#euref What would Brexit actually look like?

Posted on May 24, 2016 at 6:10 pm,

brexitProbably the most important question of the EU Referendum is what would happen next if Leave wins. There are, broadly speaking, three different ways in which the UK could leave the EU, and each of them would mean a different set of changes.

A quick disclaimer here: Whilst I’ll try to be objective here, I am planning to vote remain. If you aren’t familiar with the EU, you may want to read my  previous post “What is the EU anyway“. I’ll list the three options from the one I think will leave us worst off to the one I think will leave us best off.

The “Albania” Option

We could leave the EU without any trade agreement at all.

One immediate effect of this would be that trade with the EU will be subject to tariffs (taxes on goods and services going between the UK and the EU), and a few other “barriers to trade”. As 44% of British exports go to the EU, it is very likely that the short-term effect of leaving this way would be an economic crash in the UK. The other immediate effect would be that Parliament could change any EU Law that is not enshrined in any of the other treaties we are signed up to (see the previous post for a list of what policy areas are affected).However, using those powers to move UK law away from EU law would make trading with the EU in future more difficult, as some of the differences would create extra barriers to trade. Brexiters who favour this kind of arrangement, however, believe that in the long term severing our ties with the EU will lead to significantly increased trade with non-EU countries, and that eventually this will lead to us becoming better off than we would have been if we stayed.

The big unknown with this option is immigrants. There are currently about 2.2. million Brits living elsewhere in the EU and about the same number of citizens of other EU countries living in the UK. If we leave without any kind of agreement, it’s unclear what will happen to either group. Perhaps the worst case scenario is if the vast majority of both groups lose the right to live and work in the countries they currently live in. In addition to the obvious human costs of this, there will be an economic cost. Because EU citizens living here are mostly here to work, whilst UK citizens in other EU countries are mostly there to retire, this would have a disastrous effect on government finances. We would be swapping a couple of million taxpayers who use very few government services for a couple of million pensioners, who will be paying very little into the system, whilst requiring – on average – a lot more from the NHS than the average person.

The “Canada” Option

Leaving the EU with a free-trade agreement, but not remaining part of the common market.

In this arrangement, the UK would not pay any tariffs on our exports to the EU, but there would be all sorts of little barriers to trade, which would gradually increase if UK law did not deliberately keep in step with EU law. Under this arrangement, there would be a much longer transition period than either of the other options. Canada took ten years to negotiate their free trade deal with the EU. Since the UK starts off with our laws being entirely compatible with the rest of the EU, negotiating a deal will almost certainly take less time. But whilst the deal is being negotiated there will be a period of several years where nobody can be sure what the future will look like. This option will cause us fewer problems than leaving with no trade deal at all. However, it is still a high-risk scenario, and almost everything I said about the first option applies to this one.

The “Norway” Option

Leave the EU, but remain in the common market.

This would mean agreeing an arrangement with the EU that is similar to the ones Norway, Iceland, and Switzerland have, and would take far less time to negotiate than a separate free trade treaty. Whilst the details of such a deal would probably differ from these three examples, there will be a number of similarities. Under such an agreement, we would have to obey the vast majority of EU law (see the next post in this series for a description of how this works), although our influence would be reduced to lobbying behind the scenes. We would retain freedom of movement for EU citizens (so EU citizens retain the right to live and work here, and vice versa). Westminster would regain control of some areas of policy (Norway and Iceland have complete control over their fishing, for example). British businesses would face no real barriers to trade, except when it comes to any areas were control has returned to Westminster.

One consequence of this kind of deal would be that we continue to pay in to the EU. Norway pays about the same per capita amount to the EU as we do. However, none of that money comes back into the country. The UK gets some of its money back as a rebate, and receives other bits back as subsidies for agriculture, science, and regeneration schemes.

Which is more likely?

The most likely deal to be struck is going to be a Norway-style one. The Conservatives will not want to be seen to cause an economic crash – which is a definite risk with both of the first two options.

Given that the current government will be negotiating on our behalf, working out the most likely exit deal means it is worth considering what kind of EU regulations they would want to negotiate away. There is no way the EU will allow free market access without retaining free movement of people. However, the UK could get opt outs of other aspects of EU law. David Cameron lobbied very hard against proposed EU regulations on investment banking that would have restricted the City of London. Conservative minister Priti Patel has suggested to employers that EU legislation securing workers’ rights was amongst the “red tape” that could be got rid of if we leave. And the government has been somewhat hostile to any kind of green/renewable energy generation, in contrast to the rest of the EU, which is fully embracing these technologies.

In my view, it seems unlikely that any of these scenarios will leave the UK in a better state than we would be in if we remained. But please do make up your own mind.


The next post in this series will discuss what “Brexit” would actually look like.


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