Brexit: a slow-motion wrecking ball

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I last posted on this topic just before the referendum (you can read that post here). Since then, the ‘leave’ result has been enacted by Parliament – triggering Article 50 of the Lisbon treaty – and we have had over two years of negotiations between the UK and the EU.

Many things have become clear since the referendum, and many things are as still as uncertain as prior to it. This post summarises some of these things and my thoughts on them. To be honest up-front with regard to my personal position on Brexit, I am strongly in favour of remaining in the European Union.

The campaign

The referendum campaign involved many assertions that have been found to be utterly baseless. On the side of remain, there were assertions relating to the immediate economic damage a leave vote would have – which was labelled ‘Project Fear’ by the Leave campaign. This immediate, dramatic downturn did not happen. Of course, we haven’t yet left the EU, but nevertheless, these predictions of immediate economic damage following the referendum result failed to materialise, aside from a devaluation in the pound.

On the side of leave, there were many assertions of the benefits of leaving. Most famously, there was the promise of £350 million per week to the NHS (painted on the side of a bus), and leading Brexiteers’ promises of a plethora of easily negotiated trade deals. These now seem like wishful thinking. The likely costs to the economy of leaving, although not immediate, seem irrefutable (having been supported by multiple analyses by economic research agencies and the Treasury itself). These amount to a great deal more than any benefit from not paying into membership of the EU, wiping out any money that might be gained and could (possibly) be spent on the NHS. Also, the idea that negotiating trade deals is easy, is pretty ridiculous; any examination of recent history would show that they can be difficult and protracted. Similarly, the idea that a small country can negotiate a trade deal with more benefits than a vast trading body like the EU, with huge resources and experience in complex negotiations, seems pretty ridiculous to me.

Several other aspects of the referendum are also highly problematic, and throw its conclusions into doubt. The Leave campaign was found to have spent more money in a coordinated fashion (along with ‘BeLeave’) than is allowed by the rules of the Electoral Commission – technically, voiding the referendum result. Also, Cambridge Analytica was found to have used illegally sourced data from Facebook to micro-target voters with adverts designed to press people’s psychological buttons (often with false stories relating to the EU, immigration, Turkey, etc.). Cambridge Analytica worked for both the Leave campaign and Leave.EU (the unofficial group headed by Nigel Farage and Aaron Banks). Leave.EU also broke rules related to direct marketing and was recently fined for this. Potential links to Russian finance and governmental influence (via the ‘Internet Research Agency‘) have also been identified (as is also currently being investigated by the Mueller enquiry into the election of Trump in the US).

The result

The result was very close, at 48.1% remain vs. 51.9% leave. This is important for several reasons. Firstly, the decision to leave the EU is incredibly far-reaching in terms of politics, economics, law, infrastructure, culture, and pretty much anything else you can think of. The UK and EU have been increasingly integrating their economies and legal frameworks for decades (since 1973) to facilitate everything from trade to travel. Pulling this complex web of relationships apart and rebuilding them separately is bound to be difficult, take time, and be costly. It would have been preferable to have an unequivocal result to the referendum, in either direction. A narrow victory is more likely to be negated by small changes in public opinion down the line.

Secondly, the polls in the months prior to the referendum showed a lead for the remain campaign right up until the last few weeks prior to the vote. Considering the success of the simplistic but emotive rhetoric used by the Leave campaign (‘project fear’, ‘take back control’, ‘£350m for the NHS’) and the potential influence of the highly targeted misinformation campaign by Cambridge Analytica, it is likely that these were important factors in giving the Leave campaign its victory. Opinion polls now show a narrow lead for remain, demonstrating how unstable a marginal victory can be.

Thirdly, despite the result being close overall, it was highly polarised geographically. Certain areas of the UK voted fairly strongly to remain, and others to leave. In particular, Scotland, Northern Ireland and London all voted to remain within the EU. Much of the Midlands, North and South West of England voted to leave. This has the potential to cause considerable problems for the government in the future. London is the financial and economic Goliath of the UK. Leaving the EU could damage its status as an international trading hub, and ultimately reduce the income of the UK. Scotland is keen to remain within the EU, and Scottish politicians may again campaign to leave the UK. Northern Ireland relies on being in a single trading area with the Republic of Ireland. Any change from this will infringe conditions of the Good Friday agreement, require a border within Ireland or between the UK and Northern Ireland, and risks sparking violence between sectarians as previously seen during ‘the Troubles’.

Lastly,  the referendum was ‘advisory’ – i.e. not legally binding; technically, the government could ignore the result and stay in the EU. However, the strong political rhetoric (Theresa May repeatedly stating that she will enact ‘the will of the people’) has essentially removed this as an option, and any volte-face would now be seen as a betrayal by a large section of the population, and the Brexiteers in her own party.

