Brexit: A review of impact on future of United Kingdom ... Implications of this predicament...

International Journal of Modern Research in Management Page | 14

IJMRM International Journal of Modern Research in Management, (IMR-IJMRM)

Volume 1, Issue 1 (May – June 2017) PP 14-33

ISSN 2522-638X

http://www.ijournalmrm.com

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Brexit: A review of impact on future of United Kingdom outside the

European Union

Syed Haider Ali Zaidi, Xin-Yu Wang, Saif UR Rehman, Muhammad Hossein Foroozanfar,

Muhammad Ashraf Ali

School of Management, China University of Mining & Technology, Xuzhou, Jiangsu, 221116, China

________________________________________________________________________________________________________

Abstract: - The term Brexit refers to withdrawal of United Kingdom from the European Union. In 2015, the UK

Parliament initiated the legal basis for the Brexit Referendum in accordance with the European Union Referendum

Act and election manifesto of the Conservative Party. It was announced by Prime Minister of UK, David Cameron

that in case of re-election of Conservative Party into the government, they will hold a referendum to determine

peoples’ perspective on continuation of UK’s EU membership. Hence, after coming into power as a result of 2015

general elections, in the mid of 2016 the government held a referendum widely known as the Brexit referendum in

which 51.9% electorate decided in favor of UK leaving EU. Post-referendum PM David Cameron and Chancellor

George Osborne resigned from their respective positions and were replaced by Theresa May as PM and Philip

Hammond as Chancellor. In January 2017, Theresa May announced implementation of a 12-point plan of

negotiation objectives and discontinuation of UK membership in the European Single Market. The UK government

also initiated proper procedure for the Brexit by invoking Article 50 of the Treaty on European Union on March 29,

2017. United Kingdom withdrawal from the European Union will be finally concluded till March 30, 2019, unless

decided otherwise by all the negotiating parties. As of now, Brexit terms and conditions are in process of

formulation. Subsequently, UK will continue functioning as a member of EU until successful completion of all

formalities till the March 30, 2019.

Key words:- Brexit referendum; European Union Referendum Act; Conservative Party Election Manifesto;

European Single Market; Article 50 of Treaty on European Union

1. Introduction

United Kingdom was not a participant to Treaty of Rome (1957) which was the basis for creation of European

Communities (EC). The EC consisted of European Atomic Energy Community (EAEC), European Coal and Steel

Community (ECSC) and European Economic Community (EEC). During 1963 and 1967, UK applied for the

membership of the European Economic Community (EEC); but the proposal was vetoed both times by the then

President of France, Charles de Gaulle, stating that UK harbors deep-seated hostility to any pan-European venture

and is incompatible with Europe due to its various economic practices, ranging from agriculture to working practices

(BBC, 1967). It was only after he relinquished office in 1969 that UK made a 3rd

and successful attempt at joining

the EEC. At the time, Foreign and Commonwealth Office issued an official document, FCO 30/1048, which

discussed internal autonomy and constitutional/legal implications; with special emphasis on the policy legislation

areas to be affected by of UK admittance into EEC viz: agriculture; custom duties; free movement of capital, labor,

services; social security for migrant manpower; and transport (UK Govt., 1972). In January 1972, Treaty of

Accession was signed by the PM Edward Heath. This was followed by ratification of European Communities Act

1972 (UK Govt., 1972) by UK Parliament and depositing of instrument of ratification on October 17 and 18

respectively, finally validating UK’s EEC membership w.e.f. January 1, 1973 (BBC, 1973).

The first ever national referendum on issue of UK continuing in the EEC was held in 1975 by the Labour Party

government. At that time, there was political disagreement among the ranks of the Labour Party over the issue and at

a party conference held on April 26, 1974; the members had voted 2:1 in favor of departure from EEC. Due to

division of cabinet between pro-European and anti-European ministers, PM Harold Wilson had to suspend the

constitutional convention of cabinet collective responsibility thus allowing the ministers to campaign publicly. The

notion of exiting from EEC was supported by 7 out of 23 cabinet members (Butler and Kitzinger, 1976). However,

the national media and all major political parties strongly supported the notion of UK continuing with the EEC

membership. The public referendum was held on June 5, 1975 and the voters were asked to vote yes or no to the

Brexit: A review of impact on future of United Kingdom outside the European Union


question “Do you think UK should stay in the European Economic Community?” With the exception of Shetland

Islands and Outer Hebrides, all the administrative counties and regions voted with yes with the 67.2% turnout in

favor of staying thus UK continued to be a member of EEC (House of Commons Library, 2015)

In 2012, PM David Cameron had denounced the demands for holding of a public referendum (The Guardian, 2012).

However in January 2013, he announced holding of an in-out referendum in 2017, subject to re-election into

government in 2015 elections, to ensure that UK-EU relationship had full support of the British people. It can be

assumed that the factors affecting this announcement were increasing popularity of UKIP (UK Independence Party)

and massive pressure from the Conservative MPs (BBC, 2013). Unexpectedly, the Conservative Party was re-elected

into the government as a result of 2015 elections. Subsequently in order to facilitate the referendum, the European

Union Referendum Act 2015 was brought for ratification into the UK Parliament.

