Thank you for hosting this conference today. We’re at a crucial stage of the referendum debate and it’s not just a political question: many British businesses, investors and markets are anxiously awaiting the result.
It’s no exaggeration to say that the British economy is stuck in the waiting room until this European question is decided. Already we can see the impact that the risk of leaving has created; on the value of sterling; today a Deloitte report on the stasis in mergers and acquisition activity ahead of the referendum; also today the Chief Executive of British Land (Chris Grigg) noting that uncertainty has impacted markets as consumers become a bit more cautious. This is the economic context ahead of the vote on 23rd June.
But today I want to look ahead at the economics of Britain leaving the EU – and it seems to me there are five key points to weigh up:
First, the access that British industry has to markets must be at the centre of our considerations. It is surely indisputable that we risk less favourable market access if we sever the link with the European Union, a trading community with 500 million customers. When senior ‘Leave’ campaigners like Michael Gove and Nigel Lawson say they want us to leave the single market, it’s worth imagining what this would entail.
Going down the Norway road and trying to stay in the wider European Economic Area still means that our exports would have to comply with ‘local content requirements’ and regulations to gain EU access – plus we’d have to still apply all the ‘Acquis Communautaire’ obligations such as the free movement of people, goods, services and capital – yet crucially with no say in decisions on these. And don’t forget Norway still has to stump up over three quarters of EU Budget contributions that full members have to pay.
The bilateral deals and European Free Trade Area arrangements would also offer us no sway in European decision-making, and as the Swiss have discovered there would still be rules to meet about ‘regulatory equivalence’ and the free movement of labour, but with big restrictions on access for services (that is, for 80% of our economy). Switzerland’s bilateral deals don’t include banking and financial services, for example.
And falling back on World Trade Organisation terms would be worst of all, with decades of negotiations, 27 countries all with individual terms and conditions. When Treasury officials here calculate that after 15 years our economy would lag by between 5.4% and 9.5% compared with a WTO arrangement, we shouldn’t ignore how bleak that scenario could be.
So the second core economic point then is to weigh up the impact on consumers and households of what that environment outside the European Union could mean. In a world of new tariff barriers to our industry, where inflationary pressures are created by the higher cost of imports yet with hampered access to export opportunities – this all adds up to a substantial financial hit to households. The Treasury’s figure of £4,300 may be actually quite conservative depending on the scenario Britain follows. With the National Institute of Economic & Social Research predicting up to a 20% fall in sterling, the rise in commodity prices and risk of recession could be considerable.
Third, we mustn’t ignore the crucial link between EU exports and employment here in Britain – and there are around three million jobs that are bound up in that relationship. Take the example of the financial services sector where the impact could be immense, with limited access to euro payment systems, central counterparty clearances shifting into the Eurozone to gain full ECB protections and the pulling back of euro-denominated transactions inevitably out of the City.
Fourth, if we get an economic disruption this will filter through into revenue disruptions for our public services. So although we might arguably save some of the net cost of the EU budget, around £7billion, this will be more than offset by the black hole opening in the public finances because of the economic drag of Brexit. Treasury analysis shows this could be potentially £36billion per year. That’s the equivalent of 8p on the basic rate of income tax. And that could have very painful consequence for my constituents in Nottingham and for the services they use.
Fifth, you don’t need to take my word for it. The weight of economic opinion is now very stark. All the countries in the G20 have voiced anxieties about Britain cutting itself from the EU. The OECD; the IMF; the IFS; the London School of Economics; PWC – all have confirmed in their own studies that Britain would be worse off if we leave the EU.
These seem to me the five most important economic arguments that I would urge you take into account before reaching a final decision.
But of course this is an issue that goes beyond economics and into wider questions of sovereignty and Britain’s place in the world.
For me it feels very much as though Britain’s worldwide influence is on the line in this summer’s decision – and there’s quite a lot to take into account here.
With the world in flux, now more than ever we need a stable and balanced European Union group of democracies to show a positive and united lead. There are power-plays from Russia; unresolved economic and political questions in China; a United States looking inward; the rise of right-wing nationalism in some quarters; the scourge of Islamic jihadism to be confronted.
So we must surely ask the question how and whether Britain is going to help to stabilise the world order or might we risk destabilising the situation by eroding confidence in the European Union? As my colleague David Miliband argued recently, the European Union positively helps to extend Britain’s influence, multiplying our impact on diplomacy, multiplying our impact on defence policy, multiplying our impact on international development and the reach of British values.
In security terms we are stronger working in tandem with our neighbours, sharing intelligence, a European arrest warrant casting a net over those absconding from justice, working together as part of major European forums – all points noted by former heads of MI5 and MI6 recently.
Perhaps the clearest proof of the value of the European Union has been the stability we have enjoyed since the Second World War across our continent. When we step back and think about the broad sweep of history, with no century except now the 21st century when Europe has not been at war, this is clear evidence that talking and working together produces peace and stability. This isn’t a quirk of history but the deliberate result of partnership and conflict avoidance through common decision-making on big shared issues.
Yes there are some who will argue about the erosion of ‘sovereignty’ that the UK should enjoy. And of course it’s quite natural for us all to always want our own way on everything, all the time; that’s human nature.
But sharing sovereignty and pooling our strengths is a pragmatic and well-established means for us all to gain more in the longer run together. On defence issues. In the Americas where they share trade deals across countries. The concept of international inter-dependence is surely increasingly recognised as a preferable way to co-exist, working together to cooperate or risking failure in isolation.
So the choice is clear on the economics and also those wider questions of Britain in the world: do we stand alone in the hope that the world owes us a living and that by severing links with others we’ll somehow prosper?
Do we choose the mirage of glorious independence, pulling back from the partnership of give-and-take, regardless of the costs?
Or do we look at the evidence, weigh up the facts and the economics at stake, and do we choose the alternative patriotic course; opting for an engaging, outward-looking internationalist Britain, fighting for our values worldwide, standing with those moving towards democracy, not turning away from the partnerships that amplify our leadership in Europe and in the world?
We should be fully leading in Europe, not waiting to pick up on the lead from others and opting-out of shaping events.
We are stronger, better off and safer remaining in the European Union and I hope that you will join me in making this case over the weeks ahead.