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The impact on British manufacturing of leaving the EU

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  • Publish date: 09 December 2015
  • Archived on: 09 December 2016

The ICAEW Manufacturing Special Interest Group event, “Would a British exit from the EU be good or bad for Manufacturing?” was held on Thursday 19 November at Thomas Dudley Ltd in Dudley, West Midlands, and led by ICAEW regional director Tom Madden.

British business needs confidence

Martin Dudley, joint managing director of Thomas Dudley Ltd was the Group’s host for the morning and he opened proceedings by briefly outlining his current personal position on the EU referendum.

He felt that British business needs confidence at the moment, not fear and uncertainty. He added that before we joined the EU, trade with Europe was difficult but common standards have improved the ability to trade, and improved competition and innovation. In addition, if we are looking to change things in Europe, we need to negotiate from a position of strength and if we leave it’s possible that the EU could dissuade other members from doing so by making life difficult for UK businesses, imposing taxes and tariffs that could increase the cost of doing business with Europe.
In short, we don’t know the consequences of this step into the unknown.

A referendum

David Smith, economics editor of The Sunday Times, addressed two basic questions in his presentation.

  • What would the consequences be of a vote to leave?
  • Will Britain stay in the EU or leave?

He first outlined a timeline for the forthcoming referendum, saying that we can expect a referendum bill to come before parliament in the next month. Next would be the renegotiation of Britain’s membership that David Cameron has initiated, which should be wrapped up by February 2016. The government will then set the date for the referendum in March, the date of which is likely to be next autumn. There are possible consequences of the British exit (Brexit) and the short-term economic consequences of a vote to leave:

  1. a political fall-out;
  2. the long-tern restructuring of trade relationships; and
  3. the possibility of an independent Scotland and break-up of the Union.
Business investment is recovering well at the moment: however, uncertainty over the UK’s position in Europe could be restraining further investment as foreign investors wait for the outcome of the referendum. The Bank of England is also forecasting that the economy will grow 2.5% over the next few years and the Brexit could scupper that. A further factor is the current volatility of sterling.

Morgan Stanley reiterated these fears recently, saying: “We think that the negative impact could be more significant – and push the economy into recession – particularly if there is little progress in resolving post-referendum uncertainties, triggering a sharper fall in investment, sizeable outflows of capital and labour, and second-round effects through the housing market.”

It’s true, said Smith that anti-EU campaigners would see short-term losses as a sacrifice worth making but Brexit could also lead to Cameron being unseated as Conservative leader, followed by a schism in the party – and even a Labour win at the 2020 general election. Although the UK has become less reliant on the EU as a trading partner, around 45% of British exports still go to Europe. And as the balance of exports shifts away from manufactured goods to services (which tend to go to more advanced economies) a Brexit could prove problematic for the UK economy. 

Post-Brexit, trade deals with Europe will be possible, but not as easy as if we were still an EU member and it’s unrealistic to think that the UK will be able to continue trading as we do now. 

In addition, a vote to leave the EU – especially if a majority of the English vote to leave but a majority in Scotland want to stay – is likely to lead to another Scottish referendum and the real prospect of a break-up of the Union.

So will Britain vote to stay? 

Four key considerations are

  1. David Cameron is aiming to renegotiate the UK’s membership, but without alienating other EU members.
  2. Immigration and red tape are key issues for the British electorate.
  3. Most of the rest of the EU does not want the UK to leave.
  4. And neither does most of the British public – at the moment.

The outcome of the negotiations will be a crucial factor, with four areas up for discussion.

  1. The UK will not be part of an ‘ever-closer union’.
  2. Fair treatment between euro and non-euro-based economies.
  3. New welfare arrangements for EU migrants.
  4. A more competitive EU.

In 2015, the Greek and migrant crises have exposed divisions in the EU and attitudes to EU membership are shifting. In the UK, two key drivers of attitudes to the EU are consumer confidence and the state of the European economy. In addition, UK citizens tend to be less enthusiastic about the EU than those of other member states and we have become more euro-sceptical in part because of concerns about immigration.

Smith summed up by saying that Britain should vote to stay in the EU – just. Only a small minority are committed to our exit and the British people are risk-averse (as the Scottish referendum showed), so the economic risks at the forefront of the campaign are likely to sway the vote but it could be close.

Craig Thomas

Craig Thomas is an experienced automotive journalist whose work has appeared in the Daily Telegraph, Daily Express, The Guardian, The National (Abu Dhabi), Auto Express, Auto Trader, MSN Cars, and the AA Magazine.

Manufacturing Group, December 2015