Can anything new be said about the EU referendum debate, especially about the economics? However we carry on, as we must, to try and persuade those undecided or wavering, and to make the case that immigration, and the vacuous notion of “taking back control” are not, and should not, be the all-important factors in a vital referendum.
Public opinion surveys suggest that voters rank immigration and the NHS as more important than the economics of remaining or leaving. When asked, a majority of respondents think the UK economy would be worse off if we left the EU—as the economics community has overwhelmingly and forcefully argued—but at the same time they say they personally do not expect to be. If ever there were a paradox of opinion, this is it. It is a fantasy to think the country will be economically worse off but the electorate will not pay the price.
Voters don’t articulate concern about demand and supply shocks the way that economists do, but there’s no question the UK will succumb to both if it leaves the EU. We don’t even have to bring up the specific forecasts from the Treasury and other agencies here, which are subject, as all forecasts are, to uncertainties and imprecision. But we know that across a broad array of factors, the UK economy will be weaker in the short to medium-term as a result of weaker demand, and less robust in the longer-term as the disruption to trade and investment clip our growth rate and what economists call total factor productivity. It is in this context that we should think about the recent view of the Institute for Fiscal Studies that the cost of Brexit to the UK budget could be between £20-40 billion by 2019/20. This dwarfs the UK’s net contribution to the EU of about £8 billion a year, which, even if it were saved, would have to be allocated to government and plugging the fiscal gap. In this sense the false prospectus of spending the money on the NHS, science, farmers, defence, university funding and much else should really be seen as a fairy tale. George Osborne was quite right yesterday to warn of the fiscal risk. Talk of an “emergency budget” has caused a sharp reaction, including, curiously, from many MPs who have had no qualms about voting for austerity before. But there is little doubt, as Alistair Darling added at the same event, that a future UK government would need to cut spending and raise taxes many times over the next few years.
Yesterday's news that UK unemployment has slipped further to 5 per cent, and that a record 31.6m people are in employment, regardless of the numbers coming to the UK to work, demonstrates that membership of the EU has not held the economy back. In fact, until quite recently, the UK’s economic out-performance of the EU since the financial crisis has told the same tale. Lately, economic activity in Europe has been rather stronger, but this isn’t really the issue, which is more about the benefits we get from being in the EU.
Matt Ridley, the former chairman of of the failed bank Northern Rock from 2004-07, writing in The Times yesterday joined other "Leave" protagonists in saying that freed from the unspecified shackles of the EU, the UK could trade and innovate freely, and conduct new trade negotiations with non-EU countries and rejoin a growing world. He also claims, in contrast to 13 Nobel prize winners recently, that scientific research would thrive. He argues, in contrast to what the City believes, that the City would thrive. How could it thrive when the European Central Bank would almost certainly require euro-denominated clearing and settlement businesses in London to be domiciled in banks with headquarters in an EU country?
I only pick on Viscount Ridley’s article because it is the latest example of assertion based on a complete lack of evidence. These and other claims are at best a blind faith, but more likely pure fabrication.
It has been shown that EU and Single Market membership, including free movement, has brought the UK economy benefits over the last decades. For 20 years the UK has become progressively more integrated into the global economy through trade agreements negotiated by the EU with a myriad of countries, including China and other trade blocs. In fact, the UK now has no trade negotiators: if we left the EU, we would have to start from scratch to build the expertise and personnel to unravel and remake tens of thousands of trade rules and agreements around the world.
The "Leave" camp don’t actually have a trade model they have agreed to push. Officially, leaders have said they don’t want or need the Single Market. Others say we could join the EEA, though by so doing we would have to sign up to the free movement that Leavers want to abandon. The most risible argument though is the idea that the EU would be only too happy to offer benign new trade terms to a major country that had just opted to quit and whose decision would be seen as dangerous and hostile to the remaining members. To believe this is far-fetched in the extreme. Germany’s car exports to the UK and the EU’s trade surplus are small beer in the larger scheme of things.
