Should Labour push for a Soft-Brexit?

The election delivered the latest in a long line of political shocks, with the Conservatives picking up 318 seats and Labour 262. Although, objectively speaking, this could be viewed as a poor result for Labour – losing to arguably the worst campaign that has ever been seen – there is no doubt that when compared to expectations and the 20 point gap at the start of the campaign, Labour’s performance was incredible.

In fact, Labour were only 2,227 votes away from gaining seven marginal seats and being able to form a progressive alliance and now, according to the latest Survation poll, 45% of people would vote for Labour, compared to 39% for Theresa May’s Conservatives.

Experts and investors have suggested that the election result has made the prospect of a hard Brexit much less likely, but John McDonnell appears to have no appetite for this and has reinforced Labour’s position on Brexit – leaving the single market.

Adopting the Tories’ hard Brexit position was a good political move over the course of the campaign. It meant that the Conservatives were unable to attack Labour’s position which, along with the fact May didn’t actually give any details about Brexit, allowed Corbyn to change the topic of conversation to domestic issues and prevent the Liberal Democrats from gaining a foothold at the same time. But now the election is over, have Labour missed a trick?

On the face of it the answer is yes. Over half of ‘remain’ voters voted for Labour last Thursday, with the Conservatives sweeping up 60% of the Leave vote. To look at this the other way round, 64% of those that voted Labour also voted to remain in 2016. Labour’s decision to leave the single market is against the views of those people that drove their success.


Labour are unlikely to have the opportunity to change the topic of conversation in future general elections. The Article 50 clock will be ticking, Theresa May (and the cards close to her chest) will be long gone and the parties’ Brexit plans – and all the hardship that comes with them – will need to be discussed (even more so than they do now). Remain voters may not be so keen to throw their weight behind a Labour Party backing a hard Brexit.

It may also serve as a means of uniting the party. Several revolting MPs have said they were wrong about Corbyn’s electability and that they will now support him, but there is every possibility that fractures may emerge once more over disagreements about a hard Brexit.

But while committing to a hard Brexit could alienate remain voters, pursuing a soft Brexit could alienate the Labour Brexiters voters in the North. There is no doubt that when Corbyn and Labour initially chose their Brexit position, they chose a hard Brexit on the basis that there was a greater danger of losing votes from the Brexiters in the North than votes from the urban Remainers. The election results would suggest that this decision paid off and, therefore, that there is no need to change their position.

There may be little to gain from pursuing a soft Brexit as this may do little to entice business owners concerned with other Labour policies. Concerns regarding a corporation tax rate of 26% – which is lower than in 2010 and close to the EU and OECD averages – and a £10 minimum wage – which could stimulate consumption, increase inflation, or both – were prominent in the campaign and are unlikely to go away.

It appears that while both Labour and the Conservatives support a hard Brexit, the optimal decision is for Labour to maintain their position. This may not be the case, however, in the (rather unlikely) event that the Conservatives change their position.

Ruth Davidson, the other big winner on election night, has called for an “open Brexit” and could have a large influence on the party over the coming weeks and months due to the importance of Scotland to the wider Conservative party. Similarly, Philip Hammond remains at No11 and other, more open Conservatives, such as Anna Soubry, have found a voice too. The ‘remain’ wing of the Tories could start to yield real influence.

If the Conservatives did propose a softer Brexit, they would have the support of businesses, those on the right-wing who would never consider voting for Corbyn and possibly centre-left Remainers who would be faced with a very difficult choice: voting between the Conservative Party and Brexit.


Theresa May has migrated to La La Land with her commitment to the tens of thousands target

Earlier today, Theresa May announced that the Conservatives would not drop the commitment to reduce net migration to tens of thousands a year. The Prime Minister said that it was important to bring net migration to ‘sustainable levels’ because of the impact immigration has on people at the lower end of the income scale and the pressure it puts on public services. The issue with such a commitment is that not only is it based on nonsense, it means Theresa May will be contradicting herself.

Firstly, the notion that immigration negatively impacts employment prospects and wages for those at the lower end of the income scale centres around the idea that there are a fixed number of jobs in the economy. Not only is this untrue, the research finds virtually no impact upon either employment or wages.

There is little evidence that migration has caused displacement of UK natives from the labour market in periods when the economy has been strong, with some evidence of small labour market displacement impacts in times of recession. The majority of research finds no relationship between immigration and wages, with the few studies that do observing incredibly small, negative impacts of around one per cent.

This is a result of an adjustment in the economy. Firms adjust their production function to use more labour and immigrants spend money on goods and services, both of which increase demand in the economy; labour responds to an inflow of immigrants into a region by moving onwards, reducing the regional supply of labour; and migrants and natives have different skills which reduces competition between them.

Identifying whether immigrants put pressure on public services is not an exact science, but research has found the following:

  • Academics at UCL’s Centre for Research and Analysis of Migration predict that immigrants are net contributors to the NHS, paying in £4.4 billion more than they take out.
  • The fertility rate is thought to be about 2.2 children per non-UK born women and 1.8 for UK-born women, with the ONS predicting that births to non-UK born women made up 78% of the increase in the number of births.  The impact this has on schools, however, is dependant upon whether the fertility rate is being raised in concentrated areas or not.
  • An LSE report notes that two thirds of housing demand is created by a lack of social housing stock, an increase in life expectancy, and more households delaying marriage or forgoing cohabitation resulting in an increased number of smaller households.
  • The University of Cambridge study found that an immigration inflow equal to 1% of the local initial population leads to a reduction of 1.6% in house prices.

This suggests that immigration may put some pressure on schools but has little impact on other areas. Given that migrants from the A8 countries – those that joined the EU in 2004 – contributed £1.12 for every £1 received and those from the rest of the EU put in £1.64 for every £1, it could easily be posited that blame lies with the government for not using these contributions to invest properly in public services.

Perhaps the biggest issue with the commitment is that Theresa May is contradicting herself. In her speech in January at Lancaster House she said:

“We will continue to attract the brightest and the best to work or study in Britain – indeed openness to international talent must remain one of this country’s most distinctive assets – but that process must be managed properly so that our immigration system serves the national interest.”

The problem with the tens of thousands target is that this means turning away the ‘brightest and best’. Cutting low-skilled immigration and the number of foreign students – who generate £25.8 billion in gross output – could decrease net migration to around 150,000, leaving the government with the choice of turning away at least 50,000 high skilled workers or to miss the target.

What would the impact be if net migration was reduced to the tens of thousands? Several industries, such as the horticulture and accomodation industries, would experience labour shortages; GDP per person could fall by 1% (according to research from the University of Strathclyde); and workers will be taxed more heavily to fill the hole in public services, particularly as our population continues to age and the working population shrinks.

What’s most likely, however, is that the pressure from businesses will be too great and Theresa May will fail to meet the target as she has done for the past seven years.

Why did Theresa May call a snap election, and will she win as convincingly as expected?

Despite definitively ruling out a general election on five occasions between 30 June and 20 March, Theresa May called for a snap election this morning which – if supported by Parliament – will take place on 8 June. It has been suggested, based on YouGov’s most recent voting intention poll, that the Conservatives could greatly increase their lead over Labour to 200 seats, but is this the reason the election was called and will the Conservatives win by such a landslide?

The Conservatives’ enormous lead in the polls appears to be the obvious explanation for the decision, especially when fears that Corbyn will resign if Labour performs poorly in the local elections in May are factored into the equation. While I doubt that he would, if this were the case it could mark the end of the Tories’ opportunity to receive such a large majority.

Voting intention 12-13 Apr-01

David Davis, speaking on LBC, said that the election was called so that a mandate can be given for May’s hard Brexit vision, putting the argument that ‘the people voted for Brexit, but not for this hard Brexit’ to bed.

