January 25, 2018

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“But business backs Remain – so why don’t you?”

How often did I hear this ahead of the UK’s 2016 referendum on European Union membership? How often have I heard it since, now the UK’s Article 50 negotiations are in full swing, and big corporate interests are trying to control events once more?

The Confederation of British Industry calls itself the Voice of British Business. In reality, the lobby group’s stance is dominated only by large companies determined to entrench the advantages of incumbency, keeping smaller rivals at bay.

“Business doesn’t want Brexit”, we’re so often told, but that’s just not true. Yes, large corporations want to maintain the status quo from which they benefit. But the UK’s small and medium-sized enterprises (SMEs), accounting for far more jobs and the bulk of the economy, are far more likely to back Leave.

The big boys, with their corporate affairs departments and public relations lackeys, shout loudly  and are quoted in the business press. But, across the UK, the owners of tens of thousands of firms think the UK will be more prosperous outside the EU.

The big boys shout loudly and are quoted in the business press. But across the UK the owners of tens of thousands of firms think the UK will be more prosperous outside the EU
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The CBI has a long history of misjudging key economic issues. It appears to specialise in helping to create conventional wisdoms that turn out to be wrong. It supported widespread nationalisation in the 1950s and 60s, before railing against Margaret Thatcher’s ultimately successful efforts during the 1980s to control both inflation and strident trade union militancy.

The CBI led calls to join the Exchange Rate Mechanism – before the pound crashed out in 1992, causing interest rates to spiral, with thousands of homes repossessed. Despite that, it then doggedly insisted Britain join the single currency, which has been a disaster for Continental Europe, resulting in slow growth across many nations and a ‘lost generation’ of long-term unemployed.

Ahead of the EU referendum, of course, the CBI spearheaded Project Fear, insisting that voting Brexit would cause a serious economic shock, costing £100bn and 950,000 jobs. Instead, the UK has performed rather well, with manufacturing surging and City employment up by almost a fifth – the very sectors the CBI said would suffer most.

Now, having lost the EU referendum battle, the CBI wants to win the Brexit war by aggressively pushing the government towards a “soft Brexit”. Britain can stay inside the single market and customs union while leaving the EU, it insists, while continuing to claim Brexit is ‘an act of serious economic self-harm’.

The CBI Director-General Carolyn Fairbairn leads an organisation that has a long history of misjudging important economic issues. Credit: Anthony Devlin/PA Archive/PA Images

The ‘Voice of Business’ is now engaged in a sustained attempt to frighten and seriously mislead the British public. For one thing, the single market – which insists on largely harmonised EU-wide regulation while requiring members to accept free movement of people and European Court of Justice (ECJ) jurisdiction – is at the heart of what it means to be in the EU.

Back in the 1975 referendum, the British electorate voted to be inside “the Common Market” – as it then said on the ballot paper. Ever since, successive centralising EU treaties have transformed that construct into the ‘the single market’, each one transferring ever more power towards unelected officialdom in Brussels, and away from member states and democratically elected national governments.

Now, more than four decades on, that 1975 vote has been dramatically countered. More people voted for Brexit than have ever voted for anything in British history. Yet the CBI and others trying to upend that result before it has even been implemented, arguing that we can stay inside the single market, even though it is now far more integrationist than the structure we voted to join in the 1970s, a vote the public has since reversed. That defies all logic and is a travesty of democracy.

The CBI has been arguing we can remain in the customs union while “respecting the vote by leaving the EU”, even though the customs union is the very essence of EU membership
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The same can be said of the customs union, which places a Common External Tariff (CET) around all member states, a protectionist wall that discriminates against imports from beyond the EU. Over the last week, the CBI has been arguing we can remain in the customs union while “respecting the vote by leaving the EU”, even though the customs union is the very essence of EU membership. The EU began life as a customs union, the mechanism enshrined in the 1957 Treaty of Rome.

