Understanding a Welsh Brexit

Cardiff University is the home of Welsh Brexit experts. Based in the Wales Governance Centre is the Wales and the EU Hub, a project created to provide and disseminate non-partisan and independent research on Wales and the EU.

Here, respected journalist Huw Edwards (BA 1983) quizzes four leading academics on what the future holds for Wales following the decision of the UK electorate to leave the European Union:

• Senior ESRC Fellow Dr Jo Hunt (JH) is leading on a project entitled The UK in a Changing Europe: Legal Powers in Wales in the Context of UK Membership of the EU;
• Dr Rachel Minto (RM) is undertaking research into Brexit and UK devolved politics;
• Ed Poole (EP) and Guto Ifan (GI) work on the Government and Expenditure Review Wales project, which provides an analysis of Wales’ public spending, public sector revenues and the nation’s overall fiscal balance.

HE: How likely is it that the Welsh perspective will be represented in any meaningful way in negotiations which exclude the Welsh Government?

JH: The Prime Minister has been clear that she will be taking a “whole UK” approach to negotiations. The UK is the member state of the European Union and foreign policy remains a matter for the UK Government. In terms of its influence in the negotiations, Wales is not in a particularly strong position compared to the other devolved nations.

Scotland and Northern Ireland have additional leverage. Scotland has already raised the idea of a second independence referendum and possible secession from the UK; and there are a host of complex and sensitive issues attached to Northern Ireland’s withdrawal from the EU, relating to a potential hard border with the Republic of Ireland, the Peace Process and economic inter-dependence.

In addition to these specific questions that require attention, both Scotland and Northern Ireland voted to remain within the EU. Wales doesn’t have any such leverage. Furthermore, it voted to leave the EU. So, it is participating in these intra-UK negotiations from a position of relative weakness.

HE: Is it likely that Wales will have to pay for continued access to the Single Market as part of a UK-wide a deal?

JH: The UK’s future relationship with the Single Market is at the centre of debates about Brexit. We don’t yet know what relationship the UK will seek to have with the Single Market, let alone what relationship it will secure following the negotiations with the EU. There is a price to pay for full membership of the Single Market, through contributions to the EU budget.

The Single Market is underpinned by four freedoms: the freedom of movement of goods, services, capital and people. The latter of these is highly politicised in the UK, and is likely to preclude the UK from securing a deal that includes continued membership of the Single Market. It would also rule out the “Norway option”, as Norway is also bound by these four freedoms.

More recently we have heard talk about securing “unfettered access to” the Single Market. It's not entirely clear what politicians mean by this, but it has been associated with tariff-free access to trade with EU states, so would probably require the UK to be part of the Customs Union. This Customs Union covers both internal borders and external borders, meaning that members of the Customs Union share common external tariffs with third countries. So, as part of the Customs Union the UK would not be able to negotiate its own trade deals.

RM: Wales has a particular relationship with the Single Market, given its size and the significance of the European market for particular industries and goods produced in Wales, for example the agri-food, aeronautical and automotive industries. Its future relationship with the Single Market will be determined by the final deal struck between the UK and the EU.

At this stage, it is not possible to say what financial contributions the UK may have to make post-Brexit. Any budgetary contributions from the UK to the EU would need to be agreed as part of securing a preferential relationship with the Single Market.

HE: Is it likely that Wales will have to pay to sustain current and overhanging EU plans for Wales?

GI: The Treasury announced in August that it will guarantee the full funding of all structural and investment fund projects if they were signed before the time of the Autumn Statement, securing continued funding for such projects even after the UK’s departure from the EU. This guarantee was extended in October for projects signed after the Autumn Statement, if they meet the Treasury’s conditions of being good value for money, and in line with domestic strategic priorities.

The current level of agricultural funding (under the Common Agricultural Policy) will also be guaranteed until 2020, before the transition to new funding arrangements.

EP: Until 2020, most funding from EU programmes will continue to be above and beyond the annual block grants which the Welsh Government receives from the Treasury to pay for devolved services. There does remain a question of how these types of projects will be funded after 2020.

Given that Wales currently receives around 20% of all EU regional funding available to the UK (well above its population share of around 5%), there remains a possibility that future funding for the devolved areas of agriculture and regional development may have to come from the same pot of money that funds other devolved services, such as education and health.

HE: How credible is the guarantee given by Andrew R T Davies AM, leader of the Welsh Conservatives, (in BBC Wales Report interview) that Wales would not lose any of its current funding level after Brexit?

RM: There are a few points to bear in mind when thinking about funding to Wales post-Brexit. First, domestic funding will be required for both regional policy and agricultural policy. As we’ve said, the UK Government has not guaranteed that current levels of funding for regional policy and agricultural policy will be maintained, and this is even less likely in the case of a diminished economy. Secondly, how will any additional funding allocation be calculated? EU funding into the UK is needs based, with Wales receiving significantly more than England from both the Structural Funds and the Common Agricultural Policy per head of the population.

In contrast, the current arrangement for allocating funding to Wales from the UK Government (the Barnett formula) is based on per capita spend in England. Given the per capita differential in EU funding receipts between England and Wales, Wales would be left severely out of pocket if the block grant to Wales were adjusted using the existing approach.

Read the full interview

This is a shortened version of the full interview that  features in the Winter 2016 issue of Challenge Cardiff, our research magazine.

Wales and the EU Hub

Learn more about this project, which provides and disseminates non-partisan and independent research on Wales and the EU.

The researchers

Research Centre