BREXIT AND THE PEOPLE - WHAT'S NEXT?
On 23rd June 2016, the Brexit Referendum took place and the people of the United Kingdom voted to leave the EU. 43 years after joining this political and economic union, the UK is facing uncertainty as Brexit negotiations are coming to an end. Leaving a single market of 28 countries with free movement of people, goods, services and capital will have a huge economic effect both on the UK and the EU. However, the effects and their extent differ.
Free movement of people attracted many migrant workers from EU Member States to the UK and vice versa. It is estimated that 3.2 million EU citizens live in the UK, while that number is around 1.3 million for UK citizens in Member States. Labour is one of the 4 main factors of production; any of its changes will inevitably have an effect on the output. Although migration of people from European Economic Area (EEA) was one of the main arguments during the Leave campaign, studies have shown that it actually has a positive impact on many areas of UK’s society. EEA workers are paying more in tax than they are taking out in benefits. The Migration Advisory Committee has reported that the average adult migrant from the EEA contributes £2,300 more to the UK government budget than the average UK resident.
The Leave campaign also argued that the influx of low-skilled EU labour resulted in higher unemployment of domestic population. However, there is no evidence to support this statement. Many sectors of the economy, such as agriculture, are dependent on the supply of labour provided by migration from EEA. The social care sector, likely to grow given the ageing population, currently employs a significant number of migrants - increasing numbers of whom are from the EU. The number of nurses and midwives from Europe joining the UK healthcare register has dropped by 89%. British workers are not as likely to take jobs with long hours and minimal pays. Therefore, changes in the labour market and its effect on UK output present one of the many Brexit uncertainties.
How big of an impact Brexit will have on both parties will depend on the kind of agreement the two sides make. Immediate risk of a no-deal exit is that it would leave Britain and the European Union without a trade agreement, forcing them to default to the tariffs set by the World Trade Organization. Tariffs would raise the cost of UK exports. That would hurt exporters as their goods would become higher-priced in Europe. UK could make new free trade agreements with major economies such as the USA, China and India. However, estimated potential gain from these agreements is very small. The government estimates it would add less than 0.1% to GDP.
In the years to come, Brexit will have a huge impact not only on the economies of the UK and the EU, but also on a global scale. Although we can try to estimate what will happen in the future, Brexit is unpredictable. No country has yet exited the EU; the outcome of such action is therefore uncertain. Many issues other than economic ones may arise. Potential Scottish Independence Referendum, Northern Ireland border and political instability are just some of the issues the UK needs to address. One thing is certain - the UK will go through many changes and face numerous challenges in the future.
