The aim of this study was to investigate the political, social and economic implications as a result of UK exit from the European Union, commonly referred as the Brexit. This study will be important to policymakers in the UK as it will assess the political, economic and social implications of the Brexit and come up with recommendations on the best policies to build the strong relationship with the rest of the world.
Therefore, this study provided a description of the UK history with the EU and focused more on political and social-economic implications of withdrawing its membership (Cameron 2013). The idea of referendum developed due to the high number of immigrants from the EU member states who were entering the UK hence causing economic sabotage (Wielechowski 2015).
An idea for holding a referendum was not accepted by some members of the Conservative party, which followed a split of whether to leave EU or not (Usherwood, and Startin 2013). The commitment to a referendum was a political move by the conservative government to conciliate its base (UK Economic Statistics 2016a). However, the Prime Minister idea to hold talks over UK membership without conducting a referendum did not succeed. The majority of the UK members choose to hold a referendum.
In this study, the researcher draws information heavily from the primary sources. These include press releases of the EU, the EU commission’s websites, the UK government session papers and publications, documents from the UK national bureau of statistics and finally the WTO statistics. The researcher also retrieved information from the EU and UK government sources as a way to ensure the information was credible.
CHAPTER ONE
INTRODUCTION
1.1 Background information
According to Usherwood, and Startin (2013) the UK has been the largest internal markets in Europe. The country’s population according to the World Bank estimates of 2015 was 508 million with a total GDP of $18.46 trillion (UK Economic Statistics 2013). Following June 23rd, 2016, 17.5 million people (51.0% of the total cast votes) overwhelmingly supported the idea. The Brexit has shaped the country’s social, economic and political development and its relationship with the European Union (UK Economic Statistics 2016b).
Political implications were immediate; first, Prime Minister David Cameron resigned shortly after the result was announced. Cameron showed the unwillingness to lead exit negotiations and instead he decided to set off a conservative leadership context (Gordon and Michael 2016). According to Wielechowski and Czech (2016), the Brexit vote exposed wider societal tensions within the UK on the basis of age, class, according to income, and education. Henderson et al. (2016) further note that Brexit led to social inequality among citizens of the UK.
On the other hand, as a result of UK exit, the European member states enacted Article 50 and commenced a process of leaving the UK. Key figures within European Union have been mounting pressure on the UK to pay all the EU benefits before leaving.
The Brexit had implications for the economy of UK and also the other EU member states. According to the World Bank report of 2015 Britain has been trading with 28 European countries with a range of imports and export. In 2014, UK trade with the EU accounted for 44.6 percent of the total UK export and 53.2 of imports of goods and service (UK Economic Statistics 2013). According to Tauris (2016), the major economic implications are that UK will not be able to negotiate effectively on free trade deals with the EU member states. Therefore, this forced the UK to make trade diversions hence creating a negative effect on the UK export industry (Raph 2015).
The UK exit from EU will likely affect the Foreign Direct Investment (FDI) which raises the national productivity (Suter 2016). First, it is important to note that multi-national companies bring better technology and managerial know-how hence raising the outputs in their operations. In the UK, the FDI stock is over £1 trillion of which half are owned by private organizations.
The Brexit has affected immigration in the UK.
According to Handley and Limão (2016), UKK had the largest number of immigrants within the European Union. For instance, between 1995 to 2015 the number of European of immigrants from within the EU member states increased from 0.9 to 3.3 million (UK Economic Statistics 2016b). To most of the citizens of UK believe that immigration lowers down pay and chances of getting employment (Pattie and Johnston 2012). On the other hand, immigrants consumer goods and services therefore increased demand helps in creating more job opportunities (Raph 2015).
1.2 Statement of the Problem
The Brexit shaped the country’s social economic and political development and its relationship with the EU (Suter 2016). Therefore, a majority of citizens of UK started feeling the impact of Brexit. Most business has a possibility of leaving the UK and this has an adverse effect on the economy (Tauris 2016).On the other hand, Brexit has created political impact since the resignation of Prime Minister David Cameron. The newly elected Prime Minister faces an uphill task to put the country in greater social-economic and political prosperity. The adverse effect of free movement of people with the UK and EU members given that Britain was the largest home of European immigrants (Suter 2016).
However, since the Brexit, very little has been researched regarding the social, political and economic implications for the UK. This study seeks to address the gap by systematically assessing the political, economic and social implications of Brexit on UK. The study will assess the ways in which each aspect is affected by the Brexit.
1.3 Aims and Objectives of the Study
The aim of this study is to assess the Political, Social and Economic implications of the Brexit on the UK domestic
1.3.1 Objectives of study
1) To assess the political implications of the Brexit on UK domestic, British Perspective.
