The Aftermath of Brexit: The Pursuit of Liberation

James Rosanwo takes a look at whether the outcome of Brexit has yet been as calamitous as many had expected. 

A couple of months ago, the United Kingdom decided to leave the European Union- and the immediate impact was near catastrophic. The pound dropped as much as 2.2 percent to $1.3, a 31-year low. From then on, many feared the worst was yet to come. The threats of total economic crisis and recession lingered in the air like a sour breath, as individuals panicked, from investors to home buyers. The whole market was in a state of disbelief and incredulity. However, it is beginning to seem that, just maybe, the prophecies of an economic apocalypse were not as well founded as we initially thought.

Before the EU referendum, the British finance ministry warned that a vote to leave the EU would make it harder and more expensive for new home owners to request for loans, forcing the country into a “DIY recession” and driving down equity prices.

However, nearly half of mortgage borrowers look set to gain from the Bank of England’s interest rate cut on August 4^th, while British equity markets have risen.

Unexpectedly, the British economy has recovered well from the momentary Brexit calamity. Due to the fall of the British pound, it has become much cheaper for wealthy tourists to shop in the UK, boosting retail sales. Grocers enjoyed a 0.3% rise in sales in the 12 weeks to 14 August, the best performance since March. The manufacturing sector and the building industry have also shown signs of improved growth. Persimmon, Britain’s biggest house builder, said customers were flocking back to view new build homes.

Nonetheless, many, including myself, maintain the view that it is still considerably early to determine the real effects of Brexit, simply because Article 50 has not yet been triggered- and hence the UK and EU are still occupied with negotiations on a post-Brexit deal.

However, what is still even more alarming is the fact that the British government is yet to provide a clear plan as to how they intend to extricate Great Britain from the EU. Theresa May, the new British Prime Minister, recently rejected the option of a further parliamentary vote. This strongly reiterated her stubborn intent to lead Britain out of the European Union. Despite several warnings from many EU countries, the PM has maintained the view that Great Britain can get exactly what they want: retain free access to the Single Market, while restricting Free Movement.

During the Brexit campaign, one of the only suggestions by the Leave side that inferred some sort of clarity and outline for a post-Brexit Britain was the possibility that the UK could adopt either the Norwegian or Swiss model to regulate and encourage trading with the EU. However, Mrs May recently ruled out other existing models and expects an entirely new model unique to Britain alone.

The public were also promised that the NHS would receive an increased funding of £100 million from the previously allocated EU budget and that Britain could also most likely adopt an Australian style points based immigration system to try and limit immigration; however the PM recently dismissed both notions, explaining that a points-system would simply not be rigorous enough.

Ultimately, Mrs May’s continuous divergence from the Leave campaign’s manifesto has done nothing but add further ambiguity and uncertainty into the future of post-Brexit Britain.

Presently, the future of our great nation perhaps does not seem as doomed as once thought. However, the pursuit for liberation, while illuminating, can be treacherous.  One thing we have learnt from previous economic crises is that calamity has no expiry date.

Today is the EU Referendum!

Today is the day! Throughout the UK, millions will be putting their votes in between 7am and 10pm to put forward their view on whether Britain should stay in the European Union, or leave.



If you are eligible to vote, it is incredibly important to do so- the right to a vote is something we should not take for granted and we should exercise as much as we can. Whether you think Britain should stay or go, get out there, brave whatever weather you're confronted with, and VOTE!

And if you're still undecided? Well, we've got you covered.

If you'd like to hear why perhaps Britain would be BETTER IN THE EU, check out our article by Chris Hawes:
Want To Save Britain's Economy? Vote To Stay In Europe.

If you'd like to hear why perhaps Britain would be BETTER OUT OF THE EU, check out Matt Walton's article:
Mythbusters: Brexit Edition

And if you'd like to hear why perhaps this vote shouldn't have happened in the first place, check out Tom Goldsworthy's recent post:
Forget 'Leave Or Remain' - The Brexit Referendum Should Have Never Been Called In The First Place

Forget 'Leave Or Remain' - The Brexit Referendum Should Have Never Been Called In The First Place

With just under a week to go before the vote on the question of Britain’s membership of the European Union, the country is reaching peak referendum fever. 

However, amongst all the hype and excitement, it appears that nobody has stopped to pause and ask a far more fundamental question: whether we should be having this referendum at all. Politicians and political commentators from all sides have hailed the referendum as a fantastic symbol of the strength and vibrancy of our political system. In fact, this referendum is a cynical political ploy which will serve to undermine our system of representative democracy. The referendum was tactically motivated and its merits ill thought through. We should never have called this vote in the first place.