One has to ask, why does the CBI, and the large corporations that control it, bend truth and logic to such a degree? The key lies with the large corporate interests that heavily influence what the CBI says.

Take the single market:

  • Large corporations like complex EU regulation, on balance, as it is an enormous and costly headache for many smaller firms to comply with. That keeps rivals at bay.
  • While EU red tape does little to promote the public interest, it shields big businesses from competition. Start-up firms hoping to challenge incumbents, so helping to lower prices for consumers, don’t have the legal staff needed to ensure compliance
  • Staying in the single market will almost certainly prevent the UK taking control of its borders – giving firms continued access to unlimited flows of low-wage but relatively skilled migrants who are then subsidised by the state via tax credits. That benefits big businesses disproportionately.
  • The EU’s single market allows some large, multinational firms to engage in legal but aggressive cross-border tax avoidance.
  • While small firms can meet with their local MP, only big firms have the lobbying clout to influence anonymous unelected Commission officials in Brussels, where most of the regulatory decisions get made.

Inside the single market, every UK company must observe complex EU regulations, even though only 8% of firms actually export to the EU. This is an unnecessary business cost that is passed on to consumers and hinders growth. Meanwhile, the single market in services barely exists, which penalises the UK, the world’s second-largest services exporter.

We’re often told that unless we secure ‘access’ to the single market, either paying large amounts of money or continuing to accept ECJ law-making, we cannot trade with the EU. This is arrant nonsense. The US and China conduct hundreds of billions of dollars of trade with the EU every year, without accepting such conditions. But it suits the CBI – which receives significant Brussels funding and whose large members like EU regulations – that such myths prevail.

The EU struggles to cut meaningful trade deals, not only because it is cumbersome and bureaucratic but because when negotiating as 28 nations, objectives often conflict. Despite years of effort, the EU has no free-trade agreement with either the US or China
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Over the last week, the CBI has turned its media muscle towards arguing forcefully for ongoing customs union membership. One regularly cited reason is so the UK remains party to trade deals negotiated by Brussels for the EU as a whole. Reference is often made to the ‘clout’ the EU brings to trade negotiations. Yet of the “78 EU trade deals” that determined Remainers – including tenured professors, who should know better – keep tweeting about, only around 30 are ratified and in use. Many of those are with microstates such as Albania, Andorra and Kosovo. The EU’s combined active trade deals cover nations that make up only around 8% of the entire global economy. And they rarely cover services, where Britain excels, as they are dominated by Franco-German interests.

In truth, the EU struggles to cut meaningful trade deals, not only because it is cumbersome and bureaucratic but because when negotiating as 28 nations, objectives often conflict. Despite years of effort, the EU has no free-trade agreement with either the US or China, the world’s two largest economies. Negotiations with the US began in 1990 and with China in 2005, yet neither deal is remotely on the horizon. The EU has no formal trade deal with India or Indonesia – world-ranking and very populous economies set for considerable future growth.

Talks with the Mercosur South American trade bloc, including Brazil, have been going for 15 years but the sticking point is always agriculture, with the deeply intransigent EU agricultural lobby always refusing to allow market access.

The UK can do better, negotiating deals on our own, or alongside other large service exporters (such as the US). Countries far smaller than Britain, such as Switzerland and Chile, have signed trade deals with China and other large economies covering far more of the globe than the EU’s trade deals. And where the EU has struck significant agreements – with South Korea, Mexico and South Africa, for instance – such nations have signalled a willingness quickly to ‘port over’ these deals once the UK leaves.

Using the EU’s own estimate,  around nine-tenths of global growth will take place outside the EU during the 2020s. Credit: Bernd von Jutrczenka/PA Images

Along with cutting trade deals with the world’s largest economies, leaving the customs union would significantly benefit UK consumers. The Common External Tariff makes imports from outside the EU much more expensive, particularly clothing, food and footwear, items on which low-income household spend a considerable share of their incomes.

