Our Chairman’s letter to the Derby Telegraph in the aftermath of the referendum

Sir,

I am astonished at the downbeat response from many industries about the decision to leave the EU.

They appear to have been deliberately misinformed by the government – and to have swallowed it!

Around three quarters of EU legislation is geared to nudging us ever nearer to the Single European State – a country called Europe. That is the main purpose of the EU – “Ever Closer Union”.

The remaining 25% relates to trade regulation of the European Single Market, the only part of the EU project in which industry is interested. Arrangements already exist for non EU member countries to be in the Single Market without being in the EU political project. It is called the EEA – European Economic Area – the “Common Market” part of the project.

You can Google the detailed plan for continued participation in the Single Market. It is called “ FLEXCIT” . There are two versions – a forty eight page pamphlet and the full policy which extends to some 420 pages.

One objection to this policy is that the EEA involves the acceptance of the principle free movement of people. But, under Article 112 of the agreement, EEA member states can unilaterally impose restrictions when they experience excessive immigration. They do not have to ask anybody’s permission.

Another development which the government failed to mention is that most new business regulation is now global and comes from bodies like UNECE (United Nations Economic Commission for Europe) which, for instance, sets the standards for motor vehicles. Whilst there is an EU Directive about this, it was not made in Brussels but merely transcribed from what UNECE agreed in Geneva.

As an EU member Britain has no voice at the real “top table” in Geneva. As an independent country, it will be able to influence matters there.

So there is every reason to look forward to a period of greater British influence in the way world trade is regulated.

Yours faithfully

Edward Spalton

The UK’s liabilities to the financial mechanisms of the European Union

Independent research, commissioned by the Bruges Group from acknowledged expert in this field Bob Lyddon, shows that the true extent of the UK’s potential exposure to the European Investment Bank (EIB), European Central Bank (ECB) and EFSM (European Financial Stabilisation Mechanism) is over £80 billion. If the crisis in the Eurozone continues this already high figure could increase massively. Far from Brexit being an economic disaster, as Mr Osborne has claimed, it could be hugely beneficial, extracting us from a large potential black hole.

The UK carries huge financial liabilities as an EU Member State, liabilities that could translate into calls for cash far higher than our annual Member cash contribution. These are created through various funds and facilities of the EU itself, and through shareholdings in the European Investment Bank and the European Central Bank. Each of these bodies engages in financial dealings on a large scale, with the Member States acting as guarantors for sums borrowed. The main recipients of funds are the Eurozone periphery states: Italy, Spain, Greece, Portugal and Ireland.

The UK, being one of the largest and most creditworthy of the Member States, is looked at as one of the guarantors most able to stump up extra cash as and when demanded, demanded, that is, by a Qualified Majority of Member States with no unilateral right of refusal. Such calls can be expected if another crisis blows up in the Eurozone.

The UK’s leaving the EU would relieve us of these considerable risks and liabilities. This independent research shows that Britain should leave the European Union. To download it, please click here.

A call to Brexiteers to fill the void on the economic effects of Brexit.

I think that we Brexiteers can be very grateful to Michael Gove for his sparky performance on Sky TV. Apart from having to defend the rather silly figure work of the UK paying £350 million per week to the EU, which we all know to be misleading, he was hung out to dry on his lack of supporting evidence for his assertion that the UK could prosper outside the Single Market.

As the Vote Leave campaign have decided to go for the `nuclear option’ of freeing themselves from the clutches of the Single Market and not embracing the Norway option /EEA route (probably because of the worries about the attendant problems of free movement of people) they must somehow build a firm foundation for this view. At the moment there is a generally held view that evidence for a good outcome is lacking, one which John Major hammered home on the Marr Show on Sunday.

Luckily, there is a group of well-known economists which calls itself Economists for Brexit and which shares Vote Leave`s view. The group has produced a pamphlet which is available on the internet.

