EU debate: exaggeration, scaremongering & unfounded claims?
Debate in the run-up to the Brexit referendum has been characterised by exaggeration, scaremongering and unfounded claims.
This is true of both sides: the costs and benefits of both staying in and leaving have been inflated or downplayed. Economists have not been free of guilt.
This makes it very difficult for individuals, whether they are employees, managers or business owners, to reach an informed decision on the implications of the vote.
The truth is the outcome of a Leave vote is highly uncertain; any claims to the contrary should be treated with caution (and suspicion).
I will briefly consider three key issues: the effects on trade of leaving the single market, the effects of changes in migration flows, and the effect on foreign investment.
Taking the first, Remain advocates argue that barriers to international trade would be higher after Brexit while supporters of Leave argue that new free trade agreements would be signed, and that Britain would have access to a broader array of export markets outside the EU.
Which of the two claims is closer to the truth will largely be determined by politics: will the EU choose to punish Britain by imposing trade barriers?
Given the scale of trade between the EU and UK – around £290 billion per annum – it seems unlikely that the EU, and Germany in particular, would choose to damage their own export-dependent economies to make a political point.
Given that the Prime Minister is committed to remaining within the EU, a deliberate effort has been made to prevent government discussion or planning of post-Brexit trade agreements.
Even without a new agreement, trade would still be subject to WTO rules meaning tariffs would remain low. Most exporting businesses are unlikely to notice the direct effect of increased tariffs.
Given this, it is hard to see an immediate reason why foreign investment should fall significantly.
Restrictions on migration seem more likely to have a noticeable effect on businesses, particularly those that rely either on skilled migrants or on low-paid, low-skilled workers such as the care sector.
The costs of exit have been therefore been exaggerated. But this is also true of the claimed benefits.
While there are problems of regulation and lack of support for small business, much of this is home-grown and can be dealt with at the domestic level: the impact of EU regulation on business tends to be over-stated.
Valid points about sovereignty are raised by those who support Leave, but these overlook the fact that in a world of globalised trade and multi-national corporations, the main constraints on UK policy-makers don’t originate in the European Parliament.
Despite these exaggerations, there is a real possibility of a fall in confidence and restriction of foreign credit to the UK in the event of Brexit, leading to devaluation in the pound, hikes in interest rates and financial disorder. Given the fragile state of the UK economy, the consequences could be severe.
I suspect the probability of such a scenario is relatively low, but given that the benefits of exit are far from clear, this doesn’t seem a risk worth taking.