As the date of the referendum draws near it seems that much of the debate around EU membership still consists of soundbites and hyperbole. On one side there are stories of lost wealth and rights and on the other immigration and sovereignty. Behind it all are some quite simple choices though and I hope to spell them out here. The first area I will explore is the economy, the reason being that trade is central to what the EU represents, that also provides a lead into legislation and immigration. These three things are inextricably linked and are the core of the debate, or should be.
On the economy we are faced with two choices, we can remain and continue to grow and develop as we have over previous decades or we can exit and strike out on a new path. We are clear what remain represents but what would this leave economic path look like? Here is our first obstacle, though not insurmountable. The leave camp often totes a figure of £350m a week in savings. This has been demonstrated numerous times to be a falsehood. The UK should contribute £350m per week but instead pays around £250m due to our rebate –the remainder is covered by other EU states (https://fullfact.org/europe/our-eu-membership-fee-55-million/). So £350m cannot be saved as it is not paid. £250m is still quite a bit though – but then of course we receive a fair chunk back in the form of farm subsidies, grants, investment and other schemes. Of course exit would mean we were able to choose how we spend that money. But have the leave camp been open and honest here? I mean it is one thing to say “we could spend that on the NHS” but this is disingenuous. What would be fair to say is “by leaving the EU, ending regional grants, stopping farm subsidies and stopping investment in business we could instead spend the money on the NHS”. This also assumes that any post-exit government would be pro-NHS and anti-tax cuts and free markets (of the type favoured by the more radical elements of leave) – you cannot spend money twice nor adopt two positions. Of course all of this sets aside the debate about membership benefits. Being in the EU is much like being a businessman and joining the local golf club. The benefits from membership might have little to do with golf and a lot to do with membership. By being involved you are able to influence business deals and receive a return on your investment. It would be foolhardy to assume you have the same access and contacts if you were to stop paying.
The benefits of EU membership, from an economic perspective, relate to free trade. The terms the UK has with the EU are better than any country outside of the EU. No one is saying the UK would collapse on exit (an ad hominem put about by leave), but all indicators suggest that exit would result in a reduction of GDP (with the exception of some more extreme models we will come on to). The reason for this is simple. Assuming the UK does not immediately sign up to a Norway style model of accepting all the rules, paying a fee but not being able to vote, which would be worse than we are now, we will have uncertainty and delay. Outside the EU the UK would no longer represent a way in to Europe for foreign direct investment. Those companies that use the UK as a springboard would need to relocate to other EU countries. In addition the relevance of London as a finical centre will be questioned. It will not cease simply be less relevant as THE financial capital of Europe. Add to that the uncertainty and the likely flight of capital as it seeks safe havens, the impact of less migration on labour costs, tariffs on imports etc., etc. and it all points to a decline in GDP. Of course the leave camp has a solution to this. They are not suggesting we leave and isolate ourselves. Their answer comes in two parts though. On one side you have the economists, not many, but a small number who are pro-leave. These are led by Minford (http://www.walesonline.co.uk/business/business-news/doom-gloom-forecasts-around-brexit-11071818). They have a very clear position and one that is recognised by other economists as legitimate if perhaps naive and undesirable (http://www.ft.com/cms/s/2/11ac1414-f643-11e3-902a-00144feabdc0.html#axzz471TtyKlV). They propose, as Minford has since the 80s, wide scale deregulation and free market trade. In other words their model is one of stripping away rights and rules pertaining to employment, to open up our borders to free trade and to allow a free flow of goods and investment. This free market model was too extreme for Thatcher’s government of the 80s, though it adopted some parts, and would see an end to the welfare state as we know it. The free market style of economy they propose is to the right, economically, of the rest of the EU, of the USA and of Japan. It is one were market forces decide everything. This is a perfectly valid economic position and may, only may, in fact increase GDP. Whether that increase translates to a fair distribution of wealth remains to be seen. It is certainly difficult to point to a country where this is the case. However if we trust that markets will not simply result in the rich getting richer and the poor poorer then this is a real option.
