The EU Referendum: What will it mean for UK Business?

With the upcoming referendum on whether the UK should leave the EU, the nature of our relationship with Europe and the prospect of ‘Brexit’ are set to dominate the political and public policy agenda for next few years – if not for longer. Recent events in Greece, where the Syriza-led Government decided to hold a public vote on the terms of a proposed EU bailout package, highlight one of the key problems with public referendums – that of asking the public to vote on an issue, where the majority of the population have little or no understanding of the purpose or consequence of the posed question.

While it is inconceivable that the UK vote will be conducted in a similar chaotic fashion, it does raise the important question about how the referendum will be conducted and presented to the British people. As yet, many people are unclear on what they will actually be voting for. What does David Cameron mean by a ‘reformed EU’ and what will be the terms of his pre-referendum negotiations? What will leaving the EU actually mean for UK citizens? What will be the economic consequences be for staying in or leaving? What will it mean for our key industries, such as financial services?

Newgate Communication’s latest ‘View from the Bridge’ debate, with three leading figures from the fields of politics, industry and the media – Rt Hon.Owen Paterson MP, John Longworth (British Chamber of Commerce) and David Wighton (Wall Street Journal), respectively – attempted to shed light on these important questions.

For former Conservative Cabinet Minister and leading Eurosceptic, Owen Paterson, the prospect of ‘Brexit’ was nothing to be feared. He described the reticence to leave the EU as ‘Stockholm Syndrome’ and based on a belief that “we daren’t get out of prison, because it’s worse outside.” He noted that the European Union had always been a political project, not an economic one and asserted that it is the market that delivers the jobs, not the EU. Paterson said the current Greek crisis would inevitably require further banking and fiscal union among Eurozone states and this meant the UK had come to a ‘fork in the road’ in terms of its relationship with Europe. This was a ‘golden opportunity,’ he asserted, to carve a new ‘internationalist’ role for the UK and its trading relationships with the wider world. Paterson noted that many of the key trading decisions were now being determined at world level, with the UK’s voice diminished by being inadequately represented through the EU (illustrated through a colourful anecdote about the unsuitability of current Trade Commissioner Cecilia Malmström to lead trade negotiations as a “Swedish former psychiatric nurse”). Paterson then revealed that he was working with other MPs on a cross-party “exploratory committee” that form the basis of the “no” campaign for the Referendum.

As Director General of British Chamber of Commerce (BCC), John Longworth provided the view from UK businesses on the Referendum. According to the BCC’s survey, 55% of businesses wish to remain inside a reformed EU, whilst the majority (63%) said leaving the EU would be disruptive. Longworth then set out what the BCC members’ priorities were in terms of reforms – as set out in a recent letter to the Prime Minister. These were (1) a push for a deeper and wider market in trade, specifically in the services sector; (2) a resistance to some of the practical implications of a closer market union; (3) the provision of opt-outs to regulations on social policies and employment law; (4) safeguards to prevent the UK being marginalised as further political integration takes place within the Eurozone, and (5) reforms to migration and Labour, specifically restrictions on businesses employing people outside the EU and also curbing the free-flow of migration within the EU. Longworth noted that these issues needed to be resolved now, otherwise there is likely to be another referendum in the next 10 years.

David Wighton, City Editor of the Wall Street Journal, expressed concern on behalf of the financial services industry and the potential damage that could be done to the City in the event of ‘Brexit’. While he acknowledged that a ‘deal would be done’ between the UK and EU on trade, the financial services would suffer badly. It would be likely that UK-based banks would lose ‘passporting’ rights to the EU market and this would have serious consequences for banks, particularly US and Swiss banks, which may end up having to relocate to Frankfurt or elsewhere.

