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Eight Things Britain Will Need for Brexit to Succeed

15/06/2016 15:20 | Updated 15 June 2016
Stefan Rousseau/PA Wire

Cards on the table: I am in favour of Britain staying in the EU. But I am a Remainer who understands the appeal of the case for Brexit. In an era of accelerating global economic change, the clarion call to 'restore sovereignty' and take back control is appealing. Anger at immigration is widespread across the UK, and too often met with patronizing responses by leaders in politics and business. If you think restricting immigration is the greatest political challenge we face, Brexit has enormous superficial attractions.

Meanwhile the EU is not in great health - saddled with a Euro that is not working for too many of its members, tin-eared when European voters stand up to Brussels or Frankfurt, and struggling to cope with an unprecedented migration crisis. No wonder many Brits look across the Channel and think: "Whatever is going on there, I don't want to be part of it".

Remainers need to understand that Brexit has appeal, and we dismiss it at our peril. But we British are a hard-headed lot, and know that Brexit is for life not just for Christmas. Those tempted to vote for Britain to leave the EU may not be certain about what life will be like post-Brexit, just as Remainers cannot be certain about what lies ahead if we stay in. But they will want some sense that Britain can succeed, and that the glide-path to a prosperous, confident and secure Britain outside the EU is a navigable one.

What needs to happen for Brexit to be the right choice for the UK? Fortunately we know quite a lot about this. Not least because the Brexiteers have set out multiple purported advantages of leaving - freedoms and choices once Britain is untethered from the EU that we can exploit to our national advantage.

So here is my starter for ten about the 8 things that need to go Britain's way for Brexit to be successful.

1. No capital flight in the weeks and months after Brexit

In the immediate aftermath of a Brexit vote, businesses operating in the UK will have to make a decision about whether or not to move jobs and investment out of the country to other locations inside the EU, to ensure they continue to enjoy access to the Single Market. The problem is that they, along with the rest of us, will be faced with enormous uncertainty: not least about the timing and terms of Brexit (which will take two years to negotiate), and the timing and terms of any re-engagement with the EU once we have left (which will take many more than two years to negotiate). In the presence of such prolonged uncertainty, it isn't surprising that around a third of companies - both foreign and UK-based - have said they would reduce capacities or relocate altogether in the immediate aftermath of a Brexit vote. If Britain is to avoid a significant relocation of business activity to other sites in the EU, there will have to be a concerted plan to provide reassurance on a bewildering array of unknowns, and to provide it very quickly.

2. Securing a new trade deal with the EU

Key to the prospect of Britain thriving outside the EU will be our ability to deliver on the Brexiteers' claim that the EU will have a strong interest in offering us access to the single market. Much discussed has been the terms on which this might take place - ranging from the Norwegian and Swiss options to the South Korean and Albanian option. But what kind of deal will the EU give us? Surely, Brexiteers argue, given how much the EU relies on buying UK goods, they will not refuse a deal that would cause economic self-harm.

Well, actually, they might. In fact they probably will. To believe otherwise you'd have to think that statements such as that of German finance minister Schaeuble, insisting that Britain will not enjoy access to the Single Market if it left the EU, are pre-referendum bluffs. You would also have to believe that the EU is prepared to decide to offer the departing UK a deal that includes the main benefits of membership without the costs. Just why a club would find it in its interest to offer better terms to non-members than members is unexplained. Let alone why an EU, most of whose governments face an unprecedented surge in radical Eurosceptic populism, would give this amount of encouragement to anti-EU political forces in their own country.

It is a misunderstanding of the revealed preferences of Germany and other EU member state governments - who prize the integrity of the EU so strongly - to think that Britain will not pay a big trade penalty for initiating divorce proceedings. And it suggests a strange contradiction in Eurosceptic reasoning: the same people who believe that Britain is constantly frustrated by an intransigent EU while it is a member think that the minute we leave we will succeed in getting the trade deal of our dreams from Brussels.

