Mythmaking and scaremongering: just how bad would the economic repercussions of a Brexit be for the
Lots has been said about the subject, but is it serious analysis or much ado about nothing? This take on the economic consequences of Brexit emphasises the importance of trade and investment to the UK economy, and suggests that growth would be seriously stunted by Brexit, at least in the short- to mid-term.
It seems as though the debate over the economic stakes of Britain’s European question has thus far been dominated by, frankly, a load of guff.
At its most rudimentary level, this economic analysis must look at what Britain pays into the EU and what it get back in return. In 2015, Britain’s contribution to the EU budget was £19bn, whilst it received £10bn in the form of grants, subsidies and a budget rebate. So far we can see a net cost of £9bn associated with membership. But this doesn’t tell the whole story – it’s not even the first chapter! Another important perspective with which we need to view this economic question is that of UK Trade and Investment.
Scaremongering and mythmaking abound, with each side of the campaign keen to ‘win’ the economic argument by quantifying the value of EU trade in the minds of Britain’s ordinary householders. Britain Stronger in Europe, for example, has estimated that each household is £3000 better off per year IN the EU because of access to its Single Market; meanwhile, the OUT campaign puts it that £1000 per year could be saved for each household by leaving because expensive tariffs on imports from outside the EU could be scrapped. Altogether, said ordinary householder can be forgiven for being at a loss when it comes to understanding what is actually going on.
Very briefly, trade is important to countries because on their own they do not have the resources or capacity to satisfy their own needs and wants. They trade their own wealth and resources with those of other countries in order to improve the quality of life for their citizens. Trade deals are an important part of the process because they allow countries to reach formal understandings on tax, tariffs and other restrictions in order to save time and money for everybody involved. At the moment, the UK’s has its trade deals negotiated by the world’s largest economy – the EU – and pro-European campaigners (including the author) claim that this is a big coup for Britain. Another benefit of membership is the UK’s access to Europe’s Single Market (European goods and services bought and sold in one huge continental marketplace, all of which are automatically free of import/export tax; countries can’t levy these taxes in the Single Market). This access is part of the reason that many multinational companies choose to base their European operations in the UK, creating jobs and benefiting the UK economy as a whole – the car manufacturer Toyota has just released a press release explaining as much.
A majority of economists have forecasted that that the UK’s balance of trade would worsen in the event of Brexit; the UK would become ‘worse’ at trading, importing more than it manages to export, which is a costly business. But why? The theory being put to us by some pro-European campaigners is that the UK would no longer have access to the Single Market in the event of Brexit. Leave campaigners retort that this fear is overblown; the UK is the world’s fifth largest economy and so they will have the capacity to negotiate a free-trade deal with the EU on their own. Well, yes and no. The claim that the UK could not trade freely with Europe is clearly over exaggerated; non-member Norway does it by participating in the EEA (European Economic Area). But the last trade deal that the EU completed – with Canada – took a seemingly endless 7 years to complete! That’s potentially 7 crippling years of uncertainty for British businesses as the UK-EU free trade deal is negotiated, and that’s only the start of it. Having just pulled out, the UK would need to negotiate 60 fresh trade deals with countries whom the EU dealt with! The Cabinet Office estimates that the whole process would take 10 years (although you could argue that even this is a conservative estimate). Add to this the fact that the US’ most senior trade official, Michael Froman, is on-record saying that America is ‘not in the market’ for a free-trade deal with Britain alone. This isn’t necessarily to say that the UK economy would exist perennially in a state of shock thereafter, but it does indicate that Britons would be in for a pretty grim 10-15 years at the very least.
Just how grim are we talking? Well, 3 million UK jobs are linked to trade with the EU, as are 200,000 UK businesses. It isn’t fair to suggest that all of these jobs and businesses would definitely be in jeopardy after Brexit (this WOULD be scaremongering) but certainly their future would become very unclear. This is the very crux of the issue; nobody can quantify in exact terms the long-term economic effect of Brexit – it all depends on how you do the sums, who you talk to, your own political leanings etc… Equally, the short-term effects are difficult to quantify apart from the basic premise that they would be bad! The Pound Sterling has already fallen sharply in value in the past month since the announcement of the referendum date. Its drop in value would undoubtedly be far more significant in the event of Brexit. For just how long after Brexit would the UK economy suffer badly is perhaps a more pertinent question at this stage. I’ll probably be just under 40 before we would begin to see the light at the end of this particular tunnel! How old would you be?
The status quo has Britain as a member, and since LEAVE campaigners seek to change this status quo, the onus is on them in the first instance to present a compelling case for why Britain would be better off outside. A series of arguments will be deployed by LEAVE in an attempt to construct this case, but importantly if these include economic ‘analysis’ pointing to a worry-free British economy post-Brexit then frankly they’re a load of guff.
