Global Trends by Martin Khor

Star, Monday 19 June 2017

The UK faces an uncertain future

A horrific fire tore through an apartment block in London just as the United Kingdom barely recovered from its shock election results, while the politicians seem unprepared for the all-important Brexit talks starting this week.     


What a bad time it must be to live in or visit the United Kingdom.  It’s been one unexpected (and mainly terrible) news after another.

Last week, there was the horrifying fire in a London apartment block that took many lives. 

Many Malaysians live in high-rise buildings so we could really sympathise with those that perished and their families.

The fire spread so fast because the fire shot upwards through the cladding on the building’s wall. Cladding is a type of skin or extra layer placed on the outside of a building.

There are lessons for Malaysians.  We should at least ensure that there are no materials placed on the outside face of our apartments and office buildings that can attract, magnify or spread a fire.

The fire could not have come at a worse time – only a few days after an election that eliminated the Conservative Party’s majority, forcing it to form an uncomfortable understanding with a Northern Ireland party.  

Before that, there were the terrorist attacks in the London Bridge area and in Manchester.  And last year saw the “Brexit” referendum vote taking the UK out of the European Union.

It’s certainly not easy to be in charge of the UK right now.  Her rivals may call her “a dead woman walking”, but any Tory leader taking over now will be blamed for the mess to come.  It is ironic that an election aimed at creating stability and certainty has instead led to instability and great uncertainty.

The UK’s immediate challenge is the Brexit negotiations, scheduled to start this week. Since the election results were a calamity for May, she has no mandate to take a tough “hard Brexit” stance. Yet it would also be politically hazardous to switch to a “soft Brexit” position.   The UK is therefore caught between the devil and the deep blue sea.

Those that voted for Brexit resented immigration and being subjected to EU regulations and the European Court of Justice (ECJ).  They felt socially left behind and associated this with the UK being in the EU.

But many others (almost half) had an opposing view.  They enjoyed the economic benefits of being in the EU and feared the consequences of quitting.

The UK would like to have its cake and eat it: enjoy the benefits of free trade, services and capital flows inside the EU but be allowed to control immigration, and not to submit to EU regulations or the ECJ.   But the rest of the EU will have none of it. They will impose strict conditions and won’t set a precedent for rewarding a member who quits.

Under a hard Brexit, the UK would have to negotiate an agreement similar to the EU-Canada FTA.  The UK will have some leeway in immigration control, but at the expense of excluding important parts of trade in goods (especially agriculture) and services. 

Most worrying for the UK is financial services.  London is now the financial capital of Europe but its status will be in jeopardy if Brexit curbs its financial firms’ access to Europe.

If an FTA cannot be concluded, within the strict two-year deadline, the UK might have to fall back on the “WTO solution”.   It would face the same tariffs in EU countries that the EU imposes on WTO members that do not have FTAs with it.  This would be a nightmare for businessmen, politicians and consumers.     

If the government now goes for “soft Brexit”, it would mean joining either the European customs union or the European single market.

In the customs union, the UK will enjoy tariff-free trade in most goods in EU countries and also have the same external tariffs as the EU with the rest of the world.  However, agriculture is excluded and services only partially covered.  The UK will have to be subjected to the ECJ on trade-related issues. There will be more leeway to negotiate immigration control. 

Then there is the single market, which has many advocates including some Tory leaders. If the UK joins, it would have to adhere to the four freedoms of trade, services, capital and movement of people within the EU as well as hundreds of related regulations and accept the ECJ. There would be little leeway for the UK to negotiate immigration control.  Norway, a non-EU member, is in the single market.

If this softest of options is taken, those who voted for Brexit will protest that this is like remaining in the EU. But if the UK chooses the hard option, it will lose many of its present economic advantages of EU membership.

The UK may try for a hybrid of the soft and hard options, but the rest of the EU will make that difficult.  Being unprepared, the UK will stall for time when negotiations start.   Of course, many people are wondering how the UK ever ended up in this predicament.

Brexit was not the main reason for the Tories’ poor election outcome.  Many voters were appalled at the heartless social policies and the continued austerity programme in their manifesto and May’s lacklustre campaign, while Labour under Jeremy Corbyn came up with a positive agenda of health, education, welfare and jobs, “for the many and not the few.”

The Tories are likely to now switch to “soft austerity” while a revived and more unified Labour will try to ride the crest of their popularity, in hopes of making it to Downing Street.

The next UK elections will be exciting.  That’s one of the few certainties about the UK amidst the present chaos.  But we don’t even know whether to expect the next elections in five years or five months from now!