Approaching the seven-year mark since the Brexit referendum took place, there have been many geopolitical and societal catastrophes. Wars, supply chain issues, a pandemic, and global inflation have all interfered with our ability to isolate the impact of Brexit.
This article will explore the lead up to Brexit, its public acceptance, and the impacts that have been realized on the British economy since.
A timeline of events:
May 2015 – General Election
On May the 7th, 2015, a general election took place. This marked the first milestone in getting a referendum underway for a few reasons. Firstly, it was the most successful general election for the UK Independence Party (UKIP). UKIP, which was previously led by Nigel Farage, was at the forefront of Brexit discourse. Like what the SNP is to Scottish independence, UKIP is to Brexit – core to their identity. UKIP ended up winning 3.88 million votes, which was 1.4 million more than the Lib Dems, despite it only yielding one seat in parliament.
Furthermore, to counter the rising popularity of UKIP, Tory leader David Cameron made a public promise in 2013 that he would hold an in/out EU referendum. Therefore, the 2015 election likely prevented UKIP from gaining more seats because of that promise, which he then felt later on he must deliver.
February 2016 – Referendum Announced
Only 8 months after the 2015 general election, an EU referendum was announced and given a date: 23rd of June 2016.
June 2016 – EU Referendum
After 4 months of campaigning from both sides, the vote took place. With 33.5 million votes, the turnout was high (72% of registered voters) – higher than general elections usually are. 17.4 million voted to leave, whilst 16.1 million voted to remain, meaning it was a roughly 52/48 split. The month after the vote, David Cameron resigned as Prime Minister on the grounds that he didn’t believe Brexit was the right decision.
The lead up to the vote was full of controversies, many of which have been proven to be scandalous miscalculations in retrospect.
March 2017 – Article 50 was triggered
It took close to a year after the results before article 50 was triggered. The Prime minister that succeeded Cameron, Theresa May, formally wrote to the European Council President Donald Tusk to trigger Article 50. The date for Brexit was given: 29th of March 2019. When this date did come around, May wrote again to Tusk asking for an extension, which was the 30th of June, 2019.
December 2019 – General Election
Prime Minister Theresa May lost the Brexit deal that she proposed earlier in the year and had begun to lose the backing of her party. After Boris Johnson became the new number 1 with his ‘get Brexit done’ slogan, a general election was announced to help shape how Brexit was going to get done. The now Boris-led Tories grew their majority and a deal seemed closer to being agreed on.
Fast forward to the 31st of January, 2020, and Britain officially left the EU, now entering its transition period. The final day of the year in 2020, the transition period had ended and the UK left the single market.
What has changed since Brexit
Since the 1st of January, 2021, lots has changed. Being out of the single market, British customers buying from EU websites now must pay UK VAT (on orders up to £135) as opposed to local rates, a customs duty, and courier admin charges. Of course, collecting UK VAT is a lot of paperwork for EU retailers, so many smaller ones no longer sell to UK customers. For orders above £135, things get even more complex as a 0-25% import duty may be applied.
This also ties in with the weight and delivery of items. The higher fiscal and regulatory friction reflects onto courier companies, who now have longer delivery times and higher prices.
There is no tariff or quotas per se when it comes to trading goods between the UK and EU, thanks to the EU-UK trade agreement, but this does not include services. Fishing rights, cooperation on security, and future competition are also covered in this agreement.
Given services got the worse deal here, it was a worry that the London-centric UK would struggle in regards to its primary industry of finance. A reform package has been put forward, but the current dual licensing has increased red tape for financial firms. Compared to goods, financial services ended up with a ‘no-deal’ Brexit and has since been trying to adapt.
The Big Four firm reports that over 7,000 finance jobs have moved from London to the EU as a result of the dual-licensing, post-Brexit Britain.
A lack of acceptance
When looking at how to gauge the popularity of Brexit over time, the referendum appears a good place to start. However, what the referendum never really told us, was what kind of Brexit the 52% of the UK wanted. Because there was no deal outlined leading up to the referendum, it’s difficult to pinpoint how much of the 52% wanted a no-deal hard Brexit, and how many were anticipating a Norway-esque in-between.
What we do know is that during the time of negotiations and shortly after, it was fairly even between whether Brexit was a mistake in hindsight or not. This may be because of how it was covered in the media, or because negotiations stirred up nationalist feelings, but since then the gap has widened, where now only 34% believe Britain was right to leave, whilst 54% believe they were wrong to. Of course, the impact of Brexit manifesting over time is also a huge factor in Brexit too.
The impact of Brexit on the economy
In a recent Bloomberg Economics report, it is estimated that Brexit is costing the UK £100 billion a year in lost output. This is essentially a figure relating to productivity and GDP, and is mostly derived from the reduction in business investment and labour shortages.
The most immediate impact is clear within the currencies of both the pound and Euro. In 2015, £1 could buy €1.42, but today, it only buys €1.14. Volatility is extremely high too, and it’s driving business owners and investors towards GBP EUR Forward Contracts.
One reason why the UK has seen such a large impact is because of the services deal being worse than the products one, yet services are the basis of the UK economy. For example, much of the UK produce farmed in the UK as opposed to exported – around 50% of the food consumed in the UK is UK supplied. However, London financial services are a global hub for foreign investment, and the increased red tape with the EU has damaged this.
But, even with a deal for goods, the increased delivery times and cost, VAT, and potential import duty has increased the cost of imports for UK customers too, during a time of rising inflation. Many studies highlight how Brexit has damaged UK competitiveness, but there’s also the barrier for both expats and younger workers looking to join the EU labour market.
Whilst it appears unanimous that Brexit has been a net loss on the economy, there may be some isolated positives to take away. EU membership fees and along with other budgets are now more in the hands of the UK government, which increases autonomy, along with the sovereignty gained over the borders, waters, democracy and laws.
Some of these divergent laws have been within life sciences and AI. For example, the UK is looking to have more flexible regulations on AI to boost innovation and attract investors. Given the EU’s strict technology regulations, this could give an economic advantage to the UK, though it may also negatively impact the protection of British consumers of tech.
Why Britain may never rejoin the EU
It is unlikely to see Britain rejoining the EU for various reasons. The most important reason to consider is that the UK would almost certainly not have the same preferential terms as their previous agreement. Most notably, the EU requires new members to switch to using the Euro, which is a hugely unpopular notion in the UK.
Furthermore, whilst Article 50 gives the departing country only two years to settle up, Article 49, which is how a country joins, has a much longer timeframe. The UK also had other preferential terms, like its rebate and not being in Schengen.
Finally, all of the divergence that is occurring since Brexit, such as having more lax laws on AI, would need to be tightened up and changed. Whilst rejoining may not seem likely in the short-term, in part to save face, the UK will likely grow ever further apart from the EU regarding its laws, making it increasingly difficult over time to rejoin. But, in the short-term, it would also seem unlikely for the EU to rush to allow the UK back in, as a unanimous approval is required across all member states.