This body of erudition can be found here and the summary of their views in the leaflet is that Brexit will result in a better economic outcome than remaining in the EU. Economic forecasts (based on proven financial modelling by Patrick Minford) show that on leaving the EU:

  • Output grows 2%
  • Competitiveness rises 5%
  • Real disposable wages up 1.5%
  • Exchange rate falls 6%
  • Inflation and interest rates rise to 2-3% range
  • Current account improves to -1.5% of GDP
  • Unemployment reduced by 0.2% (75,000 on benefit count)

It also points out that:-

  • The UK does not need to do a trade deal to trade. It already trades extensively with many countries across the globe under the rules of the WTO and can continue to do so with EU countries in the future (in the same way that the US, Japan and China does). Leaving the EU will decrease prices and boost GDP.
  • The City of London will retain its role as the world’s leading financial centre outside of the EU.
  • The UK is a net contributor to the EU budget and those funds could be utilised far more efficiently elsewhere.

To quote from their pamphlet, which is downloadable, they state that: “The Economists for Brexit is a group of eight independent, leading economists who are convinced of the strong economic case for leaving the EU. To date, debate on the economic merits of whether the UK should remain in the EU has become overwhelmed by the Government’s Project Fear campaign. Each of the eight economists have become exasperated by the scaremongering and often economic illiteracy of this campaign.

At the same time, the group believes that whilst there are a substantial number of economic arguments to support Brexit, they are yet to be made in public. The purpose of this group is to explain the very clear economic arguments in favour of Brexit, offering voters – who are crying out for clarity on the economics of Brexit facts based on proven economic models, as opposed to speculation.

It is a useful and insightful view on the way forward if we break loose from both the EU and the EEA and do our own thing. There is even a short but detailed post-Brexit forecast to be found towards the end of the report by Patrick Minford.

Whilst one can understand that were the Leave campaign to link itself to such a document it is then open to the opposition mercilessly to analyse it, tear it apart and use portions of it against them. However, here is a body of professional opinion which is robustly positive for the economic outlook after Brexit and which has some realistic opinions on the excessive burdens which are placed on business by the regulatory zeal of the EU.

The Leave campaign must now ‘up its game’ and use the supporting information which is out there to form a compelling case for life after Brexit. It should also make more use of the information which points to the very real dangers of remaining in a failing, ove- regulated customs union which contains a host of countries whose economies are in a precarious state.

 

Photo by HowardLake

The only show in town, says Ambrose Evans-Pritchard

Leave camp must accept that Norway model is the only safe way to exit EU

By Ambrose Evans-Pritchard

The Leave campaign must choose. It cannot safeguard access to the EU single market and offer a plausible arrangement for the British economy, unless it capitulates on the free movement of EU citizens.

One or other must give. If Brexiteers wish to win over the cautious middle of British politics, they must make a better case that our trade is safe. This means accepting the Norwegian option of the European Economic Area (EEA) – a ‘soft exit’ – as a half-way house until the new order is established.

It means accepting the four freedoms of goods, services, capital, and labour that go with the EU single market. It means swallowing EU rules, and much of the EU Acquis, and it means paying into the EU budget.

Leavers know that if they gave in to these terms, they would drive away all those other voters who want to slam the door on immigration. So the campaign has been evasive, hoping to muddle through until June 23 with the broadest possible church.

Some Brexiteers have tried to square the circle with blue sky romanticism on trade, or sweeping talk of a ‘Hong Kong’ model, or by suggesting we fall back to the default settings of the World Trade Organisation.

Professor Patrick Minford from Cardiff University was refreshingly candid in proclaiming that his Brexit vision would “eliminate” most of Britain’s manufacturing – what he describes as a Schumpeterian “good shock” to clear away dead wood  – but this is just as Utopian as EU ideology itself. It is no an answer to the politics of Project Fear.

As my colleague Allister Heath argued last week, there are great numbers of middle-class, centrist, Tory-leaning readers of The Telegraph who want Britain to restore sovereign self-government, but have been rattled by the barrage of taxpayer-funded propaganda. They crave reassurance that it really is safe to vote for Brexit.

Prof Minford is right to denounce the Treasury’s document on the short-term horrors of Brexit as “intellectually deceitful”, but his reasons are different from mine. The Treasury claimed that a “vote to leave would cause an immediate and profound economic shock”. The hit to GDP ranges from 3.6pc to 6pc, with a loss of 800,000 jobs in a ‘severe’ scenario, comparable in scale to the collapse of Western banking system in 2008.

