Should the UK ignore Brexit rather than risk financial ruin?
A leading thinktank has warned banks could leave the UK as early as next year, if UK passporting rights are lost. The pound is at its lowest level in 186 years, after falling nearly 20 per cent against the dollar. Britain faces a bill in excess of £18bn in shared payment liabilities on leaving the union. And the UK itself could be torn apart, if Scottish First Minister Nicola Sturgeon has her way and a second Independence referendum results in a Yes vote.
Project Fear is starting to look a lot like a premonition.
Life is about to get difficult for the most vulnerable people in society as low inflation leads to rising food costs, energy bills and petrol prices. Holidaymakers will also suffer, due to low exchange rates for the pound against the euro and the dollar.
This was confirmed by Bank of England governor Mark Carney, who said that although it was not the Bank’s responsibility to take decisions based on the uneven social impact of rising prices, it was concerning.
“We care a lot about distribution but we are not a political entity.” — Carney
Angus Armstrong, of the National Institute of Economic and Social Research (NIESR), writes that although the fall in the pound doesn’t signal a return to the inflationary wage-price spirals of the ’70s under Harold Wilson’s premiership, a rise in prices with no corresponding rise in wages will mean people will be poorer.
“Our standard of living will be lower. The UK will regain competitiveness the hard way: not through productivity gains but through lower real wages. The pounds in our pocket will buy less; and we won’t have any more of them.” — Armstrong
Some experts argue a weaker currency could actually benefit the economy, such as Carney’s predecessor Lord Mervyn King, who ran the Bank of England during the 2008 financial crisis.
“The economy was slowing somewhat before the vote and we are in a position where the rest of the world is not offering us much help. So, from that point of view the fall in sterling is a welcome change”. — King
The Guardian’s economics editor, Larry Elliott, says a weaker pound works by making exports cheaper and imports more expensive, making “the economy less dependent on consumers and more reliant on producers”. This could help create a more stable environment for the future by allowing British companies to compete internationally on exports.
But a looming Brexit also threatens a loss of jobs from both the financial services industry, which employs 1.9m, if banking assets are moved abroad; and the manufacturing industry, which employs 2.6m, if it no longer receives an estimated £11bn in EU funds towards research and development programmes.
The NIESR predict that the outlook for the UK’s financial services is particularly bleak, especially if Britain seeks a so-called Hard Brexit and leaves the European Economic Area.
“Try as they might, there is no easy way around this. The notion that a global financial centre like London can effectively mimic EU regulations — with no say — is unsustainable. A much more imaginative solution is required.” — Armstrong (NIESR)
Despite the successful Leave vote in June, 59 per cent of voters are said to favour a stay in the single market. Nearly three quarters (73 per cent) of Britons think the country’s relationship with Europe should be debated in Parliament. People do not want a Hard Brexit.
And yet last week, the current President of the European Council Donald Tusk told policymakers in Brussels that the idea of a so-called Soft Brexit, where the UK remained in the single market, was a fantasy. The UK could not have its cake and eat it too.
“The only real alternative to a hard Brexit is no Brexit, even if today hardly anyone believes in such a possibility.” — Tusk
If economic forecasts do remain negative, and it is proved that Britons will be significantly worse off from leaving the EU, the government should reverse course by rejecting Brexit altogether. After all, the UK is a representative democracy for a reason, and, at least in law, the EU referendum is only advisory.
While it is of course preferable to follow the will of the people, and the mandate on Brexit, it seems ludicrous to risk the future of the economy on a vote that was decided by a mere four per cent of voters. And surely for Theresa May’s government, even electoral suicide is preferable to being blamed for plunging Britain into an extended period of economic hardship.
It seems rather absurd that the government would reject naming a research vessel Boaty McBoatface after it topped an online poll, fearing the embarrassment it would cause, and yet would jump off a cliff economically just because of a referendum vote that isn’t even legally binding. The government should represent our best interests and adjust its plans when new information becomes available. If Brexit is no longer viable economically, it should be avoided.
Of course, the biggest villain of this saga is the former Prime Minister David Cameron, who, afraid of the rise of Ukip and his dissenting backbenchers, made a Faustian pact by promising the referendum on EU membership in the first place. It was a decision that not only ended his political career but might, also, end up damaging our economic future.
