The threat of divorce of the UK from Europe is looming and it’s not personal.

ALFIES does a two part investigation into the possibility of a break from the EU.

Part 1 – Considering the Impact

  1. The City
  • Over half of all the foreign direct investment in the financial services sector currently flows from the EU.  The initial cost of leaving the EU could be as much as £224bn as the UK recovers from slow growth after losing the benefits of trading with EU partners. However, the City is a long established, globally respected institution and the heartbeat of the world’s economy providing a global centre for international business. It remains highly competitive and international businesses have reaffirmed their commitment to remaining in the UK, irrespective of the outcome of a referendum.
  • The U.S., China and the Middle East are also determined to continue to finance international deals through the City and may see Brexit as the key to driving further growth with anticipated investments of over £500 bn in the UK: over double what the UK stands to lose in its current position.
  • So will global banks start to look elsewhere for their European bases because they would no longer be able to use the City as their passport to trade across the EU? On the basis of the above it seems unlikely. US bank Citigroup might have transferred its European retail banking headquarters to Dublin to reduce its cost base but that is despite the threat of Brexit and it will still retain its major offices in London – its simply a tax ruse.   HSBC, Britain’s biggest bank, is reviewing whether to keep its global headquarters in the UK and has openly stated its concerns about the UK leaving the EU but any decision to do so is unlikely to be because of Brexit and word has it that the UK would introduce tax breaks far above and beyond the current EU offering to entice international finance houses to remain on UK soil.
  1. Scientific research
  • Brexit would allow the UK to escape some onerous EU regulations, which have caused issues for scientific innovation because of rules relating to clinical trials.
  • The UK has 3.3% of the world’s scientific researchers who, in turn, produce 6.9% of global scientific output and remains one of the largest recipients of research funding in the EU.  Importantly, 1,000 projects at 78 UK universities and research centres are dependent on funds from the European Research Council (ERC). The UK has more ERC-funded projects than any other country, accounting for 22% of all ERC-funded projects – more than 25 recipient countries put together.
  • However, the U.S., UAE and China have expressed a desire to pour billions into the growth of UK science research, which under current competition rules is hindered by EU legislation.
  1. Consumers
  • European legislation is responsible for harmonisation in everything we buy, from tomatoes, to cheese, wine and fixing faulty fridges. Controls are imposed on everything from purchasing apples to how we seek redress when we buy faulty goods.
  • A recent example is single market legislation for telecoms, meaning that tourists in EU countries will pay the same mobile fees as at home. This would be thrown out the window with Brexit; but, will it be missed? On the contrary, it is seen that the ability to renegotiate trade agreements may allow the UK to increase exports, whilst increasing duty on imports and levying government taxes to reduce costs for UK consumers all at a more competitive rate.
  1. Travel and holidays
  • Would flight prices go up and the pound tank? Unlikely. In fact, holidays could get cheaper. Much loved Brits abroad would still be welcomed with open arms in a competitive market and despite the anticipated impact on the pound, Brexit is not anticipated to impact on tourism and travel. According to the IATA protecting tourists, the only thing that may be affected are the rights UK citizens to protection from European travel operators
  1. Education
  • Under EU legislation on free movement of citizens, those moving to another member state have the same access to education as nationals of that member state. Similarly, every eligible EU student pays the same tuition fees and can apply for the same tuition fee support as nationals of the hosting EU country.
  • In 2013-14, 125,300 EU students studied at UK universities with £224m paid in fee loans to EU students on full-time courses in England – 3.7% of the total student loan bill.
  • If Britain decides to leave the EU, the government will need to juggle the need for EU nationals to pay into the UK’s higher education system, and offer their talents and wisdom to its universities. However, as the government insists, it is not likely that leading global talent will be turned away from teaching at the UK’s top institutions and neither would the UK affect the ability of international students to study in UK universities. No issue it seems.
  1. Sport and culture
  • Whilst the EU has little impact on sports policy in member states, issues surrounding free movement and broadcasting means that Brexit would impact on the sport we watch. Football, in particular, would be affected by free movement arrangements and two-thirds of European football players currently playing in this country would not meet automatic visa criteria once EU rules were removed.
  • However, according to sports campaigners for Brexit, little will be affected, the UK would experience a growth in home grown talent through local funding and government initiatives, through 2 billion pounds a year of money saved.
  1. Farming
  • The major issue is the net contribution of the UK to the CAP budget in 2014 once the rebate is taken into account was €1.27bn (£1bn). In a post-Brexit world, the government would want to continue some subsidies, but leaving the CAP regime would reduce farm incomes. Importantly, the UK government would be unlikely to match the current levels of subsidy. Between 2014 and 2020 farmers in the UK are due to receive £27.8bn in subsidies from the EU’s common agricultural policy (CAP). This includes schemes where farmers receive payments for practices that protect and enhance the environment.
  • A post-EU British government would pursue bilateral trade deals away from the EU. Meanwhile, a reassessment of the regulation and licensing of pesticides, which is undertaken on a pan-European basis, would be undertaken.
  • Farmers would be unlikely to back Brexit and it is clear as to why.
  1. Security, defence and Immigration
  • This is limited somewhat in its scope and always has been. Legislation does not impact on national sovereignty with respect to member state decisions on defence particularly in regards Afghanistan and Syria in recent times. Nevertheless, the UK government now talks warmly about collective European defence, and even more so about EU security policy, intelligence sharing and anti-terror policy. The Prime Minister has made a specific point of hailing EU intelligence sharing and the European Arrest Warrant as the means of tracking down terrorists and preventing attacks on the UK’s streets. This wouldn’t change, but immigrations rules would and currently an overhaul of the immigration system would make it much harder for new applications from non UK citizens seeking work and residency in Britain.
  1. The Environment
  • EU legislation sets limits for a range of air pollutants and requires member states to have plans setting out how they will be met. The EU emissions trading scheme sets a decreasing cap for emissions from energy intensive sectors, and allocates or auctions emissions allowances, which can be traded on the open market. This will represent a 21% reduction by 2020 in emissions for all sectors in Europe covered, compared with 2005 levels.
  • UK requirements are actually stricter than, or in addition to, those required by the EU. However, leaving the EU would lead to more uncertainty for investors in the environmental sector with billions of pounds of fresh investment in green jobs and growth being affected.
  1. The Pound Sterling
  • Brexit would see the pound drop to almost par with the Euro and the commencement of a lengthy series of political and economic renegotiations and global trade agreements would mean a slow build but to what end? Economists predict a brighter future, with recovery after 18 months to pre 2012 levels at 1.5 Euros/1.75 USD to 1 GBP.   However, the white knuckle ride for UK citizens would mean further uncertainty and currency fluctuation if the UK does vote out.

Let us know your thoughts, should the UK grant itself autonomy from the EU? Does the UK look to gain or face loses from breaking away? Leave us your comments.

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