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Around the Brexit Table

Source: Publicdomainpictures
Source: Publicdomainpictures

Since the 23rd of June, Brexit coverage has been split between the immediate socioeconomic impacts of the vote, the broken pledges of the Leave campaign, and the lionising / demonising of key negotiators. This emotive tone comes naturally to the commentariat – ‘Bremainers’ and ‘Brexiteers’ are desperate for vindication having argued so fervently prior to the referendum. Every incremental development is being viewed through the lens of ‘what was promised’, and shortcomings against this utopia are often deemed more newsworthy than the reality of Britain’s situation. To learn anything substantive about the country’s future requires that we turn away from these tit-for-tat exchanges, and focus instead on the balance of power in the approaching talks.

Taking such an approach is difficult, however, as nobody seems to want the ‘control’ Britain has taken back; The fundamental decision to now be made is between a ‘soft’ and ‘hard’ Brexit, and this is arguably more seismic than the vote itself. Vying for time, Theresa May has come up with a placeholder – the entirely vacuous phrase ‘Brexit means Brexit’ – but her crack team of negotiators have done little aside from  hire their own crack team of negotiators. We know that Liam Fox, Secretary of State for International Trade, favours a hard Brexit, as does outspoken populist Nigel Farage, but both want unfettered access to the single market in spite of this – something Guy Verhofstadt (negotiating on behalf of the EU) has publically ruled out. There was much talk of an Australian style immigration system to replace free movement, but the PM has since scrapped that option.  The lack of clarity is masking a deep quandary facing government: the choice between upsetting businesses by risking market access, or upsetting the electorate by selling them the false promise of closed borders. All the key parties have vested interests in this trade-off, so taking them one by one is a worthwhile exercise.

London’s service sector will be a priority in negotiations. Source: Wikimedia Commons

If there is anyone the governing conservatives will listen to, it’s the service giants in the capital. The UK is a deregulated and centralised economy reliant on the service sector’s contribution to GDP, and staying in the single market would allow these firms to retain their EU ‘passport’. The cry from many in the sector has been to safeguard this right, and not risk a sector upon which the UK’s economy is so dependent. The industry is not without its dissenters, however, and some firms argue that greater opportunity lies outside the EEA; several high-risk financial instruments were banned under EU regulation post-2008, and this ‘red tape’ could be removed by a hard Brexit. In 2011, for example, AIFMD regulation was passed to force hedge funds to ‘no longer operate in a regulatory void’ – something a cynic would say the UK is looking to return to. The lobby will be strongest for a midpoint between these two scenarios, as it is possible to run two financial sectors (one EU-compliant and one not), maximising opportunity inside and outside the bloc. In short, the service sector would likely prefer a softer Brexit, but individual firms with contrary opinions may make themselves heard.

Another major sector is skilled manufacturing. There is a common misconception that manufacturing is in terminal decline in the UK, but its shrinking role is due to the runaway service sector and mechanisation rather than a collapse in viability. There are many high-end firms such as Rolls Royce, Sunseeker and JCB based in Britain, and their concerns will be market access and deregulation. This is exemplified by vacuum manufacturer Dyson, whose owner donated generously to the Leave campaign after losing a legal battle on labelling regulations in 2015. The position of most manufacturers is likely an echo of the service sector’s preference: to maintain market access, but deregulate domestically, and run two parallel industries that operate in the different spheres.

If the needs of private enterprise are put forward as outlined, the key players in government can be expected to push for a softer Brexit (at least to the extent capital, goods and services continue to move freely). The challenge this presents is silencing the ideologues: MP Daniel Hannan writes, “I’d disapply the vast majority of the EU’s directives (…) and seek an alternative future as a buccaneering, offshore, low-tax nation”. Many who share his vision (Fox and Farage in particular) will likely reboot the sinister tactics of the (unofficial) Leave.EU campaign to push for it. If the government plays this intelligently, however, it could push discourse to a debate over immigration between the British right and far right.

The Leave.EU Campaign used anti-refugee rhetoric as a cornerstone of their campaign. Source: Wikimedia Commons
The Leave.EU Campaign used anti-refugee rhetoric as a cornerstone of their campaign. Source: Wikimedia Commons

The last stakeholder is Europe itself. Brussels’ capacity to negotiate is far greater than that of the British Civil Service, but the bloc is yet to reveal its hand. This is perhaps unsurprising – in a parliament heavily dominated by the centre-right and centre-left there are sufficiently diverse opinions to give any British demand consideration. The only red line for Verhofstadt will be self-preservation: he cannot allow Britain to take Europe ‘a la carte’, as this could lead to further referenda across the continent. Brussels will look to present itself as a considerate but dominant partner in the exchange, giving the UK flexibility without compromising its own key principles. This forces Britain to choose definitively between an attached or detached relationship with the EU, rather than a bespoke midpoint.

Ultimately, Brits have endured over 100 days of proclamations devoid of content, and drawing any conclusions about their socioeconomic future has been nigh impossible.  Knowing who sits at the negotiating table is critical during this period of ambiguity, and if any insight can be gained it is that EEA access is a central priority for the major players – it is only the political consequences of open borders that put this at stake. Europe will force the UK one way or the other, and in that situation the Tories will not risk economic harakiri. A betting man would say the UK is on track for a soft Brexit, but 2016 has not been a year for predictions.

Scott Harvey

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