Category: Brexit

Article Review

The article “How will Brexit send flight prices soaring higher?” is devoted to the impact which Brexit might produce on the aviation market in the UK and EU. The article suggests three different scenarios that are available for the UK to follow. Some parts of the article are written in a rather humorous manner, although the general tone of it appears to be serious since the matter proves to be topical and involves much consideration.

Airlines would like the UK to make this decision as soon as possible. At the moment, due to the single aviation market which was created in the 1990s, any airline with a base in the EU has a right to fly from any country to any other country. Brexit implies reconsidering this access. The British PM claims that the country is willing to be free from the influence of the European Court of Justice. This is likely to be achieved using excluding access to the single aviation market.

Besides, European authorities are acknowledged to have informed airlines which are located in the UK, including EasyJet and Ryanair, that they will have to open their headquarters on the continent or sell their controlling stakes to Europeans in case they are willing to continue being operational on the European routes after Brexit. It is clear that for EasyJet and Ryanair, flights within the EU are the most important source of profits. Such changes in the structure of the airlines and their compelled presence on the continent might result in serious consequences for the UK. The airlines are likely to prefer the possibility to have internal flights on the continent by new European rules. This could entrain staff reductions in the UK. Plane tickets to the UK might have a higher price due to the growth in their cost price. If the UK limits free movement for EU citizens, it could hurt the volume of air transportation.

Moreover, due to a stricter visa regime, airlines will have to hire new employees and make redundant those who do not comply with visa requirements. Apart from that, cheap labor is expected to be said goodbye to, whereas training new staff will result in the need for extra funds. Therefore, airlines will be forced to increase airfares to compensate for their losses.

Another problem that is likely to appear is a flight timetable for the summer of 2019 when the UK will have exited from the EU. Working out a timetable is stated to take time, and it is supposed to be planned. Therefore, the flying schedule for 2019 is expected to be outlined in 2018.

As for the British, expensive plane tickets to other countries might make them stay on the island and visit different places in their motherland. This is unlikely to compensate to the full extent of the potential loss of European travelers. However, a sharp reduction in the number of foreign tourists does not appear to be the outcome since Britain has many attractions.

In conclusion, it is necessary to underline that whether the final decision might be, it could influence not only local markets but also the world aviation market. Higher airfare will affect those people who enjoy traveling either for leisure or on business. What is more, any changes in the visa regulation connected with the issue entrain additional problems for both businessmen and tourists.

The United Kingdom’s withdrawal from the European Union is known as Brexit. Brexit happened for various reasons, including British dependence on the EU, terrorism, immigration, and economic problems in the EU. Brexit allowed the United Kingdom to have sovereignty and positively affected its political situation. Despite the high expenses associated with Brexit, it can be beneficial in the long term as it improves British international relations, environmental situation, and economy.

Many social, economic, and political factors influenced the United Kingdom to leave the European Union. According to the Standard Eurobarometer surveys, immigration, terrorism, and economic situation were identified as significant issues in the EU (Chopin & Lequesne, 2020). The United Kingdom was increasingly affected by the EU immigration policy and the economic crisis of the other EU members. Residents of the countries with unstable economic situations tend to move to more economically developed countries, and the European Union allows the citizens of the member countries to travel around the EU freely. The United Kingdom had to accept too many immigrants, which became dangerous for the safety and economic state of the country, so many British people wanted stricter immigration policies (Chopin & Lequesne, 2020). EU immigration control, terrorism threats, and economic crisis affected the United Kingdom’s decision to leave the European Union.

Despite Brexit’s economic and political issues, the United Kingdom does not stop implementing it. Exiting the European Union allows the British to have complete sovereignty and be independent of the EU decisions, including managing the budget and taxes (Fabry, 2020). Therefore, the United Kingdom does not have to pay contributions to the EU, which benefits the country’s economy, as the EU borrowed 750 million euros from 2021 (The Benefits of Brexit, 2022). Leaving the EU has many advantages for the United Kingdom, so the process is still implemented.

Long-term benefits of Brexit include improved international relations, fully autonomous economic decisions, and an improved environmental situation. The United Kingdom’s plans for the future are cooperating with the Association of Southeast Asian Nations and eliminating all non-recyclable waste by 2050 (The Benefits of Brexit, 2022). Fabry (2020) highlights that the United Kingdom does not have a clear economic strategy, and many difficulties are yet to arise. Brexit can require significant economic expenses, but it is beneficial for the United Kingdom in the long term.

References

Chopin, T., & Lequesne, C. (2020). Brexit has not won over European opinions, quite the contrary. Jacques Delors Institute.

The Benefits of Brexit: How the UK is taking advantage of leaving the EU (2022). Crown.

Fabry, E. (2020). Brexit: the worst is yet to come! Jacques Delors Institute.

Introduction

Brexit is the process of withdrawal of the United Kingdom from the European Union (EU) (Hobolt, 2016). The European Economic Area (EEA) includes many EU member nations and three other nations Iceland, Switzerland, Liechtenstein, and Norway. UK financial services trade with the three EEA members is less than 5% of the trade with the EU. Hence, the EEA trade is not analyzed separately for financial services. The EU was formed in 1975 with the goal of becoming a single, borderless market, with standard and uniform laws that permitted free movement of capital, people, goods, and services (Pinder & Usherwood, 2013). The objective of the EU was to form a unified trading block that would lead to mutual growth and stable economic conditions.

Members of the European Economic Community, made up of 28 European nations had a common currency, the Euro in various denominations (Grinin, Korotayev, & Tausch, 2016). Member states contributed a certain amount to the central corpus, which helped to fund nations with weak economic growth. However, the union was not without trouble and several states such as Greece and Georgia defaulted on their obligations, forcing other EU members to support the weak states (Le Gales & King, 2017). In addition, the free movement of people, flooded immigrants into advanced countries such as the UK, Germany, France stressing local economies and jobs (Gareis, Hauser, & Kernic, 2013). The UK government organized a referendum in 2016 to decide if the UK was to remain in the EU or exit, and the majority decision was to leave the EU (Berend, 2017). Leaving the EU would mean cutting off the economic links and dependencies with other EU nations, and Brexit is expected to have an impact on various sectors of the UK economy (Outhwaite, 2017).

In 2016, the financial services sector contributed £142.7 billion, amounting to 7.2% of the UK GDP, and employed 1.2 million. The financial services sector includes banking, insurance, accounting, pension funds, holding companies, trusts, funds, venture funding, unit trusts, property unit funds, real estate investment funds, financial leasing, credit granting, mortgage finance, security dealing, life insurance, non-life insurance, administration of financial markets, security and commodity contracts, risk and damage evaluation, and fund management activities (Tyler, 2017). With this background, this paper analyses the possible impact of Brexit on the financial services industry made up of banks, financial institutions, insurance, and other agencies.

Theory of Economic Integration

Economic integration is a systematic process where economic policies, markets, finances, and other areas of economic activity are unified. Barriers and restrictions such as cess, taxes, and tariffs at the border are suspended. With discrimination eliminated, economic integration is expected to encourage free trade, allow diffusion of technology, help economically weaker nations to enter the market, and infuse economic stimulation and funds in the market (Scitovsky, 2013). Nations with low growth and stagnating economies are provided the opportunity to benefit from technology transfer that helps them to develop quality products. Advanced nations with higher growth can sell their products in more areas.

Some trade agreements such as NAFTA, ASEAN, and others offer some features of economic integration such as reduced trade barriers (Baier, Bergstrand, & Feng, 2014). Economic integration is facilitated in seven stages and these are setting up preferential trading area, free trade area, customs union, common market, economic union, economic and monetary union with a common currency, and complete economic integration (Novak, 2013). EU integration has reached the final stage, though political union and integration is not possible, since each member nation remains a sovereign state. However, common norms are seen in society, culture, politics, social interactions, and in other areas (Cuadrado-Roura & Parellada, 2013).

The disadvantage of economic integration is that advanced economies are forced to dole out and help weaker member nations support them with bail-outs and trade. In addition, when a member nation faces a financial crisis, the problems are transferred to other nations. Additionally, citizens of lower economic countries consider migrating to advanced countries, where they have better opportunities (Kassim et al., 2013). Hence, the EU sees criticism from some of the member nations who do not want to fund the survival of weaker nations at their own cost. There are further criticisms that low wage cost countries, use cheaper labor to dump lower-priced goods in advanced economies, and some authors argue that the certificate of origin, where a manufacturer certifies that products are manufactured in a specified zone, is flouted (Schaltegger & Wagner, 2017). As a result, advanced countries become receptors for cheap made Chinese goods. There are also arguments that technologically advanced and efficient countries gain an unfair advantage by selling surplus products in countries with lower manufacturing bases (Usherwood & Startin, 2013).

Statistics of UK trade with the EU, EEA

The post-Brexit scenario is mixed with some researchers forecasting that the UK financial services sector could see revenue loss of 20-30% (Ward, 2017), while others indicate that the loss or gain would depend on the terms of the exit (Dhingra, Ottaviano, Sampson, & Reenen, 2016). This section reviews data and statistics to ascertain the volume and extent of a financial services business with EU members. Several graphs and statistics are used to discuss topics such as the UK share of financial services, UK asset management, FDIs, and the banking system. Table 1 presents trade volumes of UK financial services with EU and EAA, for 2017 (Magnus, Margerit, & Mesnard, 2016).

Table 1. UK and EU Financial services for 2016 (Magnus et al., 2016).

From Table 1, it is clear that UK financial service to EU counterparts in the segments of banking, asset management, insurance and reinsurance, and infrastructure is worth 23%, 22%, 26%, 10%, and 44%. In addition, the UK market shares in the EU in these segments are 24%, 26%, 41%, and 22%. These values represent significant investments and volumes, with cross holdings from EU based banks and insurance companies. When the interconnections of these segments with other sectors such as construction, retail, manufacturing, and others are considered, then the volumes and presence of UK financial services are very significant. Given this level of trade by UK financial services and the nature of interlinking, it is doubtful if EU financial services players would severe their relations. All parties will face an unacceptable level of financial distress (Magnus et al., 2016).

