Brexit and its fallout effects

Asif Haroon Raja

On June 23, 2016, the majority of the British citizens voted in favor of Brexit believing that migrants are eating away British workers’ jobs; an argument made by pro-Brexiters during the Brexit referendum campaign. Since then, UK has witnessed a significant decline in migrants entering the country.

According to a report submitted by the British Office for National Statistics (ONS), net migration to the UK fell from 327,000 in 2016 to 246,000 in March, 2017. With the Brexit talks still underway, the lack of clarity over post Brexit immigration policy was driving many EU citizens out of UK and causing huge uncertainty among large businesses and firms.

Recently, there has been a sharp increase in EU nationals leaving UK with official statistics showing that about 17,000 EU nationals left UK in the year following Brexit. Most of these were from EU8 countries that joined the Union in 2004 – Hungry, Poland, the Czech Republic, Estonia, Latvia, Lithuania, Slovakia and Slovenia. Similarly, 25,000 fewer Poles and other Eastern Europeans have entered UK in 2017 as compared to 2016. However, the number of Bulgarians and Romanians working in UK has increased from 257,000 in 2016 to 347,000 in 2017. PwC, a consulting giant, recently released its UK Economic Outlook in which it forecasted that a 50% fall in EU migration in the future can reduce UK’s GDP by around 1.1% (£22 billion) in 2030. Similarly, many leading economists are of the opinion that migrants pay far more in tax than they claim in benefits by contributing about £7 billion annually.

These departures are hurting the construction, hospitality and nursing sector the most. Even before Brexit, UK was experiencing staffing shortages in its National Health Service (NHS) and now it has 40,000 nursing vacancies to be filled. Nurses from the EU have greatly helped in the past to fill this gap, but recently there have been reports that the nursing sector is witnessing a considerable decrease in applications from EU nationals. Similarly, according to the National Farmers’ Union, the number of seasonal workers who entered UK in 2017 has decreased by 17%. Over the past 30 years, British food industry has become increasingly reliant on EU nationals, many of whom are seasonal laborers. About 20% of agriculture workers in Britain come from abroad, while 63% of British Meat Processors Association’s staff is not from UK. If this downward migration trend continues, the British food industry will have to cut back its production leading to an increase in prices and higher inflation.

UK’s hospitality sector employs about 0.75 million EU citizens which includes 25% of total chefs and 75% of total waiters working in UK. Due to staff shortages, many franchises are shutting down their outlets in various areas of London which includes sandwich chain Pret A Manger and pizza chain Franco Manca. This is a serious cause of concern for an industry that’s Britain’s fourth biggest employer. EU workers previously employed in UK’s hospitality sector are now heading towards Australia and Canada, while some are looking towards France where the new labor laws might lead to better work opportunities.

The downward migration trend is not only restricted to workers entering UK, but there has been a significant decrease in number of international students coming to UK since 2016. The number of international students entering UK has dropped by 27,000, mostly due to strict visa regulations on non-EU students. UK’s education sector is a major source of revenue for the UK government and if this trend continues, the international students will start preferring universities in the US, Australia and Canada rather than coming to UK. This can also have serious consequences on UK’s economy.

With rising hate crimes, xenophobia, depreciating pound and uncertainty about laws regarding residence, job security, free access to health care and pensions, more and more EU nationals are leaving UK. These non-UK citizens are mostly of working age, economically active and pay way more in taxes than they get in benefits. As the number of state pensioners is expected to increase in the future, from 12.4 million in 2017 to 16.9 million in 2024, the Tory government would need to rethink its policy of limiting net migrants to below 100,000 a year. Furthermore, the UK government needs to take substantial measures to train its British citizens in professional fields that were previously dominated by EU nationals.

Post Brexit scenario

Even as negotiations between Britain and the EU continued over Brexit, much still is needed to be settled. After the resignation of Prime Minister  David Cameron over voting on Brexit, on September 22, 2017, his successor Theresa May stated in her much-anticipated speech at Florence, Italy, “So during the implementation period, access to one another’s markets should continue on current terms and Britain also should continue to take part in existing security measures. The framework for this strictly time-limited period … would be the existing structure of EU rules and regulations… [for] …around two years.” 