This makes sense on the surface but James O’Brien has looked upon this explanation more cynically, positing that the government is expecting some very bad times in the near future. By calling for an election now, May is likely to receive higher support for her Brexit vision that further down the line when the negative impacts – which, according to the FT, are beginning to take effect – are felt. Even more cynically, O’Brien posited that when Britain ‘hits these Brexit icebergs’, as he called them, May can point to the election and state that ‘the people voted to hit this iceberg.’

Another explanation concerns the recent election fraud claims. The snap election avoids over a dozen possible by-elections and wipes the election expenses slate clean. It has also been suggested that early June is an optimal time as students, less likely to vote Conservative, will be between university and home and less likely to vote.

It’s inconceivable that May will not win the election, with a high chance that she will increase the slim majority of 17 in the Commons she currently enjoys – although it’s worth remembering that in this day and age the inconceivable is never out of the question – but will she win by a landslide predicted?

Martin Baxter of Electoral Calculus has predicted that the Conservatives could gain as many as 56 seats from Labour, these swings largely taking place in the more ideologically-central Labour constituencies and some of the Brexit voting constituencies in the North. The Southern, Remain-voting constituencies might not be so easy to gain or hold, however. Farron and the Liberal Democrats are the prominent Remain option and the best option for Remain voters to protest a hard Brexit.

Things are already looking good for the Lib Dems, with several predictions that they will gain seats from both Remain voting constituencies and some of the constituencies that swung to the Conservatives in 2015. If Farron can create a Progressive Alliance or change (primarily Conservative) voters’ perception that he cannot be taken seriously, the Lib Dems to could make some serious ground and reverse the dismal results from 2015.

Although it’s unlikely that Lib Dem gains will cause May much political damage, the symbolic damage could be significant. This damage would be exacerbated further if something else inconceivable, a surge of support for Corbyn, was to happen to limit the number of Labour losses.

Everything is going to change over the next seven weeks and only one thing is for sure: the road to June 8 is going to be a bumpy ride.

Theresa May and Tim Farron’s Brexit strategies have one thing in common, they are both flawed

On the face of it, Theresa May and Tim Farron don’t have a huge amount in common. The similarities seemingly end with their unsuccessful election campaigns in the 1992 general election in North West Durham and their current positions in Parliament, leading the Conservative and Liberal Democrat parties, respectively. Despite their polarised views on the right direction for the UK’s negotiations after Brexit they do, bizarrely, share something in common – their preferred tactics for negotiations are fundamentally flawed.

May’s strategy, at least on the surface, appears to be “we’re leaving, no matter what”, which is then usually followed by some bizarre description of Brexit (what on earth is a Red, White and Blue Brexit!?). This strategy of acting as though the government has been given carte blanche, interpreting the referendum outcome for orders to leave the EU, regardless of whether we can have our cake and eat it, is incredibly dangerous.

“People talk about the sort of Brexit that there is going to be – is it hard or soft, is it grey or white? Actually, we want a red, white and blue Brexit: that is the right Brexit for the UK, the right deal for the UK”

I have already discussed how Brexiters support starts to dwindle when it is associated with any costs whatsoever (perhaps we want a “free-of-charge Brexit” in that case), and the wide variety of reasons that motivated Brexiters to vote to leave and, therefore, the almost impossible task of keeping the 52% happy.

In terms of the eventual deal, it is unlikely the UK will receive a favourable deal, pushing us towards the hard Brexit door. Article 50’s two-year negotiating period and the EU’s slow and complex decision making process (all 27 EU states, who are have different aims, must agree to any exit deal) already puts the UK in a weak position. With the absence of a transition period to soften the blow, something that the government is reluctant to take if the recently ‘leaked’ memo is anything to go by, the odds are stacked against the UK in their pursuit of receiving favourable concessions.

Parliament, who are highly likely to have a say in the negotiating process, could play a role in this. Their checks and balances are crucial in preventing a harmful deal from materialising, but this can only happen if Labour are strong enough to reject any deal that will damage the UK’s prosperity.

Unfortunately, that isn’t a stance that they have taken whatsoever. Instead, Labour (who are under pressure from the Lib-Dems in the South and UKIP in the North) have said that while they will make demands they, ultimately, won’t stand in the way of Brexit whatsoever, this is typified by Tom Watson’s statement in November. This is the equivalent of asking someone not to burn down your house but promising that, in the event that they do, you won’t call 999.

“We want to protect workers’ rights, we want to protect companies’ right to trade in the single market, tariff-free, we want to support jobs, we want to make sure people don’t lose out, but we’re certainly not going to hold up Article 50 if we don’t get the deal.”

If the UK is destined to a hard Brexit (and not one on its terms, for that matter), perhaps it is worth embracing another Brexit strategy? Perhaps Tim Farron and the Lib Dems strategy? Unfortunately, giving the electorate the final say on any deal – a view I look upon much more favourably; we voted to leave, not on the destination – is equally as flawed.

“Article 50 would proceed but only if there is a referendum on the terms of the deal and if the British people are not respected then, yes, that is a red line and we would vote against the government.”

If the government agreed to give the electorate a final say on any deal this would provide a huge incentive to the EU to drag their heels. They would be determined to stand firm, to reject any concessions and wait for the Article 50 timeglass to run out in the hope that the electorate is horrified by any alternative and votes to remain in the EU.

Farron’s strategy, therefore, ensures we are equally as unlikely to receive concessions and points towards a hard Brexit. Of course, there is every chance that such a plan may work and the electorate would vote to Remain after all, but Brexiters do not take kindly to being put in a corner by those “unelected bureaucrats” in Brussels and could call the EU’s bluff which would only serve to make matters worse as the UK is left in the wilderness – neither in the EU, nor in the WTO.

In that case, what options do the UK have? Perhaps attempting a strategy which is neither Farron’s nor May’s. The government should demand that the two parties agree on a transition period for the UK – whereby the UK drops into a model where we remain in the customs union, perhaps one of the “off the shelf” models – and then, once this agreed, the final exit deal is thrashed out over a greater period than the two years allowed by Article 50.

The EU would be incredibly reluctant to do this; however, the UK could use their biggest leverage to reach a position close to this aim – not EU citizens residing in the UK, but the ability to trigger Article 50 whenever it suits the UK. This uncertainty would hit the UK hard, of course, but the EU is more vulnerable than it has ever been: the result of Italy’s recent referendum has caused chaos in the markets; the French and German elections are just around the corner; and, the threat of the far-right vastly increasing their political base is present across the continent.

A Brexit deal could be hammered out over this transition period which, when both parties are finally satisfied, could be put back to the electorate in the form of a second referendum. If the UK votes for the deal, it is more likely to be a deal that “works for Britain”, not to mention the fact that the government will be far less accountable for any subsequent turbulence. If the UK rejects the deal, we will remain safely inside the EU but, unfortunately, a lot more likely to see more of Farage’s face on our screens.

Such a plan would have its flaws. It is likely that a time limit would still be needed to keep both the EU and uncertain businesses happy and, worryingly, it is also possible that the EU will still refuse to accept our demands, the fact they’re weak is their best reason to remain strong.

It will probably never be known whether this hybrid strategy would’ve been possible or if it would’ve led to a favourable deal for the UK, but one thing is clear – whether under Farron’s strategy or under May’s strategy, the UK is heading for a “car crash Brexit”.

Theresa May has fallen into the same trap as David Cameron – and we will all pay the price

As you may have noticed, the 2016 Conservative Party Conference has taken place in Birmingham this week. It is likely to be remembered as one of the best weeks for Brexiters following the referendum and probably the worst week for everybody else as the UK gears up towards the car crash that is Brexit.

In 2013 David Cameron pandered to the right of his party and called for the referendum on the belief that it would heal the rifts in his party and lay down his authority to backbenchers rallying against him – a plan which backfired in spectacular fashion. Three years on and it appears that Theresa May, admittedly with far less manoeuvrability than Cameron, has not learned any lessons and has fallen into the trap of playing party politics with the Brexit negotiations, for which we will all pay the price.