Asset management is an important part of financial services. It helps by financing the European firms by routing savings and investments from retail and institutional investors to financial institutions with non-financial corporates, and governments. Asset management is very important in providing funds for the economy. Since the economic recession of 2008, direct market-based financing has stepped in for bank lending channels. Asset management services of the UK have formed the Capital Markets Union and the European Fund and Asset Management Association to reinforce lending to EU and UK markets (Ward, 2017). Table 2 presents a breakdown of asset management investments by the UK and other EU nations in 2015.

Table 2. Asset management investment by UK and EU (Ward, 2017).

From Table 2, it is clear that UK asset management services hold 37% of the EU market share. Comparatively, France has 20%, Germany has 10%, and other nations have a lesser market share. Therefore, the UK dominates the asset management segment. A hard Brexit would mean that fund recipients from the EU would have to repatriate their debt to UK financial services. It is doubtful if EU recipients would take up this step or if they would find investors who would lend them funds.

Foreign direct investment (FDI) is an important engine of economic growth. As per this process, foreign investors invest in a parent country with promising growth prospects. Cross-border FDIs happen when agencies from the parent country invest in ventures in a host country, where they feel they will get adequate returns for their investments. FDIs can be made in different sectors such as construction, manufacturing retail, services, share markets, etc. A country may define rules on the maximum holding by an investor from a foreign country in a venture in the parent country. It may even specify industries where investment is required and also indicate the minimum period for investment before the funds can be repatriated (Wyman, 2016). Fig 1 presents the cross-border investments in the UK.

From Figure 1, it’s clear that FDIs in the UK have consistently risen and the number of cross-border transactions and inflows has constantly increased. Kekic (2017), writing for the London School of Economics argues that in the initial years, projections were made that the UK would see a drop of 22% in inward FDI flows. Many leaders and CEOs of Cisco, Hitachi, GE, Airbus, and others also voiced their fears that FDI flows would decrease post-Brexit, leading to a fall in GDP. However, actual figures proved to be contrary. In 2016, the UK GDP grew by 2% and inward FDI rose to $179 billion and out of this, $101 billion was in financial services, acquisitions, and other financial markets. A report by Colliers International shows that London remains the preferred destination for FDI, among the top 20 cities. Several factors have contributed to this process, and these include a stable political climate with a strong government, diversified and skilled workers, weaker pound and low-interest rates, relatively lower real estate costs, and the location advantage. Therefore, the UK financial services do not face any threats in the long-term.

One of the major threats perceived is to the baking segment. Wholesale banking handles large transactions between domestic and international financial institutions and customers such as asset managers, pension funds, and other institutional customers. London based banks network with financial institutions across the world. ‘Passporting’ banking services is a single banking license and allows EU banks to operate anywhere in the EU. UK banks are preferred by 46% of EU funds to raise capital, and 112 EU firms are listed on the London Stock Exchange. About 35% of financial activities and 76% of EU foreign exchange and trading and interest rate derivatives are conducted through UK banks (Magnus et al., 2016). Table 3 gives details of the UK banking system as of 2016.

Table 3. UK banking system (Magnus et al., 2016).

If passporting is not allowed, the researcher points out that post-Brexit if UK banks wish to open branches in EU nations, the cost of transactions will increase by 8% and by 10% if EU banks open branches in the UK.

Models of Economic Relations between the UK, EU-27 and EEA, Post-Brexit

The previous chapter examined the extent of exposure to the UK’s financial services sector to EU markets. As seen in Tables 1, 2, and 3, the UK has a sizeable presence in EU markets. The question to be answered is the extent of losses or gains that the UK will incur in case of a hard exit. Two scenario models are presented in Fig 2, which illustrates the high-access, or open access without restrictions, and low-access restricted access

From Figure 2, the high-access scenario places reduced losses of 4 bn GBP with a reduction in jobs, taxes and the gross value added (GVA). The low-access yields high losses of 58 bn GBP or 20% of revenues are placed at risk. Dhingra et al. (2016) made optimistic and pessimistic projections of trade and fiscal benefits and losses. The authors indicate an optimistic increase in benefits of 0.09% and a pessimistic increase of 0.31% pa, in UK financial services, post-Brexit.

Theoretical Opportunities of Brexit

Discussions from the previous sections indicate that the UK financial services will face losses of 58bn in a pessimistic scenario, an unacceptable level of losses. However, several opportunities are available, and these are indicated in Fig 4, along with the advantages and disadvantages.

From Fig 4, UK can take one of several routes, and these are the EEA Norway model, the Swiss model or bilateral agreement system, the EFTA, and recourse to WTO. The availability of these routes depends on the terms of negotiation with the EU governing body.

Conclusions

The paper analyzed several parameters and segments for UK financial services and the role they play in the EU system. Statistics for the trade of financial services with EU, asset management services, FDI, and the share of the UK banking system, indicates that the UK has substantial exposure in EU markets. EU financial services have a high level of dependency on the UK. It would not easy for the EU to break these financial networks. However, there is a threat of an 8-10% increase in taxes due to the loss of passporting. It is not clear if the EU government would waive these charges. High and low access scenarios indicate that UK financial services would lose between 4-58 bn GBP, while optimistic and pessimistic scenarios indicate marginal gains. The paper also examined ways in which opportunities can be gained from Brexit. Therefore, the UK must negotiate with the EU for favorable terms.

References

Baier, S. L., Bergstrand, J. H., & Feng, M. (2014). Economic integration agreements and the margins of international trade. Journal of International Economics, 93(2), 339-350.

Berend, I. T. (2017). The contemporary crisis of the European Union: Prospects for the future. New York, NY: Routledge.

Cuadrado-Roura, J. R., & Parellada, M. (2013). Regional convergence in the European Union: Facts, prospects and policies. London, UK: Springer Science & Business Media.

Dhingra, S., Ottaviano, G., Sampson, T., & Van Reenen, J. (2016). The impact of Brexit on foreign investment in the UK. Web.

Gareis, S., Hauser, G. & Kernic, F. (2013). The European Union – a global actor? Leverkusen, Germany: Barbara Budrich Publishers.

Grinin, L., Korotayev, A. & Tausch, A. (2016). Economic cycles, crises, and the global periphery. New York, NY: Springer International Publishing.

Hobolt, S. B. (2016). The Brexit vote: A divided nation, a divided continent. Journal of European Public Policy, 23(9), 1259–1277.

Kassim, H., Peterson, J., Bauer, M.W., Connolly, S., Dehousse, R., Hooghe, L., & Thompson, A. (2013). The European Commission of the twenty first century. Oxford, UK: Oxford University Press.

Kekic, L. (2017). Foreign direct investment will remain robust post-Brexit [Blog Post]. Web.

Le Gales, P., & King, D. (2017). Reconfiguring European states in crisis. Corby, UK: Oxford University Press.

Magnus, M., Margerit, A., & Mesnard, B. (2016). Brexit: the United-Kingdom and EU financial services. Web.

Novak, S. (2013). The silence of ministers: Consensus and blame avoidance in the Council of the European Union. Journal of Common Market Studies, 51(6), 1091-1107.

Outhwaite, W. (2017). Brexit: Sociological responses. London, UK: Anthem Press.

Pinder, J. & Usherwood, S. (2013). The European Union: A very short introduction (3rd ed.). Oxford, UK: Oxford University Press.

Schaltegger, S., & Wagner, M. (2017). Managing the business case for sustainability: The integration of social, environmental and economic performance. London: UK: Routledge.

Scitovsky, T. (2013). Economic theory and western European integration. London, UK: Routledge. (Original work published 1958).

Tyler, G. (2017). The financial sector’s contribution to the UK economy. Web.

Usherwood, S. & Startin, N. (2013) Euroscepticism as a persistent phenomenon. Journal of Common Market Studies, 51(1), 1-16.

Ward, M. (2017).Statistics on UK-EU trade: Brief paper, Number 7851. Web.

Wyman, O. (2016). The impact of UK’s exit from the EU on the UK based financial services sector. Web.

Introduction

The results of the public vote conducted in the United Kingdom (UK) on 24 June 2016 came as a complete shock to the public around the globe. According to the results, a small majority of British people (51.9 percent) voted in favor of leaving the European Union (EU), which was unexpected by the majority of analysts (Hobolt 1260). The process of disintegration of the EU, or Brexit, became a topic of heated discussion as the long-term implication of the matter was unclear. Throughout the long history of the EU, there had been no precedents of withdrawal from the organization.

While long-term implications are difficult to evaluate, the short-term reaction was felt almost immediately. The markets were quick to react to the event, as the British pound dropped to a 31-year minimum against the US dollar, and the global markets responded negatively with a $2 trillion crash (Hobolt 1260). The British Prime Minister David Cameron resigned, and the Scottish Prime Minister warned that Brexit could mean the end to the UK, as Scotland wanted to stay in the EU (Hobolt 1260).

The social consequences were disastrous as well because the nation was split almost in half by the vote. While the supporters of the disintegration emphasized the importance of shaping internal and external policies for the UK, the opposition highlighted the economic risks associated with isolation and distrust (Matti and Zhou 1131). Even though some of the issues have been resolved, the process of disintegration is still progressing, posing new challenges every day.

Even though Brexit had negative implications for the financial market of the UK, the industry has not lost its leading position in the world. Even though the country can lose up to a quarter of its international financial sector, it will remain the second-largest financial center in the world (Allen). In other words, it is unlikely that the disintegration of the EU can change Britain’s position in terms of the strength of the financial market. However, further research is required to acknowledge the implications of Brexit on the financial markets.

