Following the outcome of the UK referendum, which confirmed the UK should leave the EU (officially announced around 7pm 24 June 2016), the UK, EU and International media and political observers have, for want of a better phrase, become almost ‘hysterical’ in their analysis of the consequence of this result. Most of this hysteria has been focused on highlighting the adverse impact of this decision, particularly in terms of its economic consequences for the UK. However, while many of the factors that have influenced this decision have been briefly covered in the media, few have failed to provide an in-depth insight into the causes and consequences of this decision, for both the UK and the current political model of the western/European democratic model.
The causes, consequences and arguments related to Brexit
Whatever side we took on the UK EU referendum vote is now academic. The die has been cast and the decision made. The UK, by a slim majority (just over 1.1 million votes) has chosen to exit from the EU. The question to be answered is what can be learned from this what many have called an ‘historic event in UK history’.
Political consequences for the RU
Politicians in the UK and EU need to reflect on what this means to the future of democracy. In this ever-changing world of global technology and communication, people in individual cultures such as the UK are no longer prepared to be controlled, or to be governed by non-elected pseudo- political organisations who are so far out of touch with society and communities that they could be living on another planet.
More importantly, we are not prepared to be asked to adopt austerity measures when the EU is wasting €billions transporting the EU parliament from one location to another on a regular basis, .and who squander €millions on paying exorbitant salaries and expenses to MEPs, especially when those politicians fail to listen to those they ostensibly represent. Nor are we prepared to support or be controlled by a political oligarchy that demands we reduce our impact on climate change when they do the opposite, or who think nothing of living extravagantly, while informing us, the citizens of Europe that we need to tighten our belts. It is not acceptable to tell us that we need to eat gruel while they feast on caviar. Nor is it acceptable that we need to struggle to provide shelter, food and quality healthcare for our families, or that our elderly have to struggle to survive on meagre pensions while they benefit from the fruits of the accumulation of private wealth, much of which has been created by the productive efforts of workforce that they have employed.
Political consequences for the UK
Like the EU politicians, it is apparent that the result in favour of Brexit has provided two important lessons for the UK political parties and the current structure of the democratic model that these parties have believed are appropriate for the government of the country. The ultimate leadership of all three political parties supported the remain in Europe outcome of the referendum. Yet in all cases, the message presented by the leadership of these parties was, by a slim majority, rejected. Again, this confirms that politicians in the UK democracy are becoming increasingly out of touch with those who have elected them to serve.
Scaremongering, bribery, misrepresentation and vitriol
There is little doubt that scaremongering, bribery, misrepresentation of the facts and vitriolic attacks on the opposition are tactics have been prevalent in the campaigns of both the remain and leave factions of the UK referendum debate. Have they worked? No!
For the remain campaign George Osborne (Chancellor of the Exchequer) suggested if we voted to leave this would mean the immediate introduction of an emergency austerity budget to combat the adverse economic impact of the leave decision. The question to be answered is did this statement have a positive impact on voter decision to remain? No! This not only failed to influence the public but also alienated many voters from voting to remain, mainly because, as discussed in the following section of this post, related to the financial and economic consequences, the rationale for Osborne’s strategy is inherently flawed. Why is this the case? In the view of the author of this post, it can be argued that the introduction of such a policy fails on two counts. First, as witnessed by the UK government’s response to the recent global financial crisis, they decided to provide banking institutions and the financial markets with a bailout totalling £850 billion. Did this bailout come from the government purse or from the purse of the individuals responsible for the management of the UK banking institutions or their annual pay and compensation packages? No! Essentially, the bailouts were funded by the taxpayer, and in their view this threat of a further austerity budget post the leave EU result devalued the remain message and was viewed as simply scaremongering, which the politicians should have known the electorate would not have countenanced.
