Table of Contents
Introduction
Brexit as by definition is “a term for the potential or hypothetical departure of the United Kingdom from the European Union.” Following a vote on the 23th of June 2016 the UK voted to leave the EU by 52% Leave and 48% Remain. This was then followed up by the Prime Minister activating Article 50 which is a clause in the European Union’s (EU) Lisbon Treaty that outlines the steps to be taken by a country seeking to leave the bloc voluntarily. Invoking Article 50 kick-starts the formal exit process and serves as a way for countries to officially declare their intention to leave the EU.
Recently there has been great debate over whether people believe Brexit will hold not many short term, long term and immediate effects for the UK and the ripple that that will have throughout the rest of the European Union. In the essay I will evaluate the political and economic reasons why I believe that ultimately Brexit will be a positive thing for the UK.
What’s the current situation?
Currently, the UK is negotiating its exit from membership of the EU’s single market and instead is planning to establish a free trade agreement with the EU. But what do these different levels of economic integration mean?
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Membership of the EU’s single market results in the following features for the UK:
- Removal of internal barriers to trade between EU members
- A common external tariff against all non EU members
- Free movement of goods and services
- Free movement of the factors of production, especially labour.
Economic Arguments for and Against Brexit:
The economic case for Brexit is as follows:
- Free trade:
Britain could have the opportunity to negotiate new free trade agreements with major EU trade partners and fast-growing emerging countries such as the BRICS, MINTS and Sub Saharan Africa
- Sovereignty
Britain would benefit from freeing itself from many of the EU’s complex and expensive laws & regulations
- Food prices,
Would possibly be lower if we left the Common Agricultural Policy (CAP) However, if the UK leaves, it may be able to lower EU external tariffs. The EU has free trade within member countries but imposes significant external tariffs on goods, such as agriculture. This raises the price of some food imports. If the UK left the EU it may be able to negotiate better free trade deals without the EU’s external tariffs. Also, the EU’s share of world trade is declining in relative terms due to the growth of emerging economies like China and India. Supporters of Brexit argue that it is essential for the future economic growth of the UK that we can gain all the benefits of access to these fast growing markets in developing economies.
The economic case against Brexit and for remaining as a member of the EU’s single market is:
- Less free trade with EU:
The UK currently has free trade with all 28 European countries, enabling a range of imports and exports. Trade with the EU accounts for approximately 45% of UK exports of goods and services, and approximately 54% of UK imports of goods and service. When the UK leaves, it may not be able to negotiate replacement free trade deals with all 27 countries. This could lead to trade diversion and a negative impact on the UK export industry.
In essence unless we get a good Brexit deal we may ruin these trade deals with ridiculously expensive tariffs that would not be able to be supported by local and small businesses. That would only be available to the uppermost that have high enough profit margins that would be able to support these extortionate taxes enforced by the EU. Hence imports will become more expensive and exporting will hurt British trade. Therefore it is essential that the UK remains in the European single market to ensure trading continues. However some argue that this deal would not be offered because we would be getting some of the benefits of the EU without paying the cost which comes with that, this is that same tax that Leavers complained about sending £350 million a week to Brussels. Per contra there has been no further mention of this after the campaign because that money was given back in essential support and was not proportionate to the amount of time this money was spent or the money that was reinvested although this money did include a membership fee.
- Inward Investment:
The European Union is an important source and target for inward investment. Many European companies have invested in the UK and the UK earns revenue from investment in the EU. If the UK leaves the EU, this investment may be less attractive causing foreign firms to return to within the EU border. Companies like BMW has already warned workers of potential job losses in the case of a Brexit.
Approximately 45% of UK overseas assets were held in the EU, whereas approximately 47% of assets held in the UK by overseas residents and businesses were attributable to the EU. In other words, investment from the EU into the UK and vice-versa is a major component of the inward investment taking place in the UK. This is a serious point because the latest figures form the OECD show that in 2016, FDI coming into the UK totalled $196 billion – but in 2017 that had dropped to $15 billion. In simple, a drop of 92%
However, if the UK can negotiate successful post-leaving treaties, investment may not be under threat. Non-EU countries like Iceland, Norway and Lichtenstein make up the European Economic Area (EEA) and in theory, this could be a satisfactory alternative for the UK economy.
- Free Movement of Labour:
A key issue in the referendum for many supporters of Brexit was the net migration of mostly Eastern European workers into the UK. This has created stress on housing, infrastructure and population pressures in the areas where these workers have chosen to live.
From an economic perspective, the impact of net immigration is mostly positive – migrants tend to be of working age, net contributors to the budget and help fill labour market shortages in areas, such as plumbing, nursing, cleaning and teaching. If the UK left the EU, labour markets will become less flexible.
However, if the UK left, it would have greater freedom to be able to restrict net immigration. However, it would also make it harder for UK nationals to work abroad affecting approximately 2 million Britons working in EU.
- Short-term Costs of Leaving:
Since the referendum, the value of the Pound has fallen 10-15% reflecting markets more pessimistic view about the long-term economic prospects for the UK. The devaluation in the Pound has led to a rise in inflation, which has reduced living standards – this is particularly problematic because of the low wage growth which has also been affecting the UK. Since the vote in June 2016, there has been a fall in the rate of economic growth. In the first half of 2017, the economy has grown by just 0.5% (annualised growth of 1%) – real wages have started falling again due to rise in inflation.
However, others argue the markets are exaggerating the impact of leaving and that once the terms of Brexit are known, stability will return. In the long run, Britain could adjust to the new reality.