There are numerous studies that aim to explain the reasons for the UK leaving the EU. Experts identify at least seven reasons for the UK to become independent from the EU, which can be narrowed down to three. First, the EU threatens British sovereignty since the European Commission can override national laws in terms of competition policy, agriculture, and copyright, and patent law (Lee).

Second, the EU allows too many immigrants and does not let the UK identify its own policy in terms of immigration laws (Lee). This was the matter of most concern among UK citizens (Lee). Third, the EU limited the economic growth of the UK, and after disintegration, Britain will be able to keep £13 billion every year instead of sending it to the European government (Lee). The list of reasons can be continued; however, it remains unclear why the general vote on Brexit had such a narrow outcome.

The present paper aims at providing an in-depth analysis of reasons for the disintegration of the EU from both historical and comparative viewpoints. The paper will discuss how individual characteristics of the country and its unique historical background influenced the decisions of the citizens. Moreover, the political, economic, and social incentives will be evaluated to obtain a more in-depth understanding of the causes of the EU disintegration. At the same time, the paper provides an analysis of the effects Brexit had on all aspects of UK life with particular attention paid to the financial markets of the country.

There are various motivations for conducting research on Brexit. On the one hand, even though numerous studies discuss the disintegration of the EU, only a few of them focus on the implications for the financial markets. The conclusions made by these studies differ, creating uncertainty around the subject. Therefore, the present research is important because it aims at summarizing the current body of knowledge and addressing the uncertainties in the conclusions of previous studies. On the other hand, there are personal reasons for investigating the matter, as the disintegration of the EU and its implication to the financial sector is a matter of increased interest to the author.

The present paper will discuss and analyze the following matters. First, background information about the Brexit will be provided with particular attention paid to the negotiation about the conditions of the UK “divorcing” the EU. Second, the causes of the disintegration of the EU will be analyzed. Third, the political, economic, and social consequences of the event will be discussed. Fourth, the paper will focus on the financial sector, providing a brief overview of the industry and assessing the changes caused by Brexit. Fifth, strategies for mitigating the consequences will be discussed. Finally, the findings will be summarized, and the conclusions will be drawn.

Background Information: Brexit

Brexit is a word used to identify the process initiated by the UK to withdraw from the EU. The term “Brexit” is a blend of two words, “British” and “exit,” which was invented and widely used by the press. The process began in 2016 after a referendum revealed that 17.4 million citizens of the UK preferred to leave the EU (BBC News, Brexit: All You Need to Know). The formal process ended on January 31, 2020, when the UK officially stopped being a member of the EU (BBC News, Brexit: All You Need to Know). The original deadline was on Mar. 29, 2019; however, it was delayed twice because the UK and the EU failed to reach agreements on vital points of the “divorce bill.”

The first deal between the UK and the EU was created by Theresa May, the Prime Minister of the United Kingdom and Leader of the Conservative Party. It was communicated to the EU in November 2018, and the sides did not agree on the deal due to the question with the border of Northern Ireland (Reality Check Team). The central problem was that all parties wanted to escape from returning to “hard borders” between the Republic of Ireland and Northern Ireland (Reality Check Team).

In order to address the problem, Boris Johnson, the current Prime Minister of the UK, offered a new deal concerning customs between the UK and the EU (BBC News, Brexit: All You Need to Know). The new agreement is presented in Figure 1. According to the new deal, some goods entering Northern Ireland from Great Britain will go through checks and will have to pay EU import taxes. However, these tariffs will be refunded if the products stay inside Northern Ireland.

Apart from the negotiations about the border of Northern Ireland, the rest of the deal remained unchanged and included the following agreements. First, the UK will leave the EU customs union, which implies that it will be able to initiate new deals with other countries (Reality Check Team). Second, the UK citizens in the EU will retain their rights and residency, and anyone who lives in the EU for five years will be allowed to file for permanent residency (Reality Check Team).

Third, the UK will need to pay to almost £30 billion to the EU to settle the financial disputes between the parties (Reality Check Team). Fourth, after January 31, 2020, the parties enter into the transitional period, during which they will agree upon further relationships. (Reality Check Team). The period is expected to last until July 2020; however, it may be extended until 2022 (Reality Check Team). Finally, the parties agreed in a non-binding declaration that they would work towards a free trade agreement and “keep the same high standards on state aid, competition, social and employment standards, the environment, climate change, and relevant tax matters” (Reality Check Team).

During the transition period, the UK will continue to obey the rules of the EU; however, there will be some felt changes. The UK will no longer participate in the political life of the EU, which implies that members of the European Parliament from the UK will lose their seats, and Prime Minister Boris Johnson will need to be invited to the EU summits (Edgington). The UK will also issue new passports, close the Brexit department, and issue Brexit coins (Edgington). Among legal changes, Germany will not extradite its citizens to the UK if they are suspected of crimes (Edgington). The other changes will come after the transition period.

Until July 2020, some of the matters will remain unchanged until the UK, and the EU decide upon their future relationship. Driving licenses, pet passports, and European Health Insurance Card will continue to be valid during the transition period (Edgington). UK citizens will be allowed to queue in the areas for the EU residents during passport control (Edgington). UK citizens will be eligible for the EU pensions, and trade between the parties will continue without changes until the beginning of 2021.

After the transition period, the parties will need to agree on several matters. For instance, future relationships in terms of law enforcement, data sharing, and security, together with aviation standards and safety, will need to be negotiated (BBC News, Brexit: All You Need to Know). At the same time, the UK and the EU will need to discuss the distribution of natural resources, such as fish, electricity, and gas (BBC News, Brexit: All You Need to Know). Medical services and cooperation is also a crucial matter for future negotiations (BBC News, Brexit: All You Need to Know). However, the central question is the continuation of trade relationships, which will have a considerable impact on the global economy. The timeline for future actions, according to Boris Johnson’s plan is presented in Figure 2.

In summary, the future of the disintegration of the EU is associated with a high degree of uncertainty. Brexit is to be treated as a precedent, which has the potential to be referenced in the future if other member-states decide to withdraw from the EU. From the current point in time, one can be confident that the disintegration will end by 2022. However, the final date will depend upon various factors. Current events, such as pandemic of COVID-19 and Russia-Saudi Arabia oil price war, may influence the deadlines stated by Prime Minister Boris Johnson.

Causes of the Disintegration

Immigration

In 2015, a year before the ominous referendum, Simon Tilford stated that if Brexit were supposed to happen, it would be because of immigration problems (64). Between 2004 and 2014, immigration in some areas of Britain increased by 460%, which caused an adverse reaction from the UK citizens (Cavendish). The central problem with immigration is that it is low skilled, which implies that immigrants will occupy low-skilled vacancies. Immigrant labor is known to be cheap, which means that low-skilled citizens of the UK will need to agree to low wages or surrender their jobs to people from other countries.

At the same time, immigration negatively affected the housing problem in the UK, making the rents go up considerably due to increased demand (Cavendish). Finally, the National Health Service (NHS) is also overwhelmed with an increased number of patients queueing for health care due to migration (Tilford 65). The citizens of Boston, Lincolnshire, who had the highest Leave vote of 76%, complain that “falling wages and rising rents, but also rising crime, altercations between different nationalities who didn’t speak English, and lengthening waits to see the doctor” (Cavendish). Therefore, there is little doubt in the fact that there is a correlation between immigration policies of the EU and Brexit.

However, hostility towards immigration was not caused solely by EU policies. Tilford reports that the UK government contributed to it by focusing the attention of the public on the matter (65). Net immigration in the UK was comparable to that in Germany or France (Tilford 64). However, it is the UK who decided to withdraw from the Union and not any other countries. The fact is that historically, British politicians were unable to address the rising problems of healthcare, housing, and economic recession (Tilford 65).

Instead of dealing with the issues, the UK government decided to blame all the problems on the EU and migration, causing hostility and intolerance (Tilford 65). Therefore, it is not immigration itself, but increased propaganda against it and unwillingness to address the problems convinced the people to vote Leave.

Economic Incentives

Apart from dissatisfaction from low wages and increased cost of healthcare due to immigration, there are other economic incentives that made the UK citizens support disintegration. Due to the development of the British Empire, historically, Britain is known to have more trade relationships outside the EU than inside (Dennison and Carl 6). Therefore, it did not enjoy the same amount of economic benefits that other member-states did. However, the UK was still obliged to pay to the European government £13 billion every year (Lee). At the same time, the EU had a significant influence on the economy of the UK since it could regulate its trading agreements (Lee). Therefore, the UK citizens decided to leave the EU in the promise of increased economic growth after a short recession period.

Sovereignty

However, the central reason for people voting Leave was not immigration or economic incentives. According to survey data demonstrated in Figure 3, the UK citizens wanted to leave the EU to preserve sovereignty. The people of the UK believed that all powers should be returned to the UK government because it was the central principle of democracy that all decisions are made by the elected representatives.

The EU has enacted several burdensome regulations on its member-states that could be changed on the UK level. Some of them, like children under eight, cannot blow up balloons, sound ludicrous, while others, like better-designed cab windows, cannot be introduced because France is against it, are outrageous (Lee). At the same time, the EU entrenches corporate interests and prevents radical reforms (Lee). In summary, the UK voted that political power should remain inside the country.

Analysis

While the reasons provided above give a general idea of why people voted Leave, there is no certainty why they happened to be the majority. Everyone was aware of the negative impact associated with the disintegration of the EU, including a considerable settlement payment of over £30 billion, restructuring of the trade relationships, lack of free movement around Europe, and problems with law enforcement, data sharing, and security. The UK citizens decided that they agree to these drawbacks in exchange for political and economic freedom. However, the majority was so small that further investigation is required.

One of the approaches towards answering the question is by analyzing the demographic characteristics of the Leave voters. Figure 4 demonstrates the results of a survey conducted by Lord Ashcroft Polls and published the day after the referendum. The survey indicates that the age of the voters and their social grade had a significant impact on how they voted. For more information about social grades in the UK, refer to Table 1.

