This site uses cookies. By continuing to browse the site you are agreeing to our use of cookies.Find out more here

GET INVOLVED

To discuss how you and your organisation can get more involved with The Work Foundation, please contact us.

Call 020 7976 3575 or email info@theworkfoundation.com

CONTACT

Professor Geraint Johnes
Professor of Economics at Lancaster University
T 020 7976 3516
Email
Professor Geraint Johnes

The sea that chides the banks

Authors: Professor Geraint Johnes

28 June 2016

The months of campaigning are over, and the majority of those voting in the Brexit referendum have determined that the UK should leave the EU. The campaigning period was seen by many to be frustrating, not least because neither side succeeded in engaging fully with the concerns of the other - it became less of a debate than a shouting match.

On the Remain side, the economic costs of Brexit were emphasised. It will now be necessary to ensure that these costs are kept to a minimum. The resignation of David Cameron as prime minister will serve to prolong the period of uncertainty following the referendum, and does not help in this respect. Still, the new government will need to decide what model of trade the UK should pursue in the future. There are three main options. First, we could join the European Economic Area (the 'Norway' option). This is attractive in that it would provide least turbulence. Businesses could quickly return to a relatively risk-free environment, and we could expect investment, and hence the economy, to recover fairly quickly from the shock. Secondly, we could negotiate a free trade agreement (similar to that which Canada is close to completing with the EU - the 'Canada' option). This would be more limited in scope than the Norway option, and probably would not greatly help our service industries. It would also take many years to negotiate. Thirdly, we could simply trade under WTO rules. This would mean that our exports to the EU would be subject to the common external tariff unless special arrangements can be made. It would therefore be the most damaging option.

While the Norway option has some appeal, it also suffers a major drawback. The campaign to leave brought to the fore some major concerns that the public has about immigration. The Norway option would require the UK to continue to allow the free movement of labour between EU member states and itself. Here, however, a possibility suggests itself. The deal negotiated by David Cameron earlier this year allowed, within the rules of the single market, a temporary brake to be applied to benefit payments to EU migrants entering the UK. Such a temporary brake could, in principle, be applied also directly to migration without breaching any new principle. This would allow migration from the EU to the UK to continue (over the brake period) only subject to a points mechanism. Hence control over borders could be enhanced. The duration of the brake period would need to be subject to negotiation, but a lengthy brake should serve to reduce concerns about immigration, while not breaching any principle of the single market. It is likely that, even in the politically sensitive environment that we have now entered, the UK could find allies in the EU in the context of this cause.

This is important, not least because the time that it would take to negotiate a Canada option means that the Norway option is a likely outcome, at minimum as a staging post. Yet it is an option that would, as things stand, leave many voters feeling that they have been cheated - unless a migration brake, or something similar, could be negotiated. In an ideal world our government would already be discussing options with Brussels - though the reality that we are in a period of leadership transition may make that difficult.

And yet, while immigration turned out to be a key issue, we should not lose sight of the fact that areas of the country with most EU migration are amongst those where the remain sentiment is strongest. Concerns about immigration are really just a reflection of a much deeper concern - about the distance that has grown between the political establishment and the people. We have woken today to a fractured Britain. Healing that break requires a reinvention of our political structures. Genuine devolution of powers might help. A reassessment, within the major political parties, of how they should connect with their natural constituencies, may help more - but whether they can rise to that challenge remains to be seen.