Why a Hard Brexit is a really bad idea.

Why a Hard Brexit is a really bad idea.

The United Kingdom is a service economy.

Hard Brexit means leaving the single market.

The single market means you can trade goods and services as though you are in the same country.

(The EEA, the single market that the EU is part of, includes freedom of movement which gives us the right to work, study and even retire in any part of it.)

Goods are relatively easy to trade outside a free market. Import duties and standards to meet. Leaving the single market will cause complications (extra red tape, more thought needed for supply chains, extra tax) but it isn’t usually going to be a show stopper.

Unfortunately less than a quarter of our economy is goods.

Leaving a single market is devastating for service providers.

Imagine a launderette on the Northern Ireland side of the Irish border. Imagine that this launderette gets 80% of its customers from the other side of the border.

What happens when the border becomes a customs border? The laundry would have to go through customs for each wash.

It seems unlikely that that situation would be acceptable, so what would happen?

I would think it likely that the laundrette would relocate over the border, before the walls go up. If it were a particularly large business, then it would probably leave a small branch to retain the 20% of customers, (but they would lose the cost benefits of scale).

Now you may be thinking that this is a hypothetical business and only a tiny proportion of launderettes will have this problem, which of course is true.

However this is a very good analogy for data processing and financial businesses. Data is easy to send anywhere in the world, however where it is sent to must abide by the same regulations as the country it is sent from. This is what the single market is for. We leave the single market, European Data cannot be stored or processed here, because our laws will diverge. (In fact laws that are incompatible with EEA privacy rules are already in place, once we are out they will be fully enacted and make it illegal for EEA businesses to store data here.)

We have something like 40% of the EEA headquarters for the largest multinationals here, compared to 12.5% of the population. Those will have to move the bulk of their operation to a country which is not leaving the EEA. All that will remain is provision for one eighth of the total population. This will devastate this section of our industry. Even given that the other sixty percent will probably need to set up new UK offices.

However the amount of re-organisation needed is likely to create a boom during the transition, which will make the actual ultimate loss a bigger shock.

There are of course some potentially very serious non-economic problems.

Northern Ireland.

The peace agreement depends on an open border between the North and South. A hard brexit by definition makes this impossible with the UK remaining intact.

The UK has to have a controlled border with Eire, because otherwise EEA citizens will simply have a back door into the UK. Of course the government could say that they only want to control the British borders and put the controls between Ireland and Great Britain, as opposed to between the two parts of Ireland. But that would just be a matter of choosing different people to offend.

The EU would insist on border controls unless Northern Ireland at least remains within the customs union (free movement of goods). 

The only way to to solve this without controls would be for the UK to allow uncontrolled visa free access to all EEA citizens and to remain within the customs union. The former would make a total mockery of any claims to control our borders and the latter, although viable has been dismissed by the government as being too restrictive.

Scotland

The people of Scotland voted strongly to remain within the EU. They previously less strongly voted to remain within the UK.

If Theresa May is permitted to interpret the results of a specific question to further her political intentions, based on cherry picked arguments made in the campaign, then it sets a very strong precedent for Nicola Sturgeon to do the same.

If 'We wish to leave the EU' can be interpreted as 'We wish to leave the EEA', then 'We wish to remain as part of the UK' can easily be interpreted as 'We actually wished to remain part of the EU'.

If there is a second indyref and the Scots realise that they are likely to inherit a fair chunk of businesses that would otherwise relocate further from England, and it goes the other way this time, all the problems of the Irish border will also exist at the Scottish border.

Gibraltar

Spain is seeking sovereignty over this Island, in the event of a soft brexit, it would be likely be easy to dismiss, in the event of a hard brexit they would be able to veto or filibuster any agreement unless we hand it over.

France 

Currently France helps us manage our illegal immigrants from within their border. They have made it quite clear that if we wish to control our own borders we can. From our own side of the channel.

Expats

If we exit the EU with no agreement, which would seem to be a serious risk, then the right of brits living in the EEA are gone. And it is down to the individual countries to decide. Some countries might chose to allow them to stay, other might not. Or more likely make it more expensive so the poorer ones have to return to the UK.