According to Figure 4, age was a significant predictor for the decision in the during the Brexit vote. The younger generation were the supporters of remaining in the EU, while the older generation supported the disintegration of the union. This implies that the older voters outnumbered voters younger than 45. Assuming that voter turnout was similar among all age groups, the central reason for the disintegration of the EU is the growing older population of the UK. Older people are more susceptible to populistic slogans, which made them vote Leave. At the same time, the older generation is less adaptive to changes and new trends.

Therefore, people above 45 were more likely to vote for political and social isolation, while the younger generation supported globalization. In summary, the central reason for the UK leaving the EU is the aging population and its desire to abstain from accepting political, cultural, and religious diversity associated with globalization. After creating several regression models using the demographical data, Matti and Zhou came to a similar conclusion, as the results of their study confirmed that desire to free from EU regulations and membership fees was not statistically significant (1133-1134). Therefore, even though the results of the presented analysis are not consistent with the majority of studies, it has support in current scholarly literature.

Consequences of the Disintegration

The real consequences of the disintegration of the EU are difficult to measure for several reasons. The central issue is that the process has not yet finished, and the final implications will be felt only in 2021, according to Johnson’s timeline (see Figure 2). During the transition period, the majority of policies implemented by the EU are still active in the UK. However, certain preliminary conclusions can be drawn from the analysis of expert opinions, financial data, and emerging policies.

Political Implications

There are several possible political implications for both the UK and the EU, which must be acknowledged. First, according to Rashica, there is a possibility that the UK may dissolve as not all its member-states agree with the decision to leave the EU (31). Immediately after the results of the vote were announced, Scotland announced that it was ready to leave the UK and stay with the EU (Hobolt 1259). Both the Northern Ireland and Scotland voted Stay with 56 and 62 percent, respectively (Hobolt 1273). Second, Brexit made it clear that the power of nationalistic slogans should not be underestimated, and the influence of the EU should not be overstated (Rashica 31)

Third, with the withdrawal of the UK, the EU’s ability to be a global actor is questioned (Rashica 31). Finally, since Brexit created a precedent of leaving the EU, other member-states may also decide to withdraw from the international organization. Currently, the EU is under constant pressure as a consequence of Brexit and the situation with COVID-19 (Alesina and Giavazzi). In summary, both the UK and the EU need to come up with measures to protect the unions from external and internal disturbances.

Social Implications

The Brexit vote led to the emergence of nationalism as the central idea in British society. According to Corbett, the UK experienced “a significant rise in racist and xenophobic attacks in the country, including several racially motivated murders that have been attributed to Brexit” (Corbett 19). In fact, Brexit is associated with a 42% increase in hate crimes against racial minorities, which is a significant social implication (Corbett 19). At the same time, Brexit gave rise to populistic ideas that after the breakup with the EU, the UK will return to its golden era (Corbett 21). Therefore, UK society seems confused with dangerous tendencies in the air.

Brexit vote has split the country into two almost equal halves, which may lead to social tensions inside the society (Hobolt 1272). Moreover, people from the EU leaving in the UK felt significant pressure and betrayal (Mazzilli and King 514-516). For Europeans living in Britain, it was clear that the Brexit vote was not against the EU as an organization, but against the immigrants from the EU and other locations (Mazzilli and King 517). Therefore, Brexit shattered social connections both inside and outside the UK.

Economic Implications

Even though political and social implications are important, the central aim of the present paper is to describe the economic impact of Brexit. Short-term economic consequences for the UK are well-studied and widely discussed in scholarly and professional literature. The short-term implications are connected with increased currency volatility and reaction of financial markets (Hobolt 1259). At the same time, the economy will be affected by the need to pay the “divorce bill” to the EU. However, the long-term implications of the referendum are yet to be seen, as the parties are only in the middle of the disintegration process.

In order to thoroughly analyze the possible consequences of Brexit, it is vital to evaluate all the likely scenarios of future events. Rand Corporation describes eight possible scenarios, which are subdivided into “hard Brexit” and “soft Brexit.” The hard Brexit options are the following (RAND Corporation):

1. The UK trade is governed by the World Trade Organization (WTO);
2. The UK and the EU ratify a free trade agreement (FTA);
3. An FTA between the UK, the US, and the EU is created;
4. The UK and the US create a two-sided FTA without the EU;
5. The transition period tariffs do not change; however, other barriers come to the effect.

The soft Brexit options are the following (RAND Corporation):

1. Membership in the European Economic Area;
2. The Swiss model;
3. A customs union.

The analysis utilizing the game theory reveals that in the majority of most-plausible scenarios, the economic outcomes will be damaging (RAND Corporation). The “no-deal” option in which the UK trade is governed by WTO will be disadvantageous for all the major stakeholders, which are the UK, the US, and the EU (RAND Corporation). Seven other scenarios will also lead to economic losses; however, the effect will be less significant (RAND Corporation). The most beneficial scenario is the creation of an FTA between three countries, as the UK would get preferential access to markets in the UK and the US (RAND Corporation).

Such an arrangement is associated with a 1.7% improvement in GDP growth in ten years in comparison with the world without Brexit (RAND Corporation). However, currently, the scenario is unlikely, and the best-case scenario is the creation of an FTA between the UK and the EU (RAND Corporation). In this case, the GDP will grow by 1% less in ten years in comparison with the world without Brexit (RAND Corporation). However, the actual consequences of Brexit will be measured ten years after the process is finished.

Implications on the Financial Markets

Financial Sector Overview

The size of the global financial sector is difficult to evaluate, as the World Bank collects data only from 189 countries and estimates data from the rest. The sector consists of banks, investment firms, and insurance companies, which are vital for the healthy functioning of any economy. The investment industry is expected to grow to $26.5 trillion by 2022 (Ross). The global market capitalization of the banking sector reached $90 trillion in 2019 and expected to grow further (Ross). The insurance sector also continues its rapid growth, especially in Asia-Pacific, which accounts for more than 40% of global premiums, which reached $5.2 trillion in 2018. Even though the performance of the financial markets before 2020 was fair, the sector was hit considerably by the situation with the Coronavirus.

Global financial markets are experiencing a significant recession due to the Coronavirus outbreak. According to the recently published report of Russell Investments, “the COVID-19 virus has stalled the mini-cycle rebound and made a global recession likely” (2). Containment measures around the globe have a significant impact on economic growth. Currently, the Eurozone, Japan, South Korea, and the US shut down economic activity due to the emergence of strict containment measures in these countries (Russel Investments 3). The asset performance experienced a considerable recession between peak activity on February 19 and March 12, 2020 (Russel Investments 3). Figure 5 demonstrates the effect of Coronavirus on asset performance.

In the US implemented considerable virus containment measures, which implies that the GDP growth will be negative during Q1 and Q2. The S&P 500 Index has declined 29% from its 2020 peak by March 19% and can drop further down as the US has become a leader in the number registered cases of COVID-19 (Russel Investments 6). The central risk is that a significant drop in cash flows will cause highly indebted companies to default, triggering a credit crunch in the broader economy (Russel Investments 6). However, when the virus disruptions have cleared, the US government is expected to introduce the most robust stimulus measures in more than a decade to start a rebound (Russel Investments 6).

In Europe, the situation is also challenging due to a growing number of deaths from COVID-19. The Eurozone stock index was hit the hardest, experiencing more than a 35% recession. The rules around the Eurozone and the absence of monetary policy firepower possessed by the European Central Bank (ECB) make it challenging to implement stimulus measures (Russel Investments 6). Therefore, Europe is likely to experience the most considerable recession, which will make the markets more attractive after the situation with the virus is settled. Consequently, it is highly probable that the Eurozone will become the best performer during the recovery stage.

The UK economy has several advantages in comparison with European countries. First, the Bank of England can implement policies relatively fast in contrast with ECB. As a result, by March 19, 2020, the interest rates in the UK were decreased by 65bps, which will facilitate the growth of the economy (Russel Investments 7). Second, the UK government can implement fiscal easing quickly, which allowed the UK to announce over 1% of GDP in stimulus measures (Russel Investments 7). However, the FTSE 100 Index was hit considerably as a result of the COVID-19 situation, Brexit, and the Russia-Saudi Arabia oil price war (Russel Investments 7). However, when the situation with the virus has cleared, the UK financial markets are also ready for a quick rebound.

The Effect of Brexit

The long-term effect of Brexit on the financial markets is expected to be substantial as the stakeholders will need to rearrange partnerships to fit the new model of cooperation between the UK and the EU that will come after the transaction period. The disintegration of the EU has already affected the UK financial market more than its European counterparts. British financial sector represents 12% of the UK’s GDP, with more than 2.2 employees (BBVA).

According to Medleva, since 2016, FTSE 100 index “has only gained about 20 percent, while the German DAX 30 and the French CAC 40 have each risen by around 40 percent.” At the same time, the British pound is volatile, demonstrating that it has not recovered from the 2016 election. Figure 6 illustrates the sterling trade-weighted index since 2013. According to the chart, the index has lost more than 15 points since 2016.

After the transaction period, the financial sector in the UK will experience tremendous changes. Currently, the banking sector of the UK is regulated by the Fourth Capital Requirements Directive (CRD) and the Second Capital Requirements Regulation (CRR) (Hohlmeier and Fahrholz 5). These regulations allow the UK banks to offer services to any organization inside the EU and open branches in any members-states without separate approval.

Brexit will make these regulations no longer applicable to the UK banks, which implies the complications in operations will emerge. In particular, after the transaction period, the banks will need to relocate all EU27 business to an existing or a newly established EU subsidiary, which is associated with additional costs (Hohlmeier and Fahrholz 5). However, the matter can be revised if the UK arrives at a comprehensive agreement about the banking sector with the EU.

