BREXIT. A political accident or an inevitable occurrence?
BREXIT. A political accident or an inevitable occurrence?
Since the EU’s inception in the 1950s from the original European Steel and Coal Community, the UK has always had an uneasy relationship with European economic and political structures. From the ‘inner six’ countries of France, Germany, Italy, Belgium, Luxembourg and West Germany, the European Community gradually expanded to what we know today with 33,000 officials and an annual budget of €165 billion with 28 member countries, representing 20% of the world’s trade.
However, even in its infancy Winston Churchill in 1953 declared ‘We have our own dream and our own task. We are with Europe but not of it. We are linked but not combined. We are associated but not absorbed. If Britain must choose between Europe and the open sea she must always choose the open sea.” The UK’s entry into the European Community was a political challenge but with a strong majority the country joined the expanding European trading block. Later Conservative governments resisted the drift from a trade block to greater political union with Mrs Thatcher famously declaring “No, no, no…!” to the concept of a federal Europe and loss of UK sovereignty to an EU Commission. Despite this, the UK has historically been the third largest donor to the EU, after contributions from France and Germany, providing on average 13% of the EU annual budget1. The UK’s annual contribution of €15.1 billion2 to the EU represents a modest 2.9% of the UK government’s annual €728 billion spending.
On 23 June 2016, after a controversial political campaign, a UK referendum was held and with 17 million votes, 52% voted to leave the EU and 48% voted to remain. It represented the first direct vote on the EU since 1973 and the MPs of Westminster promised to honour the result. Such a seismic result caught the main political parties completely by surprise. Of those that voted, 96% of UKIP voters voted to leave, alongside 58% of Conservative voters and 37% of Labour voters. Regionally the majority of voters in Scotland, Wales and Northern Ireland voted to remain. Notably 73% percent of voters between 18-24yrs voted to remain, whereas 57% of those over 55yrs voted to leave3. The country and the political parties themselves were completely divided.
Much was made of the benefits of being able to take back control of borders, fishing waters, of sovereignty and a rejection of globalisation, big government and ever closer political union. The touch-paper for the campaign was mass migration, further fuelled by the illegal immigrant crisis in southern Europe.
The question is what does the underlying data actually tell us? What is true and what is political rhetoric? Notably, in a recent UK poll4, 76% of respondents said that they had little or no confidence in their politicians or the information they provided.
- Migration. Research of statistical data shows that immigration since 1851 has followed a consistent upward trend but that since 1990, 10 million people have come to the UK legally and the number of children born to non-UK born mothers climbed from a historical average of circa 10% to upwards of 25%5. However, many of the jobs undertaken by legal immigrants are low-paid roles not popular with UK-born residents. The greatest number of EU migrants come from Poland and Romania, representing approximately 4m of the total 2.2m living in the UK. At the same time non-EU migration, something the UK can control, has steadily climbed to over 200,000 per annum. Infrastructure spending on housing, hospitals and schools did not keep pace with the increase in population.
- Trade. After 52 years in the economic trading block, the UK’s trade is inexorably linked to its nearest geographical neighbours. The UK exports approximately 48% of its goods and services to EU countries but it represents approximately 16% of the EU’s exports and so it is a very important trading partner. A key conclusion is that being able to trade with each other is incredibly important to both the UK and the EU. However, the uncomfortable truth is that with the creation of global trade, one does not need a trade agreement to sell a product or service. For example, the US does not have a trade agreement with the EU, but consumers can still buy iPhones. This is because Apple the manufacturer, opened subsidiaries within the EU. Therefore, the idea that on 29 March all trade between the UK and the EU will cease is both alarmist and totally unrealistic. The key question will be what controls may or may not be imposed at respective border. Non-EU goods are routinely checked but the checks are not on 100% of all goods. A zero-based tariff agreement between the UK and the EU could solve this issue, rather than ideological political grand-standing.
- Standard of Living. Since 2008, real wage growth in the UK has fallen and therefore citizens have felt a real loss of spending power and they have felt the effect of lower living standards. Concurrently lowering interest rates to stimulate growth, coupled with quantitative easing, led to significant levels of cheap debt and property prices climbed steadily. Affordability criteria show that the average house price to average income has climbed to more than 18 times6 and has priced a whole generation out of the residential property market.
- Government Spending. UK government spending has not fallen significantly in real terms since 2008. It has risen and the corresponding the tax burden on businesses, families and individuals has risen to its highest level since the 1970s. The UK cannot be considered a low tax economy. However, during this time the amount spent on front-line services has fallen; there are fewer hospital beds7 and a cut in staff working in the emergency services. So where did the money go? Data shows that the number of people employed in the public sector has increased and one in five of all people employed in the UK works for the public sector and that the UK now employs more people in the public sector than France8. The UK has become overly-bureaucratic and un-productive with a large public sector.
So what? What conclusions might be drawn from this data?
The BREXIT vote was a protest vote. If one asks a stupid question, one may get a stupid answer. It was an indication of what populism can do when applied as a direct democratic tool. The UK and the EU must be more accountable, and more transparent and more efficient. The BREXIT vote was a protest to a loss of sovereignty and ever closer political union under the Lisbon Treaty. Another deduction is that those who voted for BREXIT voted for change because they understood that the current system is not working for them and they wanted something different. Failure of the political class has arguably caused similar symptoms to to be observed in the result of the recent US presidential election as well as the ‘gilets jaunes’ in France, and the rise of the far-right parties in other European states.
What needs to happen? The EU and the UK need to act quickly, whatever they decide. The EU and the UK need to promote economic migration not mass migration. The UK government needs to promote trade and reduce taxation to encourage inward private sector investment. A radical reduction in the size and scope of the UK government administration is required.
Governments, both in the UK and the EU must learn to live within their means, become leaner and act with fiscal responsibility. Since 2008, far from falling net government debt has been rising throughout the EU and continues to be an issue, particularly in France, Spain, Portugal and Italy9.
The UK will remain part of Europe but not part of the EU and it has a strong future as a key trading partner with the EU. The UK and the EU must remain friendly neighbours if they cannot be political partners. The challenge now is whether the politicians on both sides of the English Channel have the pragmatism to permit a mutually beneficial long-term trading relationship to come to pass.
DISLCAIMER: This opinion represents the author and not that of the GCSP.
1Source – European Commission 6/2017
2 UK Office for National Statistics 2018
3Lord Ashcroft Polls analysis 2016
4IPSOS Mori Poll February 2018
5 UK Office for National Statistics
6 ABS & UBS data
7 NHS England & Kings Fund data
8 International Labour Organisation (ILO) data
9IMF Global Financial Stability Report 2017
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