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What Businesses Need to Know About the Current State of Brexit

The UK has often been seen as the reluctant European. Its transatlantic bonds of friendship and its recent imperial past led it first to shun membership of the fledgling European Economic Community and then to join belatedly and complain that the rules of the club were not to its liking. But on the positive side of the ledger, the UK has been a visionary for a different kind of Europe. Under Margaret Thatcher it championed the tearing down of barriers to free movement of people, goods, services and capital within the bloc. The dynamic duo of UK Commissioner Lord Cockfield and the French EU President Jacques Delors created the EU’s single market. The UK also insisted on opening the EU’s doors to the newly liberated countries of central and eastern Europe after the fall of the Berlin Wall. And more recently it played a key role in driving forward Europe’s environmental agenda within the framework of the UN’s Intergovernmental Panel on Climate Change. Its record as a contributor the EU’s development was, until recently, not insubstantial.

It is all the more surprising, therefore, that UK politics currently revolves around whether to remain a member of the EU. This has caused confusion for business and has done damage to the UK economy. It has also shattered the belief that some other countries had that the UK would always counterbalance the protectionist tendency of the EU’s Mediterranean states and sometimes of Germany.

Perhaps fortunately for those on both sides of the English Channel, Brexit looks increasingly unlikely, as the UK counts the cost of allowing a wave of nationalism to go to its head in the Conservative government’s 2016 referendum. Bank of England Governor Mark Carney warned at Davos 18 months ago that Brexit had already cost the UK £10 bn and that by the end of 2018 the cost would be “in the tens of billions.” Some estimates now suggest it may be approaching £100 bn. The UK’s car manufacturing industry, attracted from Japan and elsewhere in the 1980s, has been decimated by decisions to close factories and move investment elsewhere in the EU. Two Japanese electronics giants, Sony and Panasonic, are moving their EU headquarters to the Netherlands. Banks and other financial services companies are moving to Dublin or Paris or Frankfurt. And many small service providers, benefitting from the English language and the ease of doing business in the UK, are leaving the British Isles for fear of finding themselves outside the single market and unable to sell services on the continent.

The cost of leaving the EU—in terms of investment, jobs and competitiveness—is beginning to look very high. And while politics may trump economics for a while, the higher the cost, the greater the doubts. Some have even suggested that the EU is like The Eagles hit song “Hotel California”: “you can check out any time you like, but you can never leave.”

Businesses that failed to see the danger signals and step forward in 2016 are now slowly preparing for a second referendum (or “People’s Vote,” in the language of those who seek to make it sound more attractive). Economic interests perceive that public opinion has turned. Pollsters now find a consistent 55 percent against Brexit, with only 45 percent still in favour: and if confronted with the current government’s plans, more than 60 percent say they are opposed. The ruling Conservative Party, immobilised by mutiny on the ship of state, has made Prime Minister Theresa May walk the plank for failing to deliver Brexit by the target date of 31 March and is fighting over who should take the helm. Internecine warfare may be blinding it to the likely loss of its majority in Parliament.

The UK remains deeply divided. Government policy is to leave the EU by the extended deadline of 31 October; and some prime ministerial candidates are prepared to do so even without agreement with the UK’s continental neighbours. But they cannot get a “no deal” exit through Parliament. In the House of Commons there is a majority for one thing only: the UK must not leave without a deal.

While this majority makes a “no deal” Brexit still unlikely, in my view, the UK may well shortly have a new Prime Minister who has pledged to take the country out of the EU without a deal at the end of October unless he or she can negotiate better terms that Theresa May’s deal. Therefore  many businesses have already spent significant time and money also preparing for a “no deal” scenario.  Companies who fail to prepare for both the People’s Vote option and the “no deal” outcome would be failing in their duties to shareholders and customers.

Einstein observed that “as the circle of light grows, so too does the circumference of darkness.” There is not yet a majority of MPs in favour of a second referendum. But as understanding of the known pitfalls of Brexit grows, so too do worries that implications yet unknown could condemn the UK to life in a darker constellation.

At the very least, the departure deadline of 31 October might be extended by continental neighbours keen to coax the UK cat down from its tree. The UK itself may opt for a second referendum, either after or in place of a General Election; or Parliament may simply revoke the Article 50 letter through which Britain signalled its intention to leave. If this happens, Parliament will at some stage have to revert to the people to approve its change of plan.

The French aristocrat Alexis de Tocqueville observed of 1770s America that the middle classes appeared quite capable of governing a country, but that while in France, if the king made a serious error, he was decapitated, in a democracy nobody has the legitimacy to tell the people they got it wrong. UK citizens must be allowed to decide that for themselves.

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