The insurance market in the UK will also be affected considerably due to changes in policies. Currently, the industry in the UK, the industry is regulated by the rules of the Solvency II Directive (Hohlmeier and Fahrholz 6). The regulation allows firms to offer services across borders, which facilitates the development of UK insurance companies. However, Brexit will make provision of such services impossible, which will make the companies cease selling insurance plans outside the UK and terminate all the current deals with clients in the EU. Therefore, the impact of Brexit on the insurance sector will also be negative.

Due to Brexit, investments in UK-based companies becomes a considerable risk in the majority of industries. The automobile sector will suffer considerably since 58% of automotive industry products are exported to the EU, and it is highly dependent on skilled talents from the EU (Medleva). The airline companies will need to rethink their European routes, which will negatively affect the sector (Medleva). The pharmaceutical companies and the UK energy sector will also experience a significant decline (Medleva). A drop in the industries mentioned above can cause negative growth in the financial markets in the UK, as the country will become less attractive in terms of investment.

However, the EU will also feel the negative impact of the coming changes. According to Deutsche Börse Group, “the UK financial market currently acts as a wholesale hub for the EU and accounts for up to 80 percent of EU activity in financial market segments” (2). Therefore, after the reorganization, the UK will lose considerable part revenue from financial activities when the UK withdraws from the union. At the same time, the EU insurance companies become subject to UK supervision, as they will no longer be subject to home-country authorization and control, according to Solvency II Directive (Hohlmeier and Fahrholz 6). At present, it is unclear what party will experience more significant problems than the other.

When discussing implications for the financial markets, it is also vital to understand the effect on the US-based companies. As was mentioned in the previous sections, the US can become one of the central stakeholders in the disintegration of the EU, as it can improve its relationships with the UK. Therefore, the US will be affected by Brexit, both positively and negatively. In particular, the US may need to resize investment commitments in the region to adapt to the new reality (Deloitte).

The US businesses in the financial sector will need to evaluate the costs of erecting and running business separately in the UK and the EU (Deloitte). Additionally, US-based banks with meaningful revenues from the UK and the EU will experience a negative impact on Brexit (Deloitte). However, it is possible that the regulatory standards in the UK will become less stringent, as London will try to protect its status as one of the leading financial centers (Deloitte).

Therefore, the US financial firms will need to monitor the regulatory policies carefully to catch the opportunity of beneficial investments. The fact that the UK government and the Bank of England are more flexible than their counterparts in the EU will also make the UK financial market more compelling for the US firms (Russel Investments 7). All the implications for the US financial sector can also be applied to the financial sectors of other countries.

In summary, it is impossible to make adequate long-term predictions about how the Brexit will affect global financial markets due to a high degree of uncertainty around future relationships between the UK and the EU. Efficient future relations between the UK and the EU are desirable for both parties. However, the regulatory framework will also need to consider the desire of both parties to “remain in competition with the US and Asia on an equal footing” (Deutsche Börse Group 7). Currently, it is clear that the short-term impact of Brexit on global financial markets will be negative, as all parties will need to revise the current relationships.

The situation will improve after a recession; however, the degree to which the financial markets will rebound is unclear. Current situation with COVID-19 and Russia – Saudi Arabia price war adds to the uncertainty. Therefore, companies in the financial sector need to monitor the situation about emerging policies to adapt to the coming changes as quickly as possible.

Mitigating the Consequences

Current Activities

Currently, the financial sector is actively preparing to all possible scenarios of the Brexit deal. Unlike the crisis of 2008, the financial sector has time to prepare for the worst-case scenario, which will help to mitigate the consequences of the disintegration of the EU (BBVA). TheCityUK Chairman states that the financial sector of the country depends on factors that do not depend upon the integration with the EU, which are “the time zone, legal framework, a favorable climate for investment and a society where talented and hard-working people can be successful” (BBVA). Therefore, financial companies inside the UK started creating Brexit transition teams to develop strategies for all the eight most possible scenarios previously mentioned in the present paper.

Similar teams are created in European organizations. For instance, Deutsche Börse Group created a Brexit Readiness Project that aims at staying in contact with relevant authorities in the UK to make sure that all affected entities can offer their infrastructures and services post-Brexit in the UK (Deutsche Börse Group 8). In brief, currently, companies can only make contingency plans to prepare for all possible outcomes. The focus should be made on long-term strategies, as the short-term outcomes depend on the politicians.

Instead of addressing specifically the financial sector, mitigation measures can target the economy at large. For instance, the bank of England implemented several immediate measures to help the economy survive the shock after Brexit vote (BBC News, Mark Carney Says). For instance, a 0.25% cut in interest rates in August 2016 pumped millions of pounds into the economy (BBC News, Mark Carney Says). The Bank of England has also prepared additional measures to mitigate the possible consequences of Brexit (BBC News, Mark Carney Says). Together with fiscal easing from the UK government, the UK financial sector has a chance to transition smoothly to the post-Brexit period.

In summary, current activities aimed at mitigating the consequences of Brexit are limited because the process of disintegration of the EU is not yet finished. During the transaction period, the majority of regulations are still in place in the UK. The shock will come after the transaction period is over; therefore, the financial markets focus on preparing all types of possible Brexit scenarios. However, financial firms need to be aware that COVID-19 pandemic will leave the UK government, the Bank of England, ECB, and the European government with limited firepower.

Therefore, every firm needs to develop their own measures to mitigate the possible effects of Brexit. These measures should prepare the company for an inevitable recession after the process is over. At the same time, they should aim to create long-term strategic plans that utilize the strengths of the financial sectors.

Personal Proposals

Authorities need to understand the strengths and weaknesses of the financial sectors in the UK and the EU and use them while preparing Brexit mitigation measures. For instance, it is common knowledge that British fintech firms are among the strongest in the world. According to BBVA, “One thing experts recommend is strengthening fintech firms, where the U.K. is already in a good position.

British fintech firms have more employees than Singapore, Hong Kong, and Australia combined … and six of the 31 fintech firms worth more than $1 billion are British.” This implies that strengthening fintech firms can help to cushion the financial sector after Brexit. Large firms providing financial services may think of investing in fintech and develop their own projects to stay competitive in comparison with their counterparts from other countries.

Financial companies should also make research and development (R&D) a top priority. Mitigation of immediate problems may not be the correct strategy if it is done by sacrificing R&D. Investments in such technologies as blockchain, the Internet of Things, cognitive analytics, and big data may win companies competitive advantages and improve the performance of financial firms in the long run. However, while the EU will have problems investing in cutting-edge technology, UK firms may experience considerable complications due to the absence of talents from EU27.

One of the central issues for the UK financial firms after the disintegration of the EU will be the lack of access to talents from the EU for effective leadership and R&D. Most companies will experience a shortage of skilled workers, which may lead to a significant decline in the UK economy and the financial sector in particular. During the period between 1995 and 2011, the European immigrants have contributed more than £4 billion to the British government (BBVA).

Without skilled workers, the development of cutting edge technology in the financial sector will be impossible. Therefore, the UK government needs to start to implement measures to address this problem at the highest level. In particular, the UK government needs to invest in higher education and put a specific emphasis on digital skills and math. Even though the effect of such investments will not be felt immediately, the intervention is crucial for helping the financial sector in the long run.

Financial firms should also start developing individual talent raising programs. The companies may consider two directions in this endeavor. First, the firms should develop and implement talent management programs that will help to retain current talents and create new ones from the employees. If a company is dedicated to an effective talent management strategy that will ensure employees’ opportunity to develop professionally, it can attract the best talent.

Second, the companies may consider offering scholarships and future employment opportunities to prospective students from UK schools and higher education institutions. Such programs will attract young talents that will be loyal to the companies, which will improve talent retention rates. Together with the government, the firms will be able to address the problem of the lack of talent.

The companies in the financial sector may also choose to engage in corporate political activity (CPA) to influence Brexit negotiations. The companies can identify the most advantageous scenario for the financial sector and invest in promoting the idea to ensure positive outcomes of disintegration with the EU. All the companies should make it clear to the government that “hard Brexit” options are associated with increased vulnerability of the financial sector, which ensures the economic stability of the UK. Since the current government is weakened by COVID-19 pandemic and recent news about Boris Johnson being infected with Coronavirus (Dewan), the present moment may be the correct time to start aggressive CPA campaigns to push for “soft Brexit” solutions.

Conclusion

Brexit is a unique event that will affect the political, economic, and social spheres of people’s lives both in the UK and the EU. Three and a half years after the referendum of 2016, the initial shock has faded, and the hopes of reversing the process faded. The disintegration of the EU started as a result of failure to address the problems of NHS, housing, and low-skilled employment. The nationalistic slogans made the older population believe that the reason for all the issues in the UK was the immigrants. As a result, the older generation voted Leave, and, due to the problem of the aging population, a small majority of UK citizens voted in favor of leaving the EU.

The general election put the existence of both the UK and the EU into questioned. Society is driven by xenophobic and racist slogans, which signifies a rise in nationalism in the country. Moreover, the economy of both parties experienced a significant recession. The financial sector also felt the negative consequences of Brexit, which implies that mitigation activities are to be employed to ensure a smooth transition to the post-Brexit period. In order to address the problems associated with the disintegration of the EU, the financial firms need to create contingency plans for any scenario and focus on long-term development by investing in talent management and R&D.

While the COVID-19 pandemic is a disastrous event that has negatively impacted economies worldwide, the political and social changes in the world may influence politicians to change their discourse in terms of Brexit. During the post-pandemic period, nations will need to unite to fight its devastating consequences, which may incline politicians to soften their tone and support “soft Brexit.” Such an outcome will help the financial sector to overcome the consequences of Brexit with minimal damage.

Works Cited

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Figures

Tables

Table 1. British Social Grades.

