Post-Brexit Britain: Something will have to give

To say that the UK's vote to leave the EU has ushered in a period of “uncertainty” would be something of an under-statement. Even though the UK voted decisively to leave the EU, there is no consensus on what Brexit means in practice. On the one hand, a few politicians, along with much of the press, are celebrating the UK's new freedom to pursue trade deals with fast-growing emerging economies such as China and India, for now this freedom is theoretical - the UK cannot make any new deals until it has left the EU. At the same time, leaving the world's largest and richest single-market brings its own risks. The optimists, in reply, suggest that we will not lose access to the single market. But remaining in the single market will require the UK to obey the EU's rules and almost certainly pay into the EU, without having the proverbial seat at the table to make the rules. The clear trade off which is emerging at present is about the degree of market access the UK will have against the obligation of free movement. The EU argues that the two cannot be combined, so unless a compromise can be found, something will have to give. General political discourse in the UK seems to interpret the referendum result as a vote to reduce unrestricted immigration from the rest of the EU. So the deal could involve some form of temporary cap on EU immigration. But according to one survey, only a quarter of immigration since 1990 has been from EU states. A much greater proportion - 40 per cent - has come from South Asia. This is pertinent to talk of a future, enhanced UK-India relationship. For many years, top of the list from the Indian standpoint has been a desire for easier access to visas. Many Indians resent the fact that Indian students who study in the UK are prevented from looking for work here - this despite the fact they have frequently studied the subjects in high demand in the labour market (and have paid handsomely to do so). Now, in the current political environment it seems highly unlikely that this situation would change, and that Indian visa access would be eased. In contrast, many Indians have noted that access to the Schengen area is much easier. And they have also noted the use of English in many European business circles - both facts have been promoted within India by several countries. And, this has had an impact before the UK vote. A few years ago three quarters of Indian investment to the EU went to the UK (and three-quarters of that to London). That figure is now down to half. The UK may still be the gateway to Europe, but not as much as it used to be. And, herein lies the problem. As the UK's new prime minister, Theresa May, noted on April 25th this year: “We export more to Ireland than we do to China, almost twice as much to Belgium as we do to India, and nearly three times as much to Sweden as we do to Brazil. It is not realistic to think we could just replace European trade with these new markets.” So what next Clearly steps are being taken to negotiate a Brexit. If the UK gets a great deal, then presumably it will exit. The question is what happens if the deal is clearly worse than the status quo. Meanwhile, while talking continues, the economy will suffer. Most likely, immigration will fall, potentially changing domestic public opinion. Of course, the optimists may be right, and the UK may flourish in its brave new world. Yet, while economics may be the dismal science, if 88 per cent of economists think that the UK economy will suffer, the smart money would be bet elsewhere. Politics also weighs against. Both Northern Ireland and Scotland (which both voted to remain) would be at risk of some kind of political upheaval. As Theresa May noted before the referendum: “If Brexit isn't fatal to the European Union, we might find that it is fatal to the union with Scotland”. Further, she argued that leaving the EU “... would not, I believe, be in our national interest.” Of course, she may have changed her mind in the face of the vote and the internal dynamics of her party. Time will tell. Dr Gareth Price is Senior Research Fellow, Asia Programme, at Chatham House. His field of expertise include economic reform in India and international relations in South Asia.