Brexit: What Happens Next?

We decided to ask a number of prominent JLA speakers how they see the weeks and months ahead following a vote for BREXIT.

A plain text version is pasted here:

 

INTRODUCTION

 

After the most momentous UK vote in decades, this is how a number of prominent JLA speakers see the weeks and months ahead. Looking to the economy, the business environment, politics and international diplomacy, there’s no doubt about the challenges now facing us.

One thing is certain. We will need leadership, confidence and expert insights to help steer a path through uncertainty.

 

LORD (WILLIAM) HAGUE

The UK Government now faces a vast range of immediate tasks. Foremost is the need to decide when to serve notice under Article 50 of the European Treaties that we are leaving. Delay means more time to conduct withdrawal negotiations, while immediate action means momentum in getting on with it.

In parallel, as the Government is re-constituted, the Conservative Party needs to decide on the objective of those negotiations. Is it to join the European Economic Area, or to work out a Free Trade Agreement, or to fall back on WTO rules? The first would do nothing to control immigration, the second will take years to negotiate and the third carries all the pain of tariffs to trade in markets previously completely open to us.

It will be crucial to set up a fully-fledged new Trade Department within weeks, raiding Whitehall and embassies for the finest brains – not least because 58 other trade agreements with the rest of the world also need renegotiating.

In the medium term, Cabinet will need to decide its priorities in a long, messy divorce.
Are there whole areas of EU law that should apply indefinitely, or for ten years while how to replace it is considered at length? Should areas like financial services be dealt with first, to give greater certainty to the City? Are there any other parts of the economy for which Britain should seek a partial or temporary deal, pending further talks?

Simultaneously, the London government will face war on another front, as Scottish nationalists try to take advantage of the situation to promote another referendum on independence in a few years’ time. The whole issue of how to keep the UK together will be back with a vengeance.

Looking further ahead, if the UK has greater control of its own affairs, furious debate will take place on how that should be used. Should immigration be strictly limited,
and if so who will take on the jobs immigrants have tended to do? Does the UK restore business confidence by taking an unashamedly pro-enterprise approach, cutting taxes and regulation? Is there a majority in Parliament for that?

In foreign affairs, how does Britain show Russia, Iran and others that the West is not divided – and reassure Washington and European capitals that we are still an effective and co- operative ally? Does it mean we assert ourselves more in international disputes, or less?

These are just some of the issues now facing us. It will be a period of national controversy and debate just as much as the referendum campaign itself.

 

LORD (DANNY) FINKELSTEIN

Political Commentator
Associate Editor, The Times

The immediate political consequences of Brexit are the easiest to read. It is hard to see the Prime Minister surviving. How would he be able to negotiate a new relationship given that the critics of his last negotiation have just defeated him?

This makes it likely that Boris Johnson will be PM before the end of the year. It isn’t certain. Leadership contests are very unpredictable. The emergence of a candidate better able to combine a number of Tory Leavers with the support of Tory Remainiacs is possible. But I think Boris is in a strong position.

The leadership will seek a new trading and political relationship with the EU. This, together with the complex legal task of disentanglement, will dominate politics for some time. Division inside the Leave camp over what this new relationship might look like could give their leaders more trouble than they anticipate.

In particular, there will be trouble in Parliament. MPs may feel themselves unable to resist a straight decision to leave, but any new creative idea about the relationship might prove altogether more difficult. There has been a lot of coverage of the trouble Leave MPs might give Cameron if he won, but less about the turbulence Remain MPs across the House might now cause.

UKIP is worth watching. Will it seek to create a mass Leave party, punishing Labour for travelling too far from its base? Or will Nigel Farage want to join the Tories? What would the response be? There will be endless fun over this. An internal battle within UKIP seems quite likely.

Meanwhile Labour will continue to be locked in battle, its leadership and MPs hopelessly divided. The row they were going to have over Trident will still happen, but may be overlaid by one on immigration.

On top of all of this political turbulence one must add policy turbulence. There is quite likely to be an economic downturn, and any new leadership may feel that campaign rhetoric forbids them from continuing a policy of austerity.

In the long term, Brexit surely means deregulating and cutting costs. But given the voters who supported leave, how easy will it prove to implement such a programme?

 

ROGER BOOTLE

Executive Chairman, Capital Economics Author, The Trouble With Europe

Brexit is one of the most enthralling developments I have ever experienced.

The first question is whether we wish to invoke Article 50 of the Lisbon Treaty, which notifies other members of our intention to leave and begin a process of negotiation, lasting up to two years. The alternative is to delay this act and engage in a process of pre-negotiation, with both our partners in the EU and other countries around the world.

I suspect the choice will not so much be made as thrust upon us – for we are surely set for a period of political turmoil. The process of selecting a new Prime Minster and Chancellor will be cumbersome. Meanwhile, not only the Conservative Party but Labour as well is in disarray. And what is the future for UKIP now the very purpose for which it was set up has been achieved? All of this argues for a period of pre-negotiation before Article 50 is invoked.

