Brexit For Dummies
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To truly understand the effects of Brexit, we need to understand the key issues that came to the fore during the Brexit referendum campaign. Many of these issues run right to the heart of Britain’s problematic relationship with the EU. Read on to discover how Brexit will impact finances, immigration, trade, and sovereignty in the United Kingdom.

The financial impact of Brexit: Britain’s contributions to the EU

No discussion would be complete without mentioning the financial impact of Brexit. Central to the arguments of many Eurosceptics was the belief that the UK gave the EU much more, financially speaking, than it got back in return.

How much does the UK really pay in?

The UK’s contribution toward the EU’s budget changes each year. But, as an example, the UK made a gross contribution of €13 billion to the EU budget in 2017. (Without the rebate, the UK’s gross contribution would have come to more than €18 billion.) In return, the UK received around €4 billion in EU spending, making its net contribution around €9 billion.

Remember that famous bus from the referendum campaign with the slogan on the side claiming that the UK sends €350 million a week to the EU? That figure excluded the rebate and the money the EU gives to the UK for public projects and funding.

The UK also benefits from EU membership in ways that are much, much harder to estimate, including increased flow of investment, and the ability to buy and sell products easily within the EU.

But, yes, the UK does contribute more to the EU budget than it gets back. In fact, the UK is one of the biggest contributors in the EU. Much has been said about the fact that the UK contributes more to the EU budget than 26 other EU members combined. And this statistic is true. But perhaps a less emotive way to look at it is this: According to Full Fact, in 2017, the UK’s net contribution totaled 18 percent of all net contributors.

From a completely neutral standpoint, it makes sense that richer countries in the EU will contribute more than the poorer members (who are net beneficiaries of EU money). But, still, it’s a hard thing to sell to voters — particularly in parts of the UK that have struggled economically.

Feeling the squeeze as Brexit approaches

On top of this, there’s been a reduced UK rebate — as the UK prospered, Tony Blair brokered a deal to give up some of its rebate — and calls from some EU members to scrap the rebate completely.

What’s more, in recent years, the EU has moved to include sex work and sales of drugs in gross domestic product (GDP) calculations, which further boosts the UK’s estimated contribution. (In 2014, the Office for National Statistics began adding up the contribution to the economy made by prostitutes and drug dealers — it came up with a figure of almost €10 billion!) As one newspaper headline put it at the time, the EU would be making the UK pay for our, er, bad habits.

GDP is the term used to describe the value of all the goods and services that a country produces in a given time (usually calculated annually). As a measure, GDP is used to indicate a country’s prosperity and national development. You may also hear people talk about GDP per capita, which measures the ratio of GDP to the country’s population.

To cut a long, and very complicated, story short, Eurosceptics were uneasy about the UK’s significant contribution to the EU’s spending pot, and questioning whether it was all worth it.

“Picking up the slack” for others?

Under EU rules, a member state’s budget deficits (where spending is higher than revenue) must not exceed 3 percent of GDP. And public debt (government and public agencies’ debt) must not exceed 60 percent of GDP. These rules are designed to ensure EU members manage their public funds in a sensible, sustainable way. That’s the idea anyway.

The Italian government is going through a disciplinary process for falling foul of these rules, after reporting a deficit of 3.1 percent and public debt of more than 130 percent of GDP. To put that in context, the UK’s deficit is 1.8 percent of GDP and public debt is around 87 percent of GDP — the latter being higher than the EU’s threshold, but nowhere near as large as Italy’s.

This disparity across the EU is another major underlying factor in the UK’s distrust of Europe. To some, it seemed the UK was picking up the slack or propping up countries that were not as fiscally responsible as others.

How Brexit will affect immigration and the free movement of people

Many Remainers suggest that immigration was behind the UK public’s decision to vote “out.” It wasn’t the only issue, but public opinion appears to show that it was one of the key factors.

But, for some reason, the issue seemed to catch the mainstream political parties by surprise — even though the growing backlash against the idea of free movement was plainly obvious to anyone who read the newspapers or listened to the average conversation on the high street in the run-up to the Brexit referendum.

To stem the negative tide, before the Brexit referendum, David Cameron tried to negotiate a “handbrake” system for the UK benefits system. This system would have denied EU migrants full benefit entitlements for a set period of time after they arrived in the UK, and was designed to combat sentiment that too many EU migrants came to the UK to claim benefits. However, EU leaders believed this system went against the principle of the free market, and the idea was rejected.

Not only did large sections of the UK media portray EU migrants as coming for the benefits, but it also portrayed them as “pinching British jobs.” The two fears aren’t exactly compatible — are migrants coming to live off welfare or to steal people’s jobs, which is it? — but it goes to show how Brexit is such an emotive issue for Brits.