As Gideon Rachman’s article in the Financial Times articulates perfectly, the ability to choose when to trigger Article 50 gave May leverage to seek assurances regarding an interim deal for transition. May’s announcement that the UK will trigger Article 50 by the end of March 2017 has meant that the failure to get these assurances will mean the UK will probably drop into a “legal limbo that will discourage long-term investment” following the end of the two year negotiating period, unless our understaffed departments can miraculously negotiate both the terms of the UK’s divorce and a new trade deal with the EU, whilst also negotiating World Trade Organisation membership (which will involve the ratification of 163 countries, any one of which could derail the process in the hope of extracting concessions).

This decision has been a result of politics. May will have begun to fear the plotters, concerned over an attempt to backtrack on Brexit, sharpening their knives. By giving them this announcement she has kept them at bay for the meantime but at the cost of potential devastation to the economy.

To exacerbate matters further, May’s has also alluded to a so-called ‘Hard-Brexit’, with one of the primary motivations for this decision undoubtedly being controls on immigration. Once the flood gates were opened a torrent of anti-immigration sentiment – to the delight of Express and Mail readers, no doubt – came bursting through the floodgates. Notable proposals include:

  • Companies could be forced to publish the proportion of “international” staff employed in a move which would effectively “name and shame” businesses which are failing to employ UK workers
  • A crackdown on international students, who are worth £7 billion to the UK economy and generate 137,000 jobs, that come to Britain from outside the EU, pledging to limit the number who are allowed to study on lower quality courses
  • All medical students will be required to work in the NHS for a minimum of four years after they qualify and international students will be charged for their clinical placements, which they do not pay for at present
  • EU nationals residing in the United Kingdom are one of the UK’s main “bargaining chips”
  • Much to my delight, the UK’s youth should take up the fruit picking and farm labouring jobs currently done by EU migrants

The decision, which will result in the UK having to surrender its single market membership, seems baffling after reading a study this week from the London School of Economics which asked voters “How much would you be willing to pay to reduce the number of Europeans entering Britain?”. The results below speak for themselves. It makes no sense to take such drastic measures which will undoubtedly hurt the economy when only 38% of voters (14.06% of the entire eligible electorate) would be willing to pay a price to reduce migration other than as a result of political pressure.


There is no other obvious explanation for May’s announcement of Hard-Brexit other than to appease her backbenchers, however the sacrifice for May safeguarding her position is that markets have not reacted kindly.

A frantic selloff has ensued and Sterling has now fallen to a new 31-year low with the pound now dropping below what the Independent have stated is the “psychologically important” $1.27 level. Sterling has now fallen to $1.2695 with forecasts looking even more dire – Danske Bank, Credit Suisse and Unicredit have all predicted further falls over the next six months to around the $1.08-1.11 level.

It is only a matter of time before the repercussions of Brexit are felt. Consumers have continued to spend as if all is rosy up to this point, but a (further) rise in the price imports (and therefore a rise in the price of exports for those goods where component parts are imported) will be seen, with people’s disposable incomes beginning to decrease – something that will not be helped by a fall in employment levels and businesses begin to feel the pinch.

But this is only the beginning. Leaving the single market is likely to create job losses – the UK’s finance industry, for example, could lose up to £40 billion in revenue and lead to 75,000 job losses, the UK will be in a sufficiently worse position to attract Foreign Direct Investment of which the UK has been a hotspot due to our membership of the single market and the UK will lose tax revenue desperately needed to invest in our ageing infrastructure, arguably the true cause of the resentment which led to the Leave vote, which Philip Hammond has already indicated will be done through increased borrowing.

Theresa May is safe, for now, but we will all pay the price over the next few months and years for her decision to pander to the Conservative backbenchers.

Brexit means Brexit… except in parliament

You lost, get over it”, the famous quote from the mouths, or keyboards, of many a Leave voter which is slowly being consigned to the far corners of the internet as the sheer complexity and magnitude of the task at hand that is leaving the European Union comes into focus. Of course, Remain voters have been far from quiet – naturally, the losing side is always the one which shouts louder – with calls that, as we begin to learn what Brexit means beyond ‘Brexit’, may echo down the halls of Westminster. As inconceivable as it may seem, when push comes to shove the people bound by the referendum result more than anyone – the 650 MPs in the House of Commons – may be the very people that turn their back on it.

Before such an idea can be dismissed as nothing more than the thoughts of hopeful and/or naïve Remainers it must reach a stage where such a decision can be decided by parliament. As it stands, Theresa May intends to trigger Article 50 without consent of parliament (a decision hailed by Leave voters which, ironically, shuns democracy as a means of ‘bringing democracy back to the British Isles’), yet a closer look at the relevant legislation suggests that this may not be possible.

“As a matter of the constitutional law of the United Kingdom… the Royal Prerogative, whilst it embraces the making of treaties, does not extend to altering the law or conferring rights upon individuals or depriving individuals of rights which they enjoy in domestic law without the intervention of Parliament.”

Jolyon Maugham, a UK based lawyer, notes that these words from Lord Oliver in ‘Rayner (Mincing Lane) v DTI [1990] 2 AC 418, 462’ suggest that Article 50 cannot be triggered without the consent of parliament as a royal prerogative would, almost certainly, alter or deprive the rights of individuals.

“The UK’s membership of the EU gives us rights as individuals: to live abroad, healthcare cover on temporary travels, to accrue pension rights working in other Member States, and so on. Parliament has not acted to modify or abrogate those rights. It cannot be right that the Executive can. To say this is to do no more than articulate a specific instance of an important general rule about the limits of Prerogative Power. To ignore it is to put citizens at the mercy of the Government.”

Despite the ‘mandate’ arising from one of the biggest democratic exercises in the UK’s history, parliament is only bound by the result of the referendum politically, they are not legally bound by the result of a purely advisory referendum in any way. Furthermore, this ‘mandate’ only relates to the withdrawal from the European Union, with no comment on what capacity – be that regarding whether it should be a hard or soft Brexit, on immigration, trade, whether the EU budget goes to the NHS, and on and on – all that was decided is that the UK should leave the EU.

However, whilst it is conceivable that such a decision may reach parliament, it seems pretty inconceivable that MPs would vote against the will of the electorate, right? MPs representing constituencies that voted Remain – London, Brighton, the entirety of Scotland, etc. – would probably vote against the 52%, but surely it is madness that those MPs representing the constituencies of the towns and cities which felt they had been left behind by the ever more globalised world and, as such, voted to leave the EU, would do such a thing?

Maybe not, no. Brexit doesn’t mean what Brexit was supposed to mean.

The Leave campaign promised it all, typified by Boris’s clunky, muddled post-referedum speech on the morning of 27 June – membership of the world’s largest customs union, trade with the rest of the world, an end to free movement, no EU budget contributions, etc. we could have it all.

As time passes, however, we’re seeing that big trade-offs are going to have to be made, and that Brexit isn’t nearly as appealing as it was presented to the electorate prior to 23 June.

“Brexit means the UK will become a truly global economy”

Of course, while noting that no negotiations have yet begun, it appears that quite the opposite will occur. Australia, the US, and no doubt a whole host of other countries, have taken the position that they are reluctant to begin trade negotiations until the UK’s relationship with the European Union becomes clear. Remaining in the customs union creates issues as far as immigration and worldwide trade negotiations are concerned (Liam Fox and his department for International Trade are basically out of a job if this ensues) but leaving the union means a whole new set of issues arise.

As the Japanese government – who, unlike the UK, have actually analysed the economic repercussions of Brexit – have recently warned, Brexit will risk the UK’s position as the hotspot for foreign direct investment from non-EU companies seeking access to the world’s largest customs union that is the EU, such as the Nissan factory in Leave Sunderland for instance. Far from becoming the worldwide economic hub, Brexit may result in a loss of this FDI with the unemployment, fall in tax revenue and the fall in worldwide status that accompanies it.

