Leave or Remain – I vote “In”

Several people have asked me to lay out why I am positive about the EU and why I think it is a bad idea to exit.  I will divide it into 3 sections:

  • Sovereignty/democracy/identity
  • Economy
  • Immigration

I will try to be as neutral in my writing as possible, but like anybody, I am biased by my own opinions, so to make my position clear up front, I will be voting to remain in the EU, primarily as I believe the European Single Market is important to our future and I believe that Europe needs an “outer leader” to act as a counterweight to the “inner leader” roles played by Germany and France.  I am what most people would define as a liberal internationalist, and I believe Britain is at its best when it looks out to the wider world.

If you want an answer on how to vote that avoids all the hyperbole, I think it boils down to this:

  • Vote “in” if you want greater prosperity but accept that this comes with a higher population;
  • Vote “out” if you are willing to be less prosperous in return for having less growth in population.

 

Sovereignty/Democracy/Identity

I have grouped these together as they have tended to merge into one continuous argument during the current debate and beyond legal or dictionary definitions, I think most people see them as part of the same issue.  It is also the aspect of the debate where the “out” camp have the strongest argument – albeit one that is difficult to articulate to a mass audience beyond simplistic soundbites, so it has got somewhat lost behind the far more emotive issue of immigration – but it is also the aspect that the EU is probably having the most discussions about reforming right now, as this is clearly not a UK specific issue.

We are all used to laws and regulations being made by different institutions at different levels; it would probably be impossible to run a complex, modern and democratic society in any other way..  As a resident of Ilford in East London, I get to vote for five different levels of lawmaking administration:

  • Redbridge Borough Council;
  • Greater London Assembly;
  • Mayor of London;
  • House of Commons (Ilford South Constituency); and
  • European Parliament (London Region).

 

There are also hugely important elements of the legal and administrative system where none of the general public have any say in terms of their appointment:

  • Members of the House of Lords;
  • Members of the judiciary;
  • Members of the Civil Service or local government administration; and
  • The Governor of the Bank of England.

I say this not because I think they should be voted on, but rather that they work rather well.  They are all involve an appointments based system. It is about balance: too few elected politicians and you get dictatorship; too many and you get gridlock (USA anybody?).

I do not disagree that the members of the European Commission, the judges who sit in the European courts and the official of the European Central Bank are unelected, but so are their domestic equivalents.  I will grant you that the 28 European Commissioners (as opposed to the broader European Commission, which acts as the EU civil service) have executive powers that domestic civil servants do not have, but they are each appointed by the elected governments of their home states, and the legislation that they propose has be approved by the member governments at the Council of Ministers, much like the Chief Executive of a local council has to have matters approved by the elected councillors.

This is essentially where democracy and sovereignty collide.  If the European Commission propose legislation and it is approved under Qualified Majority Voting (a complex type of super majority), the UK by itself cannot block its introduction by itself.  For example to block a spending measure beneficial to the poorer east or depressed south of Europe, the UK would need the support of other net contributors, e.g. Britain, Germany, Netherlands, Sweden and Austria could together block a measure.  I think it is hard to say this is not democratic, but it does mean that the UK has pooled certain aspects of its sovereignty.

But what exactly is sovereignty and where do you draw the line of veto?  Humans have always grouped together, from family units to the United Nations, and at some point you have to accept that you do not always get your own way if the groupings are to last.  In 2005 Tony Blair won a third term in government, but Michael Howard’s Conservative Party won the English popular vote; the people of England had to put up with policies they hadn’t wanted because English sovereignty is pooled at a UK level.  In 2015 the population of London voted overwhelmingly for Labour, but it did not get the government it wants because its sovereignty is also pooled at a UK level.  Should London, with its disproportionately high level of both UK GDP and capital turn round to Wales and Northern Ireland and say ” we are fed up with our money going to you to spend on things we don’t agree with”?

As a higher rate taxpayer living and working in London, I am in EU speak a “net contributor”; while I may grumble about the amount of tax I pay, I accept it is for the greater good.  However I ask myself if it is somehow wrong for me to be contributing for say the construction of a bridge in Bulgaria to help develop the economy, why is it right for me to be contributing for a road in the Rhonda for similar reasons?  And if the NHS is “overwhelmed” by people from the other EU countries living here, and it is right to exclude them, could not a similar argument be made against British smokers or the obese?

Are matters decided at the right level?  Not always, but that is a charge at least as applicable within the UK as it is at a European level.  For example, the UK minimum wage goes a lot further in Wales than it does in London, so should it be set at a regional level?

The complaint is made that unelected Brussels bureaucrats spend UK taxpayers money, but that same taxpayers money that is spent domestically is equally spent by unelected bureaucrats; it is just they are in London, Edinburgh, Cardiff and various other locations.  Politicians may vote on laws, but it is civil servants who implement them.

So the UK has agreed to pool certain elements of sovereignty, just as the people of England and Scotland have pooled sovereignty (as an aside, I think it is rather ironic that among the most passionate to leave the EU are those who are equally as passionate about Scotland and Northern Ireland remaining in union with England and Wales), but what has it actually agreed to pool sovereignty on?  Let us start with what they don’t involve:

  • Health system;
  • Pension system;
  • Benefits system;
  • Tax policies;
  • Foreign policy;
  • Defence policy;
  • Education policy;
  • Immigration from outside the EU; and
  • Policing.

