Brexit: we’re asking the wrong question

Should the United Kingdom remain a member of the European Union, or leave the European Union? That is the question we will be asked on June 23 2016. We better be ready. This is the question of a lifetime.

There’s been a lot of back and forth between the leave and remain camps, but in the end the arguments all seem to end up getting stuck in the same place: “well, no one can say that for sure” or “you can’t say what deal we will get”. Finally, someone retorts “scaremongering” and we are all left wandering how we got here.

Asking the right question

It doesn’t have to be that way. True, if you look at the issues in isolation then you soon get caught in this trap. Too many factors, too many unknowns. But in reality, all the issues are fundamentally influenced by a single, alternative question: do we want to remain as part of the free market, or leave the free market?

Why? Because like it or not, access to the free market is the one key piece of leverage the EU has when negotiating all the other issues. Want to be part of the free market? Allow free movement of people. Want to be part of the free market? Accept our laws. And so on. Every deal we make with the EU will be framed by this. They used it with Norway and Switzerland; they will use it with us.

Of course, the EU only has this leverage if we actually want to be part of the free market. And so we should make this decision before looking at the other issues with regards to remaining or leaving.

Answering the right question

So, the question we must ask first is: Should the UK remain as part of the free market, or leave the free market?

If we are not part of the free market, then we must pay a fee in order to import and export from the EU. That means every time we sell something to the EU or buy something from it, there would be an additional charge levied.

These charges have two major consequences:

  • Reduced sales for UK businesses — as customers in the EU have to pay more for our goods, it will make them less likely to purchase them.
  • Increased prices for goods and services in the UK— anything we buy (or businesses buy) from the EU will be more expensive. These costs will be passed on to the consumer.

The UK exports 44.6% of all exports to the EU, so the reduction in sales for UK businesses could be very significant. As ever with economics, what is bad for business is bad for us:

If businesses are selling less, then they will reduce production. If they reduce production, then they need less jobs. If there are less jobs, then people will have less to spend. If they have less to spend, then they will buy less goods. If we buy less goods, then business will sell less. [Repeat]

This coupled with a higher cost of living would most likely make us worse off (estimates vary by how much). Because of this, there aren’t many people in either remain or leave camps that are arguing that we should leave the free market.

Takeaway: we should remain within the free market (whether in or out of the EU).

If we want the free market

If we leave the EU but want to remain in the free market, then the EU will use this as leverage over the UK in negotiations. At a minimum, they will request free movement of people and we will have to accept a number of EU laws (Norway and Switzerland had to accept these conditions when obtaining access to the free market from outside the EU).

Some argue that the EU needs us more than we need it (and so we could mitigate these conditions). Unfortunately, this is not the case.

  • UK exports 44.6% of all exports go to the EU, whereas the EU exports 16% to the UK. Even Germany exports only 7.1% to the UK. The UK needs the trade more than the EU.
  • All EU member states must unanimously ratify any agreement, so all 27 states must agree. Bulgaria exports just 2.2% exports to UK; will they care about an EU trade deal?
  • The EU will want to set an example to other states considering leaving, which means we are unlikely to get a favourable deal.

Takeaway: if we are in the free market, then we will have to allow free movement of people and accept a number of EU laws — even if we leave the EU.

Looking at the issues again

Now that we’re convinced (hopefully) that we should be part of the free market (and we are aware of the consequences) — we can review the issues from this new perspective:

  • Immigration — if we stay in the free market, we will have to accept free movement of people.
  • Sovereignty — if we stay in the free market, we will have to accept some loss in sovereignty (i.e. for laws related to trade). This is the compromise all EU countries must make in order for a single market to exist (every country must compromise at some point for the common good). If we leave the EU, we would gain more control over non-trade law, but at the same time lose control/influence over laws related to trade.
  • Uncertainty — this is a significant issue. The markets work on confidence and the markets do affect your life. If we vote for Brexit, businesses and markets will be left in a limbo for a long time (2–10 years have been estimated). During this period the outcome and rules would be unclear, and so there would be increased risk for investments made in the UK. History tells us that where there is uncertainty, investments and markets tend to fall. As a result, The Bank of England and IFS are warning that Brexit could result in a recession.
  • Cost — if we want to remain part of the free market then we would still have to continue to contribute to the EU budget (as Norway does)— estimates go up to 94% of our current spend. So we’d unlikely see a big benefit here. Overall, we’d be worse off if an exit causes the national income to fall by more than 0.6% (which economists are predicting if we exit).
  • World Standing — the UK is part of some of the best world clubs (G7, EU, Nato, UN Security Council, etc). Our world standing (the amount other countries listen to us), is based on our role and ability to influence these. This is important, as it helps us achieve our aims abroad (trade, politics, investment, etc). Overall, our world standing would likely be reduced if we left the EU, but by how much is difficult to tell.
  • Security —it seems opinion in the security services is divided equally on this issue (Leave/Remain). The benefit appears limited either way. Security services are not cohesive across the EU, so the benefit for remain is limited. And we already control our borders, so the benefit for leaving is limited. Nato provides the strongest level of security, which we can remain part of either way.
  • Trade Agreements (outside of the EU)— we will need to re-arrange these, and this will take time leading to extra cost in the short term. In the longer term, this will have very little impact.
  • Scotland — some will be unconcerned, but if the UK votes Brexit (and Scotland doesn’t — which it won’t), it’s likely that Scotland will leave the UK.
  • Organisations — a number financial institutions are saying we would be worse off (except OBR which is neutral): Bank of England, IMF, IFS and OECD.

Summary

So, we must first ask ourselves whether the UK should remain part of the free market. To that, your answer should be certainly“Yes”.

And if your answer is “Yes” to the free market, you must then ask: what benefits remain for Brexit, and do these outweigh the costs?

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Either way you decide, please decide to vote! Registration ends on 7th June. If you are not already registered, find out how to register at Aboutmyvote.co.uk and register online at GOV.UK/register-to-vote.