Marcus Fysh is MP for Yeovil.
In a speech on the EU referendum in February, I said that the economic arguments were pretty balanced: the UK’s overall prospects will not be very different, in or out of the EU. I have examined the arguments since, and respect others’ points of view, but they have not altered my reasoned conclusion. The bottom line is that under any scenario, according for example to the Price Waterhouse Coopers work commissioned by the CBI, the economy will grow by about 40 per cent by 2030, give or take a few per cent. This concurs with points of view such as those in the independent work of Capital Economics and Dr Andrew Lilico of Europe Economics, among others.
The main fallacy at the heart of the Treasury’s somewhat black box modelling of EU referendum effects, perhaps falling into the trap of trying to create sound bites for the Remain campaign, is a wrong assumption that Britain would be isolationist outside the EU, causing an immediate and negative fundamental reassessment of Britain’s long term prospects. The Bank of England should be careful not to give this erroneous opinion credence, because that itself has negative real world effects.
Notwithstanding, there are other problems of methodology in the Treasury studies which over-egg the Remain case – for example the further application of a currency volatility overlay and inconsistent risk premia assumptions. It is this central point of isolationism from which the whole negative case of the Remain campaign flows – and falls – because it is not realistic: on the currency, on prices, on interest rates, on openness to new ideas that drive productivity, on jobs, national income, pensions.
Given that if the nation votes to leave, it would be this avowedly non-isolationist Government which would negotiate the terms of our new relationship with the EU, supported by non-isolationist Members of Parliament such as myself, an isolationist path simply wouldn’t be taken. The negative economic modelling behind the sound bites, and the pounds off this or that, therefore struggle to be credible.
The Government should stand up for Britain, and use our strengths in security, trade and ingenuity to negotiate in a friendly and constructive manner for a smooth transition to life outside the EU institutions. Not turning our back on Europe, we should see this as an opportunity to redouble engagement with our friends, allies and trading partners, in Europe and the rest of the world.
This process should, though, contain means of truly addressing the effects of mass migration on housing, services and wages, now that with EU membership we have net migration to the UK running at a million people every three years – more than triple the rate in our manifesto pledge.
There are multiple free trading models we could look to adapt, and adopt upon leaving the EU institutions. Not all of these have been modelled for us by the Government. Economists for Brexit have credibly shown how the basic World Trade Organisation model is an attractive option to take as a baseline negotiating position that could be adapted and optimised for our and our trading partners’ interests. Having negotiating leverage could protect interests such as those of our financial institutions during the highly uncertain evolution of banking in the Eurozone – better in my view than the weak position we may find ourselves in if we Remain.
British interests would be unlikely to be served were the Government to take the step of immediately deciding and notifying the EU of an intention to withdraw under Article 50 of the Lisbon Treaty in the wake of a vote to leave, without first taking time to consider carefully what its exact aims for being outside the EU should be, and resourcing itself appropriately to consult on, negotiate and assume a new position.
This is because the step of notifying the intention under Article 50 would effectively set a time limit of two years on the negotiation of the terms of new arrangements with the EU. Importantly, during the period prior to the end of an initial Article 50 negotiation period, the main body of new arrangements between the EU and Britain would need ratification by qualified majority vote of our EU partners – not all of them. The Eurozone wishes to get on with its integration. We all wish to trade. It would be wise for all parties to reflect for a period and prepare for a rational approach, rather than set a countdown that puts immediate pressure on EU nations as well as ourselves.
Since it does not make sense for the Government to take the step of immediate decision and notification, Remain supporters should not use uncertainty around this process as a scare tactic in the referendum debate. Not moving to an immediate trigger of Article 50 would not be to ignore the instructions of the electorate, or be over-cautious. It would, however, be a sensible way to make sure we get our arrangements right while implementing those instructions. In the meantime, as we negotiated new terms, current arrangements would persist.
Perhaps this is why markets, despite all the doomsaying, remain sanguine. They expect a bit of volatility for a time, but not too much. There may be a bit more sterling weakness – say another five per cent to add to the six to seven per cent that has already happened – but not a disorderly collapse. Market participants are already positioned for sterling weakness and heightened volatility, and many would see more as a buying opportunity for sterling. Interest rates remain suppressed by huge central bank liquidity, so for the Treasury to say, as they do, that these could blow out in a similar way to the entirely different monetary environment of the early 1990s recession is to draw too long a bow.
We also need to remember that most commentators have a dog in this fight, and that our current EU position suits some well. They may say this or that could happen, and write reports that uncritically or erroneously refer to “evidence” for various claimed developments, but that doesn’t make them right. And “experts” often get things wrong: remember the Euro. The Institute for Fiscal Studies’s latest work is flawed, for example, because it appears to have double-counted over half of the sterling weakness expected in the National Institute of Economic and Social Research’s forecast on which it is said to be based, since this has already occurred.
This is a time to keep our own interests clear and have our wits about us, not be brow-beaten by a thicket of equations and speculation. Leaving should be a process, not a Big Bang, and during it we should be brave, smart, constructive, and focused on the facts.