3. New trade opening up with the rest of the world

The Brexit camp claim as one of the main advantages of leaving the EU the possibility of unleashing new trade deals between the UK and the rest of the world.

This claim rests on a number of assumptions. The first is that we live in a time of expanding trade. We don't. The ratio of world trade to GDP is now lower than it was in 2008. The second is that we will be more attractive as a trade partner outside then EU than we were inside. We won't be. Countries contemplating doing trade deals with the UK will stand to gain access to an area that is equivalent to just 8% of the population of the EU. The third is that our membership of the EU is holding back expansion of trade elsewhere. The evidence for this is weak. Since 1990, our EU ally Germany's exports to China have increased by 2,300% to a value of over €70billion. Britain's exports are one-fifth of that. There is ample scope for the UK to improve its poor export performance, but blaming membership of the largest trading union in the world for our poor performance thus far doesn't really wash.

4. A deregulatory boost to UK investment and productivity

The Leave campaign's politicians and economists have made much of the positive growth and productivity boost that would come from shedding EU regulations post-Brexit. Priti Patel has claimed that "halv(ing) the burdens of the EU social and employment legislation could deliver a £4.3billion boost to our economy and 60,000 new jobs". While the Open Europe think-tank has argued that the deregulation that Brexit would make possible could add 1.3% to UK GDP.

Putting aside questions of the political desirability of Britain making its way in the world with a race-to-the-bottom competitive strategy, is this a plausible account of the benefits that await? I seriously doubt it. Because Britain is already one of the most deregulated countries in the advanced industrial world - ranked second lowest among all OECD countries for both product market regulation and employment protection, for example. When you're as deregulated as Britain is, it's dubious in the extreme to think there is any more water to wring out of the tea-towel by leaving. So the fact that "deregulation-via-Brexit" is the primary supply-side mechanism by which Leavers see Britain flourishing outside the EU seriously weakens the economic case for Brexit.

5. A significant decrease in immigration

If Brexit wins the day a week from now, it will be predominantly due to its appeal as a mechanism for reducing immigration. All eyes will therefore be on how successful Britain will be in achieving this in the aftermath of leaving the EU.

But Leave campaigners have mixed messages on immigration. Daniel Hannan, Leave's most articulate exponent, says that levels of immigration at the moment are "about right". Others argue that there would and should be a significant decrease in net migration following Brexit. Still others claim that migration from non-EU countries (especially from the Commonwealth) would be allowed to increase following Brexit - making the implications for the total net-migration figure at best unclear.

It is likely to be more difficult that most people think to reduce immigration by any sizeable amount. Migration from outside the EU has always been greater than that from inside the EU, yet Brexiteers offer the prospect of that number increasing still further. Countries that have adopted the much-discussed Australian points-based system have higher per capita net migration than the UK. Providing objective criteria for foreigners to qualify to work in Britain sets a bar but doesn't provide control: if you meet the test, you get to come in, and we can't control how many people from across the world meet the test.

On top of this, skill shortages across the UK are likely to mean a range of industries knocking on Whitehall's door for special deals to import migrant workers - including our NHS, which at present recruits 36% of its doctors and 15% of its nurses from overseas. The politics of immigration post-Brexit are likely to involve contradictory pressures: to get overall numbers down, support industries who rely on skilled migrants, and look for levers of control in a system that promised to limit numbers but probably will not.

6. Continuing cooperation with the EU in areas important to Britain's national interest

The Leave campaign insists that Brexit would not mean withdrawing from cooperation from the EU in those areas central to our national interest. Collaboration on counterterrorism, international criminal networks, climate change and foreign policy - and much else besides - would continue as a partnership between Britain and our former EU partners.
I fear much of this is wishful thinking. If we leave the EU, we will leave mechanisms of cooperation such as the EU's European Arrest Warrant system, responsible for deporting 6,500 criminals from the UK since 2010. We will lose our membership of Eurojust, through which member states' criminal investigations provide evidence valid in UK courts, and the Schengen information system that allows the UK access to intelligence sharing activities in Schengen countries. Climate change agreements in Europe will continue to affect us profoundly, but we will be spectators to the deal.

