Before setting out, some caveats.<\/p>\n
- \n
- We can\u2019t predict the future with certainty. The world faces major uncertainties \u2013\u00a0 economic (another economic crisis?), political (instability in the Middle East), environmental (climate change), societal (population ageing) and technical (nuclear safety). Thus this note does not claim to be \u2018right\u2019, but rather to set out arguments based on respectable theory and evidence.<\/li>\n
- The EU hasn\u2019t got it all right \u2013 far from it. But that on its own is not an argument for leaving. As William Hague (Telegraph<\/em>, 22 December 2015<\/a>) puts it,<\/li>\n<\/ul>\n
\u2018I haven\u2019t changed my view on the EU: I have often denounced how it works but never advocated withdrawal from it. This is one of many situations in life where finding many faults with something is different from thinking it best to leave it.\u2019<\/p><\/blockquote>\n
BACKGROUND FACTS<\/h3>\n
UK opt-outs<\/strong>. The UK has a series of important opt-outs: from \u2018ever closer union\u2019; from the Euro; from the border-free Schengen Agreement; and from\u00a0 policies on asylum, migration, justice and internal security.<\/p>\n
Trade<\/strong>. Figure 1 shows that British trade with the EU is much larger than with anyone else. Trade with China is growing more rapidly but is still very small (2.9%). In round numbers, about 45% of UK trade is with the EU, 18% with the USA and 7.3% with the BRICS countries (Brazil, Russia, India, China, South Africa).<\/p>\n
Trade matters greatly. There is near-universal agreement among economists that trade contributes to higher living standards, and that reducing restrictions on trade generally increases the gains.<\/p>\n
The Single European Market<\/strong>. Free-trade agreements are mostly about goods (cars, chemicals) rather than services (insurance). The Single European Market is about both and therefore has harmonised regulations to avoid non-tariff barriers (e.g. different or incompatible regulations designed to make it hard to break into a domestic market). If the UK is not in the single market, trade in services will be damaged. That matters because only 10% of UK output is in manufacturing.<\/p>\n
Members of the European Economic Area like Norway have access to the single market without being members of the EU. However,\u00a0as a former foreign minister of Norway explains<\/a>, Norway must (a) accept free migration of EU citizens, (b) contribute to the EU budget, and (c) comply with all EU rules but with no say in making those rules.<\/p>\n
Figure 1: Percentage of UK exports to other countries, 2014<\/strong><\/p>\n
![\"exports\"](\"http:\/\/blogs.lse.ac.uk\/brexitvote\/files\/2016\/05\/Screen-Shot-2016-05-26-at-20.37.39.png\")
<\/a><\/p>\nSource:\u00a0UK Pink Book 2015<\/a>, Table 9.1.<\/p>\n
ECONOMIC EFFECTS OF LEAVING<\/h3>\n
A short\u00a0Financial Times<\/em>\u00a0video<\/a>\u00a0gives an excellent summary.<\/p>\n
There is little dispute that leaving would create short-term losses. \u00a0A Treasury report (BBC 23 May 2016<\/a>) on the short-run effects suggests a recession, a view confirmed by the respected independent\u00a0Institute for Fiscal Studies<\/a>\u00a0who point to the resulting increase in the budget deficit and argue that \u2018It is unlikely that government would respond with bigger spending cuts and tax rises in the short run. More likely \u201causterity\u201d would be extended by another year (optimistic scenario) or another two years.\u2019<\/p>\n
There is also widespread agreement among economists that leaving would reduce economic growth over a longer time horizon, and that the loss could be large.<\/p>\n
How large a loss depends critically on which trade regime is in place after we leave.\u00a0\u00a0The Treasury\u2019s medium-term assessment<\/a>\u00a0models three options: \u2018Norway\u2019(remain in the single market); \u2018Canada\u2019 (a bilateral agreement with the EU); or based on World Trade Organisation (WTO) rules without any specific agreement with the EU.<\/p>\n
\u2018Britain would face an invidious choice \u2026. The EU would insist that in return for full access to the single market, the UK must continue to sign up to EU laws, pay budget contributions and accept the free movement of people. As Britain would have voted to escape these perceived burdens, higher barriers to trade with the EU are all but certain. The higher the barriers, the greater the damage to the British economy\u2019 (Centre for European Reform, 21 April 2016<\/a>).<\/p><\/blockquote>\n