What is striking about this ghoulish document is that it did not model the Norwegian EEA outcome, even though this ‘off-the-shelf’ option is the most likely counter-factual. The reason is obvious. Had the Treasury done so it could not have come up with such alarming figures. 

There have been two excellent reports on the EEA option, one by the Adam Smith Institute and another entitled ‘Flexcit’ by Richard North from the EU Referendum blog

The Adam Smith Institute starts from the premise that the EU is “sclerotic, anti- democratic, immune to reform, and a political relic of a post-war order that no longer exists.” It says the EEA option lets the public judge “what ‘out’ looks like” and keeps disruption to a minimum.

“The economic risks of leaving would thus be neutralised – it would be solely a disengagement from political integration. All the business scare stories about being cut off from the single market would fade away,” it said.

The report argues that everybody could live with an EEA compromise, whether the Civil Service, or the US, or the EU itself. Britain would then be a sovereign actor, taking its own seat on the global bodies that increasingly regulate everything from car standards, to food safety, and banking rules.  

“As Britain is already a contracting party to the EEA Agreement there would be no serious legal obstacle,” it says.

David Cameron disparages the Norwegian model as a non-starter. “While they pay, they don’t have a say,” he says.

Actually they do. As our forensic report on Norway by Szu Ping Chan makes clear, they have a de facto veto over EU laws under Article 102 of the EEA agreement. Their net payments were £106 a head in 2014, a trivial sum.

They are exempt from the EU agricultural, fisheries, foreign, defence, and justice policies, yet they still have “passporting” rights for financial services. Their citizens can live in their Perigord moulins or on the Costa Del Sol just as contentedly as we can. 

They do not have to implement all EU law as often claimed. Norway’s latest report shows it has adopted just 1,349 of the 7,720 EU regulations in force, and 1,369 out of 1,965 EU directives. 

The elegance of the EEA option is that Britain would retain access to the EU customs union while being able to forge free trade deals with any other country over time. 

There would be no need for a desperate rush to both reach a modus vivendi with the EU and to renew all the EU’s 80 bilateral deals with other countries and regional blocs before the two-year guillotine fell under Article 50, the EU secession clause. 

Miriam Gonzalez Durantez, a former EU trade official (and Nick Clegg’s wife), argues that Britain is so short of trade expertise that it would struggle to assemble 25 experts even after repatriating staff from the EU. 

In this she is right. Where she is on shakier ground is to claim that we would need 500 officials “working intensely for a decade” to renew our third party trade deals.

Really? There is a simple administrative mechanism for the switch-over. All it requires is a filing at the United Nations under the “presumption of continuity” and trade goes on as before,  a procedure used time and again over the post-war era. 

This is what occurred after the break-up of Czechoslovakia and Yugoslavia. It was the formula used for decolonisation in the 1960s. It  would take a willful decision to override this mechanism of international law, and it is hard to see why a close allies such as US, Canada, or Japan would act in such a fashion.

The G20 and the G7 profess to stand for free trade and keep telling us a lurch towards protectionism would shatter the world’s fragile economic order. 

What is true is that any EU state could stop Britain stepping back to the EEA. Hell hath no fury like a union spurned. But Article 3 of the EU’s Lisbon Treaty says the union will uphold “free and fair trade” with the rest of the world, and this has legal force.

 Such vindictiveness would be the quickest and most certain way to tear the EU apart, for would it deeply damage the interests of the Dutch, Nordics, and Germans. It would cut across Britain’s intimate defence ties with France, and across Britain’s NATO pledge to Poland and the front-line states of Eastern Europe.

There may be many powerful reasons why Britain should remain in the EU, whether to ensure the comity of these Isles and show solidarity to Ireland, or to close ranks with our fellow liberal democracies at a time of civilizational threat. One thing that we do not have to worry about is a trade embargo, provided we stick to the safe ground of the EEA.

So we have bizarre situation. The Leave campaign is in effect lying about the Norwegian imperative because it dare not admit that EU migrants will continue coming to work in a post-Brexit Britain; and this in turn allows the Remain campaign to air its lies on economic Armageddon.

Just ignore them both. Every citizen is capable of reaching his or her own verdict on 40 years of EU conduct.

This article first appeared in the Daily Telegraph on 2nd June 2016.