Should I Stay or Should I Go – some thoughts on the EU Referendum.

I would not normally write an entirely political blog, and I respect the right of every voter to form their own opinion. I have however become really disenchanted by receiving leaflets through my door which are full of untruths. Many voters have been reported to be asking for more facts, and this request is difficult to satisfy, as any predictions of future impacts have to be based on estimates, however this does not mean that those estimates are worthless. The scarcity of facts does not justify the lies which are being peddled.

The worst offending claims on leaflets arriving on my doormat have without doubt been those from the Leave campaign. Looking at some of their key claims:

  • “Britain sends £350 million per week to the EU”
    This is untrue and has been described as potentially misleading by the independent UK Statistics Authority. https://fullfact.org/blog/2016/apr/uk-statistics-authority-350-million-eu-membership-fee-potentially-misleading/
    The fact that it has been repeated over and over again does not make it any more truthful. The UK only pays across about £250m and then receives back EU spending, making the net cost about £180m per week, or about £9 billion each year. In return for that contribution to the EU’s running costs our economy benefits from the opportunities for tariff free trade and travel.
  • “If we did not send all that money to the EU we could spend it on the NHS”
    This statement relies upon voters believing a fallacy that the UK’s tax receipts are a fixed amount. In fact they fluctuate with the health of the economy, which is commonly measured as GDP (Gross Domestic Product). Respected independent organisations including the Institute of Fiscal Studies, the National Institute of Economic Social Research and the OECD, all forecast deterioration in the UK’s economic prospects in the event of the UK leaving the EU. This deterioration would mean a contraction of GDP, and so a reduction in tax receipts. The majority of independent experts have forecast that this reduction in tax receipts would be greater than the cost of membership of the EU, and probably much greater. A reasonable midpoint of these estimates is that the UK’s public finances would be reduced by over £30 billion per year, at least in the short to medium term. So we would not in fact have that money any more, and far from being able to spend it on the NHS any Chancellor would be forced to cut their expenditure to fit the revised tax receipts.
  • “We have lost control of our borders”
    As the UK is not party to the Schengen agreement it retains full control over its borders. Shocking images have been used by UKIP and by the Daily Mail to suggest that the UK is being besieged by immigrants. There are in fact a number of different issues;
  1. Free movement within the EU for EU citizens.
    Personally I don’t even regard people from the EU as immigrants anyway. They are spending some time working here while our economy needs them. When it no longer does a fair number of them will move on somewhere else. They are typically healthy people of working age, and several independent studies have confirmed that they make a positive net contribution to our economy. Without them the country’s productivity would likely fall further, and in several sectors many jobs would simply not be getting done.
  2. The need for skilled labour from EU and non-EU countries.
    I have worked with a number of high-technology start-ups and university spin-outs. I have been horrified at the barriers which the UK Government have put in the way of allowing these companies to recruit the skilled (i.e. Masters or PhD level qualified) engineers and computer scientists they need, even when there are simply no UK citizens with the necessary skills. The CEO of Google is Sundar Pichai who was born in Tamil Nadu in India and grew up in Madras. The CEO of Microsoft is Satya Nadella who was born in Anantapur in India. Need I say more? Do we really want to keep down the numbers of immigrants even if we miss out on people of such ability?
  3. The refugee crisis
    There is of course a refugee crisis. The wars in the Middle East have displaced many people who are desperate, and many of whom have been making their way to Europe. Personally I think the moral thing to do is to work with our neighbouring countries to find a humanitarian solution, rather than to pull up the drawbridge of fortress UK. I appreciate that not everybody will share that view.
  4. “Immigrants take jobs from UK workers and drive down wages”
    Statements of this kind rely upon people believing the fallacy that there are a fixed number of jobs in the economy, and so each one taken by someone from overseas reduces the number available for UK citizens. It is not so simple.
    As I have already mentioned there are some jobs for which there are no suitably qualified UK citizens. There are other jobs which fail to attract applications from UK citizens, particularly seasonal work and work in the service sector. Our GDP fluctuates based on productivity and entrepreneurial activity among other things.
    i) A number of independent academic studies have failed to find any evidence that immigration is an important driver of low pay.
    ii) I will use a local micro-scale example to illustrate my second point. In Edinburgh I know a couple from Sweden who moved to Edinburgh 12 years ago. When they could not find a nice pub in their area they decided it was an opportunity to open one, and make it a Swedish wine bar. They now own six bars and employ about 140 people. I think this clearly illustrates that they did not “take jobs from local people” when they moved here.
  • “Taking back control of our country from unelected bureaucrats”
    So when we joined the EU (then known as the EEC) in 1974, and when we ratified further treaties thereafter, we agreed to pool and share some sovereignty in pursuit of international harmonisation. The EU has removed barriers to trade not only by removing tariffs, but also by harmonising regulations on product safety and quality. This has benefitted the UK economy by making it as easy (in terms of regulations) to sell in Munich as in Manchester. This has enabled our economy to flourish – it may have imperfections but the UK is after all one of the richest nations on earth.
    This remark about unelected bureaucrats is sometimes made in relation to the EU Commission, whose commissioners are appointed by member states. Although sometimes described as the EU’s Civil Service I would accept that they do propose laws in a manner which goes beyond a civil service. Those laws do however have to be ratified by the parliament – the MEP’s. We do of course vote for our representatives in the EU Parliament, although admittedly turnout in those elections is regrettably low, which is a shameful reflection of our own country’s commitment to democracy. As many others have already pointed out we do not get to vote for those who sit in our own second chamber, the House of Lords.
    It is another untruth to state, as the Vote Leave camp have, that over half of our laws are made by the EU. Given some laws are long and some are short it is tricky or impossible to arrive at accurate percentages. By any sensible measure the figure of 50% is a ridiculous exaggeration, as only 13% of our laws are passed to enable EU legislation or make any explicit reference to EU law.
  • “The EU is a source of red tape which stifles our industry”
    We do have some problems with productivity in the UK, but cannot lay the blame for that at the door of the EU. These claims about red tape seem to boil down to two issues (here I am indebted to Kevin Hague and his excellent Chokkablog ).
    i) Standardisation
    As already mentioned we have agreed to accept standardisation on a pan-European basis, as one means of opening up a wider range of markets. These may be objectionable to UK companies who do not aspire to sell overseas. Any manufacturer who does not sell overseas is likely to see their market share eroded as competition from the rest of the world takes their customers, by offering products that meet international standards. Let’s stop complaining and get exporting!
    ii)            Workers’ rights
    When businesses are bought and sold regulations such as TUPE mean the acquiring party has to respect contractual rights of the workers. Well that seems like a reasonable starting point to me!

