Exploring the outcome probabilities of the UK’s split from the EU
Febrile. That’s the word most commonly deployed to describe the state of British politics since the EU referendum of 2016. I recall being on College Green – that patch of lawn opposite the Houses of Parliament where journalists congregate on days of political high drama – on the morning of 24 June 2016. I was waiting to talk to someone when a senior journalist from the Financial Times scurried past, declaring: “The prime minister has just resigned, and it’s only our third story.” Which just about summed it up, really.
And it has felt like that ever since. A failed snap election, rebellions on a scale we have not witnessed in our lifetimes, parties splitting, new parties being created, internal struggles within both parties every bit as ferocious as those between them, resignations, deselections, parliament attempting to wrest control from the government, and I could go on.
It is a political scientist’s dream and, quite possibly, an investor’s nightmare. After all, the defining feature of the current situation is uncertainty. Uncertainty about the politics, about the economic impact that the politics will generate, and about the way in which both voters and markets might respond. So maybe the logical place to start is to figure out how things might play out and then, in the weeks and months to follow, the Property Chronicle can try to assign probabilities to the various possible outcomes.
Many of the trends I mentioned above were at least discernible in embryonic form prior to the 2016 referendum. Sharp-eyed psychologists were pointing to the rise in voter volatility – the propensity of people to switch from one party to another – and in values-based voting rather than politics based solely on the traditional left-right divide. Meanwhile, the election of Jeremy Corbyn to the leadership of the Labour Party revealed a profound dissatisfaction with centre-left politics and set the stage for the furious internal battles that have followed.
Yet Brexit has, to use a phrase very much in vogue these days, ‘turbo-charged’ these phenomena. The referendum mobilised the values divide, which separates people by age and in particular education rather than by social class. Consequently, it has placed tremendous strain on both major parties, which are themselves now being pulled apart along these lines. The European election of May 2019 underlined the degree to which this is shaking up our party system.
Now, we should not overstate this trend. Research has illustrated the fact that social class was still the prime determinant of voting in the 2017 elections, albeit values played a large role. We have not seen a root-and-branch upturning of the political order.
However, we do not know how things might develop going forward. Perhaps the biggest question facing students of British politics is whether this highly unstable state of affairs will persist. And the honest answer any student of politics must give is that we simply do not know for certain.
Much will hinge on what happens with Brexit. And, even at this late stage, we still don’t know what will happen. In the (admittedly highly unlikely) event that we do not leave the EU at all, it seems clear that Brexiters will continue their crusade, continue to rail against EU membership, and continue to ensure that this debate dominates our politics.
Should we leave, then the manner of our leaving will matter enormously. A no-deal outcome implies significant disruption and economic damage, not to mention a potential political standoff between the UK and its EU partners. Under those circumstances, it is hard to foresee a disappearance any time soon of the Brexit divide and all the problems it causes for the big two parties.
What is less clear is what might happen if we leave in an orderly fashion. The deal negotiated by Theresa May implies some economic damage. Making trade more difficult with your nearest and largest trading partner will do that, of course. But the impact would be nowhere near as great as that of a no-deal outcome. Most forecasts see the British economy continuing to grow – the analogy is perhaps a slow puncture rather than the much vaunted (and overused) cliff edge.
Under those circumstances, the big question is what happens to the tribe Rafael Behr of the Guardian famously labelled ‘Remainia’. Do they segue straight into a movement for rejoining the EU, helping to maintain the leave-remain (or disdain-rejoin?) divide as a crucial determinant of political outcomes? Or does the working of politics outside the EU mean the former Remainers would go back to their traditional left-right arguments about levels of state spending, in which case our politics might start to look more familiar again?
Whatever happens, we cannot undo what has been done. Leave or remain, Brexit will continue to dominate the news (if we leave, we have up to ten years of difficult trade negotiations ahead of us) and so the new division in our political life will not simply disappear. What we do not know is whether ‘normal’ left-right politics will reassert itself.
And, of course, at the same time we must live with the new tone of political debate. On the left and the right, from remainers and leavers, we have seen a coarsening of the tone, a shift to more direct appeals to ‘the public’. In other words, a more populist kind of politics. This, it seems to me, is here to stay.
All in all, therefore, it is hard to go beyond a statement of the obvious that the next few years will be a very uncertain time for investors. The stakes could not be higher. Economists have predicted that a no-deal outcome could result in the pound hitting parity with the dollar. And yet a failure to leave the EU on 31 October – not least given the repeated pledges made by the prime minister, Boris Johnson – could strengthen the forces of populism on the right and will prolong uncertainty over the nature of our relationship with the EU.
I am not about to attribute numerical probabilities to the various outcomes – however often the editor of this magazine might prompt me to do so. Particularly not at this stage, when so many outcomes are possible and we simply do not know how parliament (and particularly that group of anti-no-deal Conservative MPs) will behave in the face of the Johnson government. Let me just say, as I write in August, that the only certainty appears to be continued uncertainty.
