The Brexit Debate: In or out?
At our first Secular Market Forum of 2016 former Chancellor of the Exchequer Lord Lawson locked horns with columnist Hugo Dixon over the arguments for and against one of the biggest issues facing Europe this year: "Brexit".
The government has officially recommended the UK to vote to remain in the European Union (EU) at the referendum to be held on 23 June. Despite British Prime Minister David Cameron announcing he had successfully negotiated a new settlement, several key cabinet members have publically opposed his call to stay in.
Fears about what a so-called Brexit might mean for the UK economy have been reflected in significant recent volatility in sterling. To help address questions about the potential pros and cons to the British economy of staying in, or leaving the EU, Schroders brought together two prominent proponents from each camp.
Lord Lawson, former Conservative Chancellor of the Exchequer, is the President of Conservatives for Britain, which is backing the cross-party "Vote Leave" campaign, of which he is also the Chairman. Meanwhile, Hugo Dixon is Chairman and Editor-in-Chief of InFacts, a journalistic enterprise making the case for Britain to stay in the 28-nation block.
In a wide-ranging debate, chaired by Schroders Chief Economist and Strategist Keith Wade, the pair touched on the key issues at the heart of the debate. Among other points, they discussed the possible implications for British trade in the event of Brexit, the impact of EU regulation on UK businesses and whether the free movement of people, as well as goods and services, was key to a properly functioning union.
Both Lord Lawson and Dixon agreed on Britain’s status as a world-leading economy, and the importance of the City of London as a global financial hub. However, their opinions diverged markedly when it came to the question of whether the country’s future goals would be best served within or outside of the bloc.
The case for leaving the EU, Lord Lawson:
Lord Lawson opened the debate by explaining that the EU is primarily a political construct, with the key goal of ever-closer union, which has failed to create any net economic benefit for its members. ‘This was always about a United States of Europe, using economic means towards a political end. The fact it is not an economic project is reflected in the fact it has brought no net benefit to the countries of Europe.’
He continued: ‘If the EU were to be economically spectacular and stunning, you might buy the idea it is worth being in it, even if you don’t share the object of the exercise,’ and chastised the ‘remain camp’ for embarking on what he described as ‘project fear’. The reason that the rival campaign has chosen this route, he added, was because it lacked an economic argument for staying in. ‘They don’t say there are great benefits from being in, since there are none’.
Reminding the packed audience of the EU’s chequered economic track record since the global financial crisis of 2007/08, he said: ‘Most countries in the world are not in the EU, and most countries in the world are doing a lot better than those in the EU.’ He stressed Britain’s outlook should be global, and as much focused on emerging markets as its continental peers.
Lawson questioned whether being outside of the bloc would damage Britain’s economy. Any additional import tariffs would ‘not be crippling’ whilst existing trade agreements between Britain and the rest of world would ‘remain in place’.
Lord Lawson stressed the importance of Britain to its EU peers, citing the German motor industry in particular, who ‘sell far more goods and services to us than we sell to them’. However, even if a Britain outside of the EU was unable to negotiate good bi-lateral trade agreements with its continental peers, it should be remembered ‘trade between the EU and outside of the EU has grown far faster than trade within the EU for the past 10 years’. He added: ‘You don’t need to be a member of the EU to do business with it – other countries do so all the time.’
The greater threat was instead a UK economy ‘hamstrung’ by excessive regulation – regulation that Britain had a poor track record of successfully resisting. ‘Small and medium-sized enterprises are the seed bed for our future prosperity. For them to be suffocated by EU red tape is not good for the economy.’
Meanwhile, proponents of a remain vote risked reducing the UK to a ‘quasi colonial state’, in their quest to stay in, without, at the same time, embracing the monetary, fiscal and political union demanded of a United States of Europe.
Lord Lawson continued: ‘We will not be part of the EU but we will be a colony of the EU, I don’t find that attractive. I find more attractive a self-governing independent democracy with a global perspective and friendly relations with the EU.’
Addressing the issue of sovereignty he insisted it ‘does mean something; self government does mean something’. This would become clear were the country voting in June to join the EU, rather than remain in it: ‘Suppose we were not in Europe and the question was should we join this enterprise which is in favour of an objective that we don’t share and is well past its sell-by date?’ He contended the answer would be unequivocal: ‘I am quite sure the British people would say “no thank you”. If we don’t want to join it now, even if there is some short-term hassle when we leave, we should leave.’
The case for remaining in the EU, Hugo Dixon:
Hugo Dixon argued that Britain would have much greater influence within the EU than outside of it.
‘Problems in the modern world cross borders, whether global warming, terrorism, Russian revanchism or the problems spilling over from Syria and North Africa. We would not have much influence on these problems in and around our neighbourhood if we quit.’
Whilst acknowledging that the union faced many challenges, he said it was better to be ‘engaged in making a better Europe’.
Warning of the potential for ‘mess, confusion and possibly chaos’ in the event of an exit, Dixon accused the Vote Leave campaign on embarking on ‘project folly’, and said there was a ‘fact-based case for Britain to stay in the EU’.
He asserted the UK had a relatively good deal from the EU, when accounting for the rebate negotiated by Margaret Thatcher’s Conservative government in 1984, the money returned for farmers, scientists and regional development, and the benefit of being able to offset the bloc’s international aid spending against the UK’s own aid target. The subsidy amounted to £100 per person per annum; ‘almost exactly what Norway pays per person for access to the single market’.
Dixon criticised eurosceptics who ‘often come up with myths’ about regulation. He questioned whether the world would be safer without aspects of new EU financial regulation which have followed in the wake of the financial crisis, such as Europe’s new capital adequacy rules. ‘I don’t think we would [be safer]’.
‘Over the next decade if the EU really builds a single capital market, on the lines of what they have in America, Britain and the City will be the major beneficiary,’ said Dixon.
The former Financial Times journalist rejected the idea Britain would enjoy equally good access to the EU, whether it was in or out. Mimicking Margaret Thatcher’s famous phrase, he asserted: ‘No, No, No – it’s not just about tariff-free access. The modern world is not just about goods and tariffs, it’s about non-tariff barriers to trade in services – there are no tariffs on financial services, what matters is getting a passport to operate in other EU member states.’
He said the Vote Leave camp ‘has a duty to spell out what “out means”’. It has to spell out if it ‘really wants to have full access to the single market’ and is ‘prepared to allow free movement of people from the EU to here’. If it is not prepared to allow free-movement of people, it should explain what arrangements it will put in place ‘for Brits, who like Nigel Lawson want to live on the other side of the channel’ (Lawson lives in France).
The Vote Leave camp has to explain whether it is prepared to make a contribution to the EU budget, and whether it wants the City of London to have a passport to operate in other countries, according to Dixon. It should spell out whether it wants to co-operate with the EU on counter terrorism and serious crime.
Dixon argued that the leave campaign was failing to make clear what was at stake were Britain to vote to leave the EU: ‘If we don’t know the answers to all these things and then we still vote to leave, not only is there a big risk that the people will have been duped, there is a massive danger that there will be an almighty period of post-referendum wrangling, as the new government, as Cameron couldn’t possibly last as Prime Minister, has to figure out what on earth it is going to do.’
On the issue of sovereignty he contended: ‘There is no such thing as absolute control, to suggest otherwise is “project fantasy”, we have to work with others to achieve our interests’.
The views and opinions contained herein are those of Schroders’ investment teams and/or Economics Group, and do not necessarily represent Schroder Investment Management North America Inc.’s house views. These views are subject to change. This information is intended to be for information purposes only and it is not intended as promotional material in any respect.