- Costs of EU Membership:
The UK pays approximately £17bn per year to the European Union (approx. 0.06% of GDP). However, the UK receives a CAP rebate and also is a recipient of EU funds from social and regional programmes. If the UK leaves the EU, it would still have to pay to be able to benefit from the single market. The EU would not allow the UK to have benefits of Single Market without paying into it. The net contribution of UK to EU is approximately £7bn p.a. i.e. approximately 0.4% of UK GDP. As a comparison the UK’s foreign aid budget is approximately £13bn p.a. i.e. approximately 0.7% of UK GDP.
- EU Regulation:
A concern that some in the UK have about the EU is burdensome regulations. Some of these regulations are myths (e.g. the myth of banning the bendy banana). Leaving the EU would enable the UK to cut these EU regulations from its law. However, if we want to trade with the European Union, companies will still need to meet EU standards on environmental, health etcetera. Also, it should be remembered that regulations can have beneficial social effects – e.g. better safety standards and reducing excess energy use.
In April 2018, it was reported that each of the government’s four Brexit scenarios, including a bespoke deal, would leave Britain poorer and cost the taxpayer hundreds of millions of pounds each week, analysis has shown (Guardian, 18.5.2018). The study for the thinktank Global Future by Jonathan Portes, a professor of economics and public policy at King’s College, London, found that a bespoke deal, the government’s preferred option, would have a net negative fiscal impact of about £40bn a year (same source).
Recently, I had the pleasure to speak with the Conservative MP for Pendle Andrew Stephenson and in this conversation I put this projects title to him and this was his response “Leaving the European Union for UK would cause short term instability however long term benefits. Such short term effects are problems with investments due to the uncertainty of the economy which is on the verge of a major collapse.”
I think this statement is very important seeing as he was a Leave voter and is still proud that he voted that way. His views then developed into profound Euroscepticism, because of David Cameron’s deal, which showed him that the EU is resistant to deals or change.
According to experts, economists and social experts alike it has been concluded that leaving the customs union would have a detrimental effect on society that would ultimately put Britain’s next generation in a very tricky position, potentially leaving them without growth lower from anywhere between 2-8%. According to recent Government analysis, the UK will be left worse off under all economic scenarios. The impact we will see on society is loss of jobs in many industry sectors, and due to the rate of inflation of growth not matching that of inflation we will consistently start to see rises in homelessness and people not being able to repay mortgages according to Brexit minister Michael Barnier.
Despite already saying that we would definitely be leaving the customs union she has recently announced that only in “very unlikely circumstances” would we be able to stay in the Union. This comes as one of many recent U-turns from the PM holding potentially uncertain circumstances for the UK at the negotiating table with European powerhouses which could cause a massive slip and further hurt the UK after and during Brexit and would make it harder to get a good deal for the UK. In addition, it was reported in the Sunday Times (3.6.2018) that in a report produced for government ministers by civil servants working on Brexit of three post Brexit scenarios, the second worst one predicts that the UK will rapidly run out of fuel, food and medicines if the issue of borders and access to EU markets is not sorted out before Brexit actually happens.
Political Argument For and Against Brexit:
The local area, Pendle, voted 63% leave with a turnout of 70.33%. This was a larger majority than general election and has a greater effect than leave which is a greater effect than the turnout of 69% at the last general election. This shows how much more important this referendum was to citizens of the UK.
Primary Research on Peoples’ Views About Brexit Since the Referendum:
Following a recent tweet on Twitter titled “Will Brexit affect the UK positively or negatively” I attached a poll which received over 400 votes going 71% negatively and only 29% positively. These results are significant as the general consensus has changed massively.
However these statistics do not fully represent the whole voting population and is dominated predominately by people from the south who voted for Remain more.
One of the people who voted claimed “A country becoming a democracy again by regaining its sovereignty, removing its overlords can only be positive thing from point of view of voting public.” is Adam Hosker, who works as a Financial Advisor and is well informed with the latest news surrounding Brexit. He believes that the European union prevents the progress that many desire seeing as we have to confirm all laws through the union and cannot make out own. This opinion is supported by the fact that we cannot control immigration into our own country, seeing as 5 new countries including Turkey are set to join the European Union. I do not see it as a viable option to stay in seeing as we may have to accept many unskilled labourers and accept almost 9.2 million (which contributes to 8% of their population) of them who could potentially use our benefits scheme and our NHS. On the contrary all of these 9.2 million people would be potential taxpayers funding the system.
Politically within Britain there are many different opinions as to how Britain should leave the EU ranging from Hard Brexit, Soft Brexit or just leaving the EU with no deal at all. That combined with peoples political opinion provides for a very toxic atmosphere. As Brexit plans are drawn up there is a heightened sense of questioning from business’ as they will face the direct consequences, therefore it is vital to try and salvage the EU single market and ensure we save trade deals between the two European powerhouses. The EU is the UK’s biggest single trading partner: it accounted for 48% of goods exports from the UK and 39% of services exports in 2016. (Sourced from ONS)
Conclusion
In my essay I have addressed certain political and economic issues within this very toxic pre Brexit Britain. It would appear that there are many factors to be taken into account when considering whether Brexit will be a positive thing or not. In my opinion, short term there could be horrific consequences for example; massive job losses and financial instability. However long term, I believe there could be some great benefits for the UK involving controlling own borders consequentially allowing us to choose how many people come into our country and also being free from European courts control giving us the authority to make our own laws. Despite there being no movement in the outcome it certainly wasn’t a unanimous winner with only two options Leave and remain and went 52% to 48%.
This shows a certain amount of public distrust for both and with everyone wanting different styles of Brexit and with a certain announcement by the PM shows there will not be a second referendum. Seeing as Article 50 has already being activated, we are leaving the European Union. However the question should now be how many people will it affect and can our government try and make the best of a not so positive situation. One that will change the course of history forever.
