BREXIT The Economical Arguments

Question: Discuss about the BREXIT for The Economical Arguments. Answer: BREXIT Brexit is the combination of the words British Exit, implying the exit of Great Britain from the European Union. A referendum was held on 23rd June, 2016, where in 52% of the British population voted to Leave. Following Brexit, David Cameron resigned from the post of the British Prime Minister. This essay discusses the economical impact of Brexit on London as a leading financial centre in the world, and the longer approach of British business firms following Brexit. The Economical Arguments for and against Brexit The main reason cited for Brexit was the economical disadvantage the United Kingdom had as a part of the EU. However, there were many disagreements over the economical status of the UK in the EU, which led to the Brexit, both then in 1975 and now in 2016. There were mixed reactions to the decision of the Brexit, which was one of the election manifestos of the Prime Minister David Cameron. Those who were in the favour of Brexit were a fair share of the members of the Conservative, Labour and the Democratic Union Parties, even though a significant number of the British citizens were divided in their opinion. The arguments that were put forth in favour of Brexit were (Rossiter, 2016): Reduction in Immigration The immigration policy of the EU has allowed a lot of migrant population working in the UK. The impact of immigration on the economy includes the dearth of jobs for the UK born natives; the jobs created in the UK are taken by the immigrants, this affecting the employment status as well as the wage rate of the native population. Brexit would enable more jobs for the natives, and a lesser loss of money by the migrants. Trade Relations Many economists in the UK feel that trade in the UK is severely restricted by the interference from the EU, which in turn negatively hampers the employment and consumer policies of the UK. Brexit would enable a freedom from the unfavorable legislations and red tape that hindered the free trading system of the UK. There would also be room for negotiations and trade deals that are in the favour of the UK. Cost Saving: The UK, while belonging to the EU, contributes a massive membership fees to the EU. However, many claim that the membership was not a for-profit one, and leaving the EU would save massive sums of money each year, that could be put to good use by the UK Government. This would mean reduction in taxes and investing in areas of the countrys development. Those who wanted to stay in the EU included the British Prime Minister David Cameron, the Prime Minister of the United States Barack Obama, the Party of Wales, the Liberal Democrats, and few of the EU nations like France and Germany. The arguments that were put forth against Brexit were (Capital Economics Limited, 2015): Immigration helps more than it hurts: With the advent of globalization, there is no way to stop immigration, and stricter immigration policies would mean loss of skilled migrant labour to the UK, resulting in low productivity, and a lesser GDP; the immigrants to the UK are taxed more than the natives. Trade Relations: Even though remaining in the EU would mean enduring the trade policies and restrictions, it is argued that with even Brexit, the UK would have to follow the policies of the EU in order to maintain trade relations with them. Also, there would be a loss of a lot of jobs, and to accommodate all of them would require a lot of work, which would cost more than remaining in the EU. Economists also fear the Brexit would turn trade relations away from the UK, as it would not have easier trade policies as the rest of the EU (Parke, 2016). Benefits outweigh costs: Even though the UK would benefit from the saved cost of the membership fees, there are a lot of benefits from remaining in the EU than leaving it. For Example, the costs of healthcare, employment for many people across sectors etc would be hampered if the UK leaves the EU. Loss of Reputation: Economists argue that with the Brexit, the entire EU stands at a risk of an economic collapse. This would result in a loss of reputation and influence of the UK, which is respected in the EU as of today. The UK would be held responsible for Europes reverting back to the times of the WW-I, where in there was an economic disunity. People on both sides of the Brexit have established strong points in their stand. However, with the UKs withdrawal from the EU, the financial impact of the Brexit must be analyzed. The Financial Impact of Brexit on London as a leading financial center of the world London, the capital of the UK, is one of the leading financial centers in the world, since the 19th Century. This implies that the formation and the UKs partnership with the EU have not affected its position. However, one cannot deny the impact of the Brexit on Great Britains economy. Due to the Brexit, Londons spot as a top financial centre would be shifted to Dublin, Ireland; or Frankfurt, Germany (Dhingra et al., 2016). This comes in the wake of the UKs withdrawal from the EU, which means that investors would find the trade relations, economic and immigration policies of the UK would be tougher to deal with. The factors responsible for the financial impact of Brexit, on London as a leading financial center in the world, are discussed below. Human Capital: Immigration to the UK has been easier by the policies of the EU, which has resulted in a greater GDP and higher income