The punchline in this dilemma is that to leave the customs union means the UK will become far more dependent on striking a favourable deal with countries that will, economically, hold us with much less importance. This will be exacerbated by years of uncertainty and will, eventually, take a toll on the economy as we negotiate our new economic relationship with the EU, remember that the EU-Canada trade agreement was launched in 2007; it has still not been ratified.

Brexit was presented as the golden ticket for exporters, and for our current account deficit, yet Nick Clegg – who recently analysed the implications of Brexit for trade alongside Peter Sutherland, the former founding director-general of the World Trade Organisation – has declared that this not the case at all. Only 15% of total UK trade is with countries that are neither members of the EU, nor covered by an EU trade agreement that is either in force or under negotiation which suggests that, for the time being, clearly life is going to be much more difficult for exporters than at present once tariffs are applied which will place UK exporters at a cost disadvantage.

Clegg continues, stating that substituting Britain’s current arrangement for a free-trade agreement will, contrary to what the Leave campaign led the electorate to believe, create a torrent of paperwork for exporters. Exporters will have to put their products through exhaustive customs checks and comply with complex rules of origin to prove where their goods and component parts were manufactured.

To add insult to injury, the UK will have to establish its own schedule of commitments – the tariffs it proposes to levy on imported goods and services – which requires negotiation with 163 countries, any one of which, according to Clegg and Sutherland, could derail the process in the hope of extracting concessions.

“Our analysis suggests the most likely scenario is that the UK leaves the EU without any preferential trade deal in place — and without a WTO schedule of commitments. We will therefore lose access to more than 50 existing free-trade agreements”

One final point to raise regards the obstacle that specifications pose. Chad Brown, formerly a lead economist at the World Bank, notes that most UK regulatory standards from food to pharmaceuticals are in line with EU standards which, if the breakdown in TTIP negotiations are anything to go by, creates issues for future UK trade deals. Frequently during TTIP negotiations, talks broke down as technical standards were incompatible, therefore the extent to which the UK shares a trade agreement with the USA, for example, may be at the mercy of how willing the UK is to alter their regulatory standards, however this could then jeopardise the UK’s agreement with the EU.

“Brexit means taking back control of our borders”

Arguably the cornerstone of the Leave campaign was the vow to introduce controlled immigration to make Britain ‘British’ again, yet this appears to be in tatters also. As we know, if the UK opts to remain a member of the customs union it almost certainly has to accept the free movement of people (or something incredibly similar), but there doesn’t appear to be an alternative anyway.

May has not only rejected the idea of a points-based immigration system (stating that they do not work) but also David Davis’s ‘personal view’ that it was very improbable the UK would stay in the single market unless there were border controls in place.

“This government is looking at every option but the simple truth is that if a requirement of membership is giving up control of our borders, I think that makes it very improbable”

Based on this, it suggests that the UK is heading for an immigration policy very similar to the free movement of people. This has been highlighted by the recent statement from Philp Hammond, that there will be preferential treatment for ‘highly skilled’ people, notably bankers, and will almost certainly lead to an orderly queue being formed from a variety of industries – such as science, tech and restaurants – all asking “what about us?”.

“Brexit means we stop sending £350m a week to Brussels”

Of course, we now know that the £350 million we send to Brussels every week will not, despite being emblazoned on the Leave campaign’s battle bus, be sent to the NHS (and not just because we didn’t send £350m a week) but it may not even be going to another department (say, to the Department for Exiting the European Union to pay for the costs of negotiators for Brexit) but may, in actual fact, continue to be sent to Brussels.

David Allen Green, former government lawyer, affirms that if the UK wished to leave before 2020 it would require substantial re-negotiation of an already heavily negotiated budget which is in place until the end of the decade, this would involve the agreement of the other 27 member states (none of which have an interest in a renegotiation) as well as the EU institutions.

The result is a paradox, any attempt to leave before 2020 would mean months, if not years, of budget renegotiation which would delay any agreement. Therefore, this may explain why Hammond was so ready to guarantee domestic EU-related funding arrangements until 2020.

The list of broken promises could continue indefinitely, but the point is that whatever option the 650 MPs in the House of Commons are faced with will be completely different from the utopian vision that the Leave campaign promised the electorate and, therefore, may have the justification required to support their actions.

What would follow this in the event that it did arise is purely speculation. No doubt there would be anger from Leave voters who, by that point, would be shouting just as loudly as Remainers, but the government’s next move would be anybody’s guess.

Perhaps the government would go back to the drawing board and propose a different Brexit agreement which MPs would be more inclined to support – after all, rejecting a poor plan for post-Brexit Britain is a completely different thing from rejecting Brexit. Perhaps there would be a second referendum, one that is bound by law rather than being advisory which would not only give May the ability to trigger Article 50 without parliament but would also leave no doubt that the electorate wished to leave the European Union.

Perhaps, however, we will never get to this point, perhaps all Brexit will ever mean is Brexit.

24 September is when the UK Remain or Leave the EU

The path to be taken by the UK following the Brexit vote remains unclear, with a magnitude of questions surrounding what post-Brexit Britain will look like or if Brexit will even occur altogether. The latter question, however, may be decided on September 24 when the battle for the Labour Party reaches its climax.

On the face of it, the contenders hardly seem like they could be be quite so pivotal in the future of the United Kingdom. Jeremy Corbyn is, in the mind of both his rebelling MPs as well as a large proportion of the electorate, an incredibly principled man with utopian ideals that should be shared by all of those in the commons, but he is not a man with the policies to implement these ideals (his recent ten-point vision was evidence of this), nor a man with the ability to gain the support of the vast and increasingly polarised electorate.

Owen Smith’s greatest quality, on the other hand, appears to be that he isn’t Corbyn. Aware that he already has the support of the party’s ‘anyone-but-Corbyn’ right, he has embarked on outlining his ‘Corbyn-lite’ vision with similar, albeit toned down, policies regarding infrastructure projects, employment law and urgent need for reform of the NHS.

But with Brexit slowly being pushed back, as those responsible for navigating Brexit begin to realise the sheer enormity of the task ahead in what lawyer David Allen Green describes as a ‘strange variation of Moore’s law’, it may lead to the victor of the opposition becoming key in the fate of the UK.

“In a strange variation of Moore’s Law, every month that passes since referendum adds about a year to when Brexit will eventually take place”

Whether or not this transpires will be dependent upon whether Brexit is delayed to the point where it would overlap with a general election in 2020, therefore leaving May’s government with a choice; risk the Labour Party potentially being elected and allowed to lead the rest of the negotiations, something which could create great political and economic uncertainty as Tory and Labour post-Brexit visions are likely to follow incredibly different paths, or delay Brexit all together until after the 2020 general election?

Prior to the referendum Article 50 was to be notified immediately following the vote, however after David Cameron decided that he shouldn’t do “all the hard shit for someone else, just to hand it over to them on a plate?”, it was thought that Brexit would begin in Autumn 2016 once the dust had settled following the Conservative leadership election.

The delays continued, however. Mounting legal challenges, such as that from hairdresser Deir Dos Santos, meant Brexit negotiations were expected to occur in early 2017 but, as Moore’s Law continues, Article 50 is now expected to be notified in autumn 2017, with the upcoming French and German elections and the need for the Brexit and international trade departments to prepare for negotiations to blame.

Although just speculation, there are clues that perhaps this may be forced back even further. Philip Hammond has announced that the Treasury will guarantee to back EU-funded projects signed before this year’s Autumn Statement and to continue agricultural funding currently provided by the EU until 2020. It is highly improbable given the economic chaos looming that the government would guarantee potentially scarce funds and resources unless it was expected that the UK would remain in the EU, thus meaning that the UK would continue to receive funding, for part or all of this period.

