Whither Brexit?

I was of course very disappointed by the outcome of the EU Referendum last June. However, I was not at all surprised.  I opposed David Cameron’s decision to call a Referendum in the first place, as I knew it would be dominated by concerns about immigration (as I discussed in a post on 31st August 2015).  That was confirmed when I participated in pro-Remain campaigning with fellow LibDem party members during the Referendum campaign. While a majority of the people we met said they planned to vote Remain (we did our campaigning in London), a significant minority said they would be voting Leave. Most of the Leave voters I spoke with blamed all of their own and the country’s problems on immigration, in particular immigration from Eastern Europe.  They were either not interested in the impact of Brexit on the economy or did not believe the warnings of Remain campaigners.

After more than six months, we know little more about the reality of Brexit than we did on the morning after the Referendum.  Assuming that Theresa May issues the Article 50 notice by the end of March 2017 as she has promised to do, it is likely the UK will leave the EU by 2019. But we do not know the terms on which we will leave, or the nature of the UK’s future trading relationship with the remaining 27 EU countries, plus the many other countries around the world with which the EU has entered into trade agreements.

At some stage Theresa May will have to level with the UK public about the implications of Brexit for the future of the UK’s economy and government services.   She has totally failed to do this up to now.  I expect this is partly because the government and the civil service are having to do a great deal of work to understand the implications of Brexit themselves.  However, I believe a more important reason for the failure to communicate the implications of Brexit is fear that the public will not like what they must eventually be told.  The unpalatable consequences include:

  • a serious decline in tax revenues in the medium term (the next five to ten years), mainly due to banks and financial businesses moving part or all of their businesses outside the UK;
  • a resulting decline in funds available to support the already creaking NHS and to provide benefits to groups such as pensioners who have become used to generous subsidies like free public transport and above inflation increases in pension payments, to say nothing about low earners who depend on Tax Credits and Housing Benefits;
  • a significant loss of jobs in manufacturing businesses as they too move operations abroad (in particular car manufacturers and businesses like Airbus that depend heavily on the seamless transport of parts and finished products across EU borders).

I am of course assuming that the EU27 will refuse to allow the UK to continue anything like its present trading relationship with other EU countries.  This would depend on continued acceptance of free movement, which Theresa May has said is anathema.  EU leaders including Angela Merkel have said that free movement is not negotiable, and I can see no reason why they will change their minds.  I do realise that the UK is a very important market for German cars and Italian prosecco, but British people will in any case continue to buy these products post-Brexit at higher prices, albeit in smaller quantities.  A likely reduction in sales of cars and prosecco is not enough to outweigh the political imperative for the EU27 to hold the line on free movement.

If Theresa May and her colleagues refuse to tell the public about these consequences, the opposition parties will have to do it for her.  I am sure the LibDems will do so with relish.

I do not know what will happen when the unpalatable consequences of Brexit finally sink in.  Theresa May, the Brexit Ministers and the Eurosceptic press will no doubt seek to blame the EU and Remainers (‘Remoaners’) like myself.  The chief sin of the Remainers is not to be optimistic about the ‘opportunities’ that Brexit presents.  I am an optimist and do try to keep an open mind – I suspect that there could be long-run opportunities for Britain if it adopts the type of low tax, low regulation and minimal benefits policies operated by Singapore and Hong Kong.  However, this is far from what most Leavers voted for.

In any case, I think it is still too early to know what will happen.  We will have to see how the EU27 react when Theresa May issues the Article 50 notice.  If they decide to bargain hard (and why should they not?), the UK government will face a choice between a humiliating climbdown and plowing ahead with a policy they know will have immensely damaging consequences for many Leave voters.  I do not deny that there could be sunny uplands in the long term (20 years or so in the future), but as Keynes said in the long run we are all dead.

 

 

 

 

 

 

 

 

 

 

 

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