October 10, 2016    6 minute read

Why A Hard Brexit Won’t Keep The Leave Voters Happy For Long

Uncertain Demands    October 10, 2016    6 minute read

Why A Hard Brexit Won’t Keep The Leave Voters Happy For Long

Back in June 2016, when 51.9% of the UK voted to leave the EU, no one, not even the leaders of the Brexit campaign, had an idea what leaving would look like.

At the Tory annual conference last week Theresa May said that Article 50 will be triggered “no later than March 2017,” which will start the official process of the UK becoming a “fully independent, sovereign” country, adding that the UK will no longer accept European jurisdiction and regain control over its borders.

While Mrs May remains confident she will be able to give British companies access to the single markets and reduce immigration, leaders in France, Germany and Italy made it clear that if the UK wants to access, it will have to accept the freedom of movement. Since neither side currently seems to want to compromise on their demands, it looks increasingly likely that what some have feared the most is becoming reality – a hard Brexit.

Is A Hard Brexit Really What The Britons Want?

According to a survey published by YouGov on October 3rd, the current direction of the government towards a hard Brexit finds support in the general UK population.

The results show that 47% would prefer a hard Brexit if that means the UK will regain full control over its borders, even at the cost of leaving the single market. Similar to the results in June 2016, a clear divide between generations could be seen – 61% of the surveyed people aged 18 – 24 indicated that they would prefer a soft Brexit.

Which would you rather, faced with only the following two options:

(Source: YouGov Survey, October 3rd, 2016)

The Acceptable Costs For A Hard Brexit

While the majority of the people surveyed in October said they are happy to leave the single market, they are not willing to do so if leaving has a negative effect on their income. A YouGov survey in August designed by Mr Kaufmann, Professor at the University of London, asked:

“Roughly 185,000 more people entered Britain last year from the EU than went the other way. Imagine there was a cost to reducing the inflow. How much would you be willing to pay to reduce the number of Europeans entering Britain?”

The survey indicates that 62% are not willing to accept a reduction of their income and would rather keep immigration flow as it is.

How much are you willing to pay to reduce European migration? (All voters)

(Source: YouGov Survey, August 20th, 2016)

Looking at the results of Brexit voters only, 30% prioritise their income over a reduction of immigration. Only 35% are willing to see a loss of 5% of their income to reduce numbers to zero.

How much are you willing to pay to reduce European migration? (Brexit voters only)

(How much are you willing to pay to reduce European migration? – Brexit voter only; Source: YouGov Survey, August 20 2016)

Based on the survey it seems that the majority of Britons only want a hard Brexit if that means that their income will not change negatively. So what do the forecasts say about post-Brexit income?

A hard Brexit does not seem to benefit the UK’s GDP and consequently the income of the population. But not every forecast is pessimistic. Perhaps not surprisingly, the most optimistic report comes from the “Economists for Brexit,” which predict that post-Brexit the UK’s GDP will grow by 4%, due to increased trade. The percentage is based on the assumption that the UK will undergo a hard Brexit, leaving the single market and pay the tariffs that the EU countries impose on the UK, trading under WTO rules.

The Worst Case Scenario

However, achieving the optimistic figure of 4% under the circumstance that most economists would refer to as the worst-case scenario is very unlikely. After analysing the “Liverpool model” used by the “Economists for Brexit,” LSE’s Centre for Economic Performance (CEP) concluded that the model has a very unreliable track record. On top of this, even the “Economists for Brexit” admit that trading under WTO rules will likely see a reduction of manufacturing and cause a huge wage inequality. So even the most optimistic report on Britain’s future post-Brexit does not see an increase in wages for all of the population.

As can be seen in the chart below, the majority of other predictions, which are also based on the assumption that the UK will trade under WTO rules, are not so optimistic.

Estimates on national income

(UK GDP Yearly Growth/Decline Post Brexit; Source: Forecasters)

Focusing on just the average household income, the CEP estimates that there could be a fall of up to 4% per year (£1,637). They further report:

“Taking the longer-run dynamic effects of Brexit on productivity, the average household would lose between 6.1% and 13.5% of their real incomes per year (£2519 to £5573).”

While this is only one of many predictions, most economists consistently report a lower average income for UK households as a consequence of a hard Brexit.

Concluding Thoughts

Recent polls show that on the one hand, the majority of Britons want a hard Brexit if they have to choose between a reduction of immigration but losing access to the single market, and remaining in the single market but accepting a modified form of freedom of movement. On the other hand, the polls show that Britons prioritise their income over a drop in immigration. Based on forecasts, the average income will likely decrease if the UK were to go for a hard Brexit and is forced to trade under WTO rules.

Based on forecasts, the average income will likely decrease if the UK were to go for a hard Brexit and is forced to trade under WTO rules. While no one knows for sure what post-Brexit will look like, Mrs May’s current direction to go for a hard Brexit and reduce immigration might make the voters only happy for a short time, if the predictions are right and the average household income decreases consequently.

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