Stephen Booth: Realities of life if Britain quits EU after referendum

Too often the costs and benefits of leaving the EU, or “Brexit”, are grossly exaggerated. It is either three million jobs lost if we leave, or the land of milk and honey the day after we escape the shackles of Brussels. The reality is that whether the UK sinks or swims will hinge on diplomacy with the EU and how open to globalisation Britain chooses to be.

This week, Open Europe published a comprehensive report assessing the consequences, challenges and opportunities presented by Brexit. We found that, depending on the circumstances of withdrawal and the policies adopted by the UK outside of the EU, the UK could either be 1.6 per cent of GDP better off in 2030 or 2.2 per cent of GDP worse off, with the most likely outcome falling somewhere within this range.

This range of potential positive and negative outcomes is a challenge to all sides of the EU debate and illustrates why we should be wary of those who paint the upside or downside of Brexit in black or white terms. Ultimately, the economics are finely balanced, and much will therefore come down to politics.

For example, in our most optimistic scenario, which could see the UK 1.6 per cent of GDP better off, Britain would need to strike a comprehensive free trade agreement with the EU, substantially cut the costs currently imposed by EU regulations and pursue an open free trade policy with the rest of the world. For various reasons, none of these steps are likely to be easy.

The UK cannot afford to simply walk out of the EU. We will have to negotiate a trade agreement and, while a trade war would be bad for everyone, certain sectors of the UK economy, such as financial services, might find it harder
to access EU markets under a new arrangement than they do now.

Cutting regulation is no mean feat either. Successive governments have talked a good game on cutting red tape but often end up adding to the Statute Book.

Outside of the EU, the UK would have a freer hand to reduce the costs of energy bills by reversing the most costly climate change policies, but up to now this is actually an area where the UK has been more “green” than Brussels. The costs of employment law to businesses could be cut but political resistance from the unions would limit how far any government could go.

Finally, one of the major benefits of Brexit would be the ability to regain control of our trade policy, which is currently entirely outsourced to the European Commission.

When we consider trade, we often think of what we export, but imports are just as important. The EU’s tariffs on imports from the rest of the world mean that we all pay more than we otherwise would for our food and clothing and businesses pay more for the raw materials that make up their finished products.

For example, jeans have a 12 per cent tariff coming from the United States, which add between £5 and £10 for a single pair bought on the high street. Outside of the EU, the UK could remove this tax and we could
put the money saved to better use.

However, there is no such thing as a free lunch, and embracing globalisation means exposing the UK economy to even greater competition from the rest of the world. This also probably means accepting similar levels of foreign workers.

Restricting immigration – which is likely to see wages and prices rise – would not be welcomed by UK businesses competing with low-wage economies in China and India.

The UK has a long free-trading tradition, but today’s politics suggest that free trade is no longer an easy sell in Britain.

A recent YouGov poll found that 39 per cent of voters thought that the proposed EU free trade deal with the US would be bad for the UK, while only 13 per cent thought it would be a good thing.

So, there is a life outside the EU, but do not believe anybody who says it will all be easy. Similarly, those who suggest that Brexit would be an economic disaster are also wide of the mark.

What matters most is whether Britain is prepared to do what it takes be the outward looking business-friendly country it would need to be to prosper outside of the EU.

Returning to the present, this also presents a challenge to David Cameron if he is re-elected and European leaders who say they don’t want to see us leave.

If the UK – working with its European allies – puts as much effort into reforming the EU to make it more business-friendly, democratically accountable and economically open, as it would have to in order to make a success of Brexit, the UK and the EU would both be far better off.

• Stephen Booth is research director of Open Europe and co-author of ‘What if…? The consequences, challenges and opportunities facing Britain outside the EU’.