to the state due to separate taxation policies for the migrants. Restricting and making stringent the immigration policies if the UK is a main factor which would discourage migrant workers from working at the UK. Though this would provide opportunities to the native citizens of the EU, the negative effects of lesser immigration in the future cannot be ignored. The migrants from the EU currently working in the UK will have to be paid more, for the UK to retain the existing workforce. This will cause an added economical pressure on the UK. Business environment: There is a generalized consensus among most businessmen, who have their establishments in the UK, which the Brexit would mean them leaving the UK for the EU. London, which is the financial centre for all these businesses, would lose its business environment, if big establishments prefer to leave the UK. Even though there is a wide scope for new businesses to emerge, following freedom from the EUs restrictions, it would take a long time to regain the financial capital and reputation that London stands to lose due to the business losses. Financial Sector Development: London enjoyed a high financial status, by trade relations which was made easy by the Single Market, via the passporting system. This enabled all investors to enjoy a smooth trade relationship within all the 28 nations of the EU, without any need of approval from the trade regulators of each state. Following the Brexit, London would lose access to the EU passport, which would severely hamper trade relations. The cost of setting up a new passport is also high, given the hidden costs of paperwork, human resource and relocations (Allen Overy, 2016). Infrastructure: This component focuses on the office space and transportation to the financial investors at the place. Before the Brexit, UK based business establishments were free to have their headquarters anywhere within the EU. However, now that the UK has withdrawn from the EU, there would be a space crunch, and a resultant price hike of office space to all the entrepreneurships that would stay in the UK. This would discourage the formation of startups and business expansions, on account of limited infrastructure. Reputation: The financial reputation of the UK has always been high, and has helped maintain the reputation and the cohesion of the EU as well. However, with the Brexit, the chances are high that there would be a severe loss of support from the EU, as well as from parts of the rest of the world. If a nation chooses not to trade with the UK, it would only deepen UKs loss. Further, Britains powers as a nation independent of the EU would weaken its influence over the global economics, which it had as a strong member of the EU. Another point to consider is the effect of Brexit on the EU; if the EU heads towards a collapse, the UK would be held responsible, which is not a good sign for the reputation of a nation. Health Care: One of the high stake issues that would be affected due to Brexit is the healthcare of the UK, and the healthcare benefits that the people of the UK had received as a result of remaining in the EU. The National Health Service (NHS) heavily relies on the research grants coming from the EU, which provides free European Health Insurance Cards (EHIC) to the employees of the EU, including the UK. With the completion of the Brexit, the employees will lose their EHIC, which means that the UK will have to invest heavily on other insurance plans to provide healthcare coverage for their citizens, which would heavily impact on the countrys economy (McKee Galsworthy, 2016). Unless the UK takes massive steps to retain its position as the worlds top financial centre, the Global Financial Centers Index scores are likely to dip down. The short and long term risk management approach of British firms following Brexit Brexit would undoubtedly alter the status and the environments of many business establishments based in and out of the UK. The major impacts would be taxations, trade relations, human resource recruitment concerns due to immigration policies, and increase in the costs. This would lead to many business establishments considering leaving the UK and settling in the EU, thus causing huge losses to the UK. The actual process of the UK leaving the EU would take up to two years of time, and this would be the transitory period of the Brexit being announced and not yet implemented. This would be the period in which most investors and business heads would have to make their decisions and formulate their strategies, in order to find establish a ground in the economy. The interim period between the Brexit and the actual leaving would pose many questions to the business establishments. In order to chalk the short term and long term risk management strategies, the potential risks of Brexit on the company must be identified. Share market Standings: Investments in the UK are one of its strong points, irrespective of its relationship with the EU. However, due to the increased hype, and the potential financial implications of the Brexit, most shareholders in UK based companies would seek clarification on the standings of their investments, or offer to withdraw or sell the shares right away. This would mean great losses in the economical placements of the company. The general idea would be to retain the shareholders. The short term strategy would be to maintain their shares without much decline, in order to prevent losses in shares (Dhingra et al., 2016). This would