FIRST THINGS FIRST. I’M NOT GOING TO PRETEND TO BE OBJECTIVE on this topic – I’m pro-Brexit, and I’ll most likely vote ‘leave’ when June 23 arrives. However, my desire to leave is based primarily on concerns about the long-term direction of the European Union and its impact on British sovereignty, and little to do with the economy, which is ultimately what matters most for business travel in the short run. So here I’ll strive to give you as balanced an overview of the big-picture economic issues as I can.
The first thing you’ll notice when you try to analyse the impact of Brexit on the economy is that there’s a very wide range of estimates. This is understandable – so much depends not so much on whether we leave, but on what terms. One London School of Economics report puts the potential GDP loss – due in great part to the impact on trade – at as much as 9.5 per cent in its gloomiest scenario. Meanwhile, right-of-centre think tank Civitas is much more upbeat on the outlook, putting potential GDP gains at 4 per cent or so, due to reduced bureaucracy, among other things.
It seems likely that either extreme is wide of the mark. We are neither so dependent on the EU that leaving would be a complete disaster, nor so bound up in red tape that getting out would unleash rampant productivity growth. Research consultancy Capital Economics – which isn’t necessarily neutral (founder Roger Bootle is an acknowledged Eurosceptic) but certainly endeavours to look at the economics in-depth – put together an analysis for British fund manager Neil Woodford. Its conclusion? “It is plausible that Brexit could have a modest negative impact on growth and job creation. But it’s slightly more plausible that the net impacts will be modestly positive.”
BUSINESS RISKS
Take trade, one of the most obvious concerns. The EU is by far Britain’s biggest trading partner – accounting for about half of our goods exported. So the idea of doing anything to jeopardise that relationship sounds concerning. However, it’s not as risky as it might seem. For one thing, nothing would change immediately – under the Treaty of Lisbon, a country leaving the EU has two years to negotiate the terms of withdrawal. For another, we are one of the EU’s biggest customers, so the bloc has little incentive to start a trade war with us. Meanwhile, our trade with non-EU partners has grown strongly and may well continue to do so, particularly at a time when the EU has struggled economically amid the ongoing eurozone crisis.
In all, the impact of Brexit on trade depends very much on the model we adopt. Under a Norway-style relationship, as a member of the European Economic Area, little would change, but we would still have to contribute heavily to the EU budget. But even in a worst-case scenario, where no deal is reached, we would remain subject to World Trade Organisation rules, which means punitive tariffs specific to the UK are out of the question. As Capital Economics notes, the UK would face the same tariffs that non-EU members face – in practice, around 4.4 per cent, “well within the normal range of exchange rate movements”.
THE BOSSES’ VIEW
Perhaps the best-placed commentators are those at the sharp end of any potential Brexit – those who run the airlines. The bosses of Europe-focused budget carriers – Carolyn McCall of Easyjet and Ryanair’s Michael O’Leary – are clear that they would prefer Britain to stay in the EU, but the transatlantic airlines seem less concerned. IAG’s Willie Walsh has said that while there’s “uncertainty”, Brexit would have no “material impact on our business”.
It’s understandable that businesses which are now set up to deal with specific types of bureaucratic infrastructure aren’t keen for that to change. But there could be long-term benefits to leaving, too. As the World Travel and Tourism Council points out, Brexit – and the accompanying focus on trade with farther-flung partners – might provide the push that the government needs to commit to building a third runway at Heathrow, or to expanding Gatwick.
Even John Holland-Kaye, chief executive of Heathrow, who supports continued membership of the EU, has acknowledged that “if we were to exit the EU we would become more dependent on trade with those non-EU markets which means we need more long-haul flights... to emerging markets.”
In short, from a business perspective, Brexit would indeed be a leap in the dark. But looked at realistically, chances are it will be no more disruptive than our failure to join the eurozone (when many voices warned of a mass exodus from the UK if we didn’t adopt the euro) was back in the early 2000s. And in the long run, I think most would agree, that decision didn’t work out too badly at all.
Read the full feature on Brexit from the latest issue of BBT
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