The United Kingdom (UK) is the leading actor and the main economic loser of Brexit. Brexit has slowed the UK’s economic growth and may reduce it by 6.7 percent during the next 15 years period (Hamza, 2021). This deceleration is the result of worsening trade and employment circumstances in the UK. However, there are other countries that have been heavily affected by the process. Most of them are united within the European Union (EU) political and economic bloc. Germany is the EU’s biggest economy and the UK’s second-largest trading partner, while the UK moved to fifth place in the list of Germany’s biggest trade partners (Bartkowiak & Ratajczak, 2019). Therefore, Germany was chosen as a country to measure the external impacts of Brexit.

From the economic perspective, there are three main domains to measure Brexit’s impact: the movement of the workforce, the trade of goods and services, and the movement of capital. There was a steady decline of German exports to the UK; those were decreasing at the average rate of -2.67 percent between 2015 and 2018, resulting in an almost 10-billion-euro difference (Bartkowiak & Ratajczak, 2019). The automotive industry of Germany was hit hardest as the result of this decline. At the same time, despite Brexit, the volume of services exported from Germany to the UK did not decrease. Regarding the movement of capital, there is a declining trend in both the UK and Germany after 2015, indicating the correlation with Brexit announcement and subsequent uncertainty in the economy (Bartkowiak & Ratajczak, 2019). Finally, regarding the movement of labor, despite the uncertainty of the Brexit period, the number of Germans working in the UK only increased. However, this trend will be reversed with new restrictions imposed by both sides starting from 2021; new specific requirements on language and income were designed and implemented (Gov.uk, 2021).

References

Bartkowiak, M., & Ratajczak, A. (2019). Brexit and the effects on Germany from an economic and social perspective. Przegląd Politologiczny, 3, 41-58. Web.

The UK’s points-based immigration system: information for EU citizens. (2021). Web.

Hamza, W.A. (2021). To which extent did Brexit impact the British economy: Analysis of the British economy pre and post Brexit. IOSR Journal of Business and Management, 23(6), 30-36. Web.

The United Kingdom’s decision to leave the European Union was taken several years ago after the referendum. However, disputes between supporters and opponents of this decision continue, since its consequences for the country are still uncertain and can be evaluated years after Brexit. However, the opposition to Brexit is a more appropriate position as the United Kingdom’s exit from the EU could damage its trade, investment, and cause labor shortages.

Supporters of Brexit argue that it will benefit the UK by reducing immigrant inflows, cutting costs due to canceling contributions to the budget of the EU and strengthening state sovereignty. The first advantage is justified by the fact that, at the moment, residents of the EU countries have the right to work in the UK, which increases the number of migrants from Eastern Europe (The Week Staff, 2020). Consequently, abolishing this right will reduce the flow of migrants and provide jobs for residents. A second advantage Brexit proponents see is the fact that Britain will no longer need to contribute to the EU’s initiatives; therefore, this money will remain in the state budget. At the same time, the UK will also have greater freedom in making decisions without coordination with other members of the EU, which will strengthen its sovereignty. However, all these arguments have weaknesses that can be challenged.

Firstly, a decrease in the number of migrants can lead to a labor shortage and change working conditions for residents of the UK. Most often, migrants are employed in a job with lower wages or working conditions; therefore, if they leave the country, the UK may experience a shortage of workers (The Week Staff, 2020). Moreover, even for high-paying jobs, less competition will lead employers to raise wages, and, hence, the prices of their products, to restore the balance. Brexit will also reduce the investment of foreign companies in the UK and can lead to the relocation of their headquarters to the EU to leave the opportunity for free trade and business activity (The Week Staff, 2020). Consequently, even if the UK keeps part of the budget without paying the EU, it will lose profit due to the reduction in companies’ business activity.

Moreover, Brexit could also mean the end of free trade between countries, which will create high trade tariffs and taxes. Thus, Britain can reduce the volume of trade, and the citizens of the country can lose some of the EU’s goods (“Arguments against, ” 2017). Finally, Brexit does not mean that the UK will be able to make any decisions it wants, since, in any case, they must be coordinated with the norms of international law. Consequently, the strengthening of sovereignty will practically not change the United Kingdom’s political decisions, since, within the EU, it had the same sovereign rights limited by laws.

Therefore, Brexit is a harmful decision for the United Kingdom as it has negative consequences for the country. While Brexit supporters believe the decision contributes to the labor market, economy, and state sovereignty, their arguments do not consider the harmful impact of the change. A decrease in the flow of migrants can cause a shortage of workers and create imbalances in the labor market that will lead to a shift in the economy. The abolition of free movement, business relations, and trade between states will lead to a decline in the country’s business activity. At the same time, the state’s sovereign rights will remain practically unchanged, which will not affect the UK’s policy if it applies the principles of democracy. Hence, opposing Brexit makes more sense than supporting this decision.

References

Arguments against single market membership illustrate a lack of ambition. (2017). The Guardian. Web.

The Week Stuff. (2020). Brexit: What are the pros and cons of leaving the EU?The Week. Web.

Introduction

In 2016, the world was shocked by the news that the UK citizens voted to exit the European Union (EU) by a small margin. After the referendum that took place on June 23, 2016, the UK started the process of withdrawing from the EU, which is commonly known as “Brexit” (Hobolt, 2016). While the referendum favoured leaving the EU, more than 48% of the UK citizens wanted the country to remain in the EU (Hobolt, 2016). One of the primary concerns of the UK citizens, among all others, was the economic consequences of the matter. Indeed, Brexit was expected to negatively affect business relations and Eurozone supply chains, as well as weaken both Euro and the British pound (Ramiro Troitiño et al., 2018).

At the same time, the predictions for the UK automotive industry was not so pessimistic. On the one hand, domestic car sales were expected to slow their growth or even decrease due to the economic slowdown (Bailey & De Propris, 2017). On the other hand, since Sterling lost value as a result of Brexit, exports were expected to rise, which would have positively affected the output of UK-based automobile manufacturers (Bailey & De Propris, 2017). Thus, shortly after the Brexit vote, the forecasts for the UK automotive industry were favourable.

Problem Statement

The COVID-19 pandemic had a negative effect on the UK economy in general and the automotive industry in particular (Hoeft, 2021). The pandemic made it challenging to measure the impact of Brexit on the automotive industry. Thus, there is scarce evidence concerning the impact of Brexit on the automobile market in the UK. The present small-scale research aims at addressing this problem by conducting a quantitative study using the data collected from business students.

Previous Research

Previous research demonstrates that the future of the UK automotive industry is associated with significant uncertainty. Bailey and De Propris (2017) stated that Brexit is expected to have low to no effect on the production of new automobiles in UK-based companies, as the export should rise. At the same time, domestic sales are expected to slow their growth or even decrease due to the economic consequences of Brexit (Bailey & De Propris, 2017). At the same time, tariffs and friction may impact the industry, which can increase the costs of different parts of automobiles and decrease the efficiency of the supply chain in general (de Ruyter, 2018). In 2019, the UK automotive industry lost 9% of its volume due to Brexit (Holweg, 2019). While the opinions of experts on the future of the automotive industry differ, all of them agree that it will highly depend on the Brexit process deals.

As for the impact of Brexit on the UK economy, experts agree that it will be mixed. Brexit will negatively impact the UK economy due to paying off the “divorce bill,” breaking ties with European business partners, and fluctuations in the currency value (Thissen et al., 2019). At the same time, Brexit is forecasted to have a positive impact on the UK economy, as the country will not have to contribute to the EU economy and oblige to its policies (Minford, 2019).

Research Question and Hypothesis

The review of literature revealed that there are few studies that assess the effect of Brexit on the automotive market starting from 2020, after the COVID-19 breakout. Moreover, there are no quantitative studies that compare the effect of Brexit on the UK automotive industry and on the UK economy in general. The present paper aims to address this gap in literature and answer the following research question:

Brexit had a higher negative impact on the UK economy in general in comparison with the impact on the UK automotive industry as perceived by the UK business students.

The purpose of the present research is to compare the effect of Brexit on the UK economy in general and on the UK automotive industry in particular as perceived by the UK business students.

Sampling

UK business students were the target population of this study. The inclusion criteria were being currently enrolled in one of the UK universities and living in the UK for at least seven years. The exclusion criteria were being less than 18 years old, as it would be improbable that the student would be able to evaluate the impact of events that happened more than five years ago. All the questionnaires that had mission answers were excluded from data analysis as well.

Convenience sampling was used for collecting primary. According to Saunders et al. (2019), convenience sampling is associated with recruiting participants that are readily available to the researcher. This sampling method is usually used for qualitative research, as it is a non-probability sampling method. This approach to recruitment of participants is associated with significant bias, as members of the population do not have an equal chance to participate in the study (Saunders et al., 2019). However, this method is cost- and time-effective, which was crucial for completing this pilot research.

Instrument

The instrument for the present study was self-created by the researcher. It has three sections with a total of 11 questions, including three questions on demographics, four questions on the impact of Brexit on the UK economy, and four questions on the impact of Brexit on the UK automotive industry. The demographic items were multiple-choice questions, while the content questions were based on a five-point Likert scale. The validity of the questionnaire was not assessed; therefore, there is no reliable information about the validity of the instrument.

Procedures

A quantitative approach was used to answer the research question. According to Saunders et al. (2019), quantitative approaches are most appropriate for testing a hypothesis or measurement. Quantitative methods are associated with using surveys and statistics to answer a very narrow question. Qualitative methods are used for exploring ideas, feelings, thoughts, and meanings. Since the purpose of the recent paper is to test a hypothesis, a quantitative approach was considered most appropriate for the research.

A cross-sectional design was utilized to answer the research question. The choice of the method was mainly predetermined by the approach and the timeframe allocated for the research. Saunders et al. (2019) state that the most reliable results are produced by experimental studies. However, there was not enough time and resources to conduct a full-scale experimental study. Moreover, it was difficult to design an experimental study that could answer the identified research question. Since cross-sectional studies are usually selected for their time- and resource-efficiency, it was decided to utilize the approach for the pilot study.