This currently leaves formal negotiations (the official two-year exit period, although it is unlikely talks will be wrapped up by then) concluding in autumn 2019, only a mere few months before the May 2020 elections will take place, but there are several obstacles – some obvious, others unknown – that may delay this further.

Both the upper and lower chambers may cause problems. With the majority of the Common’s MPs in favour of the UK’s EU membership, MPs may be tempted by the possibility of rejecting Brexit, be that all out (which is admittedly unlikely, particularly for those representing Brexit constituencies) or proposals that are not up to scratch (such as one which rejects the single market in favour of controls on immigration. The greater challenge, however, will be in the form of the pro-EU House of Lords; although unable to block proposals completely, under the Parliament Act 1911 and its subsequent amendments they are able to block Brexit by up to a year which could spell trouble for Brexiters.

Scotland and Northern Ireland are also likely to play a key part in further delays to Brexit. Although Theresa May might be keen on a UK-wide approach to Brexit, Nicola Sturgeon is adamant that Scotland cannot be pulled out of the EU against the Scot’s will. Just this week she showed an interest in an article written by Denmark-based academic Ulrik Pram Gad for the London School of Economics which suggested that Scotland, Northern Ireland and Gibraltar could pursue a ‘reverse Greenland’ whereby negotiations could aim at a territorial exemption of England and Wales from EU membership. If Sturgeon continues to stick to her guns and battle for continuted Scottish membership of the EU, it could take some time before she and May begin to see eye to eye.

“The Brexit referendum results in England and Wales contrasted sharply with those in Scotland, Northern Ireland, and Gibraltar. Taking these differences into account – and combining them with prospects of Scottish independence, renewed troubles in Northern Ireland, and potentially severe isolation in Gibraltar – the UK could refrain from activating Article 50.

 “Instead, negotiations could aim at a territorial exemption of England and Wales from UK membership. The UK would still be a member state – voting rights reasonably reduced to match the population of Scotland and Northern Ireland.”

Finally, while this is ongoing, there will be continued chaos in the economy – it was announced earlier today that the UK’s consumer price index for July, the first full month after the Brexit vote, reached 0.6 per cent, something which will be further exacerbated by a decrease in interest rates if this monetary policy is successful in stimulating economic activity through increasing consumption. Economic turmoil and rising prices could lead to a growing anti-Brexit sentiment, particularly amongst the working class (those which swung the referendum result) whom are dealt the harshest blow from a sharp rise of inflation.

This sentiment may also be added to through a change in the demographics of the UK population. The Financial Times have calculated that, if population projections and what is known about turnout and voting intention among different age groups in the referendum remained the same, Remain would win the EU referendum if it were held again in 2021.

This is where the victor of the Labour leadership race begins to play a part. If further obstacles cause Brexit to become delayed for much longer, it may transpire that Article 50 will only be notified following a general election with Brexit visions being one of the main battlegrounds.

Whereas Owen Smith is pro-EU, affirming that he would prevent the UK’s exit from the EU or, at the very least, hold a second referendum to ensure that the electorate still support their previous decision, Corbyn has no such interest, instead agreeing with May (as seen on June 24 when he stated that the UK should enact Article 50 immediately) that Brexit means Brexit, hardly surprising from the Eurosceptic.

Therefore, as far as EU membership is concerned, all hopes have to be placed with Smith. Although it may seem ludicrous to suggest that Smith would be in with a chance of beating May in a general election at this time, if a general election fought on Brexit were to take place it would be a choice between Smith and Labour’s campaign for an end to the political and economic mayhem, instead pushing for reform of the EU (which may appeal to the traditional working Labour voters), and May’s ‘Brexit means Brexit’ with all the pain and the inability to pledge funding that accompanies it. Perhaps in 2020, when faced with a decision to return to happier times or to remain on the bleak Brexit path, Smith’s chances won’t be quite so slim.

With Corbyn at the helm, as is expected to be the case when the victor is announced next month, both May and Brexit will face minimal opposition as the pro-EU SNP continue their dominance in Scotland whilst the middle class and the political centre remain reluctant to support Corbyn, preventing him from getting anywhere close to number 10; but perhaps Smith, armed with the promise of a second chance for European membership, could be able to rival May and finally kill Brexit once and for all.

How May the UK fare in stopping Islamic State?

It is only now, just over a month on from the referendum, that the dust is finally beginning to settle. Although the Labour Party is still embroiled in the battle between the left and right for control of the opposition, the fight for leadership of the Conservative Party, which was followed by a merciless cull of Cameron’s allies, is over. Theresa May emerging as the victor.

Throughout the debate between Remain and Leave, one threat that was forgotten as the media limelight was hogged by the economy and the free movement of people was so called Islamic State (ISIS). ISIS may have lost control of vast areas ‘the size of Ireland’ in recent months but they are far from weak, with control over a territory of 26,370 square miles in Syria and Iraq. May will have to juggle the withdrawal from the EU whilst the threat, far greater than the threat ever posed by Al-Qaeda, is tackled simultaneously.

Domestically, May’s bold attempts to tackle extremism were seldom without controversy. On 24 November 2014, May announced a new counter-terrorism bill to confront “one of the most serious terrorist threats we face”. This bill gave the government control over the cancellation of overseas suspects’ passports and their potential return to the UK, included changes to Terrorist Prevention and Investigation Measures, allowing authorities to force suspects to move to other parts of the country and prevented ransom payments to terrorists that are illegal under international law.

“This legislation will seek to build on our existing counter-terrorism strategy. The new powers will help us to prevent radicalisation, strengthen the TPIMs regime, give us greater powers to disrupt and control the movements of people who go abroad to fight, improve our border security, make sure British companies are not inadvertently funding ransom payments.”

May has also strongly opposed the European Convention of Human Rights (ECHR), claiming that it can “bind the hands of parliament, adds nothing to our prosperity [and] makes us less secure by preventing the deportation of dangerous foreign nationals”. Whilst this might simply be an attempt at passing the blame for the failure of the Conservative’s attempt to reduce immigration to tens of thousands it might, more worryingly, be a means of giving the authorities greater powers when detaining, questioning and deporting terror suspects.

Another policy of May’s which attracted widespread controversy and opposition was the draft communications data bill, known by its critics as the ‘snooper’s charter’. The bill, which has recently stepped back into the spotlight, would force telecoms companies and internet service providers to store every person’s communications data, including records of calls, texts, emails and their entire internet browsing history for a year.

Increased surveillance and fewer rights for suspects as a result of policies such as these could very well make it harder for those planning attacks to operate, but it appears from her track record that May’s government will not be afraid to curb civil liberties for everyone as a means of achieving this.

Whilst this may appear to be a fair trade, it is likely that further measures similar to those we have already seen would be largely ineffective. Increased surveillance and controls might have some effect on the few who foolishly reveal their intentions on the internet and social media, but ISIS is an obsessively secretive organisation which, for example, shut down Mosul’s phone system in 2014 because it believed people were disclosing information about its movements.

The inefficiency of such measures is highlighted by Patrick Cockburn, an award-winning writer on The Independent who specialises in analysis of Iraq, Syria and wars in the Middle East:

“It is impossible to police British borders effectively without bringing ports and airports to a halt or allocating vastly more resources to the system. Demonising Muslim or other educational institutions for failing to prevent something as vague as “radicalisation” will simply fuel Islamophobia and a sense of persecution among Muslims.”

But the battle against so called Islamic State does not only take place at home, foreign intervention is also key. Although we can only speculate over May’s policy of foreign intervention at this time, her voting record suggests that she will be wholly comfortable with the use of military force. May voted in favour the Iraq war, she voted in favour of the continued deployment of British troops in Afghanistan in 2010 and she voted in favour of military action in Iraq, Syria and Libya.