The losses will not fall evenly, but on particular regions (e.g. Cornwall), particular sectors (farming), on particular parts of the country (e.g. where foreign-owned car plants are sited), and on tax-financed public services such as the NHS if lower growth adds to fiscal pressures.<\/p>\n
The argument that the UK will be able to negotiate good trade deals quickly is implausible.<\/p>\n
- \n
- The EU is more important to the UK than vice versa, so our bargaining power is limited.<\/li>\n
- Brexit risks a chain reaction, given rising nationalism across the EU (on which more below). Thus the EU\u2019s rational response is to make a horrible example of the UK.<\/li>\n
- For non-EU countries (e.g. USA, China), negotiating with the EU offers access to a market of 500 million. The UK is much less of a magnet.<\/li>\n<\/ul>\n
Thus,<\/p>\n
\u2018The claim that the outcome will be fine because Britain is the fifth-largest economy in the world is technically wrong, a non sequitur and a fundamental misreading of history. It is hard to think of a worse argument\u2019 (Chris Giles, Economics Editor,\u00a0Financial Times<\/em>, 4\u00a0May 2016<\/a>).<\/p><\/blockquote>\n
DO WE REALLY SEND \u00a3350 MILLION PER WEEK TO BRUSSELS?<\/h3>\n
The claim that membership costs \u00a3350 million per week, i.e. \u00a318bn per year, is plain wrong.<\/p>\n
\u2018First, the rebate [negotiated by Margaret Thatcher] on Britain\u2019s contributions means the annual contribution is expected to be \u00a313bn in 2015. Of that money, another \u00a34.5bn comes back to the UK as farming subsidies and regional development funds. Another \u00a31.4bn comes back in grants to the private sector. These adjustments reduce the \u00a3350m a week to \u00a3136m (Financial Times<\/em>, 1 April 2016<\/a>).<\/p>\n
\u2018Claims that we would have an additional \u00a3350 million a week to spend are wrong. They imply that following a UK exit other EU countries would continue to pay a rebate to the UK on contributions it was not making. Such claims also imply we would simply stop all existing EU subsidies to farming and poorer regions (such as Cornwall and west Wales)\u2019 (Institute for Fiscal Studies 25 May 2016<\/a>).<\/p><\/blockquote>\n
In everyday terms, the cost of EU membership is less than 30p per person per day, roughly the cost of a cheap mobile phone contract. The reduction in the government\u2019s tax revenues from even a small reduction in growth rates after leaving would dwarf any saving in our net EU contribution.<\/p>\n
POTENTIAL INTERNATIONAL EFFECTS<\/h3>\n
For a summary, see William Hague\u2019s articles in\u00a0The Telegraph<\/em>,\u00a022 December 2015<\/a>,\u00a018 April<\/a>\u00a0and\u00a09 May<\/a>2016).<\/p>\n
Someone misspoke on the radio, asking \u2018Will you vote to stay in the UK?\u2019 \u2013 but was right. A vote to leave risks destabilising the UK through the possibility of a second Scottish referendum. There are also ramifications for the Irish peace process (Financial Times<\/em>, 28 April 2016<\/a>), which depends crucially on both UK and Irish Republic being members of the EU, with no border for people, goods or services.<\/p>\n
Leaving also risks destabilising the EU economically and politically. Marine Le Pen is already calling for a Frexit referendum, with a risk that populist parties in other countries, including Germany, the Netherlands and Denmark, could follow (Financial Times<\/em>, 26 February 2016<\/a>).<\/p>\n
If the UK and EU are weaker, the US is weaker. These pressures enact what has been Soviet or Russian foreign policy for sixty years \u2013 divide Western Europe and destabilise and weaken the EU \u2013 see the powerful article by Garry Kasparov,\u00a0Guardian<\/em>\u00a013 May 2016<\/a>.<\/p>\n
Kevin Featherstone\u00a0summarises<\/a>\u00a0some of the findings of the\u00a0LSE Commission on Britain\u2019s Future in Europe<\/a>.<\/p>\n
