Comment Central sets out seven areas of economic and political uncertainty that Brexit campaigners need to answer.
A failure to adequately plan for the aftermath of the 2003 US-led invasion of Iraq created a quagmire of sectarian violence and political turmoil. Similarly, a failure to adequately address the considerable economic uncertainties created by Brexit will be devastating to our country’s future prosperity.
The emotive case and stirring rhetoric that led us to the exit door of the European Union is no longer sufficient. Those that advocated our withdrawal now need to give strong, guiding leadership to address the significant uncertainties facing our country and economy.
Addressing the following seven areas of economic and political uncertainty are key:
- Financial Markets – The most immediate manifestation of this uncertainty is the rising loss of confidence in the financial markets. The FTSE 100 plummeted eight per cent in the immediate aftermath of the result being announced, while sterling weakened by 11 per cent against the dollar. Mark Carney’s quick intervention initially appeared to calm investors’ nerves, with the FTSE 100 recovering nearly half its losses, but it has now returned to a downward trajectory, while the pound is currently $1.32 against the dollar. Carney’s short term fix appears to have been just that: short term. And big questions remain unanswered. How do we shore up the markets if confidence continues to wane? Carney has said the Bank of England is standing by ready to provide £250 billion of funding to shore up the markets should it be required. While the policy of austerity pursued under George Osborne’s Chancellorship means we are better able to afford such a stimulus package, other questions persist. A fall in the value of sterling will push up the cost of imports. When combined with a stimulus injection this is likely to add considerable inflationary pressure. What steps will be taken to combat this inflation? If a rise in interest rates is chosen, this brings with it its own economic downsides. As a medium term fix, there is a strong case for a stimulus package of government spending. But serious thought must be given to how such a package may be structured to have a positive long term impact on the economy rather than a mere fillip; most obvious would be to improve our national infrastructure.
- Trade – Beyond the immediate economic challenges to the financial markets is the issue of the country’s trade arrangements, both with the EU and the wider world. In terms of the EU, will we do away with the free movement of labour as many in the Leave campaign have advocated? What about the free movement of goods, services and capital? Another priority is the striking of trade deals with other parts of the world. Who do we try to sign trade deals with first? Who are our top ten targets? What is our negotiating position? Presumably the US, India and China will feature high up on the list, but what is our contingency plan if these countries push us to the back of the queue as they’ve threatened? Will we try to meet this trade deficit by increasing trade with other countries, if so, who? Economists for Brexit advocate setting all trade tariffs to zero, but that will almost certainly be political suicide before an electorate that has just expressed a view that is strongly resistant to globalisation. What do we do if the electorate rejects the zero tariff option? Meanwhile, consideration must be made for the situation in the wider EU. Keen to maintain the Union’s stability, and eager to dissuade other members from departing the Union, it is conceivable that the Commission and other member states will make life difficult for the UK. We should be prepared for this and have sufficient contingency plans in place.
- Immigration – On immigration, the Leave campaign made much of doing away with free movement, replacing it instead with an Australian style immigration system, but will a cap be placed on immigration, as seems likely; if so, at what level? Who will determine the skills and sectors that our immigration system will prioritise? Also, the Leave camp now seems split, with leading voices such as Dan Hannan advocating the UK continuing with the free movement of labour. Although how this squares with an electorate that is viscerally opposed to high levels of immigration remains to be seen. It is this lack of coherent messaging on the Leave side that undermines the ability to put a credible roadmap in place.
- Expats living in Europe – Consideration also needs to be made for the significant number of Britons living in other parts of the EU. What account, if any, will be made for those drawing their pension from the UK while living abroad, or those using healthcare systems in other member states? Clarity regarding the position of the 1.3 million expats currently living in Europe is important.
- Preserving the United Kingdom – The unity of the United Kingdom is another pressing issue. Scottish nationalists have already called for another referendum to allow the Scottish people to determine whether they wish to remain a part of the UK, or strike off and become a member of the EU in their own right. Conceivably, this issue can be kicked into the long grass. Those leading the country can argue, firstly, that the country has more pressing issues to which is must attend, and, secondly, that it is right that the Scottish people should only be asked to decide on their country’s future when they can be presented with a clear choice, and have clarity on what a UK outside of the European Union will look like.
- Timescale – Overarching all of these economic and political considerations is the issue of time. The longer the period of economic uncertainty, the greater the loss of confidence in the financial markets. It is essential a clear and realistic roadmap for striking new bi-lateral trade deals and resolving outstanding political and constitutional uncertainties is set out to provide investors with the confidence they need to continue investing in the UK.
These issues, while not insurmountable, are vital. We will require a significantly bolstered civil service both to forge new trading relationships around the world, while also servicing the existing machinery of Government. The civil service will need additional funding and manpower.
Those that have convinced the country of the case to leave should be commended, but successfully captaining the country to continued economic prosperity will be the greatest test of all. Effective planning and preparation post-event is essential; just look at Iraq.