By Daniel Hunter
The Mayor of London has told an audience of leading business and financial experts in the City of London hat the European Union is suffering from a crisis of economic underperformance and a collapse of political trust.
However he believes that a reformed EU, minus crippling regulations and directives, but with increased focus on completing the single market for the benefit of every Londoner and all Europeans, would be the single best option for London, the UK and Europe.
Marking the publication of a report commissioned by the Mayor and written by his chief economic advisor, Dr Gerard Lyons, the Mayor also said that should reform prove impossible then Britain has nothing to be afraid of in exiting the EU, provided we do so free from hostility and rancour, whilst maintaining a confident outward-looking approach toward Europe and the growth markets of Asia, Africa, North America and Latin America. The incredible advantages of time zone, language and skills plus a massive concentration of financial services found in London and the UK, combined with a lower regulatory burden and undiminished trade access could lead to a boom in exports that would allow the UK to flourish.
The Mayor of London, Boris Johnson, said: “I want to stay in a reformed EU, that serves the consumer, a Europe of citizens and not of bureaucrats and politicians. But if we can’t then we have nothing to be afraid of in going for an alternative future; a Britain open not just to the rest of Europe but to the world. If we get it right it’s win-win.”
In “The Europe Report: A win-win situation” the Mayor’s chief economic advisor, Dr Gerard Lyons, considers how London’s economy would be affected by four different scenarios based on the UK’s relationship with Europe in 20 years time. London alone is currently the ninth biggest economy in western Europe and its £350bn economy represents 22.5 per cent of the entire UK economy.
The report uses specially commissioned and independent long term forecasting by Volterra. It is the first time that an economic forecast regarding London’s relationship with the EU has looked two decades into the future and the results indicate that the best economic scenario for London would be for the UK to remain part of a reformed European Union. However they also indicate that a scenario where the UK leaves the EU but continues to conduct outward looking and positive economic policies with the EU and the wider world offers nearly the same level of benefits.
The four different scenarios have been named:
• ‘Brave new world’: The UK would remain in the EU but with substantial reforms. London’s economy would nearly double in size to a £640bn economy and 1m jobs would be added. In this scenario Europe would position itself to benefit fully from the changing world economy and reform would potentially be led by the UK. It is the most favourable scenario for London with a growth rate forecast over 20 years to be as high as the UK obtained over any similar time period during the whole of the 20th century.
• ‘One regime, two systems’: The UK would withdraw but with goodwill on both sides and pursue a pro-growth, reform agenda. London’s economy would soar to £615bn and 900,000 jobs would be added. In this scenario leaving the EU has a short term negative impact but ultimately an unconstrained status allows the UK to rapidly adapt to the growing global economy and target new markets without restriction.
• ‘Business as usual’: The UK remains within an unreformed EU. London’s economy would slowly increase to £495bn but only 200,000 jobs would be added. This results in a relatively sluggish period of output and performance that stifles the growth of London and leads to a decline in world reputation, along with the rest of the EU.
• ‘Inward looking’: The UK leaves and suffers from a combination of a poor post exit relationship coupled with an inability to position itself globally. London’s economy would creep slowly up to £430bn but a disastrous 1.2m jobs would be lost. By retreating inwards there is a total inability to reform and growth declines to a level not seen since the 1920s. London enters a dramatic period of decline.
To support these economic scenarios, the report has a detailed analysis of the relationship between London's economy and the EU, examining all the key sectors.
The report signals that the UK remaining in a reformed EU is the best outcome. If the UK can play a leadership role to push through reform then, from both a future European and also from a domestic UK perspective it should. Reform needs to be seen to be in Europe's best interests. London is a global city and is also Europe's financial centre and one of its cultural centres and as such can benefit from policies that both increase its openness and international appeal. However the report argues that the UK can only achieve those reforms by being serious about leaving. And the UK can only be serious about leaving if absolutely convinced that it would result in a better economic outcome than remaining in an unreformed and underperforming EU.
