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Brexit – to be or not to be
With over three months to go before the EU referendum the stay or leave debate dominates government and economics. The financial uncertainty in the lead up to 23 June has reduced the strength of the pound against the dollar considerably. This instability could continue after the vote takes place, especially if it's a close call.
Both sides swap accusations of scaremongering over spending, saving and investing – as well as security and democracy. However, neither side has put forward a clear vision for the future. Opinion polls say the public is evenly split, with those in London and Scotland favouring the status quo, while the majority of older people would prefer to leave the EU.
Open Europe, a policy think tank analysing potential outcomes of Brexit, found that “UK GDP could be 2.2% lower in 2030” as a worst case scenario, whereas potential GDP increases total 1.6% at most. Trying to predict the future is tough work for economists but the one certainty is that there will be plenty of surprises, good and bad, between now and 2030.
Reasons to stay in the EU
Once the publicity subsides markets will stabilise again. The UK – being part of one of the world’s two richest trading areas - will continue to benefit from existing trading arrangements both inside and outside the EU.
European commercial relations
Currently companies can set up as easily in Brussels or Bratislava as in Birmingham. In general, big business is either in favour of remaining in the EU or neutral (some denying a specific position for fear of offending customers). Presently, smaller firms have the entire EU as their home market, helped by the predominance of English as the first business language but this situation is largely dependent on EU membership.
Currently international companies can confidently invest in UK assets knowing they have free access to the European market. This in turn is good for stocks and shares, sterling, and help boost pensions. Japanese car makers are often used an example of companies that may choose to set up shop elsewhere in Europe if Britain left the EU.
The EU enforces no import tariffs or restrictions on EU goods and standardises rules for food and drink production. So camembert can compete with cheddar and Polish vodka with Scotch whisky. The perfect for filling up your car on the return from holiday.
Freedom of movement
At the moment UK citizens can marry people from other EU countries without immigration difficulties. They can work in Madrid or Manchester with the same ease. And millions of Brits either live permanently in Europe or own property there.
Reasons to stay out of the EU
During the two year exit process, the UK would set up bilateral trading arrangements with the EU, the United States, China and other countries. Businesses would no longer be fettered by links to a stagnant and problem-beset European economy. Direct trading between the UK and individual countries would be more tenable and these deals could close more quickly.
Economic expenditure/ cost
The UK would be free of “burdensome” regulations on labour practices, banking, climate change and manufacturing. Without these limitations the economy could receive a 2% boost. And that's before counting the cost of the UK's net contribution to Europe – estimated at around £10 billion a year.
Freedom for the City of London
EU rules governing banking, insurance and other financial areas are restrictive. They fail to recognise that the City has a unique relationship with the rest of the world but one that could easily be lost to New York or Shanghai. This would be positive for shares. Alone, we are the world's fifth biggest economy largely because of the finance sector.
The benefit isn’t necessarily mutual
Europe would be happy to compromise with the UK because they would find it almost impossible to replace their UK sales in areas such as agriculture and automotive. Arguably the future of the UK economy lies in the wide world, whereas the European vision is restricted.
Control over migration
The ability to control our own borders would allow us Australian-style immigration based on needs. From an employment perspective, freedom of movement for EU citizen drives down wages, especially for the less skilled, and increases welfare, housing and education costs.
Ultimately, however, the public decision could be less about financial futures and more about emotional issues; such as “our second home in France” competing with “our ability to make our own laws”.
This article was written by Tony Levene and any opinions are his independent view and not the opinion of John Lewis Insurance or the John Lewis Partnership.