As Britain recovers from the public vote to leave the EU, the impact of that decision is already becoming clear, as is the fact that the cost of the decision would vastly outweigh any benefits.
During the referendum campaign, those voting to leave the EU at times cite India as an example of an emerging economy with which the UK could increase trade. In their eyes, the failure of the EU to finalise a free trade deal with the India was just one of its many failings. But whilst the UK imports many goods from India, what, exactly, it would export to India was left unsaid.
And the implications of the vote to leave are already being felt. In the immediate aftermath, several large banks announced plans to move jobs to other, EU financial centres, such as Frankfurt and Dublin. The UK’s over-reliance on its financial services sector, given the hollowing out of its manufacturing sector, makes this a significant threat to an overly-indebted economy. On the positive side, the UK has enjoyed a spate of investment from Indian firms. While Tata’s purchase of Corus has not gone well, Indian firms have been among the most active investors in the UK, and Indian-owned firms currently employ around 110,000 British workers.
A few years ago, the UK was proud to say that three-quarters of Indian investment in the EU went to the UK, and three-quarters of that to London. Now that figure is down to 50%. Half of Indian investment goes elsewhere in the EU. Indian familiarity with the UK, and with London in particular, made the UK attractive as the gateway to the EU. But growing Indian links with other European countries had already served to lessen the UK’s edge, and that before the referendum.
And herein lies the rub of a protest vote gone wrong. It is increasingly apparent, to commentators at least, that the vote to leave the EU cannot be implemented except at a massive cost — the idea that trade with and investment from countries like India could replace that with Europe is laughable. But at the same time, the immediate political impact of not implementing the people’s verdict is equally high.
Prime Minister David Cameron too seems to realise that. A decision to trigger Article 50, which would launch negotiations leading to a British exit, has been deferred until his successor is in place, sometime in the autumn. Those that campaigned to leave the EU, presumably gambling on a public vote to remain, have also suggested that there should be no rush to leave.
Where this leaves the UK is in a mess. Clearly, a substantial amount of its population feel disenfranchised, the result of a growing metropolitan bubble disassociated from the rest of the country and of too much of its working class population taken as voting fodder by the main opposition Labour Party in particular. Their votes have gradually shifted to the UK Independence Party, which has provided a simple reason — immigration — as the reason for their plight.
Yet if the UK leaves the EU, their situation is likely to worsen. The cost of access to the EU’s single market would be continued immigration, unless the EU can agree some special status for the UK, which in turn is highly unlikely. So either the migration continues, or the UK loses easy access to the world’s wealthiest single market. Alternatively, the chain of events sparked in the UK leads to a broader reconfiguration of the EU as a whole, leading to entirely uncharted territory.
Meanwhile, in London, the UK’s political class has imploded. The prime minister has resigned; those that campaigned to leave have revealed they had no plan on how to do so. The Labour Party has turned on itself.
During the election those leading the “leave” campaign talked of negotiating free trade agreements with countries such as India, unencumbered by the burdens of the EU. Yet the nasty xenophobia that has emerged since the vote points to insularity rather than internationalism.
And the impact of leaving goes beyond economic self-harm. Politically, Scotland would probably seek independence from the UK while retaining membership of the EU. The relationship between Northern Ireland and the Republic of Ireland would come into doubt. Gibraltar’s status would come under threat.
Put together, if the UK leaves the EU — and it is still a choice — the potential damage would be irreversible. The idea that India would look at the UK as a vital partner would seem far-fetched.
Therefore, and as “establishment stitch up” appears more frequently on twitter, what could happen next to prevent it from happening? Possibly a general election, in which various parties stand on a platform of remaining within the EU. Or through some bluster from a new Conservative prime minister — the referendum, after all, is advisory and non-binding, and given that the second-most searched for item on Google the day after the referendum was the question “what is the EU?” the idea that the public were making an informed decision is questionable. And/or a second referendum could take place. Those that are angry already will get angrier still, but the alternatives are worse.
Against this, the UK’s European “partners” in general seem keen to minimise the uncertainty and set up a framework for British withdrawal. Yet the UK cannot be expelled — it has to ask to leave. Until it does so, the status quo remains intact. As one wag put it, its negotiating stance appears to be “give us what we want or we’ll stay”.
So, for now, uncertainty. But as the economy unravels over the summer, let us hope that the country returns to its senses, and that the UK will remain, as before, India’s gateway to Europe.
Gareth Price is senior research fellow on the Asia Programme at Chatham House
The views expressed are personal