2) To assess the social implications of the Brexit on UK domestic, British Perspective.
3) To assess the economic implications of the Brexit on UK domestic, British Perspective.
1.4 Research Questions
1. What are the political implications of the Brexit on UK domestic, British Perspective?
2. What are the social implications of the Brexit on UK domestic, British Perspective?
3. What are the economic implications of the Brexit on UK domestic, British Perspective?
1.5 Justification of the study
This study will be important to policymakers in the UK as it will assess the political, economic and social implications of the Brexit and come up with recommendations on the best policies to build the strong relationship with the rest of the world. To the economists and business people living in the UK, the study will recommend the best macroeconomic factors to deal with a post-Brexit crisis. The study also is expected to fill the literature gap on the social, economic and political implications of Brexit on UK domestic.
1.6 Structure of Dissertation
This dissertation consists of four main chapters. The first chapter covers the introduction part providing the background of the information, statement of the problem, aims, and objectives of the study including the research questions and justification of the study. The chapter two of this dissertation covers the literature review. The literature review covers the past studies on the political, social and economic implications of the Brexit.
The chapter three of the dissertation covers the methodology used to collect information, data collection methods, and theoretical perspective. Chapter four of this dissertation extends the analysis of this study to cover the analysis on political, social and economic implications of the Brexit to the UK domestic including conclusion and recommendations.
CHAPTER TWO
LITERATURE REVIEW
2.1 Economic implications
The process of Brexit reached a culmination on 23rd of June the year 2016 when UK citizens decided to hold a referendum to determine why they should consider it a quite on being a member of the European Union (Morphet and Janice 2017). This came as a result that many of UK citizens felt that being in the union was a disappointment on their side, as the benefit coming from being in the so-called union was much below per the expected outcome, hence there was no reason for them to continue being in the union (Pattie and Johnston 2012). Referendum of the cause was meant to shape the relationship between the UK and the rest of EU countries on matters of trade (Patrick et al. 2017).
While it was in the EU, the UK enjoyed minimal trade barriers with other countries within the continent since the trade was wholly negotiated between the EU as a union rather than as a single country, which of course had some implication on matters of trade (Ottaviano et al. 2014). Apart from other countries, there were no barriers of trade that existed between all EU members and goods and services were freely moved across the borders without or with the minimal restriction which means at that point the UK and a better chance of conducting business without much interruption (Morphet and Janice 2017).
The UK before joining the EU in the year 1973, its trade with member countries was relatively one-third of its total export and was seen to be a very small fraction of the compared to the number of goods and services that the country was able to produce at that particular time (Novitz and Tonia 2017).
Upon being a member of the union, up to the year 2014, it is estimated that the EU member states accounted to about 45% of the total export of the UK, which means the country enjoyed a winder market among the EU members for its products and services (Morphet and Janice 2017). The living standards of UK citizens were good owing to the fact that business was doing very well since with the increased level of export, then I mean the production was very high consequently even the producers of raw materials and workers enjoyed some benefit because of the booming business in their country (Novitz and Tonia 2017).
With Britain’s place, it was apparently expected that trade and the level of business will change since after moving out the EU, the UK will be treated as any other country with no close ties with the member group (Morphet and Janice 2017). In that connection, the trade barriers will be put in place and other close border restrictions that prevent goods and services from entering other countries without undergoing the necessary process for the exporter be allowed to a sell or buy products (Méjean, and Schwellnus 2009). With the introduction of this regulation, then it means that the level of tariff and other trade charges will be imposed on anyone or any government agencies wishing to export goods or services to those countries (Ottaviano et al, 2014).
The implementation of Brexit will with no doubt lower the living standards of people of UK bearing in mind business opportunities will be minimal as compared to the time when the country was a member state of EU (Morphet and Janice 2017). Apart from the movement of goods, services, and other manufactured products, UK will also have to suffer in terms other investments and even immigration. Every country, in one way or the other will at some point, needs to have intellectual knowledge which no single country can have it all. When UK was a member state of EU, it was possible for investors of the UK to move freely within the member's states to invest and also to buy ideas which they can use to come up with ascertain kind of business or trade opportunity and vice versa (Novitz and Tonia 2017).
With Brexit tight regulation will be put in place to control such freedom which some (regulations) will put off individual will find it tiresome to undergo such procures to enable them to carry on with their business Though the UK was considering Brexitto reduce the cash outflow that each and every member's statement is required to contribute yearly to sustain the factions and activities of the EU, the net inflow that the country gets (UK) is below the expected net income hence reducing its total per capita income of the nation at large. This is a clear indication that the single market that was enjoyed by the UK while in the EU was vital in the economic progress of the country because those goods were easily moved and to all countries that were the member state.