Now if we were having a general election tomorrow, I would bet money those would make up the vast majority of top ten issues.

So if we have not pooled sovereignty on those matters, what have we done it on?  The primary ones are:

  • Agriculture;
  • Fisheries;
  • External trade to the EU; and (most substantially)
  • The Single Market.

I am slightly surprised that agriculture and fisheries have not been a larger element of the debate, as they are two areas where the EU can hang its head in shame, and why I have some sympathy with the so called “Norway option” of EFTA/EEA membership, which retains access to the Single Market but brings back home competency of the other three.  The agricultural policies make large farmers (both in the UK and the wider EU) rich on subsidies, but put tariff and nontariff barriers on agricultural products from developing countries, while the fisheries policies have seen disastrous reductions in fish stock levels in the waters around the UK.

External trade is a classic negotiation situation; both sides compromise in the hope that they gain something overall.  The downside of being in the EU on such matters is that it leads to a slow process because you are negotiating a very large block, however they are never quick.  For example the agreement between the EU and Canada took 10 years to negotiate, while that between the much smaller EFTA and Canada took 8 years.  The upside is that the EU remains the world’s largest market, so its negotiating position is on a par with other behemoths such as the USA and China.

So that takes us to the largest element of pooled sovereignty, the Single Market.  The question I always ask people who wish to exit the EU “because of all these rules from Brussels”, is which laws exactly they object to?  If they were those that I mentioned above that relate to agriculture and fisheries, as I said, I would have some sympathy, but invariably there is no answer, or at least none based on facts (the EU does not regulate the curvature of your bananas for example, much as the tabloids might suggest).  Is it the Prospectus Directive they object to?  How about the Markets in Financial Instruments Directive?  (Two I am personally familiar with).  Perhaps it is the one that sets drinking water standards or regulates the approval of prescription medicines?  The reality is that the Single Market is a vast set of standards to govern commercial activity within the EU.  I am not for one minute suggesting that the UK could not implement its own drinking water, prescription medicine or share prospectus standards; I am saying why would we want to?  Standards like this are there to make things safe, make things work and make it easier to trade.

If the Single Market had existed in the past, the UK would not have a different style of electrical plug from the continent and we would drive on the same side of the road.  Right hand drive is not better or worse than left hand drive, nor are continental European electricity plugs better or worse than those in the UK; they are just different and as a result different standards have to be used for no benefit.  My argument is not that EU regulations cannot be improved, like most things in life there is always room for improvement, but that the benefits of common rules and standards far outweigh any benefits that might be gained by changes specifically for the UK.  These rules may be agreed by compromise, but that is not necessarily a bad thing.

Which takes me finally for this section to identity.  Does the EU in some way dilute or Britishness?  We have better food than we did in the past, but does our consumption of French cheese or Italian salami make us less British?  I don’t think so.  Has membership of the EU eliminated cricket because it is not a European pastime?  No.  I can’t see how we have become less British just because we have also embraced Europe.  On the basis that having joined what was then the EEC in 1973, you would have to be over 60 to have been an adult before we joined, I don’t see the working-age population of Britain as devoid of a British identity.

 

Economy

The only thing about economic forecasts that is certain is that they won’t be right; if the economy could be accurately predicted then life would be much easier, so I am not going to say that the X economist is better than Y economist.  I find it pretty compelling that the vast majority of people whose job it is to look at the economy believe it would be better to remain, but I also accept that there are a significant minority that believe we would be better to be out.  So instead I will try to look at some key factors that are put forward as to why we should exit from the economic side of things.

Firstly the people leading the “leave” campaign from an economic perspective are not new and nor are their views; the likes of Patrick Minford, Roger Bootle, Liam Fox and John Redwood have been consistent and coherent on these matters (unlike some of their fellow campaigners) for a long time.  However, anybody who is planning to vote “out” because they feel the chill wind of globalisation, and believes that this will lead to a return of heavy industry and secure blue collar jobs, should look closer at their policies.  These are ardent free market supporters who are seeking to make the UK hypercompetitive in world markets by reducing regulations and barriers to trade and capital, while restricting free movement of labour as a countervailing force.  From an economic perspective this is probably the only logical alternative to the Single Market, and I don’t argue that it could work, but it would be far more dog-eats-dog than is currently the position.  Turning the UK into an ultra-free market economy – a kind of colder and wetter version of Hong Kong – is on paper a viable option, but the reality is that the British population will not buy into such.  There were enough howls of protest over George Osborne’s half-hearted attempts at austerity; a move to low tax and privatised welfare provision will not get support.  If they don’t go this route, the alternative economic options look poor, and that is why the models run by the Bank of England, IMF, OECD etc. look so poor; bluntly, they do not anticipate a UK that is willing to change in the way that Minford and Bootle are proposing.