    • “So many conflicting claims – I don’t know who to trust”
      It is understandable that many voters are feeling this way, whether they did or did not vote for the Conservative Party, which appears to be in a state of civil war over the issue of our EU membership.
      There are some key points to remember though when determining who to trust.
      i) The forecasts of an anticipated recession in the event of Brexit have come from respected independent sources such as the Institute of Fiscal Studies, the National Institute of Economic Social Research and the OECD.
      ii) The forecasts of a weakening of the pound and falls in the stock market are coming from independent banks and investment companies. You might think that you don’t need to worry about this, however as most of us now have defined contribution pensions, returns on which depend on the performance stock market it is unlikely that you will be unaffected.
      iii) The vast majority of the world’s economists agree that Brexit will lead to recession, at least in the short to medium run.
      iv)  Dismissing claims by experts and independent economists you have Nigel Farage, Michael Gove and Boris Johnson. Boris Johnson has twice been sacked from jobs on account of lying. This is a matter of public record. He was sacked by The Times for fabricating a quotation in a published article, and by Michael Howard MP for publicly lying about an extra-marital affair. In the latter case Johnson disputed the sacking, claiming he had the right to lie. He has also made offensive remarks about the Hillsborough disaster, Africans, gay marriage and many other things. He may be an intelligent man, but he is not an honest man, and his personal ethics make him unsuitable for positions of public trust. Many doubt his principles in joining the Vote Leave campaign and believe that he has been motivated by ambition.
      Nigel Farage is a former commodities trader who has somehow persuaded our media that he is a man of the people because he smokes and likes a pint. He has no qualifications in economics. His recent unveiling of an anti- immigration poster which looks just like a piece of Nazi propaganda has only confirmed my own suspicion of him as arguably being either a closet racist himself, or at least someone who is prepared to stoke the fires of racism in pursuit of his political agenda.
      Michael Gove is an unusual politician and clearly his own man. He appears to have deeply held views about the EU and has been prepared to risk damage to his career by arguing for them. His tenure as Education Secretary won him few friends and admirers.
  • “We should conclude our own trade deals rather than relying on the EU”
    I negotiate commercial contracts for a living. If I was negotiating trade deals would I want to be speaking as the representative of a country of 64 million people or one of the largest economic blocs in the world, the EU, which has a population of 508 million? That is an easy question. It is also easy to imagine that possible trade partners would prioritise putting their resources behind negotiations with the EU rather than the UK.
    Vote leave point out that we could be negotiating our own trade deals with fast growing economies like India and China, but they fail to point out that these countries are a long way down the list of our current export partners. We export more to the Netherlands than we do to China.

Conclusion

I know that as the polls have tightened the Remain camp have also been guilty of some hype and exaggeration, but for my part I am clear that many of the claims of the Leave campaign have been fundamentally dishonest, and designed to manipulate the British public.

If people believe that the UK would ultimately be better off outside of the EU, and they are prepared to endure 5-6 years of economic pain then they may wish to vote to leave. They should be clear however that the anticipated recession would hit the UK hard, would be likely to lead to even greater need for either tax rises or budget cuts, and it may potentially be the catalyst for a global recession, hitting anyone with a mortgage or pension savings.

For my part I do not like to be lied to, and am not at all persuaded that there are sufficient benefits from leaving the EU to merit these economic risks. The EU may not be perfect, but working from within we can act as agents of change, and let’s face it the UK does also have its failings, which we need to work on too. We are however a wealthy nation and I see no reason to take steps which could lead to the first voluntary recession in our history.

Posted in Economics