And there will have to be an intense discussion about the sort of relationship the UK is to have with the EU. Should we try to reach a trade agreement? Should we try to remain in the European Economic Area, like Norway, and thereby retain “access” to the Single Market? Or should we simply declare unilateral free trade?

More broadly, there are macroeconomic choices to be made. With the pound likely to be under pressure for some time, should the authorities try to resist this, even to the point of putting up interest rates? I would argue strongly against. The pound needs to fall.

Given that there are bound to be wobbles in confidence, I think the sensible course would be to reduce interest rates. And under no circumstances should the Chancellor tighten fiscal policy by reducing spending and raising taxation.

Looking ahead, the Government needs both to capitalise on the opportunities created by Brexit and head off some of the dangers. Given the threat of large corporations moving their HQ, if not leaving the UK altogether, the Chancellor needs to lay out an even more ambitious plan for reducing corporation tax. He needs to make a convincing plan for personal taxation, including abolition of the 45p top rate – and he needs to entrench a weaker pound to give a serious boost to industry and rebalance the economy towards net exports.

Brexit has provided us with an opportunity to relaunch the UK economy. But it won’t happen by magic. We will have to work at it. Look at what Singapore has achieved in the 50 years since separation from Malaysia. We should see that as our inspiration and our benchmark.

 

VICKY PRYCE

Chief Advisor, CEBR
Former Head, Government Economic Service

The shock to the system will quickly be felt. The currency is being closely watched. Traders have been working through the night as results came in, but the final vote was not priced into the markets.

As the Leave side gathered momentum in recent weeks organisations like the IMF, countless heads of government and business leaders were increasingly alarmed by the prospect of negative global impact. The likelihood of instability in what would remain of the EU had also affected sentiment in the equity and foreign exchange markets, leading to a serious slowdown of M&A and other investment activity. But then the markets relaxed in the last few days of the campaign as Remain seemed to be bouncing back after Jo Cox’s horrendous death. Indeed the pound rose sharply on the days before the vote.

So what now? There’s no doubt that any uncertainty is bad for the economy and investment. Capital spending by businesses fell in the first quarter and any decline from here will make growth this year much slower than forecast. Even on an assumption of Remain most had downgraded growth to between 1.5 and 1.7% – including a bounce back in the second half. All that has now been scuppered. We can expect further downgrades by the ratings agencies, downward revision of forecasts and an emergency budget by whoever is Chancellor.

The unknowns include:

  • How fast is political reshuffle accomplished, and under who as PM?
  • What happens to other parties and their allegiances?
  • Will Parliament, mostly pro-Remain, accept the will of the people?
  • When will Article 50 be invoked?
  • How will Europe react?
  • What trade deals are negotiated, and when?
  • What happens to all the other trade deals?

In the meantime companies will vote with their money. Expect turbulence while the Bank of England, coordinating with other central banks, attempts to stabilise foreign exchange markets, equities and bond yields if there’s a flight to safe assets. While the politicians face up to the new reality, for businesses and consumers this is the start of the bumpy ride that the experts have been warning about. The change in the business environment and the UK’s trading relationship with Europe will have an impact for years to come.

 

LORD (DIGBY) JONES

UKTI Ambassador
Former Director General, CBI

What will the UK look like after Brexit? I have to tell you, it won’t be much different. Unlike most, I have actually negotiated trade deals, both from a CBI point of view and as Minister of State for Trade and Investment. Nobody in their right mind, on either side, is going to impose tariffs between Britain and the EU.

What will prove difficult is how we renegotiate trade agreements that currently exist between the EU and the rest of the world. 80% of Germany’s exports go to the EU, only 45% of ours do. It will be a challenge. But we are the biggest inward investor in the US and the biggest European inward investor in China.

I don’t think the average person on the street will notice any difference. There will be turbulence for two or maybe three years, but that’s the price the current generation will pay so our grandchildren have a more prosperous place to live.

If we want Britain to be a successful country in Asia’s century, we must use immigration as a tool for adding strength, wealth and tax to sort out the public sector. We didn’t have a prayer of doing that within the EU.

How about those siren voices that told us if we vote Leave we will lose our place at the table? In reality, we haven’t had a place at the table for years. The German-Franco axis has defeated us again and again. We are not Norway. We are not Canada. We are not Switzerland. We are the fifth biggest economy on earth. It will be different for us.

We now have a chance of passing on to our children an environment that is democratic, freer in its wealth creation, and globally competitive. We couldn’t do that shackled to an organisation that’s marching valiantly towards 1970.

 

MARTIN MCCOURT

Private Equity Advisor
Former Chief Executive, Dyson

Business is accustomed to change. All leaders must embrace and manage it if their business is to grow, or even survive. But then along comes a change like no other.

Brexit will be complicated, challenging and beset by all sorts of problems. As it lurches from pillar to post on a perilous journey, it will be watched and reported at every turn. This will be a very public process, paraded by the media here and across the world. Imagine if implementation of your major initiatives was scrutinised and criticised in the same fashion?

That isn’t the only point of contrast. Look at who’s leading the delivery. Experienced business leaders? Skilled operational executives? No. Bureaucrats, government officials and politicians will lead the charge. Past experience of large-scale public change programmes is far from good – think of the modernisation of HMRC or IT development for the NHS!