The idea that Brexit would see us rejoin a growing outside world is also a popular "Leave" refrain. To which we should say, what growing world? World trade has been stagnant for the last 3-4 years, with no material change in prospect. This is partly for structural reasons to do with changes in technology and supply chains, and a lot to do with China and other emerging markets. These one-time champions of global growth are all suffering a growth hiatus of unknown duration, and for reasons that are not fixable quickly. In these circumstances, we are far better off inside the EU bloc, which still has a clout that makes the UK’s look rather paltry by comparison. The EU-China Chamber of Commerce in Beijing, for example, representing 1600 companies, acts for and furthers the interests of EU companies as the US-China Chamber does for its members. The UK flying solo in China would be lost.
The UK flying solo would also give rise to a more immediate concern, which is how it could finance its gaping balance of payments deficit—close to seven per cent of GDP at the end of 2015—when the required capital inflows from foreigners might well dry up. Here we are talking partly about foreign direct investment, in which the US plays a prominent role, and China has made the UK its largest EU beneficiary. This isn’t an accident; it has everything to do with our geography, our relative lack of regulation and red-tape (Leavers please note), and our gateway role with regard to the Single Market. Capital inflows also occur because of the unique role played by financial sector inflows into the UK banking system which depend on confidence in the UK economy and the banking system, and on the broad stability of Sterling. If the consequences of Brexit—a small foretaste of which we can now see—entail a big fall in Sterling, and the Bank of England addressed a weaker economy with more QE or negative interest rates, it is not hard to imagine a good old-fashioned balance of payments crisis greeting a newly-installed Brexit government.
Sometimes, it is enough to simply ask “why do we have to put ourselves through an act of self-harm, when the things that concern us, including pressure on public resources from recent immigration perhaps, are fixable in other ways?” Remainers think there is no valid reason for this. Certainly not an economic reason, and surely not on account of bureaucracy and red tape, which haven’t prevented the UK from innovating, or achieving full employment. Parliament is sovereign in everything that really matters to us, and where it has ceded sovereignty, as every country does when it enters into trade and other acts of economic integration, it is as a quid pro quo for identifiable economic and welfare benefits. The EU is far from a perfect construct—we all agree—and pressure for change will persist and is propitious. But ditching it for an economic world that doesn’t exist is just folly.
Public opinion surveys suggest that voters rank immigration and the NHS as more important than the economics of remaining or leaving. When asked, a majority of respondents think the UK economy would be worse off if we left the EU—as the economics community has overwhelmingly and forcefully argued—but at the same time they say they personally do not expect to be. If ever there were a paradox of opinion, this is it. It is a fantasy to think the country will be economically worse off but the electorate will not pay the price.
Voters don’t articulate concern about demand and supply shocks the way that economists do, but there’s no question the UK will succumb to both if it leaves the EU. We don’t even have to bring up the specific forecasts from the Treasury and other agencies here, which are subject, as all forecasts are, to uncertainties and imprecision. But we know that across a broad array of factors, the UK economy will be weaker in the short to medium-term as a result of weaker demand, and less robust in the longer-term as the disruption to trade and investment clip our growth rate and what economists call total factor productivity. It is in this context that we should think about the recent view of the Institute for Fiscal Studies that the cost of Brexit to the UK budget could be between £20-40 billion by 2019/20. This dwarfs the UK’s net contribution to the EU of about £8 billion a year, which, even if it were saved, would have to be allocated to government and plugging the fiscal gap. In this sense the false prospectus of spending the money on the NHS, science, farmers, defence, university funding and much else should really be seen as a fairy tale. George Osborne was quite right yesterday to warn of the fiscal risk. Talk of an “emergency budget” has caused a sharp reaction, including, curiously, from many MPs who have had no qualms about voting for austerity before. But there is little doubt, as Alistair Darling added at the same event, that a future UK government would need to cut spending and raise taxes many times over the next few years.
Yesterday's news that UK unemployment has slipped further to 5 per cent, and that a record 31.6m people are in employment, regardless of the numbers coming to the UK to work, demonstrates that membership of the EU has not held the economy back. In fact, until quite recently, the UK’s economic out-performance of the EU since the financial crisis has told the same tale. Lately, economic activity in Europe has been rather stronger, but this isn’t really the issue, which is more about the benefits we get from being in the EU.