In terms of bribery and misrepresentation, the leave campaign suggested that leaving the EU would produce a saving of £350 million per week, which could then be redirected to fund the NHS. Did voters believe this? No! Why? Because no-one with an IQ greater than 0 truly believed that this promise would be kept, or that the figure itself was correct. Yes, improving NHS health care is important, but only a fool would believe that any government would divert all the potential net EU contribution savings to improve the level of funding for the NHS. This argument also provides further evidence that politicians on both sides were not connected with the core issues related to the decision process.
The influence of financial markets and economics
Furthermore, the government of our country and indeed the EU should not be allowed its politics to be governed or determined by the interests of wealth alone. Wealth is created from the bottom up in society and therefore the benefits of that wealth should fairly cascade from the top down, which is clearly not the case in modern western democracy. We also should not, and indeed the result has shown than many have not, allow ourselves to become susceptible to scaremongering over the economic impact of Brexit.
It was to be expected that irrespective of the outcome on the vote, it would have an impact on the financial markets. This effect would naturally affect two key financial indicators, these being the value of sterling against other currencies and the UK stock market movement. If the vote was to remain, the values in both of these market both indicators would see an initial increase, with the reverse being the case if the vote was to leave. This proved to be the case with the FTSE 100 dropping from around 6,349 at 7:30 pm on the 23rd June to 5,788 at 8:00 am on the 24th June. However, by the end of trading on 24 June, it had recovered to 6,160 approximately. Thus, also the loss in the initial aftermath of the Brexit result was around 561 points (8.83%) by the end of trading it was only around 189 points (2.97%).
There are two issues to consider here. The first is that a snapshot of the FTSE as used in the media and presented above, is simply a change related to a specific period of time, in this case one day. Further investigation however, shows that a) the FTSE 100 index actually closed the week just over 2% higher than the start of the week. Taking a longer term view of this index, it is equally apparent that the current close (34 June) was similar to the levels recorded in August 2015. Therefore, it is clear that speculation on a positive remain result had been built into the markets prior to the event, which created an abnormal rise in the FTSE 100 prior to the major fall that occurred during the early hours of 23 June. Consequently, it can be argued that talk of a perceived ‘stock market crash’ in the immediate aftermath of Brexit has been over-inflated.
Equally, one has to take into account that for national and international financial market investors, indexes such as the FTSE 100 are effectively used as a betting shop. There are a considerable number of investors who place bets on the rise and fall of such indexes. For example, a wealthy investor on recognising the potential change of the outcome of the referendum could have placed a bet of say £1,000 a point on the FTSE 1000 continuing to fall between the moment the bet was placed, and the time when the index opened on 24th June. Had their timing been right, such an investor could potentially have made around £500,000. The same investor could have placed a further bet on the index rising again once and, with the right timing have made another £300,000 as the index rose during the day.
In summary, therefore, taking a snap-shot view of the market reaction, which is what the media has done, can of itself be considered to be scaremongering and not an accurate reflection of the impact of Brexit on the financial markets. Of course, as discussed below, there are other economic factors that need to be considered that may or may not have a longer term economic impact.
Other Economic factors
There are two important economic factors that require further examination, namely the value of the pound and the impact of Brexit on our trading relationships. In April 2016, the UK import total was £41 billion and our Exports were £25 Billion, a differential of £16 billion. With the immediate devaluation of the pound following the result of the referendum, this suggests that, based on these figures our imports would be around 11% dearer and our exports would be 11% cheaper (£45.5 billion and £22.2 billion approximately). Consequently, it is correct to say that the cost of living in the UK would increase if import levels remain the same, providing of course that the value of the £ does not recover over the coming months. However, the cheaper cost of exports would see a rise in this area, which would help to improve the UK balance of payments.
