Member Article

Brexit: Too great a risk for the economy?

A referendum on the UK’s continued membership in the European Union is looming on the horizon, set for 23 June 2016. Right now, businesses, especially in the North East, are concerned what this could do to funding and international trade.

British Prime Minister, David Cameron, wants to avoid the UK getting “sucked into a United States of Europe.” A renegotiation took place in February, which POLITICO Europe described as Cameron “playing a weak hand well.”

Shortly after, Chancellor George Osborne, a support of the In campaign, was reported to have asked parliamentary colleagues, “So, are you supporting Leave, or do you prefer to have a career?”

Europe to blame for low productivity?

It didn’t take long for the outgoing Mayor of London, the outspoken Boris Johnson, to throw his weight behind the Out campaign. He has also won the endorsement of UKIP leader, Nigel Farage. Johnson now compares the EU to a Nazi superstate, comparable “to Hitler’s efforts to dominate Europe.”

In response to comments from US President Barrack Obama, urging the UK to remain in the EU, Johnson considers this “a symbol of the part-Kenyan President’s ancestral dislike of the British empire.”

And yet, it was only in 2013 when he wrote that “most of our problems are not caused by Brussels, but by chronic British short-termism, inadequate management, sloth, low skills and a culture of easy gratification and under-investment.” Now Europe is to blame for low productivity amongst British businesses, according to Boris Johnson.

Business leaders support staying in Europe

Most polls and surveys emerging from the business community disagree with Johnson. A letter signed by over one-third of FTSE100 CEO’s, including BAE, EasyJet and Shell states that “Britain will be stronger, safer and better off remaining a member of the European Union.”

The manufacturers trade body, EEF, representing more than 40,000 businesses, along with 60% of Institute of Directors (IoD), members support staying in Europe. Eighty (80%) of CBI members also support the In campaign.

Businesses are concerned about trade and investment. Europe represents £62 billion to £78bn annually (£3,000 per household) to the economy, according to a CBI report. More recently, a PwC study found that the “cost to the British economy of leaving [could be] as much as £100 billion – the equivalent of around 5% of GDP - by 2020.”

The Economist points out that “the EU now takes over 51% of British exports of goods, and close to 45% if services are added in.” Trade deals would take years to renegotiate, and the UK would lose collective bargaining power with the US; potentially costing us billions more in export trade. The IMF has already warned that Brexit poses a serious risk to the British economy.

North East Inward Investment

The North East has benefited extensively from European money, from the European Investment Bank and the European Regional Development Fund (EDRF). Small businesses and startups are direct beneficiaries. This adds up to hundreds of millions worth of investment; part of the £3000 per household this country receives, compared to the £340 annual cost of membership, according to The Economist.

Small businesses are stronger with the UK in Europe. Leaving is a leap in the dark, a risk with far too many downsides and few, if any, upsides. UK Trade & Industry (UKTI) wants SME’s to export more, which is something Kontainers, a Newcastle-based technology startup is helping to make booking a freight shipment as easy as buying a plane ticket online. Kontainers is one of thousands of startups that have directly benefited from Europe, in more ways that one.

Without European funding, startups and SME’s would be less able or inclined to take long-term risks, invest in marketing, recruit graduates or develop new products and services. Without Europe, where would this money come from? This isn’t a hypothetical question.

This was posted in Bdaily's Members' News section by Peta Grewal, Kontainers .