From exporting to other countries, importing, goods, services, and other items from the other EU member state were very cheap and affordable to both individual business people and government. Brexit will make this business more expensive since even import tariffs will take effect once the Brexittakes place. Therefore, goods and services acquired from these countries will become more costly to the common citizen who will automatically increase the burden of living among the citizens of the state (UK) (Handley and Limão, 2015).
Therefore, it is quite clear and assumed by many researchers that UK will fall under the category in which countries like Norway that enjoy a certain level, free movements of goods and services to different countries with EU, the case of UK might be different and may not have the exceptions of trade barriers simply because it left from being a member state which is different from Norway which has never been a member state before.
In addition due to the fact that there is a very big difference between being a member state of EU and being the member of common markets, the UK can still enjoy same exemption trade barriers if it considers remains a member of a common market without being the member of the EU. Some of the rules and regulation that the UK will be subjected to with the implementation of Brexitinclude, anti-dumping duties, origin necessities which are not always favorable to trade especially among small traders that which to market and sell their goods and services across borders.
With its exit from the EU, it means that UK will be governed by trade rules that are recognized by the World Trade Organization (WHO), Which are generally more expensive to implement as compared to rules that are negotiated among EU member states.
Further, UK may face other consequences that include border restrictions, increased in – the tariff on export and increased tariff on imports all which lower the GDP of the country (Méjean and Schwellnus, 2009).
Trade cost between EU nations have been reducing the establishments of the union at an approximate rate of 40% lower than the case in other countries hence the UK will be of the worse side since it will not be able to benefit from the reduce cost of doing business and other investment’s opportunities that exist among the EU member states (Méjean and Schwellnus, 2009).
Since it is necessary for UK to do trade with other countries some of which are still within the umbrella of EU, then it means it can only withdraw its membership from being a member state, but must remain a member of common market, therefore the UK will still have to provide some financial towards the activities of the common market though, it will never benefits from many ways from the tariff exemptions that will be accorded to the EU member states (Hatch et al 2016).
Though there was a decline in total amount the UK goods and services to the EU members, that was not supposed to be the reason as for why the UK had to consider leaving EU which and more benefits in terms of trade affairs than when it is on its own (Hamilton et al. 2016). When we talk of the single or common market, the purpose of it was not to increase the income of any particular country, but to synergistically make sure that each member state could in one way or the other benefits in areas in which the country is best suited in terms of business and free movement of labor.
Other benefits of being in the member state could mean that, it was possible for the UK to concentrate on building efficiency probably in economic areas where to its understanding had readily available of materials, labour and any other necessary factors of production that could make it more competitive and enable it to dominate ascertain the market segment among the EU nations ( Kohler and Storm 2016). The UK though that Brexit would in several ways boost demand on its good and services to the other member states though this was wrong because it exits from the EU will make things even worse simply because of higher tariffs that will be imposed on its good, services, investments and other manufactured and non – manufactured products (Kelso 2009).
Furthermore, the amount of export that comes from the UK to other EU member state indicates that a large percentage of that products are always in raw materials and are processed elsewhere then imported back for consumption in the same country, therefore, UK has not been having much of finished products in the market which means its exits from the EU will cost it’s a lot in terms of importing value-added product for use in the country (James and Oppermann 2009).
Being in EU means that UK would be imports and inflow of investment from the some of the most developed countries which will probably translate to the increased level of economic growth in the UK (James and Oppermann 2009).
In addition due to pressure from other member states, both the state's manufacturing agencies and private manufacturers within the country would invest much on research, value-adding technological methods of production and improve quality and the quantity of goods and services that are exported to other member’s states.
The higher level of competition among members state in the EU could also stimulate the urge for more effective and efficient labor personnel in the productive, management and supply system in the business sector within the UK, hence helping in establishing a strong market share among the EU (Hamilton et al. 2016).
Citizens of a particular state and the key player in the economic building of the country, this person for them to participate fully in an economic building, must either be employed or have other businesses that they are doing to enable them to earn a better living and have something to save and invest. While in EU, UK citizens were free to move freely or with fewer restrictions around other member states in search of employment or business opportunities that would help them earn some money.
With the implantation of Brexit, it means that to undergo some procedure and meet some regulations to enable them to move from one country to another in search of greener pasture. These processes could put some if not all off and choose to stay with the bonders even when it’s clear that the opportunities are limited whereas the same opportunities are in pretty among other UE member countries (James and Oppermann 2009).