The survey was created using Google Forms. The questionnaire was distributed among friends and colleagues of the researcher through social media. The participants were sent a description of the study and an invitation to participate with an attached link to Google forms. A total of 37 questionnaires were distributed, and 31 replies were received. According to Saunders et al. (2019), the sample size is considered appropriate for a pilot study.

Data Analysis and Discussion

The results of the analysis used a sample of 31 participants. The majority of participants (64.5%) were aged between 18 and 25, 32.3% of the participants were aged between 26 and 35, and one participant was aged between 36 and 45. The sample consisted of 54.8% females and 45.2% males. Additionally, the majority of the sample had a part-time job (54.8%), while 22.6% had a full-time job, and 22.6% were unemployed.

Two variables were examined. The first variable was Brexit’s impact on the UK economy, and it was measured as a sum of answers to questions Q4-Q7. The second variable was Brexit’s impact on UK’s automotive industry, and it was measured as a sum of replies to questions Q8-Q11. A paired-sample t-test was used to compare the mean values of two variables, which is appropriate according to Saunders et al. (2019). There are two types of Student’s tests that can be used to compare means. Independent-sample t-tests are used when researchers need to compare means from independent two groups. Paired-sample tests are to compare the means of two variables of the same subject. Commonly, the data for paired-sample t-test is collected from the same subjects at a different point in time to compare if an intervention was successful (Saunders et al., 2019). It was decided to use a paired-sample t-test to compare the means, as the data was collected from the same subjects on two variables.

A paired sample t-test used to compare Brexit’s perceived effect on the UK economy (M = 13.06, SD = 4.52) and Brexit’s perceived effect on the automotive industry (M = 12.9, SD = 4.41) revealed that there was no statistically significant difference between the mean of the variables (t(30) = 0.47, p = 0.687). Since the p-value was above the alpha level of 0.05, the null hypothesis was accepted, and the hypothesis stated in Chapter 2 was rejected. This implies that the perceived impact of Brexit was similar on the UK’s automotive industry and the UK’s economy in general.

The results of the analysis revealed that students perceive the effect of Brexit on the UK’s economy in general, and the UK’s automotive industry was similar. Such results were inconsistent with the forecast provided by Bailey and De Propris (2017). The reason for such inconsistency may lie in the fact that Bailey and De Propris (2017) made their forecast shortly after the Brexit vote. At the time, there was a higher uncertainty about the effect of Brexit on the UK’s automotive industry. As mentioned in the literature review, in 2019, the UK’s automobile market lost 9% of its volume in comparison with the pre-Brexit period (Holweg, 2019). The breaking of ties with the European partners and the effect of the weakened pound may have negatively affected the industry more than it was expected by Bailey and De Propris (2017). Today, students have more information on the effect of Brexit on the UK’s economy. Another reason for such inconsistency may be the result of students’ ignorance about the automotive industry in the UK. Since students may be unaware of the current state of the automotive, it may have affected the validity of the instrument.

Conclusion

While the results revealed that there was no statistically significant difference between the perceived effect of Brexit on the UK’s economy and its effect on the automotive industry, the results cannot be considered reliable. The first limitation of the present study is the sample size. Even though it is adequate for a pilot study, it is not enough to draw reliable conclusions. The second limitation is the instrument, as it was not validated. There is no guarantee that the instrument measured the variables reliably. The final limitation is the target population, as business students may not have enough knowledge in the UK’s automotive industry and base their judgement on the knowledge about the UK’s economy at large. Thus, it is crucial that the results of the present research are interpreted correctly. This research demonstrates that the UK business students saw no difference in the effect of Brexit on the UK’s economy and its effect on the UK’s automotive industry.

Another interpretation of the results of the present research is that the UK business students saw a high dependency between the tendencies in the UK’s automotive market and UK’s economy in general. Therefore, the changes in the UK’s automotive industry can be predicted by the changes in the UK’s economy in general. However, further research is required to confirm this hypothesis.

References

Bailey, D., & De Propris, L. (2017). Brexit and the UK Automotive Industry. National Institute Economic Review, 242(1), R51–R59. Web.

Hobolt, S. B. (2016). The Brexit vote: A divided nation, a divided continent.Journal of European Public Policy, 23(9), 1259–1277. Web.

Hoeft, F. (2021). The case of sales in the automotive industry during the COVID‐19 pandemic. Strategic Change, 30(2), 117-125. Web.

Holweg, M. (2019). Death by a thousand cuts: The strategic outlook for the UK automotive industry beyond Brexit. Web.

Minford, P. (2019). The effects of Brexit on the UK economy. Cardiff Economics Working Papers. Web.

Ramiro Troitiño, D., Kerikmäe, T., & Chochia, A. (2018). Brexit. Springer.

de Ruyter, A. (2018). Brexit and the UK automotive industry: The report launch. Web.

Saunders, M. N. K., Lewis, P., & Thornhill, A. (2019). Research methods for business students. Pearson.

Thissen, M., van Oort, F., McCann, P., Ortega-Argilés, R., & Husby, T. (2020). The implications of Brexit for UK and EU regional competitiveness. Economic Geography, 96(5), 397-421. Web.

Introduction

Since the Brexit, there have been shortages in most parts of the United Kingdom economy ranging from food and other essentials. These shortages have been extended due to lorry-driver shortages who usually transport goods to respective stores. Other factors may have brought the scarcity, but Brexit was the primary catalyst. One can argue that the COVID-19 had a role in the low driver turnout, but the rules set during the Brexit did not favor many foreign drivers. For example, in the case study, the Romanian lorry driver laments that the new regulations affect all drivers, and many prefer the previous rules of engagement. His grievances range from sleeping to working hours, which do not favor drivers. Viorel Alexandru Onu claims that they used to work six weeks in the past and then get a two-week rest, but the current rules require them to rest 45 hours every week (Maciuca 2021, no pagination). One may not feel the pinch as an employer, but taking care of an employer is essential in building a better relationship.

Several bosses have complained about the same, with some stores closing down due to human resource shortages. Some of the jobs were taken by the European people in nursing homes and now cannot be replaced. They are trying to fill the vacancies, which has proved to be difficult, and to some extent, they are training the workers, which has been almost as if it requires time. In addition, business owners feared cancellations in the festive season due to a lack of lorry drivers, with some being forced to shut down due to product shortages. Some affected stores and chains include Tesco, Nando’s, and McDonald’s, which rely on lorries for deliveries (Burn 2021, no pagination). On the bus owners’ sides, they must either raise the wages or provide better working conditions. However, drivers complain that these long working hours can cause severe harm to road users. Viorel agrees that several drivers will welcome the rise in wages, but they can risk accidents due to tiredness and lack of sleep. In the previous rules, they were required to work for 10-12 hours, but shortages led to 15 hours three times a week.

Literature Review

Several pieces of research indicate that Brexit has caused many shortages in the UK. Wise reports that the pharmaceutical sector has reported a more significant need for 30 categories of drugs within the borders (2022, p. 2). The numbers have not been met over time, but the problems have escalated further due to the new rules. The main drug categories affected are antibiotics, anti-inflammatories, antidepressants, and oral contraceptives. However, there is a counterargument claiming that the shortages have been experienced across Europe and that Brexit only magnified the problem in the UK specifically. Further, the deficiencies are complex and multifactorial as the evidence produced does not lead to a conclusive statement. For example, the Hormone Replacement Therapy (HRT) product supply has not been reliable in the past years due to several factors such as the low manufacturing capacity and the disruption of the global chain. However, the transportation sector has always taken the blame as the numbers have been reducing over time (Wise 2022, p. 4). Therefore, despite other factors playing a part, Brexit has in one way magnified the problem.

Immigration has been used to address the labor shortages over time in many countries. In the UK, immigration has increased the labor supply in various fields. Therefore, setting rules that cannot allow Hungarians and Polish to move into the UK creates shortages that the natives cannot fill. Manning argues that work migration policies can be used to address the localized deficiencies in some, if not all, economic sectors. The concept can be applied to the most severe sectors with severe shortages, such as the transportation and health sectors. People depend on this group to get their various supplies that are generally the community’s basic needs (2021, p. 3). However, Davies counters by indicating that immigration cannot be used to address all the employment issues in the economy. For example, an increase in labor supply leads to higher labor demand; therefore, the gap remains the same. Thus, the concept of immigration solving labor shortages is a fallacy as it increases the unemployment rates (2021, p. 28). However, the articles do not provide exclusive and conclusive reports on how the transport sector hugely affected the labor supply.

Since the Brexit, the media and other outlets have reported a disruption in the food supply chain. The House of Commons, leaked government documents, and industry experts warned of the impending dangers and the consequences of the new rules. People typically rely on the media to provide food information in the UK, but they avoid complex debates such as trade and immigration. These topics were ignored majorly due to a lack of a direct connection between the variables as no immediate data indicated food shortages immediately after the UK left the EU. However, there was an 83% decline in marine food exports in the early and mid-2021, which was credited to the shortage of Heavy Goods vehicles (HGV), and petrol (Coleman, Dhaif & Oyebode 2022, p. 7). Therefore, there is a need to discuss the topics left out by the different media and government documents to gain conclusive arguments.

