Brexit: the results and implications for the UK

The UK has begun a complex game of poker with the EU and now faces a difficult period of negotiation.

Brexit: The UK has begun a complex game of poker with the EU. What from the UK’s departure from the EU we take will be the subject of a difficult web of negotiation, which has already begun.

The result

The breakdown of the results was as follows:

• Leave – 51.9% (17.41m)
• Remain – 48.1% (16.14m)

72.2% of the population turned out to vote which is one of the highest turnouts in recent years, although it narrowly misses the 1992 record of 72.3%.

The breakdown across age groups is also notable, with 75% of 18-24 year olds voting to remain. This may well become a factor in the debate going forward.

Across the UK, the breakdown was strongly along socio-economic lines, with North and Eastern parts of England, and Wales voting strongly in favour of Leave and London, Northern Ireland and Scotland voting to Remain. The economically significant M3 and M4 corridors also voted to Remain. It seems those with an economic stake in the UK bought the economic argument.

• England – 46.8% remain – 53.2% leave
• Scotland – 62% remain – 38% leave
• Wales – 48.3% remain – 51.7% leave
• Northern Ireland – 55.7% remain – 44.3% leave

Reactions from key stakeholders

With the Leave vote confirmed, Cameron this morning took the steps of Downing Street to announce his resignation stating:

“The British people have made a very clear decision to take a different path. And, as such, I think the country requires fresh leadership to take it in this direction. I will do everything I can as Prime Minister to steady the ship over the coming weeks and months. But I do not think it would be right for me to try to be the captain that steers our country to its next destination.”

Significantly, he has left the decision over when to invoke out to his successor, who will not be in post until September at the earliest.

Labour leader, Jeremy Corbyn, has also made a statement acknowledging the frustration felt by many communities as a result of spending cuts and calling for workers’ rights to be protected.

UKIP leader, Nigel Farage, has declared this “a victory for ordinary people, for good people, for decent people…The people who’ve had enough of the merchant bankers.”

Striking a note of calm, Chairman of the House of Lords EU Committee, Lord Boswell of Aynho, has called on all parties to “to give urgent consideration to ensuring that the UK continues to have a productive and beneficial relationship with the EU, albeit from outside the Union”.

The financial markets

Many financial commentators warned of the impact a Brexit vote would have on the markets and those warnings are now being borne out with the pound at a 30 year low and the FTSE100 dropping 8.7%.

The impact hasn’t been quite as bad as the 20% predicted by George Soros, the City economist, but it is clear that the markets face a significant period of uncertainty which is likely to result in a delay in investments leading to further economic underperformance.

The Bank of England has attempted to reassure the markets that it “will not hesitate to take additional measures as required as those markets adjust and the UK economy moves forward”.

While many businesses have been quick to reassure employees that no immediate decisions will be taken, it remains to be seen what the longer term implications will be.

Westminster

While Cameron has resigned, it remains to be seen how much longer Chancellor, George Osborne, will last. Several MPs have already called for his resignation – he is thought unlikely to survive without Cameron at his side. Boris Johnson is 4/5 to on to replace Cameron with pro-Remain Theresa May at 3-1.

Meanwhile, many Labour MPs have expressed fury at the way Corbyn conducted himself during the campaign, and his calls this morning to start the exit process as soon as possible. There are rumours that a letter signed by 55 MPs calling for his resignation will be presented to him next week, and two Labour MPs have already submitted a motion of no confidence in him today. The motion has no formal constitutional force but calls for a discussion at their next PLP meeting on Monday. Tim Farron, leader of the Liberal Democrats, has accused him of “utter spinelessness” for his failure to convert enough Labour supporters to remain.

Reaction from Brussels

EU leaders have been quick to declare their respect for the decision at the same time as reaffirming their membership of the EU. There had been calls for reform in the lead up to the UK referendum and we can expect these to continue, with anti-establishment and far-right parties in Italy, France and Denmark already calling for their own referendums. There are concerns across the EU that this will create a domino effect and contribute to the debate around the failings of the EU. Perhaps in an attempt to stem this, the European Council has called for the UK to leave “as soon as possible, however painful that process may be. Any delay would unnecessarily prolong uncertainty”.

Meanwhile, Donald Tusk has been quick to point out that the UK remains subject to EU law until the point at which it officially leaves, doubtless hampering the Leave camps’ desire to make quick reforms on issues such as immigration.

The European Council is due to meet next week, at which it is expected (but by no means certain) that the UK will inform the EU of its intention to leave. Meanwhile, the European Parliament will also meet next week to discuss the necessary next steps for the EU. There will be a number of emergency meetings between EU institutions taking place this morning and we can expect further reaction from Europe in the days to come.

Reaction from Scotland

Angus Robertson, the Westminster SNP leader, has made a statement to the effect that Scotland is about to be taken out of EU against its will. According to SNP manifesto, this could be classified as a “significant and material” change in circumstances and prompt a second referendum.

Scottish voters may well be quite angry at the result because, as well as voting strongly for Remain (62%), voters were also promised at the last referendum that remaining in the UK would ensure their continued membership of EU.

