More Brexit Fallout

The fallout from Brexit continues to build. The vote has triggered an almost total realignment in British politics. Yesterday, Nigel Farage, the leader of UKIP and probably the biggest proponent of leaving the EU, resigned as party leader. Announcing his resignation, he said, “During the referendum campaign, I said ‘I want my country back’. What I’m saying today, is, ‘I want my life back,’ and it begins right now.” Of course, he is actually leaving with unfinished business – Britain won’t officially leave the EU until Article 50 has been invoked and there is no sign that that will happen before the fall. Like Boris Johnson, Farage has had to backtrack some of his claims made during the referendum such as the $350 million pounds that will be saved. And, like Johnson, it is clear that Farage really had no plan for moving forward beyond the referendum. The reasons for his departure are a bit unclear but it does seem the UKIP thinks they might be able to make further gains as a party with someone more moderate at the helm. But I’m not sure that is what UKIP supporters are looking for, nor is it guaranteed that the next leader will have the charisma and leadership qualities that made Farage and the party successful.

Meanwhile, the Labour party’s self destruction continues apace as Angela Eagle she has the support of at least 51 Labour lawmakers needed in order to make a leadership challenge to Jeffrey Corbyn. Corbyn, who endured a vote of no-confidence last week, has refused to resign, feeling he still has the backing of the majority of Labour party members.  Apparently, negotiations are ongoing with the trade unions that financially back the Labour party to see whether Corbyn’s exit could somehow be worked out. But that does not seem likely as Corbyn has vowed to still run of the leadership challenge is made. Eagle represents the more centrist elements within the Labour party who accuse Corbyn of not being aggressive enough in fighting to remain in the EU and do not believe that he can lead them to electoral victory in the future. With the swath of Labour supporters in the north of the country who voted to leave the EU either out of belief or as a protest vote against Cameron’s policies, it is uncertain that this centrist bloc accurately represents the current Labour constituency. It is striking just how much David Cameron’s referendum gambles have put the Labour party in an impossible position and led to its diminution as a party.  In both referenda, Labour took the high road and acted like the adults in the room, supporting both Scotland remaining in the UK and the UK remaining in the EU. And what did this get them. Their electoral stronghold in Scotland was obliterated by the Scottish National Party and now the traditional working class voters in England have seemingly abandoned the party and turned more towards the message embodied by UKIP. On the other hand, with the adoption of a lower threshold to joining, Labour has more members than at the height of Tony Blair’s popularity and added over 60,000 new members in just one week. If and when the leadership challenge does come, it is these new Labour party members who will determine the course of the party in the years to come. The question will be whether the winner of that contest can keep the left and moderate wings of the party together.

The economic damage of Brexit is also starting to ripple through the economy. Yesterday, Standard Life Investments, a mutual fund that invests in the London property market, announced that it was suspending withdrawals from the $3 billion fund. Standard Life and similar funds had seen the value of their commercial property investments reduced by up to 5% in the aftermath of the Brexit vote. And it won’t be long before the large number of foreign investors that have fuelled London’s property market for years either stop buying or start to unload their London properties and move to Europe’s other large cities in order to have easy access to the EU.

Finally, the plans that the Conservative government has for the British economy post-Brexit is also starting to take shape. Chancellor of the Exchequer George Osborne proposed to reduce the corporate tax to 15%, making it the lowest of any major industrialized country. Of course, this is borne out of the necessity to somehow get businesses to remain in the EU and not migrate to the continent. It is doubtful that EU leaders will look on this too kindly, probably making the exit negotiations even more contentious. And it is hard to see how England is going to keep its economy growing simply by becoming a tax haven.

In the coming months, the damage from the Brexit vote will become even clearer and the pressure to find some way out of the current impasse between the will of the voters and financial reality will become even greater. It promises to be a long, hot summer in the UK.