The impact of uncertainty on an economy has never been more apparent than in the case of the Brexit vote. Nothing has changed since the vote – the UK remains in the European Union, Article 50 has not been activated, and no deal for departure has been agreed – and yet the markets have already been through turbulence. That turbulence is not because of Brexit – it is because of the uncertainty that has been allowed to permeate the markets.
When you have six months of being told that the markets will crash and there will be a recession after a Brexit, then the likelihood is that, in the event of a vote for Brexit, you will assume the markets will crash, and accordingly sell stocks and shares and stockpile resources rather than investing – you would also be much less likely to pile investment and consumer spending into the economy. As a result of that withdrawal of investment, the markets will decline and GDP will be lower than expected – thus compounding the impression that Brexit will lead to market decline and recession, and resulting in a downwards spiral of investment and growth.
That downwards spiral is why stability and certainty are so important. We have seen the markets become significantly less volatile following the conclusion of the Conservative leadership election on July 11th, with the election of Theresa May providing stability and giving confidence to investors and businesses. May’s election in particular was important, with her record in government meaning that she has the experience needed to guide Britain to Brexit, as opposed to the much less experienced Andrea Leadsom.
Equally important to achieving a successful Brexit will be May’s quick dismissal of any suggestion of a snap election. Accusations that the Conservatives do not have a mandate to implement Brexit are unfounded – the manifesto to which the British people gave a mandate in 2015 include a commitment to hold a referendum and ‘honour the result’, meaning that the Conservative Party were explicitly given a mandate to implement either the deal to Remain in the EU or the necessary legislation according to a vote to Leave.
A snap election is not only unnecessary, but would also have the effect of causing political instability at a time when Parliamentarians should be working together to achieve the best deal for Britain in Europe. There might have been a political advantage to calling an election when the Labour Party are in disarray, but Mrs May deserves great credit for not giving in to the temptation to prioritise political advantage over achieving the most stable Brexit possible.
The delay to the activation of Article 50 has caused great consternation amongst many staunch Leave voters, but the logic behind such a delay is sound. If Theresa May can build good relations with the international actors who will be crucial to discussions about post-Brexit Britain, then the government can ensure that there is a clear, concise and coherent plan in place for Brexit negotiations and a clear end goal, before discussions start with the activation of Article 50. Having such a plan in place means that negotiations can be focussed on achieving the best deal for Britain and ensure that no important areas get overlooked – it also means the process from official declaration of our intention to exit to departure from the EU will likely be a lot quicker. Such stability and long term benefits are worth the costs of a short term delay in the activation of Article 50.
Another idea that has been floated – most notably by the leader of the Liberal Democrats, Tim Farron – is to have a second referendum on the terms of any deal on Brexit. While this works conceptually and certainly seems like an idea that provides real power for the people to decide on the terms of Brexit, it is an idea which is inherently flawed in its execution. If, which is not what is being proposed, there were a referendum on the goals of the negotiation, then that might be an idea with a sound basis, unfortunately however, the idea of a second referendum once terms have been agreed is not one with any sound footing at all.
First off, the timeframe such a referendum would require would be prohibitive to constructive negotiations. If we have a referendum at the end of the two year negotiation period, then we will have had to present a deal to the British public around four months before such a referendum, meaning that we lose four months from an already tight window to negotiate a new deal.
Alas that is not the largest problem with Mr Farron’s proposal, the problem more comes from a logical paradox within his assertions. In essence, in order for a deal to have been negotiated on which to hold a second referendum we will have had to trigger Article 50 and thus have begun the inevitable process of departing from the EU. In that circumstance, were Mr Farron’s referendum to return a result of ‘Remain in the European Union’, we would have to reapply for membership of the EU via Article 49 – during which time our Article 50 negotiation window will presumably expire and we will leave the EU without a deal, which would cause further uncertainty and instability.
If we vote to Remain through Article 49, will Farron then demand a referendum on the terms of re-entry? The argument could go on and on. As no such referendum on ‘accept deal or remain on current terms’ is possible, why is Farron continuing to promote uncertainty by pushing for such a referendum?
Stability means that Brexit works, if we all come together and fight for the Brexit deal that works for all of us and provides as much stability as possible, then Theresa May will be right: ‘Brexit means Brexit, and we’re going to make it work’.