The problem with arguing for a "pick and mix" approach to cooperation with the EU after Brexit is that it misunderstands how the EU works. Byzantine as the European Union undoubtedly is, it is fundamentally a system that commits its members to cooperation across a spread of policy issues. If a crisis about floods comes up, it gets discussed between government ministers in the margins of a scheduled meeting about terrorism. It is a system that enables compromise between countries, and trade-offs across dossiers, in the name of getting something done rather than achieving nothing. If we leave the EU, we will be excluded from the more effective forms of cooperation that only members can access, even in those areas where we welcome rather than resent European partnership.

7. No consequences for constitutional integrity of the UK

Irrespective of its consequences for the European Union, if Brexit is seen to be responsible for fracturing the Union at home in the UK it will lose a lot of its political legitimacy. Here there is at least significant uncertainty.

It is true that polling suggests no current majority in Scotland for independence or for a second referendum. But do we honestly think that a vote for Brexit, carried predominantly by an English majority against Remain majorities in Scotland, Wales and Northern Ireland would not re-animate demands to revisit the 2-2013 Scottish decision to stay in the Union?

And then there is Northern Ireland. The Good Friday Agreement that brought an end to 30 years of violence in Northern Ireland is a contract between signatories to the European Convention of Human Rights, guaranteed by membership of the EU. If Brexit was a prelude to a push for Britain to leave the ECHR, as Theresa May has suggested in her one referendum intervention so far, the Good Friday Agreement would have to be reconstituted.

However the question of the border between Northern Ireland and the Irish Republic is of greater concern. It is true that a Common Travel Area has existed for nearly a century between the two. But Brexit would make that border an external border with an EU we would have left, a decision propelled largely by insistence on restoring control of our borders. Even if our future leaders want to keep goods, services and people flowing without checks across the Northern Irish border with Ireland, the prospect of Greeks, Hungarians and Bulgarians being able to fly to Dublin and enter the UK without any border controls is very likely to make these leaders think again. Quite how the different communities inside Northern Ireland will react to these changes is difficult to predict. But it is not a recipe for stability and continuity.

8. A public spending dividend for the UK from money released by Brexit

The Leave campaign has promised much from the £8.3billion that would be saved in net contributions to the EU Budget. It would enable £5billion in extra spending on the NHS, and a 5% cut VAT on domestic fuel, they argue. These sums work if you assume something totally implausible - that our economy will not react in any meaningful away to the decision to leave the European Union. In the past four days, the mere prospect of Leave drawing level with Remain in the polls has wiped out £100billion from the value of the FTSE-100 - equivalent to 12 years of UK net contributions to the EU. Virtually every economist, think-tank and international economic organisation has forecast a significant hit to UK GDP and our public finances in the wake of a Brexit vote. As the FT's Chris Giles has remarked, the world's economists are not always right, but they have never been as unified as they are that Brexit will hurt Britain's economy materially. In light of the overwhelming evidence, Leavers' promise of a "Brexit dividend" of public spending is an act of pure fantasy politics.

Taken together, the chances for each one of these eight conditions for Brexit's success are not great. The chances of some subset of them happening are very slim. The chances of all of them happening are as close to zero as you can get.

The odd thing about Brexit is that, as inflamed as all our passions are in advance of the referendum, in the aftermath of a vote to leave the EU we will all have to come together to make it work. But we can't work miracles. Whatever the appeal of detaching ourselves from the frustrations, compromises and Kafka-esque bureaucracy of the European Union, it is difficult to avoid the conclusion that voting for Brexit next week would be a gross act of economic self-harm that would haunt and hurt Britain for many years to come.

Lord Wood is a Labour peer and former shadow cabinet minister

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