Brexit: The Case to Remain

Voting ‘yes’ or ‘no’ means people will be forced to take a ‘side’ - it's easier than sitting on the fence. As Brits, we enjoy a healthy debate but the media is hardly inundating us with facts, so each vote cast on 23rd June will arise from a decision based on uncertainty. As an electorate, we do not know the alternatives to membership. However, many are ignoring that a ‘leave’ vote is likely to be IRREVERSIBLE, while a vote to ‘stay’ can always be reviewed in the future.  

I refer to David Llewellyn of Loughborough University in this piece, and will try to take the same balanced view.* I agree with his opinion that the UK should be wary of “the romanticism of a distorted view of the past”, and not be led by an idealised view of a strong, more isolated UK in today’s globalised world. 

Currently I ask everyone to tell me the last piece of UK domestic legislation that profoundly affected them, which had been forced upon the UK by the EU. I ask in light of these facts: The UK sets its own interest rates, has its own currency, has its own tax legislation (some VAT law is influenced by the EU, but I question its profound nature), a parliamentary process unchanged for years, and a monarchy sitting above that.

It's also worth remembering: The UK has no obligation to pay toward future EU bail-outs (this is a necessity imposed by membership of the IMF).

The Battle: 

The ‘Fear Campaign’ (focussing on the negative aspects of leaving, rather than the positive results of remaining) has been heavily criticised but, it has forced the electorate to take a side and, even if and the outcomes are uncertain, it's a necessary evil. The ‘Leave’ campaign focuses on migration and the desire for freedom from the burdensome nature of a supra-national body. 

Trade:

The UK sells 44% of exports to the EU, while only 8% of EU exports are to the UK. Let’s not forget that ‘manufactured exports’ does not tell the whole tale of today’s UK economy! Trade is more important to the UK than it is to the EU – and this trade accounts for 12.6% of UK GDP.

Upon Brexit, a moral hazard will mean that EU members will not want the UK to receive trade terms as favourable as before, because that will lead to (a) other non-EU states demanding the same terms and, (b) other members demanding to revise their EU membership terms. There is zero reason to expect the existing terms to be revived. 

The only conditions that would suggest these terms of trade could be resumed is if the UK remained an EEA member (such as Norway). This ALSO brings free movement of labour, and contributions to the EU budget – exactly what the Leave campaign is trying to abandon. Therefore, the assumption that trade will be damaged, and remain damaged for a long time, is a valid one. 

Departure from a large, successful, Single Market will take its toll on the UK, as it excludes itself from many preferential access points. Revising trade agreements will take time, and this equates to a cost to the UK economy. A Brexit will also affect global trade adversely, so the UK may be in a weaker position, in a weakening environment – that’s an avoidable situation. 

In terms of costs, it is hard to think that the OECD, IMF, UK Treasury, NATO and other research bodies would all be conspiring on behalf of the ‘Remain’ camp when they publish research showing net cost to the UK of a ‘Brexit’. 

When I equate this to my world of Foreign Exchange, Nomura’s research speaks for itself – the UK currency is estimated to appreciate in the instance of a ‘Remain’ vote:

 

However, nothing is clearer than the David Llewellyn table below (not much positivity there!):

 
EU Contributions:

The UK contributes £13 billion annually, AFTER the rebate is accounted for. The UK then receives £2.5 billion from the Common Agricultural Policy (CAP) and £2 billion for regional development, and £1.4 billion for the private sector. In total, that’s a £7 billion contribution, or 0.35% of GDP. 

If you think this will be automatically saved and re-allocated elsewhere within the UK, simply ask your nearest farmer if he will demand compensation for his loss of CAP, or your local regional development board if they will not fight for local infrastructure and research budgets to remain constant.  Add to this, the decline in tax receipts, and fall in GDP, and the ‘net saving’ for the UK by not paying its EU contribution doesn’t look so certain.

Migration:

The free movement of labour ultimately means (1) welfare payments with the possibility of zero tax receipts (2) a squeeze on the UK labour market (3) cultural impact. I will not deal with (3).  For (1), the ‘hated by some’ European Court of Justice actually ruled that eligibility for social benefits is considered a ‘national’ issue – therefore the UK does have its own voice on welfare eligibility. 

Immigrants to the UK are suggested to have contributed to 50% of economic growth since 2005 (OECD figures), and they tend to be young, and are net contributors to the UK economy. May’s UK Labour Report shows wage growth weakness, a skills shortage and a very tight labour market. Barclays inflation forecasts are for UK inflation at 0% through 2015, rising to 0.6% in 2016, and this eating into household expenditure. If one assigns this labour market tightness ONLY on immigration, then it needs to be put into context with a backdrop of unemployment at 5.1% (lowest since Sep05), and a decreasing Claimant Count (-2.4k people in April, way beyond expectations). 

The Burdens of the EU:

The EU, single markets, trade agreements have all contributed to create our ‘globalised world’. Jumping ship from the EU will not reverse trends like that. Jumping ship will mean the UK watches from the sidelines on many issues. 

The UK has less regulation than any other G7 country (OECD data), with one of the most open labour markets on earth (where the EU is alleged to have most influence), and the biggest labour market change of recent years is the introduction of the National Living Wage – developed, and implemented by the elected government, at a domestic level in 2016. 

YES or NO – it forces you to have an opinion. That’s good.

*Reference: Ten Myths in the Brexit Debate

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Image credits:
Pixabay CC0; David Llewellyn, Loughborough University; Jeff Djevdet/Flickr