Pros and Cons of Brexit (written before vote)
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In the run up to the in-out vote on 23rd June 2016, what are the main points to be considered before making your decision? Here is your 5-minute briefing, containing a short list of six of the key areas with the pros and cons of each.
Influence
Pros
It is argued that Britain would regain border controls and could prevent people from other EU countries travelling to and living in Britain.
Britain would also be in a position to claim back its territorial fishing waters, scrap the limits on the number of hours people can work per week, free itself from the EU’s renewable energy drive and create a more open economic market.
Cons
The possible downside is that Britain might find itself viewed as an outsider after a messy divorce, with limited access to the single market, almost no influence and few friends. This is a one-way deal. Having left the EU, it would be all but impossible to get back in again.
Britain may lose some of its military influence. There is a risk that America would consider Britain to be less influential if it was detached from Europe and would treat it accordingly (although Britain would still be a NATO member).
Trade
Pros
If we leave the EU, Britain would restore its economic independence and negotiate a new free trade agreement, along the lines of other countries such as Norway and Switzerland. Trade with the EU would remain strong and the risk of sanctions low (Can one imagine the Germans placing obstacles in the way of German car exports to the UK?).
Not being part of the EU will make it easier for the UK to have trade agreements with other countries improving its economic outlook and developing opportunities with BRIC countries.
Cons
One of the big advantages of the EU is free trade between member nations. The EU is a large market, accounting for 25% of world GDP. The EU is the biggest trading partner of the UK; 45% of UK exports are to the EU and 50% of imports are from the EU.
Investment
Pros
In 2013 the British Government’s net contribution to the EU budget was estimated to be over £8.5bn, according to HM Treasury. This figure is net of the UK’s rebate and UK public sector receipts. The UK’s contribution amounted to 12% of the overall EU budget. Not having to contribute to the EU budget will mean an immediate cost reduction of around €180 per person per year in the UK.
In the event that the Eurozone implodes, it may be better for Britain to have distanced itself from what some people see as a “failed club”.
Cons
The UK’s position as one of the world’s biggest financial centres will come under threat if it is no longer seen as a gateway to the EU. The risk is that inward investment could slow in the lead up to the vote due to the uncertainty of the outcome and its consequences. Indeed, there are those who say this has already started.
The majority of business leaders believe that it is in the best interest of the UK’s economy to remain in the EU. In 2013, the CBI found 8 out of 10 of its members thought this was the case. In the manufacturing sector, 85% of business leaders considered it was best to remain within the EU, and similarly in the financial sector 84% believed it best to stay in the EU. Large companies such as Airbus and BMW are actively lobbying their employees to vote to stay in the EU.
Jobs
Pros
The UK would be in a position to manage its own borders. There are those who feel that British jobs should be first offered to British nationals.
Some argue that the EU working time directives are too onerous and are making the EU too expensive and less competitive in the global marketplace.
Cons
Statistics show that immigrants to the UK from the EU are better educated than UK nationals with over 30% having a degree compared to 20% of UK subjects.
Free movement of people across the EU frees up job opportunities for UK workers who are willing to travel and makes it relatively easy for UK companies to employ workers from other EU countries.
Regulations
Pros
One of the main arguments of the pro Brexit camp is that the EU has eroded our national sovereignty by interfering with our domestic rules and regulations (stifling businesses especially SMEs with unnecessary red tape), costs too much, and has grown too large (and may get larger still).
The vast majority of small and medium sized UK firms do not trade with the EU so would benefit from less regulation from Europe.
The UK would no longer be bound by the European Parliament which is considered by many to be undemocratic. One key consideration is that the Commission which proposes legislation is not directly elected.
Cons
British farmers would stand to lose billions in EU subsidies.
The European arrest warrant which is invaluable in the UK’s fight against cross border crime would no longer be available. Britain would be forced to go back to drawn-out extradition procedures in order to bring criminals to justice.
Security
Pros
There are those in favour of Brexit who believe we are leaving the “door open” to terrorist attacks by remaining in the European Union. They argue that there are insufficient checks and controls on those people entering the UK.
Cons
By remaining in the EU, the UK is better placed to contribute to world peace. This is increasingly important at a time of instability in the Middle East and in the face of what some see as resurgent Russian nationalism and aggression.
Alternatives
What would the alternatives be if Britain voted in the referendum to leave the EU?
The EU has entered into three main types of agreements with non-EU countries:
1/ Allowing membership of the Single Market (EEA),
2/ Free Trade Agreement (FTA) and
3/ Membership of the EU’s Customs Union
Of course it would be in the EU’s interest to establish a preferential trade arrangement with the UK.
Equally, it would not be surprising if the EU member countries sought to penalise the UK for leaving the union. Their motivation might be to ensure that other member states see there is a cost to exiting the union. Such a punishment could take the form of restricting access of certain sectors; the financial sector would be the most obvious candidate.
Lastly and certainly not least, it is likely that any negotiations over an agreement between the UK and EU post-Brexit would cause risk and uncertainty and could drag on for years. On 12th April 2016 the AFP reported as follows:
The International Monetary Fund warned Tuesday of potentially “severe” economic damage from a British exit from the European Union and voiced strong worries over generally deteriorating support for EU integration.
“Across Europe, the political consensus that once propelled the European project is fraying,” said IMF chief economist Maurice Obstfeld.
“One manifestation is the real possibility that the United Kingdom exits the EU, damaging a wide range of trade and investment relationships.”
This article was written by Robert Sayers a past member of FD4. David Cardno reviewed and input to the article back in 2016.
FD4 is a network of experienced commercial Finance Directors that are passionate about adding value to Companies. They are engaged Part Time (on an hourly or daily basis) to do the work of a full time Finance Director, but at a fraction of the cost. They specialise in Exit Planning; Cash Generation and Performance Improvement.