Economics of the Brexit referendum

The historic referendum taking place July this year in the UK has all the ingredients of a T20 thriller . It promises to be a close call vote as the pendulum is swinging either way in pre-poll media surveys. As of how, the ‘Brexit’ option seems to have an edge.

British Prime Minister David Cameron has allowed his own party men including the MPs and ministers to make their own choices. Tory heavyweights including the London Mayor Boris Johnson and minister of state for employment Piriti Patel have taken the Brexit side and are avidly campaigning for it.

Cameron says ‘Brexit’ would mean a ‘leap into the dark’, which Johnson dismisses as ‘wild exaggeration’. Johnson says it will continue to cost the UK more ‘in’ than ‘out’. Industry and businesses are also largely divided over the issue.

A Tory-led pro-EU letter, released a few weeks before, was signed by several FTSE 100 companies, but they are largely fewer than the Conservatives had hoped for.

Many of the middle level and small businesses wish to opt out of the union. And they are also very large in number. The Australian political strategist and recently knighted Lynton Crosby-conducted series of pre-polls for the Daily Telegraph in the run up to the vote clearly suggests that the public are almost equally divided.

Those who say ‘yes’ have said that they want to secure a beneficial economic position for the country within a reformed EU. People wishing to leave the EU are worried about the control on immigration and they want to secure borders. In the very recent Telegraph poll, 52 per cent of the ones who really want to vote in the polls have said they wish to leave the union. And while 45 per cent wished to be within the EU, three per cent could not make a decision.

The poll has obviously tilted towards the exit, as of now, as the conservative public do not like uncontrolled immigration into the UK, especially from central European countries such as Romania and Bulgaria from where thousands have come after the rules were relaxed.

Let us see the economics involved in the discussion. Last year, the UK spent nearly £13 billion for the Union’s budget so far, but in turn it only received benefits worth £4.5 billion from Brussels. Its total give-out to the EU was approximately £8 billion after the receipt of EU give-outs.

But the Britain’s EU membership fee for a year is around £18 billion, according to the Office of National Statistics (ONS). The remaining payment to the EU is £5 billion.

The £13 billion Britain doles out to the EU obviously shows that the United Kingdom pays a lot more than it receives. Let us also see the trade, how much Britain exports to the EU via manufacture and services. The trade figures for January 2015 reveal that the export from Britain to the EU stands at £10.4 billion and imports for the same period was pegged at £16.8 billion.

So, the trade deficit is nearly £6 billion on an average given a fluctuation of plus or minus half-a billion or so, according to Her Majesty Customs and Revenue Department. Let us also see the cost of EU immigration to the UK over the period. According to Migration Watch UK, the there are about 2.7 million EU nationals now living in the UK out of whom 1.8 million are in employment.

The cost of EU immigration into Britain, as per the Guardian figures, is also considerable if not substantial as at least 43 per cent of the EU migrants claim some form of benefits. The EU immigrants nearly paid £20 billion in taxes between 2000 and 2011 according to University College of London paper released in 2013.

The Migration Watch UK says that the government figures are grossly exaggerated regarding the EU migrants’ tax contribution to the UK. Those who claim other benefits outside of work are twice the size than that of the ‘in-work’ category.

Migration Watch UK contends that their monetary contribution is almost zero, which means that they receive as much benefits as they pay in tax. With all the additions and subtractions of the EU fee, EU give-out to the UK, and the trade with the EU, the immigrants’ costs and their tax contributions, Britain remains largely the loser.

The anti-EU campaigners see unrestrained immigration as further tilting scales against the UK. They also see Cameron or his Chancellor George Osborne’s efforts to bargain more from Brussels, until now, not leading to much. Whether Cameron will be able to secure more before the referendum takes place is also debatable.

If Britain votes to leave the alliance, it would risk making a separate and new negotiation for Transatlantic Trade and Investment Partnership (TTIP) with the US, which is set to sign an agreement with the EU shortly. This is how Barack Obama sees a risk for Britain if it leaves the EU. Also, Britain’s free movement within the EU partner countries will cease and the Shengen visa regime will expire. The Governor of Bank of England has also warned, although cautiously, that there is a danger of short term economic consequences if Britain decides to leave.

But the recent polls by the media suggest a bias in favour of the exit. Even the monarch, according to the Sun newspaper, is wishing the country leaves the EU, which the Queen denied later. But the Sun stood by its report, which the paper said was gleaned from a highly-placed source in a Windsor palace lunch party where the Queen was said to have expressed her views to the pro-EU leader Nick Clegg. She was allegedly admonishing him supporting the EU.

But the scare-mongering pro-EU activists would also gain advantage close to the poll as the fear would also mount within the community. But the non-EU migrant community is hoping for an exit as its employment prospects improve.

But as most of the government is campaigning to stay in the EU, could the Members of Parliament vote to remain even if the British public decided to leave? Yes, they can by an act of Parliament! But that will be a political disaster, which they will not be willing to risk. They would hope for a win in the referendum.

The writer is a UK-based journalist

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