PM Cameron, while addressing the House of Commons on February 22, 2016, announced that the referendum

would be held on June 23, 2016. He also talked about the possibility of triggering the Article 50 process in case of

leave vote which further involves two-year time period for negotiating the terms of exit with the EU (UK Govt.,

2016). There were two official groups campaigning for the referendum; Vote Leave was campaigning for leaving

the EU and the group supportive of remaining in EU was Britain Stronger in Europe. There were several other

groups e.g. #INtogether, Another Europe is Possible, Conservatives In, Environmentalists For Europe, Greens for a

Better Europe, Labour in for Britain, Scientists for EU, Universities for Europe also campaigning for the remain

vote (The Independent, 2016). The results were declared on June 24 with Leave decision securing a simple but

decisive majority of 51.9% (Fig 1). Later, a petition was filed calling for a second referendum which attracted 4

million signatures (The Independent, 2016) but was subsequently rejected by the government (BBC, 2016).

Figure 1:- Comparison of results of 1975 and 2016 referendums

In the referendum aftermath, PM Cameron stepped down from the office on July 13, 2016 and was succeeded by



Theresa May (BBC, 2016). There were several other noteworthy changes in the government setup with Phillip

Hammond replacing George Osborne as Chancellor of the Exchequer; David Davis appointed Secretary of State

(Exiting the European Union); and Conservative MP Boris Johnson became Secretary of State (Foreign and

Commonwealth Affairs). Leaders of several political parties also stepped down from their positions e.g. Leader of

UKIP Nigel Farage resigning on July 4 (BBC, 2016) and Labour leader Jeremy Corbyn failing to get a vote of

confidence from his parliamentary party. However he went on to win the leadership challenge for selecting a new

head of Labour Party.

The referendum results were welcomed by several Eurosceptic leaders outside UK encouraging other EU nations to

follow suit. The right-wing Dutch populist, Geert Wilders urged Netherlands to follow UK example to go for the

referendum on future of Holland-EU relations (The Telegraph, 2016). However, fortnight opinions polls reflected a

decrease in popularity of Eurosceptic movements in Netherlands and other EU member states in the aftermath of the

British referendum (The Guardian, 2016).

Former Labour PM Gordon Brown, who was a signatory of the Lisbon Treaty (2007), was skeptic of the risky after

effects of the referendum and predicted that UK could possibly be re-fighting the referendum in the next decade. He

commented that remainers’ opinion about Brexit being catastrophic and unmanageable is too pessimistic, while

leavers’ viewpoint about overstatement of economic risks is highly optimistic (The Guardian, 2016). Former Labour

PM Tony Blair advised that the government should consider various alternatives before making the final decision on

Brexit e.g. decision by the UK parliament; holding of a 2nd

referendum; or general elections (The Independent,

2016). Former Conservative PM John Major called upon the parliament to endorse the final negotiated deal and then

decide on the need of holding a 2nd

referendum in view of the negotiated deal (BBC, 2016).

This topic is very diverse and multi dimensional with a wide range of anomalies and implications which are difficult

to cover in scope of this article. Hence for the purpose of simplicity this paper has been divided into four chapters.

Chapter 1 gives a brief but compact introduction of the topic’s past and present background. Chapter 2 reviews the

concerned literature alongwith several associated topics. Chapter 3 discusses the economic impact of Brexit on UK.

Chapter 4 discusses the aftermath of Brexit followed by the conclusion.

2. Literature Review

2.1 European Union – An introduction

The European Union (EU) is an economic and political union of 28 European countries (commonly known as EU28).

In 1957, Belgium, France, Italy, Luxembourg, the Netherlands and West Germany signed the Treaty of Rome which

led to the establishment of the European Communities (EC), the initial form of the European Union (European

Commission, 2011). EU was established as a result of the Maastricht Treaty in 1993 followed by introduction of

European citizenship concept (Europa Web Portal, 1992). Croatia (2013) is the 28th

and latest country to join the EU.

However with UK exiting the EU the number of member states will fall to 27 (hence EU27). The EU follows a

standardized set of obligatory laws to facilitate development of internal single market which guarantees free passage

of capital, goods, services, and people; endorses legislation for home/justice affairs; and adheres to mutual policies

for agriculture, fisheries, regional development and trade (Europa web portal, 2007). Soon after the establishment of

the European Union, border controls were abolished by all member states (Schengen) (Europa web portal, 2010)

alongwith establishment of a monetary union (2000). With the exception of UK which uses Pound Sterling, all EU27

member countries used Euro as the standard currency unit. The latest major amendment to EU constitution was the

Treaty of Lisbon (2009). The EU adopts a hybrid system of governance for making inter-governmental and

supranational decisions (Britannica, 2013). It further comprises of six major authorities (Fig 2) known as institutions

of EU viz:

EU Institutions Headquarters

1. European Union Council Brussels, Belgium

2. European Court of Justice Luxembourg City, Luxembourg

3. European Central Bank Frankfurt, Germany

4. European Commission Brussels, Belgium

5. European Court of Auditors Luxembourg City , Luxembourg



6. European Parliament General Secretariat – Brussels, Belgium

Plenary Sessions – Luxembourg City, Luxembourg

Committee meetings – Strasbourg, France

Figure 2:- Political structure of the European Union (EU)

Addition of new member countries and policy areas had resulted in a steady growth of the EU. With the exception of

UK which is currently negotiating its exit from EU, no other member had left EU or its pioneer institutions. Owing

to its size, EU is the biggest international economy (UN Statistics Division, 2016) and roughly covers around 500

million (approx. 7.3%) (Fig 3) of the total world population (Vienna Institute of Demography, 2016). In 2016, EU

generated a nominal GDP of $16.477tn (Fig 4 & 5) representing global nominal GDP (22.2%) and purchasing

power parity (16.9%). According to UNDP, EU27 also represents a very high Human Development Index. In 2012,

To appreciate its role and efforts in uniting the European continent after two world wars, EU was honored with

Nobel Peace Prize (BBC, 2012). Owing to its common foreign and security policy, EU has played a vital role in

matters of defense and foreign relations. It also has representation in UN, WTO, G7 and G20 and maintains

permanent diplomatic presence across the world. Due to its global influence and strategic importance, EU is deemed

a future emerging superpower (McCormick, 2006).