In terms of our trading relationships, there has been a lot of political hype about the impact Brexit and the response of our trading partners, particularly the USA and European countries. According to latest statistics, Germany and USA are our two largest trading partners, both in terms of imports and exports. Therefore, despite the rhetoric that is coming from the politicians in both countries, are the businesses in these countries really likely to turn away from our market? This is highly unlikely, particularly as we remain one of the largest economies in the world. More importantly, as indicated in recent media reports, Germany are concerned that Brexit will cost their economy £35 billion. Therefore, Germany is likely to make strenuous efforts to ensure they retain a positive economic relationship with the UK.
Based on these observations, although there may be some short term damage it is likely that this will be reversed in the longer term as our post-EU democracy settles down.
There was a heated debate over immigration during the referendum campaign, with some factions accusing those on the leave side of the argument of xenophobia. Yes, there is a certain small faction of the UK public that hold a xenophobic viewpoint, although not all of these are simply present in the ‘leave’ segment. The UK has been a multi-cultural community since the end of World War II and. For the majority of the population, there is a good inter-cultural relationship between the indigenous and ethnic communities. This, in my view, will remain the same going forward, as it should do. When members of our community migrant to foreign countries, they expect to be treated with respect and therefore we should act in the same manner towards those who migrate to our country.
The real question related to immigration in respect of the Brexit debate was more accurately related to numbers. As a country, geographically the UK is not only one of the smallest in Europe, but also proportionally the highest population per spatial area. In 2015, the UK population grew by just over half a million, of which around 335,000 was the result of net migration. This increase has remained relatively similar over the past decade. As a country, such an annual increase is not sustainable in the long term for the following reasons:
- There is an insufficiency of spatial availability in the UK to develop sufficient housing to cope with such a continuing rate of population increase
- The UK does not have the physical, social and welfare infrastructure to be able to accommodate a continued increase of this size of population
- It does have an impact on the employment market, which can cause civil unrest and, by inference, higher levels of unemployment
In my view, based on these factors, the leave campaign was projecting an economic and spatial argument for controlling immigration and, as Boris Johnson has subsequently stated, it was never intended to be a xenophobic argument. That some people suggested this is the case is again incorrect and scaremongering.
Is there a generational gap that caused the Brexit outcome?
It has been argued in the media that the success of the leave campaign was mainly caused by a generational divide in the voting, which is part of the reason why some people are demanding a second referendum on the issue. However, it is important to examine the results more closely to determine whether there is any validity in this argument. Notwithstanding the political divide on the issue, which clearly showed a diversity of age and gender in terms of supporters for both remain and leave, a closer analysis of the voting pattern throughout the UK.
Statistics analysed by John Burn-Murdoch for the Financial Times confirmed that although the younger generation (25-44 years) overwhelmingly voted remain, much fewer numbers turned out to vote. It is irrational, in my view, for people within this age group to complain that the older generation has acted unfairly towards them by voting to leave. If one has a view then, if you want this view to make a difference you should vote and, clearly, insufficient numbers of people within this younger age group were not prepared to do so. Would it have made a difference to the result if more people within this age group had voted? Difficult to say! It has to be born in mind that within this population there are a significant percentage of people who a) are in lower paid jobs and b) unemployed. Therefore, even if 1.2 million more votes had been recorded from this population segment, it is highly unlikely that the outcome would have been any different when these two factors are taken into account.
The objective of this post has been to examine and explode some of the key scaremongering myths that were levelled at the leave contingent during the Brexit campaign, and the perceived ‘damage’ to the UK subsequent to the ‘leave’ outcome. In the view of the author, rather than continuing to debate the result, three positive steps are required now:
1) UK politicians need to adopt a different approach to the dialogue they have with the general public, and more importantly, listen to their views and create a political model that leads to increased social cohesion, which will serve to unite rather than continue to divide the country
2) The article trigger for EU exit should be invoked immediately to avoid the potential for continuing uncertainty in the markets and the UK economy
3) The Prime Minister should immediately appoint to cabinet a group of Brexit politicians and provide them with the authority to begin immediate negotiations with the EU related to the UK exit from this political union.
(The views expressed in this post are solely those of the author)