Despite the fact that the UK government opposes the regulatory charges that it’s required to pay to EU annually to maintain the union and its activities, this cost account for approximately 1% of the total GDP of the country which is less than half the total regulatory cost that UK will have to put up with immediately after BREXIT implementation (UK National Statistics 2016).
Though it might look insignificant to the government of UK, withdrawal of their EU membership will lower the level of direct foreign investment, which contributes around 2.22% of the total GDP of the country (Pain and Young (2004). This fact will definitely have an economic effect on foreign exchange markets which in one way or the other helps to maintain the consistency, reliability, and predictability on the cost of the product to the mark without abnormal fluctuations.
The research shows without contradiction that the UK drives a huge percentage of investment from foreign investors. Most if not all of the big businesses in the UK are basically owned by foreigners, therefore, with the BREXIT in place it means there is likely fallout from some regulation which used to govern businesses will be changed by the UK government as opposed to common market rules that used to apply when it was a single market to all European union communities (Handley and Limão 2015).
Therefore, it means that throwing investors will to other countries within EU which have trade barriers, tariffs and business regulation which are a bit favorable as compared to the UK. The move will definitely affect negatively the economic progress of United Kingdom (George 1998).
European Union as the community finds it suitable and convenient to have most of the direct investment services being carried in the UK, though still due to its level of development UK can still market itself and remain the best economic hub for a number of EU member states, it was would have to work extra mile to convince those countries that chose to remain in the union that their banking sector should continue to have to offer foreign investment services specifically on matters finance after BREXIT (Gordon and Michael 2016).
This means financial services sector in the UK will have to undergo some form of recess immediately after BREXIT and probably some years after, a move that will adversely affect the country’s financial expansion and also a loss of job and viable opportunities
Affirmative consequences of UK leaving EU
Despite numerous benefits gained from being a member of European Union, there are also some limitations that come with it that by an exit from being a member of EU it means that the UK will never be bound to adhere to such rules (Ford and Goodwin 2014). For instance, the extra tariff that is imposed on those countries that wish to export their goods or services to those EU countries when the state in question is not one of those member states (Hatzenbuehler 2014).
While in the EU, it means that UK cannot by any way determine a trade partner for itself since all rules of trade and other regulation come directly from the single market authority that is established purposely for the EU communities (Haines 2016). Therefore it becomes more difficult for the country to expand its trade to different regions around the world primarily because it cannot be able to adjust its tariff and other trade regulation accordingly to help in attracting more investors and also boost more import and export in the country (Ford et al. 2012).
Every country that wishes to enter into trade with another must first and foremost negotiate for a mutual agreement that will guide their trade relationship with the country of their choice for ascertaining of a period which will be reached after discussion on various matters (Guild 2017).
As a member of the European Union, no member state could freely negotiate for any trade deal rather all matters of trade were left to be handled by a team individual selected among the member state to go and represent the union in any trade negotiation.
This was one of the most restraining factors that show the slowdown in economic growth in many European Union countries that made the UK decide to find its way out of that hook (Hatzenbuehler et al. 2014). When it’s not required to account in any union, the UK will be free to look, negotiate and actualize any business deal with several powerhouse countries around the world e.g., united states of America, Japan, China among others on mutual benefits to boost both export and import in their country.
According to research, the large amount of UK export finds its way to countries like U.S and China and not basically within the European Union.
Therefore, it makes a lot of sense for the UK, to find itself out this the EU since it is only is tiny amount of products that are consumed with the EU communities and after BREXIT, the country will have a better chance to negotiate for a direct trade ties with countries that high consumption of its products rather than their products having to go through trade conveyed by a delegate sent by the European Union (Haines 2016).Direct investment will have brought about other benefits like investments, a lower tariff of imports and export and others which could not easily granted to the UK still remains under the umbrella of the European Union.
Apart from developed countries, the UK being among the big economies in Europe will be in a position to enter into bilateral trade talks with some developing countries which been overlooked to the EU in their trade agendas. As a notion of having and being to control a large business market is a sure way to guarantee success in terms of developments, opportunities and better living standards of citizens.
According to research done by Bekesi (2017), several if not all of the trade negotiated by the EU on behalf of the UK, show the very low quality of imports to the UK through the price of import remains the same despite less satisfaction, this was as a result of indirect negotiation which did not articulate clearly the interest of UK. Though their some benefits, it does not match the effort and contribution that the UK government offer to the union and if such effort is channeled towards their self-determination, the benefits could be of the higher percentage than experienced pre – BREXIT (Bekesi 2017).