Figure 3:- EU population: Past expansions and future contractions (Post Brexit)



Figure 4:- Largest economies by nominal GDP in 2017 Figure 5:- Nominal GDP – IMF WEO 2015

2.2 EU Referendum Act 2015

The European Union Referendum Act 2015 was passed by the UK Parliament to facilitate the holding of referendum

to decide on continuation of UK membership in the EU (UK Parliament, 2015) and was presented by Phillip

Hammond (Secretary of State for Foreign and Commonwealth Affairs) to the House of Commons on May 28 2015

(UK Parliament, 2015) The act was ratified by The House of Commons on June 9, 2015 (Daily Mail, 2016); by the

House of Lords on December 14, 2015 (The Independent, 2015),and received the Royal Acquiesce on December 17,

2015. Finally, the referendum was held on June 23, 2016 and the nation voted 51.9% to 48.1 in the favor of exiting

EU.

The Act

This act was legislated for holding a public referendum in UK and Gibraltar to decide on UK’s continuance of EU

membership. The act stated that the referendum had to be conducted and supervised by the Electoral Commission

(established under the Political Parties, Elections and Referendums Act 2000). The commission was also responsible

for appointment of a Chief Counting Officer (CCO) and Deputy Chief Counting Officer (DCCO) who will be

responsible for declaration of final results. The act stated as thus:

“The Secretary of the State (in this case the Prime Minister) has to announce a specific date for holding of the Brexit

referendum. The date should be no later than December 31, 2017 and not be 5 May 2016 or 4 May 2017”.

Legislative consequences

EU Referendum Act 2015 had the following legislative consequences:

1. The act had no provisions stating that the ensuing result will be legally binding on the current or future

governments of UK (The Guardian, 2016)

2. The result required a single majority vote of UK and Gibraltar; no super/double majorities; no pre-condition of

a minimum turnout requirement for passing of the vote and no specific consequences in the aftermath of the

referendum result.

3. In occurrence of the Leave vote, the government would be expected to decide on invoking the Article 50 of the

Treaty on European Union for initiating the two year negotiation process leading to exit of UK from the EU.

4. The act gives no directives on the prerogatory powers. The question over prerogative of

government/parliament to invoke Article 50 was part of court proceedings in the Miller’s Case and the High

Court ruled that it is the joint responsibility of the government and the Parliament to decide the schedule for

termination of legislation pertaining to the European Communities Act 1972 which led to the introduction of

European Union Bill 2017 (notification of withdrawal) into Parliament for approval to invoke Article 50 (BBC,

2017).



2.3 Article 50 of treaty on European Union

Article 50 of the Treaty on European Union is the constituent of EU law which describes the standard process for

withdrawal from the Union (BBC, 2017). Once invoked, there is a two-year period for finalizing the negotiation

process. In case no agreement is reached, the WTO tariff rules would be followed by the seceding country (UK) and

EU (The Telegraph, 2017). So far, this article had only been invoked by UK on March 29, 2017.

Article’s provisions

Article 49A (Treaty of Lisbon, December 2009), which has been detailed in the Article 50, outlines the standard

procedure to be followed in case a member decides to withdraw from the EU (Athanassiou and Phoebus, 2009). It

states that:

1. The decision to withdraw from the EU can be made by any member as detailed in its constitutional guidelines.

2. The intention to withdraw must be notified to the European Council which will be followed by initiation of a

negotiation process, as per Article 218(3) of the Treaty on the Functioning of the European Union (TFEU), to

reach an agreement regarding withdrawal arrangements and outlines for future relationship between the

negotiating parties. The agreement, once ratified by the European parliament, will be concluded by the EU

Council on behalf of the European Union.

3. After the notification of withdrawal to EU, all related treaties would be discontinued from the implementation

date of withdrawal agreement or, after expiry of the two-years time period (Para 2), unless agreed upon by the

negotiating parties to extend this period.

4. The withdrawing member would not be able to take part in proceedings of the European Council in matters of

its common interest/concern (for purposes of para 2 and 3).

5. In event of the withdrawing state request to rejoin the EU, the procedure set in the Article 49 will be followed.

Withdrawal procedure

1. Member state invocation

Since the process of exiting the EU is highly complex, hence use of this article allows for a negotiated exit but with

a strong connotation for a unilateral privilege for withdrawal. Following exit of a member nation, the remaining EU

members would have to undertake negotiations for managing of the changes in the EU budgets. However, some

overseas territorial regions which don’t require full revision of the treaty under Article 355 of TFEU don’t come

under the influence of this provision (Oliver, 2013).

2. Post invocation process

Once the exiting agreement is enforced, all the treaties related to the concerned member state are considered invalid

or in case no agreement is reached between the parties, two years after official notification of the member’s intention

to leave to European Council. However, given the status of negotiations and unanimous agreement of the European

Council, the two year time period, also referred to as the “sunset period”, can be extended. There is a possibility of a

deal or no deal during this sunset period however, according to various sources there is a third possibility of

unilateral revocation (Alderton and Kavanagh, 2016).

3. Deal conclusion

The EU Council, on behalf of the EU, negotiates the exiting agreement regarding withdrawal arrangements and

outlines for future relationship between the concerned state and the EU and needs to be ratified by the European

Parliament before being concluded by the Council of the EU. The agreement also requires approval by atleast 72%

member states in order to be passed by the council (Renwick, 2016).