Ultimately, the overwhelming sentiment from much of the media was that EU migrants were a “drain on the system.” Yet, official government figures show that EU migrants are in fact net contributors to UK finances, meaning they pay more in taxes than they take out in terms of public services (like healthcare, education, and so on). In fact, an Oxford Economics study found that the average EU migrant contributes €2,300 more to the public purse each year than the average British adult. In other words, EU migrants living in the UK more than pay their way.

The tricky issue of trade under Brexit

Opinions and statistics regarding UK–EU trade will vary depending on who you talk to, and in fact the UK and EU calculate export trade differently (which is helpful of them).

One thing is clear, though: The UK runs a trade deficit with the EU as a whole, which means the UK imports more goods and services from the EU than it exports to the EU. In 2017, UK exports to other EU countries totaled €274 billion while imports from the rest of the EU into the UK totaled €341 billion. Those figures are based on Office for National Statistics data — the EU calculates imports and exports slightly differently.

Depending on which source you look at, between 8 percent and 18 percent of EU exports arrive in the UK. Meanwhile, UK exports to the rest of the EU come to well over 40 percent of total UK trade. This means the UK is heavily reliant on the EU as a trade customer.

On the other hand, a staggering 23 member states have a trade surplus with the UK — which means they export more to the UK than they import from the UK. Germany and Spain are the biggest EU exporters to the UK. On that basis, Eurosceptics argue it’s in the EU’s best interest to negotiate a trade deal with the UK as soon as possible.

There’s also the issue of financial markets. As a leading worldwide stock market, London is key to Europe’s money markets and commodities, and many European companies have loans that are financed through London. Quite what will happen when these loans are due to be refinanced remains to be seen. But if a workable solution isn’t reached, it will impact not only the London financial market, but also European money markets and everyday European businesses.

Brexit and UK sovereignty

Slowly but surely, more and more power has been transferred from EU member states to Brussels. As an example of this, the European Court of Justice has dealt a number of hammer blows to the UK government with various policies being ruled illegal.

A key argument of Eurosceptics was that the British public never voted to join a federal Europe, where the UK’s laws would be dictated by the EU. Nor did they agree to the European Parliament having the final say on policies passed by the UK Parliament. The UK joined an economic union, not a social and political union. If the people voting in the 1975 referendum had known they were ultimately voting to stay in a federal Europe, would the result have been different? Quite possibly.

A big part of the problem lies with the politicians, here — specifically, a lack of honesty on where Europe was going and what it would mean for UK sovereignty. In his 1971 white paper on joining the EEC, then Prime Minister Edward Heath promised “no erosion of essential national sovereignty.” Yet, in 1972 the UK Parliament passed the European Communities Act, which accepted the supremacy of EU law.

You could argue Heath’s word essential leaves some wriggle room, but, to the voting public decades later, it seemed like the wool had been pulled over a lot of people’s eyes.

The Brexit vote: How the Brexit referendum results played out across the UK

The UK’s constituent countries voted quite differently in the Brexit referendum. The following breaks down the Brexit vote results by country.
UK Countries Brexit Vote Results
Country Percent Voting to Leave Percent Voting to Remain Result
England 53.38% 46.62% Leave
Scotland 38% 62% Remain
Wales 52.53% 47.47% Leave
Northern Ireland 44.22% 55.78% Remain

Devolved parliaments in Scotland and Wales (even though Wales voted to leave as a nation) have been highly critical of the move to leave the EU, and the ruling Scottish National Party (SNP) government in Scotland has been trying to use the result to push for another Scottish independence referendum.

The situation in Northern Ireland is slightly different, with the ruling Democratic Unionist Party siding with the UK government on Brexit (even though the public in Northern Ireland voted to remain). And despite the fact that the Welsh population voted to leave, the Welsh devolved parliament is siding with its Scottish counterpart on a remain policy. Isn’t politics fun?

In any case, what this will ultimately mean for the United Kingdom as whole remains to be seen. For now, the jury’s out, and we’ll wait to see if a Scottish independence vote does materialize.

Meanwhile, what did the EU make of the Brexit referendum?

Like many in the UK, prior to the Brexit referendum result, EU officials generally felt there wasn’t a chance in hell that the British public would vote to leave the EU. Secure in this belief, the EU itself took quite a backseat role in the Brexit referendum, doing little to play up the benefits of EU membership or counteract claims from Leave campaigners.

Just like David Cameron, the EU was looking forward to finally resolving this nagging issue of a UK exit. The vote for the Brexit referendum was supposed to kick the subject into the long grass so that everyone could get back to the business of governing. But things didn’t exactly pan out that way, and the UK’s tumultuous relationship with the EU was reaching its painful, drawn-out climax.

Regardless of any split opinions, Brexit will have an impact on world relations in years to come.

About This Article

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Nicholas Wallwork is a leading international real estate market commentator, entrepreneur, business leader, investor, developer, and author. In addition to heading several real estate and investment companies, he wrote Investing in International Real Estate For Dummies and has produced and presented real estate TV shows on the UK's Sky TV.

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