What may well determine May’s success in the battle against ISIS, however, is whether or not she, like Cameron and Blair before him (in his response to Al-Qaeda and 9/11), repeats past mistakes by failing to tackle the root of the problem, Saudi Arabia.

The Saudi’s have willingly provided the largest number of foreign Jihadis to ISIS and their ‘substantial and sustained funding’ in their pursuit to spread Wahhabism, the intolerant variant of Islam which denounces Shia as heretics and treats women as chattels under male control, played a central role in the ISIS surge into Sunni areas of Northern Iraq, a matter which Richard Dearlove, former head of MI6, commented on in 2014:

“First, they are convinced that there can be no legitimate or admissible challenge to the Islamic purity of their Wahhabi credentials as guardians of Islam’s holiest shrines. But, perhaps more significantly given the deepening Sunni-Shia confrontation, the Saudi belief that they possess a monopoly of Islamic truth leads them to be “deeply attracted towards any militancy which can effectively challenge Shia-dom”

Although the fact that May has not previously shown any particular interest in issues such as Syria, Iraq and the broader Middle East beyond their impact on counter-terrorism and immigration will provide the benefit of her holding no particular prejudices when faced with such issues she, rather worryingly, signed a secret security pact with Saudi Arabia and then proceeded to prevent details of the deal from being made public, a move widely criticised by both the Labour Party and by Tim Farron and the Liberal Democrats:

“Parliament should be able to hold ministers to account. It is time to shine a light onto the shady corners of our relationship with Saudi Arabia. It is time we stood up for civil liberties, human rights and not turn a blind eye because the House of Saud are our ‘allies’”

Equally troublingly, in March 2014 May signed a MoU (an informal agreement) with her Saudi counterpart to help modernise the Ministry of the Interior by drawing on UK expertise in the wider security and policing arena. Although this could be perceived as the UK assisting Saudi Arabia in modernising, the abundance of reports of barbaric punishments for very minor offences suggest otherwise.

With a view to the wider UK-Saudi relationship, just last year, according to leaked document cables, the UK conducted secret vote-trading deals with Saudi Arabia to ensure both states were elected to the UN human rights council, suggesting that the public may only see the tip of the iceberg with regards to the UK’s relations with Saudi Arabia.

Where May stood on these matters behind closed doors in Cameron’s government is unknown, but it is crystal clear where she must stand on these matters in the future in her government. If May fails to tackle the root of the problem, Saudi Arabia, then her domestic policy tackling terrorism will be rendered ineffective with foreign intervention in Iraq and Syria only marginally more effective.

Deal or No Deal?

They say seven days is a long time in politics, which must mean that the 27 days since the referendum vote are an age. We have seen a new Prime Minister in No10 who has orchestrated a ruthless reshuffle of the cabinet, a coup within Labour to oust Jeremy Corbyn and, with an international outlook, shocking events in Nice and Turkey, respectively. In this volatile domestic and international climate, it is now up to Theresa May, David Davis, Boris Johnson and co to form new trading relationships with the rest of the world and – although things may, and probably will, change entirely over the next 27 days – this is how promising the options on the table look currently.

The European Union

Despite opting to leave the bloc, it is integral that a new relationship is developed between the UK and the EU; after all, EU countries amount to 50% of UK exports and, crucially, in surveys, 75% of international investors have said access to the single market is the key reason they are here. However, following Brexit, the EU has made it explicitly clear that free trade does not come without the free movement of people but, David Davis, ‘Brexit Minister’ in May’s all-new cabinet, believes he can defy the odds.

“Everybody is taking starting positions. Of course they are talking tough. If I was negotiating to buy your house or your car my first offer wouldn’t be my final one, would it?”

“Post-Brexit, a UK-German deal would include free access for their cars and industrial goods, in exchange for a deal on everything else.”

“Similar deals would be reached with other key EU nations. France would want to protect £3 billion of food and wine exports. Italy, its £1 billion fashion exports. Poland, its £3 billion manufacturing exports.”

Beyond the obvious, the fact that EU countries cannot unilaterally negotiate trade deals with non-EU member states (one issue facing us prior to our notification of Article 50), it is highly unlikely that any such deal could be negotiated without, in some sense, allowing the free movement of people. Despite this, Davis’s stance appears to be very much against the free movement of people, suggesting that new EU migrants who head for Britain could be sent home to avoid a spike in immigration ahead of a withdrawal from the bloc, a statement which has been condemned by those including Labour’s Andy Burnham and Stephen Gethins, the SNP’s Europe spokesperson.

“It is shameful that, instead of trying to offer any sort of reassurance for EU nationals living and working in the UK, the Tories are content to use EU nationals as bargaining chips in their Brexit negotiations”

Although such limits may be possible for others with economic ties to the EU, there are key differences between these countries and the UK. Liechtenstein, for example, has a population of a mere 37,000, such barriers on free movement do not threaten the integrity of the EU. Furthermore, Canada, unlike the UK, only sells 8% of its exports to the EU and is on the other side of the Atlantic Ocean.

It is vital that the UK negotiates a favourable deal with the EU (particularly with regards to the UK’s services sector), especially in light of the recent downgrades in economic forecasts by the IMF; they have cut anticipated UK economic growth by 0.2% this year and 0.9% next year. Given that the UK has very few negotiators and, to exacerbate matters further, any negotiators it does acquire will need to know the EU both inside and out for the UK not to be on the back foot when it faces the top dog at the table (the world’s biggest trading bloc with a common market and multiple trade deals with countries across the world), May, Davis and co may have to abandon their stance on the free movement of people if they hope to have a relationship that is beneficial for the domestic economy.


One bit of promise as far as trade deals are concerned is Australia’s eagerness to negotiate a free trade deal with the UK. Malcolm Turnbull, Australian prime minister, has expressed his desire to create a trading relationship between the two countries as a matter of urgency.

It is clear to see the reasons behind this enthusiasm, the UK is the second largest provider of FDI to the Aussies, only behind the United States in this regard, and it would be an opportunity for Australia to become closer to the EU economically, their second largest trading partner (worth $83 billion), second only to trade with China (at $160 billion) in 2013-14.

“We need to get moving on that quickly … Australia has been a great beneficiary of free trade and open markets and so has the United Kingdom.”

However, the importance of such a deal is up for debate. As of May 2016, Australia was the 21st largest export market and 20th largest of import provider for the UK. There may also be opposition from within Australia to such a deal, Australian Republican Movement Chair, Peter FitzSimons, has already expressed concerns:

“With the British people voting to leave the European Union, what benefit is there to Australian business in continuing to have the British Monarch as our Head of State?”

“Australia’s economic interests are best served by an Australian Head of State, promoting Australian exports in growing markets. Britain is turning its back on Europe, but modern Australia must embrace it.”

If such a view gains support amongst the population, Australia may have to revoke their position or, much more likely, may have to take a harder line which, with the onus on the UK to create trading relationships and, once again, the UK’s lack of skilled negotiators, the deal may be far from what the UK has in mind.

The United States

One trade deal that would carry serious weight in showing the UK’s intent on remaining a global economic influence would be to create a trade deal with the UK’s 3rd largest import market and largest export partner, the United States.

The Obama administration has backed away from its initial warning that the UK would be at the ‘back of the queue’, beginning preliminary discussions regarding how they might be able to pursue a trade agreement between the two countries, speaking with Sajid Javid and Mark Price, the UK’s outgoing business and trade secretaries. Daniel Mullaney, the chief US negotiator, has highlighted the importance of such an agreement, noting that the UK account for 25% of US exports to the EU market.

However, such talks are likely to be a lengthy process (especially if NAFTA and TTIP negotiations are anything to go by), as John Kerry, Secretary of State, has pointed out. Whilst he appreciates that “you can begin to pencil things in, you can’t ink them in”, such a statement suggests ‘proper negotiations’ won’t be underway until the UK has withdrawn from the EU.