Inside the customs union, British consumers pay import tariffs on goods where there is often no UK jobs to protect, facing higher prices to shield inefficient producers in other EU countries from global competition. On top of that, some four-fifths of CET revenues collected are sent directly to Brussels each year. Because the UK has a much higher share of non-EU trade than any other EU member, the CET revenues we send to Brussels, representing higher prices paid often by poorer UK households, are disproportionately high.

The EU’s tariff barriers help large companies retain their market share, of course, shielding them from global competition. But that’s at the direct expense of consumers, who end up paying higher prices for non-EU goods. Once the UK leaves the customs union, and the CET no longer applies, consumers will benefit. The CET on clothing is around 12%, while on shoes from leading Asian suppliers, it’s up at 60%. Prices could then fall further as the UK strikes trade deals with leading global economies which the EU, protectionist and incoherent by dint of its highly diverse membership, has been unable to secure despite 60 years of trying.

This latest attempt by big corporate interests to protect their patches, whatever the cost to the UK economy as a whole, should be firmly rebuffed
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The CBI says its case to stay in the customs union is driven by “evidence not ideology” – an attempt to paint those who think otherwise as somehow rash. “There may come a day when the opportunity to fully set independent trade policies outweighs the value of a customs union with the EU,” says CBI Director-General Carolyn Fairbairn. “But that day hasn’t yet arrived.”

Really? The European Economic Community represented 30% of the world economy when we joined in the early 1970s. Now, once Britain has left, the EU will account for just 15%, despite having more than four times more members. During the 2020s, around nine-tenths of global growth will take place outside the EU, even on the European Commission’s own estimates. As the world economy continues to shift east, undeniable trends of population, market growth and broader commerce – “evidence, not ideology” – suggest the EU’s growth share will be even smaller during the 2030s.

The CBI itself warned in 2015 of the dangers of leaving the EU but staying in the customs union. Doing so, it said, would reduce Britain to the role of “silent partner”, with no power in the EU, but unable to strike new trade deals. This latest attempt by big corporate interests to protect their patches, whatever the cost to the UK economy as a whole, should be firmly rebuffed.

In a recent YouGov poll a majority of SMEs said the UK should leave both the single market and the customs union
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The CBI was on the wrong side of the debate about nationalisation, 1980s supply-side reforms and the ERM. It woefully misjudged the single currency and it still doesn’t understand why UK voters opted to leave the EU. Now, having consistently punted self-serving erroneous forecasts, and at the behest of the large corporate incumbents that run it, the ‘Voice of Business’ is trying to reverse Brexit.

The reality is that business as a whole, far from fighting pitched political battles at Westminster, is preparing for Brexit. And most firms, despite the endless drumbeat of negativity from the business press, maintain that our prospects are better outside the EU.

In a recent YouGov poll, conducted in November and December, a majority of SMEs said the UK should leave both the single market and the customs union. Less than half of the companies surveyed wanted either the ‘Norwegian’ or ‘Swiss’ option, both of which involve accepting EU regulations and the jurisdiction of a European court. The same pattern has been seen in earlier polls but such findings don’t capture the headlines like a CBI tour of the television studios. What the ‘evidence’ shows, then – that word again – is that entrepreneurs and SME owners want out of the EU root and branch, in stark contrast to the hired, corporate politicians sitting at the top of large, listed companies.

Across the UK, growth and prosperity is driven by SMEs. This is where we see genuine invention and innovation, as entrepreneurs start businesses and explore ideas, creating genuinely new wealth and employment. It’s when SMEs are sold, and the talented, highly-motivated risk-takers move on, that large firms are formed. That’s when creativity and vision so often goes out of the window, and ‘doing business’ becomes all about lobbying officialdom for favourable treatment and continued advantage, stifling progress by keeping the competition at bay. And if you can do that in Brussels, behind closed doors, then better still.

Follow Liam on Twitter @liamhalligan

‘Clean Brexit: How to make a success of leaving the European Union’, by Liam Halligan and Gerard Lyons, is published by Biteback.

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