Brexit

Breaking down Brexit: What Does It All Mean?

Breaking down Brexit: What Does It All Mean?

This is your simple manual on how to understand Brexit and its implications. We will look at how it all started and what the possible outcomes could be when it reaches an end.

What is Brexit?

If you mix the words ‘Britain’ and ‘exit’ you get Brexit. Simply put it means Britain’s withdrawal from the European Union.

When, where and why did it all begin?

It started with a spark from the Conservative Prime Minister, David Cameron. This spark was a promise; a pledge to conduct a referendum. On Thursday 23rd June 2016, members of the public above the age of 18 voted either for or against the U.K.’s defiant departure from the European Union. When the polls closed and the votes were counted, leave won by a majority of 52% to 48%. Roughly 33 million people voted to make the turnout for the 2016 referendum 71.8%. Why did the British public vote for Brexit? The answer to this has a lot to do with UKIP (UK Independence Party). The party’s leader, Nigel Farage emphasised that Britain needed to free itself from European conventions in an effort to regain control of issues such as migration, border control and public spending.

As a consequence of this historic decision, on the 24th June 2016, David Cameron announced his resignation as Prime Minister saying:

“The British people have voted to leave the European Union and their will must be respected. I do not think it would be right for me to try to be the captain that steers our country to its next destination.”

Watch the announcement here

Cameron had strongly and passionately argued for Britain to remain underneath the wing of the European Union. Former Conservative Party Home Secretary Theresa May took position behind the U.K.’s helm that Cameron had stepped away from, making her the succeeding Prime Minister.

Since then Prime Minister May has come up with a proposed deal for Brexit. However, she has run into disapproval from members of her Conservative government, the so-called Brexiteers (MPs who support Britain’s retreat from the EU).

On the 12th of December 2018, Parliament held a vote of confidence to determine whether Theresa May would continue as Conservative Party leader. Despite widespread opinion that she had lost momentum, especially as more than a third of the Conservative Party did not support her leadership, she consequently won the vote of confidence by 200 to 117 votes, allowing her to remain as Prime Minister.

January 2019 saw opposition Parties as well as the Labour Party demanding a no-confidence vote in May’s steering of the Brexit ship. The Prime Minister was victorious once again, winning by 19 votes.

What are PM Theresa May’s plans for Brexit?

Leading up to the referendum vote, Theresa May campaigned to remain in the EU, however, having become Prime Minister she is now backing the U.K.’s departure from the EU because it is what the British people voted for.

With her emphasis on “Brexit means Brexit”, on the 29th March 2017, Prime Minister May triggered and signed Article 50 of the Lisbon Treaty, activating a deadline set for the 29th of March 2019, in which an agreement must be made regarding the future relationship the U.K will have with the European Union.

Article 50 of the Lisbon Treaty? Here’s what it means:

Article 50 of the Lisbon Treaty is a scheme for any member state of the European Union that wishes to withdraw from the EU. In other words, it is a deal accepted by all European members in the event that a member state decides it wants out.

A few key points outlining Article 50:

  • All member states have the right to leave the European Union.
  • The European Council must be informed of the desire to leave.
  • The timescale in which a deal must be made is two years unless an agreement is made for an extension of that time period.

Key points of Theresa May’s Brexit deal:

An agreement of withdrawal. This is a legal document, amounting to over 500 pages, that outlines the following:

  • The U.K.’s approximate 39 billion-pound debt.
  • The fate of U.K. citizens residing anywhere in Europe and European citizens living in the U.K. after the 29th of March 2019 deadline.

A presentation of the future relationship between the U.K. and the EU. This statement seeks to form the foundations in reaching a prosperous agreement including key aspects such as:

  • The financial industry, legislation, and passporting.
  • “Trade and economic cooperation, law enforcement and criminal justice.”

Taken from the Government’s Political Declaration:

What happens if the EU and the U.K. agree on a deal for Brexit?

If a deal is made, then a period of transition will follow. From the 29th of March 2019, a transition period will begin until the 31st of December 2020 unless an extension is agreed upon. This is a period of limbo in which businesses and financial firms put contingency plans into place, and where EU legislation is morphed into U.K. law.

It gives the opportunity for a detailed agreement on the future relationship between the EU and U.K. to be made.

Could the transition period go on forever?

The answer to that question is no. Like Big Ben’s vigilant presence reminding Parliament that time neither repeats nor pauses itself. Only one opportunity for an extension is allowed, meaning it could not go on re-extending itself in a never-ending loop.

The U.K. Parliament believes that by the time the next election comes about a Brexit deal will have been struck with the European Council. Following the 29th of March 2019 Brexit deadline, the U.K. could be forced to accept EU legislation for a further three years.

So where does the Irish border tie into all of this?

The border that separates the Republic of Ireland and Northern Ireland has become a hot topic in the Brexit dilemma because:

  • It would bring back strict border security and cross-border inspections.
  • It would unsettle the free movement of people and trade across the border.
  • It is raising fears that economic peril and violence could ignite between the two sides of Ireland.

Measures have been taken by the U.K. and EU in order to protect disruption to the trade industry and trade markets regardless of the Brexit deal or no deal outcome.

The U.K. Government and the European Union agreed to put something called a ‘backstop’ in motion. Simply put it is a way of safeguarding and stabilizing trade through an EU Customs Union.