\u2018A \u201cno\u201d vote \u2026 will greatly extend the crises that the EU is already trying to manage. \u00a0Geopolitically, a Brexit will weaken Europe\u2019s ability to stand up to Putin\u2019s aggression and the challenges of jihadism. The EU would lose a member that has one of its biggest military and diplomatic capacities, its main advocate of interventionism, and the strongest link with Washington. Brexit will threaten the global role of both the UK and the EU.\u00a0 Internally, a Brexit will rejuvenate fears of Germany hegemony, with France alone unable to be the counter-balance, with concerns revived in Europe\u2019s east and south.\u2019<\/p><\/blockquote>\n
SOVEREIGNTY<\/h3>\n
For some, the economic and international costs of leaving might be a price worth paying if it restored UK sovereignty.<\/p>\n
Economic sovereignty<\/strong>. The Westminster government has less sovereignty than in the past. First, globalisation has reduced the independence of all countries. For example, the internet makes national boundaries more porous (music downloads, Netflix), making competition global and reducing the freedom of any country to have taxes and regulations too different from competing countries. That said, the UK retains significant sovereignty over fiscal policy (taxes and government spending) because of the opt-out from the Euro.<\/p>\n
In addition, the UK shares sovereignty with the UN, NATO, the World Trade Organisation, etc. \u00a0(the UK has signed 14,000 treaties (Financial Times<\/em>, 3 May 2016<\/a>)); and within the UK, central government has devolved significant powers to regions and cities.<\/p>\n
International reach<\/strong>. Though there is room for disagreement about how strong the effect would be, it hard to see how the UK becomes a more powerful global actor by separating itself from its own continent.<\/p>\n
Migration<\/strong>. For many, this issue is the crux. The question is not whether the issue is real (it is) but the choice of policies to address it.<\/p>\n
In 2015, \u2018Net migration of EU citizens was estimated to be 184,000 (compared with 174,000 in YE December 2014; change not statistically significant). Non-EU net migration was 188,000 a similar level compared with the previous year (194,000)\u2019 (Office for National Statistics 26 May 2016<\/a>).<\/p>\n
Historically there have been great benefits from waves of immigration, from the Huguenots to today\u2019s NHS workers. The best available evidence shows that current immigrants are net fiscal contributors and \u2018[t]he contributions of those who stay in Britain may well increase. It is a new form of foreign direct investment\u2019 (Economist<\/em>, 8 November 2014<\/a>).<\/p>\n
Research by\u00a0LSE\u2019s Centre for Economic Performance<\/a>\u00a0(see\u00a0Independent<\/em>, 12 May 2016<\/a>) finds that immigration from the EU does not harm wages, jobs or public services. The view that there is a fixed number of jobs, and hence that immigration reduces the number of jobs for Brits, is widely believed but mistaken (what economists call the \u2018lump of labour\u2019 fallacy). Immigrants to the UK add to domestic demand for goods and services which helps to generate employment.<\/p>\n
Those findings, however, do not rule out local problems if numbers increase rapidly. The case for targeted action is strong; it does not follow that leaving the EU is a good answer.<\/p>\n
Even if the UK were outside the EU, reducing immigration would not be easy.<\/p>\n
\u2018Migrationwatch has estimated that applying the current non-EU migration rules to EU nationals would reduce the current 323,000 net migration total by about 100,000\u2019 (National Institute Economic Review<\/em>, May 2016<\/a>, p. 20, quoted in the\u00a0Guardian<\/em><\/a>, 10 May 2016).<\/p><\/blockquote>\n
Finally,\u00a0the flip side of \u2018gaining control of our borders\u2019 is reducing the right of younger Brits to live and work in other EU countries and of older Brits to retire there<\/strong>.<\/p>\n
\u2018A lot would depend on the kind of deal the UK agreed with the EU after exit\u2026. If the government opted to impose work permit restrictions, as UKIP wants, then other countries could reciprocate, meaning Britons would have to apply for visas to work\u2019 (BBC, 12 May 2016<\/a>).<\/p><\/blockquote>\n
Security<\/strong>. The argument that free movement allows criminals to enter the UK should not be overstated. Driving from Brussels to Amsterdam, the only evidence of a border is the sign \u2018Nederland\u2019, like \u2018Welcome to Somerset\u2019. Such borders offer no security against terrorists or criminals. But the UK has an opt-out on the border-free Schengen agreement and thus has passport control at its borders. Failures of security are largely domestic, including self-inflicted cuts to Border Agency staff.<\/p>\n