Doctors warned governments about the shortages of National Health Service (NHS) workers publicly as it is a sensitive issue. The UK health leaders have hailed the tremendous work EU counterparts do within the borders. They argued that it would be hard to retain or recruit members once Brexit happens. The England health secretary at the time (2017), Jeremy Hunt, indicated that the NHS staff from the EU countries played a vital role in the normal functioning of the union. The referendum led to solidarity displays as some posted on social media under the hashtag #LoveOurEUStaff to pay their tribute. Some EU-employed workers reconsidered their decision to work in the UK as there were racist concerns too. Even before the referendum, some workers were concerned as some major liver transplant centers were closed due to understaffing. Therefore, to try and tame the situation, initiatives such as reassurance of job security were provided to the foreign workers, especially from the EU. Additionally, to cover the losses, some local staff were meant to overwork for extra overtime payments. However, it did not solve the problem, as some complained of fatigue and lack of sleep (Lacobucci 2018, p. 353). Covering the medical sector shows one of the problems the governments were to deal with after the exit.

Business owners will always do what is best for their firms and their shareholders, including profit-making. With the labor shortages during the Brexit, the Independent Meat Suppliers approached the Ministry of Justice to enquire about the possibility of using the prisoners. They were suggested to release the prisoners under the clause of “Release under Temporary License” (Mantouvalou 2021, p. 1), in which a group was permitted to work. This initiative could target the culprits whose sentences were ending and those considered idle. The owners argued that the step could help reintegrate them into the community towards the end of their prison terms. Additionally, these people were to learn new skills they could use in the outside world, reducing reoffending. Furthermore, the service provided was not accessible as they could be paid and use the capital when they become free or serve their personal needs while in prison. In another argument, most prisoners were idle, and working in prison is considered mandatory hence they could increase the services when needed. However, under the National Minimum Wage Act 1998, the UK government exclude prisoners due to the various proposals. For example, the firms were to pay the prisoners-turn-workers £2 per hour, which is way lower than the minimum wage of £9.60 (Mantouvalou 2021, p. 3). The laws indicate that prisoners working for entities outside prison non-voluntarily should be paid the average minimum wage. Therefore, the government was protecting them from exploitation. The details are given to show one of the effects of Brexit on the economy of the UK and how business owners are trying to replace the labor shortages.

Analysis and Discussion

Key Challenges

Brexit ushered the pound’s decline relative to the US dollar leading to a reduction in profits and a lack of trade. In this situation, trading between the UK and the neighboring countries could reduce as the currency will be weaker, prompting people to use the dollar. The Canadian and American citizens are the most affected group as they would delay their entry into the market as they fear getting losses in the end. Additionally, young and smaller companies are likely to be affected the most as they cannot compete under unfavorable conditions. The result is the urge for the large companies to develop partnerships with the smaller ones, which will result in the sharing of profits. These shares cannot compete with those experienced when the large entities were independent. Uncertainty also led to profit declines as workers considered the UK market an unattractive investment area (Cumming & Zahra 2018, p. 690). Therefore, even though companies were encouraged to employ more workers due to demand, they could not pay them efficiently.

Uncertainty led to employee turnovers and lowered production levels. In situations where the employees were either students or staff that had not attained the complete residence requirements, employers experienced absenteeism. During the early stages of the referendum, the UK universities had over 43,000 staff and 15,000 students (Marginson 2017, p. 7). Considering these employees and potentials were not easily replaced, employers counted their losses each day. In trying to replace them, they needed extra costs, and it was not a guarantee that they would produce the same results as previous employees. It was a gamble that most had to take to keep their businesses afloat; otherwise, they could close down. However, the time between the referendum and the implementation could allow some employers to train the recruits. Again, some workers could have completed their years to attain the full citizenship of their respective countries (Marginson 2017, p. 9). Employers, in many cases, complained of the turnovers to the government to no avail as they believed natives could provide the required services.

Financial muscles were limited to the local banks as many foreign institutions closed after the Brexit. Many banks were not taking the risk of being confined to only internal borrowing as their mother institutions were outside the UK. Moving out of the EU made each nation under the UK have different licenses to access banks in each state. The most significant financial loss was when Bundesbank, a German bank, relocated its banks from London to Frankfurt, which meant less money was in circulation (Feldmann & Morgan 2021, p. 111). Therefore, business owners had few options for their loans hence the lower expansion rates. Moreover, London lost its role as the principal euro trader. Further, the Japanese government moved their banks to non-restricted areas. These constraints made Hitachi, Honda, Nissan, and Toyota owners move their plants to favorable grounds (Feldmann & Morgan 2021, p. 131). Therefore, the financial problems caused by Brexit could not allow many businesses to expand hence stagnation.

Ways to Overcome

The principal solution is reversing the rules, which calls for another referendum. It will involve swinging the voter’s take on the need to amend the new regulations and provide better directions and solutions. However, it is one of the most challenging solutions since one will need to confront the political and social implications of the process. Some will define it as the stage-managing of an operation that will be going against the people’s will. The step will cause political unrest, which is not required during the pandemic. As business owners and managers, there will be the need to mobilize the people to advocate for change to avoid further losses. One will argue that the people that created the problem should be in the front runners to rectify it as they can see the results. Therefore, politicians and other citizens should be educated and given a better solution than Brexit. Providing a way that could not affect production could sway people’s minds on the same hence easier to call for a second referendum (King 2021, p. 35). Either way, business owners need to find the best solution for their businesses.

Business owners should change their mindsets and behaviors by adopting better strategies to counter the problems. To some extent, one may feel like Brexit is an irreversible situation, and people should accept it. However, in a case when it happens, the damage has already been done, and the nations cannot return to the previous status quo ante but need to adapt to the new reality. Therefore, the government and the business owners should try to convince people of the need to adopt new means that could boost the country’s economy in the long run. For example, owners should try and move to replace men with machinery in manual intensive areas. It could be better than living and blaming the changes. It may be a blessing as the country could move to another production stage people could appreciate. However, it could be complicated as the COVID-19 pandemic complicates matters (Korir et al. 2021, no pagination). Therefore, people have double situations, and they need to find a balance and boost their businesses or face closures due to bankruptcy.

To solve all the shortages, the UK should aim at joining other pacts that could allow trade and international interactions. The government should initiate the need to join the European Free Trade Associations (EFTA) and the European Economic Area (EEA). These two associations will allow the free movement of goods, people, and services to selected nations (Mohamed, Parn & Edwards 2017, p. 11). Additionally, each group should advocate for a more robust national sovereignty that will allow the retainment of the indigenous skilled labor. Business managers and owners should also initiate the increment in wages and guarantee overtime opportunities by applying several technological initiatives. These steps will allow future indigenous generations to be assured when within the UK. Furthermore, joining nation unions will allow the importation of knowledge that could help future generations. For example, advanced technology that could reduce manual labor reliance can be used as a marketing tool to the younger generations. The same will apply to business owners who need to advance with the changes (Garmon 22017, p. 32). Leaders should understand that nations need to interact as it promotes unity, leading to expansion and economic growth.

The government should assure the various sectors of their futures and job opportunities to solve uncertainty. For example, Walsh et al. (2022, p. 8) indicate a shortage of nurses in different health centers, which is never a welcoming sign. The Brexit caused employee turnover, which left many stranded as governments never gave assurances of how they will handle the non-skilled or freshly graduated personnel. Given the pandemic, the government saw the need to have enough supply of medical practitioners due to the delicacy of the matter. Given the World Health Organization has predicted approximately 12.9 million health providers will quit their posts, the UK should assure the European workers of their jobs (Marc et al. 2019, p. 11). Through this, the problem could be resolved before escalating further.

Conclusion

There are shortages in the UK due to Brexit. The paper has discussed the various economic sectors: pharmaceutical, labor, food supply, and the use of prisoners to provide cheap labor. Business owners are complaining of the effects of the step, which has led mainly to reducing profits and turnovers. On the other hand, employees, especially truck drivers, complain of lack of sleep and accidents caused by fatigue. In the pharmaceutical sector, there is a reduction of 30 categories of drugs due to the low supply and movement restrictions between borders. Further, business owners advocate for the government to concentrate on serious sectors such as transportation and medicine. In terms of food supply, due to the lack of truck drivers, food cannot be moved between borders. The media and other trusted communication platforms have not talked about the issue showing how vital and backlash they might get. Some private organizations acknowledge the shortages and suggest using prisoners while paying them way below the minimum wage bracket. However, the government does not allow it since it is meant to protect its citizens. One can agree that there has been a shortage in various fields due to Brexit.

Business owners face several challenges as they cope with Brexit but have some ways they can overcome them. For example, their financial muscles are restricted, uncertainty, and the dollar decline. Some banks are moving away from the UK due to various restrictions, reducing the scope several employers can use to get loans to expand their businesses. Banks from Germany and Japan have moved their banks to other suitable locations that do not require specific cards. Further, uncertainty in employees makes employers nervous since there is a high chance of turnovers as there is no assurance of the future. Lastly, the dollar decline is robbing business managers of the power to make further investments. They prefer to use the dollar as it is more robust and hence taking an acquisition to other places, for example, Poland. In resolving the problems, some call for the reversal of the law, changing mindset and behavior, joining pacts, and assuring the employers. Business owners need to convince the population that they should reverse the Brexit by calling for another referendum even though it can be considered irreversible. Further, they should change their mindset and embrace different production methods by embracing technological initiatives in place of manual labor. These changes can be implemented if they join pacts like EFTA and EEA for easy movement across borders. Lastly, governments should assure EU workers at the sites of their respective futures.

Recommendation

Since the problem affects all players (government, business owners, and citizens), it should be a collective responsibility. The government should ensure that the rules do not hinder their initiative of making the country better for each citizen. Through this, they could increase the Gross Domestic Product (GDP), ensuring an increase in foreign exchange. Furthermore, one of its responsibility is to create the best environment for both business owners and the employees. Therefore, business owners should consult the government on the best way to handle their employees. For example, they could encourage the government to increase the minimum wage rate to attract more foreign workers. Finally, employees should comply with all government initiatives and rules to avoid further problems.

Reference List

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Mantouvalou, V., 2021. Working prisoners are trapped in state-mediated structures of exploitation; using them only to fill Brexit labour shortages is a bad idea. British Politics and Policy at LSE.

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