The second, less radical approach, suggest that we can carry on as we are as the EU will beg us to trade with them on the same terms. That’s quite a gamble. A bit like saying to the golf club “I’m not paying my fees anymore but I am still coming”. Supporters of leave will of course point out that there is the issue of trade and that we buy more from the EU than we sell to them. This is true but is a red herring. We buy more in pounds but are small in proportion. Basically it would be like saying to the golf club “but I drink more in the bar than you pay me” (assuming you did a bit of maintenance work for them). Yes the pounds you receive are lower than the pounds you pay but compared to the overall bar takings your bar bill is very modest, too modest to grant you special rights that other club members would then demand. Almost half of what we trade is with the EU but a small percentage of what they sell comes to us (http://www.niesr.ac.uk/blog/after-brexit-how-important-would-uk-trade-be-eu#.VyHo77f2bcs). We are more desperate to sell. This does not place us in a strong negotiating position. It is all well and good to argue that we are the fifth largest economy but Germany is above us and France right beside us. To put it in perspective the US and the EU are both around six times as big and China around four times as big. Germany, the US and China do not have unbridled free access so why would we? Of course the EU would reach an agreement with us, no one is arguing otherwise, but it would not be simply “same as now but with no fees and no rules”. A model like Norway would be more likely. In this model we pay, we have to follow the exact same rules and we would have to allow free flow of labour (migration) (http://www.telegraph.co.uk/news/uknews/immigration/11190269/If-EU-migration-is-the-problem-Switzerland-and-Norway-are-not-the-answer.html). The worry is that no one from the leave campaign seems to have spelt out or tried to negotiate what this model will be or looks like, with the exception of Minford and the unbridled free trade movement.
Representing the supply side of the economics debate is legislation. There is a lot talked about ‘laws and rules from Brussels’ but people seem to find it hard to point to one they dislike. In part this is because most EU related legislation does not impact on our daily lives (like the way crisps have to say ‘beef flavour’ as they contain no beef). It’s worth remembering that the EU is a diverse area in terms of law. In some countries abortion is illegal while in others prostitution is legal. In some you can smoke pot while in others you cannot smoke cigarettes in public places. Much of the legislation relating to the EU is simply trade regulation. These rules are similar to the rules found in a sporting event. If you want to play the game you have to follow the rules. China, the US and all other countries have to follow EU rules to trade in the EU and yet have no vote. Outside of the EU we would still have to obey them when we traded and our compliance would form part of any negotiation. Minford and crew are clear though on which laws they would scrap – these mostly relate to workers rights and consumer protection (supply side constraints). The less radical elements in the leave camp are more coy.
Finally we come to migration. Free movement of people is an essential element of free trade. Labour and lemonade are no different in that respect. The UK has control of its borders, it is not part of Schengen, but it is true that if a Polish person wants to come to the UK to work, or a British citizen wishes to work in Paris they are free to do so. Benefits are a different matter and there is no automatic right to them (http://www.bbc.co.uk/news/world-europe-25134521). Of course if the benefits policy is not firm enough the UK Government is free to tighten it. A government simply has to treat all people equally – there is no requirement for it to be generous. We have a little more control on immigration being outside of Schengen, as anyone travelling in and out if the UK will notice. On a recent trip to Britany I was intrigued that I drove on to the Eurostar at Folkestone and drove off and on to the motorway at Calais with just a friendly wave. On the return though I was stopped, passports and names were checked, and it felt much more like ‘returning from abroad’. People’s concerns about immigration have been fanned by various vested interests. The evidence is clear that EU migration makes a positive impact on the UK economy – they give more than they take (https://www.ucl.ac.uk/news/news-articles/1114/051114-economic-impact-EU-immigration). With unemployment at a record low (http://www.bbc.co.uk/news/business-35594650) it is hard to see how employment would be positively affected by a reduction in immigration. It is true that a more constricted labour market would see wages rise. Less people going for the same number of jobs will push up wages but at the same time it will reduce productivity and drive inflation. Minford again has solutions for this – strip away workers’ rights etc. but the leave campaign do not provide much more by way of analysis. In addition the Norwegian model requires us to allow migration in its present form; in fact Norway, Switzerland and Iceland are all members of Schengen. The economy is benefiting positively from the present situation and so it is hard to see on what grounds, other than a petty form of racism, people would wish to restrict migration?
The remain camp have certainly thrown some startling figures around and this could be described as a campaign based on fear, but it is hard to see how else the argument can be made. The leave camp has provided, Minford the exception, no model of how the UK will function. This vacuum has to be filled by data from the remain group and inevitably that does not paint leave in a good light. If the leave camp were open and honest about their model, assuming they follow Minford, or were clear about their preferred choice (Norway ‘with a, b and c’ changed for example) there could be a debate. Instead leave simply seem to produce a string of soundbites and clichés. The remain message seems clear: remain, influence, grow, develop, shape. Leave is far harder to call; on the one had insular and protectionist (British this for British that) and on the other rampant Minfordian free trade with open borders, unrestricted trade and imports and few workers’ rights.
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