A Hard Brexit could smash the UK economy, business leaders have warned Prime Minister Theresa May in an open letter, urging her to avoid leading the country into the wilderness. The problem is, however, that a Soft Brexit would mean the free movement of European Union citizens – immigration control was the main reason for voting for Brexit.
A Hard Brexit means total separation from the European Union (EU), in which UK regains total control of everything, including how migrants are dealt with. However, Britain would lose tax-free access to the EU market as well as passporting rights. Passporting refers to financial institutions being able to operate freely across the trading bloc instead of having to apply to each nation separately.
A Soft Brexit means semi-separation from the EU. The UK would retain free access to the EU market, passporting rights would continue, but the country would have to sign up to the free movement of people.
UK’s business leaders urge Prime Minister Theresa May in an open letter to both respect the will of the electorate and protect the economy. A Hard Brexit, without unfettered access to the EU market or passporting rights for London’s financial institutions would devastate the British economy, they warn.
Hard Brexit less unpopular than Soft?
If the main reason for voting on 23rd June to leave the EU was to regain control over immigration, a Soft Brexit would be extremely unpopular. It would also be seen as stupid, given that as an EU member state the UK currently has some influence over EU lawmaking, but as a semi-leaver following a Soft Brexit the country would have no say, but would have to comply.
How would Theresa May’s government appear to the country’s electorate if all she managed to do was to lose Britain’s ability to be an influence in EU lawmaking, but had to comply with all the trading bloc’s laws? For 51% of the British people, it would all have been for nothing – in fact, all for a step backwards. For Theresa May’s political career, it would be the kiss of death.
Hard Brexit would damage the economy
In their open letter to the Prime Minister, UK’s business leaders warned that without unfettered access to the EU market, the British economy would suffer serious and long-term damage.
In the letter, which was released on Friday, the country’s captains of industry wrote:
“The government must make sure that the terms of the deal to leave [the EU] ensure stability, prosperity and improved living standards.”
Will Theresa May and her Government have the stomach to weather a free-falling pound sterling, cancelled investments by Nissan, Toyota, Ford and other car makers, and a massive exodus from the City of London to continental Europe? Will somebody within the EU break ranks after a general election when an anti-EU party makes alarming gains?
The letter was signed by Terry Scuoler, head of the EEF (Engineering Employers’ Federation), Chris Southworth of the ICC (International Chambers of Commerce), Carolyn Fairbairn, head of the CBI (Confederation of British Industry), and Julian David of TechUK, among others.
Control of UK borders not negotiable?
In a Conservative Party Conference speech, Ms. May said that unfettered access to the single market was her aim. However, she insisted there was no way she would ever consider allowing the free movement of people. Control over Britain’s borders is not negotiable, she explained.
Most of the heads of the EU’s member states said they would not agree to any deal regarding access to the single market if Britain refused to sign up to the free movement of people.
In the letter, the business leaders also wrote:
“Leaving the EU without any preferential trade arrangement and defaulting to trading by standard World Trade Organisation rules would have significant costs for British exporters and importers, as well as those in their supply chains.”
The vast majority – 90% – of British goods that are traded with the EU would be subject to new tariffs, business leaders warn, which would mean a 20% increase in the costs for the UK’s food and drink industry and at least 10% for car makers.
I want to be absolutely clear. There will be no unnecessary delays in invoking Article 50. pic.twitter.com/xSmfzhiGTn
— Theresa May (@theresa_may) 2 October 2016
The letter added:
“Every credible study that has been conducted has shown that this WTO option would do serious and lasting damage to the UK economy and those of our trading partners.”
“The government should give certainty to business by immediately ruling this option out under any circumstances.”
“The UK voted to leave the EU but not, as the chancellor said, to cause living standards to decline. We want a Brexit that safeguards future prosperity for everyone across the UK.”
Hard Brexit and EU future
EU leaders fear that if they agreed to a trade deal which ceded total control over immigration to the UK, it would fuel the mushrooming anti-EU movement across the continent and spell the beginning of the end of the trading bloc.
June 23rd’s Brexit vote sent a chill down the spine of every EU leader, who fear that the referendum may be the catalyst for the disintegration of the whole European Union. They will do everything they can to show other member states that leaving the trading bloc comes with a price.
— techUK (@techUK) 7 October 2016
In Paris on Friday, French President François Hollande insisted that the UK must suffer the consequences of its decision.
Mr. Hollande said:
“The UK has decided to do a Brexit. I believe even a hard Brexit. Well, then we must go all the way through the UK’s willingness to leave the EU. We have to have this firmness.”
“[If not] we would jeopardise the fundamental principles of the EU”, the French president said on Thursday night. “Other countries would want to leave the EU to get the supposed advantages without the obligations. There must be a threat, there must be a risk, there must be a price.”
European Commission President, Jean-Claude Juncker, said that the UK cannot expect to have its cake and eat it – the EU must not allow the country to become a semi-detached member with all the benefits and none of the responsibilities.
Mr. Junker said:
“You can’t have one foot in and one foot out. We must be unyielding on this point.”
On the same day, German Chancellor Angela Merkel said:
“If we don’t insist that full access to the single market is tied to complete acceptance of the four basic freedoms, then a process will spread across Europe whereby everyone does and is allowed what they want.”
“We have to make sure our interests are coherent here so that we won’t be put under pressure constantly via European industry associations to eventually allow full access to the internal market even if all freedoms aren’t respected.”
Michel Sapin, France’s Finance Minister, on Friday said that the Eurozone countries would not be able to accept London remaining as the main euro clearing centre after a Hard Brexit.
Mr. Sapin said:
“There will be activities taking place in London that will only be able to take place on the territory of the European Union.”
Video – A Hard Brexit or Soft one?
In this Economist video, Editor-in-Chief, Zanny Minton-Beddoes, looks at the challenges and possible features of a Soft or Hard Brexit.