This was an important development which meant that Theresa May had suggested that over the next two years of Brexit transition period, Britain would remain a member of the single market and customs union. Moreover, the rules related to free movement of people, UK’s promised payments to the EU budget, and the jurisdiction of the European Court of Justice will remain the same for the next two years with the only difference that from March 29, 2019, all new arrivals from EU will be registered.

May’s Florence speech was the government's third major policy statement on Brexit after the prime minister's Lancaster House speech in January and triggering Article 50 (which gives EU member states the right to leave EU) in March. 

In her latest speech, she urged the EU authorities to come up with an innovative solution for future trade relations between UK and the EU, but she refrained from giving any details about what the exact solution would be. While talking about future trade relation between EU and UK, May stated, “One way of approaching this question is to put forward a stark and unimaginative choice between two models: either something based on European Economic Area (EEA) membership; or a traditional Free Trade Agreement, such as that the EU has recently negotiated with Canada.” However, the critics believed that May wanted both the flexibility and freedoms of a Canadian style free trade agreement, as well as the benefits of Norway style EEA membership for economic access.

In order to clear the uncertainty around rights of EU citizens residing in UK, May added, “Where there is uncertainty around underlying EU laws, I want the UK courts to be able to take into account the judgments of the European Court of Justice with a view to ensuring consistent interpretation.” 

EU chief negotiator, Michel Barnier welcomed May’s promise to protect the rights of EU citizens, but said this must be translated into a precise negotiating position. May was quite clear on the border issue that UK was not ready to accept any “physical infrastructure” on the Irish border.

Theresa May was quite optimistic about post-Brexit Britain scenario by proposing close relations with EU while having the right to strike trade deals with countries outside the EU and set its own rules instead of following the dictation from Brussels. She assured that UK would fulfill its outstanding financial contributions by stating, “The UK will honour commitments we have made during the period of our membership.” It is believed that by fulfilling commitments she meant paying €20 billion as a cost of staying in the EU for the next two years but, the EU expects a final settlement of around €100 billion which includes UK’s liabilities for EU projects and other commitments. This can become an irritant in future UK-EU divorce talks.

May’s Florence speech greatly helped in reviving the divorce talks that broke down over financial settlement, but the EU expected far more than what UK has to offer. Probably the Tory Party wanted to settle a deal at around €20 billion for the next two year transition period. This may lead to disagreements within the Tory party over the exact amount of deal, making it hard for May to convince her party MPs to accept a deal above €20 billion as expected by EU authorities. Furthermore, May’s stance on Irish border of not accepting any kind of “physical infrastructure at the border” became a cause of worry for the EU authorities who were expecting a concrete solution to the border issue between Northern Ireland and Republic of Ireland.

It was feared that this could raise pertinent security concerns in the future and might put regional peace at risk. On the other hand, there were concerns that the two year transition period may not be appreciated by hardliner Brexiters who wanted a quick withdrawal from the EU. For the businessmen, a two year transition period could be too short. The situation posed a dilemma for May who had to convince both the EU and her party MPs to accept a divorce deal which is acceptable to both the parties.

On January 15, 2019, Theresa May suffered the heaviest parliamentary defeat of any British prime minister after her Brexit deal was rejected by the MPs by an overwhelming majority of 230 votes. Britain is supposed to leave the EU in March 2019, but it still has to finalize the deal on which it will be leaving the EU.

After months of prolonged negotiations between the EU and the UK, both the parties had finally agreed to a Brexit deal in November 2018.The Brexit deal consists of a 585-page withdrawal agreement which sets the terms of the divorce between the EU and UK. The main terms of the agreement include:

         The UK will leave the EU on March 29, 2019 but will remain part of the bloc’s single market and will be bound by its rules until December 2020, till the two parties agree on new trade relationship;

         UK will pay £39 billion in order to cover its contribution to the EU budget till 2020.

         EU citizens will continue to have the right to live and work in UK.

         There will be no hard border between Northern Ireland and the Republic of Ireland. The Irish border should remain free of custom posts and other obstacles.