With two very positive economic scenarios forecast, which both share an outward looking attitude, it becomes clear that the real choice for the UK is not between Europe and the rest of the world, but between an innovative, open and business friendly policy agenda against a stale, stationary and closed policy agenda. The major consideration will be whether the EU is able to reform and what those reforms would be.
In “The Europe Report: A win-win situation” the case for reform is made as being clearly in the long term interest of the EU as well as the UK. The reforms that are needed include:
• Accepting the case for economic reform: This makes the case for unlocking the barriers to growth both in the UK and EU in order to boost innovation, investment and competitiveness. The poor economic performance and weakness of demand suffered by the EU would be addressed alongside reform of the supply chain.
• Halt the process towards ever closer union: This would be the greatest challenge and may require a new treaty. It links directly to the issue of EU competencies and requires a willingness on the part of the Commission to show that the direction of travel in Europe is not just moving towards integration.
• A timetable for reform: a clear timetable for reform should be identified focusing on the relationship between the Eurozone and non Eurozone countries and also on The Single Market.
• Reforming the relationship between the Eurozone and non-Eurozone: this is key to adding greater weight and protection to the City, which should remain Europe’s financial centre whether the UK stays within the EU or leaves it.
• Completing the Single Market and address issues in services, in movement of people and in regulatory intrusion: This has to be a central part of reforms. The idea of movement of people needs to change to take into account the fact that the expansion of the EU to the east has resulted in huge variations in income levels. It is important to ensure there is continued free movement of people with the appropriate skills within the EU but that needs to be seen alongside the sensible economic need to discourage benefit migrants.
• Sector specific reforms: Given the importance of the digital economy a case could be made for having a Digital Commissioner and removing barriers to digital infrastructure improvements. There is also a legitimate case for the UK having a fully recognised ‘Luxembourg Compromise’ over financial services legislation and regulation. A clear aim should be to cut out unnecessary, complex and intrusive regulation. EU social policy also needs to be considered particularly in terms of avoiding increased regulation, which adds to the cost of employing people and can hit small firms hard.
• General areas of economic reform: there are also some general areas of economic reform including halting unnecessary regulation and further reforming the EU budget.
• Non economic areas for reform: Non-economic areas of interest may prove to be as important in any referendum as the economic ones. A key issue is the future relationship between national and European law, and the case for re-establishing the supremacy of UK courts in some areas.
A major chapter of today’s report considers the impact of a decision to leave the EU. The immediate impact of any decision to leave cannot be over-estimated but the report explains that with a clear and swift strategy, contingency planning and sensible reforms the UK economy can still achieve huge success.
The report points out that the UK is still one of the five members of the UN Security Council and argues that leaving the EU does not make it any easier nor any harder to make trade deals. The UK would be able to focus on trade areas that benefit the UK, as opposed to EU type deals that cover a vast range of areas to suit the many member states. That smaller list of asks would potentially allow the UK to be more nimble and fast acting. The UK would continue to seek close ties with the emerging powers in Asia, Latin America and Africa. But it would need to look to create free trade arrangements with major trading nations such as China and the USA. Plus it may wish to cultivate relationships with traditional allies such as Australia and Canada.
As the sixth biggest economy in the world the UK would also be in a strong position to trade with the EU. Any negotiation should be framed with the aim of creating a comprehensive free trade agreement and the intention of there being little EU influence in the realm of anything other than specifying specific goods and services regulation to allow exports into the EU market.
The Mayor of London’s chief economic advisor, Dr Gerard Lyons, said: “It is clear that the future performance of the UK economy will not be determined solely by whether it is in the EU or outside it. The outstanding scenario for London and the UK is to remain within a reformed EU but our study shows that the UK can achieve almost the same level of success by standing on its own two feet, outside the Union and seeking to position itself wisely in the growing global economy. Whether the UK takes a lead role in reforming the EU, or if it pursues an open and business friendly approach outside the EU we can succeed. It is a win-win situation.”
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