What are the key arguments in the Brexit debate that each of the two sides put forward as they try to persuade voters to tick their box in the EU referendum? Below is a list of the 5 arguments both for and against a Brexit.
Arguments FOR LEAVING the EU
Probably the main argument for those in favour of a vote to leave the EU is that it would mean that the UK can reclaim control of immigration. In the run up to the referendum this is also becoming an increasingly key factor for voters and if this continues it could be a vote winning argument. Due to the freedom of movement in the EU, it is almost impossible to curb immigration levels from the mainland continent. The Leave campaign point towards apparently uncontrollable immigration from countries such as Romania and Poland. They also baulk at the idea of Albania and Turkey joining the EU which they believe would merely exacerbate the issue. They argue about the strain on local communities where immigrants settle. This can have a detrimental impact on social cohesion, in addition to the availability of housing, education and healthcare which are already bursting at the seams.
The UK is not part of the passport free Schengen zone and still retains control of its borders, but in 2015 net migration for the UK was 333,000 of which 184,000 (a record number) was from the EU. The Conservative government’s manifesto for the 2015 General Election pledged to deliver net migration in the tens of thousands. This is clearly not being achieved and the trend is getting worse.
Much has been made of regaining sovereignty from the EU. The Leave campaign suggest that around 70% of the UK’s laws come from the EU. Although this may be difficult to measure, it still seems to be an extension of the truth, which in reality is probably much lower. In 2010, the House of Commons library published analysis of how UK laws have been enacted and suggested that between 15% and around 50% was more accurate. Whatever the actual number, the Brexiteers are of the opinion that UK laws should not be set by an unaccountable, undemocratic European Commission. The Leave campaign argues that they want their laws back!
Economic arguments very rarely suggest that the UK could benefit economically from a Brexit – and in most scenarios the uncertainty will be a negative impact in the near term at the very least. Negotiations over trade deals could take years to complete and this is likely to be an economic cost to the UK economy. The Leave campaign very rarely talks about any economic benefits due to this widely accepted reason.
However, the Leave campaign is not entirely toothless on the issue of the economy. It has attempted to fight back by recently publishing a letter in the Telegraph, signed by 300 “business leaders”, suggesting that the EU red-tape constrains Britain’s 5.4 million businesses only a small proportion of which actually trade with the EU. “Outside the EU, British business will be free to grow faster, expand into new markets and create more jobs.” The leave camp is clearly hoping to engender a march of the masses against the old establishment.
The Leave campaign argues that Europe seems to be moving towards ever tighter union. Is this really what a country that has a proud tradition of independence wants? It is widely accepted that the Eurozone will eventually need to move towards a common fiscal policy or fiscal union to overcome many of the inherent problems it faces. The Leave campaign is concerned about the implications that this would have for the rest of the EU. Is the European Union seemingly set on a path towards the “United States of Europe”? Many in Britain would find this hard to stomach as the loss of sovereignty continues. The argument of the Leave campaign is that this might be the last chance for the UK to avoid this scenario.
Also on ever closer union and security, the Leave campaign claim that staying in the EU will eventually mean that the UK will have to contribute to a European Union army, claiming that it would divert resources away from NATO. It is claimed that this would impact negatively on the UK’s security.
Arguments AGAINST LEAVING the European Union
The main argument against a Brexit is driven by economic factors. The primary argument can be summed up in one word, “UNCERTAINTY”. No-one really knows what the economic impact would be for the UK to leave the EU. However, almost everyone is agreed that the uncertainty will be a negative impact on the UK economy, at least on a near term basis.
What is clear is that economic growth has already been impacted due to the uncertainty. In the run up to the vote, businesses have been putting off making investment decisions (see the minutes from the April Bank of England meeting). This would not be the case if the impact was expected to be economically neutral. From the Bank of England MPC meeting minutes, 14th April:
It is very difficult to find a politically balanced estimate for the impact on UK GDP. The UK Treasury has issued its own set of figures, but given the potential for inherent bias (the department is run by Chancellor Osborne, one of the politicians fronting the Remain campaign). However, one of the more politically neutral reports analysing the economic impact comes from the independent think tank, Open Europe which calculates the range of risk to UK’s GDP to be:
The positive sides of the argument rely on very successful re-negotiation of trade deals, a smooth transition to a deregulated and freer economy and being free of considerable political resistance.
Other studies such as one completed by the Institute for Fiscal Studies (another independent think tank) suggest that the negative impact on the UK Government’s budget deficit could be between £20bn to £40bn by 2020. This would result in either higher taxes and/or lower government spending. It would likely result in the need to extend austerity measures to help brink the UK’s budget deficit back into balance. The IFS believes that it could take an additional two years.
Economically, aside from the expected negative impact on growth, there is also a likelihood that unemployment could also rise. Jobs directly linked with membership of the EU, especially in finance and trade related companies would come under significant pressure. There could also be significant downside pressure on the value of sterling (some investment banks suggest possibly as much as 20%), which would lead to higher inflation too as the price of imports would rocket.
Subsequently, it is difficult to determine with any certainty how this would impact on the Bank of England’s monetary policy. The Bank of England could be pushed into a move of interest rates to combat the impact of a Brexit, the big question is which way? There are economic arguments for both a rate cut (in order to combat negative growth implications) and a rate hike (to combat the inflationary impact of a sharp depreciation in sterling). A move in either direction would be the Bank of England having its hand forced, which could be viewed by the market as a panic move and subsequently in rather an unfavourable environment for UK assets.
