White Paper is not the disaster critics say; but referendum is the right course!

Theresa May’s White Paper on Brexit seems to have achieved the almost impossible, unite both staunch Remainers and Brexiteers alike in their condemnation. Actually, their critiques are quite different, the paper is not a bad compromise. A new referendum is the right thing to do, but one hurdle must be climbed first.

Article updated: 18 July 2018 10:00am Author: Michael Baxter

The problem with the two extremes in the Brexit debate is that they will never be happy with any form of compromise, whatsoever. The extreme Brexiteers would never agree to any deal that the EU would be happy with unless it involves a distant relationship.

The staunch Remainers want as close a relationship with the EU as possible.

The two views are simply not compatible. The reaction to the Theresa May plan proves this. Neither side likes it, but they dislike it for quite opposite reasons.

In a nutshell

The White Paper effectively proposes a very close relationship involving goods, but something along the lines of hard Brexit involving services. The paper proposes that all goods sold into the UK from outside of the EU are subject to the appropriate EU tariff but with this tariff refunded, unless the goods are then re-exported to the EU. In this way the UK would be free to forge trade deals with goods. (Whatever the protestations that Trump would or wouldn’t say).

The White Paper gives the UK a lot more control over immigration from the EU, but there is a bigger issue with this, which I will return to in a moment.

The White Paper’s appeal lies with the supply chain and ‘just in time’ manufacturing. These days, for the goods that make a significant contribution to the UK economy, the manufacturing process is highly complex. A multitude of different companies contribute to a finished product such as a car or aircraft. If this supply chain is interrupted by tariffs every time it involves companies from within the UK and EU, it will collapse, devastating British manufacturing. Exceptions to this might be small, niche players, with simpler products which make a more modest contribution to UK plc, such as Dyson.

The non-finance services industry, by contrast, will be given much more autonomy. A key point here is that the free movement of services within the EU has not been in place long enough to have yet had a significant effect, so the UK has less to lose, vis a vis its current position, by giving up this part of the EU arrangement.

Hate it

The Remain camp hate the deal because the services sector accounts for the bulk of the UK economy. They miss the point. The British public voted Brexit. A close trading relationship with the EU concerning services and Brexit are not, and never will be, compatible - although a deal involving the city is possible, the relationship will be more distant than it is at present.

The Brexit camp hate it as in order to preserve these complex supply chain considerations for certain goods, we will have to give away a lot of control to the EU.

Immigration

The problem here is that both sides miss the point. The motivation of many Brexit voters was concerns over EU immigration. Free movement of people is a vital part of the EU’s custom union. Even Switzerland, not part of the EU, had to concede to EU immigration rules in order to forge trade deals with the region. Under the White Paper, EU migration will be restricted to what is necessary.

In reality, demographic pressures, and the gradually closing wealth gap between Eastern Europe and the UK, means that immigration from the EU is inevitably going to fall anyway. This is demonstrated by the latest data on UK immigration. Yes, EU immigration has fallen, but the reasons may not be what they seem.

As the National Institute of Economics and Social Research said of the latest figures: “Whilst some of this reduction can undoubtedly be attributed to uncertainty surrounding potential migrants’ access to the labour market once the UK leaves the EU and the depreciation of sterling, which has fallen by around 19 per cent relative to the Euro since its peak in the third quarter of 2015, stronger economic growth in the A8 countries relative to the UK reduces the incentives for migration. Additionally, Germany has experienced stronger economic growth than the UK in 2016 and 2017, increasing its attractiveness as an alternative destination for migrants.”

I believe that the UK’s biggest challenges concerning EU immigration over the next few decades will be in being able to attract enough migrants.

Not forever

Remember too, leaving the EU is forever - or at least will be hard to reverse once it happens. The plan laid out in the White Paper buys the UK time, but can be re-negotiated in the future, with less time pressure to agree a new deal.

Referendum

It is clear that few people seem happy with the May plan. Sure, the government managed to stitch together a small majority to see the plan through Parliament, but resistance will continue: The May government will be stymied every which way it turns.

A referendum proposing three options: Remain, Hard Brexit, or the White Paper is the only option. The last referendum was flawed; the Brexit voters had quite different things in mind when they voted. Some wanted a hard Brexit, others had swallowed the line that once we leave the EU, agreeing a trade deal would be easy, as “The EU needs the UK, more than the UK needs the EU.” The subsequent course of negotiations proves that this was wrong.

I see that The Share Centre ran a poll, on Twitter, asking whether respondents wanted a referendum or whether they trusted Theresa May. The last time I looked, 79 per cent were in favour of a referendum.

One snag

The big problem with a referendum is that we don’t know how the EU will react. Will it accept the White Paper - as it was originally expressed – maybe. However, would the amendments forced upon it by the hard Brexit camp – or the European Research Group (ERG) be less likely to be accepted by the EU?

And if the UK changes its mind and votes to stay, will the EU want us? Will we lose our rebate? Will the concessions negotiated by David Cameron still stand?

Before a second referendum is held, we must have answers to these questions.


These views are those of the author alone and do not necessarily reflect the view of The Share Centre, its officers and employees

See what else we have to say
Michael Baxter portrait photo
Michael Baxter

Economics Commentator

Michael is an economics, investment and technology writer, known for his entertaining style. He has previously been a full-time investor, founder of a technology company which was floated on the NASDAQ, and a director of a PR company specialising in IT.