Transcript Andrew Robertson, Head of Economics and Business Studies

Should the UK leave the EU?
Andrew Robertson, Head of Economics and Business
Studies, Alleyn’s School.
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Referendum
• C In December 2012 David Cameron announced that if the Conservatives
won the next election he would renegotiate the UK’s relationship with the
EU.
• C He would call a referendum on whether the UK should accept the new deal
or leave the EU.
• CThe likely year of the referendum would
be 2017.
• CIf the UK voted to exit, neatly termed
‘Brexit’, then after a period of
changeover this would occur in 2019.
Definition of the EU
• C The EU is a political and economic union of member states which are
located primarily in Europe.
• C It is a single market with no barriers to trade between members and a
common external tariff against imports from outside.
• C There is free movement of goods, persons, services and capital – the socalled Four Freedoms.
• C It was created on 1 November 1993, when the Maastricht Treaty came into
force and is governed by supra-national institutions.
• C The EU has approximately 500 million consumers and had 28 member
states at the start of 2014, of which 18 use the common currency unit, the
euro.
The importance of
the EU to the UK
• C The European project has delivered the longest stretch of peace in Europe
in modern history.
• C This has provided the stability for growth, integration and interdependence.
• C The EU accounts for around half of the UK’s exports and imports.
• C A recent government report cited six other studies, five of which said
membership was worth up to 6.5% in extra GDP. The sixth one said GDP
was 3% lower.
• C This range shows the wide variety of estimates that exist when trying to
quantify the costs and benefits of such an enormous and complex
organisation.
The current alternatives
to EU membership
• C With ‘Brexit’ there are broadly two main options.
• C The first is to reverse out of the EU’s political and legal influence as far as
possible, while trying to keep free trading access to EU markets.
• C The second is to exit the EU free trade area completely and have
a standard international, World Trade Organisation-style,
relationship with the EU.
• CThis second choice would mean
relatively high tariff rates, custom duties
and non-tariff barriers.
The outcome of
renegotiation is uncertain.
• C If the UK chooses to leave the EU if will be the first large state to reverse
the continuous forward momentum of an ‘ever closer union’ and this may
be seen as a threat to the European project.
• C Plus there is no guarantee of access to the European Free Trade
Association (EFTA) or the European Economic Area (EEA).
• C The EU could decide to negotiate a very unfavourable deal for the UK.
• C However, the EU has always been a union of self-interested states and
compromise has been a hallmark of its history.
• C The UK is also the EU’s largest export destination, so it is not in the EU’s
interest to create a trade war of tariffs with the UK.
The possible end of the
free movement of labour
• C The free movement of labour had by 2011 led to an estimated 2.3 million
citizens of other EU countries living in the UK.
• C Also, about 710,000 UK citizens live in other EU countries.
• CAlthough some UK nationals have been
out-competed for certain jobs by workers
from the EU, the UK has gained many
highly-skilled people.
• CWith ‘Brexit’ EU migrants are unlikely
to have free movement and the UK
economy would be a net loser of this
valuable resource.
The possible threat to
London as the EU’s
Financial Centre
• C Leaving the EU is very likely to reduce the flow of capital to the UK’s
financial services industry.
• C The City accounts for 10% of the UK’s GDP and 11% of its tax receipts.
• C Germany and France would love to see Europe’s financial centre move to
Frankfurt or Paris.
• C The City has already lost one-third of its workforce since 2007 and
uncertainty regarding its place on the financial world map does not help its
recovery.
Reduced government
spending and less red tape
• C The most immediate and probably least significant benefit of ‘Brexit’ is the
saving of about ￡8 billion a year in the UK’s net budget contributions to
the EU.
• C This contribution may sound large, but it is only about 0.5% of UK GDP.
• C Norway, for example, spends more money per citizen on being an external
member of the EU than the UK does as a member.
• C In 2010 the British Chambers of Commerce Burdens Barometer report
estimated that a third of the country’s regulatory burden came from EU
directives.
• C The study estimated the cumulative costs to UK businesses from EUorigin regulations implemented since 1998-2010 was ￡60.8 billion.
The effects on trade
and investment will
be significant 1
• C The immediate danger of David Cameron’s promise of a referendum is that
it may reduce Foreign Direct Investment (FDI) because it creates
uncertainty until Britain’s position is clear.
• C But inward FDI has actually risen from ￡42 billion in the year to June 2012
to ￡63bn in the year to June 2013.
• C More significantly outside the customs union, Britain’s ￡400 billion export
revenues from the EU are likely to fall.
• C For example, dairy exports would be subject to an import tax of 55% to
reach the EU market, and some items will have 200% tariffs.
The effects on trade
and investment will
be significant 2
• C In 2010 Switzerland, which is a member of EFTA, exported four times as
much per head to the EU as the UK did.
• C The Swiss negotiated a series of trade deals in the 1990s and fully
participate in the free movement of goods, services, people and capital.
• C They also successfully avoid much of the unnecessary regulation the EU
generates.
• C After ‘Brexit’ there would be the opportunity for the UK to establish low
tariff arrangements with fast-growing countries. Currently China and India
together barely account for 5% of UK exports.
The effects on trade
and investment will
be significant 3
• C However, in May 2013, President Obama warned that if the UK left the EU
it would not be party to the Transatlantic Trade and Investment Partnership
(TTIP).
• C This could be the biggest trade and investment deal in history and worth
￡6 billion a year to the UK alone.
• C It has been estimated that the deal could be worth an additional 1-2% of
GDP on both sides of the Atlantic.
• C The TTIP is a free trade deal between the EU and US economies, which
together represent over half the global economy and account for 30% of
global trade.
• C Obama stated that he thought it unlikely there would be the political will to
revisit the issue for the UK alone, should it exit the EU.
Conclusion
• C On the whole the UK’s politics tend to be to the right of most EU countries and its
economics is more free-market oriented.
• C It is argued that the formulation of polices and laws in the EU is more interventionist,
centralised and socialist than many free-market economists think is beneficial to the
EU’s long term economic performance.
• C The US wants the UK to stay a full member of the EU to champion liberal, free-market
values in Europe.
• C But many in the UK feel that the UK cannot change the direction of the EU and so
are primarily concerned with reducing the EU’s political, legal and economic power
over the UK.
• C The British Chambers of Commerce in 2013 found that 57% of business wanted to
remain in the EU while transferring specific powers regarding health and safety law,
and employment law, back to Westminster.
• C Plus 58% of firms feel that withdrawing from EU membership would harm UK
business interests.
• C The outcome of the next election and renegotiation is very important to the UK’s
economic and political future.