The Bruges Group spearheaded the intellectual battle to win a vote to leave the European Union and, above all, against the emergence of a centralised EU state.

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The British Option

People can be reassured about prospects for the economy, trade and jobs

Dr Ruth Lea

25th April 2016
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1 People can be reassured about prospects for the economy, trade and jobs

Background information

See ComRes survey in the Daily Mail (24/2/16). There were questions on UK-EU issues and respondents were asked whether it was better to be “in” or better to be “out”:

  • On immigration, there was a strong net support for better off out. This one’s in the bag.
  • On the strength of British democracy, there was net support for better off out. Also in the bag.
  • On Britain’s national security, there was modest net support for better off in, but not very decisive. And the survey was taken before the Brussels bombs (22/3/16).
  • On the economy, there was fairly strong net support for better off in. Post-brexit, EU trade will still continue, even in the short-term. On the whole, there’d be no dreadful, economic shock. And, in the medium-term Brexit would almost certainly be positive. People can be reassured. And we’d save some “cash”.  

2 What will happen if Brexit vote? Negotiating the trade agreement with the EU

If there is a Brexit vote on 23 June 2016, the Government will trigger Article 50, the withdrawal Article, of the Lisbon Treaty. This does not have to be done, and probably should not be done, immediately. Time should be allowed for preliminary talks on the UK-EU relationship after Brexit, prior to the opening of the formal negotiations.

Britain will negotiate a trade agreement with the EU:

  • If Brexit and if there were no UK-EU preferential trade agreement, UK-EU trade would continue under WTO rules (non-discriminatory, “most favoured nation” (MFN)) as the default position. This would be by no means a disaster.
  • But our exporters would face the EU’s Common External Tariff (CET) on goods (services do not face tariffs). Granted the average CET is now very low, but cars, for example, are subject to tariffs of 10%. So the UK government would push for a Free Trade Agreement (FTA) with the EU to eliminate tariff barriers.
  • The UK would have considerable clout in any negotiations. It would not be a supplicant. The UK has a large trade deficit with the EU. In 2015 the goods deficit was nearly £90bn (£31.5bn with Germany alone), only partly offset by a services surplus of £21bn. The overall deficit on goods and services was, therefore, nearly £70bn. No German car exporter, for example, would wish for any disruption in their lucrative trade with the UK.
  • It would, therefore, be in the interests of the UK’s EU partners, with their collective huge trade surplus, to reach agreement expeditiously. This should be quite possible within the negotiating time-frame. The UK, as a member of the EU, is closely “harmonised” with EU regulations in a way that Canada, for example, is not. The argument that the EU’s trade negotiations with non-EU countries are lengthy affairs and, therefore, the UK’s would be too, is a red herring. We would, crucially, still be an EU member (albeit a departing one) negotiating with the EU. And we have been a member of EEC/EU for over 40 years.
  • Given the importance of financial services, probably negotiate a similar relationship to the “passport” (implemented through the “equivalence system”).
  • The outcome would be “the British agreement, best for Britain, best for Europe”. This would not be an “option”, it would be an outcome.
  • Norwegian, Swiss, Canadian “options” are distractions. Britain is Britain, not Norway, Switzerland or Canada.

Background information

Two key articles in the Lisbon Treaty favour successful negotiations:

  • Article 8 talks about “a special relationship with neighbouring countries, aiming to establish an area of prosperity and good neighbourliness”.
  • Article 50 concerns a Member State’s withdrawal. It specifies that the EU “shall negotiate and conclude an agreement…taking account of the framework for its future relationship with the Union”. There would be up to two years to negotiate the new arrangement though the two years could be extended if agreed by the European Council and Britain. After that the UK would leave the EU.

In other words, the Lisbon Treaty outlines both the “mood music” and the mechanism of withdrawal. It would surely be honoured.


3 The new UK-EU arrangement

There are 4 points to make:

  • Concerning “access” to the Single Market, trade would continue in goods & services much as before and there would be no impediments to free movement of capital.
  • But there is no obligation to negotiate the free movement of people in the new arrangement and it is most unlikely the government would negotiate the free movement of people. Of all the EU’s trade agreements, the only ones including free movement of people relate to the EEA (Norway, Iceland & Liechtenstein) and Switzerland’s bilateral treaty.
  • UK exporters to the EU would have to comply with EU product standards (for example), as they have to comply with US product standards, when they export to the US. There would be no need to comply with other regulation
  • We would not contribute to the EU Budget, though we could voluntarily contribute to certain EU initiatives. We would not be paying for “access” to the Single Market. The US does not pay for “access”.


4 The short-term economic impact: manageable disruption & trade and jobs would continue

The immediate economic impact of a Brexit vote and Brexit itself could be disruptive, though it would depend on how the negotiations were handled. But the impact is likely to be “manageable” (Moody’s) and “modest” (Woodford Assert Management).

And Lord Rose of Monewden, the chairman of Britain Stronger in Europe (BSE), has said:

  • “Nothing is going to happen if we come out of Europe in the first five years, probably. There will be absolutely no change. Then, if you look back 10 years later, there will have been some change, and if you look back 15 years later there will have been some.”
  • “It’s not going to be a step change, it’s going to be a gentle process.”

After Brexit, trade with the EU will continue and those jobs associates with EU trade will continue. And investment will continue. REASSURANCE – THE KEY MESSAGE.


5 Better longer-term prospects

Post Brexit there could be a competitiveness boost to the economy:

  • Firstly, Britain would be able to repeal and/or amend business regulations, including EU social and employment regulation. Fortune favours the flexible. Note, however, my earlier comment about product standards.
  • Secondly, Britain would be able to negotiate its own trade deals with favoured & growing trade partners. (The current EU FTAs would probably continue, given mutual agreement.) Membership of the EU’s Customs Union currently precludes this. This would be helpful because the EU is a relatively declining bloc & growth markets are likely to be elsewhere. Britain should also re-join EFTA and, with mutual agreement, benefit from EFTA’s trade deals.
  • Thirdly, Britain should be able to adopt a non-discriminatory immigration policy, treating EU and non-EU citizens on an equal footing.
  • Finally, we would save on budgetary contributions. Our contribution for 2015-16 will be nearly £11bn, net of rebate and public sector receipts.

Background information

The EU’s share of the global economy is in secular decline. The IMF estimates that the countries comprising the EU28 (including the UK) accounted for 30% of world GDP (PPP) in 1980. The share was 17% in 2014 and will probably be around 15% in 2020. Given the poor performance of the Eurozone economies, the decline could be quicker. And reflecting the declining importance of the EU, the proportion of UK exports (goods & services) going to the EU is slipping. It was 55% in 2002 and less than 45% in 2014.  


6 Post-Brexit Britain: summing up

Brexiteers are frequently criticised for failing to clarify their “vision” for a post-Brexit Britain. We can say the following with a fair deal of confidence on the economics:

  • There would be a trade deal with the EU (it’s in their interests).
  • The trade deal would be agreed expeditiously (it’s in their interests).
  • There would be no obligation to agree to the free movement of people.
  • There would be no general need to comply with EU regulations.
  • We would not pay for “access” to the Single Market.
  • The short-term economic impact would be “manageable” and “modest”.
  • Reassurance: trade would continue much as before on Brexit and so would the associated jobs.
  • In the medium-term there are several reasons to believe that the UK economy would be given a competitiveness boost buy Brexit.

Background note

Of course there are uncertainties about a post-Brexit Britain. Life is full of uncertainties. And, more to the point, there are major uncertainties about the EU given the Eurozone crisis and the migration crisis. And there are major uncertainties about the UK’s place in the EU.