4. Re-entry or unilateral revocation

There is insufficient evidence to ascertain whether the withdrawal process can be cancelled unilaterally by the

member state during the negotiation process so that it can remain a member of the EU. As per directives of the

European Parliament (EP), the EU accords don’t allow this type of action although this issue is judicially untested.

The EP's resolution states: “A unilateral revocation of notification should be subjected to conditions agreed upon by

all EU27 states to prevent them from being used as an abusive device in an attempt to improve on actual terms and

conditions of the UK’s membership”. Contrarily, British author of Article 50, Lord Kerr and (Dammann, 2017)

argued about the reversibility of the revocation process. However it was stated by Brexit Secretary, David Davis that

the UK Government is uncertain and has no intention of exercising this provision (The Independent, 2017). Should a



former member state request to rejoin the EU, the procedure will be the same as for any other new applicant country

(Article 49 accession process as stated in Article 50(4) of Lisbon Treaty)

5. Invocation by the United Kingdom

Following the Brexit referendum, PM May announced invocation of Article 50 till end of March 2017 (BBC, 2016).

Subsequently after Supreme Court ruling on Miller’s Case and ratification of the EU Act 2017 by the UK Parliament,

on March 29, 2017, the PM sent out the letter notifying invocation of Article 50. Barring exception for extension of

negotiation timeline, by April 2019 UK will officially cease to be an EU member. However, until that time the UK

will continue to conform to all treaties and will be a legitimate member of the EU (The Guardian, 2016)

3. Impact of Brexit on UK

Post-Brexit referendum, there was uneasiness in UK’s economic and political scenario which also affected the EU

and the international community. Certain issues still await concurrence of major political forces viz: timeline setting

for withdrawal of UK from EU; terms of negotiations; and triggering of the Article 50.

Several politicians have suggested holding of a general elections prior to finalizing the withdrawal, which will

further require repealing of Fixed-term Parliaments Act 2011 (The Observer, 2016). Contrasting difference was seen

in the voting patterns in various territories: Remain was the majority response in Gibraltar, Greater London,

Scotland, Northern Ireland alongwith several other cities; while Leave was the dominant response in remainder of

England and Wales and most unionist parts of Northern Ireland which was a major cause of concern among Irish and

Scottish nationalists (The Economist, 2016). Later in July, Foreign Affairs Select Committee was informed that PM

Cameron had prohibited the Civil Service from formulating plans for Brexit, termed by the committee as an act of

gross negligence (The Guardian, 2016).

The economic after-effects of the Brexit were widely debated in wake of the referendum and the debate had

continued ever since. Remainers and UK treasury shared a common opinion that staying in EU was prosperous and

beneficial for trade (UK Govt., 2016) whereas, the Leavers had supported the notion of leaving saying that

discontinuation of net contributions to the EU will facilitate tax decrease and at the same time increase government

spending ultimately leading to economic uplift of the common people (The Guardian, 2016).

3.1 Trade and economy

Pre-referendum UK treasury had warned against the strong negative impact of Brexit on UK’s trade (IFS, 2016). In

the event of UK deciding to continue with the European Free Trade Area, it would still have to contribute to the EU

budget. The Institute for Fiscal Studies stated that post Brexit UK’s economic forecasts point towards decrease in

government spending (The Telegraph, 2016).

On June 15, 2016, Vote Leave group laid down a prospective roadmap in event of Britain deciding to leave the EU

(Fox News, 2017). It was expected of the UK Parliament to formulate legislation for:

1. Finance bill: Scrapping of VAT (Value added tax) on domestic energy bills

2. Asylum and immigration control bill: To restrict the EU citizens’ right of privileged entry into UK.

3. National Health Service Bill: In addition to the original budgetary allocations, the bill would receive a weekly

grant of £100mn.

4. Free trade bill: To start negotiating its own deals with non-EU countries.

5. European Communities Act 1972 (Repeal) bill: For ending the jurisdiction of the EU Court of Justice over

UK and discontinuation of EU budgetary contributions.

6. Great repeal bill: In October 2016, PM May assured that a “Great Repeal Bill” would be introduced into the

parliament in May 2017 and would be ratified during the Article 50 negotiations. This bill would result in

abolition of European Communities Act 1972; integration of existing EU laws into UK domestic law; and

would facilitate smooth transition by ensuring that all laws are in place unless distinctively repealed. The bill

would not be implemented until the exit of UK from the EU. (The Guardian, 2016).

Bank of England’s Chief Economist and the Executive Director of Monetary Analysis and Statistics, Andy Haldane

admitted to erroneous forecasting envisaging a downward spiraling economy and indicated that the economic

performance of UK post-referendum was encouraging (The Guardian, 2017).



3.2 Foreign direct investment

The experts have maintained that despite short-term market unpredictability, the future economic forecasts show

positive signs w.r.t. UK attractiveness for foreign direct investment (FDI): The risk management experts expect UK

economy to remain impervious to after-effects of Brexit. They have stated that the long-term scenario is highly

favorable for the UK e.g. reduced regulations and higher control over UK’s trade strategy and could offset short-

term risk uncertainty (London Stock Exchange, 2017). According to remainers, entry of potential investors into

Europe through UK would be highly beneficial for national economy hence it is imperative that UK continues on as

the member of the EU. According to the 2014 statistics, UK had a massive FDI portfolio of approx. £1tn (almost 7%

of the global figure) with magnitude twice as much as France and Germany (3% each). The same holds for per

capita income where in comparison to other main European economies, UK is the obvious leader with three times

bigger FDI stock.