The First Minister, Nicola Sturgeon, has said that she intends to explore all possible means to keep Scotland’s place in the EU and the option of a second referendum is on the table. She has indicated that they will start preparing legislation for a new referendum to take place, if and when Parliament requires it. However, she is unlikely to call for this until she is certain to win.

Reaction from Wales

Looking at the breakdown of vote, the most affluent areas of Wales (e.g. Cardiff and other metropolitan areas) have voted to remain but outside of these in areas, in strong Labour areas, there is strong vote to leave.

First Minister, Carwyn Jones, has expressed his disappointment in the result but has called for Wales to be fully engaged in any EU negotiations. He has also pointed out that Wales is a net beneficiary of membership of the EU and warned that Brexit shouldn’t cost Wales “a single penny”.

Reaction from Northern Ireland

The vote in Northern Ireland was very much divided along community line, with the majority of unionists voting for leave, and nationalists voting for remain.

Northern Ireland is very unlikely to hold a referendum on union with the Republic of Ireland due to constitutional requirements, including the need for the Secretary of State for Northern Ireland to call for a referendum only when he/she believes that the majority of people are in favour of unification. Consequently, the potential for a united Ireland or for Northern Ireland to leave UK is slim.

Northern Ireland is in a unique position in the UK as it is the only part that shares a land border with the EU, which will inevitably have implications for cross-border trade. The removal of a hard border was one of the most visible symbols of the peace process so it remains to be seen whether the UK Government is comfortable reinstating this.

How we leave the EU

Analysis on each side of channel varies as to how exactly the UK will start the process of leaving the EU. In theory, whoever attends the summit next week will be required to notify Brussels and activate Article 50. But the widely-held view in the UK is that we can choose when to activate article and will not rush into it.

It is important to note that the referendum is advisory only and therefore the decision as to when to enact Article 50 is one for UK Government to decide and may require a vote, or at least a debate, in Parliament so there may be a period of time before notice is served.

While member states may want to make sure UK is penalised for its decision to vote out, there are many common interests between the EU and UK, so they will also want to ensure UK is not placed in position of total vulnerability. There is a strong need to reassure both the public and the markets.

In terms of the divorce settlement going forward, it is important to note that the act of leaving and our future relationship with the EU are two separate arrangements, although they are often conflated in the media. The UK will need to resolve the process of leaving the EU before it can embark on negotiating future relationships with the EU or individual member states. Any deal we reach on our future relationship with the EU will be bespoke to UK and may require long and hard negotiation. While we have a two year timeline for negotiating the divorce settlement (once Article 50 has been enacted) there is no timeline for negotiating our future relationship.

There are several options available to the UK but if the Leave camp is true to its word, some of these are already ruled out, e.g. the EEA which is based on Norway’s current arrangement would likely be considered to require too much adoption of EU legislation. The UK will have to negotiate an arrangement that is acceptable to both parties but this could be a lengthy process and any decision will be subject to the ratification of all EU members.

Impact on business

At the point of exit, the UK will lose the protection offered by the EU regime on anti-trust law. However, state aid restrictions will probably persist as condition of access to EU market. Much consumer protection regulation is driven by EU law deals so this will need to be reviewed, particularly with respect to the digital economy.

While the UK will no longer be required to be party to EU Charter of Fundamental Rights we will remain a signatory to European Convention on Human Rights. However, it is likely that the new administration will seek to repeal the Human Rights Act and introduce a British Bill of Rights.

A number of other regulations will also need to be reviewed as part of negotiations and the future administration may wish to take a pragmatic view on which bits to keep. There is an opportunity to get rid of legislation that has been unpopular in the UK. However, unscrambling existing legislation in UK is going to take a huge amount of time. The legislative programme that current Government has will be almost completely destroyed as the priority becomes unscrambling EU law.

In each case, a decision will have to be taken whether to repeal, retain or reform law that has been influenced by EU. People and organisations will have a public law expectation to be consulted on all of this and we can expect large amounts of judicial review and legal challenge to take place.

Conclusion

Throughout the campaign, we have had two visions of the UK’s position outside the EU. One that is focused on disengaging from political union but prioritising access to the single market and maintaining some aspects of the status quo and a more radical option more focused on giving the UK freedom to set its own tariff barriers and approach to regulation.

However, the binary nature of the referendum means that it is unclear what version of Brexit that the public thought that they were voting for. This means that defining the nature of Brexit will become the main dividing line in UK politics over the next few years.

The Electoral Commission has made it clear that the results of the referendum are advisory and it is up to Parliament to decide how to implement the view of the people. Given the fact that a majority of MPs were supportive of remaining in the EU, a minimalist Brexit position is one around which MPs from each side of the referendum divide within the Conservative Party and many within the Labour Party could coalesce.

The difficulty in defining what version of Brexit UK voters supported means that it is likely that the shape of the eventual UK relationship between the EU and the UK will have to be settled, either by a further referendum or a general election.

With Russian president Vladimir Putin meeting with Chinese president Xi Jinping today, many will feel that this decision has come at a worrying time for international politics. The UK now faces a period of uncertainty and there will be ongoing informal talks in the coming weeks to try and bring some stability back to the EU, its citizens, the markets and the UK. However, what is certain is that the result of the referendum is likely to lead to one of the most significant revolution in British politics for the past 50 years.