Post BREXIT found the UK in a very weak employment, social and environmental regulation, its however important to note that, UK has one of the most flexible markets according to the research which means its easily find alternatives and cheaper ways of satisfying its economy, with affordable labour, raw materials and other necessary inputs and factors of production to maintain and grow its economy without largely depending wholly on its relationship with the EU community (Cameron 2013).
By its strategic location and other comparative advantages that it enjoys, UK is the hub of money, direct investment from across the continent of Europe and other regions across the world. Pre – BREXIT, most of the foreign direct investment was largely controlled or borrowed most of the regulation from those most used or proposed by the EU community and EU member states were the highest consumers of the products (Allen 2005).
With BREXIT, it is most likely that UK will have to reconsider the regulations governing the conduct of the foreign investment, which may for various reasons put away their larger market especially those from EU member states. However, having left the union, UK will definitely have vigorously marketed the sector vigorously in different parts of the world and also will have to devise a suitable marketing strategy that will attract able and reliable investors globally (Coulter and Hancké 2016).
The United Kingdom, apart from being in a good strategic position, has a number of cultural, economic and social features that make suitable many potential investors to put up their business (David 2015). The UK has been considered to have the best legal system in the world, it has the highest number of listed financial services companies and for so it is an English speaking country the language that is most preferred by many people in both developed and developing countries.
2.2Social implication of the Brexit to UK domestic
The polls that took place on 23rd June 2016, beginning the whole journey that shows actualization of the long-anticipated fallout between Britain (the UK in particular) and the other EU member state (Bekesi et al. 2017).Despite the fact that the decision to leave was reached after a referendum which means most of the UK citizens participated in making the BREXIT a reality, many did not look the effects that the move (BREXIT) will bring to the social matters particularly between the UK and another member state within the European Union (Coulter and Hancké 2016).
The idea of the UK to leave the union will bring about also to disturbance and confusion among the member states probably on areas to do with the social and integration policies of the region. Towards the end of 1990,s the union developed a structured policy framework the will guide the union on matters related to territorial differences whereby every member state was required to subscribe to it and it was always a point of reference whenever any kind territory conflict sprout out among any European states (Bekesi 2017).
The UK is one of the major key players within the union contributed amicably in the creating and implementing the policies to which it benefited much since through those policies, it was able to deal conclusively with external wrangles that it had with neighbor countries on boundaries (David 2015). Once a country becomes a member of the EU, it is require to sign a very essential treaty, which if inform of agreement between the state in question with other member state to oppose or condemn any form of, social discrimination, social exclusion and to working and living condition better for all citizens from all other countries which are member of the EU working and doing business in that country. Therefore, it clear whether after the BREXIT the UK nation will still hold to this treaty or policies will be revised.
In case this happens, it means there will a possible social conflict between the UK and countries that will remain in the union especially on the immigration and movement of labor matters. According to (HMG 2014b), UK government through the negotiation conducted by EU, development committee programme, united kingdom before the BREXIT in the year 2016, had allocated about 10 billion euros which were meant to boost the financial capacity of the EU development fund.
The funds under these dockets are meant to facilitate various social projects to all member states and the very country has a right to borrow and utilize the fund's line with the social affair policy framework (Ashcroft 2016). Such project includes urban development, competitiveness, innovation, low carbon, skills and development and skills among others (Miller 2016). Since the UK was considered as the main prayer and most of this project was undertaken within its territory, it’s not clear, with the implementation of the BREXIT how other the EU member states will benefit from projects which in one way or the other contributed to their existence.
According to Denis (2017) social disturbance among the member states and Britain. One of the biggest questions that are being asked by many to be specific the devolved administration is whether there is any possibility that those funding that was meant to support and facilitates particular social goals will still be provided. If they will be provided, which policy will the UK government use since it has already withdrawn its membership from the EU? Most of these funds are beloved to be from UK government, the post the BREXIT means that the government will totally cut or slow down its funding which means the much expected social integration will slow down before the remaining the EU communities revise their policies (Ashcroft 2016).
Until the late 80’s the region used to implement such policies that were generally meant to ensure regional balance by providing the necessary support required to the less disadvantaged countries among member states. The effort was in most scenarios geared towards infrastructure development, the industrial set up education sector and other areas so as to the create jobs and other business opportunities.
During this time, the movements of labor forces wireless restricted being one of the measures mean of foster social cohesion and integration and also reduce the level of unemployment among the member states (Allen 2005). With the BREXITS, the UK main objective of the EU communities has been fundamentally on matters of local economic empowerment of specific countries as opposed to social integration of all countries.
