The cost of Crexit

By - Monday 20th June, 2016

Andy Bagnall, former Croydon councillor and now CBI director of campaigns, sees only one logical choice for Croydon to make on 23rd June

I’ve been involved in politics and political campaigns in Croydon for nearly twenty years, and the EU referendum is proving fascinating as it approaches the business end of the campaign.

As the two sides discuss the high-level arguments about sovereignty, identity and security, the simple question that many of my neighbours and friends in Croydon are asking me, as someone who works for a business organisation, is what leaving or remaining means to their job, their prosperity and their family’s wellbeing. On these questions, all the evidence leads to one conclusion – that Croydon’s economy would be better off remaining in the EU.

The Confederation of British Industry is the UK’s biggest business organisation, speaking on behalf of 190,000 businesses of all sizes and sectors. Together our members employ nearly 7 million people, about a third of this country’s private sector workforce, and an overwhelming majority of them have told us that they want to remain. This view is shared right across the business community, from all sectors and sizes.

The benefits

So, why does the business community hold the views that it does? In short, because of the single market. Our exports to the EU amount to £223 billion per year, about 44% of the total. 80% of British businesses that trade overseas do so with the EU, and it is often the first stop for small businesses looking to export for the first time.

For example, if a start-up in Croydon wished to expand and begin exporting its goods, where would it look to first? A common market of 500 million people on its doorstep with standardised rule, and very few trade barriers? Or a country with different rules and potentially taxes on trade such as tariffs?

Membership of the EU also gives the UK privileged access to fifty-three markets outside of the EU through its trade agreements – proving that trading with the world and with the EU are not mutually exclusive. The UK’s recently agreed deals with Canada and Singapore can attest to that.

Losing full access to the single market would have a knock-on impact on strategically-placed areas like Croydon

Our place within the EU also makes us more attractive to foreign investors. A recent CBI survey of London businesses showed that 83% rate London’s role as an international hub as above average. Businesses like Microsoft and Airbus want to see the UK remain in the EU because of our access to the EU’s single market. Losing full access could question London’s reputation as an international business hub with a knock-on impact on areas like Croydon which are strategically placed between Gatwick and the city.

Finally, on regulation; while there are always some EU rules that are not popular with business, harmonisation of standards means that it is easier and cheaper to export to the EU’s twenty-seven other countries. Moreover, if the UK left we would be likely to keep many of these rules anyway, such as paid holiday rights or environmental protections.

The economic consequences of leaving

Although the CBI’s members have been clear about what benefits they see, they want to know what could happen should we leave. There could be a significant shock in the short-term, with HSBC saying that the pound could fall by 20% and the OECD predicting 3% less GDP growth by 2020.

The treasury has shown that the average household in Croydon could be around £4,300 worse off than if we stay. In a borough with median annual household income of £37,000, this could make a significant difference. The International Monetary Fund and the G20 – a group of twenty major economies including the US and India – have made similar predictions, as have most of the major unions including Unison, Unite and the TUC.

No economic prediction, of course, can be perfectly precise, and they all differ in their exact estimates, but the weight of economic and academic opinion is that Croydon would suffer economically if we left.

The alternatives

These negative assessments are partly because of uncertainty caused by leaving and partly because no alternative arrangement would offer Croydon the benefits and trade opportunities that we currently enjoy. Should we leave, we would have two years to reach an agreement on our terms of exit. If no agreement is reached – and the UK can’t participate in the discussions themselves – then we fall back to trading with the EU under World Trade Organization (WTO) rules. This could mean 90% of UK exports to the EU facing tariffs, making our economy less competitive and putting jobs and prosperity at risk.

Countries like Norway and Switzerland have alternative arrangements with the EU. They both have partial access to the single market. However, they have to adopt the majority of EU regulations and have no formal influence over how they are made. They have to pay into the EU budget (Norway paying 80% of what Britain pays per person) and both accept free movement of people, all the things that ‘leavers’ have said that they would want to opt-out from if we left.

People in Croydon will ultimately base their vote on a number of considerations, from sovereignty to security. Politicians and representatives of both sides have a duty to inform and to do so honestly on the various issues. Some of the arguments will, quite frankly, be a matter of debate and sometimes in politics whoever shouts loudest wins. However, the overwhelming view of the business community is clear: that being inside the EU is best for the UK’s prospects and for jobs here in Croydon. The CBI believes that we could survive outside of the EU, but would be unlikely to thrive.

Andy Bagnall

Andy Bagnall

Croydon resident Andy Bagnall is the director of campaigns for the Confederation of British Industry. He's also a member of the Labour Party.

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  • Robert Ward

    A few points:-
    On the single market. Even after 40 years in the EU, there is no single market in services, which is the predominant focus of the UK economy. It has been blocked by our ‘partners’. Even if there were, does it stop Google or Apple trading with Europe?

    On the figure of 80% for businesses that trade with Europe, note that this is a percentage “of those that trade overseas”. The vast majority of UK businesses do not trade overseas, but still have to obey the vexatious rules. Big business, that doesn’t like the uncertainty of UK leaving and has the resources to deal with the bureaucracy, likes the EU. Small business does not.

    I accept there would be short term uncertainty in the event of a vote for a Brexit. The numbers are highly speculative. Yet even here, a fall in the value of the pound (likely in the short term), and a fall in house prices (less likely but still possible) are not without benefits. Our balance of payments situation is poor so a fall in the pound would help, it would also make the UK less attractive to migrant workers. Rising house prices is a perennial complaint, yet a fall is somehow bad too?

    On economic impact, I accept there will be short term economic impact. How big that might be is debatable. The Leave side, led by the government has been in the business of deception, looking for the biggest number they can think of. The £4,300 figure is a nonsense. This is a GDP per household based on an economic model with underlying assumptions to exaggerate the effect. GDP per household is not a parameter that I have ever seen before. The WTO tariff arrangements are not imo the fallback position, the fallback is the status quo. They sell more to us than we do to them so we are in the driving seat.

    The long term benefit of not being in the EU is the key for me. The EU makes bad decisions, in large part because it is undemocratic. Being in a group that makes bad decisions leads to bad economic impact, not taken into account by the economic model projections, which are based on stability. The euro is a disaster. We were promised that we wouldn’t pay, but they just sent us the bill for £2 billion – David Cameron got all huffy, but just had to stump up.

    There will be future bad decisions and there are already bad decisions that we don’t know about (Schengen is one). Irrespective of the minor modifications David Cameron secured, just as with the euro we will end up paying. The eurocrats who know the agreements inside out and have been on it for decades run rings around transient UK government politicians, who will be blames once they are out of power but we still end up with the consequences.

  • Anne Giles

    Fantastic article!