Considering the amount of misinformation spread during the campaign, the closeness of the referendum result, the subsequent gradual change in public opinion, and the polarisation of the public, it would seem that ‘the will of the people’ is a rhetorical fantasy. My personal opinion is that the referendum result was simply too close to be used as the main basis for such massive changes in the way the UK works both internally and internationally, especially considering the public’s (and politicians’) general lack of awareness of the implications of such a change.

The negotiations

Over the last 2 years and 9 months, representatives from the UK government and EU have been engaged in negotiations to determine what happens after the UK leaves the EU. What has gradually become clear is that no side will be happy with any practical solution. The Brexiteers have largely promoted a complete separation of the UK from Europe. The intended benefits of this approach are that the UK will no longer be implementing EU laws, will be able to make international trade deals separately to the EU (this is prohibited for member states), and will be able to control immigration. These aims are embodied by (a) the ‘take back control’ slogan, (b) Liam Fox claiming that he could sign 40 trade deals as soon as we leave the EU, and (c) the general xenophobia of Nigel Farage and the Leave.EU campaign. In contrast, Remainers want as close a relationship to Europe as possible, and would prefer to scrap Brexit altogether. Hence, Theresa May has been stuck with trying to find some kind of middle ground, which essentially makes nobody happy. The ‘withdrawal agreement‘ is intended to allow the UK to leave the EU whilst minimising disruption. It basically means that the UK will follow EU rules during a transition period. Importantly, negotiations on future trade arrangements have not yet begun; it means the UK will be out of Europe, whilst still following the rules of Europe until 2020 so that the transition can be smooth.

It is criticised by Brexiteers for tying the UK to the EU closely during this time, involving the UK paying the EU money owed (£39bn) for previously agreed European projects, having the UK remain in the jurisdiction of the European Court of Justice, and involving a permanent common customs area between the EU and the UK if there is no other way to prevent a land border between Northern Ireland (part of the UK) and the Republic of Ireland (a member of the EU) – this is known as the ‘backstop’ arrangement.

The DUP (on which the government has depended to form a majority in the House of Commons) is strongly opposed to the ‘backstop’ arrangement. This is because it ensures greater harmonisation of Northern Ireland with the Republic of Ireland than with the rest of the UK, in terms of trading rules and standards, so that there is no need for a land border in Ireland. The other solution, a sea border between Northern Ireland and mainland UK is anathema to the DUP. Considering the long history of sectarian tensions in Northern Ireland, the whole issue is highly charged and risks violence erupting again between warring factions of Irish unionists and republicans.

Of course, for Remainers, there appears to be no advantage to leaving the European Union. Unsurprisingly, the withdrawal agreement has been repeatedly and dramatically voted down in the House of Commons. At the time of writing, we find ourselves still in the position of having no approved plan as to what to do when the UK leaves the EU. Originally, the date for leaving was meant to be 29th March 2019. However, the UK has agreed an extension of the deadline with the EU, to try to come up with something that politicians will accept (and the EU will agree to).

If the UK does not come up with something, the UK will either need to revoke Article 50 and stay in the EU, or leave with no agreement – the so-called ‘no deal’ scenario. There is a generally broad consensus that ‘no deal’ would be an unmitigated disaster for the UK. It would affect all trade, all industries, supply chains, medicines, energy, transport, etc. There would likely be increases in prices, international businesses leaving the UK in droves, exporters may quickly go out of business, there is a strong likelihood of recession, and it could even lead to civil unrest. Most policy makers want to avoid this situation at all costs, but with negotiations floundering, it currently seems a highly likely outcome, considering that revoking Article 50 is politically untenable for Theresa May and the Conservative party.

The immediate effects

Despite not having yet left the EU, there have already been dramatic effects on the UK due to the decision to leave and the lack of any clear plan as the Article 50 deadline approaches. The pound has devalued and become more volatile as investors respond to announcements by the PM and EU negotiators, most businesses have paused planned investments, some international companies have already moved staff and manufacturing abroad, EU bodies originally based in the UK have moved to mainland Europe, many companies have begun to stockpile goods and supplies, some crucial industries have been asked to stockpile by the UK government (for example, pharmaceutical suppliers), ferry companies are being contracted by the UK government to provide goods transport in the case of a ‘no deal’, many long-term UK based European citizens have applied for British passports, many UK citizens with Irish or other EU ancestry have applied for EU passports, recruitment of EU citizens into nursing positions in the NHS has fallen off a cliff, there have been spikes in hate crimes against EU citizens in the UK, turnover of staff in government departments preparing for Brexit has increased (and is particularly high in DExEU), and the potential spend by government on preparation for Brexit is considerable (£4.2bn has been made available so far), whilst staff and politicians are redeployed from their usual roles and responsibilities to work on trying to find a solution to the growing crisis of Brexit.