3.3 Stock markets and currencies

Post-Brexit referendum, both the London Stock Exchange FTSE100 index (5% decline) and US Dow Jones

Industrial Average (450 points decline) showed violent fluctuations in daily trading described as world-wide stock

market crash by the experts (Associated Press, 2016). A record breaking two-day sale figure of $ 3 trillion was

recorded (CNBC, 2016) and the FTSE100 index lost a massive £85 billion (CNBC, 2016). Till June 27, the FTSE

250 Index had declined by almost 14% as compared to the pre-referendum figures. However till July 1 the FTSE

position had improved considerably (Reuters, 2016). By July 1, both FTSE 100 and 250 had increased to a new 10-

month high since 2011 thus indicating economic stability (The Telegraph, 2016) and officially entering the bull

market territory till July 11, having increased by over 20% since February, 2016 (Financial Times, 2016). The post-

referendum scenario also saw Pound Sterling depreciate 10% as compared to US Dollar and 7% to that of Euro (The

Independent, 2016). The Pound Sterling replaced Argentinean Peso to become the world lowest currency among 31

international currencies (Fig. 5) (RT News, 2016).

Figure 5:- The performance trend of 31 major currencies

3.4 Economy and business

Post-Brexit referendum, the Chancellor of Exchequer George Osborne assured the business sector of stable national

economy. He also tried to address the concerns of the people regarding economic issues in the referendum aftermath

e.g. the performance of Pound and FTSE 100 index (CNN News, 2016) and maintained that UK economy is in a

position of strength and favorably competitive for businesses (IB Times, 2016). Same stance was maintained by the

succeeding Chancellor Philip Hammond, who encouraged the businesses to promote investment and spending. He

also talked about collaboration with the Bank of England and other major players in view of the changing economic

scenario for development of future economic strategies and their implementation (BBC, 2016).

Various global investors had predicted recession due to the exit vote and forecasted a minimum 5-year period of

reduced economic growth due to drop in investment (London Evening Standard, 2016). A Bank of England report



suggested that despite increasing uncertainty, the signs of the substantial economic decline are yet to be noticed

however there is a possibility of short-term negative impact (The Guardian, 2016). The economic experts, after 3-

months monitoring of the economic activity, had confirmed that various concerns and negative inferences of the

REMAINERS were nothing but false alarms and maintained that Brexit had a slight abnormal effect on the inflation.

3.5 Financial institutions

Governor Bank of England, Mark Carney expressed his satisfaction on the economic position of UK and stated that

since the financial crisis (2008) the capital requirements of the country’s biggest banks have increased 10 times and

appropriate measures are in place for scenarios more critical than the present one. As of now, UK banks have raised

fresh capital of over £130bn and highly liquid assets worth £600bn which enables them to continue domestic and

commercial lending. Moreover, to ensure smooth business activities, Bank of England has a standing-by pool of

additional funds worth £250bn with substantial liquidity available in foreign currency. Since re-establishment of

global relations will be taking some time so there is expectancy of economic and market volatility which is natural.

As of now, all the government factions are engrossed in formulating extensive contingency measures to ensure UK’s

economic well-being.

Post-referendum shares of Barclays, HSBC, Lloyds, RBS and Standard Chartered fell (21%) considerably. However

speedy recovery was observed in both HSBC and Standard Chartered while Barclays, Lloyds, RBS Group remained

down by 10% (Financial Times, 2016).

The three major credit rating agencies, Standard & Poor’s, Fitch Group and Moody’s negatively reacted to the Brexit

vote. Standard & Poor's reduced UK’s credit rating from AAA to AA, Fitch Group from AA+ to AA, and Moody's

cut the UK's outlook to negative (BBC, 2016). To ensure financial solidity, Bank of England decreased the

countercyclical capital buffers requirement for the banks and released additional funds amounting to £150bn in

lending (The Guardian, 2016).

Amid all these circumstances, the Berlin Senate encouraged the UK-based businesses to relocate to Berlin (The

Guardian, 2016). There is also a possibility of global relocation of various big and small banks from UK as per

British Banking Association (BBC, 2016).

3.6 International Monetary Fund (IMF)

IMF stated that the results of the Brexit referendum would greatly affect the plans for international economic

recovery and responded by reducing UK economic growth forecast for 2017 (2.2% to 1.3%). However it was widely

expected that Britain would come up 2nd

on the 2016 list of the fastly growing economies. Later in July, IMF

published a report forewarning about the risks posed by Brexit to global economic growth and the prospective

shortcomings in view of present uncertainty over the exit mechanism to be adopted by UK (The Guardian, 2016).

3.7 G20 Finance Ministers Summit, China

The G20 Finance Ministers Summit 2016 (Chengdu, China) marked Brexit as a major international concern

alongside terrorism. It warned against the global economic uncertainty following Britain’s intended exit from the EU

and stressed on the importance of close collaboration between UK and Europe (The Guardian, 2016). Chancellor

Philip Hammond stated that solution of this uncertainty is closely associated with the UK-EU exit arrangements.

Hammond also reiterated various government statements regarding the prospective strategy for economic stability

e.g. decrease in taxes, increase in government spending and boosting bilateral international trade (The Telegraph,

2016). Chairman FSB and Governor Bank of England, Mark Carney sent a correspondence to the G20 finance

ministers and heads of the central banks regarding the hardships borne by the global economy and the appropriate

actions taken by the FSB. He also lauded the role of G20 post-crisis reforms in smooth and effective functioning of

the financial system; and suppression of after-effects of world crisis, despite all risks and uncertainties (The Asian

Banker, 2016).