Secondly, the “leave” campaigners argue that there remain economic issues within the EU, that if they explode, it will be better to be out.  Again I would not argue that such issues remain.  While the Eurozone has emerged from the worst of its recession and is now growing faster than the UK, albeit still not that fast, it would be foolish to suggest all problems have been solved.  Greece continues to be a basket case (even the ECB now appears to accept the IMF argument that some degree of debt write off will be required in its 2017 refinancing) and youth unemployment remains horrendous across the so called “Club Med” countries (and would be worse without the release valve of UK jobs – just go round any London restaurant, bar or café to see how many young Italian, French, Spanish and Portuguese staff there are).  However those issues will not cease if Britain leaves the EU – in fact they are likely to be exacerbated – and the impact on the UK will be just as severe in terms of reduced trade.  We are not in an economic union with the USA, but the whirlwind created by the subprime mortgage crisis hit just as hard.

Thirdly, we are told that the price of membership is too high.  Again, I don’t propose to argue over the numbers on the side of the bus, but to put them into perspective in terms of what is a very large economy.  The total value of all UK economic output is £1,812bn.  Of this £716bn (39.5%) is paid to the UK government and in turn they spend £772bn (42.6%), the difference being the budget deficit and made up by borrowings.  The amount paid to the EU (gross contribution less rebate) is £13bn (0.7%) and the net contribution is £9bn (0.5%).  For comparison, £116bn (6.4%) is spent on the NHS and the current rate of economic growth is 2.0%, i.e. the UK’s net contribution to the EU is equivalent to just one quarter’s growth in the economy.  Now I don’t for a minute think the UK economy would collapse into a Greece-style depression if we exited, but even a modest recession would wipe out any cost of membership.  The recession of the early 1990s, the most modest in the last 50 years, involved a 2.5% of GDP peak to trough loss.

Lastly there is the argument that the EU is less competitive in many areas of commerce than other parts of the world, and only by leaving can the UK gain competitive advantage.  But what exactly do they mean by “less competitive”?  It means that the EU has higher wages, greater employment rights, more holidays, safer, more pleasant working conditions and less pollution.  The other areas of competitive advantage such as quality of education, investment in skills and technology, certainty of law and free movement of goods, services, capital and labour are either matters unaffected by EU membership or would be impaired by exit.

 

Immigration

Lastly we move to immigration, the factor that seems to be driving much of the “leave” vote.   Now I do not argue for one minute with the “leave” campaign’s claim that exiting both the EU and the Single Market (and by default not joining Norway, Switzerland and Iceland in EFTA) would be a core element of reducing “net migration”  from last year’s 333,000 people to the 30,000-50,000 per annum that Nigel Farage suggests is a reasonable level.  It would however need to be accompanied by a sharp reduction in non-EU immigration, where the net figure for 2015 was 188,000 (higher than net 145,000 from within the EU) including those seeking asylum (41,563 asylum applications received in 2015).

Remaining in the EU (or in the Single Market) does involve free movement of people, but that is two way; there are about 1.5m Brits living in other parts of the EU and 3.0m other EU citizens in the UK.  On the basis that most of the 3m EU people in the UK are of working age and most of the 1.5m Brits in the EU are retired, it strikes me as a good deal from our side.  Will we continue see such large numbers of immigrants from the EU?  It really depends on how their economies progress.  Of those coming to the UK from other EU countries last year, roughly half were from “western” countries (mainly young people from France, Spain, Portugal and Italy where youth unemployment is very high) and half from “eastern” countries, your proverbial Polish plumber or Romanian farmworker.

In simple terms, this is very much what the free movement provisions were designed to achieve; they provide labour from countries with high unemployment to those countries where unemployment is low, which in this case predominantly means the UK and Germany.  It should not be forgotten that the UK has the lowest rate of unemployment (5.1%)  it has had in 40 years (bar a spell in 2003-2005, at which point it did not get any lower than 4.7%) and its highest workforce participation rate since records began in 1971.  We are almost at full employment; 3% is accepted as just the natural “between jobs” rate, and much of the rest will be people who due to attitude and behaviour are going to be difficult to employ.  So immigrants are not “taking the jobs” that Brits would do, but filling gaps in the labour market.  We have relatively high minimum wage levels, so they cannot push wage rates down that far.

Could we fill the demands of employers while reducing net migration to 30,000-50,000?  Not in the short term.  Closing this source of labour will likely push up prices as employers look for ways to compensate for attracting people from competitors or replace them with machines; there will be winners among some individual workers (especially in skilled trades such as electricians and plumbers), but overall we will be less well off as a country.  Longer term we would likely seek to automate more activities (which is the approach that Japan is taking), but this is not a route that is going to benefit those who feel they are in an uncompetitive position compared to migrant workers.

Does migration increase demand for housing and public services?  Off course it does.  Any increase in population does this, but that suggests that houses, hospitals, schools etc. cannot be built.  In the 1960s we had large increases in the population due to the so called “baby boom” and we built significant numbers of all these, far more than we currently achieve.  Rather than blame migrants for taking houses, school places and hospital beds, perhaps we should blame government and local authority policy for not building enough?

 

Nick

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