Unless you’ve had your head in the sand in recent weeks you’ll have noticed an awful lot of fuss about the EU Referendum which has been scheduled to take place on 23 June 2016. Whether one views the forthcoming plebiscite as a victory for democracy or merely the result of an internal Conservative Party feud, there is no doubting the fact that its impact could be world changing.
We’ve heard of the risks, the need for change and there’s no shortage of hyperbole (see above). But what would a Brexit look like and what would it mean on the ground from 24 June onwards?
It is difficult to deny that the immediate impact would not be positive. Markets don’t like uncertainty and a brexit vote would mean lots of that. Sterling would likely fall against both the dollar and the euro as more conservative (note the small ‘c’) investors hedge against a possibly weakened economy. It would be up to UK policy makers to attract them back but in the interim (a possible 4 years of renegotiation) weakened sterling would mean higher costs on things as varied as food, fuel and debt.
What would this mean? Well for starters the debt repayments that Her Majesty’s Treasury makes would increase in size substantially – likewise any variable rate mortgages. This could affect the credit rating of UK Plc and the average taxpayer. Added to this the rise in the cost of living would likely mean a cutback in consumer spending, lower tax receipts from VAT and corporation tax and therefore a significant headache for George Osborne come his next budget. Further cuts across the board for government spending would be almost inevitable.
For exporters, especially foreign owned manufacturers, investment decisions would be parked en-masse. While increased tariffs would be likely they would take time to materialise therefore it would be the sentiment of boards rather than increased costs that would have the most immediate impact. In short fewer eggs would be placed in the UK basket by way of foreign direct investment – a drop of over 6% according to some estimates.
The Conservative Party will remain split. Boris Johnson is gambling his immediate future on the UK leaving and the Prime Minister not surviving a great deal of time beyond this. Should this happen Cameron would likely announce his intention to leave giving time for a leadership contest either by the Conservative Party conference in October or immediately following it. Either way this would mean added uncertainty bringing more economic ‘unease’.
The Labour Party meanwhile will still be figuring out how to get rid of Jeremy Corbyn. It is unlikely this will have developed much and the side-show would thus rumble on with the familiar thunder-faced front bench flanking Mr Corbyn every Wednesday. If nothing else their opposition might not look quite so smug and some of the shadow front bench might have had ‘a good referendum’. Note that Hillary Benn has refused to share a platform with the Prime Minister – perhaps he sees photographs coming back to haunt him from his left flank some time in the not so distant future?
The biggest political uncertainty following a Brexit lays north of the border in Scotland. The First Minister Nicola Sturgeon and former First Minister Alex Salmond have made clear their intention to push for a fresh independence referendum should the UK vote for brexit. They would not pause for thought in pursuing this objective.
Much of the above is pretty bleak and yet very difficult in the round to contend. In the longer term the outers may be correct. The UK may take full advantage of a newly found economic and policy agility by forging ahead in the big wide world. Whether or not the warm blanket of sovereignty (itself a relative term) would soothe the ease of Britannia remains to be seen. The outers are yet to produce a thesis for what ‘out’ actually looks like.
The retention of a £13bn annual payment would help fund certain projects. Nevertheless any policy ideas the UK pursues to win a competitive edge over the EU would be seen as an act of trade aggression. The EU will also be eager to make the point to remaining members that once out the grass is not in fact greener, no matter how pleasant the land might be.