The long term effects

It’s very difficult to say what the long term effects of Brexit will be, as they are very much contingent on what happens after the UK leaves the EU (if it does, in the end). The most concrete predictions are related to the difference in economic growth of the UK based on detailed projections under a variety of scenarios, by various different groups of government, corporate and academic economists. Invariably, these all predict lower levels of growth outside the EU. The impact of this difference is more detrimental for scenarios which result in the UK being less closely aligned with the EU. Treasury predictions have put the cost to the economy in terms of GDP of between 3.9% lower (for Theresa May’s withdrawal agreement) and 9.3% lower (in a ‘no deal’ scenario) after 15 years. This equates to between £20bn and £45bn in reduced growth, taking into account that the UK would no longer be a full contributor to the EU budget. This is far greater than the UK’s net contribution to the EU (£8.9bn per year), hence the predictions all forecast that Brexit will make the UK poorer.

However, what if the UK manages to negotiate a large number of trade agreements with other countries around the world? If this happens, and it’s a big if, it will take time. Most comprehensive trade deals between large economy nations tend to take many years to negotiate. A probable scenario is that the UK may be able to negotiate a number of comprehensive trade deals with other countries over the next 10 to 50 years. This is mostly because of capacity to negotiate deals – most countries only negotiate one agreement at a time with another country. However, these are unlikely to be as beneficial to the UK as those that it currently benefits from via membership of the EU. The EU has a lot of clout in negotiations, seeing as it represents so many countries and such a large potential market. Hence, other countries are keen to arrange trade deals with it, resulting in the EU having 50 trade agreements (of various types) with other countries, and many more being concurrently negotiated.

In terms of international relations, the political chaos which has ensued since the referendum result and the likelihood of the UK leaving with a ‘no deal’ or having poor trading links to the EU have undoubtedly affected the UK’s position in global politics. Once seen as a politically mature and stable democracy, the UK is currently seen as going through a kind of domestic madness by politicians in the EU, and is seen as a tragicomic basket case by the global media. If the final result is a ‘no deal’, it is likely that the global influence of the UK will be weakened for the foreseeable future. The UK currently has a unique role in Europe as a powerful member of the European Parliament (only Germany and France have more MEPs) and as the only native English-speaking member, able to forge links between the EU and other English speaking countries (like the US), and internationally focused corporations. This position certainly aided London in becoming a key international financial hub. If there is no comprehensive deal, London will likely lose this advantage; for example, financial service ‘passporting rights’ will be lost or reduced in scope and other European cities (Frankfurt, Paris) will likely become preferred financial centres (there is evidence this is already happening to a considerable extent).

There are of course many other likely long term effects relating to the way in which business, government and other networks, organisations and infrastructure function. Other examples include European organisations such as Europol, the European Medicines Agency and Euratom, to name a few examples. These organisations are focused on the safety of European countries and their citizens. After leaving, the UK will no longer fully participate in these organisations, and will need to replace some or all of their functions domestically. Most scientists think that a huge amount of research funding will be lost to the UK once we leave the EU. The UK currently punches well above its weight in terms of success in winning European research grant funding (€8.8bn between 2007-2013). This success also makes it an attractive place for scientists to work, and so many of the most talented scientists in the world have migrated to the UK. Anecdotal evidence suggests many are already leaving or actively seeking roles in other countries in anticipation of the UK’s exit. There will undoubtedly be a large detrimental impact on the scientific research community once the UK leaves. The effects are already being felt.

Finally, one of the main drivers of the vote during the referendum – migration – is likely to be affected long-term. Net EU immigration seems to have gone down dramatically, but has been balanced out by increases in non-EU immigration. The UK certainly has a need for migrants to fill particular roles that UK citizens are either unwilling or not sufficiently skilled to fill. Certainly, the NHS is currently understaffed and unable to fill thousands of vacancies. Recently, these have tended to be filled by European immigrants, but there is some evidence that Europeans are now choosing not to come to the UK. More broadly, the UK becoming a less attractive place to work will likely mean that talented people go elsewhere (both UK and foreign nationals). This could have substantial long term affects on the global competitiveness of the UK and the quality of its services and industries – the so-called ‘brain drain’.

The way forward

At the time of writing, Theresa May is grappling with a loss of control of her own party and the Brexit process. Because of delays to the process (the deal she negotiated with the EU has been voted down repeatedly in Parliament), the UK is taking part in the European elections to decide the UK’s MEPs. The whole thing has been a total farce, with Parliament unable to approve any of a myriad of options going forward.

What will happen next is anyone’s guess, but it looks likely that it will have to involve either another referendum or a general election. There will be a Conservative leadership battle to replace Theresa May. If no longer extension is agreed by the EU, the UK will crash out of Europe with ‘no deal’ on 31st October (unless a referendum or general election has happened by then). The government could theoretically withdraw Article 50 unilaterally, and so stop the UK leaving the EU. However, considering how polarised the public and politicians are, this is unlikely.

David Cameron opened a horrendous can of worms in 2013 when he decided to hold the referendum (in order to appease rebellious backbench MPs). One thing is for certain – we are nearly at the end of the beginning of Brexit, but nowhere near the end of Brexit as a whole in the history of the UK.