Matt Ridley, the former chairman of of the failed bank Northern Rock from 2004-07, writing in The Times yesterday joined other "Leave" protagonists in saying that freed from the unspecified shackles of the EU, the UK could trade and innovate freely, and conduct new trade negotiations with non-EU countries and rejoin a growing world. He also claims, in contrast to 13 Nobel prize winners recently, that scientific research would thrive. He argues, in contrast to what the City believes, that the City would thrive. How could it thrive when the European Central Bank would almost certainly require euro-denominated clearing and settlement businesses in London to be domiciled in banks with headquarters in an EU country?
I only pick on Viscount Ridley’s article because it is the latest example of assertion based on a complete lack of evidence. These and other claims are at best a blind faith, but more likely pure fabrication.
It has been shown that EU and Single Market membership, including free movement, has brought the UK economy benefits over the last decades. For 20 years the UK has become progressively more integrated into the global economy through trade agreements negotiated by the EU with a myriad of countries, including China and other trade blocs. In fact, the UK now has no trade negotiators: if we left the EU, we would have to start from scratch to build the expertise and personnel to unravel and remake tens of thousands of trade rules and agreements around the world.
The "Leave" camp don’t actually have a trade model they have agreed to push. Officially, leaders have said they don’t want or need the Single Market. Others say we could join the EEA, though by so doing we would have to sign up to the free movement that Leavers want to abandon. The most risible argument though is the idea that the EU would be only too happy to offer benign new trade terms to a major country that had just opted to quit and whose decision would be seen as dangerous and hostile to the remaining members. To believe this is far-fetched in the extreme. Germany’s car exports to the UK and the EU’s trade surplus are small beer in the larger scheme of things.
The idea that Brexit would see us rejoin a growing outside world is also a popular "Leave" refrain. To which we should say, what growing world? World trade has been stagnant for the last 3-4 years, with no material change in prospect. This is partly for structural reasons to do with changes in technology and supply chains, and a lot to do with China and other emerging markets. These one-time champions of global growth are all suffering a growth hiatus of unknown duration, and for reasons that are not fixable quickly. In these circumstances, we are far better off inside the EU bloc, which still has a clout that makes the UK’s look rather paltry by comparison. The EU-China Chamber of Commerce in Beijing, for example, representing 1600 companies, acts for and furthers the interests of EU companies as the US-China Chamber does for its members. The UK flying solo in China would be lost.
The UK flying solo would also give rise to a more immediate concern, which is how it could finance its gaping balance of payments deficit—close to seven per cent of GDP at the end of 2015—when the required capital inflows from foreigners might well dry up. Here we are talking partly about foreign direct investment, in which the US plays a prominent role, and China has made the UK its largest EU beneficiary. This isn’t an accident; it has everything to do with our geography, our relative lack of regulation and red-tape (Leavers please note), and our gateway role with regard to the Single Market. Capital inflows also occur because of the unique role played by financial sector inflows into the UK banking system which depend on confidence in the UK economy and the banking system, and on the broad stability of Sterling. If the consequences of Brexit—a small foretaste of which we can now see—entail a big fall in Sterling, and the Bank of England addressed a weaker economy with more QE or negative interest rates, it is not hard to imagine a good old-fashioned balance of payments crisis greeting a newly-installed Brexit government.
Sometimes, it is enough to simply ask “why do we have to put ourselves through an act of self-harm, when the things that concern us, including pressure on public resources from recent immigration perhaps, are fixable in other ways?” Remainers think there is no valid reason for this. Certainly not an economic reason, and surely not on account of bureaucracy and red tape, which haven’t prevented the UK from innovating, or achieving full employment. Parliament is sovereign in everything that really matters to us, and where it has ceded sovereignty, as every country does when it enters into trade and other acts of economic integration, it is as a quid pro quo for identifiable economic and welfare benefits. The EU is far from a perfect construct—we all agree—and pressure for change will persist and is propitious. But ditching it for an economic world that doesn’t exist is just folly.
