2021. The year Brexit comes due
January 2020, the UK is no longer formally a part of the EU but remains bound to its rules. The transition period ended at the end of December. ‘What now?’ is a question often asked.
Following a Conservative Party manifesto pledge, the European Union Referendum Act of May 2015 established the legal basis for an EU membership referendum in which 52.9% of the UK citizens voted to ‘leave.’ However, the Leave campaign was widely accused of manipulation by allegedly spreading misinformation. Among others, the campaign promised the British nation 350 million pounds a week for the National Healthcare Service (NHS). Such a promise was,’ a clear misuse of official statistics.’ said the Head Office of National Statistics.
This road proved to be rockier than anticipated. After the ruling and the passing of the European Union (Notification of Withdrawal) Act 2017, Theresa May started the two-year process, intending to leave the EU in March 2019. This date was pushed back three times. But that was not the end of the difficulties. The then-International Trade Secretary Liam Fox claimed in July 2017 that ‘the free trade agreement that we will have to do with the European Union should be one of the easiest in human history.’ This has proven to be further away from the truth than one could have thought.
The European Union membership
A crucial part of the trade negotiations was the border between Northern Ireland and the Republic of Ireland. Both sides wanted to attempt a ‘hard border’ on which products of animal origin entering the Republic would be checked thoroughly, as other goods entering the EU are. This was a success, and there will be no controls on the Irish border. Northern Ireland, unlike the rest of the UK, will de facto stay in the common goods market, meaning the necessary controls will take place when goods from England, Scotland or Wales arrive in Northern Ireland. This scheme, although widely accepted as a positive, has sparked criticism from the Democratic Unionist Party, which opposed the Irish Protocol in Parliament, warning it could lead to a breakup of the union.
But negotiations do not end here. On December 24, after an extension of negotiations, a deal was agreed on, guaranteeing the tariff-free movement of most goods. The UK will be leaving the customs union and the single market meaning, there will be no more free movement of people, and the free movement of capital and services will be limited.
So what will change?
The UK may l regret Brexit after all. What foreshadows upcoming losses is the fall that the pound already experienced after the results of the Brexit referendum were published. The British currency fell 8% against the US dollar, noting its biggest one-day fall since free-floating exchange rates were introduced in the 1970s. A weaker currency incentivises exports but increases the prices of imports. The pound has admittedly strengthened since the deal was approved; however, that does not mean Britain is back to where it was before it left.
According to PwC, the UK is by far the biggest recipient of foreign investment in the EU, and, in 2013, 46% of the FDI (foreign direct investment) stock in the UK originated from the EU. Brexit has already diminished business investment by 11%, and FDI will likely diminish even further in and after 2021. Apart from that, there is the question of the future of London as a banking centre. Although its role will not wane overnight, significant changes are plausible. Anand Menon, from the UK in a Changing Europe, points out that ‘much of the business that financial services firms carry out in the European Union from the UK will either stop, or those firms will relocate the relevant parts of their business to within the European Union to carry on trading from there.’
There will be numerous, drastic and hard-felt changes. The UK leaving the single market means more paperwork for businesses, creating higher prices for domestic consumers, and lower sales abroad for exporters. Higher import prices will create inflation and lower the standard of living for UK citizens. To emphasise, all of this would hit the UK after an increase in prices is felt due to heat waves and droughts caused by the climate crisis, which will reduce local food production.
The end of the free movement of people means jobs in the EU will no longer be as widely available. British employers will also have a harder time finding employees. Already in 2017, the growth of the number of EU-born workers in the UK fell by 95%. The biggest reductions were seen in the low-skilled and medium-skilled occupations. This might seem counterintuitive, as the narrative of the Leave campaign was that leaving the EU would result in more jobs for skilled British workers. Yet this is another example of how the decision of Brexit was made on false premises.
Brexit does not only concern Britain
For the EU, Brexit is no easy pill to swallow, with the foundations of the community shaken by the migration crisis of 2015, and the internal developments of Poland and Hungary undermining the core democratic values of the Union. Britain did make an average net contribution of £7.7 billion between 2014 - 2018, so its departure means less money in the bank. But there are other aspects, more directly affecting the Europeans.
The decision of the British government to charge EU nationals oversea fees is said to result in a 60% drop in EU students coming into the country to study. It means the percentage of EU students in British higher institutions will drop from 11% to around 4%, according to the director of the Higher Education Policy Institute, Nick Hillman [Read more in 5th issue]. The now-27-country block only lost one of its partners. Granted, a valuable one. Will 2021, the year Brexit comes due, be a ‘fantastic year for Britain,’ as Boris Johnson foretold 2020 would be? Only time will tell, but it is quite unlikely the UK will benefit from Brexit. Neither will the EU, but it stands to lose much less. Economically, the trade deal sets solid foundations for a new Britain. But politically, recovery will be difficult.