3.8 Effect on academic research

Apart from being a member of the EU, UK is also a participant in the European Research Area. Due to undeniable

significance of research in the present era, it is highly probable that UK would continue involvement in EU

framework programs within the European Research Area as an associate member (UNESCO, 2015). All member

states of the EU contribute to a 7-year budget for innovation and research. The latest (8th

) program was implemented

in 2014 and is called Horizon 2020. In future, the allocation and availability of these funds would have to be re-

negotiated between the EU and the UK and any shortfall of funds would have to be managed by the UK (UK Govt,

2016).

Once UK exits from the EU, it would no longer have access to EU structural funds which are widely used in



financing of research-related infrastructure. During the 7th

framework program (2007-2013) the UK was recipient of

€8.8bn from the EU and contributed €5.4 bn. As far as appropriate basis for award of funds is concerned (Fig 5),

Germany (€7.14bn) was the largest recipient of the 7th

framework program (2007-2013) followed by UK (€6.9bn)

out of a total figure of €55.4bn (London Royal Society, 2016). In 2013, UK was recipient of the greatest number

(1000) of grants by the European Research Council (ERC) with 44% of them going to UK based non-nationals;

more than any other member of the EU (Cressey, 2016).

Chancellor Philip Hammond had guaranteed the businesses and universities over availability of future research

funding, at the same time advising them to continue vouching for the EU research funding till the time that UK

ceases to be the EU member. PM May also announced to increase the magnitude of government funding for R&D

worth £2bn/year by 2020 and creation of a new “Industrial Strategy Challenge Fund” for supporting technological

advancement. Simultaneously, The Business Secretary also announced an investment of £229mn in R&D alongwith

development of a new industrial strategy in liaison with major stakeholder groups (UK Govt., 2016).

Figure 6:- Distribution of EU expenditure on research, development and innovation in EU-28

(Framework Program 7 and structural funds) 2007 – 2013 (€ billion)

Post-referendum, a study conducted by the Guardian revealed discriminating attitude towards British researchers

w.r.t. funding and allocation of research projects. It was reported that due to uncertainties over the future of research

funding, the European partners were hesitant in employing new researchers and dropping of old ones, which is

highly detrimental for the research projects. Unknown status of financials also provoked some researchers to

discontinue their propositions for EU research funds (The Guardian, 2017).



3.9 Immigration concerns

Of all the economic and political issues surrounding Brexit, perhaps the most critical one is the status of peoples’

free movement between the UK and the EU. Here it is worth mentioning that the main reason behind the referendum

success was the government assurance to reduce EU immigration. However, Pro-Leave Conservative politician,

Daniel Hannan hinted towards minimal changes w.r.t. cross-border and immigration controls and suggested that

Leave campaign was never about major decline in immigration but was more about “free movement of Labour”

(New Statesman, 2016). The EU leaders also conditioned access to single market with free movement of people

(The Economist, 2016). Michael Gove, the candidate for leadership of the Conservative Party promised termination

of free movement agreement with the EU and adoption of the points system currently being used by the Australians

(The Daily Star, 2016).

3.10 Status of free movement

Currently, there are approx. 3 million EU citizens based in UK and around 1.2 million Britishers residing in various

EU countries and there is an uncertainty surrounding the future of both these groups (Full Fact, 2016). PM May

suggested that EU immigrants based in UK face a possibility of expulsion in event of unfavorable terms for exit of

UK from the EU (The Spectator, 2016) the notion strongly opposed by both pro-remain and pro-leave politicians

(The Observer, 2016). Pro-leave Labour MP Gisela Stuart and James Brokenshire (Minister for Security and

Immigration) said that as of now nothing could be promised about the future of the EU citizens. However in the

event of UK allowing free movement to EU citizens, same privileges should be asked for the UK residents residing

in EU (The Guardian, 2016). German Vice Chancellor, Sigmar Gabriel announced that Germany should contemplate

softening citizenship criteria for Britons residing in Germany for protection of their status (The Independent, 2016).

There are also reports of increasing number of requests by the Britons for issuance of passports from various EU

countries e.g. Belgium, France and Ireland (The Guardian, 2016).

3.11 Transatlantic Trade and Investment Partnership (TTIP)

Senior campaigner (War on Want), Michael Dearn maintained that exit of UK from the EU will facilitate greater

control over trade deals and post-exit Britain would have lesser trade opportunities coupled with its WTO

commitments, further emphasizing that trade would be the future epicenter for development of new policies. He

stated that European Commission alongwith the world’s largest conglomerates are contemplating to force the third-

world countries to implement TTIP's conditions i.e. a TTIP tribunal system, the privatization of public services, and

the eradication of environmental, health and social protections. In this case, though UK had avoided the conditions

of TTIP as EU member, it could still be affected by this scenario (Huffington Post, 2016).

4. Beyond Brexit

4.1 Agricultural subsidy reforms

Agricultural is the backbone of any nation and its economy. The task is substantially arduous, demanding and also

involves incurrence of various substantial expenditures. The experts argued that the agricultural subsidies are huge,

extravagant and degenerative and emphasized on their reduction and utilization towards provision of more essential

and better facilities. Hence, the government of UK has been a blatant supporter of agricultural subsidy reforms in the

EU and it could proceed for unilateral implementation of this policy after exiting EU. However, it seems that the

government is not fully capable of wresting the initiative due to involvement of vested political interests. So far, the

government has announced that it will continue providing subsidies until 2020 and later go for implementation of its

own agricultural model. As of now, the government is studying the US/Canadian system of insurance-based

subsidies. These subsidies are rather distorted and involve substantial administrative expenses but could be helpful

in reduction of the subsidy levels.