Both the Leave and Remain camps agree about one thing. With the considerable political and economic upheaval, in the near term the impact on the UK economy would be negative. The question would be how long it would take to renegotiate trade deals with countries. However, it could take a while. Being a member of the EU means that the UK automatically has trade agreements with over 50 countries. These deals would need to be renegotiated which would undoubtedly take some while. And what of negotiations with the EU? It is worth noting that a deal between Canada and the EU took 7 years, whilst the pro-Remain UK Government claims (clearly to be taken with a heavy pinch of salt) that it could take up to 10 years to renegotiate a trade deal with the EU.
The big problem with a Brexit is that there is no way of knowing what sort of access that Britain has with the single market. As at March 2016 total UK exports to the EU was 48% with total imports at 51% (according to HM Revenue & Customs). So with question marks hanging over around half of the UK’s international trade balance this would be a significant shock to the economy for the near term.
The UK could be locked in renegotiations of trade deals for years. The UK does carry a sizeable weight for trading, with a population of around 65 million people in an advanced, consumer-driven economy. However, would this carry as much leverage in a trade deal negotiation as the EU with a population of around 508 million people? There is a real risk that President Obama’s insistence that the UK would be “at the back of the queue” could be more than a politically barbed comment.
Whole books could be written on deciding which type of renegotiated deal would prefer with Europe, but there are two sides to a deal. Would the EU be willing to give the UK a good deal, knowing that this may encourage other countries to leave the union?
The referendum campaign has been littered with claims and counter-claims. The Remain camp has moved to dispel the a key arguments cited in the Leave group’s letter on trade and red tape signed by 300 “business leaders”, by noting that Treasury analysis shows the UK would lose £200bn of trade per year relying solely on World Trade Organisation rules and overseas investment of £300bn in the next 15 years. This needs to be taken with a pinch of salt though coming as it does from George Osborne’s Treasury ranks.
Remain argue that the EU has made the UK a far more dynamic economy. Inward investment could be put at risk following a Brexit. The automobile and financial sectors are heavily reliant on the access to the single market with its reduced tariffs and licencing, Japanese Prime Minister Shinzo Abe has suggested that with the UK out of the EU, the country would be less attractive to Japanese investors. A recent statement from Japanese multi-national firm Hitachi said that it is “in the UK in order to have access to the entire EU and European market”. The UK leaving the EU would mean that many overseas companies would have a big decision to make.
On Immigration, Remain counters the negative impacts of social cohesion and pressure on public services by talking about the economic benefits of immigration. Immigration helps to provide a pool of labour to make up for the skills shortages in the UK. Housebuilding is one such area, with the Home Builders Federation estimating 41% of housebuilders consider labour availability to be a constraint on production, with current estimate suggesting around 12% of the labour to be foreign born. Further constraining the labour supply of immigration following a Brexit would impact negatively on housebuilding and therefore could send house prices higher.
One of the arguments that the Brexiteers have always talked about is that leaving the EU would do away with reams of needless rules and regulations. However, the benefit of fewer rules could be, in reality, rather limited. To trade with the EU, the UK is likely to have to maintain many of the “standards” that trading with the EU demands. Countries such as Norway and Switzerland already find this to be the case and they need to accept many of the EU regulations in order to trade with the bloc. Furthermore, according to the Organisation of Economic Co-operation and Development (OECD), Britain is already seen as being amongst one of the least regulated countries amongst its 34 members.
Grey areas of argument
Some of the arguments are harder to conclude upon and both have merits.
Cost of membership of the EU will be cited by both camps. The net cost of EU membership after all rebates and subsidies was around £8.5bn in 2015. However, the Leave camp often points out that the EU costs around £350m per week (clearly this number is taken as gross before adjusting for any rebates and subsides). They will then segue into how many new hospitals this could pay for if the UK were to leave. Remain counter this by noting the benefits of EU membership, the lower cost per head than other EU countries and also the fact that the UK would still need to contribute to the EU budget to continue to access the single market.
Furthermore, the independent Institute for Fiscal Studies refutes Leave’s claim of £350m saved from the cost of membership. The IFS believes the net cost is more likely to be closer to £150m. However, beyond this they also believe that the loss of inward investment and overseas trade would more than swallow any saving of £150m, claiming that the taxpayer would actually end up footing the bill of an exit.
The issue of security is also increasingly in the headlines of late. Prime Minister Cameron suggests that leaving the EU would be detrimental to the country’s security. The former bosses of the UK security agencies MI5 (Lord Evans) and MI6 (Sir John Sawers) suggest that there would be a direct negative impact as the UK so would be shut out of crucial issues such as data sharing and lose the ability to use the European Arrest Warrant. The claims have been countered by the Leave campaign’s suggestion that the European Court of Justice actually interfered with the UK’s data sharing capacity. The UK is not part of the Schengen area of borderless travel, but the Leave camp has still been arguing that the EU’s open borders policy has allowed the freedom of movement for terrorists and this has placed terrorists at the UK borders.
If you are interested you can still view my previous articles on the EU Referendum “Brexit – The Top 3 Issues“, “Brexit – 6 key impacts on the financial markets” and “How is Richard Perry going to vote and why“.