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The Brexit Column: Exploding myths

Exploding some Brexit myths

“We can relax now”. “Brexit is reversible”. “Europe holds all the cards”. It’s time to address some misconceptions about Brexit, says Mark Essex.

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Director, Public Policy

KPMG in the UK

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The Brexit Column: Exploding myths - blue powder explosion

Phase One, done. Finally we can enjoy the festive fizz safe in the knowledge a smooth Brexit is in sight. Or perhaps we’d better pause that champagne, just for now.

Myths or presumptions, conclusions or delusions: whatever you call them we’ve heard plenty in the past 18 months and we’ll hear more before 2019. Last Friday’s deal to move talks on to phase two was a flawless piece of diplomacy precisely because it allowed everyone to go on believing their dreams for Brexit or a non-Brexit were still possible. Hard choices and difficult conversations were postponed for another day.

Just about all outcomes are still possible. So before optimists get too merry at the Christmas party or pessimists try to drown their sorrows at the bar, I thought it was time to explode a few Brexit myths.

1. “We can relax now”

A positive conclusion to Phase One is extremely welcome, but the text is more a victory for constructive ambiguity than a mapped out journey. As Philip Hammond revealed, the Cabinet haven’t even discussed their ideal Brexit “end state”.

Despite all this, clients are telling me they’re worried customers, suppliers and staff will start to deprioritise Brexit. That’s risky. After all, nothing is agreed until everything’s agreed. The beginning of Phase Two is a good reminder that people need to just start planning if they haven’t already. Even with an amicable agreement, our trading and regulatory environment may change significantly.

2. “At least the ‘cliff edge’ is off the table”

Receded yes, but it’s still there. We saw over Ireland how quickly a “done deal” can threaten to unravel or how European perceptions of British backsliding can sour the mood.

Then there’s the question of whether the government has the muscle to get a deal done? Cutting a deal that keeps Europhile businesses and Leave voters happy won’t be easy. And as a result of Wednesday’s vote, MPs can still reject the deal.

3. “We can still reverse Brexit”

Not impossible, but very, very unlikely and it was instructive that virtually no politician, commentator or businessperson raised the possibility of ‘no Brexit’ at our FT Brexit summit last week.

Why? First, I don’t see a dramatic change of heart among voters – at least not before 2019. There were deep emotional triggers behind the Leave vote and these remain intact. Inflation aside, if there’s pain to be felt, it will probably come after our exit.

Parliament presents further barriers. The original result was enshrined in an act of Parliament so a Parliamentary majority is needed to reverse it. I don’t think a change of leader in either main party would reverse pledges to honour the vote, so this looks hard. And even if these conditions were met, we’d need a second referendum. That’s probably an eight week campaign and could well be followed by another general election – there’s simply very little time to do all that before March 2019.

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4. "Britain holds all the cards"

A difficult case to argue. The EU has controlled the pace and ordering of talks and has extracted a chunky divorce bill. And while the UK buys more goods from the EU than we export – otherwise known as the ‘Prosecco argument’, that economic card is probably trumped by the EU’s desire to preserve unity, even at some economic cost.

5. "The EU holds all the cards"

Britain may not have the best hand, but it shouldn’t fold either. At a recent conference in Brussels I was struck by how much defence occupied the debate. As questions persist over the US commitment to Europe’s defence, it’s worth noting fully 70 per cent of the EU’s deployable capability is shared by Britain and France – an obvious reason for the EU to pursue a ‘deep and special partnership’ 

Let’s also not forget the continued importance of Britain as the EU’s financial centre. As Joe Cassidy, KPMG’s FS Brexit lead, points out, London’s deep and liquid capital markets and its place within the global financial order mean European banks and corporates will still rely on access to the City of London.

6. "Ultimately we’ll end up with a business-friendly deal"

If it wasn’t obvious in June 2016, it is clear now: government, not business, is driving this process. Of course it will consult industry, but its first obligation is to the broader economy – both today’s and tomorrow’s. For example, government might determine it needs to prioritise whole industries that barely exist today at the expense of others that today are significant employers or contributors to the economy. Of course, politicians may choose not to set out some of these consequences explicitly…

7. "All is lost without a trade deal"

It would be easy to despair at the prospect of planned no deal, but we shouldn’t forget that Britain’s fundamental strengths will endure (and in time reassert themselves): a market of 65 million consumers; the largest financial centre in the European hemisphere (and only one with English as its first language); a globally-renowned legal system; and a place ranked as the seventh most business-friendly in the world . That ecosystem, which has proved so attractive to dealmakers, entrepreneurs and their FDI, won’t suddenly crumble to dust. Myths come and go. Britain’s strengths founded on law, language and longitude will endure.

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This article represents the views of the author only, and does not necessarily represent the views or professional advice of KPMG in the UK. You can register for the email subscription list of this column and expert views from our Brexit leaders

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