Another factor obstructing the way to a speedy negotiation process is, as Kerry has reinforced, are the TTIP negotiations. Kerry has even gone so far as to say that TTIP had become more important in the light of the UK’s exit from the EU, given it would create a vast market. It is naïve, even despite the importance of the UK in the bloc, to think that the USA would allow talks to combine the world’s two largest trading blocs to stagnate whilst a UK-USA relationship was discussed.

“This remains a high priority for President Obama and for our administration”

It isn’t out of the question, however, that negotiating TTIP may, temporarily, become of secondary importance to a UK-US trade deal. The TTIP may be put on hold due to both Brexit, with EU diplomats warning that the deal’s prospects are now more uncertain than ever, and the upcoming German and French leadership elections in 2017, as well as the US election in November.

Another potential threat is public opposition. If this remains strong, with concerns over the services sector (where talks have faltered), the regulatory differences in food and farming as well as, more generally, the talk’s secretive nature, then the US opt to turn their attention to the UK. I wouldn’t hold my breath though, the USA’s previous shows that they’re not ones to rush into such a deal. Perhaps an agreement solidifying the special relationship could be hammered into place, but this will only happen if US-EU talks wane.


It appears to be the same story in Canada. Although Liam Fox told the Sunday Times that Britain had opened “very fruitful” trade talks, the office of Canadian Trade Minister Chrystia Freeland said her focus was the Comprehensive Economic and Trade Agreement (CETA) between Canada and the EU.

Whilst, this spanner in the works may mean that a trade deal between Canada and the UK is off the cards for the foreseeable future, negotiations may never need take place at all. Theresa May recently affirmed to Freeland that the UK will push EU approval of CETA which Sam Fowles, a post-graduate law student at Queen Mary University, has noticed could lead to the UK being tied to the agreement for up to 20 years:

“Art. 30.8(4) of CETA provides that, in the event the Agreement is provisionally applied but not ultimately ratified and the provisional application is terminated then claims may be made in relation to the period in which provisional application was effective up to three years after the termination of provisional application.

 As Art. 1.3(2) of CETA provides, the Agreement (including provisional application) will cease to take effect in the UK when the EU treaties cease to take effect (i.e. two years after the issue of a withdrawal notice or on the conclusion of a withdrawal agreement as per Art. 50 TEU). Thus the UK will be subject to Chapter 8 […] for three years after it withdraws from the EU if CETA is provisionally applied before that date.”

 “If the UK does not withdraw from the EU until after CETA has been ratified then Art. 30.9(2) of CETA will apply. This provides that Chapter 8 will apply for 20 years after the date at which the Agreement is terminated in respect of all investments made while it was in effect. As such, in this case, the UK will be subject to Chapter 8 for 20 years after it officially leaves the EU.”


Another country that May and co will be eager to establish a trade deal with, potentially even more so than the USA, is with China. The London School of Economics note how such a deal appears to be a match made in heaven, with China seeking expertise in services and high-tech industry whilst Britain need to maintain strong investment inflows due to its gargantuan current account deficit, something China’s huge level of FDI outflows could provide.

As well as quashing (at least some) of the protests that Brexit will make the UK globally isolated and insignificant; creating, or at least pushing for, a FTA with China may benefit the UK’s negotiations with the EU greatly, with the UK becoming a gateway to over a billion Chinese customers for EU businesses.

There are a concerns, however. Despite the obvious benefits to the Chinese with the current turbulence in their economy (which will lead them to be equally keen on such a deal), without the world’s biggest trading bloc behind them, the UK will have far fewer cards in negotiations which may lead to a less favourable deal from our side of the table.

According to CapX, a British news website founded by the Centre for Policy Studies, further economic issues with a serious trade agreement with China include the need to tackle the distortions caused by its state sector, its subsidisation and its artificial increase in the costs of its rivals

The UK may have less manoeuvrability in condemning China’s curbing of human rights also. In the past few years, China has, among other things, ordered a severe crackdown on human rights lawyers (hardly progressive considering some of the appalling working and living conditions in China) and attempted to limit free speech by detaining dissidents, bloggers and journalists. As the Conservative Party’s human rights commission recently emphasised in a statement accompanying a report released by MPs last month, this is, quite plainly, unacceptable:

“In light of [Xi’s crackdown], we believe it is time for the UK government to rethink its approach to China, to speak out publicly and consistently on human rights, and consider ways it can more effectively promote and protect basic rights that are being gravely violated in mainland China and in Hong Kong”

Our lacklustre attempts at denouncing such actions have had little impact to date, therefore the establishment of a FTA would likely lead to the UK becoming even quieter about such issues as economic self-interest prevails. Economically, a FTA with the Chinese would be the dream all Brexiters were dreaming of, but ethically, it could be a disaster.

Other boxes still unopened

  • Business Secretary Sajid Javid has begun preliminary trade talks with India during a series of discussions in Delhi.
  • George Osborne has gone to Singapore to ‘drum up post-Brexit trade’
  • Liam Fox has said that the UK already has ten trade deals lined up with economic powerhouses around the world

What’s in our box? Should the UK have said ‘No Deal’ to the EU?

There are promising signs, the UK is out of the traps and ready to take on the world, with scope for deals with the USA, China and maybe even the EU. Worryingly, however, the sheer time it takes to smoothen out the fine details of trade deals, accompanied by countries’ reluctance to prioritise UK trading arrangements over those with the EU, will mean any such benefits of these deals may not be felt for over a decade. It is quite plausible to assume that the UK will have little bargaining power in many of these negotiations which will lead to the UK getting a raw deal. Only time will tell; perhaps Brexit will be a disaster, but perhaps this is the point where the UK ceases to be a key figure in the EU, but a key figure in the world.



An uncertain future

Following Brexit, the only certain thing is that, in the long run, we’re all dead.

This post is an annexe to Article 50, a fantasy? due to the sheer size of the post. In light of this, this post will only seek to analyse some of the most focal issues with regards to the economy following Brexit, how the Bank of England has responded to Brexit and what the governments post-Brexit plan, if the UK economy is being considered, should be.

Economic chaos

The immediate consequence of Brexit has been mass uncertainty in the market, with investors withholding or cancelling decisions to invest which, in turn, has created further chaos and instability as companies look for somebody to make the bold first step. This is likely to be the case until the UK’s post-EU vision is unveiled and people and companies alike can properly plan for the future. One such instance of this is at Siemens UK, one of the UK’s biggest industrial companies which has three plants and employs about 14,000 people in the UK, where chief executive Juergen Mair has said that they will not be making new investments until ‘the future of the UK’s relationship with Europe becomes clearer’.

“Unless you have a really strong argument for innovation or skills being particularly strong here, if those are similar to somewhere else the business case for investing here will now be less attractive until we know what the trading arrangement is going to be,”

With regards to investment decisions, a paper produced by Swati Dhingra, Gianmarco Ottaviano, Thomas Sampson and John Van Reenen on behalf of the London School of Economics, researched the effect that Brexit would have upon the UK’s level of foreign direct investment (a foreign investment in a UK business where the foreign investor has control over the company purchased) and concluded that, although striking a comprehensive trade deal – for example, joining Switzerland in the European Free Trade Association – would not significantly reduce the negative effects of Brexit on FDI, Brexit is likely to reduce FDI inflows to the UK by around 22%. They note that such losses of investment will damage UK productivity and could lower real incomes by 3.4%, which equates to a loss of GDP of around £2,200 per household.

The report also delves into the effect on specific industries, it proposes that the impact of Brexit on the UK car industry (of which 40% of exports are to the EU) would be that UK production would fall by 181,000 cars (12%) and prices would rise by 2.5%, adding that even if the UK manages a comprehensive trade deal and keeps tariffs at zero, production would fall by 36,000 cars. The report also speculates that restrictions on ‘single passport’ privileges following Brexit would lead to big cuts in activity in the financial services industry, adding that the UK would be unable to challenge EU regulations at the European Court of Justice.

