Hard Brexit

Updated on April 8, 2024
Article byPrakhar Gajendrakar
Reviewed byDheeraj Vaidya, CFA, FRM

Hard Brexit Meaning

Hard Brexit refers to a scenario in the UK where Britain voted to leave the European Union membership. Thus, it withdrew its participation in the European single market, and intiaited absolute control over its law-making and immigration. With a hard Brexit, Britain loses its importance in the single customs union and will sign its trade deals.

Hard Brexit

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The British government announced a referendum in which most English citizens voted to favor the UK leaving the European Union. This whole concept was popularized by the world media with the term Brexit. Britain left the EU at the end of January 31, 2020. The United Kingdom is the only sovereign country to have left European Union membership.

Key Takeaways

  • Hard Brexit is the phenomenon of the UK leaving the membership of the European Union at the end of January 31, 2020.
  • The opposite was a soft Brexit, another way of leaving the EU; the process was discussed, yet the final agreement was a hard Brexit.
  • It negatively affected the whole economy of the UK and invoked many socio-political problems, including trading issues and immigration regulations.
  • Britain could join the EU as an associate member but would be expected to contribute to the European Union’s annual budget.

Hard Brexit Explained

Hard Brexit defines the process of the United Kingdom leaving the membership of the European Union. The international media popularized the term at the first news of discussion that reported the UK withdrawing itself from the EU. The European Union is a partnership union of 27 European countries covering a major part of the whole continent. The union represents a population of 447 million, accounting for 6% of the world’s population. Hence, this absence of a deal would mean that trade between the UK and the EU would be subject to World Trade Organization (WTO) rules. It includes tariffs on certain goods.

On January 31, 2020, the UK officially signed its withdrawal agreement with the EU. It is called the hard Brexit because there was an alternative of a soft Brexit, which was more flexible and, if chosen, allowed Britain to keep its ties intact with the European Union. Still, after much discussion, debate, and voting, a hard Brexit was finally initiated through a national referendum in June 2016.

For Britain, the choice was time-consuming to take either soft or hard Brexit. Still, upon leaving, the UK had to let go of many privileges, access, and authority in EU markets, customs unions, and trade policies. The primary reason for the UK to withdraw its membership was to stand as an independent country and set its own laws and political policies, control, and sovereignty. But at the same time, there were critical consequences that they had to bear as Brexit severely impacted the UK economy, business markets, and trade operations.

This means that trade between the UK and the EU would be governed by WTO rules, which could result in tariffs and trade barriers.

Examples

Let us understand the concept better with the help of examples.

Example #1

In a hypothetical sense, a small village that is part of a union with all the neighboring villages represents a membership and legal entity. Under the membership, all villages follow standard rules and regulations and benefit from agriculture, employment, trade, socio and political scenarios, and business. Every member village has to follow the set guidelines of the union.

Suppose one day, the small village’s head council announces a voting activity in which all its citizens vote against the union membership. Therefore, the village head decides to withdraw its membership from the union, declining its benefits and privileges to become an independent village with its own rules, regulations, and governing laws. The village created and signed the withdrawal agreement; now, leaving the membership does fulfill an objective but has its losses. The hypothetical example resembles the phenomenon of the United Kingdom leaving the European Union. However, it has many direct and indirect consequences in the real world.

Example #2

Another good example comes from Reuter’s article, which suggests that some British companies struggling with the negative consequences and impacts of hard Brexit have started to invest in Europe. Even when there was a long debate or discussion that went on regarding the UK’s hard Brexit withdrawal from the EU, it was predicted that as an independent country with no ties to the European Union, the UK would have to suffer a lot of monetary losses and face many political and economic pressures.

Many firms are tired of customs delays and bureaucracy, and the German data reports that British companies opened nearly 170 foreign direct investment projects due to the bloc’s single market obstacle. In addition, the Netherlands reports that over 300 Brexit firms moved their operations there.

Consequences

  • One of the most important positive consequences is that it will provide political autonomy to the UK.
  • Allows the UK to set its environmental, agricultural and energy policies and realign its priorities.
  • The hard Brexit contributes to high inflation by diminishing the pound’s value and making imports more expensive.
  • Hence, the harsh consequences are observed in food price inflation of up to a 6% increase—and investment burden on UK businesses, trade firms, and overall economic growth.
  • At the same time, Brexit allows control over democracy, water, and currency and provides freedom to regulate policies and business administration.
  • Moreover, the goods traded to the EU will attract a tax, leading to increased prices. Hence, demand will decline, causing a fall in production.
  • The UK loses its European Union membership and will not be a part of the single customs union.

Soft Brexit vs Hard Brexit

The key differences between hard and soft Brexit are –

  • Soft Brexit defines a mid-way between leaving the EU and remaining member. In contrast, hard Brexit describes total withdrawal from the membership and benefits of the European Union.
  • Under soft Brexit, Britain has the advantage of the free movement of goods and services and restricts the movement of people. On the contrary, hard Brexit benefits Britain by allowing them to maintain their political sovereignty.
  • The major issue with the soft Brexit is that the UK has to pay a fee to the EU for using different arrangements and privileges. In comparison, the problem with hard Brexit is that it diminishes the UK pound value drastically.

Frequently Asked Questions (FAQs)

1. How does a hard Brexit impact trade?

A hard Brexit could result in tariffs and trade barriers between the UK and the EU. Businesses may face increased costs, administrative burdens, and disruptions to supply chains due to changes in customs procedures and regulations.

2. What is the major problem of hard Brexit?

The major negative consequence and a concerning problem of hard Brexit was that it impacted the British pound exceptionally negatively. This is because the European Union has many trading partners compared to the UK, which consists of many companies and nations. After a hard Brexit, all of them sold the pound and bought the euro because it would help them trade with the EU in the future.

3. What is the purpose of the hard Brexit?

The purpose of hard Brexit was to –
 
Changing rules and regulations to create a better democratic rule in the nation.
Reestablish the UK’s sovereignty status, including trade and immigration policies.
Becoming an independent country and setting the service and priorities of the UK citizens on top.

This article has been a guide to Hard Brexit and its meaning. Here, we compare it with soft Brexit, and explain its consequences and examples. You may also find some useful articles here –

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