Brexit is the June 23, 2016, referendum where the United Kingdom voted to leave the European Union. As a member of the European Union the United Kingdom was paying £350 million per week in taxes to the European Union. The residents especially the old working class in the countryside decided that the benefits of belonging to the unified monetary body were less compared to the costs of free movement of immigration. It should be noted that under the European Union such movement was open to member countries, thus, they were worried of the influx of immigrants from the Middle East and Africa that resulted from UK’s membership in the EU. Brexit is the nickname for “British exit” from the European Union.
Brexit is a short form for Britain’s exit from the European Union. There has been a strong argument by most economists, including the UK Treasury, that being in the European Union has positively impacted Britain in terms of trade and as a result the United Kingdom’s trade would be negatively affected if it left the European Union.
On March 29, 2017, the UK Prime Minister Theresa May submitted the Article 50 withdrawal notification to the EU. That gives the UK and EU two years to negotiate the following six main points.
1. The UK does not want to continue allowing unlimited EU immigration.
2. The two sides must guarantee the status of EU members living in the UK, and vice-versa. The same applies to work visas, which are not currently required.
3. The UK wants to withdraw from the European Court of Judgment.
4. The UK wants a “customs union” with the EU. That means they will not impose tariffs on one another’s imports. They are free to tax imports from other countries.
5. Both sides want to continue to trade.
6. The EU will require a cash settlement from the UK to meet existing financial commitments.
Consequences for the UK
The main advantage for the UK is that it can again illegalize the free flow of people from the European Union. That was the primary reason people voted for Brexit. They were concerned about an increase in refugees from Africa and the Middle East. Such free flow was discredited with an increase in crime rate such as drug trafficking, human trafficking as well as acts of terrorism.
The UK will be able to tax without following the European Union or irrespective of the EU taxation structure. It also won’t have to pay EU membership fees as the case was when it had to pay a weekly sum of £350 million to the European Union.
The main disadvantage is that Brexit will slow down UK’s economic growth. The UK’s Treasury chief Philip Hammond reported that his country’s growth would slow to 2.4 percent in 2018, 1.9 percent in 2019, and 1.6 percent in 2020.
Surveys of leading economists show with overwhelming agreement that Brexit will likely reduce the UK’s real per-capita income level. A 2017 survey showed that in the long run Brexit will make the United Kingdom poorer because it will create new trade barriers. In recent times Prices were rising higher than wages in the United Kingdom.
Another major disadvantage is the potential loss of Britain’s tariff-free trade status with the other member states of the European Union. Tariffs raise the cost of exports, making British products higher-priced and less competitive than other EU countries’ exports. The more it’s exports will become the less they will be bought in other countries.
It also increases prices of imports into the UK. A third of UK’s food imports comes from the EU. Higher import prices will create inflation and lowers the standards of living with in the United Kingdom.
Brexit would be disastrous for The City of London, the United Kingdom’s financial center. It will cease to be the habitat for companies that use it as an English-speaking entry into the EU economy. That could lead to a real estate collapse in The City. Many new office buildings are under construction. They may sit empty if The City’s financial services industry such as banks relocate.
The UK will miss out on the benefits of EU state-of-the-art technologies. The EU grants these to its members in environmental protection, research and development, and energy.
In addition, UK companies are most likely to lose the platform to bid on public contracts in any EU country. Usually these are open to bidders from any member country. The most important loss to London is in services, especially banking. Practitioners will lose the ability to operate in all member countries. This could also raise the cost of airfares, the internet, and even phone services.
Germany is projected to have a labor shortage of two million workers by 2030. Those jobs will no longer be as readily available to the UK’s residents after Brexit. Brexit will hurt Britain’s younger workers.
There will be a customs border between Britain and the Republic of Ireland upon the exit of of Britain from the Union. This was formulated after a proposal from the European Union. Trade and travel to the Island of Ireland will be hindered considering the fact that the UK is Ireland’s biggest export destination. The Northern Ireland will remain with the UK whereas, Southern Ireland (Republic of Ireland) will remain with the European Union.
But a customs border between Northern Ireland and the Republic of Ireland could reignite conflicts. It was a 30-year conflict in Northern Ireland between mainly Catholic Irish nationalists and pro-British Protestants. In 1998, it ended with the promise of no border between the north and south Irish island.
After the implementation of Brexit 35000 Irish people who cross the border to work in the United Kingdom will be forced to go through customs on their way to and from work. The EU insists that the UK should come up with a solution. Otherwise, it must agree to the backstop of no customs border on the Irish isle. That would put the border between Northern Ireland and Britain.
Under Brexit, the United Kingdom may lose Scotland. First, Scotland will tried to stop Brexit by voting against it. But Scotland doesn’t have the authority to do that. It could therefore decide to join the EU on its own, as some countries under the Kingdom of Denmark did. Last but not least, Scotland’s leader also warned she may call for another referendum to leave the UK after the initial one of 18th September, 2014 ended with a majority of the Scots voting NO.
There could be a shortage of labor force. Companies realize that, without migrants, they might not have enough workers to fill vacancies. It should be noted that most of the labor force in the United Kingdom came from neighboring European Union countries. This labor supply-side shortage could slow economic growth in the UK.
Consequences for the EU
It could take up to two years to negotiate the terms of a Brexit. Initially, some European Union members asked for an earlier withdrawal. But they were urged to remain patient by Germany’s Angela Merkel to allow the best outcome for all.
The Brexit vote could strengthen anti-immigration parties throughout Europe. If these parties gain enough ground in France and Germany, they could force a vote against anti-European Union. If either of those countries left, the EU would lose its most robust economies and would dissolve.
On the other hand, new polls show that many in Europe feel a new level of common understanding will be reached among remaining member states of the European Union. This is so because the UK often voted against many EU policies that other members supported.
These are generally the impacts of BREXIT to both the United Kingdom and European Union.