Valdai Club

There is a clear signal that the European Union must change. The costs of the free market are borne disproportionately by the poorest and least educated classes of the population who suffer most from the insecurity of employment, and the decline in living standards entailed by austerity programmes.

On 23 June the electorate of Britain voted by 52 to 48 to leave the European Union. Outside London, Scotland and Northern Ireland, every English region had a majority of citizens voting to leave.

Divisions over the UK’s membership of the European Union reflect the underlying tensions in British politics. At the root of both criticism and support for the European Union are its principles of the free movement of goods, services, capital and people. Business classes and professional employees with a global perspective gain from free movement. Those who voted to remain in were disproportionately drawn from those with higher education and had higher incomes. Small and medium businesses as well as employees in failing British companies suffer from European Union laws which protect more non-British firms from discrimination in British markets.

The free movement of people has led to immigration on a mass scale. In 2015, 270,000 EU citizens arrived in the UK and 277,000 non EU citizens. The total number of EU immigrants employed in the UK was 2.1 million in March 2016. These however were clustered in lower skilled jobs and geographically concentrated. Adding EU immigrants to others constituted a demographic density which (rightly or wrongly) was perceived by the mainly working class population as a threat not only to conditions of employment (by depressing wages) but also as putting unwarranted demands on social services such as health and education. Those who chose to leave were disproportionally drawn from the lower and older social groups.

In a more general sense, the immigration levels of people with different languages and religions were also regarded by some as a threat to their British or English national identity. Immigration was the tip of the iceberg for EU opponents as it illustrated the lack of sovereignty of the British Parliament which had lost power to the EU Commission in Brussels. Depending on the measure used, the EU is responsible for between 15% and 50% of British laws; importantly, all British foreign trade is determined by EU laws.

Levels of public dissatisfaction led to the rise of the United Kingdom Independence Party (UKIP) which, in the 2015 General Election, secured four million votes (13 per cent of the vote). The referendum was called because Prime Minister, David Cameron, sought to legitimate his role against the rising tide of Conservative supporters clamouring for exit and thus dividing the Conservative Party.

Such anti-EU sentiments however were not shared by the members of the political classes. All the major electoral parties – Conservatives, Labour, Liberal-Democrats and Scottish Nationalists – supported the objectives and institutions of the European Union, albeit some with reservations. Even on the eve of the referendum on 23 June, 74 per cent of members of Parliament supported remaining in the European Union. The British political, academic and economic elites also fell into the Remain (in the EU) camp. Even the head of the Church of England, the Archbishop of Canterbury, publically predicted calamity if people voted to leave.

The implications of the leave vote are significant as regards both the future of the UK and the European Union project. For the majorities in Northern Ireland and Scotland in favour of staying in will lead to further claims for independence for Scotland and possibly though less likely to a union between Northern Ireland and the Irish Republic. In the European Union, the departure of Britain will strengthen the Eurosceptic bloc which prior to the UK referendum already had movements with similar levels of support in France, Spain and Hungary; there is also strong opposition to the EU in Denmark and Sweden.

The EU, following the debacle of the Euro zone illustrated by the crisis in Greece as well as the problems caused by immigration, is currently suffering a crisis of confidence. The signals are clear: there is a significant divide between the political classes and the majority of the population which is dissatisfied with the outcomes of government. The strength of the democratic referendum process has severely weakened the power of the political class. The agreement negotiated by David Cameron on the terms of the European Union has been rejected.

There is a clear signal that the European Union must change. The costs of the free market are borne disproportionately by the poorest and least educated classes of the population who suffer most from the insecurity of employment, and the decline in living standards entailed by austerity programmes.

The most radical scenario would be to revisit the underlying neo-liberal components of the free market and unrestricted movement within the European Union. An alternative would be to return to the social market ideas which informed the early European movement. Such a course would strengthen states and weaken market processes thus enabling austerity measures to be reduced and employment promotion and welfare benefits to be increased. A second scenario would be a more differentiated Union, with the core states (Germany, France, Benelux countries) moving to closer integration, with a second tier of states retaining more powers, including control over capital flows and labour movement. This was the scenario favoured for Britain by David Cameron’s government and the Labour opposition. The lesson for the EU is that it did not concede, or was not able to concede, sufficient powers to satisfy the British electorate.