August 1, 2017
Why you should and shouldn’t worry about Britain leaving the EU
by Peter Beard @ 29/07/17
As Clint Eastwood would say: “Nowadays, politically, everybody is promising everything. That’s the only way you can get elected”. As referenced in the title, British politics has stayed true to Eastwood’s quote. “A strong and stable economy” as Theresa May would put it during her electoral campaign… But as Brexit nears the horizon, can we really be sure of what she’s saying?
Over a year ago on June 23rd, Britain made the decision to leave the EU during the Referendum under David Cameron. Who would have thought it was going to happen? I certainly didn’t, probably nor the ‘Brexiteers’ themselves thought it would actually happen.
£9.8 billion – or in other terms, £188 million a week. That is what Britain net financial contribution was to the European Union. Significant as it may seem, the publics’ final vote decision was a mixture of this, but more important apparently is the standing on Jobs and Immigration. Roughly speaking,
Migration from the EU added £160 million in additional costs for the NHS across the UK – this is somewhat considerable. No wonder the older demographic voted to leave. I imagine it’s the waiting they were fed up with at their local clinic or hospital.
But in all seriousness, the likes of immigration were blamed for the causation of job losses in the UK. However, this is simply not true, especially when the economy is at a 25 year low for unemployment (4.5%). The notion of rising immigration and increased job losses being a direct cause and effect is a misconception. Just because X and Y are correlated does NOT mean that X causes Y or vice versa.
Nevertheless, the EU has reaped some benefits for the UK, such as the £3.19bn subsidies received in 2014 for British farmers – of which now accounts for 50% of farmers’ incomes.
As it stands, Theresa May’s progress has frankly stagnated. To some, slow progress further advocates the pressing issue of uncertainty. Throughout this and last year’s electoral campaigns, the word ‘uncertainty’ has put fear into both the consumer and the firms of our economy… But why? Surely uncertainty is neither good or bad?
Well, from a Macro-Economists point of view, uncertainty links to the idea of confidence and consumer sentiment; after all, if an economy is not confident in spending its own money, then no one benefits as money is the fuel used to drive economic growth.
So, if the UK spends less, we would expect greater job insecurity from your larger corporations because they are likely to withdraw inward investment from the UK – of which it is currently 3rd in the world for attracting FDI . Moreover, MNC’s will no longer be part of the single market – a major benefit for firms when trading goods.
Put simply, not only are jobs at risk, but for the firms that stay in the UK, be prepared for every day retail prices to rise as the cost of extra tariffs will be passed down to the consumer.
However, to some the risk of uncertainty does not pose a serious nor long-term threat. Firstly, There’s no evidence of significant capital flight. London will arguably remain a leading financial centre outside the EU and banks will still want to be headquartered in Britain due to its comparatively low direct tax rates.
Secondly, though we expect the value sterling to fall, this does create inventive for manufacturers to export – perhaps this could be critical for reigniting the economy if and when we enter a recession.
Lastly, the removal of unwieldly EU regulations lowers some of the barriers to entry and thus improves competition – a principle that is good for consumer welfare surplus owing to wider choice and theoretically lower prices.
Overall, there is an underlying theme that was hardly mentioned during the debates: Free trade vs. Protectionism – ironic though that implementing protectionist policies is actually endangering more jobs than it is saving from the UK’s sunset industries such as the Steelworks and Car Manufacturing.
*Overall, I feel bad this post was not very helpful coming to a sound judgement, but neither is Parliament, so I don’t as feel bad after all.