pensioners overseas. It can be fixed by co-operation between the UK and EU regulators – if the EU authorities wish to do so.’

HIGHER COSTS OF ONLINE SHOPPING

In addition to the aforementioned extra card charges, in a no-deal Brexit the Government warns that Brits buying items from EU retailers and sellers could face higher costs.

This is because currently across the EU there is a VAT waiver on small packages. This means that for online orders under a certain value, the retailer doesn’t have to pay VAT on the item. The idea is that the amount collected would be too small, and so not worth the taxman’s time collecting it.

However, if we move out of the EU under a no-deal scenario, this ‘Low Value Consignment Relief’ will no longer apply, and so VAT will be due. More than anything, the represents a major admin task for retailers, and those who do minimal business in the UK may not deem it worthwhile to continue.

For the vast majority that do continue selling to UK customers, the costs to those consumers are likely to rise, to pay for the VAT due and the man-hours put in to process those payments. The Government says it will aim to introduce an automatic, online payment system to record and collect the additional VAT payments, which would help to cut the costs involved.

Laura Suter, personal finance analyst, AJ Bell

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