Another immediate consequence of Brexit has been a rapid decline in the value of Sterling. On 24 June, following the news of Brexit, Sterling hit $1.3122 GBP to the Dollar, its lowest level since mid-1985, and marked an 11.7% fall from the currency’s closing level on June 23. The knock on effect of a weaker pound will be that imports will become more expensive, this will have severe implications for a vast and diverse number of companies with UK operations.

Although the FTSE 100 may have recovered since the news that the UK was to leave the EU, widely credited to the news that Article 50 will not be invoked immediately and investors beginning to bargain hunt, buying up shares that had fallen in value, this is not an overall representation as to the state of the UK economy. This is because, unlike the FTSE100 where 70 per cent of the revenues produced actually come from overseas, the FTSE 250, the 250 largest companies in the UK, is made up of firms which are more UK focused, such as housebuilders, estate agents, pub groups, travel companies and retailers. According to the Independent, the FTSE 250 fell 13% in two days following the referendum result and, while it has recovered a little since then, by close on 2 July it was trading at 16,465.49, some way off its pre-Brexit high of 17,333.51 on 23 June.

The likely consequences of such a scenario are higher costs for these companies which they are likely to attempt to remedy, broadly, through a mixture of cutting costs and pushing additional costs on to consumers. Cutting costs may simply mean efficiency measures but it is more likely to include less investment (as discussed above), slower wage growth and a rise in unemployment which, in turn, will result in a lower level of consumer spending. This will cause further damage in a vicious cycle of sorts, and will lead to a higher level of benefits claimants, putting pressure on the government to raise taxes which will also put pressure on consumer’s pockets. A strategy of pushing the higher costs on to customers in the form of higher prices will inevitably increase the levels of inflation as the consumer price index (a typical basket of goods for a typical consumer) increases and, therefore, consumer’s disposable income decreases.

One interesting thing about inflation, given the general patterns in the votes to Leave the EU, is that it has a regressive effect, therefore the elderly and the working classes are more likely to be impacted by this inflation as they lose a larger proportion of their income. In June 2011, Alliance Trust found that rising inflation in Britain was hitting the elderly the hardest because prices for food and domestic utilities such as water and heating were increasing at more than 5% a year. The Institute of Fiscal Studies (IFS) found a similar trend, calculating that, between the years 2008-10, the poorest fifth of households faced a rate of inflation of 4.3% pa in contrast to annual price rises of 2.7% for the richest fifth of households.

It is at this point that I should point out that the flipside of this is that exporters may see a rise in demand as imports from the UK become cheaper for foreign companies and consumers, however this may be offset by the increase in tariffs as a result of leaving the EU. Furthermore, the UK has many companies with headquarters in London because of the UK’s close proximity (both economically and geographically) to the EU market of 500 million consumers. These companies may now be considering whether it would be wise to relocate, perhaps to European business hubs such as Dublin, Frankfurt and Paris. Companies that have already stated such intentions include EasyJet and Vodafone, with the big US banks — JP Morgan Chase, Goldman Sachs, Bank of America, Citigroup and Morgan Stanley – all weighing up the possibility of relocating their operations, according to the Financial Times. If these companies did withdraw it would cause further unemployment and uncertainty concerning the future of the UK economy. Cue the dismal consequences mentioned above.

Promises on subsidies, higher levels of benefits claimants and the need for investment mean the government is going to need a greater level of revenue. Downgrades of the UK’s credit rating by Fitch, S&P and Moody’s will cause borrowing by the UK government to become more expensive, therefore, as mentioned above, taxation will have to increase. George Osborne has discussed the likelihood of this possibility both prior to and following the referendum, it is just a matter of how greatly tax rates increase.

It is also probable that, in line with tax increases, the level of austerity will have to increase as government income is redirected to regional and industrial areas which will suffer from the loss of EU funding as a result of Brexit despite the ‘membership fee’, as it has been termed, no longer being given to the EU. For example, in the North East, Local Enterprise Partnership area funds include £426m from the European Regional Development Fund (ERDF) and European Social Fund (ESF) as well as £10.5m from the European Agricultural Fund for Rural Development (EAFRD). In Cornwall, the EU’s ‘Cornwall and Isles of Scilly Growth Programme’ sought to deliver smart, sustainable and inclusive growth with its two main funding streams, according to Cornwall council, being the ERDF (who’s programme is worth €437,472,735) and the ESF (who’s programme is worth €166,234,129).

Looking beyond regional investment, the UK is also one of the top recipients of EU research funding, second only to Germany. Farming, the only policy almost entirely funded by the EU, received 48% of the £5.3 billion the UK received from the EU in 2013. To plug the gap left by EU funding, the government will have to continue to fund these areas at the expense of other areas, so probably not the NHS, which did not fall under the spotlight of the Brexit debate.

Responding to Brexit

Following Brexit, with the Conservatives and Labour in turmoil, Mark Carney has become the face of stability post-Brexit. Carney has stated that, to support the functioning of markets, the Bank of England stands ready to provide more than £250bn of additional funds. The way this shall be achieved is through open market operations whereby the central bank purchases government bonds.

The purchases not only increase the money supply, but also, through their effect on interest rates, promote investment. Because the banks and institutions that sold the central bank the debt have more cash, it will make it easier for them to make loans to both consumers and businesses. As a result, consumer spending and investment are likely to increase and, additionally, the interest rate for loans will decrease, thus reducing the incentive to save money and increasing spending further.

The intended outcome of the increased spending and investment is that business revenue will increase, leading to an increase (or at least in this Brexit scenario, less of a decrease) in jobs to build the new facilities and to staff the new positions.  It would then be hopeful that, combined with low interest rates, the marginal propensity to consume (the proportion of additional income that a consumer opts to spend rather than save) will increase. It is worth noting, however, that a decrease in exports and higher tax rates will decrease the MPC and combat the benefits.

However, for all of its benefits, the fall in interest rates as a result of an expansionary monetary policy will cause a rise in inflation (and cue the doomsday scenario mentioned earlier) unless the Bank of England curbs the increase in the money supply so that it does not outstrip in the increase in the quantity of goods. It may do this, whilst also protecting the integrity and safety of the banks, through changing the UK’s fractional reserve banking system. Currently, commercial UK banks have no reserve requirement (the minimum fraction of customer deposits that each commercial bank must hold as reserves rather than lend out), instead setting out their own monthly voluntary reserve target in a contract with the Bank of England, however the BoE may impose a compulsory fractional-reserve, whether this be across the board or in each individual contract, to ensure that there is no repeat of the Lehman Brothers in 2008 and to combat the threat of inflation.

Post-Brexit Britain – our relationship with the EU

It is clear that uncertainty is killer in the world of markets so, on this basis, it is integral that Brexit negotiations limit this as much as possible. In my opinion, following the notification of Article 50 (if indeed that ever happens), the UK government should announce that they will be falling into a model broadly along the same lines of the European Economic Area (the existing model most closely aligned with full EU membership) as businesses are aware of the way that this works and due to the fact that it will involve the most gradual removal from the EU, reducing uncertainty, for the next ten years.

Following on from this, the UK government should then announce their intentions to remain in the EEA for the next five years whilst the two-year disentanglement process is underway and whilst the direction of post-Brexit Britain is decided upon. At the end of this five-year period the new direction should be announced with the remaining five years a buffer for such a scenario to be put into place, or for the ball to get rolling, as it were.

Although this may be met by anger by Brexiters, an abrupt and immediate action would inevitably cause commotion and volatility in the markets. Through a slow, gradual process businesses will be able to plan and economic downturn will not be nearly as great.