Firstly, let’s immediately demolish this idea that the referendum is some noble expression of our democracy. It’s not. The referendum was included in the Conservative Party’s 2015 election manifesto as an attempt to diffuse the populist threat posed by UKIP. It was a cold political calculation, a cynical attempt to shore up support amongst the party's traditional base. Although some claim that the referendum was called because of the importance of the issue being debated, this is clearly false. None of the most important questions in our democracy’s history were put to referendums. Whether to go to battle in the first world war, or the second world war, or whether to invade Iraq. Nor were referendums held over which economic policies to adopt during the great depression, or the more recent financial crisis of 2008.

There is a very good reason why these huge, seismic political issues were not put to referendums. It is because we, as a nation, have chosen to abide by the principle of representative democracy. The basic idea is simple: every few years we vote in a general election where we choose representatives who vote in parliament on our behalf. These representatives have the time, resources and expertise to discuss, debate and understand the complex issues and public policy questions of the day. As such, they’re much better placed to vote on these questions than we are. And, of course, MPs must have their constituents’ interests at heart because they know that they may well be voted out of office at the next election. Well, that’s the idea at least.

This argument for representative democracy seems particularly applicable to the question of our membership of the EU. It seems bonkers to leave what is undoubtedly an incredibly complex and multi-faceted question to the direct votes of the general public. Who really has the time or expertise to pour through and weigh all the evidence on both sides of the debate? Are we, the people, really better placed to decide this monumentally tricky issue than our elected parliament?

Moreover, the complexity of the issue at hand renders a referendum completely inappropriate in this instance. It is simply not possible to reduce such a challenging and complex issue to a simple yes or no question. With so many competing visions of our post-Brexit future, what does a vote to leave the EU even signify? Does it entail us joining the EFTA, or the EEA, or leaving the single market altogether? This is far from clear. In the event of a leave vote, should we hold another referendum, or should we leave it up to MPs to decide? But what if MPs (approximately two thirds of whom support Bremain) decide to follow the model of Norway, who are outside of the EU but remain inside the single market through membership of the EFTA? Norway must accept the free movement of people and make contributions to the EU budget, but regaining control of our borders and the infamous “£350 million a week” we supposedly send to the EU (we don’t really, but that’s been discussed enough already) have been two of the key arguments propounded by the leave campaign. The inevitable public backlash that would ensue if MPs took us into the EFTA following a leave vote would raise serious constitutional issues. Are the people or parliament ultimately sovereign; who should reign supreme?

Another issue with the referendum campaign is that it has, at times, felt as if we were debating another question entirely. Namely, who should be the prime minister, rather than the question of our membership of the EU. The campaign has seen a huge focus on personalities and individual ambitions, rather than the substantive issues we should instead be discussing. But this is a consistent theme throughout referendums in the UK. During the Lisbon Treaty referendums in Ireland, abortion and conscription became major issues. During the "yes" campaign for the 1997 Welsh devolution referendum, an aeroplane flew across Wales with a banner which read, “Vote Yes, Vote Blair”. Referendums often become about something entirely different to the real question at hand.

I hope it is now clear that there is a very strong case to be made against the idea that we should be having this referendum at all. But you would think that, with such a multiplicity of issues and problems with the very idea of holding this referendum, some sort of parliamentary committee might have thought to investigate the use of referendums in the UK before we called this vote. Well, you’d be right! In fact, the House of Lords Constitution Committee looked at the merits of the use of referendums back in 2010, weighing the evidence on both sides before concluding that:

“The balance of the evidence that we have heard leads us to the conclusion that there are significant drawbacks to the use of referendums. In particular, we regret the ad hoc manner in which referendums have been used, often as a tactical device, by the government of the day.”

The committee identified all the never-ending problems with the use of referendums outlined in this article, and more, before reaching the same conclusion that I have. It is abundantly clear that the EU referendum was inappropriate and misguided - a bad idea from the outset. It has undermined the axiomatic premise of the sovereignty of parliament and corroded our representative democracy.

Want To Save Britain's Economy? Vote To Stay In Europe.

As each day passes the EU referendum draws ever closer, a referendum whose outcome will undoubtedly have huge impacts on both the economic and political landscape of the whole country for years to come. A huge part of the debate that’s raging is over the political repercussions of either outcome, much of which focusses on our political sovereignty and by extension the central issue of ‘regaining control’ of our borders. I’m not going to address the potential political outcomes (the endless rhetoric clouding politicians’ true intentions makes this nigh-on impossible anyway) but instead I will focus on the economic aspect of this debate. In doing this I will seek to answer one key question: which option should the people of the United Kingdom take to ensure economic prosperity going forward?

There is no precedent to the situation the UK finds itself in, therefore nobody can state empirically exactly what the outcomes of each choice are. The complexity of prediction is further hampered by the range of trade deals the UK has if it does choose to leave, but that’s not to say we can’t build models to predict at the very least the net effect of the outcomes – whether they are positive or negative. Economically, we can split the potential impacts of a ‘Brexit’ into the short and medium-to-long term, with different potential issues presenting themselves in different time frames.

