David Lammy, the MP for Tottenham, has recently argued that in order to avoid the negative impacts of a Hard Brexit, London should become an independent city state:

“Throughout history there have been great cities that are essentially also states in their own right — Rome, Athens, Singapore and Hong Kong. London […] certainly fits the bill too. […] If London is to retain its position as the pre-eminent global city we must recognise that this is not a Brexit that will work for the capital […] London finds itself increasingly constrained by — and at odds with — the policies and priorities of our central Government.”

If Brexit is enough of a reason for another independence referendum in Scotland – why not in London, asks Lammy. In terms of population size, London is considerably larger than Scotland, and it is certainly a much larger economy.

Very true – although as an advocate of Kleinstaaterei, I’m obviously biased. I’m in favour of any secession of any territory from any country, for any reason. Sure, Hard Brexit is a good enough occasion, but for me, any old excuse would do. My ideal world would consist of thousands of Liechtensteins: small to medium-sized self-governing units, loosely joined in a free-trade association based on a mutual recognition of regulatory standards. Where there are clear benefits of intergovernmental cooperation and/or economies of scale in the provision of public goods and services, these units could still pool their resources and competences. But they would do so on a case-by-case basis, for specific, well-defined purposes, such as defence alliances.

That said: I realise that that view is not widely shared, and if you don’t share it, Brexit, whether soft, hard, al dente or otherwise, will probably not sway you. You may believe that Scotland (and London) should be part of the United Kingdom, and that the United Kingdom should be part of the European Union (or at least, of the European Economic Area). But if you had to choose, you would probably prioritise the former.

However, it does not have to go as far as full independence. In theory, different parts of the British Islands could have different relationships with the European institutions. Let’s bear in mind that the Crown dependencies – the Isle of Man, Jersey and Guernsey – are already outside of the EU. Although they generally outsource international relations to the UK, the UK’s EU membership status has never extended to them.

So there is a precedent of sorts. Sure, the Crown dependencies are not technically part of the UK, but the boundaries here are somewhat blurry. So suppose Scotland, London, and perhaps other cities and regions, went for a status somewhat comparable to that of a Crown dependency. They could then have their separate arrangements with the EU.

Scotland could then remain in the EU, and even seek deeper integration, if they so chose, for example by joining the Eurozone.

London could go for the equivalent of a Soft Brexit (Londexit? Lonxit?). We could leave the EU, but remain in the European Economic Area. More or less like Norway, but with greater emphasis on trade in financial services.

The rest of the UK could go for a Hard Brexit, leaving not just the EU, but also the customs union and the EEA, aiming for a separate trade deal. Let’s say, they achieve tariff-free trade in goods, but not that much in terms of trade in services and regulatory convergence.

Sure, this would produce some curious outcomes. London would still be part of the single market, covered by the four freedoms, but the rest of the UK would not. This would mean that a Polish citizen could easily settle and work in London, just like a British citizen – but if the company they work for decided to move its offices to Slough, that person would suddenly need a work permit. The same would be true at the English-Scottish border. This would be odd. But not necessarily odder than the current arrangements of the Crown dependencies.

Meanwhile, England and Scotland could form a Common Travel Area, as the UK and Ireland do now, so individual passengers would not have to stop at the border and produce their passports. But there would have to be customs checks for freight, at least in the form of spot checks, because that border would now coincide with the border of the EU’s customs union. Again, this would be odd – but not that different from what currently happens at the Swedish-Norwegian border every day.

London and the rest of the UK would have to form a customs union of their own, with a common trade policy, because customs checks at the M25 would be a bit of a nightmare. But this should not be a huge problem. The main dividing line between Hard Brexiteers and Soft Brexiteers is free movement of labour, not trade.

Is this a realistic scenario? Maybe not. But the whole Brexit business is starting to get a bit confusing, and as an economist, I just thought I should add an extra layer of confusion.

Further IEA reading: Federal Britain: The case for decentralisation