From 2021 onwards the UK is planning to reduce the agricultural subsidies to under £1bn during the initial five

years which will be utilized to compensate the consumer sector. This initiative would enable the UK government to

save estimated £2bn/year and further allocation of £40m/week to the NHS and meet the WTO requirement of

reducing the agricultural subsidies to 5% of total agricultural produce. This five-year intermediary arrangement

would facilitate future planning for agricultural sector. The funding could be utilized for training and compensation

of the affected manpower of employment sector instead of agriculture sector (Mitchell, 2017).

4.2 End of free movement between EU-UK

It is obvious that the free movement had drastically increased influx of EU citizens into UK. A recent analytical

study undertaken by an independent think tank NIESR revealed that the immigration from the eligible countries,

whether temporary or permanent, went up by approx. 500%. Since the expansion of EU (2004), number of Non-EU



citizens migrating to the UK had also decreased substantially, from around 250,000 (2004) to 100,000 (2016). The

possible explanation of this reduction can be the unequivocal visa policy to restrict non-EU migration. Thus the free

movement policy has facilitated squeezing out non-EU migrants.

Post-Brexit, UK will be able to control the national migration policy and it has to formulate effective mechanism for

exercising this control. However, it is imperative that the government doesn’t reduce migration considerably, making

it a privilege only limited to 1st world countries and their citizens. Migration is a global trend with endless benefits,

and is an essential component for progress of vibrant economies. Hence, it is essential to carry-out research to

comprehend evolution of migration in near future and identify approaches and ideas that will be effective in making

migration equally beneficial for both developing countries and their citizens (Mitchell and Käppeli, 2017).

4.3 Free trade access to third world and developing countries

Post Brexit, whether in presence/absence of an intermediary agreement, the very first precedence of UK should be

continuation of “duty free-quota free”, the facility already being availed by some developing countries. Here it must

be kept in mind, that this action would have no bearing on the on-going negotiations between the EU and the UK

which not only would motivate the businesses and investors to proceed with their investment plans but would also

be highly feasible for UK’s businesses and consumers importing goods from emerging economies thus assisting UK

to establish a new schedule at the WTO.

The UK Government had defined a broader approach to Brexit and announced adoption of an independent trade

policy. However, on the frontier of “trade for development”, UK should explore initiatives to improve upon the

current EU approach e.g. by fulfillment of the British Trade Promise through continuation of “duty free-quota free

access” to other countries while employing simpler administrative procedures (Mitchell and Barder, 2017).

4.4 Leadership role of UK in “trade for development” policy

It has already been communicated through Brexit campaign and ensuing government reactions that UK is keen on

developing a new “trade for development” policy for embracing free trade and developing new economic affiliations

and thus conforming to the PM May ambition of making UK a “global leader on free trade”. It is an obvious fact

that the trade policies of developed countries greatly influence the creation of opportunities in developing and under-

developed countries. Hence in order to identify the approaches employed, systematic analysis of effects of

developed country’s trade policies on developing countries is imperative. In this perspective, a 4-step policy had

been devised by employing trade experts and latest research, which would be highly beneficial in establishing UK at

the top of the CDI trade index and establishment as world-leader on “trade for development” policy. The 4-step

policy had been summarized in the table 1.

Area Current best

approach

Line of action for

better results

Challenges

Best possible access for developing countries to the UK market

1. Elimination

or substantial

reduction of

tariffs

Australia

New Zealand

Reduction of all tariffs to zero or a low

general rate especially for agriculture

and textile sectors.

Substantial reduction in agriculture

subsidies.

Strong opposition

from protected

domestic producers

Loss in tariff income.

2. Improved

privileged

access to

deserving

countries

European Union

United States

Continuation of current preferences

administered by the EU

Facilitation of wider group of

countries

Improve rules of origin:

Lower value-added threshold

Generous cumulation

WTO approval required

for preferential regime

Need for consultation

& modeling for

adoption of best

possible approach.

3. Cutting red

tape at the

UK borders

Denmark

Netherlands

The custom procedures of UK are highly

feasible and convenient however

following changes can also be made:

Raise threshold on customs and taxes

Use international product standards

Some minor loss of tax

income

Support for policy reform in developing countries



4. Enhancing

effectiveness

of aid for

trade

Trademark

East Africa

Context and details of project design are

key, as the failure of Trade market

Southern African highlights

Scope and pilots cash-on-delivery

(performance-based payments)

Assess new UK trade deals for

development impact to inform aid for

trade targeting

Results-based aid for

trade untested and will

need to overcome

objections similar to

those of other domains

Table 1: Four steps for the UK to be the global leader in trade for development

Policy areas concerned with agricultural subsidies, overall low tariffs and reduced thresholds for VAT at the borders

are clearly under government jurisdiction. However, swift progress can be made in providing duty free trade access

to under developed countries. Moreover as discussed above, there are some challenges that surround these steps.

Since these policies would be implemented effectively after UK exits from the EU (2019) hence it would be

advisable to utilize this time frame for consultation and in forging genuine partnerships with developing countries.

Since the magnitude of imports from developing countries is comparatively small, it would lead to lower import

costs; simple overseas sourcing of inputs; enhanced competition and productivity (Anderson, Mitchell and Crawfurd,

2017).

4.5 Threats and Opportunities for Global Development

A lot of uncertainty surrounds UK’s response to the results of the Brexit referendum voicing its exit from the EU.

However, it will be the results of the negotiations between UK and the EU that will decide how it would impact the

collaboration with developing countries. As of now, there are only speculations regarding the threats and

opportunities posed by Brexit which are discussed as under:

Threats

Brexit will have multi-dimensional impact on several economic and financial factors e.g. economic growth,

humanitarian/financial aid, remittances and international trade thereby posing severe negative repercussion for

economics of developing countries. Some of those are as follows:

Direct impact

1. Brexit can vastly impact (-ve) the economic dynamics of developing countries maintaining close economic

relationship with UK e.g. Nigeria, South Africa and some commonwealth countries. This could cause potential

reduction in exports, economic growth, employment, FDI (inward) and remittances of these countries.