However, this deal has been rejected by the British Parliament and now Britain is likely to leave EU on March 29, 2019 without a deal. MPs even from May’s own party were not in favor of EU-UK exit deal and voted against her by three to one. Pro Brexit MPs are against this deal because they fear that Brussels would gain influence over UK and UK would be left as a “rule taker”, trapped in the EU’s regulatory framework.

Now that Theresa May has been unsuccessful in getting the deal through Commons, the following scenarios are possible:

         A no-deal scenario in which UK moves out of the EU without a deal.

         Having another vote after three week of losing the vote.

         Conducting another referendum which is only possible if the government brings forward a legislation to hold a second referendum supported by the majority in the House of Commons.

         A general election after a no-confidence vote in the PM.

According to Confederation of British Industry, a no-deal Brexit would cost shrinking up of GDP by 8 % which would lead to many people losing their jobs. According to worst case scenario estimates, it is expected that in a no-deal scenario, the unemployment would increase by 7.5 % and interest rate could rise to 4 %. Cost of doing business would rise as businesses will have to face new tariffs. It is predicted that the FDI to UK will fall by 29 %. Brexit referendum has already caused a fall in immigration from the EU countries to UK and this is seriously affecting sectors like construction, fruit industry, nursing and hospitality sector which heavily depend on the EU workers. It is important to note that contrary to popular belief, immigrants pay way more in taxes than they receive in social welfare.

The wave of populism that has gripped Europe, especially Britain after the Brexit campaign has polarized British society, increased xenophobia and anti-immigrant narrative among the low income earners and less educated masses. This has further put a pressure on the conservative government to reduce immigration to 100,000 people per year as promised during the election campaign. Theresa May is all set to fulfil that promise and immigration is now being restricted to only skilled workers. This will also further restrict immigrants from entering UK legally and they may resort to illegal means.

Pakistan and UK have strong bilateral ties, and UK has supported Pakistan on numerous issues in the European Parliament such as in attaining GSP plus status and on Kashmir issue. With Britain leaving the EU, Pakistan would lose one of its strongest allies in the European Union. Hence, there’s a need to build strong ties and enhance lobbying efforts with other countries in the EU parliament, especially France, Germany and Italy who could then look after Pakistan’s interests.  

However, UK is now trying to enhance its economic ties with commonwealth countries. This is a great opportunity for Pakistan which it needs to exploit and ensure that Pakistan exports get favourable trade conditions and access to UK markets (as already promised by UK representatives on numerous occasions). Pakistani Diaspora can also play an important role in facilitating and bringing UK investors to Pakistan.

So far, the EU is not willing to renegotiate the withdrawal agreement (Brexit deal) with UK that was agreed upon in November 2018. In the case of a No-deal scenario, UK will have to follow trade laws and rules set by World Trade Organisation (WTO) once it leaves the EU in March 2019, which means that UK will have to pay the same tariffs that non-EU member countries pay. This would seriously impact trade between the two parties; increasing the prices of UK goods entering the EU markets.

Hence, this would mean that there will be a hard border between Northern Ireland and the Republic of Ireland. While on the other hand the Irish government has adopted a very strong stance on the issue of Irish border and has made it very clear that it will not accept a hard border. Therefore, in this scenario, the best choice for Britain would be to ask the EU for more time till May is successful in getting a withdrawal deal approved by the British MPs.

Driven by socioeconomic stagnation, Britain is suffering from psychosocial trauma. It seems EU is being scapegoated for Britain’s own epic failures, after a ruinous financial crisis which began in 2008. The ones advocating Brexit say that the Brits pay the EU “too much, the EU is an undemocratic, authoritarian body, and lastly, Britain want “control” and “sovereignty” again.

The ones blaming EU for everything including social crimes and declining morals, hail from the elite class of Britain that has traditionally been anti-Europe and has still not come out the stupor of glorious days of British Empire. They have made the Brits delusional, emotional and confused. One hard reality which is being ignored is that the economic fortunes of Britain had surged after it joined EU. Had the 2008 global recession been tackled sensibly by the economic managers of UK, the current financial crisis and surging social menaces could be forfended.