On the 23 June 2016 the UK voted in favour of Brexit, with the Leave campaign winning by 52% to 48%. What will happen now
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On the 23 June 2016 the UK voted in favour of Brexit, with the Leave campaign winning by 52% to 48%. The referendum turnout was 71.8%, with more than 30 million people voting. This was a referendum that could and should have been avoided, and was called largely in response to divisions within the Conservative Party.
The split in the vote between Remain and Leave was, in general, rich against poor and young against old, with London, the South East, Scotland (62%), Northern Ireland (55.8%) and Gibraltar (95.9%) strongly in favour of Remain as compared with the rest of England and Wales.
With these divisions the referendum could lead to the end of the United Kingdom. Scotland has requested to remain in the EU, though approaches to the EU have been met with some reticence in some EU circles and member states probably because of fears of knock-on effects for separatist movements such as those in Catalonia, Corsica and so on. Introducing different arrangements for trade and immigration would probably mean reintroducing the border between Northern Ireland and the Republic setting back the peace process, which has been carried out over decades and was also facilitated by the EU framework.
The leaders of the Leave campaign were genuinely surprised at their own success and seemed to have few plans as to how to implement Brexit. Nigel Farage subsequently resigned as leader the UKIP, while Boris Johnson dropped out of the competition for the Conservative Party leadership. The two major political parties have been completely splintered.
The distinction between the Leave and Remain campaigns has widely been described “Project Lies” and “Project Fear” respectively.
Key elements of the Leave campaign (“Project Lies”) were the aim to “take back control” and recover British sovereignty; a desire to be rid of the “European superstate” and its excessive regulation; and a determination to limit immigration. Popular television programmes and tabloids like The Sun and the Daily Mail displayed a total disregard of facts about the EU. British politicians have made a habit of denigrating the EU for years so cannot be surprised when this has influenced popular opinion.
Politicians are already going back on some elements of Project Lies, which has lead to second thoughts and disillusion by some of those who voted Leave (Regrexit). On the bus of the Vote Leave campaign was the claim that each week £350 million is sent to the EU, and the promise that this money would be spent on the NHS (National Health Service). This calculation failed to take account of payments from the UK budget to the UK or the British rebate. The net UK contribution to the EU budget is about £8.4 billion a year or only 0.5% of British GDP. It has since been announced that much less would be available for the NHS after Brexit.
With regards to the economic effects of Brexit, we are already well into the dire prognostications of Project Fear (Remain). The Treasury, Bank of England and IMF suggested very high immediate costs of Brexit due to market volatility. All the studies also suggest longer-term losses, the scale of which depends on whether Britain opted for remaining in the EU Single Market, agreed an association or free trade agreement with the EU, or went for what is often called the "default option" of the WTO framework.
Boris Johnson wanted to combine access to the Single Market with tighter UK curbs on immigration from other EU states. Other member states and EU institutions have ruled this out maintaining that freedom of movement of labour is an integral part of the internal market (“no cherry picking” according to Merkel, while Tusk ruled out a Single Market à la carte). For all the options there is a trade off between better market access, and more restrictions on immigration and having to accept EU regulations and standards.
Many of the Leave campaign seemed to favour a free trade agreement or FTA (like Albania, said Michael Gove, but Albania maintained this was just considered an interim arrangement while it is waiting for EU membership). Most FTAs do not provide much access for services, including financial services. Canada has been negotiating a FTA with the EU for 7 years now (with ratification being blocked by Romania over visas and by Wallonia over standards). UK negotiations with the EU are therefore likely to require years, causing protracted uncertainty. The Treasury study is the probably the most extensive economic analysis, and suggests as a central estimate that if Britain opted for a free trade agreement with the EU like that of Canada the cost to every British household would about £4300 a year by 2030, with GDP being lower by about 6.2%. The exact statistic can be challenged, but the loss is likely to be substantial.
The Treasury places the cost of moving to a WTO arrangement (like Russia or Brazil) at an estimated £5200 per year per UK household by 2030, or between 5.4% and 9.5% of GDP. The UK would encounter tariffs on its exports to the EU and access for services would have to be negotiated. The Director General of the WTO, Azevedo, has since said that the UK has never been a member of the WTO (which was founded in 1995) so would have to negotiate membership. The last country to do so was Liberia, which became the 162nd member after years of negotiations.
The Treasury and others were probably unwise in providing precise statistics for their forecasts of the immediate effects of Brexit (“Project Fear”), but many of their predictions are already being borne out. Sterling fell sharply to its lowest level since 1985 in the first days after the referendum. Uncertainty spread through international financial markets, with what were considered the weaker elements such as Italian banks appearing particularly vulnerable. In the UK Households and firms postponed spending and investment decisions. Almost immediately the City began to feel negative effects. Depending on the final arrangement agreed (and when), financial institutions based in Britain could lose their "automatic passport" to operate elsewhere in the EU. Several of the big investment banks and other financial institutions are discussing moving their activities to Frankfurt, Dublin, Paris, Luxembourg or Amsterdam. France announced tax concessions to encourage such moves, and in response the British Chancellor of the Exchequer, George Osborne, proposed reducing UK corporation tax, possibly to 15%.
Article 50 of the Treaty on the European Union sets out the legal basis and procedure for withdrawal from the EU. Unless a withdrawal agreement is agreed beforehand, two years after notification by the member state of its intention to leave withdrawal will take place. This two-year period can only be extended by a unanimous vote in the European Council with the agreement of the country concerned. In the case of the UK, withdrawal requires an act of Parliament and the referendum only has advisory status. When David Cameron resigned he announced that he would leave the task of triggering Article 50 to his successor. Juncker replied with the statement: “no negotiation without notification”. While delayed notification prolongs uncertainty and is opposed in many EU circles and by some member states, it has the advantage of granting time for UK positions to become clearer and possibly even allowing leeway for possible second thoughts.
Withdrawal would require revising UK legislation through repeal of the 1972 British European Communities Act. Untangling 40 years of EU membership would entail little short of a legal revolution. Some 12295 EU regulations having direct effect would cease to apply when Britain left, while it would be necessary to decide what to keep, amend or reject of laws on the UK statute book enacting EU directives (Financial Times 22/6/2016).
Among the laws at risk of amendment or repeal in the UK as a result of Brexit are those on gender.
The results of the referendum are only advisory and Brexit has to be decided by Parliament (with most MPs against Brexit). With the extent of the damage and the impossibility of the Leave group to maintain most of their promises becoming evident, “buyer’s remorse” (to use the term coined by Georg Soros) or Regrexit has been setting in. For the time being the possibility of calling new elections with a clear mandate as to whether to remain in the EU or not has been ruled out. Another option would be another referendum, supported by a campaign of (so far) 4 million people signing a petition in the UK. In the case of the 2016 Austrian Presidential election legal redress led to new elections being called, and perhaps grounds could be found on the basis of the scarce respect for the truth of “Project Lies”. An alternative motive might be the profound change in the conditions of the estimated 2 million UK citizens living in other EU countries who were not allowed to vote unless they had been resident in the UK in the last 15 years. Any possible solution is likely to take some time so the outlook for now is likely to be continuing uncertainty.