involve assuring the shareholders of a promising future, and backing it up with increased productivity. In the event of the losses of a few shares, the firms must be able to manage the losses without imposing them on the employees. As a longer term management strategy, the employees must be encouraged to work to their full potential, in keeping t he companys performance at a high level. However, newer investments and expansions must be delayed, in order to balance the potential losses incurred due to the Brexit if any. Trade Relations: Brexit would definitely affect the trade relations between the UK and the EU, and so the UK based firms would have to revamp their trade strategies with the EU. This would involve obtaining the new passports, retaining the workforce, and keeping a lot of back-up funds for any financial crisis that might be underway. For example, as the UK exports nearly 60% of the EUs automobile supplies, the Brexit would mean severe losses to the EU. This would hamper further trade relations of the EU with the UK. Even if the UK exports cars to the USA and China, a potential export destination, the EU would be lost. The short term strategies would be putting on hold any new trade agreements that have been in the pipeline for long. As this would delay financial improvements and expansions, the back-up fund would come in use. For a longer term plan, decisions must be made whether to let their headquarters stay in the UK or to move it to another potentially viable city in the EU. If th e decision is to stay, then new trade agreements with the EU and the rest of the world must be planned, along with the costs of obtaining the new passports (Ebell Warren, 2016). If the decision is to leave, then though financial losses might be incurred, it must be aimed to be balanced within a few years. Both ways, financial losses would be incurred. Workforce Status: One of the undeniable effects of Brexit is that there would be a lot of people who would lose their jobs. This would affect employees of the UK based companies branched out in the EU, and the non UK companies branched out in the UK. The changed policies on immigration would make it difficult for the firms to retain the employees. The short term strategy must be to ensure retention of all highly performing employees, by acknowledging their work and productivity. At a long term basis, the company can consider employing resources who would clear the immigration barriers, and providing perks and incentives to retain them without the risk of their migrating back to their natives. It must be explained to the employees why the bonuses and perks are not relatively high; some of the leadership staff has to forgo their pay-perks in order to manage the increased costs happening due to the Brexit (Bell Machin, 2016). The Passport: Brexit would mean the termination of the European Passport for the citizens of the UK, which had allowed easy trade within the Single Market. This implies that very non UK based business firm located within the UK must relocate to the EU. Such firms must utilize the two year odd transition period to settle all deals and investments within UK while still being able to use the EU passport in the UK, and aim on relocating back to a financially viable location in the EU (Heisbourg, 2016). On a long term plan, these firms would still retain the EU passport, but the trade relations with the UK might be questionable. This also implies that every UK based business firm that has dealings with the EU, must obtain a new passport for further dealings. This would involve a lot of paperwork, monetary expenditure, and labour. The long term strategy of the firms on the separate passport would be management of trade dealings with the EU which would involve a lot of red tape, incidentall y the issue in the EU which the UK resisted. The above mentioned strategies adopted by business firms within the UK are predictions of the likely proceedings following the Brexit. However, the actual stance of UK and the EU would be known after the complete separation, as both the entities are still a part of many policies and treaties. As the geographical location of the European nations and the UK favour trade relations, it is hoped that the new trade and financial policies would be flexible to favour trade relations and business alliances. References: Allen Overy, 2016. Brexit - contingency planning for corporates. Allen Overy. Bell, B. Machin, S., 2016. Brexit and wage inequality. Brexit Beckons: Thinking ahead by leading economists. Capital Economics Limited, 2015. The Economic Impact of Brexit. Woodford Investment Management. Dhingra, S., Ottaviano, G.I.., Sampson, T. Reenen, J.V., 2016. The consequences of Brexit for UK trade and living standards. Dhingra, S., Ottaviano, G., Sampson, T. Van Reenen, J., 2016. The impact of Brexit on foreign investment in the UK. Centre for Economic Performance (CEP). Ebell, M. Warren, J.., 2016. The long-term economic impact of leaving the EU. National Institute Economic Review , 236(1), pp.121-38. Heisbourg, F., 2016. Brexit and European Security. Survival, 58(3), pp.13-22. McKee, M. Galsworthy, M.J., 2016. Brexit: a confused concept that threatens public health. Journal of Public Health , 38(1), pp.3-5. Parke, T., 2016. The potential economic impact of Brexit for London, the UK and Europe. PwC. Rossiter, A., 2016. About-Britain.com. [Online] Available at: https://about-britain.com/institutions/compare-brexit-arguments.htm [Accessed 26 Augustus 2016].