The long-running UK saga gripping many at the moment is a political one: Brexit. And the season finale is coming. Or is it?
After seemingly endless debate and delays, resignations and reshuffles, backstabbing and backstops, the United Kingdom finally looked set to ‘Brexit’ the European Union on 31 October this year.
But in the latest series of twists:
- UK Prime Minister Boris Johnson’s pro-Brexit government lost control of parliament when some members of his own Conservative Party voted against him;
- UK MPs then voted for a bill to block a ‘no deal’ Brexit in the event that a withdrawal agreement hasn’t been reached with the EU before the 31 October deadline. This could instead mean the deadline will be extended;
- The Prime Minister said he would not ask for an extension and called for a general election instead;
- This call for a general election was not approved by the UK parliament.
From our vantage point in Australia, Brexit continues to be intriguing to watch. But could there be a real impact on Australian consumers – on the economy and currency exchange rates, for example – if and when Brexit actually happens?
Let’s put down the popcorn for a moment to take a closer look at what it’s all about.
What is Brexit?
Brexit refers to the UK’s withdrawal from the EU, the political and economic union of 28 (soon to be 27) European member states which allows for free movement of people, goods and services across borders, with a shared parliament, as well as many shared laws and regulations.
In a speech she made after becoming UK Prime Minister in 2016, Theresa May attempted to sum it all up succinctly by declaring that ‘Brexit means Brexit’. However, the fact that May was the second UK Prime Minister of three (and counting) to grapple with Brexit suggests that there’s a lot more to it than her cryptic soundbite made out.
The term Brexit itself is a bit like ‘brunch’ and ‘bromance’, in that it sums up a concept by smashing two words together – in this case ‘Britain’ and ‘exit’. But it’s actually the entire United Kingdom that’s leaving the EU and not just Britain (UKexit doesn’t have quite the same ring to it). Importantly, the UK includes Northern Ireland, which as we’ll see, is one of the main reasons why Brexit has been so complicated and difficult to deliver up until now.
Why is the UK Brexiting?
Since joining back in 1973, the UK has at times had an uncomfortable relationship with the EU. It has been particularly reluctant to sign up for some of the EU’s more radical policies – for example by declining to adopt the Euro which most member states now use as their currency.
Large numbers of UK politicians also identify as ‘Eurosceptics’, particularly within the ruling Conservative Party and overtly anti-Europe parties like Ukip and the recently formed Brexit Party.
The bubbling unease came to a head in 2016 when the UK voted in a referendum to leave the EU, following a heated and divisive campaign.
Some of the main arguments for leaving were the UK being able to “take back control” of its borders, immigration and law making. The Remain side claimed that economic stability, millions of jobs and billions of pounds worth of trade were reliant on the UK’s membership of the EU.
The margin of victory for ‘Leave’ was narrow (52% to 48%) but the fallout was huge. The day after the vote, David Cameron, the UK Prime Minister who called the referendum and campaigned for ‘Remain’, resigned, to be replaced by Theresa ‘Brexit means Brexit’ May.
The controversy hasn’t stopped since.
When will Brexit happen?
The current official deadline is 31 October 2019. But like Prime Ministers, Brexit has already seen a number of deadlines come and go.
Because of what’s at stake, the UK’s attempts to navigate its way out of the EU have been slow and difficult. In fact, its parliament has on three occasions rejected a withdrawal deal drawn up between the UK Government and the EU.
The arrangement or ‘backstop’ for keeping the border open between Northern Ireland and the Republic of Ireland – which would become the only UK-EU land border after Brexit – has been the main sticking point for many MPs.
"I think we will get there" – Prime Minister @BorisJohnson believes that the government and the EU can 'agree a solution' over the Irish backstop.
— Sky News (@SkyNews) August 20, 2019
This has led to growing concern that the UK will crash out of the EU without a deal when the deadline for withdrawal comes. The current Prime Minister, Boris Johnson, has said he will take the UK out of the EU “do or die, come what may” on or before 31 October. His decision to suspend or ‘prorogue’ the UK Parliament in the lead up to the Brexit deadline was interpreted by some as an attempt to prevent MPs blocking a no deal Brexit. The Prime Minister insisted that it would be a necessary break to allow his government to set out its plans for future legislation.
UK MPs have since voted down the government in order to pass a bill which would block the country from Brexiting without a deal. This may now lead to a general election, where a new government would seek a mandate from the UK people on how to proceed with Brexit and other issues.
What’s the big deal with a ‘no deal’ Brexit?
Some economists, including those at the Bank of England, have warned of the implications of a no deal or ‘hard Brexit’ on the UK economy, and it emerged recently that the UK Government is preparing for potential food and medicine shortages and lengthy queues at ports if it leaves without a deal.
Boris Johnson says he's "confident" the UK can prepare for a 'no deal' Brexit "if everyone puts their minds to it".
A leaked Government document has warned there could be severe disruption to medical, food and fuel supplies. pic.twitter.com/J2Zx1lwy5O
— Channel 4 News (@Channel4News) August 19, 2019
It’s perhaps primarily for these reasons that some politicians in the UK are determined to prevent a no-deal Brexit.
But others now see it as the only way for the UK to fulfil the 2016 referendum result, and point to potential positives like the UK being able to implement a new immigration system post-Brexit, which the UK Home Office claims would “prioritise skills and what people can contribute to the UK, rather than where they come from”.
What could Brexit mean for Australia?
While it might just seem like a messy divorce between two far-away feuding parties, Brexit could have an impact on the Australian economy. The UK was Australia’s eighth-largest trading partner in 2018, while HSBC Bank estimates that 1,500 Australian companies operate in the UK, many of them using it as a base for doing business across Europe.
"Businesses are starting to plan on the basis of no-deal being an increasingly real prospect". However, this has not affected the confidence of Aussie businesses coming to the UK – Chamber CEO Catherine Woo talk's Brexit in today's @smh https://t.co/m3Xjec9Vl2
— Australia-UK Chamber (@AusUKChamber) August 30, 2019
An Australian Parliament report into the possible implications of Brexit on Australia suggested that some Aussie industries are hopeful that Brexit may open up opportunities for increased trade with the UK – agricultural exports in particular. However, the report concluded that there is no guarantee that markets will be more open to Australian exporters once the UK has left the EU.
Canstar’s finance expert, Steve Mickenbecker said that while Brexit might represent an opportunity for some Aussie businesses, overall the impact could well be negative.
“If the UK is plunged into recession because of Brexit and Europe also suffers because of it, I suspect that’s the bigger deal for Australia,” he said.
“As well as the risk of the trade war between the US and China escalating, I think Brexit could be another nail in the coffin that may hurt world trade and the world economy, and that might flow through to Australia.”
Brexit could also have an impact on the currency rates Aussies get when converting money to Great British Pounds. At several times since the referendum result, the value of the pound has dropped dramatically. With the potential for plenty more twists to come, it could be worth keeping a close eye on exchange rates if you’re planning to visit the UK or transfer money to or from there in the next few months.
Whatever the outcome of Brexit, it’s unlikely to make for dull viewing.