The UK’s ‘Referendum’ and the ‘Brexit’ Explained

On 23rd June 2016, the United Kingdom held a referendum/ vote to decide whether or not to leave the European Union. 52 % of the voters opted to exit from the Union (also known as Brexit). This post explains Brexit in a series of Q&As.

What is the European Union (EU)?

The European Union is a group of 28 countries mostly located in Europe. It is an economic union that aims to ensure the free movement of goods and services, labor, and capital within the countries.

Why did the UK hold a referendum?

The then Prime Minister of the United Kingdom, David Cameron had promised to hold a referendum if it won the 2015 elections to placate the sentiments of people who wanted to leave the European Union.  To fulfill his electoral promise, David Cameron set June 23rd as the date for the UK’s EU referendum.

The United Kingdom had never accepted the European Union fully. For instance- It refused to adopt the Euro as its currency. 19 countries in the European Union of 28 countries have adopted a common currency called Euro to facilitate trade.

The UK joined the European Union in 1973. The last referendum was held just two years after its joining in the year 1975. The UK had voted to stay in the EU then.

But, since the euro-zone debt crisis, the UK has become more skeptical of the EU.

[You may also read – Greece (EU) debt crisis)

When the United States was caught in the financial crisis after 2008, it lowered the interest rates to boost GDP. But, the European Commercial bank chose to increase the interest rates for the EU countries and imposed austerity and it led to a double-dip recession.

[You may also read- The Financial Crisis 2008 Explained in Simple Terms]

Though the recession did not affect the UK directly (as it didn’t adopt Euro), it shook its faith in the European Union.

What is Brexit?

Brexit is the combination of the two words Britain and exit. [Britain + exit = Brexit]

In this context, Britain is used synonymously with the United Kingdom. The UK consists of four countries: England, Scotland, Wales, Northern Ireland.

What are the main arguments for Brexit?

The main arguments of people who want Britain to exit from the EU are:

• Europe’s migration crisis:  The migration rules for member countries of the European Union are very liberal for other countries in the EU. This had led to an influx of migrants from the relatively poorer EU countries that have recently joined the union.
• Reduced British sovereignty: Since the UK joined the EU in 1973, it has increased its power and bureaucracy and diminished Britain’s political sovereignty.
• Even though Brexit will also mean an exit from the unified EU market, Britain can negotiate a favorable agreement with the EU which is not bound by the restrictive EU laws.
• It can also negotiate free trade agreements with other countries like India, China, and the US.
• Costly membership: The membership fees of EU is 350 million pounds weekly

What are the arguments against Brexit?

• There are lots of economic benefits of being in the EU which justifies the high membership cost. The UK gets free access to the unified European markets. About 45 % of the UK’s exports are to the EU. The EU is the largest free trade agreement in the world.
• Pro- Brexit people claim that Britain can negotiate a favorable agreement with the EU without being bound by the restrictive EU laws. But, the EU might not give them a favorable deal as it could set a bad precedent for other EU nations and encourage them to exit.
• Some people are in favor of the status quo as an exit will lead to a lot of uncertainty in the market and can be disruptive to the economy
• The UK can wield greater authority in the world by being a member of the EU.
• As per the IMF report, the UK’s economy could plunge into a deep recession as a result of the exit.
• Scotland wants to stay in the EU. This could strengthen the demand for independence from the UK in Scotland.

It has to be noted that David Cameron wants Britain to remain in the EU. He had negotiated concessions for his country like cutting of social benefits for immigrants of other EU countries at the beginning of this year. But, the Brexit proponents felt that the concessions were not enough.

What could the prospect of Brexit mean for India?

• The UK will make efforts to foster ties with India.
• Brexit might not affect outbound investment (UK’s investment to India). But, it could affect inbound investments. The main criteria for Indian businesses to invest in the UK is the unfettered access to the European markets.
• The EU is more protectionist and hence creates unnecessary trade barriers. To quote an instance: Mango exports from India were banned after fruit flies were found in the consignments. Though the ban was lifted in 2015, it led to losses for Indian exporters. Thus, Brexit could mean lesser trade barriers.

To conclude, the vote for Brexit will not cause an immediate exit from the EU. It will only lead to protracted negotiations with the individual EU nations and Britain will most likely not exit from the EU until 2019.

Updated on 22/07/2020: The UK formally left the EU on 31 January 2020 after protracted negotiations, but it is now under a transition period of 11 months till 31 December 2020. It means that the UK will continue to remain with the EU customs union and single market, while the two sides negotiate a new deal. To explain further-

it will be business as usual for citizens, consumers, businesses, investors, students and researchers in both the EU and the United Kingdom. The United Kingdom will no longer be represented in the EU institutions, agencies, bodies and offices but EU law will still apply in the United Kingdom until the end of the transition period.

Source: Q&A on UK’s withdrawal

The transition period gives the United Kingdom time to negotiate a post-Brexit deal with the EU. If the EU and the UK fail to agree to a deal by 31st December, it will be a no-deal Brexit and the UK will have to trade with the EU on WTO terms. It will not get tariff-free access to the EU market.

[You may also read: What is WTO?]

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References:

India and the Brexit (Hindu)