Democracy.<\/strong>\u00a0The argument about \u2018unelected bureaucrats\u2019 is spurious. We never get to vote for Treasury or Home Office officials. The real questions are:<\/p>\n
- \n
- Is there a democratic deficit in the EU, i.e. does the European Parliament exert sufficiently powerful democratic oversight over the activities of EU officials? There are legitimate doubts whether that is so.<\/li>\n
- How likely is it that the problem will be addressed? There are grounds for optimism: the problem is recognised and other member states share UK concerns, so that pressure for change will comes from multiple sources.<\/li>\n
- Is this issue a reason for leaving? Clearly views can differ. Mine is the same as William Hague\u2019s in the quote at the start of this article.<\/li>\n<\/ul>\n
For what it is worth, there are 55,000 EU civil servants;\u00a0 the UK has 393,000 (BBC, 13 May 2016<\/a>) .<\/p>\n
Regulation<\/strong>. It is argued that the EU imposes heavy and unhelpful regulation.<\/p>\n
- \n
- OECD studies show that the UK has the second least-regulated product markets among industrial countries and the least-regulated labour markets in the EU.<\/li>\n
- Regulation has benefits. Co-ordination (for example, common safety standards for electrical products) is a necessary part of a single market, making it easier to trade. It also provides consumer protection, e.g. cheaper air fares, lower roaming charges, cleaner beaches.<\/li>\n
- What many regard as the most burdensome regulations \u2013 planning \u2013 are self-inflicted.<\/li>\n<\/ul>\n
Leaving the EU would not reduce regulation substantially. The issue is not regulation as a whole, but removing or revising the bad regulations that undoubtedly exist. That is a highly worthwhile task, but not a reason for leaving.<\/p>\n
In sum.<\/strong>\u00a0The UK remains a sovereign country in the sense that we can at any time decide to leave the EU. However, we cannot as easily decide to rejoin. The opt-outs described earlier were negotiated when the UK was a member state, hence with veto power. Were the UK to leave and later to reapply, the opt outs would no longer be on offer.<\/p>\n
BENEFITS OF EU MEMBERSHIP<\/h3>\n
The argument is not only about the costs of leaving but also about the benefits of membership.<\/p>\n
- \n
- Peace should not be underestimated because so few people are left who can remember the Second World War. The EU has also helped to consolidate democracy in Southern European countries formerly under military dictatorships and in former communist countries in Central and Eastern Europe.<\/li>\n
- Membership of the world\u2019s largest economy creates considerable economic benefits.<\/li>\n
- Membership gives greater control of the international environment (climate change, control of multinationals, action on tax havens).<\/li>\n
- Free movement benefits the large numbers of Brits who live and work in other EU countries, something of particular relevance to younger people who live and work in other EU countries for part of their career and older people who retire to warmer climes.<\/li>\n<\/ul>\n
CONCLUSION<\/h3>\n
For different mixes of these reasons,<\/p>\n
\u2018Best friends from Washington to Wellington, Ottawa to Canberra and Tokyo to Delhi are unanimous that their relationships are tied to Britain\u2019s place in Europe. Nato, the ultimate guarantor of British security, thinks the country would be disarming itself by quitting\u2019 (Financial Times<\/em>, 19 May 2016<\/a>).<\/p><\/blockquote>\n
Comparing costs and benefits is not as exciting as a rousing political speech, but is the right way to approach a hugely important decision. For me the balance of arguments is clear: the economic and foreign policy costs of leaving are large, and on my reading the gains in sovereignty in today\u2019s connected world are limited. The issue is not about the older generation\u2019s past but about our children\u2019s and grandchildren\u2019s future. For those reasons, I shall vote Remain.<\/p>\n
![\"ballot](\"http:\/\/blogs.lse.ac.uk\/brexitvote\/files\/2016\/05\/87950742_ballotpaper.jpg\")
<\/a><\/p>\n