Following the UK national referendum on 23 June, (only the fourth one ever undertaken), the decision that Britain will leave the European Union is likely to have significant implications for local councils in the UK. The medium term effects are still being analysed, but some of the main areas of impact are starting to become apparent. This initial commentary highlights these issues and reminds us of how we got here. It sets out both the potential threats to and new opportunities for local government in the UK.
Why BREXIT will happen
It needs to be remembered that there was no groundswell of pressure from the public in the UK for a referendum on our membership of the European Union. Rather, this was a tactical political judgement by our ex-Prime Minister, David Cameron, as a way of reducing the clamour from a large proportion of his Party and much of the right wing media to withdraw from Europe.
In practice, the unexpected outcome of the referendum was less a vote on being part of Europe and more about concerns that are much higher on people's list of worries. The successful ‘Leave’ campaign channelled a howl of (well-founded) pain, fear, resentment, sense of injustice and anger from those in Britain who felt that 21st Century life was passing them by. It tapped into a strong sense of marginalisation and economic insecurity in an age of dysfunctional globalisation. The outcome of the referendum vote was a response to the changes that have left millions in the UK feeling that they, and the once thriving towns they live in, have been consigned to the scrap heap, and that national politicians do not understand or care about their plight.
Public opinion polls show that most British people significantly overestimate the number of migrants in Britain. The English, in particular, have feelings of being ‘overwhelmed’ by newcomers and this has led to deep concerns about a loss of national identity and confidence, and to many being deeply troubled by rising immigration and its impact on public services, such as schools and hospitals. Voting to change this situation provided a seemingly simple solution to a frightening, complex and seemingly intractable problem, and it was a typically British, bloodless, popular uprising against the ruling class and their apparent indifference or impotence. Ironically, Britain is likely to experience a surge in immigration during the protracted negotiations over leaving the EU, both from elsewhere in Europe and from the wider world, because of the uncertainty over future arrangements, and the desire to retain free trade with Europe is likely to depend on accepting the principle of free movement of labour within the EU!
A divided country in shock
The seismic reverberations of this most divisive of referendums are now being felt in homes and families up and down the UK. As in a civil war, chasms have opened up in our communities, separating mother from daughter, brother from brother, and friend from friend, depending on how they voted. Among those who voted to remain in Europe, there is a profound sense of shock, disbelief, and bereavement about what will be lost. The ‘Remainers’ and even some of the ‘Leavers’, have a deeply felt sense of having been robbed by major politicians who are cynical liars and who have reneged on their promises within days of a vote they did not expect to win! Those who voted to leave are optimistic about a better future outside Europe, despite the absence of any plan for this and the loss of almost all the main politicians who championed their cause in the referendum campaign. Most shocking has been the visible rise in racism and xenophobia, with a 20% increase in hate crimes committed daily on our streets against anyone who cannot trace their British ancestry back for at least several generations. Restoring a sense of community cohesion and collective action in facing an uncertain future together will be one of the long-term challenges for local government.
BREXIT – the economic consequences
The sense of disaffection among many people in Britain is not surprising given that only the rich have seen the end of the economic recession that started seven years ago. In fact, recently published research shows that in the UK, we have experienced a lost decade of income, in the biggest fall in real wages (since the financial crisis in 2009) of any other developed country except Greece! Average UK incomes have dropped by more than 10% in that period, compared to growth of 23% in Poland, 14% in Germany, and 11% in France. Wages in the UK are 25% below where they would have been if the growth experienced in the period 2000-2007 had continued. Our wages fell off a cliff after the financial crisis and for most people they have not yet recovered. With work growingly insecure, despite high employment levels, many now face a fresh squeeze on their spending power, as the recovery is put on hold as a result of the Brexit vote.
Markets abhor uncertainty and, since the referendum, across companies of all sizes, investment decisions have been halted or delayed until the economic impact of Brexit is clearer. Service industries and banks, on which the British economy depends, have all been particularly hard hit by a dramatic deterioration in business confidence, with the UK economy likely to shrink in the remainder of this year (and possibly beyond). The first figures show the sharpest downturn in economic activity on record since the financial crisis in 2009. National and international banks have announced the loss or relocation to mainland Europe of tens of thousands of jobs, and the Ford Motor Company is talking about factory closures in the UK. The Pound has experienced the fastest drop in its value in such a short period and may face further devaluation as the British economy slows, as predicted before the Referendum if it produced a Leave vote.
Consumer uncertainty is impacting retail spending, and high-end property prices in London have fallen by 12%, with sales down 23%. Some are predicting that such prices could be cut in half by 2020, if senior bank staff in the financial centre of the City of London are relocated overseas, with some building development projects likely to be abandoned. Such effects are likely to continue for five years or more as Britain's exit from the EU is negotiated and new world trade deals are pursued.
For these reasons, the Bank of England and the Treasury are under increasing pressure to prevent Britain from sliding into a recession. Measures are likely to include a cut in interest rates to 0.25% and a resumption of Quantitative Easing of £50-60 billion, as well as spending increases (on major infrastructure projects) and tax cuts likely later this year.