Brexit Update: A Hard Brexit Promises Political and Economic Shocks

In the coming months, the future nature of the British relationship with the EU will be carved out, in crucial negotiations between the UK government and EU officials. The outcome, given the massive economy and political importance of the UK to Europe, will have far reaching consequences across all sectors.

Towards a Hard Brexit

After months of ambiguity, there have been growing signs in the last few weeks that the UK government will favour a ‘hard’ Brexit, involving leaving the single market. The push is thought to be driven by a view that it would be politically unsustainable to offer a settlement that did not end freedom of movement with the EU, given the focus on immigration in the victorious leave campaign.

But a hard Brexit remains far from a guaranteed outcome. Several key government figures, including the Chancellor of the Exchequer, Philip Hammond, are thought to be fighting for a more moderate course, while business leaders have also signalled their concerns. The Director-General of the Confederation of British Industry (CBI), Carolyn Fairbairn, the largest business interest group in the UK, warned on the 17th October about the dangers of the UK ‘closing the door’ on an open economy. Meanwhile, leaked figures from within the Treasury itself revealed research that showed the UK government could lose £66 billion (€72 billion) in revenue by leaving the single market. David Davis, the Brexit Secretary, accused those who released the figures of seeking to undermine the British negotiating position.

The economic consequences of this internal battle over the British position are huge, and could have a significant impact on the economic performance of the UK and of the EU. Uncertainty is itself damaging, and the falling pound and increasing borrowing costs for the UK government in recent weeks reflect a desire for greater clarity about what the British government will seek. The pound’s post-Brexit instability is poignant, given the manner in which the instability of the Euro was used by Leave campaigners to demonstrate that the EU was a failed project.

Scottish Independence Back on the Agenda

Growing suggestions that the UK will leave the single market have also prompted Scottish First Minister Nicola Sturgeon to launch a second bid for Scottish independence. The chief factor behind the move is the view that Scotland is being taking out of the single market against its will, with some 62% of Scotland voting to remain in the EU.

This renewed push from Sturgeon demonstrates the importance of the terms on which Britain exits the EU. A ‘hard’ Brexit represents a much more fundamental shift for the UK, and could therefore produce political as well as economic instability. It will be fascinating to see how Sturgeon leverages the threat of a second referendum to advance her own interests as negotiations unfold.

Johnson’s ‘Remain’ Article

One of the more shocking revelations of the week was the news, leaked to the Sunday Times, that current British Foreign Secretary Boris Johnson, one of the leading lights of the Leave campaign during the referendum, drafted an article advocating a vote to remain in the EU, just two days before publicly backing Leave.

The content of the article in some cases directly contradicts positions espoused by Johnson publicly during the campaign. For example, he characterised the UK contribution to the EU budget as a ‘small fee’, when redirecting this money to domestic spending was one of the central campaigning pledges of the leave campaign, and he warned of the dangers of an ‘economic shock’ should the UK leave, warnings that the leave campaign dismissed before the referendum as ‘project fear.’

Almost as astonishing as the existence of the article itself is Johnson’s reaction to it being made public. He now claims that the article was a ‘semi-parody’ and was written as a personal device to help him make up his own mind. The article overs a glimpse into the cynical calculations made by Johnson before the referendum, as well as a tantalising image for remainers of what might have been if Johnson had backed their side.