He stressed that the UK did have influence within the EU and is being listened to more. The new Commissioner for Financial Services, Jonathan Hill, is pro-growth and good news for the City. He added that all this influence would be lost with an exit from the EU, while the UK would still be subject to its regulations. He was quite sceptical of Owen Paterson’s proposed ‘internationalist’ future role of trading with the wider world, noting that there would have to be an enormous growth in trade with US and Asia to make up for the reduction in EU trade. He also questioned whether the UK would capitalise on a new looser regulatory, in the event of Brexit, given that many recent market interventions stem from UK regulators, rather than Brussels.

David Wighton concluded by saying that it was difficult to assess costs of whether it was better to stay or leave the EU, but believed that an exit from the EU would ultimately be a ‘net-negative’ in the long term and cause “a decade of uncertainty” for the UK economy. Owen Paterson, perhaps unsurprisingly, disagreed with this notion and said that the negative arguments coming from the City against Brexit, were the same ones made for joining the Euro, 10 years ago.

During the subsequent Q&A session there were many questions from business representatives in the audience about the nature of the referendum and its implications, including; how would staying in or leaving the EU impact on the current skills gap? What will be the question posed in the Referendum? What will be the impact on the Union? All the panellists agreed that it was crucial to ensure the British people clearly under what was on offer.

So, what happens next? In terms of assessing the likely next steps and the events leading up to the referendum, there are several significant ‘known unknowns’, which once determined, will play a defining role in the Referendum campaign. These include the following:

  • The Prime Minister’s negotiation demands and the likelihood of them being accepted: David Cameron has begun his diplomatic circuit across the other 27 member states, but he been deliberately vague about what his demands are at this stage. This is, in part, because he does not want to reveal full details of his negotiating hand to other EU leaders, but also because he does want to give the anti-EU lobby the opportunity to frame the terms of the debate and undermine the opportunity for successful negotiation. Cameron has given a broad indication of his priorities in a series of speeches and newspaper articles (such as opt-outs from further EU measures to forge a closer union, the restriction of benefits to EU migrants, protections for the City of London financial markets from EU legislation and safeguards for non-Eurozone members). While Jean-Claude Juncker, President of the European Commission, has said he is ready to “strike a fair deal for the United Kingdom in the EU”, some of Cameron’s points have received a mixed response from EU leaders, with noises from Berlin being notably warmer than those from Paris. Without knowing the details, however, it is quite difficult to tell what would be considered success or failure at this stage.
  • How the Conservative Party will react to Cameron’s negotiations? This will be a crucial test as to whether the Prime Minister’s negotiations will be deemed a success and will play a significant factor in framing the terms of “Yes” and “No” campaigns. Europe has been a defining issue for the Conservatives and has caused bitter divisions in the Party ever since the Maastricht Treaty in 1992. It is unclear, however, how strong the level of Euroscepticism is across the Parliamentary Party. In the last Parliament, 79 Tory MPs voted against the Government on the issue of Europe, but it is questionable as to how many, beyond the hard-core ‘outers’ would publically campaign against the Prime Minister during the Referendum. As Paterson revealed, discussions are already underway on forming a cross-party “No” campaign, but the position of other parties, notably UKIP (who’s Chairman, Steve Crowther, was in the audience) will be a significant factor in shaping the Conservative Party’s position. Another key factor is the role and position of Cabinet Ministers and future potential leadership contenders (e.g. Boris Johnson and Theresa May) on the Referendum campaign.
  • The timing of Referendum and other external factors: As yet, there is no clear indication as to when the Referendum will take place. The official UK Government position is that a referendum will be held by the end of 2017 but has indicated that they may wish to hold it a year earlier to avoid clashing with French and German elections and the planned UK Presidency of the EU Council. There is also a desire not to combine the Referendum with other elections, for example, the Scottish Parliamentary Election in May 2016.
  • So after a lively and illuminating debate, it was clear that there were still many unanswered questions about the Referendum. Indeed, many of crucial issues are only likely to become clear once we get close to the date of the Referendum itself. What is clear, however, is that the issue is likely to dominate the political agenda for the next 12-24 months and define the future policy agenda for many years to come.
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