Author’s Own Calculations using data sourced from ONS

Short term issues are already presenting themselves. The referendum is still a month off but the mere possibility that the UK could leave the EU is already having tangible economic repercussions. We saw a negative trend in GDP growth in the first quarter of this year, with growth falling 0.2% compared to final quarter of 2015, and UK industry has fallen into recession after two successive periods of negative growth in Q4 (the fourth quarter) of 2015 and the Q1 in 2016. Though it would be both naïve and plain wrong of me to attribute this growth slowdown completely to uncertainty, it is at least partly responsible. If seen in the results for the second quarter of the year, it does pose a question – if we’re seeing this kind of trend in an economy which is merely discussing the possibility of abandoning the status-quo, then what results will we see if the UK does actually vote to leave? Further slowdowns in growth, coupled with a very real possibility of contraction of the economy are the most obvious guesses.

The uncertainty goes further. We’re already starting to see markets pricing the risk to the economy, the most obvious of which is in the CDS spreads (Credit Default Swaps – essentially the cost of insuring UK debt against a default). The spread allows the cost to be compared to other economies and the Eurozone to see how the market is pricing the individual risk of default). In the 6 months to April 2014, costs have nearly trebled, nearly reaching the Eurozone level as a whole and overtaking both the US and Japanese cost. What does this mean? The markets see the country as a risky prospect, the problem with that is that businesses don’t invest in a risky economy.

Kierzenjowski et. Al (OECD)

The long term effects are perhaps more of a significant worry, however. One such effect is the predicted impact on Foreign Direct Investment (FDI) – investment by foreign investors in UK businesses or other entities. The scale of FDI in this country is huge, with FDI stock estimated to be over £1 trillion and roughly half coming from within the EU. Part of the appeal for non-EU investors is the UK’s access to the single market – access which we may or may not have if we choose to leave. EU membership has had a huge effect on the level of FDI – the Centre for Economic Performance estimates that membership has increased FDI by around 28%. 

But why does it matter? What impact will this have on our everyday lives? For a start, studies have found that (for varying reasons) FDI has (among others) the benefit of enhancing productivity . This would suggest a positive correlation between GDP and FDI levels and empirically we find that to be the case, especially in an economy with such a large service sector.

Based on a conservative model, if the UK were to leave the EU, we would expect to see a 3.4% reduction in real incomes, a loss even greater than the anticipated drop in trade and a figure which translates to £2200 per household – not small change.

Another issue I want to just briefly address is the supposed reduction in the contribution to the EU budget. The net contribution to the EU budget, once total public sector receipts have been applied, was £8.5billion in 2015- but it is a fallacy to think we will no longer have to contribute to any organisation should we leave the EU. There are thought to be four options for trade agreements – the Norwegian Model (joining the European Economic Area), the Swiss Model in which they negotiate individual treaties to take part in any initiatives, re-joining the Free Trade Association (FTA) or trading through the World Trade Organisation.

I don’t have time to describe exactly what each one entails- it’s safe to say each comes with its own disadvantages- but I’m going to briefly describe how their contributions compare to ours. Norway are part of the European Economic Area; essentially this is just jargon for saying they are part of the single market but not full paid-up EU members. Compared to the UK, the net contributions are only 17% lower and come with disadvantages in the form of having no influence over EU decision making and potentially facing higher costs in trade.

The Swiss Model is significantly ‘cheaper’ than the Norwegian model- it’s estimated that the contribution to the EU budget is 60% lower than the UK’s contribution per capita. However there’s no guarantee of market access that the EU provides, and again, the UK is shut out of influencing key EU decisions.

Rejoining the European Free Trade (FTA) agreement is the third option and, though there is no obligation to contribute to the EU budget, increased non-tariff barriers between the UK and the EU are likely to arise, as well as greater restrictions on the free movement of people (it’s worth remembering that migration has been found to have a positive net effect on the economy).

The final option is to be governed by the World Trade Organisation. This would increase the cost of exporting for UK firms relative to the EU, there would be no right of access to EU markets and the same issue with free movement of people that was present in the FTA would also apply here.

The conclusion of all this? There are trade alternatives that the UK could choose to pursue but each one has its flaws. For some, this is the insignificant reduction of contributions to the EU budget, for others it’s the increased difficulty and cost of trading within Europe. There’s no straightforward alternative.

I said that I wasn’t going to talk about the political side of this argument but I feel I must say something brief in conclusion. Economically speaking, this decision appears to be a no-brainer – the net effect of being in the EU on the UK economy is positive. However, this debate is a wider discussion than just the economic consequences and I understand that the political landscape and ‘ever-closer union’ that the EU appears to be striving for is a potential cause for concern and there are countless other issues that will influence the way people vote. All this means that I think the decision over whether to leave the EU will come down to one key battle – nigh-on ensured Economic prosperity, or political sovereignty. Which will you choose?