So we can expect bumps along the road. To protect our businesses from the tremors and destruction of Brexit we need to anticipate where the pressure will be felt and work out how best to mitigate it. At the same time we should also consider what opportunities might present themselves: disruption creates winners as well as losers. Figuring out how to make sure you are on the winning side will be about clear thinking, good planning and deft execution.

Many businesses won’t feel too concerned about their Eurozone trade as the new order establishes itself. If ties are well established and if there’s strong demand for their products or services, they should be able to weather such a storm. But if contracts are threatened for whatever reason, economically or politically, that’s a very different story.

No doubt leaders facing this scenario will get off their blocks sharply to future-proof the enterprise, opening up new revenue channels to compensate. Like any significant change that creates turbulence in the trading environment, it will force some to revisit their model, their organisation and their economics. They can emerge from this process stronger, fitter and having created greater value.

The noisy complainers will not be the ones to watch. It will be those who remain silent, act furtively and decisively and capitalise on the disruption that Brexit will bring about. Savvy leaders will be out to eat your lunch!

 

TOM FLETCHER

Foreign Policy Advisor to three Prime Ministers
Former British Ambassador to Lebanon

Author, The Naked Diplomat

Don’t panic. We’ll be OK. Much of the campaign has been over the top. The period ahead won’t be as terrible as predicted by Remain, but it won’t be as easy as claimed by Leave. The defining moment for the UK’s place in the 21st century is not the referendum, but how we respond to it.

The views of the British people should be respected. Genuinely, not just lip service. They have made it clear they’re worried about levels of immigration, and the way they fear it changes the character and prospects of the nation – and they don’t like decisions being taken far away from them. But let’s not mistake this as a vote for isolationism.

Power is moving away from institutions towards technologically empowered individuals – and that’s a good thing. It should be accepted and embraced by elites. Our job now is to replace old global and national power structures with something that marshals our best instincts and values, not our worst.

The key is to put aside the rancour of the last few months, and pull together. One positive about the campaign has been individuals putting aside party affiliations and arguing about issues. The referendum did not divide us on out of date party lines – neither must the response.

All three political parties are gasping for oxygen; the worst thing we could now do is throw ourselves into further political uncertainty. David Cameron has a mandate to lead. Of course this is a bruising blow, but it was a referendum on Europe not a vote of confidence in him. If his party has any sense, it will get behind him. The country won’t forgive them for indulging their love for civil war at such a perilous moment.

The Government needs to take time to set out its plans for departure from the EU on our terms, not rushing to the exit. Then we need to think creatively about how we build an immigration policy that helps us benefit from our openness and diversity, but doesn’t cripple our infrastructure or fracture our politics. And we need to revisit how to engage the public – countering the growing disengagement from public life. The internet needs to strengthen our community, not undermine it.

The UK must also update our offer to the world. We are a humanitarian and creative industries superpower, a major economic, military and political player, and a global trading nation. We should be the world’s capital.

 

SIR CHRISTOPHER MEYER

British Ambassador to the United States (1997-2003)

BREXIT: ONE YEAR ON…

It’s become clear that it will take at least a generation to reboot our position in the world and rebuild relations with the friends and allies we shocked and angered by our rash decision. We are undertaking this immense task against the background of a crippled economy, with the pound worth less than the dollar and at parity with the euro; with inflation soaring as we struggle to finance our massive budget and current account deficits; and unemployment moving into double figures.

Our bitterly angry former EU partners have refused point blank to let us trade inside the Single Market without freedom of movement for workers, which Prime Minister Johnson will not accept. Negotiations are stalled. Everything we sell to Europe attracts a tariff. Our largest trading partner, Germany, is progressively moving its car factories and banks to the Continent, throwing tens of thousands of Brits out of work. The Asian car manufacturers are following suit. American banks are heading for Frankfurt, Amsterdam and Dublin, since we’re no longer a springboard into the EU.

Because so many EU states are also members of NATO, this poisonous atmosphere has soured relations inside our most important military alliance. The economic crisis provoked by Brexit has meant that, to the intense irritation of the US, we can no longer afford to spend the NATO-minimum of 2% of GDP on defence. To our national humiliation we have had to mothball our two new aircraft carriers, cancel the American F-35 fighters that were to fly from them and postpone Trident renewal. No wonder the US is hinting that we should relinquish our permanent membership of the UN Security Council.

The ‘Special Relationship’ is dead. The Americans are furious that we spurned their advice to stay in the EU. They fear our departure will be a mortal blow to the EU, hastening the collapse of the international order. We await the conclusion of a US/EU Transatlantic Trade and Investment Partnership, so negotiations can begin for a UK/US agreement. That’s now unlikely before 2020. In the meantime we will have to pay often heavy duties on the export of our goods and services to the US – and renegotiate all our air service arrangements against jealously competitive American airlines.

There’s no salvation in the rest of the world. We can’t even start trade talks with any of them because all our experts are absorbed in negotiations with the EU. When the history of these times comes to be written, people will wonder how such a sensible, pragmatic nation took such a wrong turning.

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