Customs Union versus Single Market

Non-European Union countries are charged equal import tariffs by EU member states; this is a regulation of the European Customs Union. This permits open and unrestricted trade amongst EU member states but at the same time puts a cap on the ability to make independent trade agreements.

The EU Single Market was formed by a trade deal between the member states of the EU and the EFTA (European Free Trade Association). The unrestricted flow and exchange of capital, finance, goods, produce and people are all a result of the Single Market.

In Parliament, on the 23rd January 2019, during Prime Minister’s questions Theresa May said:

“When many people talk about a Customs Union, what they want to ensure is that businesses can export to the EU without facing tariffs, quotas or rules-of-origin checks. The deal we negotiated delivers just that, but it also allows us to have an independent trade policy and to do our own trade deals with the rest of the world. The benefits of a trade union and the benefits of our own trade policy.”

Watch the clip from Parliament here:

After the vote for Brexit, how is the U.K.’s economy doing?

Figures taken from the ONS (Office for National Statistics) show that:

  1. ‘The economy has continued to grow since the referendum in June 2016. GDP growth was 0.6% in Quarter 3 (July to Sept) 2018, the strongest since Quarter 4 (Oct to Dec) 2016.’
  2. ‘The rate of inflation has almost tripled from 0.8% in June 2016 to 2.2% in November 2018, although that’s down from a high of 2.8% in autumn last year. Inflation was outstripped by pay growth in the three months to October 2018 (3.3% excluding bonuses), meaning that wages rose in real terms.’
  3. ‘The value of the pound against the euro was nearly 12% lower in November 2018 than before the Brexit vote, and 14% down since the start of 2016. On average, £1 was worth €1.14 at the end of last month, down from €1.28 in May 2016 (the last full month prior to the referendum).’
  4. ‘Having risen to record highs last summer, visits by overseas residents to the UK fell by 9% on a yearly basis to 3.2 million in June 2018. Overseas visitors spent £2.0 billion, 11% less than the previous year.’
  5. ‘The unemployment rate has continued to fall since the Brexit vote. It was 4.1% in the three months to October 2018, with the number of people unemployed (1.38 million) having fallen by 49,000 compared with a year earlier.’
  6. ‘The number of job vacancies is close to the highest since comparable records began in 2001. There were 848,000 vacancies for the three months to November 2018, an increase of 40,000 since the same period last year.’
  7. ‘The number of EU citizens who came to the UK was 219,000 in the year ending June 2018, the lowest since 2014. Meanwhile, 145,000 EU citizens left the UK, with EU net migration falling to +74,000 (the lowest since 2012). However, decisions to migrate are complex and people’s decision to move to or from the UK will be influenced by a range of factors.’

Taken from UK ONS.go.uk

What is the FCA?

The FCA or The Financial Conduct Authority is an independent financial regulator that strives to keep financial markets in Britain working. In a statement, the FCA summarise their role in the run-up to Brexit as:

“Given the scale of the Handbook changes needed for Brexit, our rulemaking outside that context will focus on our core priorities as set out in our Business Plan. This will help us to ensure that our Handbook functions effectively on exit day and will enable stakeholders to absorb and adapt to changes to the Handbook as a result of Brexit. We will continue to progress important initiatives, such as our High-Cost Credit Review, the implementation of the Senior Managers and Certification Regime and next steps from our Asset Management Market Study. We will delay our rulemaking for some initiatives, such as our work on illiquid assets or the remit of Independent Governance Committees.”

Quotation from FCA.org.uk

What is MiFID?

MiFID (Markets in Financial Instruments Directive) is an arrangement made by the European Union that governs the investment services across the EEA (European Economic Area). The primary goals of the initiative are to boost and reinforce investment services. An updated version of the MiFID regulation, MiFID II, has been in effect since January 3rd, 2018.

With doubts about the future of EU legislation in Britain rising investment firms are making their concerns known regarding how the markets will be regulated following Brexit. The FCA has explained that MiFID II will continue its implementation in Britain which means that investment firms ought to have contingency plans in place to meet future legislation when it comes in.

In a statement on the European Union referendum result, the FCA said:

“Consumers’ rights and protections, including any derived from EU legislation, are unaffected by the result of the referendum and will remain unchanged unless and until the Government changes the applicable legislation.”

Taken from FCA.org.uk

What are the possible good and bad outcomes of Brexit?

  • “Membership fee: Brexiters argued that leaving the EU would result in an immediate cost saving, as the country would no longer contribute to the EU budget”
  • “Outside the EU, said Remainers, the UK would lose trade with its neighbours and reduce its negotiating power with the rest of the world. Brexiters said it could more than compensate for those disadvantages because it would be free to establish its own trade agreements.”
  • “Pro-Europeans argued that the UK’s status as one of the world’s biggest financial centres would be diminished if it was no longer seen as a gateway to the EU for the likes of US banks. They also said financial firms based in the UK would also lose the rights to passport freely across the continent.”
  • “Business for New Europe said tax revenues would drop if companies carrying out large amounts of business with Europe – particularly banks – moved their headquarters back into the EU.”
  • “On the other hand, Brexit campaigners suggested that free from EU rules and regulations, Britain could reinvent itself as a Singapore-style supercharged economy.”

Quotations taken from theweek.com

 

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