Does my bum look big in this?

I am persistently asked two questions about Brexit by clients and advisers based outside the UK:

  • what is going to happen and
  • why did the UK electorate decide to leave the EU?

These have become the impossible questions.  To my mind they stand alongside that question no husband can ever answer – “Does my bum look big in this?”

Interestingly understanding the reasons why the UK voted to leave the EU could be the key to getting a settlement.  There is a problem though.

The question on the referendum paper was “Should the United Kingdom remain a member of the European Union?” or “A ddylai’r Deyrnas Unedig ddal i fod yn aelod o’r Undeb Ewropeaidd?” in Welsh.  That’s it.  That is the sum total of the question and the answer was either “Yes” or “No”.  Not “Yes, because…” or “No, because….”, just “Yes” or “No”.  So, despite the claims of many politicians and pundits, no-one actually knows why the UK electorate were in favour of leaving.  Indeed, according to opinion pollsters, the UK electorate is similarly split right now.  Still.

Of course, some reliance has been placed on pollsters as to why people voted to leave.  However, given their recent track record (including on the Brexit vote itself) I think anything they say must be taken with a pinch of salt.  At this stage I would expect UK readers to start on the usual rants from each side of the divide (and it is a divide) with comments such as the people were not told the truth or the Remainers didn’t make their case, or experts can’t be trusted.  But that really does not help us, bar being able to confirm that there is absolutely no clarity as to the reasons, and less as to how these are being addressed by the Brexit process.

I think that there is some common consensus that the main reason for the UK voting the way it did was immigration.  And indeed, that is a live issue in many other EU member states, although perhaps not so much because of the movement of EU citizens to those countries.  From what I understand the arguments elsewhere in the EU are similar: –

  • “They’re taking our jobs and driving down wages”;
  • “They’re living off our benefits” (not quite sure how 1 and 2 interact except in the case of workers paid pitifully low wages);
  • “They’re filling up our schools”. Well there is no doubt the UK education system is under pressure, but one wonders whether it is purely down to immigration; and
  • “They’re using up resources in the health service making it difficult for us to get treatment.“ There is no doubt that the NHS is under pressure in the UK, but little evidence that it is to any major extend due to immigration.

Perceptions matter, and these seem to have been the drivers as regards immigration.  As the UK is now finding out, taking the NHS as an example, the NHS is very reliant on staff from other member states.  There is now net migration from the UK of NHS staff from the EU, and fewer job applicants from other EU member states.  Migrants to the UK tend to be younger and have less chronic illnesses, but it is fair to say they tend to bear children and thus take up resources in that respect.  But the real pressure on the NHS seems to come from older patients, especially when it comes to “bed blocking”.

Close behind, certainly as far as the politicians are concerned is “taking back control”.  Now I do accept that readers from elsewhere in the EU may find this rather incredible, not least because of the special deals available to the UK from the EU. However, once again, this seems to be an issue echoed in other member states, so it is not just a British issue.  Whether it is fair or not is neither here nor there.  What is relevant is the perception.

And perhaps next, is the view that the EU costs the UK “too much”.  Whilst the politicians leading this argument were not very good at their sums (promising £350m a week for the NHS from the savings achieved by leaving the EU), the net cost to the UK is estimated as £200m a week. That does not take into account the new costs arising from protecting our borders, new tariff barriers to be passed, new agencies that will have to been put in place and the administrative cost to commerce in the UK of leaving.  Now we all know that when the UK leaves the EU, someone else will have to find this money or else EU budgets will have to be cut.  And it is now too late to clarify what other benefits the UK gets for the sum of approximately £10bn a year (about the cost of an aircraft carrier without the aircraft).  Certainly, a big benefit is being a member of the Single Market as well as the Customs Union, but in the UK those terms have become as bad news as “Brussels” or “European Parliament”.  A dwindling assertion is that the UK will be better off outside both the Single Market and the Customs Union – it is starting to suffer like the death of a thousand cuts principally as jobs are lost from the UK and relocated in other member states.  However, it is still an assertion that many politicians from across the board, as well as many of the electorate, cling to.

And this last point does also have some echoes politically in Germany and France in particular – the big budget contributors.

And therefore, I say that the Brexit solution requires an understanding by the negotiators as to why the UK is leaving.  That may help colour their positions so that they can get closer to a solution.  And it is also why I argue that the Brexit solution is almost certainly of as much relevance to other member states, principally France and Germany, as it does to the UK.  There are aspects of the EU that do need to be addressed.  Whether Brexit is the right way of bringing the issues to the boil is another question.  And here I must lay some blame at the feet of the Commission and of other member states.

Prior to the referendum, Mr Cameron, who was then the UK Prime Minister (and whose political career was ruined by the Brexit decision) met with the EU in the Spring of 2016, before the referendum, and sought reform.  Put more bluntly he sought help so that he could set the referendum in the best possible light.  He brought sovereignty, migration, welfare benefits, economic governance and competitiveness as issues where reform was needed.  He got no meaningful help.  Indeed, he returned to the UK with an offer which the UK Public and Parliament saw as no different to the assurances Mr Chamberlain was given by Germany in 1939 – I do appreciate that some readers may find that offensive, but that is the reality as to how this was seen in the UK.  That was the perception gained by the UK electorate and Parliament.  And that was to then, in my opinion, play its part in the result of the referendum.  Many British people felt let down by the EU at that crucial stage.  Yet what Mr Cameron was seeking was no different to issues faced by other member states.  And as we now know, it seems that these were important issues for the UK electorate.

So, coming back to the first question – what is going to happen or where are we likely to end up with Brexit?  Well, if you were to put yourself in the shoes of the UK negotiators, you will see that they very much have their backs against the wall.  They really need some help from the EU here.  I do not believe we are talking about flexibility and creativity, as we are told by the UK Government.  I think that the other member states need to take stock, address the issues, many of which are common to other major member states, and then address reform.  The chance of achieving reform within the Brexit timetable is pitifully low.  There may be more chance of doing so within a reasonable transitional period.  And this would not be giving in to the British.  After all, the UK is now pretty certain to leave.  However, that may enable the UK to leave with a deal as opposed to crashing out which is of much good to the remaining member states as it is to the UK.

However, you may wish to ask yourself how likely it is that reform on key issues affecting mainly the larger member states can be achieved even within say four or five years?   And that is why, right now Covertax is preparing for the UK crashing out with no deal, but hoping that common sense will prevail.

And taxation.  Well taxation follows trade.  And commerce much depends on the trading terms between the counties.  And if you wish to be even more narrow, the EU is moving forward with modernising VAT and we don’t even know whether the UK will move forward with the same reforms.  There is a chance that it will not.  That then means a risk of different basic VAT systems in the UK and in the rest of the EU, leading to uncertainty as well as added cost for commerce.

So right now, the Brexit bum does look big in this.  Indeed, it may be better off trying to wear a tent.