2. UK spends 0.7% of its GDP on international aid purposes. To stimulate economic stability, the government

might consider substantial retrenchment in aid spending alongwith other spending reductions to switch support

to welfare programs with greater economic benefits and scope. Even if the government continues the 0.7%

commitment, the resulting lower GDP will cause reduction in aid budget.

3. The EU had signed “Everything but Arms (EBA) Agreement” and the “European Partnership Agreements

(EPAs)” under which the underdeveloped and poor countries receive duty free-quota free access to domestic

UK consumers and the liberalized rules of origin. In the Brexit aftermath they will end up losing all these

facilities. However, this anomaly can be avoided if UK formulates comparable framework, albeit not under the

WTO framework, for some or all of the developing countries.

4. As discussed earlier, the government has announced repelling of the European Communities Act 1972. Hence

UK will end up losing legal basis for its economic and financial sanctions and will need to develop and pass

new legislations pertaining to these sanctions.

Indirect impact

1. UK has a great reputation for organizing/hosting international events related to e.g. family planning, nutrition

and vaccination etc. However, soon the UK’s civil service, which is already depleted, will be engrossed in

negotiating the post-EU arrangements with special emphasis on new trade agreements which will render them

unable to organize such events.

2. The UK is a great advocate for setting ambitious targets for low carbon emissions; abolition of

agriculture/export subsidies and trade liberalization with developing countries and following exit of UK, the EU

trade policies are likely to become more protective and less development-friendly. At the same time UK called



upon the EU to take extensive measures against issues such as transparency; international tax avoidance and

corruption. Keeping in view the stance EU w.r.t. to these issues, slow progress is imminent across the world.

3. EuropeAid is the largest multilateral aid agency on the globe. Its annual spending with regard to humanitarian

aid exceeds that of the World Bank. UK advocates development of an effective mechanism for aid spending.

However Post-Brexit, UK would not be able to influence EuropeAid like before hence this aid is likely to be

allocated more to European countries and comparatively less to poor countries. Furthermore, UK is also facing

the prospect of severing ties and losing influence/leverage over several strategic partners specially Turkey. To

prevent occurrence of this dilemma, UK might reallocate the aid spending from poor countries to countries of

strategic importance.

4. Until now UK was the biggest financial contributor towards multilateral development system besides being an

important voice at EU’s coordination meetings for consensus of opinion at major international forums e.g.

World Bank, World Health Organization, a role it will no longer play post-Brexit thus resulting in weaker stance

for both UK and the EU.

Opportunities

Although it poses a lot of threats, Brexit also offers opportunities for global development which are highly beneficial

for developing countries. Some of these are as follows:

1. Previously, UK’s 0.7% aid was spent through the European Commission. Post-Brexit if it decides to continue

spending this aid, then either it can target the poorest countries/communities or shift its focus towards other

institutions striving for the same cause e.g. World Bank, UNDP and UNHCR.

2. In the event of leaving the EU Single Market, the developing countries could be offered duty-free, quota free

access to UK markets coupled with simplified rules of origin. However, prior to execution of this option, UK

would need to abide by WTO rules. It could choose between accommodating wide range of countries or

increased access to open market.

3. Post-Brexit, although the immigration to UK would be overall decreased but there would be more opportunities

for migrants of non-EU countries particularly from Commonwealth countries to come to UK. This will

financially beneficial for both the migrants and their families.

4. The UK is a strong supporter for reduction/abolition of subsidies for agriculture and fishing sector. Post-Brexit

it can abolish these subsidies unilaterally which will benefit the developing countries’ agricultural and fishing

industries. Subsequently, in order to avoid reduction, the EU would need to replenish UK contribution to these

subsidies. This scenario would also be beneficial for the developing countries. Furthermore, for increasing

global food supply, the UK could place scientific restrictions on GMOs (Genetically Modified Organisms) and

other phyto-sanitary standards, which hinder agricultural exports of developing countries. (Barder, 2016).

Conclusion

Post-Brexit, probably UK will have less “global soft power”, it previously used for promoting progressive changes

and tackling global issues e.g. climatic changes, humanitarian aid reforms, and corruption. It is presumed that post

Brexit UK will be even more influential because of shifting focus from the EU to the global arena. Generally, the

impact of UK on EU policies was progressive as it was strong supporter of adoption of an open and liberal trading

system, elimination of agricultural subsidies and provision of efficient, poverty-focused humanitarian aid and exit of

UK will be diminution of an influential voice from the EU.

Overall, Brexit threats are far greater as compared to the opportunities. The UK government faces a massive task of

effective implementation of the peoples' decision and preparation for future outside the EU. A feasible future

strategy is required to limit the impending detrimental effects of Brexit on development and making full use of the

available opportunities. Finally, the outcome of the Brexit referendum is a stark warning to those stake holders, who

have benefited from globalization and technological advancement over the last couple of decades, that these

progressive benefits should be equally shared with communities and citizens of both rich and poor countries

otherwise bear the future consequences.

Acknowledgements:- We would like to thank Saif-ur-Rehman, PhD Scholar, School of Management, China University of Mining &

Technology, for his valuable suggestions and comments.



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Corresponding Author:- Xin Yu-Wang

Address:- School of Management, China University of Mining and Technology, Xuzhou

(221116), Jiangsu, P.R China.

Contact No.: +86-183-61222572

Email: [email protected]

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