Lessons from Brexit: The economic risks of using referendums to send a message

As Alberta debates the possibility of a separation referendum, it is useful to examine how similar votes have unfolded elsewhere. The United Kingdom’s (UK) 2016 referendum on membership in the European Union (EU) provides an important lesson on the economic risks of using constitutional referendums to express broader political dissatisfaction. While the result was widely interpreted as a clear mandate for Brexit, the motivations behind individual votes were far more complex. Many voters supported leaving the EU on principle, while others used the referendum to express frustration with political leaders, economic conditions, immigration policy, or the broader political status quo. For some, the referendum presented an opportunity to register dissatisfaction with the political establishment rather than a fully considered endorsement of the economic and constitutional consequences of leaving the EU. 

The Brexit experience offers an important lesson for any jurisdiction considering a referendum on a fundamental constitutional question: referendums can become vehicles for protest votes, but the consequences of the result are often treated as binding commitments by governments, investors and markets. Alberta’s circumstances differ significantly from those of the UK. Brexit involved withdrawing from a supranational economic and political union, whereas Alberta separation would involve a province leaving a federation with deeply integrated constitutional, fiscal and economic institutions. The purpose of this comparison is therefore not to suggest Alberta would experience the same outcomes as Brexit, but rather to examine how businesses, investors and financial markets respond when constitutional uncertainty changes expectations about future economic arrangements. 

Regardless of individual motivations, the UK referendum result was widely interpreted by political leaders as a democratic mandate requiring implementation. The debate quickly shifted from whether Brexit should occur to how it would occur. Once the result was known, government, businesses and financial markets began preparing for constitutional change rather than debating whether the vote reflected frustration with the status quo or a fully informed endorsement of Brexit.  

In the years following the Brexit referendum, numerous studies found that uncertainty surrounding the UK’s future relationship with the EU weighed heavily on business confidence and investment. Research from the Bank of England found that Brexit became a significant source of uncertainty for approximately 40 per cent of UK businesses, while subsequent analysis estimated that business investment was reduced by roughly 11 per cent in the three years following the referendum. Businesses delayed investment decisions, reconsidered expansion plans and faced unresolved constitutional questions regarding future market access, regulations and labour mobility. 

The business response extended beyond delayed investment. According to New Financial, more than 440 banking and financial services firms relocated part of their business, staff, assets or legal entities to the EU following the referendum. These decisions illustrate how businesses often move quickly to manage risk and preserve market access, even before constitutional negotiations are complete.  

Importantly, many of these consequences emerged long before the UK formally left the EU. Markets do not wait for constitutional negotiations to conclude before responding; they react to uncertainty when it arises. The referendum result itself created an unclear policy environment, triggering reactions from businesses and investors who were forced to consider multiple possible future outcomes.  

A decade later, the economic effects of Brexit continue to be studied. While the immediate recession forecast by some economists did not materialize, there is broad agreement that Brexit contributed to weaker trade, reduced business investment, slower productivity growth and slower long-term economic growth than would likely have occurred under continued EU membership. Some of these outcomes resulted from the UK’s eventual departure from the EU and new trading arrangements. Others stemmed from several years of uncertainty between the referendum and the implementation of Brexit, during which businesses faced an unclear policy and investment environment.  

The UK’s Office for Budget Responsibility has also identified post-referendum uncertainty as a factor that weighed on investment and productivity, while multiple studies have found that firms most exposed to Brexit-related uncertainty experienced lower investment growth than their peers.  

Alberta’s economy is deeply integrated with the rest of Canada through the free movement of goods, services, labour and capital, nationally regulated financial institutions, common currency arrangements and interconnected transportation and energy infrastructure. These relationships underpin day-to-day business activity across virtually every sector of Alberta’s economy. Some Albertans have suggested they would support separation in a referendum primarily to send a message to Ottawa about concerns related to energy policy, federal decision-making, equalization or provincial autonomy. Brexit demonstrates that governments, financial markets and investors do not interpret referendum results as symbolic gestures. Instead, they evaluate how the outcome could affect future political and economic conditions.